<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 18, 2000
REGISTRATION NO. 333-95621
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------------
AMENDMENT NO. 2
TO
FORM F-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------------
360NETWORKS INC.
(FORMERLY KNOWN AS WORLDWIDE FIBER INC.)
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
NOVA SCOTIA, CANADA 4813 NOT APPLICABLE
(State or other jurisdiction (Primary Standard (I.R.S. Employer
of Industrial Identification Number)
incorporation or organization) Classification Code Number)
</TABLE>
1500-1066 WEST HASTINGS STREET
VANCOUVER, BRITISH COLUMBIA
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
111 EIGHTH AVENUE, 13TH FLOOR
NEW YORK, NEW YORK 10011
(212) 590-9200
(Name, address, including ZIP Code and telephone number, including
area code, of agent for service)
------------------------------
COPIES TO:
<TABLE>
<S> <C>
ROGER ANDRUS, ESQ. STEVEN DELLA ROCCA, ESQ.
CAHILL GORDON & REINDEL LATHAM & WATKINS
80 PINE STREET 885 THIRD AVENUE, SUITE 1000
NEW YORK, NEW YORK 10005 NEW YORK, NEW YORK 10022
U.S.A. U.S.A.
(212) 701-3000 (212) 906-1200
CAMERON G. BELSHER, ESQ. J. MARK DESLAURIERS, ESQ.
FARRIS, VAUGHAN, WILLS & MURPHY OSLER, HOSKIN & HARCOURT LLP
2600-700 WEST GEORGIA STREET 1 FIRST CANADIAN PLACE
VANCOUVER, BRITISH COLUMBIA TORONTO, ONTARIO
CANADA V7Y 1B3 CANADA M5X 1B8
(604) 684-9151 (416) 362-2111
</TABLE>
------------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after this registration statement becomes effective.
------------------------------
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act,
check the following box. / /
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. / /
If this form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration 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. / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
------------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
PROPOSED
MAXIMUM AMOUNT OF
TITLE OF EACH CLASS OF AGGREGATE REGISTRATION
SECURITIES TO BE REGISTERED OFFERING PRICE(1) FEE(2)(3)
<S> <C> <C>
Subordinate Voting Shares................................... $745,027,500 $196,687
</TABLE>
(1) Estimated solely for the purpose of computing the registration fee in
accordance with Rule 457(o) under the Securities Act of 1933, as amended
(the "Securities Act").
(2) Calculated pursuant to Rule 457(o) under the Securities Act.
(3) $251,381 of which was previously paid.
------------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a)OF
THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(a), MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
SUBJECT TO COMPLETION. DATED APRIL 18, 2000.
46,275,000
[LOGO]
Subordinate Voting Shares
------------------------
This is an initial public offering of Subordinate Voting Shares of
360NETWORKS INC.
We are offering 44,625,000 of our Subordinate Voting Shares to be sold in
the offering. The selling shareholder identified in this prospectus is offering
up to an additional 1,650,000 Subordinate Voting Shares. We will not receive any
of the proceeds from the sale of the shares being sold by the selling
shareholder.
Prior to this offering, there has been no public market for the Subordinate
Voting Shares. We currently anticipate that the initial public offering price
will be between $12.00 and $14.00 per share. Our Subordinate Voting Shares have
been approved for listing on the Nasdaq National Market, subject to official
notice of issuance, under the symbol "TSIX". The Toronto Stock Exchange has
conditionally approved the listing of the Subordinate Voting Shares under the
symbol "TSX".
SEE "RISK FACTORS" ON PAGE 11 TO READ ABOUT FACTORS YOU SHOULD CONSIDER
BEFORE BUYING OUR SUBORDINATE VOTING SHARES.
------------------------
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY OTHER REGULATORY BODY
HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
------------------------
<TABLE>
<CAPTION>
Per Share Total
---------- --------
<S> <C> <C>
Initial public offering price............................... $ $
Underwriting discount....................................... $ $
Proceeds, before expenses, to 360NETWORKS INC............... $ $
Proceeds, before expenses, to selling shareholder........... $ $
</TABLE>
To the extent that the underwriters sell more than 46,275,000 Subordinate
Voting Shares, the underwriters have the option to purchase up to an additional
6,941,250 Subordinate Voting Shares from us, solely to cover over-allotments, at
the initial public offering price less the underwriting discount.
------------------------
The underwriters expect to deliver the Subordinate Voting Shares against
payment in New York, New York on , 2000.
JOINT BOOK-RUNNING MANAGERS
GOLDMAN, SACHS & CO. DONALDSON, LUFKIN & JENRETTE
----------------
CREDIT SUISSE FIRST BOSTON TD SECURITIES
BEAR, STEARNS & CO. INC.
BMO NESBITT BURNS
MORGAN STANLEY DEAN WITTER
CHASE H&Q RBC DOMINION SECURITIES CORPORATION WARBURG DILLON READ LLC
---------------------
Prospectus dated , 2000.
<PAGE>
PROSPECTUS SUMMARY
THIS SUMMARY HIGHLIGHTS INFORMATION CONTAINED ELSEWHERE IN THIS PROSPECTUS.
YOU SHOULD READ THE ENTIRE PROSPECTUS CAREFULLY. WORLDWIDE FIBER INC. RECENTLY
HAS BEEN RENAMED 360NETWORKS INC. TO REFLECT OUR GLOBAL FOCUS AND EVOLUTION FROM
CONSTRUCTING NETWORKS TO OFFERING A RANGE OF NETWORK AND VALUE-ADDED SERVICES.
REFERENCES IN THIS PROSPECTUS TO "360NETWORKS," "WE," "OUR" AND "US" REFER TO
360NETWORKS INC. (AND ITS PREDECESSOR) AND ALL OF ITS SUBSIDIARIES AS A COMBINED
ENTITY, EXCEPT WHERE IT IS CLEAR THAT THOSE TERMS MEAN ONLY THE PARENT COMPANY.
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.
THE COMPANY
We are a leading independent, facilities-based provider of fiber optic
communications network products and services. By the end of 2001, we expect our
network to consist of approximately 56,300 route miles:
- 24,100 route miles in North America (of which more than 12,200 route miles
have been developed to date);
- 10,600 route miles in Europe (of which more than 4,900 route miles have
been developed to date);
- a 7,600 route mile fully protected undersea cable between North America
and Europe; and
- a 14,000 route mile fully protected undersea cable between South America
and North America.
We intend to expand our network to provide connectivity on a global basis.
Our network's design uses state-of-the-art optical technologies that we believe
greatly reduce complexity and cost while allowing us to offer increased
reliability and a wide range of products and services. We recently agreed,
subject to execution of definitive agreements, to acquire colocation facilities
or site rights in ten cities in North America comprising approximately
2.9 million square feet.
We offer network services to meet our customers' demands and enable Internet
services and intend to develop products and services that capitalize on the
convergence of telecommunications and high-bandwidth applications and services.
We believe that there is growing demand for fiber optic capacity and related
network elements to transmit and service high-bandwidth data, voice and video.
This growing demand is being accelerated by new applications and services and by
improvements in "last mile" technology such as digital subscriber line and cable
modems. In this changing market environment, we believe that we are in a
favorable competitive position to satisfy this demand relative to other service
providers due to our low-cost, seamless technologies and consistent network
architecture. We have achieved a low-cost position by:
- leveraging our construction skills;
- co-developing and swapping along some corridors of our network;
- using equity as payment for important elements such as bulk rights-of-way;
and
- using optical design and technologies that eliminate layers of equipment
traditionally required to support legacy systems.
Our current and targeted customers include new and incumbent
telecommunications service providers, Internet service providers, application
service providers, storage service providers and large organizations with
enterprise network needs. We believe that these customers have a limited choice
of independent service providers capable of offering high-capacity, reliable,
secure and cost-effective services, including enabling Internet services,
between major population centers in North America, Europe and South America. As
a result, we believe that our targeted customers will
1
<PAGE>
buy services from us rather than purchase them from another source or build
these service capabilities themselves. To meet our customers' requirements, we
offer a wide range of services on a scalable basis, including:
- network services--optical channels, private line transmission,
packet-based data services such as Internet protocol transport and
Asynchronous Transfer Mode, and virtual voice trunking; and
- network infrastructure--dark fiber and conduit for sale, grant of
indefeasible right of use or lease and construction services supporting
the development of our network.
Through the colocation facilities that we have agreed to acquire and
additional colocation facilities that we intend to acquire, we intend to provide
additional network services such as Internet data centers, applications hosting,
electronic commerce support and web hosting. We also intend to expand our
business to include additional network services such as video transport,
independent Internet access for transport and peering and management services to
allow carriers to migrate from circuit-switched technologies to packet-based
technologies.
We expect to enable our customers to establish and maintain a strong
competitive position in providing services to their end users. We believe that
our independence, product design, seamless technology, consistent network
architecture, simple billing systems and end-to-end international connectivity
will enable us to gain a strong market position.
BUSINESS STRATEGY
To exploit the growing demand for bandwidth and enhanced network services,
our strategy is to:
- provide high-bandwidth connectivity between, and colocation facilities in,
major global population centers;
- develop and operate a technologically advanced, high-capacity, low-cost
network;
- extend the reach of our network through development, swaps and
acquisitions of fiber and capacity;
- expand our marketing capabilities;
- increase, in collaboration with our customers, the number of products and
services that we offer, including managed bandwidth and Internet enabling
products and services;
- capitalize on management experience and relationships; and
- pursue additional strategic alliances in network services and technology.
THE NETWORK
Our 56,300 route mile network is scheduled to be completed by the end of
2001. We plan to further develop and expand our network footprint in response to
customer demand. Our network consists of fiber optic assets and capacity that we
have installed or acquired from other developers and carriers through swaps,
purchases, leases, indefeasible rights of use or other contractual rights along
diverse rights-of-way.
- NORTH AMERICA. In North America, our network is expected to cover
approximately 24,100 route miles, of which more than 12,200 route miles
have been developed to date, encompassing both long-haul and intra-city
route miles and providing connectivity among approximately 50 major
population centers.
- EUROPE. In Europe, our network is expected to cover approximately 10,600
long-haul route miles (assuming, with respect to 1,300 route miles, the
exercise of an option that we have), of which more than 4,900 route miles
have been developed to date, providing connectivity among approximately 35
major population centers.
2
<PAGE>
- 360ATLANTIC UNDERSEA CABLE. Our 7,600 route mile undersea cable between
North America and Europe will have the capacity to be a 1.92 terabits per
second self-healing ring that will connect landing sites in Boston,
Halifax, Dublin and Liverpool and to major gateway cities in Europe and
North America, including London and New York.
- 360AMERICAS UNDERSEA CABLE. Our planned 14,000 route mile undersea cable
between South America and North America will have the capacity to be a
1.28 terabits per second self-healing ring that will be able to offer
city-to-city connectivity between six major population centers in Brazil,
Venezuela, Bermuda and the United States.
- FUTURE EXPANSION. We intend to expand our planned network to more
population centers through the addition of intercity and city ring
capacity in North America, Europe and South America. We are also reviewing
opportunities to expand the geographic reach of our network, including
transpacific connectivity to Asia. In addition, we intend to extend our
network to Buenos Aires through undersea and/or terrestrial routes.
RECENT NETWORK EXPANSION
EUROPE
- KPNQWEST. We recently signed an agreement with KPNQwest to acquire
indefeasible rights of use of fiber on its Southern European network,
which is expected to be complete in the fourth quarter of 2001.
- TELIA. 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.
- TELEWEST. We have executed an agreement to 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. We have an agreement with Carrier1 that provides us with
wholesale capacity from London to 18 major European population centers. We
also have options from Carrier1 to acquire dark fiber strands in Germany
and/or wavelengths in France.
SOUTH AMERICA
- GLOBENET. In March 2000, we announced a definitive agreement to acquire
GlobeNet Communications Group Limited, a Bermuda company, for Subordinate
Voting Shares. GlobeNet is developing the 14,000 route mile undersea cable
Atlantica-1, which we now call 360AMERICAS, between South America and
North America.
COLOCATION FACILITIES
We have agreed, subject to execution of definitive agreements, to acquire
colocation facilities or site rights in ten North American cities. The
initial purchase price for these acquisitions is $176.5 million, of which
$26.3 million is payable in our Subordinate Voting Shares valued at the
inital public offering price.
RECENT SIGNIFICANT BANDWIDTH TRANSACTIONS
- KPNQWEST. We recently signed an agreement with KPNQwest to sell capacity
on 360ATLANTIC between New York City and London, which we will begin to
deliver in March 2001.
- SHAW COMMUNICATIONS. We recently signed a contract with Shaw
Communications Inc., under which Shaw will lease bandwidth on designated
segments of our network between Edmonton and Toronto and either purchase
dark fiber or acquire indefeasible rights of use on other network segments
for $153 million.
3
<PAGE>
- PSINET. We recently signed contracts with affiliates of PSINet to deliver
high-speed bandwidth services on 360ATLANTIC from New York to London and
to provide multiple dark fiber strands in eastern Canada and the northeast
corridor of the United States. In addition, we have granted to affiliates
of PSINet an indefeasible right of use for bandwidth capacity between
Vancouver and Chicago.
- GT GROUP. We recently signed an agreement with GT Group Telecom Services
Corp. under which GT Group will lease bandwidth on designated segments of
our North American network and either purchase dark fiber or acquire
indefeasible rights of use on other network segments for approximately
$30 million.
MANAGEMENT, BOARD OF DIRECTORS AND STRATEGIC ADVISORY COMMITTEE
- 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, where he was responsible for Microsoft's worldwide financial,
corporate development and strategic investment initiatives.
- APPOINTMENT OF ADDITIONAL DIRECTORS. The following persons have agreed to
join our board of directors upon completion of this offering:
- Kevin Compton, a general partner of Kleiner Perkins Caufield & Byers;
- John Malone, Chairman of Liberty Media Corporation; and
- John Stanton, Chairman and Chief Executive Officer of Western Wireless
Corp. and VoiceStream Wireless Corp.
- FORMATION OF STRATEGIC ADVISORY COMMITTEE. We recently formed a Strategic
Advisory Committee to advise us on network technology directions, help us
develop products and services to meet the requirements of our customers
and capitalize on the convergence of telecommunications and high-bandwidth
applications and services. The following persons have agreed to serve on
that committee:
- Michael Dell, Chairman and Chief Executive Officer of Dell Computer
Corporation;
- Terence Matthews, Chairman and Chief Executive Officer of Newbridge
Networks Corporation;
- Rupert Murdoch, the Chairman and Chief Executive Officer of News
Corporation;
- Dr. Nathan Myhrvold, Chief Technology Officer of Microsoft Corporation;
- Anthony Naughtin, President and Chief Executive Officer of InterNAP
Network Services Corporation; and
- Denis O'Brien, Jr., Chairman of Esat Telecom Group, plc.
STRATEGIC INVESTMENTS
We will continue to pursue future investments, acquisitions or strategic
alliances in businesses or assets that are related or complementary to our
existing business. We have agreed to make a minority equity investment in
TeraBeam Corporation, an emerging broadband services provider.
STRATEGIC INVESTORS
A number of private and strategic investors have purchased or agreed to
purchase our equity in private transactions from Ledcor and us. Approximately
$473 million of these purchases is subject to consummation of this offering.
These investors include, most recently, affiliates of:
- Comcast Corporation;
- MSD Capital L.P., the private investment fund for Michael Dell;
4
<PAGE>
- Liberty Media Corporation;
- News Corporation; and
- Shaw Communications Inc.,
each of which has agreed to purchase approximately $80.0 million of our shares.
Other purchasers include affiliates of Oak Investment Partners, Denis
O'Brien, Jr., Kleiner Perkins Caufield & Byers, Dr. Nathan Myhrvold, GT Group
Telecom, Inc., InterNAP Network Services Corporation, divine
interVentures, inc., RLM Holdings LLC and PSINet Inc. See "Relationships and
Related Party Transactions--Irrevocable Rights to Buy."
In addition, certain shareholders of GlobeNet, including Boston Ventures
Limited Partnership V, Kelso Investment Associates VI and Providence Equity
Partners III, are expected to purchase, in the aggregate, approximately
$56.8 million of our shares.
A prior private investment, aggregating $345 million, was made in September
1999 through the sale of newly issued equity to affiliates of:
- Donaldson, Lufkin & Jenrette Securities Corporation;
- Goldman, Sachs & Co.;
- Providence Equity Partners Inc.; and
- Tyco International Ltd.
Ledcor is in discussions to, and may agree to, sell Subordinate Voting
Shares to a limited number of additional private and strategic investors in
transactions which are expected to close shortly after the closing of this
offering. Those investors include certain financial institutions and strategic
investors that may buy notes in our concurrent debt offerings. If all of these
transactions are completed, Ledcor will sell approximately 23 million
Subordinate Voting Shares for total consideration of approximately
$250 million.
We have entered into a letter of intent, in connection with a colocation and
bandwidth cooperation arrangement, to exchange $100 million of our Subordinate
Voting Shares at the initial public offering price for $100 million of common
shares of a third party. This matter is subject to finalization and execution of
definitive documentation.
Since September 1999, Ledcor has sold or has agreed to sell to our strategic
and private investors an aggregate of approximately 58.3 million Subordinate
Voting Shares for cash consideration of approximately $608.5 million. The
average price per share paid or agreed to be paid by these strategic and private
investors is less than the initial public offering price. Each of these
strategic investors has agreed not to dispose of or hedge any of their shares
acquired in these private transactions during the period from the date of this
prospectus continuing through 12 months after the date of this prospectus,
except with the prior written consent of Goldman, Sachs & Co., Donaldson,
Lufkin & Jenrette Securities Corporation and 360NETWORKS INC. See "Description
of Capital Stock and Share Capital Reorganization" and "Shares Eligible for
Future Sale."
PRINCIPAL EXECUTIVE OFFICES
Our principal executive offices are located at 1500-1066 West Hastings
Street, Vancouver, British Columbia, Canada V6E 3X1, and our electronic mail
address is [email protected]. Our main phone number is (604) 681-1994.
5
<PAGE>
THE OFFERING
<TABLE>
<S> <C>
Subordinate Voting Shares offered (a):
By us...................................... 44,625,000
By the selling shareholder................. 1,650,000
Shares to be outstanding following the
offering (a):
Subordinate Voting Shares.................. 729,416,907
Multiple Voting Shares..................... 81,840,000
Total...................................... 811,256,907
Concurrent debt offerings.................... Concurrently with this offering, we are
offering in transactions under Rule 144A and
Regulation S of the Securities Act by a
separate offering memorandum notes for
aggregate proceeds of $700 million, such
notes to be denominated in both dollars and
euros.
The closing of this offering is not
conditioned on the closing of either of the
debt offerings, and the closing of each debt
offering is not conditioned on the closing of
the other debt offering or this offering. We
may withdraw or postpone the debt offerings
and still consummate this offering.
Use of proceeds.............................. We intend to use the net proceeds of this
offering:
- to further develop and light our network;
- to develop new facilities to enable us to
provide value added network services;
- for investments, acquisitions or strategic
alliances; and
- to fund operating losses, for working
capital and for general corporate purposes.
Proposed listing symbols:
Nasdaq National Market..................... TSIX
The Toronto Stock Exchange................. TSX
</TABLE>
- ------------------------
(a) Does not include (i) 6,941,250 Subordinate Voting Shares that will be sold
by us if the underwriters' overallotment option is exercised in full and
(ii) 52,501,680 Subordinate Voting Shares reserved for issuance pursuant to
our stock option plan.
* * *
Except where otherwise indicated, this prospectus gives effect to a price of
$13 per share for our Subordinate Voting Shares and does not give effect to the
exercise of the underwriters' over-allotment option.
6
<PAGE>
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 Industries, are derived from the audited financial statements of the
predecessor division, which have been audited by Deloitte & Touche LLP,
independent auditors.
Our summary consolidated historical financial data for the period from
February 5, 1998 to December 31, 1998 and year ended December 31, 1999 are
derived from our audited consolidated financial statements, which have been
audited by PricewaterhouseCoopers LLP, independent auditors.
The unaudited pro forma financial data as at and for the year ended
December 31, 1999 are derived from our audited consolidated financial statements
for the year ended December 31, 1999 and the audited consolidated financial
statements of GlobeNet for the year ended December 31, 1999, audited by
PricewaterhouseCoopers LLP, independent auditors, included elsewhere in this
prospectus. The unaudited pro forma income statement for the year ended
December 31, 1999 gives effect to the following transactions as if they occurred
on January 1, 1999:
- our acquisition of all outstanding stock of GlobeNet;
- the interest expense on $700 million of senior notes that we currently
intend to issue in the concurrent debt offerings;
- the interest expense on $500 million of senior notes issued in July 1999;
and
- the amortization of goodwill arising from the acquisition of the minority
equity interests in certain of our subsidiaries.
The unaudited pro forma as adjusted balance sheet data at December 31, 1999
gives effect to the following transactions as if they occurred on December 31,
1999:
- the issuance of 44,625,000 Subordinate Voting Shares for net proceeds to
us of approximately $548 million;
- our acquisition of all outstanding stock of GlobeNet;
- the issuance of $700 million of senior notes that we currently intend to
issue in the concurrent debt offerings;
- the acquisition of the minority equity interests in certain of our
subsidiaries and the related issuance of Series A Non-Voting Preferred
Shares;
- the conversion or exchange of our redeemable convertible preferred shares
into Subordinate Voting Shares and our share capital reorganization;
- the completion of the $565 million 360ATLANTIC credit facility, of which
$175 million has been drawn; and
- the Canadian telecommunications arrangement.
Our consolidated financial statements, the divisional financial statements
of the predecessor division and the consolidated financial statements of
GlobeNet 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 telecommunications division of Ledcor was reorganized.
EBITDA presented in the following table consists of net income (loss) before
interest expense, net of interest income, provision for income taxes,
depreciation, stock-based compensation,
7
<PAGE>
amortization of goodwill and income attributable to minority interest. EBITDA is
presented because we believe that it is a useful indicator of our 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 acceptable 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.
For purposes of calculating the ratio of earnings to fixed charges, earnings
consists of earnings (loss) before equity income, provision for income taxes,
income attributable to minority interest, amortization of goodwill and fixed
charges. Fixed charges consists of interest expensed and capitalized, the
portion of rental expense which we believe to be representative of interest
(assumed to be one-third of rental expense) and pre-tax earnings required to
cover the accretion on the redeemable convertible preferred shares. Pro forma
loss for the year ended December 31, 1999 would have been insufficient to cover
fixed charges by approximately $140 million.
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 by
us or in respect of which we have acquired capacity pursuant to swaps, leases,
indefeasible rights of use or other contractual rights at the end of the period,
calculated without including physically overlapping segments of cable.
The following table presents summary consolidated financial data derived
from our consolidated financial statements. 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.
8
<PAGE>
SUMMARY FINANCIAL DATA
(Dollars in thousands except per share amounts)
<TABLE>
<CAPTION>
360NETWORKS INC.
------------------------------------------------
FEBRUARY 5, YEAR PRO FORMA
1998 TO ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1998 1999 1999
------------ ------------- -------------
(unaudited)
<S> <C> <C> <C>
INCOME STATEMENT DATA:
Revenue................................................ $ 164,319 $ 359,746 $ 386,094
Operating expenses:
Costs................................................ 147,621 250,612 261,601
General and administrative........................... 2,274 21,846 40,534
Stock-based compensation............................. -- 7,116 11,323
Depreciation......................................... 464 2,998 4,852
Amortization of goodwill............................. -- -- 35,536
----------- ------------ ------------
Total operating expenses............................... 150,359 282,572 353,846
----------- ------------ ------------
Operating income....................................... 13,960 77,174 32,248
Interest expense, net.................................. 225 15,786 155,220
----------- ------------ ------------
Income (loss) before income taxes, minority interest
and equity accounted for investment.................. 13,735 61,388 (122,972)
Provision for income taxes............................. 5,643 30,314 (28,849)
----------- ------------ ------------
8,092 31,074 (94,123)
Income attributable to minority interest and equity
accounted for investment............................. 928 (7,434) (773)
----------- ------------ ------------
Net income (loss)...................................... $ 9,020 $ 23,640 $ (94,896)
=========== ============ ============
Basic and fully diluted earnings (loss) per share...... $ 0.43 $ (0.03)(1) $ (0.16)
Shares used to calculate basic and fully diluted
earnings (loss) per share:........................... 20,964,178 327,313,808 617,783,263
OTHER FINANCIAL DATA (UNAUDITED):
EBITDA................................................. $ 15,352 $ 87,288
Capital expenditures................................... 1,065 300,116
Ratio of earnings to fixed charges..................... 26.8x 1.7x
STATEMENT OF CASH FLOWS DATA:
Operating activities................................... $ (13,059) $ (97,077)
Investing activities................................... 1,177 (321,283)
Financing activities................................... 168,350 785,719
OPERATING DATA:
Route miles............................................ 2,735 12,217
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1999
-------------------------
PRO FORMA AS
ACTUAL ADJUSTED
---------- ------------
(UNAUDITED)
<S> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents................................... $ 521,362 $1,750,981
Property and equipment--net................................. 77,009 119,713
Assets under construction................................... 300,403 398,465
Total assets................................................ 1,310,989 4,128,085
Total debt.................................................. 675,000 1,950,000
Redeemable convertible preferred shares..................... 349,827 --
Shareholders' equity........................................ 29,861 2,041,909
</TABLE>
- --------------------------
(1) To compute basic and fully diluted loss per share, net income of $23,640,000
is reduced by a stock dividend of $5,000,000, the accretion on the Series A
Non-Voting Preferred Shares of $6,465,000 and an amount of $22,070,000 which
represents the fair value of the Series A Non-Voting Preferred Shares issued
to the existing shareholders for no additional consideration as a result of
anti-dilution provisions in the original subscription agreement, resulting
in a net loss to holders of Subordinate Voting Shares and Multiple Voting
Shares of $9,895,000.
9
<PAGE>
<TABLE>
<CAPTION>
PREDECESSOR DIVISION
------------------------------------------------------
FIVE MONTHS
YEAR ENDED ENDED YEAR ENDED NINE MONTHS
MARCH 31, AUGUST 31, AUGUST 31, ENDED
1996 1996 1997 MAY 31, 1998
---------- ----------- ---------- --------------
<S> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Revenue................................ $ 3,824 $ 7,373 $58,008 $54,634
Operating expenses:
Costs................................ 3,440 5,739 48,474 44,919
General and administrative........... 57 91 863 710
Depreciation......................... 24 15 112 317
------- ------- ------- -------
Total operating expenses............... 3,521 5,845 49,449 45,946
------- ------- ------- -------
Operating income....................... 303 1,528 8,559 8,688
Interest expense, net.................. -- 15 600 86
Equity income.......................... -- -- -- --
------- ------- ------- -------
Earnings before income taxes........... 303 1,513 7,959 8,602
Income tax expense..................... 139 686 3,620 3,909
------- ------- ------- -------
164 827 4,339 4,693
Income attributable to minority
interest............................. -- -- -- --
------- ------- ------- -------
Net income............................. $ 164 $ 827 $ 4,339 $ 4,693
======= ======= ======= =======
OTHER FINANCIAL DATA (UNAUDITED):
EBITDA................................. $ 327 $ 1,543 $ 8,671 $ 9,005
Capital expenditures................... 72 181 1,119 6,828
Ratio of earnings to fixed charges..... 24.3x 45.5x 10.3x 17.7x
STATEMENT OF CASH FLOWS DATA:
Operating activities................... $ 666 $(3,078) $(3,921) $(2,502)
Investing activities................... (72) (181) (1,119) (6,828)
Financing activities................... (595) 3,259 5,040 9,330
OPERATING DATA:
Route miles............................ -- -- 1,090 1,430
BALANCE SHEET DATA:
Cash and cash equivalents.............. $ -- $ -- $ -- $ --
Fixed assets, net...................... -- 464 1,471 7,982
Total assets........................... -- 6,476 32,268 39,549
Total debt............................. -- 2,067 6,774 10,933
Redeemable convertible preferred
shares............................... -- -- -- --
Shareholders' equity................... -- 1,473 5,825 8,870
</TABLE>
10
<PAGE>
RISK FACTORS
You should carefully consider the risks described below before deciding
whether to invest in our Subordinate Voting Shares. The risks and uncertainties
described below are not the only ones we face. Additional risks and
uncertainties not presently known to us may also impair our business operations.
If we do not successfully address any of the risks described below, there
could be a material adverse effect on our business, financial condition or
results of operations. As a result, the trading price of our Subordinate Voting
Shares may decline and you may lose all or part of your investment. We cannot
assure you that we will successfully address these risks.
GENERAL BUSINESS
LIMITED HISTORY OF OPERATIONS--GIVEN OUR LIMITED OPERATING HISTORY, YOU SHOULD
CONSIDER OUR SHARES 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 our Subordinate Voting
Shares. 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 Industries. We believe that 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.
RISKS ASSOCIATED WITH DEVELOPMENT AND EXPANSION OF OUR NETWORK--OUR INABILITY TO
IMPLEMENT OUR BUSINESS STRATEGY AND MANAGE OUR GROWTH COULD IMPAIR OUR OPERATING
RESULTS.
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 personnel. Adverse economic or competitive conditions or the
failure to obtain the necessary authorizations or to hire and retain qualified
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 acceptable conditions:
- obtain continued access to capital markets;
- design, engineer and operate fiber networks;
- install fiber optic facilities, transmission equipment and related
infrastructure;
- acquire additional rights-of-way;
- obtain required regulatory approvals;
- swap, lease, purchase or obtain other contractual rights in additional
fiber optic facilities;
- attract and retain high-quality operating personnel and management; and
- continue to implement and improve our operational, financial and
accounting systems.
In addition, construction of future networks entails significant risks,
including:
- management's ability to effectively control and manage these projects;
- shortages of materials, equipment or skilled labor;
11
<PAGE>
- unforeseen engineering, environmental or geological problems; and
- 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 success will depend, to a significant degree, upon our ability to secure
a market for our network capacity and obtain and maintain contractual and other
relationships with telecommunications service providers, Internet service
providers, application service providers, storage service providers and large
organizations with enterprise network needs. 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.
Some 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 network services to carriers
and other service providers. We may enter into joint ventures where we or our
partners supply the venture with dark fiber and 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.
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:
- physical damage;
- power loss;
- capacity limitations;
- hardware and software defects;
- excessive sustained or peak user demand;
- breaches of security; and
- 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.
The sale or lease of network 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
12
<PAGE>
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 revenues and 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.
LIMITED EXPERIENCE--WE HAVE LITTLE EXPERIENCE IN THE OFFERING OF BANDWIDTH AND
VALUE ADDED NETWORK 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 value added network services. We have limited
experience offering these services. Presently, we derive substantially all of
our revenues from the sale, grant of an indefeasible right of use or lease of
dark fiber and conduit and construction services. See "Business--Customers" and
"--Competition."
PRICING PRESSURES--WE ANTICIPATE THAT PRICES FOR NETWORK SERVICES AND FIBER
ASSETS WILL 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:
- price competition as various network providers complete construction of
networks that will compete with our network;
- installation by us and our competitors of fiber capacity in excess of
actual demand;
- recent technological advances that enable substantial increases in the
transmission capacity of both new and existing fiber optic networks; and
- strategic alliances or similar transactions, such as long distance
capacity purchasing alliances, that increase our customers' purchasing
power.
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 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. Some 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, WFI Urbanlink Ltd. ("Urbanlink"), the Canadian
telecommunications common carrier which has granted IRUs to us of its fiber
optic transmission facilities in Canada for sale on a resale basis, is seeking
an order from the Canadian Radio-television and Telecommunications Commission to
prescribe the terms and conditions of access to street crossings and other
municipal properties in the city of Vancouver. In a related matter, the city of
Vancouver has served the company that provides conduit to Urbanlink for certain
of its facilities located in the city of Vancouver with a notice of termination
for access to street crossings and other municipal property in the city. Failure
on the part of Urbanlink to obtain the order requested in its application to the
Canadian Radio-television and Telecommunications
13
<PAGE>
Commission or a renegotiation of municipal access arrangements with the city of
Vancouver by Urbanlink's conduit provider which results in an increase to the
costs of municipal access could have a material adverse effect on the business
of Urbanlink and, as a result, on our resale business in Canada. See
"Regulation--Canada--CRTC Proceedings."
In addition, in the United States, landholders who granted rights-of-way to
some 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 Canadian National Railway Company and Illinois Central Railroad
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--Rights-of-way and Permitting."
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 ASSETS MAY NOT BE RETURNED.
We are continually evaluating potential joint ventures and strategic
opportunities to expand our network, enhance our connectivity and add traffic to
our network. 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:
- the difficulty of identifying appropriate joint venture partners or
opportunities;
- the time our senior management must spend negotiating agreements and
monitoring joint venture activities;
- the possibility that we may not be able to reach agreement on definitive
agreements, including for our proposed colocation acquisitions;
- potential regulatory issues applicable to telecommunications businesses;
- the investment of our capital or fiber assets and the loss of control over
the return of this capital or assets;
- the inability of management to capitalize on the growth opportunities
presented by joint ventures; and
- 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 network services outside of North America. In particular, we have entered
into an agreement for an undersea cable between North America and Europe called
360ATLANTIC. We have also agreed to acquire GlobeNet, which is constructing an
undersea cable between South America and North America that we call 360AMERICAS.
We also recently announced the expansion of our network into Europe. We
14
<PAGE>
are still evaluating all of the risks associated with these new projects. The
risks associated with 360ATLANTIC and 360AMERICAS include:
- activities from our competitors which could limit the market share
obtained by 360ATLANTIC and 360AMERICAS;
- pricing pressures which could reduce profitability;
- 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
- inability to obtain sufficient pre-construction sales commitments and
post-construction sales targets.
Other risks associated with our international plans, including our expansion
into Europe and South America, are:
- regulatory limitations restricting or prohibiting us from providing our
services;
- additional regulatory requirements, tariffs, customs, duties and other
trade barriers;
- difficulties in staffing and managing foreign operations;
- problems in collecting accounts receivable;
- political risks;
- fluctuations in the currency exchange and restrictions on the repatriation
of earnings;
- delays from customs brokers or government agencies;
- potentially adverse tax consequences resulting from operating in multiple
countries with different laws and regulations; and
- an economic downturn in the countries in which we expect to do business.
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.
COMPETITION--OUR BUSINESS IS VERY COMPETITIVE AND INCREASED COMPETITION COULD
ADVERSELY AFFECT US.
The telecommunications industry is extremely competitive, particularly
concerning price and service. It is relatively common for telecommunications
service providers to be both customers and competitors. This is a concept
referred to as co-opetition. Therefore, we face competition and co-opetition
from existing and planned telecommunications service providers and customers on
each of our planned routes. Our competitors include:
- interexchange carriers, including AT&T Corp., MCI WorldCom, Inc., Sprint
Corporation (MCI WorldCom, Inc. and Sprint Corporation have recently
entered into an agreement to merge), British Telecommunications plc,
Deutsche Telekom AG, France Telecom S.A. and Qwest Communications
International Inc.;
- wholesale providers of terrestrial and undersea connectivity, including
Williams Communications Group, Inc., Global Crossing Ltd., KPNQwest, N.V.,
Colt Telecom Group plc and Level 3 Communications, Inc.;
15
<PAGE>
- incumbent local exchange carriers, which currently dominate their local
telecommunications markets, including SBC Communications Inc. and
BellSouth Corporation;
- competitive local exchange carriers, including NEXTLINK Communications,
Inc. and Metromedia Fiber Network, Inc.; and
- companies capable of offering services similar to those provided by us,
including communications service providers, cable television companies,
electric utilities, microwave carriers, satellite carriers and wireless
telephone operators.
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 we do and could directly compete with us in marketing fiber
assets or network 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."
Future sources of competition for the 360AMERICAS cable include:
- Americas-2, a new carriers' consortium cable system with a scheduled ready
for service date in the first half of 2000 that will connect Brazil,
Venezuela, Florida and the Caribbean;
- South American Crossing, a new self-healing ring cable system being
developed by Global Crossing Ltd. that will link coastal countries in
South America to Global Crossing's planned Mid-Atlantic Crossing in St.
Croix, U.S.V.I. and Global Crossing's planned Pan American Crossing in Ft.
Amador, Panama; and
- the SAM-I cable system, a self-healing ring cable system being developed
by Telefonica Internacional S.A. and Tyco International Ltd. that will
connect the United States, Guatemala, Brazil, Argentina, Chile, Peru and
Colombia.
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 fiber optic cable and 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 assure 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 need to
offer network services. We believe that there are alternative suppliers or
alternative components for all of the components, including fiber optic cable
and transmission equipment contained in the network or required to offer network
services. However, any delay or extended interruption in the supply of fiber
optic cable or any other key network components, changes in the pricing
arrangements with our suppliers and manufacturers or delay in a transition to 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.
16
<PAGE>
In addition, we have contracted with Tyco Submarine Systems Ltd. as our primary
contractor for our 360ATLANTIC undersea cable project. Alcatel Submarine
Networks, Inc. is the primary contractor on the 360AMERICAS undersea cable
project. 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.
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 some 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 network services uncompetitive from a cost
perspective. We cannot predict the likelihood of these changes and we cannot
assure you that any technological changes will not materially and adversely
affect our business and operating results.
POTENTIAL CONFLICTS OF INTEREST WITH LEDCOR--WE ARE CONTROLLED BY LEDCOR AND
RELY ON IT FOR PARTICULAR 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. Ledcor also owns 66 2/3% of the
voting shares of Urbanlink, which owns certain Canadian telecommunications
facilities used by us. See "Relationships and Related Party
Transactions--Transactions with Ledcor--Description of reorganization and
related agreements." This will continue to be the case following the closing of
the offering. It is possible that Ledcor's interests could conflict with your
interests. In addition, Ledcor may have an interest in causing us or Urbanlink
to pursue transactions that, in its judgment, enhance the value of its equity
investment in us or in Urbanlink, 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.
In Canada, our network is comprised in part of indefeasible rights of use in
fiber optic transmission facilities obtained from Urbanlink, as part of our
Canadian telecommunications arrangement. Because Urbanlink is controlled by
Ledcor, Urbanlink's interests could conflict with our interests as well as your
own. In addition, because we have no control over Urbanlink's operations, there
can be no assurance that Urbanlink will continue to supply us with fiber optic
transmission facilities and services should we require these facilities and
services from Urbanlink in the future. As part of our Canadian
telecommunications arrangement, we entered into a number of contractual
arrangements with Ledcor. See "Relationships and Related Party Transactions--
Transactions with Ledcor--Description of reorganization and related agreements."
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
360NETWORKS INC. 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
360NETWORKS INC. As a
17
<PAGE>
result, if a change of control of 360NETWORKS INC. 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 "Relationships and Related Party
Transactions--Transactions with Ledcor--Description of reorganization and
related agreements."
LEVERAGE
NEGATIVE CASH FLOWS--GIVEN OUR NEGATIVE CASH FLOWS WHILE OUR NETWORK IS BEING
BUILT, YOU SHOULD CONSIDER AN INVESTMENT IN OUR SUBORDINATE VOTING SHARES TO BE
HIGHLY SPECULATIVE.
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 our existing indebtedness, capital
expenditure requirements or working capital needs.
We intend to use most of the proceeds from the sale of these Subordinate
Voting Shares to develop and construct our network and expand our network
services business. 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 network
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 OUR HIGH YIELD
NOTES.
We have substantial debt and debt service requirements.
Our substantial indebtedness could have important consequences to you. For
example, it could:
- increase our vulnerability to general adverse economic and industry
conditions;
- limit our ability to fund future capital expenditures, working capital and
other general corporate requirements;
- 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;
- make it more difficult for us to make interest and principal payments on
our other indebtedness, which would be a default under the indentures;
- limit our flexibility in planning for, or reacting to, changes in our
business and the industry in which we operate; and
- place us at a competitive disadvantage compared to our competitors that
have less debt. See "Description of 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
18
<PAGE>
following chart shows some important credit statistics as of the date or
for the periods specified below:
<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1999
-----------------------------------------
PRO FORMA
ACTUAL ADJUSTED(1) AS ADJUSTED(2)
-------- ------------ ---------------
(UNAUDITED)
(DOLLARS IN MILLIONS)
<S> <C> <C> <C>
Total indebtedness.................................. $675 $675 $1,950
Shareholders' equity................................ $ 30 $380 $2,042
Debt to equity ratio................................ 22.5x 1.8x 1.0x
</TABLE>
- ------------------------
(1) Adjusted to include our redeemable convertible preferred stock as part of
shareholders' equity.
(2) Gives pro forma effect and adjustment to:
- the issuance of 44,625,000 Subordinate Voting Shares for net proceeds to
us of approximately $548 million;
- our acquisition of all outstanding stock of GlobeNet;
- the issuance of $700 million of senior notes that we currently intend to
issue in the concurrent debt offerings;
- the acquisition of the minority equity interests in certain of our
subsidiaries and the related issuance of Series A Non-Voting Preferred
Shares;
- the conversion or exchange of our redeemable convertible preferred shares
into Subordinate Voting Shares and our share capital reorganization; and
- the completion of the $565 million 360ATLANTIC credit facility, of which
$175 million has been drawn.
The initial annual interest expense on the $700 million of senior notes to
be issued in concurrent debt offerings is $98 million and on the $500 million
12% senior notes issued in July 1999 is $62 million.
Pro forma loss for the year ended December 31, 1999 would have been
insufficient to cover fixed charges by approximately $140 million.
ADDITIONAL BORROWINGS REQUIRED--DESPITE OUR CURRENT DEBT LEVEL, WE AND OUR
SUBSIDIARIES MAY 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 development of our planned network
and fulfill our long-term business strategies. The terms of our indentures
generally permit us and our restricted subsidiaries to incur additional debt to
finance the cost of designing and building or acquiring our network. The
indentures also allow us to incur additional indebtedness for other purposes,
subject to some limitations. In addition, the indentures permit us to create
"unrestricted subsidiaries" that will be allowed to incur debt without regard to
the limitations on debt incurrence contained in the indentures. Our ability to
arrange financing and the cost of financing depend upon many factors, including:
- general economic and capital markets conditions, and in particular the
non-investment grade debt market;
19
<PAGE>
- conditions in the telecommunications industry;
- regulatory developments;
- investor confidence and credit availability from banks or other lenders;
- the success of our network; and
- 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 currently intend to issue $700 million of debt in the concurrent debt
offerings. The closing of this offering is not conditioned on the closing of
either of the debt offerings. If we do not issue that debt because of market
conditions or because terms acceptable to us are not available, we will need to
raise additional capital to complete our network and other items described under
"Use of Proceeds." We may not be able to raise this capital or raise this
capital on terms acceptable to us.
A portion of our investment in 360ATLANTIC was funded from our recently
completed private sale of our equity securities. The indebtedness to finance
that project has been or will be incurred by our subsidiary without recourse to
360NETWORKS INC. We estimate that approximately $565 million of indebtedness
will be required for the 360ATLANTIC project. 360ATLANTIC will be owned by one
or more subsidiaries created for the purpose of owning the project. They will
not hold any assets unrelated to 360ATLANTIC and these subsidiaries will not be
restricted subsidiaries under the indentures. If we were to incur additional
debt at the 360NETWORKS INC. level in order to contribute to the financing of
360ATLANTIC, 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 our 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:
- our ability to complete network development on time and in a
cost-effective manner;
- the economic and competitive conditions in the telecommunications
industry, including the demand for fiber-optic systems;
- any construction or operating difficulties, increased operating costs or
pricing pressures we may experience;
- the passage of legislation or other regulatory developments that may
adversely affect us; and
- 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
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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 OUR INDEBTEDNESS.
Our operating cash flow and our ability to service our indebtedness,
including our notes, depends upon the operating cash flow of our subsidiaries
and their payments to us in the form of loans, dividends or otherwise. Our
subsidiaries are separate legal entities and have no obligation to pay any
amounts due on the notes or to make any funds available for that purpose,
whether by dividends, interest, loans, advances or other payments. In addition,
our subsidiaries' payment of dividends and the making of loans, advances and
other payments to us may be subject to regulatory and contractual restrictions.
These restrictions include requirements to maintain minimum levels of working
capital and other assets. Subsidiary payments are contingent upon earnings and
various business and other considerations. As part of the Canadian
telecommunications arrangement we placed certain operating assets in Urbanlink,
which subsidiary we do not and cannot control.
RESTRICTIONS IMPOSED BY TERMS OF OUR INDEBTEDNESS--WE MAY BE UNABLE TO REPAY OUR
INDEBTEDNESS IF THERE IS AN EVENT OF DEFAULT.
If an event of default occurs under any of our credit facilities or
indentures, 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. Our indentures limit, among other things, our ability to incur
additional indebtedness, pay dividends and make certain other restricted
payments, incur liens, enter into some transactions with affiliates and
consummate asset sales and impose restrictions on our ability to merge or
consolidate 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 indentures. 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 of our future
accounts receivable and inventory 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.
USE OF PROCEEDS--OUR MANAGEMENT HAS BROAD DISCRETION OVER THE USE OF PROCEEDS
FROM THE OFFERING, AND THEREFORE INVESTORS WILL NOT HAVE THE OPPORTUNITY TO
EVALUATE INFORMATION CONCERNING THE APPLICATION OF PROCEEDS.
The net proceeds of this offering, together with the concurrent debt
offerings we currently intend to consummate, are estimated to be approximately
$1.2 billion after deducting the estimated underwriting discount and offering
expenses. Management will retain broad discretion as to the use and allocation
of those net proceeds. Accordingly, our investors will not have the opportunity
to evaluate the economic, financial and other relevant information that we may
consider in the application of the net proceeds.
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TELECOMMUNICATIONS REGULATION
EXTENSIVE REGULATION--REGULATORY MATTERS COULD IMPACT OUR ABILITY TO CONDUCT OUR
BUSINESS.
Existing and future governmental regulation may substantially affect the way
in which we conduct business and the procedural and substantive regulatory
requirements with which we must comply. These regulations may increase the cost
of doing business or may restrict the way in which we offer products and
services. There is no way to predict the future regulatory framework of our
business. These regulations are summarized in more detail in the section
entitled "Regulation."
UNITED STATES
Federal telecommunications law directly shapes the telecommunications
market. Consequently, regulatory requirements and/or changes could adversely
affect our operations by increasing our costs or restricting the way in which we
offer products and services. Federal telecommunications law imposes special
legal requirements on "common carriers" who engage in "interstate or foreign
communication by wire or radio," and on "telecommunications carriers." The
different ways we intend to offer fiber-optic supported services could trigger
four alternative types of regulatory requirements: (1) non-communications
services, (2) private carrier services, (3) telecommunications services or
common carriage and (4) competitive local exchange carrier offerings. The law
establishing these alternative regulatory requirements is often unclear, so it
is impossible to predict in many instances how the Federal Communications
Commission will classify our services. Risks associated with each type of
offering are described below.
NON-COMMUNICATIONS SERVICES
The provision of dark fiber can be viewed as a non-communications service in
that it is not a service, but rather the provision of a physical facility that
is indistinguishable from other non-communications offerings such as the
construction of an office building. Many providers of dark fiber are currently
operating on the assumption that they are providing unregulated facilities.
Nevertheless, the Federal Communications Commission had previously found that
when an incumbent local exchange carrier provided dark fiber it was providing a
common carrier service. A federal appeals court reversed and remanded this
decision to the agency for further proceedings. The Federal Communications
Commission's action in response to this remand could affect our position that
dark fiber is not a communications service.
PRIVATE CARRIER SERVICES
Even if some of our offerings are treated as communications services, they
could be viewed as a private carrier offering. Private carrier offerings
typically entail the offering of telecommunications, but are provided to a
limited class of users on the basis of individually negotiated terms and
conditions that do not meet the definition of a telecommunications service under
the Telecommunications Act of 1996. If our services are treated as private
carriage, they are generally unregulated by the Federal Communications
Commission, but would be subject to universal service payments based on the
gross revenues from end users. See "Regulation--United States--
Federal--Telecommunications Services--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.
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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. Some
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 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.
The continuation of tariff filing requirements for interstate domestic
services provided by non-dominant carriers is in dispute. The Federal
Communications Commission has ordered that all non-dominant 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 non-dominant carriers. On the other hand, if tariffs are no longer required,
telecommunications carriers will no longer be able to rely on the filing of
tariffs with the Federal Communications Commission as a means of providing
notice to customers of prices, terms and conditions on which they offer
interstate services, since tariff provisions limit carriers' liability for
defects in service and consequential damages from such defects. The Federal
Communications Commission 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.
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.
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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--Competitive Local Exchange Carrier
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 non-discriminatory 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
competitive local exchange carrier interstate access charges are generally
regulated as non-dominant carrier offerings and subject to minimal burdens, the
Federal Communications Commission 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
We are 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
certain customers without also lowering charges for the same service to all
similarly situated customers in the same geographic area. The Federal
Communications Commission, however, modified this constraint on incumbent local
exchange carriers who have specified levels of competition from competing local
exchange service providers and permit them to offer special rate packages to
certain customers, as it has done in a few cases, and permit other forms of rate
flexibility. The rules contemplate an increasing level of flexibility on a
city-by-city basis as competitors have facilities in place to compete for local
exchange services in those markets. Once such facilities attain 50% coverage the
rules contemplate only minimal regulation of carrier access offerings. This
added flexibility could have a material adverse effect on our ability to compete
in providing facilities or services that compete with incumbent local exchange
carriers interstate access services.
The Telecommunications Act of 1996 currently requires Regional Bell
Operating Companies to obtain Federal Communications Commission authorization
prior to providing inter-local area and transport area telecommunications. 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 telecommunications during 2000. Such
authority, if granted,
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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 Federal Communications Commission 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 Federal
Communications Commission 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 some
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)
REGULATION OF RESELLERS
We offer network services to our customers in Canada through resale
arrangements. Under these resale arrangements, we obtain the use of transmission
facilities on a contractual basis from Urbanlink and then offer bandwidth
services to our customers through the subsequent sale or lease, on a commercial
basis, of these contracted facilities. As a reseller, we are not generally
subject to the regulatory requirements of the Telecommunications Act (Canada).
However, there can be no assurance that the regulation of resellers in Canada
may not become more extensive in the future. In addition, while we believe that
our operations as a reseller in Canada fully comply with Canadian law, there can
be no assurance that a future determination of the Canadian Radio-television and
Telecommunications Commission or events beyond our control will not result in a
change in our status or affect our ability to offer services in Canada.
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RESTRICTIONS ON FOREIGN OWNERSHIP
Under the Canadian ownership provisions of the Telecommunications Act, a
"telecommunications common carrier" is not eligible to operate in Canada unless
it is owned and controlled by Canadians. Furthermore, no more than 20% of the
members of the board of directors of a telecommunications common carrier may be
non-Canadians, and no more than 20% of the voting shares of a telecommunications
common 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 of a
telecommunications common carrier may be beneficially owned or controlled by
non-Canadians and neither the telecommunications common carrier nor its parent
may be otherwise controlled in fact by non-Canadians.
Although we believe that our activities in Canada, including the Canadian
telecommunications arrangement, comply with the foreign ownership provisions of
the Telecommunications Act, there can be no assurance that a future Canadian
Radio-television and Telecommunications Commission determination or events
beyond our control will not result in our being required to comply with the
ownership provisions of the Telecommunications Act.
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
right of use interest in an international submarine cable would not necessarily
fall within the definition of a telecommunications common carrier. As a result,
acquirers 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 right of use interests held in international
submarine cables, as well as the fact that indefeasible right 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 obtained by us from
Urbanlink, would be exempt from the Canadian ownership provisions contained in
the Telecommunications Act.
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 carriers' 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 to a revenue-based regime under which contribution would be
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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 the majority of our operations in Canada are subject
to any requirement to pay contributions under the current contribution regime.
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 contributions in
the future, particularly if the Canadian Radio-television and Telecommunications
Commission decides to adopt a revenue-based regime.
EUROPE
In Europe, in addition to those risk factors mentioned, there may be
additional regulatory or legal factors or changes which could adversely affect
our operations by increasing our costs or restricting the way in which we offer,
or our ability to offer, products, services or dark fiber capacity.
Major delays in the construction and establishment of submarine cables could
occur due to delays in the granting of the environmental, planning and other
permissions relating to land which are required in order to land such cables.
We may be refused other requisite rights of way, or there may be delays in
construction due to delays in the granting of such rights of way.
Contrary to what is expected to be the case, in some or all European
countries, an individual telecommunications license or other telecommunications
authorization may be required in order for us to offer or control dark fiber,
and there may consequently either be a delay in carrying out the construction of
the projected dark fiber network, or, contrary to EC directive requirements,
national authorities in particular states of the EU may refuse to grant a
license for such activities.
Concerning other planned services, including the offering of lit capacity
and other telecommunications services, individual Member States of the European
Union might refuse to grant a license, contrary to the requirement of EC
directives, or may subject the grant of a license or other authorization to
onerous conditions, including but not limited to investment requirements or
commitments, guarantees or bonds, which make the supply of the projected
services less profitable or not commercially viable.
Regulatory intervention by the EC or Member State telecommunications or
antitrust authorities could reduce the price level of local, national or
international leased circuits/capacity to a level where it is less profitable or
not commercially viable for the projected activities to be undertaken in
specific countries or in the European Union.
To the extent that we qualify in any individual Member State of the European
Union as an operator with a right to interconnect pursuant to the
EC Interconnection directive, we may be required to negotiate interconnection
with other operators with a right to interconnect in that Member State or
throughout the European Union.
If we are required to obtain a license or authorization in any Member State
of the European Union then we may be obliged to pay license or authorization
fees which are high, or higher than anticipated, or we may be subject to
statistical reporting requirements or other regulatory burdens pursuant to such
licenses or authorizations.
OTHER REGULATION
We have, or upon consummation of our acquisition of GlobeNet will have,
operations based in Canada and the United States, Brazil, Venezuela and Bermuda
and anticipate operations in Europe
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and other foreign jurisdictions. We are exposed to risks inherent in
international operations, including the following:
- general economic, social and political conditions;
- the difficulty of enforcing agreements and collecting receivables through
some foreign legal systems;
- tax rates in some foreign countries may exceed those in Canada and foreign
earnings may be subject to withholding requirements or the imposition of
tariffs, exchange controls or other restrictions;
- required compliance with a variety of foreign laws and regulations; and
- changes in Canadian laws and regulations relating to foreign trade and
investment.
CAPITAL MARKETS
CURRENCY EXCHANGE RATE FLUCTUATIONS COULD ADVERSELY AFFECT OUR FINANCIAL RESULTS
Fluctuations in foreign currency exchange rates may affect our results of
operations and the value of our foreign assets, which in turn may adversely
affect reported earnings and the comparability of period-to-period results of
operations. Changes in currency exchange rates may affect the relative prices at
which we and foreign competitors sell products in the same market. In addition,
changes in the value of the relevant currencies may affect the cost of items
required in our operations.
OUR SUBORDINATE VOTING SHARES HAVE NEVER BEEN PUBLICLY TRADED AND THEIR PRICE
MAY BE VOLATILE
Prior to the equity offering, you could not buy or sell our Subordinate
Voting Shares publicly. For a discussion of the factors the underwriters will
consider in determining the initial public offering price, see the section of
this prospectus entitled "Underwriting." Although applications have been made to
list our Subordinate Voting Shares on the Nasdaq National Market and The Toronto
Stock Exchange, an active public market for our shares might not develop or be
sustained after the equity offering. Moreover, even if such a market does
develop, the market price of our shares may decline below the initial public
offering price. The market price of our shares could be subject to significant
fluctuations due to a variety of factors, including actual or anticipated
fluctuations in our operating results and financial performance, announcements
of technological innovations by our existing or future competitors or changes in
financial estimates by securities analysts.
Historically, the market price for securities of emerging companies in the
communications industry have been highly volatile. In addition, the stock market
has experienced volatility that has affected the market prices of equity
securities of many companies and that often has been unrelated to the operating
performance of such companies. These broad market fluctuations may adversely
affect the market price of our shares. Furthermore, following periods of
volatility in the market price of a company's securities, stockholders of such a
company have often instituted securities class action litigation against the
company. Any such litigation against us could result in substantial costs and a
diversion of management's attention and resources, which could adversely affect
the conduct of our business.
FUTURE SALES OF STOCK MAY ADVERSELY AFFECT OUR SHARE PRICE
The market price of our Subordinate Voting Shares could drop in response to
possible sales of a large number of shares in the market after the equity
offering or to the perception that such sales could occur. As a result, we may
be unable to raise additional capital through the sale of equity at prices
acceptable to us. Following the equity offering, we will have approximately
729,000,000 Subordinate Voting Shares outstanding, or approximately 736,000,000
shares outstanding if the
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underwriters exercise their over-allotment option in full. Of these shares,
persons other than our "affiliates" (as this term is defined under the
Securities Act and which includes Ledcor Inc.) may freely transfer the shares
sold in the equity offering without restriction or further registration under
the Securities Act. We, Ledcor Inc., our executive officers, directors and
substantially all of our shareholders have agreed not to offer, sell, contract
to sell, pledge or grant any option to purchase or otherwise dispose of their
shares for the periods set forth herein under "Shares Eligible for Future Sale"
without the prior written consent of Goldman, Sachs & Co., Donaldson, Lufkin &
Jenrette Securities Corporation and us, subject to limited exceptions. Sales of
Subordinate Voting Shares at the termination of this period, or the anticipation
of such sales could adversely affect the market price for the Subordinate Voting
Shares. See the section of this prospectus entitled "Shares Eligible for Future
Sale" for more information.
We have entered into registration rights agreements with Mi-Tech
Communications, LLC, Canadian National Railway Company, the investors in our
private placement of redeemable convertible preferred shares, a consultant, our
strategic investors and certain of our executive officers which in each case
enables them to require us to register their shares and to include those shares
in registrations of shares made by us in the future. We currently have no plan
to file a registration statement for the sale of Subordinate Voting Shares held
by any of these parties. All of the investors have agreed not to dispose of or
hedge any shares for 12 months. We are contractually obligated to file one or
more registration statements in the future on demand. See the section of this
prospectus entitled "Share Capital Reorganization and Description of Capital
Stock--Registration Rights" for more information.
A THIRD PARTY MAY BE DETERRED FROM ACQUIRING US
Our restated memorandum of association includes provisions that could delay,
deter or prevent a future takeover or change in control of us. These provisions
include the disproportionate voting rights of the Multiple Voting Shares
(relative to the Subordinate Voting Shares) and the authorization of our board
to issue, without stockholder approval, one or more series of Preferred Shares.
These provisions may have the effect of discouraging a third party from making a
tender offer or otherwise attempting to obtain control of us, even though such a
change in ownership would be economically beneficial to us and our stockholders.
See the section of this prospectus entitled "Share Capital Reorganization and
Description of Capital Stock" for more information.
WE DO NOT ANTICIPATE PAYING CASH DIVIDENDS
We intend to retain future earnings, if any, to finance the operation and
expansion of our business and do not anticipate paying any cash dividends in the
foreseeable future. Our ability to pay dividends is limited by our debt
instruments. See the section of this prospectus entitled "Dividend Policy" for
more information.
INVESTORS WHO PURCHASE SUBORDINATE VOTING SHARES IN THE OFFERING WILL EXPERIENCE
IMMEDIATE AND SUBSTANTIAL DILUTION
If you purchase our Subordinate Voting Shares in the offering, you will
experience immediate and significant dilution in the tangible book value of the
shares you purchase. This means that the price you pay will be significantly
greater than the net tangible book value of the shares you acquire. This
dilution is due to the fact that the effective cash cost to our existing
shareholders of the shares they have purchased in the past is significantly less
than the price at which our shares are being offered to the public in the
offering. See "Dilution."
29
<PAGE>
USE OF PROCEEDS
The estimated net proceeds from the sale of our Subordinate Voting Shares
are expected to be $548 million, net of underwriting discounts and other costs
and expenses payable by us. We expect our aggregate net proceeds from the
concurrent debt offerings to be $682 million. The closings of the Subordinate
Voting Shares offering and the debt offerings are not contingent on each other.
We expect to use the net proceeds from the offerings and funds from
operations primarily:
- to further develop and light our network;
- to develop new facilities to enable us to provide value added network
services such as colocation facilities and other communications services
and products;
- for future investments, acquisitions or strategic alliances in businesses
or assets that are related or complementary to our existing business.
However, we cannot assure you that we will successfully complete nor are
we presently committed to make any such investments, acquisitions or
strategic alliances; and
- to fund operating losses, for working capital and for general corporate
purposes.
Following the consummation of our acquisition of GlobeNet, that company will
have an obligation to offer to purchase any and all of its $300 million
outstanding principal amount of senior notes. To the extent holders of the
senior notes accept that offer, some of the net proceeds may be used to purchase
those senior notes.
We currently intend to allocate substantial proceeds to each of the
foregoing uses. However, the precise allocation of funds among these uses will
depend on future commercial, technological, regulatory and other developments
which may affect our business, the competitive climate in which we operate and
the emergence of future opportunities. Because of the number and variability of
factors that determine our use of the net proceeds of this offering, we cannot
assure you that our application of the net proceeds will not vary substantially
from our current intentions. Pending these uses, we intend to invest the net
proceeds of this offering in short-term U.S. investment grade and government
securities.
The closing of this offering is not conditioned on the closing of either of
the debt offerings. If we do not issue that debt because of market conditions or
because terms acceptable to us are not available, we will need to raise
additional capital to complete our network and other items described in this
section. See "Risk Factors--Additional Borrowings Required."
Our 360ATLANTIC project, which has an estimated total cost of $865 million,
will be paid for with borrowings under our $565 million credit facility and
$300 million raised from private equity investors in September 1999. The
360ATLANTIC credit facility has been provided to a group of our subsidiaries and
is non-recourse to us.
We anticipate that GlobeNet's 360AMERICAS project, which has an estimated
total cost of approximately $900 million, will be paid for with borrowings under
GlobeNet's $400 million credit facility, the proceeds of GlobeNet's
$300 million issuance of senior notes in July 1999 and GlobeNet's cash on hand.
For more information about our anticipated funding sources and our uses of
these funds, see the section of this prospectus entitled "Management's
Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources."
30
<PAGE>
DIVIDEND POLICY
We have never declared or paid any cash dividends on our shares. We intend
to retain any future earnings to support operations and to finance the growth
and development of our business and do not anticipate paying cash dividends on
our shares for the foreseeable future. In addition, the instruments governing
our debt restrict the payment of cash dividends on our shares.
DESCRIPTION OF OUR CAPITAL STOCK
Concurrent with the closing of the offering, we will reorganize our share
capital so that it will consist of the following classes of shares:
- Subordinate Voting Shares;
- Multiple Voting Shares; and
- Preferred Shares, issuable in series.
We will be authorized to issue 500 billion shares of each of the foregoing
classes. On the closing of the offering, we will have 729,416,907 Subordinate
Voting Shares issued and outstanding, 81,840,000 Multiple Voting Shares issued
and outstanding and no Preferred Shares issued and outstanding.
Our Subordinate Voting Shares and Multiple Voting Shares will be identical
except that:
- each Subordinate Voting Share entitles the holder to one vote and each
Multiple Voting Share entitles the holder to ten votes; and
- each Multiple Voting Share is convertible at the option of the holder into
one Subordinate Voting Share.
We have appointed HSBC Bank USA and Montreal Trust Company of Canada as the
registrars and transfer agents for the Subordinate Voting Shares. For a
description of our share capital reorganization which will occur immediately
prior to closing and a more detailed description of the rights and attributes of
our capital stock, see "Share Capital Reorganization and Description of Capital
Stock."
31
<PAGE>
EXCHANGE RATES
Unless otherwise indicated, all references to "$" or dollars in this
prospectus refer to United States dollars and all references to "Cdn.$" refer to
Canadian dollars. As of April 14, 2000, the noon buying rate in New York City
for cable transfers in Canadian dollars was U.S.$1.00 = Cdn.$1.4764.
The following table sets forth, for each period presented, the high and low
exchange rates, the average of the exchange rates on the last day of each month
during the period indicated and the exchange rates at the end of the period
indicated for one United States dollar, expressed in Canadian dollars, based on
the noon buying rate in New York City for cable transfer payable in Canadian
dollars as certified for customs purposes by the Federal Reserve Bank of New
York.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------------
1999 1998 1997 1996 1995
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
End of Period..................................... 1.4455 1.5295 1.4293 1.3706 1.3641
Average for the period............................ 1.4945 1.4940 1.3875 1.3560 1.3770
High for the period............................... 1.5470 1.5845 1.4413 1.3865 1.4267
Low for the period................................ 1.4420 1.4037 1.3338 1.3263 1.3270
</TABLE>
DILUTION
As of December 31, 1999, our consolidated net tangible book value was
$357,489,000, or $0.53 per share. "Consolidated net tangible book value per
share" represents the total amount of our consolidated tangible assets, reduced
by the amount of total consolidated liabilities and divided by the number of
shares outstanding. Tangible assets are defined as our consolidated assets,
excluding intangible assets such as deferred financing costs. After giving
effect to the acquisition of GlobeNet, the acquisition of the minority interests
in certain of our subsidiaries, the issuance of additional shares derived from
the anti-dilution provisions afforded to certain shareholders and the equity
offering, after deducting underwriting discounts and commissions and estimated
expenses, our net consolidated tangible book value at December 31, 1999 would
have been $1,111,718,000 or $1.37 per share. This represents an immediate
increase in consolidated net tangible book value of approximately $0.84 per
share to the existing shareholders and an immediate dilution of $11.63 per share
to new investors in the equity offering.
Dilution per share represents the difference between the price per share to
be paid by new investors and the net consolidated tangible book value per share
immediately after the equity offering. The following table illustrates the per
share dilution as of December 31, 1999.
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share............ $13.00
Consolidated net tangible book value per share before the
equity offering.......................................... $ 0.53
Consolidated increase per share attributable to new
investors................................................ $ 0.84
Adjusted consolidated net tangible book value per share
after the equity offering and other material
transactions............................................. $ 1.37
------
Consolidated net tangible book value dilution per share to
new investors............................................ $11.63
======
</TABLE>
32
<PAGE>
CAPITALIZATION
The following table sets forth our consolidated cash and capitalization as
of December 31, 1999 on an actual basis, as adjusted to give effect to:
- the issuance of 44,625,000 Subordinate Voting Shares for net proceeds to
us of approximately $548 million;
- our acquisition of all outstanding stock of GlobeNet;
- the issuance of $700 million of senior notes that we currently intend to
issue in the concurrent debt offerings;
- the acquisition of the minority equity interests in certain of our
subsidiaries and the related issuance of Series A Non-Voting Preferred
Shares;
- the conversion or exchange of our redeemable convertible preferred shares
into Subordinate Voting Shares and our share capital reorganization; and
- the completion of the $565 million 360ATLANTIC credit facility, of which
$175 million has been drawn.
This table should be read in conjunction with our consolidated financial
statements, including the notes thereto, and the "Unaudited Pro Forma Condensed
Consolidated Financial Data" and notes thereto included elsewhere in this
prospectus.
<TABLE>
<CAPTION>
DECEMBER 31, 1999
------------------------
PRO FORMA
AS
ADJUSTED
ACTUAL (UNAUDITED)
---------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Cash and cash equivalents................................... $ 521,362 $1,750,981
========== ==========
Debt (including current portion):
12 1/2% senior notes due 2005............................. 175,000 175,000
12% senior notes due 2009................................. 500,000 500,000
360ATLANTIC credit facility............................... -- 175,000
GlobeNet 360AMERICAS secured credit facility.............. -- 100,000
GlobeNet 13% senior notes due 2007........................ -- 300,000
New notes................................................. -- 700,000
---------- ----------
Total debt................................................ 675,000 1,950,000
---------- ----------
Redeemable convertible preferred shares..................... $ 349,827 $ --
Shareholders' equity
Subordinate Voting Shares(1).............................. -- 2,258,939
Multiple Voting Shares.................................... -- 45,232
Class A Non-Voting Shares................................. 236,436 --
Class B Subordinate Voting Shares......................... 10,455 --
Class C Multiple Voting Shares............................ 45,232 --
Other capital accounts.................................... (221,387) (196,191)
Deficit................................................... (40,875) (66,071)
---------- ----------
29,861 2,041,909
---------- ----------
Total capitalization........................................ $1,054,688 $3,991,909
========== ==========
</TABLE>
- ------------------------
(1) Does not give effect to 52,501,680 Subordinate Voting Shares reserved for
issuance upon exercise of options under our stock option plan and the
exercise of 1,902,000 stock options and the issuance of 411,214 Subordinate
Voting Shares to a consultant after December 31, 1999.
33
<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 Industries, are derived from the audited financial statements
of the predecessor division, which have been audited by Deloitte & Touche LLP,
independent auditors.
Our selected historical financial data presented for the period from
February 5, 1998 to December 31, 1998 and year ended December 31, 1999 are
derived from our audited consolidated financial statements, which have been
audited by PricewaterhouseCoopers LLP, independent auditors.
The unaudited pro forma financial data as at and for the year ended
December 31, 1999 are derived from our audited consolidated financial statements
for the year ended December 31, 1999 and the audited consolidated financial
statements of GlobeNet for the year ended December 31, 1999, audited by
PricewaterhouseCoopers LLP, independent auditors, included elsewhere in this
prospectus. The unaudited pro forma income statement for the year ended
December 31, 1999 gives effect to the following transactions as if they occurred
on January 1, 1999:
- our acquisition of all outstanding stock of GlobeNet;
- the interest expense on $700 million of senior notes that we currently
intend to issue in the concurrent debt offerings;
- the interest expense on the $500 million of senior notes issued in July
1999; and
- the amortization of goodwill arising from the acquisition of the minority
equity interests in certain of our subsidiaries.
The unaudited pro forma as adjusted balance sheet data at December 31, 1999
gives effect to the following transactions as if they occurred on December 31,
1999:
- the issuance of 44,625,000 Subordinate Voting Shares for net proceeds to
us of approximately $548 million;
- our acquisition of all outstanding stock of GlobeNet for approximately
$642 million of our Subordinate Voting Shares;
- the issuance of $700 million of senior notes that we currently intend to
issue in the concurrent debt offerings;
- the acquisition of the minority equity interests in certain of our
subsidiaries and the related issuance of Series A Non-Voting Preferred
Shares;
- the conversion or exchange of our redeemable convertible preferred shares
into Subordinate Voting Shares and our share capital reorganization;
- the completion of the $565 million 360ATLANTIC credit facility, of which
$175 million has been drawn; and
- the Canadian telecommunications arrangement.
Our consolidated financial statements, the divisional financial statements
of the predecessor division and the consolidated financial statements of
GlobeNet 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 telecommunications division of Ledcor was reorganized.
34
<PAGE>
EBITDA presented in the following table consists of net income (loss) before
interest expense, net of interest income, provision for income taxes,
depreciation, stock-based compensation, amortization of goodwill and income
attributable to minority interest. EBITDA is presented because we believe that
it is a useful indicator of our 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 acceptable 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.
For purposes of calculating the ratio of earnings to fixed charges, earnings
consists of earnings (loss) before equity income, provision for income taxes,
income attributable to minority interest, amortization of goodwill and fixed
charges. Fixed charges consists of interest expensed and capitalized, the
portion of rental expense which we believe to be representative of interest
(assumed to be one-third of rental expense) and pre-tax earnings required to
cover the accretion on the redeemable convertible preferred shares. Pro forma
loss for the year ended December 31, 1999 would have been insufficient to cover
fixed charges by approximately $140 million.
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 by
us or in respect of which we have acquired capacity pursuant to swaps, leases,
IRUs or other contractual rights at the end of the period, calculated without
including physically overlapping segments of cable.
The following table presents selected consolidated financial data derived
from our consolidated financial statements. 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.
35
<PAGE>
SELECTED FINANCIAL DATA
(Dollars in thousands except per share amounts)
<TABLE>
<CAPTION>
360NETWORKS INC
--------------------------------------------------
FEBRUARY 5, YEAR PRO FORMA
1998 TO ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1998 1999 1999
------------ ------------- -------------
(UNAUDITED)
<S> <C> <C> <C>
INCOME STATEMENT DATA:
Revenue............................................... $ 164,319 $ 359,746 $ 386,094
Operating expenses:
Costs............................................... 147,621 250,612 261,601
General and administrative.......................... 2,274 21,846 40,534
Stock-based compensation............................ -- 7,116 11,323
Depreciation........................................ 464 2,998 4,852
Amortization of goodwill............................ -- -- 35,536
----------- ------------ ------------
Total operating expenses.............................. 150,359 282,572 353,846
----------- ------------ ------------
Operating income...................................... 13,960 77,174 32,248
Interest expense, net................................. 225 15,786 155,220
----------- ------------ ------------
Income (loss) before income taxes, minority interest
and equity accounted for investment................. 13,735 61,388 (122,972)
Provision for income taxes............................ 5,643 30,314 (28,849)
----------- ------------ ------------
8,092 31,074 (94,123)
Income attributable to minority interest and equity
accounted for investment............................ 928 (7,434) (773)
----------- ------------ ------------
Net income (loss)..................................... $ 9,020 $ 23,640 $ (94,896)
=========== ============ ============
Basic and fully diluted earnings (loss) per share..... $ 0.43 $ (0.03)(1) $ (0.16)
Shares used to calculate basic and fully diluted
earnings (loss) per share........................... 20,964,178 327,313,808 617,783,263
OTHER FINANCIAL DATA (UNAUDITED):
EBITDA................................................ $ 15,352 $ 87,288
Capital expenditures.................................. 1,065 300,116
Ratio of earnings to fixed charges.................... 26.8x 1.7x
STATEMENT OF CASH FLOWS DATA:
Operating activities.................................. $ (13,059) $ (97,077)
Investing activities.................................. 1,177 (321,283)
Financing activities.................................. 168,350 785,719
OPERATING DATA:
Route miles........................................... 2,735 12,217
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1998 DECEMBER 31, 1999
------------------ ------------------------
PRO FORMA
ACTUAL ACTUAL AS ADJUSTED
------------------ ---------- -----------
(UNAUDITED)
<S> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents................................ $156,366 $ 521,362 $1,750,981
Property and equipment--net.............................. 4,014 77,009 119,713
Assets under construction................................ 11,461 300,403 398,465
Total assets............................................. 236,260 1,310,989 4,128,085
Total debt............................................... 175,000 675,000 1,950,000
Redeemable convertible preferred shares.................. -- 349,827 --
Shareholders' equity..................................... 18,261 29,861 2,041,909
</TABLE>
- --------------------------
(1) To compute basic and fully diluted loss per share, net income of $23,640,000
is reduced by a stock dividend of $5,000,000, accretion on preferred shares
of $6,465,000 and an amount of $22,070,000 which represents the fair value
of the Series A Non-Voting Preferred Shares issued to the existing
shareholders for no consideration as a result of anti-dilution provisions in
the original subscription agreement, resulting in a net loss to holders of
Subordinate Voting Shares and Multiple Voting Shares of $9,895,000.
36
<PAGE>
<TABLE>
<CAPTION>
PREDECESSOR DIVISION
----------------------------------------------------------
YEAR ENDED FIVE MONTHS YEAR ENDED NINE MONTHS
MARCH 31, ENDED AUGUST 31, AUGUST 31, ENDED
1996 1996 1997 MAY 31, 1998
---------- ----------------- ---------- ------------
<S> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Revenue.................................. $ 3,824 $ 7,373 $58,008 $54,634
Operating expenses:
Costs.................................. 3,440 5,739 48,474 44,919
General and administrative............. 57 91 863 710
Depreciation........................... 24 15 112 317
Amortization of goodwill............... -- -- -- --
------- ------- ------- -------
Total operating expenses................. 3,521 5,845 49,449 45,946
------- ------- ------- -------
Operating income......................... 303 1,528 8,559 8,688
Interest expense, net.................... -- 15 600 86
Equity income............................ -- -- -- --
Earnings before income taxes............. 303 1,513 7,959 8,602
------- ------- ------- -------
Income tax expense....................... 139 686 3,620 3,909
------- ------- ------- -------
Income attributable to minority
interest............................... -- -- -- --
------- ------- ------- -------
Net income (loss)........................ $ 164 $ 827 $ 4,339 $ 4,693
======= ======= ======= =======
OTHER FINANCIAL DATA (UNAUDITED):
EBITDA................................... $ 327 $ 1,543 $ 8,671 $ 9,005
Capital expenditures..................... 72 181 1,119 6,828
Ratio of earnings to fixed charges....... 24.3x 45.5x 10.3x 17.7x
STATEMENT OF CASH FLOWS DATA:
Operating activities..................... $ 666 $(3,078) $(3,921) $(2,502)
Investing activities..................... (72) (181) (1,119) (6,828)
Financing activities..................... (595) 3,259 5,040 9,330
OPERATING DATA:
Route miles.............................. -- -- 1,090 1,430
BALANCE SHEET DATA:
Cash and cash equivalents................ $ -- $ -- $ -- $ --
Fixed assets, net........................ -- 464 1,471 7,982
Total assets............................. -- 6,476 32,268 39,549
Total debt............................... -- 2,067 6,774 10,933
Redeemable convertible preferred
shares................................. -- -- -- --
Shareholders' equity..................... -- 1,473 5,825 8,870
</TABLE>
37
<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, including the related notes, included elsewhere
in this prospectus.
GENERAL
We were incorporated on February 5, 1998, but did not commence operations
until May 31, 1998. As of May 31, 1998 we entered into a series of agreements,
which we refer to as the reorganization, whereby Ledcor transferred to us the
construction equipment, some fiber optic strands and some other assets of Ledcor
Industries' telecommunications division. On September 27, 1999, we acquired
additional fiber optic network assets from Ledcor. Recently, we completed the
transfer to Urbanlink of certain Canadian telecommunications facilities. We own
51% of the participating equity shares and 33 1/3% of the voting shares of
Urbanlink. Because these transactions were 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
values of the fiber assets we received and our equity investment in Urbanlink
are 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 some
builds across Canada and the northern United States. In return, Ledcor paid us
an amount equal to 115% of our costs. 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
"Relationships and Related Party Transactions--Transactions with
Ledcor--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 Industries' 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 Industries' telecommunications division prior to May 31,
1998 reflect the operations of our predecessor as a contractor and network
developer. 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 agreements has not been significant on our
consolidated financial statements.
REVENUES AND COSTS
Since December 31, 1998 our revenues have been primarily generated from the
sale, lease or grant of indefeasible right of use ("IRU") of network
infrastructure. We anticipate a significant amount of our future revenues will
be derived from providing network services, including optical channels, private
line transmission, virtual voice trunking and packet-based data services
including Internet protocol ("IP") transport and Asynchronous Transfer Mode
("ATM"). We anticipate that, as we proceed with the development of our network,
the percentage of revenues which we receive from network services will increase
as a percentage of our total revenue and that by 2001 our network services will
provide our largest percentage of revenue on a consolidated basis and be a
significant source of income.
Sales of network infrastructure include agreements in the form of
construction contracts and co-developments.
38
<PAGE>
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. We
recognize revenue for co-development agreements on a percentage of completion
basis.
Following completion of a build, our retained fiber or conduit may be sold,
granted through an IRU or leased to a third party. Lease revenues are recognized
as earned over the life of the lease.
In June 1999, the Financial Accounting Standards Board 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, title must transfer to a lessee in order for a lease transaction
to be accounted for as a sales-type lease.
All future sales and grants of IRUs of dark fiber or capacity will be
evaluated under the new interpretation. If we do not pass title on the integral
equipment pursuant to the agreements related to future transactions involving
dark fiber or capacity sales and/or IRUs, or if such transactions otherwise do
not meet the criteria in FASB statement No. 66, we will recognize the transfer
prices as revenue ratably over the terms of the applicable agreements, rather
than when the applicable segments of our network are delivered to, and accepted
by, the purchaser. Usually, the purchaser pays the entire cash price to us upon
its acceptance. Therefore, although the application of the new interpretation
may affect the times of recognition of revenue from dark fiber and capacity
sales, we expect there will be no effect on our financial position or cash flows
from this prospective change in accounting.
Cost of sales of network infrastructure, particularly dark fiber and
conduit, consist of direct costs such as the conduit, fiber optic cable,
construction of regeneration facilities, sales and commissions and labor and an
allocation of indirect costs such as rights-of-way ("ROW") environmental
restoration, equipment costs, insurance and interest charges. Costs of sales of
network services include only the direct costs of sales commissions and
points-of-presence ("POP") space. Indirect costs of network services are
included in general and administrative expenses and depreciation.
ELIMINATION OF MINORITY INTERESTS
We have recently acquired the minority interest in each of WFI-CN
Fibre Inc. ("360-CN") and Worldwide Fiber IC LLC ("IC LLC") in a cash and share
exchange transaction, as a result of which CN acquired 14,920,866 Subordinate
Voting Shares (to be reduced to 12,307,692 shares based on an assumed initial
public offering price of $13 per share). 360-CN is now a wholly owned subsidiary
of Worldwide Fiber Networks Ltd., which is a wholly owned subsidary of ours, and
IC LLC is now a wholly owned subsidiary of Worldwide Fiber IC Holdings, Inc.,
which is a wholly owned subsidiary of Worldwide Fiber Networks Ltd. Concurrent
with the closing of the offering, we will acquire the remaining 25% minority
interest in Worldwide Fiber (USA) Inc. ("360-USA") from Mi-Tech
Communications, LLC ("Mi-Tech") in exchange for 24,000,000 Subordinate Voting
Shares. Worldwide Fiber Networks Ltd. has 100% of the equity participation and
90% of the voting control of 360-USA, with the other 10% of voting control held
by another subsidiary of ours, Worldwide Fiber Finance Ltd.
39
<PAGE>
RESULTS OF OPERATIONS
360NETWORKS INC.
YEAR ENDED DECEMBER 31, 1999 AND PERIOD FROM FEBRUARY 5, 1998 TO DECEMBER 31,
1998 (OPERATIONS COMMENCED MAY 31, 1998)
REVENUE for the year ended December 31, 1999 was $359,746,000, versus
$164,319,000 for the period from May 31, 1998 (commencement of operations) to
December 31, 1998. Revenue in the current year was primarily derived from sales
of conduit and fiber optic strands along segments in the Pacific Northwest,
Northeast U.S. and eastern Canada. Revenues in the seven month period ended
December 31, 1998 were primarily derived from the Construction Services
Agreements with Ledcor.
COSTS were $250,612,000 (70% of revenue) for the year ended December 31,
1999, versus $147,621,000 (90% of revenue) for the period from May 31, 1998
(commencement of operations) to December 31, 1998.
GROSS PROFIT for the year ended December 31, 1999 was $109,134,000 (30% of
revenue), versus $16,698,000 (10% of revenue) for the period from May 31, 1998
(commencement of operations) to December 31, 1998. The improvement in gross
margin reflects our evolution from network construction to ownership and
development of network infrastructure and services.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES were $21,846,000 (6% of
revenue) for the year ended December 31, 1999, versus $2,274,000 (1% of revenue)
for the period from May 31, 1998 (commencement of operations) to December 31,
1998. In the current year we 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 marketing and sales strategy.
STOCK-BASED COMPENSATION EXPENSE for the year ended December 31, 1999 was
$7,116,000 relating to stock options granted during the year. Additionally,
$188,553,000 of deferred compensation will be amortized over the remaining
vesting term of the stock options.
INTEREST EXPENSE was $33,908,000 for the year ended December 31, 1999 and
was principally due to the issue of senior notes in December 1998 and
July 1999. Interest income totaled $18,122,000 and arose from the investment of
the proceeds of the senior notes in short-term, investment grade securities.
Interest expense and interest income for the period from May 31, 1998
(commencement of operations) to December 31, 1998 was $492,000 and $267,000,
respectively.
INCOME TAXES provided for the year ended December 31, 1999 totaled
$30,314,000, versus $5,643,000 for the period from May 31, 1998 (commencement of
operations) to December 31, 1998. These consist primarily of current taxes
arising from our U.S. and Canadian operations.
MINORITY INTEREST for the year ended December 31, 1999 totaled $7,434,000
and represents 25% of the net income of 360-USA, 360-CN and IC LLC.
TELECOMMUNICATIONS DIVISION--LEDCOR INDUSTRIES
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
development for Ledcor Industries.
CONTRACT COSTS were $45,321,566 for the nine months ended May 31, 1998.
Contract costs primarily represent the costs associated with engineering,
designing, building and managing third-
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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% 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 construction projects
for Ledcor Industries 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 Ledcor Industries. The difference between current tax expense and deferred
tax recovery is due to temporary differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases.
TELECOMMUNICATIONS DIVISION--LEDCOR INDUSTRIES
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 assets for Ledcor Industries 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 the
engineering, design and building of a construction project for Ledcor Industries
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 Ledcor Industries had entered into,
which was the building of a construction project and selling of its components
to third parties. This was a different business than the business previously
conducted by the telecommunications division in which Ledcor Industries would
construct and develop fiber optic systems on a contract basis for specific
telecommunications clients. Since this was a new business for Ledcor Industries
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 2% 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 the Ledcor Industries project 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 Ledcor Industries. 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.
LIQUIDITY AND CAPITAL RESOURCES
We have an aggressive business plan to build out our network. By the end of
2001, our planned network will consist of approximately 56,300 route miles in
North America, Europe and South America including an undersea cable between
North America and Europe and an undersea cable between South America and North
America. We intend to expand our network including network services to provide
connectivity on a global basis. We offer network services to meet our customers'
demands, enable Internet services and intend to develop products and services
that capitalize on the convergence of telecommunications and high-bandwidth
applications and services.
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Building out the network will require a significant investment in the
development of fiber and conduits held for sale, grant of IRU, or lease and the
purchase of additional network infrastructure and equipment to establish
transmission facilities.
We estimate that the total cost to develop and light our network is
approximately $4.8 billion.
- We estimate that the total cost to complete and light our network of
24,100 route miles in North America will be $1.7 billion.
- We estimate that the capital costs of completing and lighting our network
of 10,600 route miles in Europe will be $360 million.
- We estimate that the total cost of the 360ATLANTIC undersea cable project
to be approximately $865 million. The majority of these costs are subject
to fixed price contracts.
- We estimate the total cost of the 360AMERICAS undersea cable project to be
approximately $900 million. The majority of these costs are subject to
fixed price contracts.
- We estimate the total cost to acquire and develop existing and future
colocation facilities in North America and Europe to be approximately
$860 million.
In order to finance the above costs of network development:
- For North America, we have issued $675 million of senior notes and we plan
to use some of the proceeds of this offering and concurrent debt offerings
and cash from operations.
- For Europe, we plan to use some of the proceeds of this offering,
concurrent debt offerings and cash from operations.
- For our 360ATLANTIC undersea cable project, we used a significant portion
of the proceeds from our sale of our $345 million of redeemable
convertible preferred shares in September 1999 and have also entered into
a $565 million credit facility dedicated to the 360ATLANTIC undersea cable
project, of which $175 million has been drawn. The 360ATLANTIC credit
facility has been provided to a group of our subsidiaries and is
non-recourse to us.
- For our 360AMERICAS undersea cable project, we plan to issue Subordinate
Voting Shares to acquire all of the outstanding shares of GlobeNet. We
also plan to use the proceeds of GlobeNet's $300 million senior notes and
GlobeNet's $400 million credit facility, of which $100 million has been
drawn. The 360AMERICAS credit facility will be non-recourse to us. We are
required to use GlobeNet's cash to fund the completion of this project.
- For acquisition of the colocation facilities in North America that we have
agreed, subject to execution of definitive agreements, to acquire, we plan
to issue equity and use up to $150.2 million of our existing cash
balances. We expect to use some of the proceeds of this offering and the
concurrent debt offerings and cash from operations to further develop
these facilities and to acquire and develop additional colocation
facilities in North America and Europe.
Our estimated capital expenditures for our current network development plans
for the year ending December 31, 2000 are $2.8 billion, of which approximately
$1.2 billion will be used for our terrestrial network in North America and
Europe, approximately $500 million will be used for 360ATLANTIC, approximately
$730 million will be used for 360AMERICAS and approximately $400 million will be
used for the acquisition and development of colocation facilities. We anticipate
that these funding sources will provide us with sufficient capital to complete
our terrestrial and undersea networks and to implement our related network
services strategy. However, because the cost of developing our network and
implementing our network services strategy will depend on a variety of factors,
many of which are beyond our control, including changes in the competitive
environment of
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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 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 by
the end of 2001.
In addition to our planned network, we expect to pursue opportunities to
expand geographically or enhance the services that we offer our customers. We
will also seek to identify opportunities to develop new facilities which enable
us to provide value added network services such as colocation services and other
communications services and products. 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 completion of the remainder of
our planned network development, the implementation of our network services
strategy, the 360ATLANTIC and 360AMERICAS projects or for other opportunities on
a timely basis or on terms that are acceptable to us.
We currently intend to offer $700 million of senior notes in the concurrent
debt offerings. We may increase the aggregate amount of senior notes sold in
such offerings. Any such increase would increase our cash and cash equivalents
but would also increase our interest expense. The closing of this offering is
not conditioned on the closing of either of the debt offerings. If we do not
issue that debt because of market conditions or because terms acceptable to us
are not available, we will need to raise additional capital to complete our
network and other items described under "Use of Proceeds." We may not be able to
raise this capital or raise this capital on terms acceptable to us.
In addition, we have accepted an underwritten commitment from The Chase
Manhattan Bank and an affiliate of Donaldson, Lufkin & Jenrette Securities
Corporation to provide up to $1.0 billion of financing under a senior credit
facility. This commitment is subject to negotiation of definitive documentation
and other closing and lending conditions. The amounts borrowed under this
facility will be required to be used in compliance with restrictions contained
under our indentures. There can be no assurance that this credit facility will
be entered into in a timely fashion or at all.
At December 31, 1999, we had working capital of $655 million, including
$521 million in cash or cash equivalents. Cash used in operations during the
year ended December 31, 1999 totaled $97 million.
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. See "Risk Factors--Leverage."
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 the American Institute of Certified Public Accountants' Statement
of Position 98-1, ("SOP98-1"), "Accounting for the Costs of Computer Software
Developed or Obtained for Internal
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Use" effective January 1, 1999 which requires that costs incurred for the
development of internal use software be recorded as an asset and amortized over
its useful life. The effect of adopting SOP 98-1 on our operations is not
material.
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 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities." This statement
established accounting and reporting standards for derivative instruments,
including some derivative instruments embedded in other contracts and for
hedging activities. We do not expect the adoption of SFAS No. 133 to have a
material impact on our consolidated financial statements.
In June 1999, the Financial Accounting Standards Boards (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, title must transfer to a lessee in order for a lease transaction
to be accounted for as a sales-type lease. After June 30, 1999, the effective
date of FASB Interpretation No. 43, sales-type lease accounting will only be
appropriate for dark fiber and capacity leases where title under the lease is
transferred to the lessee or if the agreement was entered into after June 30,
1999. Transactions will be accounted for as operating leases where title is not
transferred to the lessee.
MARKET RISK DISCLOSURES
INTEREST RATE RISK
We have interest rate risk exposure related to our senior notes, which have
a fixed interest rate. The 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 movements through the use of interest rate swaps or other
derivative instruments. However, subsequent to the offering we may choose to
manage our risk associated with interest rate movements 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 pay interest at fixed rates.
The table below provides information about our senior notes.
<TABLE>
<CAPTION>
EXPECTED MATURITY DATE
--------------------------------------------------------------------------------------------
THERE- FAIR
2000 2001 2002 2003 2004 AFTER TOTAL VALUE
-------- -------- -------- -------- -------- -------- -------- --------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Senior Notes
Due December 15,
2005................. $ -- $ -- $ -- $ -- $ -- $ 175.0 $175.0 $182.0
Fixed Rate............. 12.5% 12.5% 12.5% 12.5% 12.5% 12.5% -- --
Due August 1, 2009..... -- -- -- -- -- $ 500.0 $500.0 $515.0
Fixed Rate............. 12.0% 12.0% 12.0% 12.0% 12.0% 12.0% -- --
----- ----- ----- ----- ----- ------- ------ ------
$ - $ -- $ -- $ -- $ -- $ 675.0 $675.0 $697.0
===== ===== ===== ===== ===== ======= ====== ======
</TABLE>
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The senior notes are comprised of $175.0 million 12.5% notes due
December 15, 2005 with interest paid semi-annually and $500.0 million 12.0%
notes due August 1, 2009 with interest paid semi-annually. These senior notes
have provisions which, in certain circumstances, permit or oblige us 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.
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BUSINESS
We are a leading independent, facilities-based provider of fiber optic
communications network products and services. By the end of 2001, we expect our
network to consist of approximately 56,300 route miles in North America, Europe
and South America, including an undersea cable between North America and Europe
and an undersea cable between South America and North America. We recently
agreed, subject to execution of definitive agreements, to aquire colocation
facilities or site rights in ten cities in North America and site rights in five
other North American cities comprising approximately 2.9 million square feet. We
intend to expand our network to provide connectivity on a global basis. Our
network's design uses state-of-the-art optical technologies that we believe
greatly reduces complexity and cost while allowing us to offer increased
reliability and a wide range of products and services. In addition, we offer
network services to meet our customers' demands and enable Internet services and
intend to develop products and services that capitalize on the convergence of
telecommunications and high-bandwidth applications and services. Our network is
scheduled to be completed by the end of 2001.
Our network consists of fiber optic assets and capacity that we have
installed or acquired from other developers and carriers through swaps,
purchases, leases, IRUs or other contractual rights along diverse ROW. In North
America, our network is expected to cover approximately 24,100 route miles, of
which more than 12,200 route miles have been developed to date, encompassing
both long-haul and intra-city route miles and providing connectivity among
approximately 50 major population centers. In Europe, our network is expected to
cover approximately 10,600 long-haul route miles (assuming, with respect to
1,300 route miles, the exercise of an option that we have), of which more than
4,900 route miles have been developed to date, providing connectivity among
approximately 35 major population centers. Our 7,600 route mile fully protected
undersea cable between North America and Europe will have the capacity to be a
1.92 terabits per second ("tbps"), self-healing ring that will connect landing
sites in Boston, Halifax, Dublin and Liverpool and to major gateway cities in
Europe and North America, including London and New York. Our planned 14,000
route mile fully protected undersea cable between South America and North
America will have the capacity to be a 1.28 terabits per second, self-healing
ring that will be able to offer city-to-city connectivity between 6 major
population centers in Brazil, Venezuela, Bermuda and the United States. We
intend to expand our planned network to more population centers through the
addition of intercity and city ring capacity in North America, Europe and South
America. We are also reviewing opportunities to expand the geographic reach of
our network, including transpacific connectivity to Asia. In addition, we intend
to extend our network to Buenos Aires through undersea and/or terrestrial
routes.
We believe that there is growing demand for fiber optic capacity and related
network elements to transmit and service high-bandwidth data, voice and video.
This growing demand is being accelerated by new applications and services and by
improvements in "last mile" technology such as digital subscriber line ("DSL")
and cable modems. In this changing market environment, we believe that we are in
a favorable competitive position to satisfy this demand relative to other
service providers due to our low-cost, seamless technology and consistent
network operating architecture. We have achieved a low-cost position by:
- leveraging our construction skills;
- co-developing and swapping along some corridors of our network;
- using equity as payment for important elements such as bulk rights-of-way;
and
- using optical design and technologies that eliminate layers of equipment
traditionally required to support legacy systems.
Our current and targeted customers include new and incumbent
telecommunications service providers ("TSPs"), Internet service providers
("ISPs"), application service providers ("ASPs"), storage service providers
("SSPs") and large organizations ("LORGs") with enterprise network
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needs. We believe that these customers have a limited choice of independent
service providers capable of offering high-capacity, reliable, secure and
cost-effective services, including enabling Internet services, between major
population centers in North America, Europe and South America. As a result, we
believe that our targeted customers will buy services from us rather than
purchase them from another source or build these service capabilities
themselves. To meet our customers' requirements, we offer a wide range of
services on a scalable basis, including:
- network services--optical channels, private line transmission,
packet-based data services such as IP transport and ATM, and virtual voice
trunking; and
- network infrastructure--dark fiber and conduit for sale, grant of IRU or
lease and construction services supporting the development of our network.
Through the colocation facilities that we have agreed to acquire and
additional colocation facilities that we intend to acquire we intend to provide
additional network services such as Internet data centers, applications hosting,
electronic commerce support and web hosting. We also intend to expand our
business to include additional network services such as video transport
services, independent Internet access for transport and peering and management
services to allow carriers to migrate from circuit-switched technologies to
packet-based technologies.
We expect to enable our customers to establish and maintain a strong
competitive position in providing services to their end users. We believe that
our independence, product design, seamless technology, consistent network
architecture, simple billing systems and end-to-end international connectivity
will enable us to gain a strong market position.
We plan to realize the value of the network through developing a broad range
of managed bandwidth and Internet enabling products and services and the sale,
grant of IRU, lease or swap of dark fiber and conduit. We are adding the
necessary transmission equipment to enable us to provide bandwidth services and
other value-added network services to carriers and other service providers along
segments of our network. We intend to enhance the connectivity of the network
and satisfy customer demand through purchases, leases and swaps of bandwidth and
through joint ventures.
MARKET OPPORTUNITY
Our network is designed to provide our customers with secure, independent
transmission facilities and sufficient capacity on a local, regional, national
or international 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:
- INNOVATIONS AND ADVANCES IN TRANSMISSION TECHNOLOGY. Technological
innovations continue to increase 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. Improvements in "last mile"
technology, such as DSL, cable modems and fixed and 3G wireless access are
contributing to the significant increase in the number of subscribers
using such applications. In addition, the anticipated proliferation of
wireless Internet and data technologies and devices such as 3G broadband
technology are also expected to contribute to increases in demand for
bandwidth.
- INCREASING DEMAND FOR HIGH-BANDWIDTH APPLICATIONS, LARGELY DRIVEN BY THE
INCREASE IN INTERNET TRAFFIC. There has been, and according to The Yankee
Group there will continue to be a significant growth in demand for
Internet, local loop data, video services and long distance. 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.
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- 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. Our
high-bandwidth platform allows both new entrants to compete in this market
and existing service providers to expand into new markets.
BUSINESS STRATEGY
We believe that demand for high-bandwidth data transmission capacity from
TSPs, ISPs, ASPs, SSPs and LORGs with enterprise network needs will increase
substantially over the next several years. The key elements of our business
strategy to exploit the growing demand for bandwidth and enhanced network
services are to:
PROVIDE HIGH-BANDWIDTH CONNECTIVITY BETWEEN, AND COLOCATION FACILITIES IN,
MAJOR GLOBAL POPULATION CENTERS. The footprint of our network is designed with
the input of our customers and, when complete, our combination of terrestrial
and undersea fiber networks will allow us to offer our customers seamless and
scalable connectivity between major population centers in North America, Europe
and South America, areas in which bandwidth demand is high and is expected to
grow rapidly. We intend to expand our planned network to more population centers
through the addition of intercity and city ring capacity in North America,
Europe and South America. We are also reviewing opportunities to expand the
geographic reach of our network to have transpacific connectivity to Asia. In
addition, we intend to extend our network to Buenos Aires through undersea
and/or terrestrial routes.
DEVELOP AND OPERATE A TECHNOLOGICALLY ADVANCED, HIGH-CAPACITY, LOW-COST
NETWORK. Our network is designed with the most advanced commercially available
technology to provide the highest levels of reliability, security and
flexibility demanded by our customers. Generally, construction to add to our
network is commenced only after we have pre-sold sufficient strands and conduit
to cover approximately 50% of our anticipated cost of that segment, thereby
reducing capital risk and creating a low-cost structure relative to our
competitors. In some segments we may seek a co-developer to fund a portion of
the project in exchange for receiving fiber or conduit assets. In appropriate
circumstances, the strategic nature of a segment may cause us to retain a higher
percentage of fiber and conduit, and associated costs, for our own account. We
believe that our network will have a low-cost basis relative to other
telecommunications carriers for the following reasons:
- Sophisticated network architecture based on DWDM optics and packet
switching reduces the complexity and the number of component systems that
were previously required to deliver voice, Internet and data services.
This simplified approach reduces our capital expenditures and operating
expenses relating to billing support, program management and systems
support.
- The installation of multiple fibers per route mile and spare conduits
reduces the per fiber mile cost to construct, operate and upgrade our
network.
- Some of our current ROW, licenses, permits and franchises are valuable
assets that would be costly and difficult for others to procure or
replicate in the future.
- Where possible, our policy is to retain fiber assets for our own use along
routes where we complete third-party construction.
Our low-cost structure should allow us to remain price competitive with
other providers of broadband communications infrastructure and Internet
connectivity services while sustaining margins and providing customers a
cost-effective alternative to constructing their own networks.
EXTEND THE REACH OF OUR NETWORK THROUGH DEVELOPMENT, SWAPS AND ACQUISITIONS
OF FIBER AND CAPACITY. We plan to continue to develop our network to extend its
connectivity to major global population centers. For example, we have recently
entered into a joint build agreement with
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Telewest in the United Kingdom. Further, we intend to continue to explore
strategic opportunities and the use of swaps of fiber and capacity to extend the
reach of our network at a low incremental cost. Our recent agreements with Telia
to expand our network footprint in Europe through a fiber swap and with GlobeNet
to expand our connectivity with South America through a cable acquisition are
examples of this strategy.
EXPAND OUR MARKETING CAPABILITIES. We are focused on providing our network
services to TSPs, ISPs, ASPs, SSPs and LORGs with enterprise network needs. In
North America, our customer relationships are cultivated and maintained by our
direct sales force and marketing staff. We intend to expand our European sales
and marketing efforts by hiring additional managers and salespeople in new
regional European sales offices by the end of the year.
INCREASE, IN COLLABORATION WITH OUR CUSTOMERS, THE NUMBER OF PRODUCTS AND
SERVICES THAT WE OFFER, INCLUDING MANAGED BANDWIDTH AND INTERNET ENABLING
PRODUCTS AND SERVICES. We offer our customers managed bandwidth and Internet
enabling products and services such as colocation facilities. We anticipate
offering services such as Internet data centers, applications hosting,
electronic commerce support and web hosting to meet our customers' evolving
needs and capitalize on the expanding demand for new telecommunications products
and services. We plan to develop an extensive range of innovative products and
services which will use our state-of-the-art IP-based network infrastructure.
CAPITALIZE ON MANAGEMENT EXPERIENCE AND RELATIONSHIPS. We have assembled
and will continue to build a strong management team and board of directors with
communications expertise and extensive experience in network design,
construction, operations and sales. Members of our board of directors and our
new Chief Executive Officer, Gregory Maffei, have extensive experience in
initiating, pursuing and implementing strategic alliances in communications and
technology industries. In addition, Michael Dell, Chairman and Chief Executive
Officer of Dell Computer Corporation, Terence Matthews, Chairman and Chief
Executive Officer of Newbridge Networks Corporation, Rupert Murdoch, Chairman
and Chief Executive Officer of News Corporation, Dr. Nathan Myhrvold, Chief
Technology Officer of Microsoft Corporation, Anthony Naughtin, President and
Chief Executive Officer of InterNAP Network Services Corporation, and Denis
O'Brien, Jr., Chairman of Esat Telecom Group, plc, each recently agreed to join
our Strategic Advisory Committee, which will advise us on network technology
directions, help us develop products and services to meet the requirements of
our customers and capitalize on the convergence of telecommunications and
high-bandwidth applications and services.
PURSUE ADDITIONAL STRATEGIC ALLIANCES IN NETWORK SERVICES AND
TECHNOLOGY. We will pursue additional strategic alliances with communications
providers that have high-bandwidth needs and are willing to offer us long-term,
high capacity commitments for traffic on our network. Such strategic alliances
could also allow us to combine our capabilities with those of our strategic
alliance partners and thereby offer our customers additional products and
services. Our investment in TeraBeam Corporation, an emerging broadband services
provider and the investment in us of divine interVentures, inc. are examples of
this strategy.
THE NETWORK
Our network will cover approximately 56,300 route miles and will encompass
long-haul and intra-city routes and an undersea cable between North America and
Europe and an undersea cable between South America and North America. Our
network consists of fiber optic assets and capacity that we have installed or
acquired from other developers and carriers through swaps, purchases, leases,
IRUs or other contractual rights along diverse ROW. We intend to expand our
network including bandwidth and other Internet enhancing services to provide
connectivity on a global basis to meet our customers' demands and in response to
our needs for connectivity for our telecommunications business.
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NORTH AMERICA
In North America, our network is expected to cover approximately 24,100
route miles, encompassing both long-haul and intra-city route miles by the end
of 2001. We intend to further develop, swap, lease, obtain IRUs in respect of,
or purchase additional long-haul route miles and intra-city rings in North
America. The footprint will consist of the following:
- 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. Our
network in North America will serve approximately 50 major population
centers; and
- a series of intra-city networks in Toronto, Vancouver, Montreal, Ottawa
and Calgary, in addition to the city ring currently under construction in
Seattle.
EUROPE
In Europe, our network is currently expected to cover approximately 10,600
long-haul route miles (assuming, with respect to 1,300 route miles, the exercise
of an option that we have) providing connectivity among approximately 35 major
population centers by the end of 2001.
The fiber we acquired via the KPNQwest, Telia, Telewest and Carrier1
transactions places our assets in ten European countries. The planned footprint
will consist of eight rings connecting the following cities:
- Liverpool, Manchester, Birmingham, Bristol, London, Cambridge and
Sheffield;
- London, Paris, Strasbourg, Frankfurt, Dusseldorf, Hamburg and Amsterdam;
- Hamburg, Kolding and Copenhagen;
- Copenhagen, Stockholm and Oslo;
- Frankfurt, Stuttgart, Munich, Dresden, Berlin, Hamburg and Cologne;
- Stuttgart, Zurich, Milan, Torino, Marseilles, Lyon, Geneva, Basel and
Kehl;
- Paris, Lyon, Toulouse and Bordeaux; and
- Lyon, Marseilles, Barcelona, Valencia, Madrid, Bilbao, Bordeaux and
Toulouse.
These routes will be acquired through the following agreements:
- KPNQWEST. In March 2000, we signed an agreement with KPNQwest Carrier
Services B.V. ("KPNQwest"), under which we will purchase for a twenty-year
period an IRU for approximately 4,500 route miles of multiple fiber
strands on KPNQwest's Southern European network covering 25 population
centers. The agreement contemplates that KPNQwest will deliver the fibers
to us in segments and rings starting in the third quarter of 2000, with a
final delivery date in the fourth quarter of 2001. In addition, KPNQwest
will provide us with colocation and maintenance services. Also in March
2000, we signed an agreement with KPNQwest Atlantic Limited under which
KPNQwest Atlantic will purchase for a twenty-year period an IRU for
capacity on our network between New York City and London. We will deliver
this capacity over a two-year period starting in March 2001. Each of these
two agreements is subject to due diligence and other conditions that
entitle either party to terminate the agreements without penalty prior to
May 1, 2000.
- 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. The contract contemplates that 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, we will provide each other with colocation services,
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regeneration sites, points of presence in main cities and operations and
maintenance services.
- TELEWEST. In December 1999, we signed a co-development agreement with
Telewest to provide us with multiple conduits on an approximate 736 route
mile ring network which will connect Liverpool to London via Manchester,
Birmingham and 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.
- CARRIER1. In December 1999, we signed a contract with Carrier1 enabling us
to order wholesale capacity on their network connecting London to 18 major
population centers beginning March 1, 2001. In addition, the contract
provides us with the option to acquire dark fiber strands in Germany
and/or wavelengths in France.
UNDERSEA CABLES
360ATLANTIC. Our 7,600 route mile undersea cable between North America and
Europe cable project will have the capacity to be a 1.92 tbps, self-healing ring
that will connect landing sites in Boston, Halifax, Dublin and Liverpool and to
major gateway cities in Europe and North America, including London and New York.
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
360ATLANTIC, 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. 360ATLANTIC's
self-healing ring design will have a capacity of 1.92 tbps on each segment using
4 fiber pair with state-of-the-art, 48-wavelength technology on each fiber pair.
Tyco is required to complete and deliver our 360ATLANTIC undersea cable by the
first quarter of 2001.
360AMERICAS. The planned 14,000 route mile undersea cable between South
America and North America we will acquire with the acquisition of GlobeNet will
have the capacity to be a 1.28 terabits per second, self-healing ring that will
be able to offer city-to-city connectivity between 6 major population centers in
Brazil, Venezuela, Bermuda and the United States. Alcatel Submarine Networks
Inc. ("Alcatel") will serve as the primary contractor for 360AMERICAS on a
turnkey basis, taking responsibility for the design, construction and
installation of the cable. Alcatel is a global leader in the construction and
installation of undersea fiber optic cables. Alcatel is expected to complete and
deliver the undersea portion of the 360AMERICAS cable by the end of the second
quarter of 2001.
Among other conditions, the GlobeNet acquisition is subject to the approval
by a majority in number representing at least 75% in value of each of two
classes of GlobeNet shareholders present in person or by proxy and voting at a
separate meeting of each such class. Holders of over 75% of each class of
GlobeNet shares have entered into a voting agreement with GlobeNet and us to
approve the acquisition.
We expect that some of GlobeNet's shareholders will purchase up to
$56.8 million of our Subordinate Voting Shares at the initial public offering
price.
FUTURE EXPANSION
We believe that there may be opportunities in North America, Europe and
South America to further develop our network. We intend to expand our planned
network to more population centers through the addition of intercity and city
ring capacity in North America, Europe and South America. We are also reviewing
opportunities to expand the geographic reach of our network, including
transpacific connectivity to Asia.
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NETWORK DEVELOPMENT PLAN
We expect to complete the development of our currently planned network in
2001. Although the following table summarizes our current plans for completing
the terrestrial network, the segments, actual route miles, scheduled completion
dates, major population centers connected 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:
NORTH AMERICA
<TABLE>
<CAPTION>
COMPLETED ROUTE
MILES AS OF SCHEDULED
ESTIMATED DECEMBER 31, COMPLETION MAJOR POPULATION
SEGMENT ROUTE MILES 1999 DATE CENTERS CONNECTED
- ------- ----------- --------------- ------------------ -------------------------------
<S> <C> <C> <C> <C>
LEDCOR BUILD: 5,068 5,068 Complete Vancouver, Edmonton, Calgary,
Winnipeg, Minneapolis, Chicago,
Toronto and Detroit
CANADA BUILD: 2,050 1,243 Fourth Quarter Edmonton, Winnipeg and Toronto
2000
WEST COAST BUILD: 4,102 1,286 Fourth Quarter Edmonton, Vancouver, Seattle,
2000 Portland, Sacramento,
Los Angeles, San Diego,
Phoenix and San Antonio
NORTHEAST BUILD: 3,314 1,611 Fourth Quarter New York, Boston, Buffalo,
2000 Albany, Detroit, Toronto,
Montreal, Quebec City
and Halifax
EAST COAST BUILD: 4,784 2,601 First Quarter 2001 New York, Washington DC,
Atlanta, Jacksonville, Memphis,
Miami and New Orleans
CENTRAL BUILD: 1,120 -- Fourth Quarter Chicago and New Orleans
2000
MID-AMERICA BUILD: 3,162 408 First Quarter 2001 Chicago, Denver, New Orleans,
Omaha, Sacramento and Salt Lake
City
CITY RINGS: 511 -- Fourth Quarter Calgary, Montreal, Ottawa,
2000 Seattle, Toronto, Vancouver
and Edmonton
------ ------
TOTAL ROUTE MILES 24,111 12,217
====== ======
<CAPTION>
PROPOSED PARTICIPANT/
CO-DEVELOPER/SWAPS/JOINT
SEGMENT VENTURES
- ------- -------------------------------
<S> <C>
LEDCOR BUILD: Call-Net, Bell Canada,
AT&T Canada and Enron
CANADA BUILD: Telus
WEST COAST BUILD: Telus, Call-Net, FTV, GST,
Level 3, Metromedia, NEXTLINK,
Qwest,
Williams Communications,
Caprock, Enron and Telia
NORTHEAST BUILD: AT&T Canada, Telus, CN,
Level 3, Williams,
Telia, Enron and Qwest
EAST COAST BUILD: Metromedia, Qwest and Enron
CENTRAL BUILD: Enron and Qwest
MID-AMERICA BUILD: Pathnet, Telia, Enron and
Adesta
CITY RINGS: GST, Level 3, Metromedia,
Qwest, NEXTLINK, GTE, McLeod
and Global Crossing
TOTAL ROUTE MILES
</TABLE>
52
<PAGE>
EUROPE
<TABLE>
<CAPTION>
SCHEDULED PROPOSED PARTICIPANT/
ESTIMATED COMPLETION MAJOR POPULATION CO-DEVELOPER/SWAPS/JOINT
SEGMENT ROUTE MILES DATE CENTERS CONNECTED VENTURES
- ------- --------------- -------------- ------------------------------- ----------------------------
<S> <C> <C> <C> <C>
UK: 736 Third Quarter London, Liverpool and Telewest and Telia
2000 Manchester
GERMANY: 2,755 Second Quarter Strasbourg, Frankfurt, Hamburg, Telia, Carrier1 and KPNQwest
2001 Munich, Dusseldorf
and Stuttgart
HOLLAND/FRANCE: 3,051 Second Quarter Amsterdam, Paris, Marseilles Telia and KPNQwest
2001 and Lyon
SCANDINAVIA: 1,628 First Quarter Copenhagen, Stockholm and Oslo Telia
2001
SWITZERLAND: 708 First Quarter Zurich, Geneva and Basel KPNQwest
2001
SPAIN/FRANCE: 1,392 Fourth Quarter Barcelona, Valencia, KPNQwest
2001 Madrid, Bilbao,
Toulouse and Bordeaux
ITALY: 344 Second Quarter Milano and Torino KPNQwest
2001
---------------
TOTAL ROUTE MILES 10,614
===============
</TABLE>
UNDERSEA CABLES
<TABLE>
<CAPTION>
SCHEDULED PROPOSED PARTICIPANT/
ESTIMATED COMPLETION MAJOR POPULATION CO-DEVELOPER/SWAPS/JOINT
SEGMENT ROUTE MILES DATE CENTERS CONNECTED VENTURES
- ------- --------------- -------------- ------------------------------- --------------------------
<S> <C> <C> <C> <C>
360ATLANTIC 7,600 First Quarter Dublin, Liverpool, Boston and --
2001 Halifax
360AMERICAS 14,000 Second Quarter United States, Brazil, --
2001 Venezuela and Bermuda
---------------
TOTAL ROUTE MILES 21,600
===============
</TABLE>
COLOCATION FACILITIES
NORTH AMERICA
We have agreed, subject to execution of definitive agreements, to acquire
existing colocation facilities or site rights in ten cities totalling
approximately 2.9 million square feet. These facilities are expected to be
completed by the end of 2001. In addition to the initial purchase price of
$176.5 million, of which $26.3 million is payable in our Subordinate Voting
Shares valued at the initial offering price, we anticipate spending
$400 million to complete the development of the facilities. Existing tenants
include major ILECs, CLECs and ISPs. There can be no assurance that we will be
successful in negotiating definitive agreements.
EUROPE
We are exploring opportunities to provide colocation facilities in Europe so
that we will have arrangements in place in major European cities to develop and
provision colocation facilities by the time we activate our network in Europe.
PRODUCTS AND SERVICES
We believe that our customers have a limited choice of independent service
providers capable of offering high-capacity, reliable, secure and cost-effective
services on a point-to-point basis between major population centers in North
America, Europe and South America. To meet our
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customers' requirements, we offer a wide range of services on a scalable basis,
across an extensive geographic network, including:
NETWORK SERVICES
The services we offer include:
OPTICAL CHANNELS. Dense wave division multiplexing ("DWDM") technology in
our network allows 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 may install
its own switching and routing equipment and has the choice of installing its own
protection equipment or use optical protection supplied as part of our service.
We offer the following services:
- transparent OC-48 and OC-192 under IRU or lease;
- optical ring protection; and
- linear routes available, with add/drop along routes available.
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.
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.
Our ATM service includes:
- DS-3 to OC-48 interface rates;
- all 5 classes of ATM service; and
- switched virtual circuits available on customer premises.
Our IP transport includes:
- protocol supports including Private Network to Network Interface ("PNNI"),
ATM and packet over synchronous optical network technology ("SONET");
- nodes in all major Internet-network access points; and
- IP voice and modem transport and distribution, including virtual switching
and compression.
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 local
exchange carriers ("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:
- DS-1 to OC-3 structured services;
- DS-0 switching and billing for usage;
- transparent local interface;
- SS7 signaling transport; and
- advanced services, including compression.
COLOCATION FACILITIES. We intend to offer customers access and
interconnection to our network and services at various city points of presence
along our network. We will provide them with a variety of term and space
configurations ranging from secure cabinet rentals to longer term leases of cage
space.
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NETWORK INFRASTRUCTURE
DARK FIBER AND CONDUIT FOR SALE OR GRANT OF IRUS. 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 $3,000 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 right of use, usually
of 10 to 20 years, with an option period for the user to renew at lower rates.
At the end of an IRU title may be passed to the user. 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.
CONSTRUCTION SERVICES SUPPORTING THE DEVELOPMENT OF OUR NETWORK. We are
continuing to construct and maintain fiber optic networks for third parties on a
contract basis. We focus on projects where we can retain fiber or conduit assets
on routes that complement and reduce the costs of completing the network or
where our construction services are connected to a sale of network capacity.
CUSTOMERS
We are focused on providing our services to TSPs, ISPs, ASPs, SSPs and LORGs
with enterprise network needs. Typical targeted customers include a broad range
of companies, such as:
- long distance companies;
- incumbent local exchange carriers;
- competitive local exchange carriers;
- multi-service operators; and
- local multipoint distribution service providers.
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.
SALES AND MARKETING
We are building a highly motivated and experienced direct sales force and
customer care organization designed to capture new customers and to increase our
volume of business with existing customers. Because our target customers are
other TSPs, ISPs, ASPs, SSPs and LORGs with enterprise network needs, our sales
and marketing departments are focused and small compared to competitors that
have a broader retail strategy. Our direct sales organization consists of senior
level management personnel, experienced sales representatives and sales
engineers. Our sales force is made up of individuals with strong communications
and technical backgrounds which allows us to meet the needs of our target
customers. Direct sales tactics include direct contacts
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<PAGE>
with targeted ISPs and other potential corporate accounts by our sales
representatives and engineering support. In addition to helping to generate
initial sales, the sales engineer is responsible for ongoing technical support
and identifying new revenue opportunities with existing customers. Our sales and
marketing organization is segmented geographically between North America, Europe
and undersea to ensure they are able to meet the specific needs of their target
customers. We believe that the relationships established by our sales team and
management result in interactive exchanges that help us to design and market our
products in response to the needs of our potential customers.
We believe that our new Chief Executive Officer brings additional valuable
relationships and contacts in the computer services, Internet, media and
financial communities in addition to traditional communications carriers that
will allow us to more easily gain access to these markets.
NORTH AMERICA
Our North American sales and marketing organization is divided into two
groups to meet the specific needs of our bandwidth customers and network
infrastructure customers.
NETWORK SERVICES. Our strategy is to target customers who have a need for
network services in areas covered by those portions of our network on which we
initially will be installing transmission equipment. We market a broad and
technically advanced range of network products and services. Consequently, we
are developing a dedicated sales and marketing team with the necessary technical
expertise.
We commenced marketing our network services in the second quarter of 1999 to
targeted customers through a number of focused direct sales methods. Our
experienced sales team will qualify potential customers from their personal
contacts and direct sales efforts. In addition to our direct sales efforts, we
identify highly qualified prospective network customers through our network
infrastructure sales and marketing efforts. We also receive referenced
introductions from our suppliers when network requirements are identified while
they are making customer contacts in the process of doing their business. We
recently granted affiliates of PSINet an indefeasible right of use for bandwidth
capacity between Vancouver and Chicago, and have agreed to provide multiple dark
fiber strands in eastern Canada and the northeast corridor of the United States.
We recently signed a contract with Shaw Communications Inc. under which Shaw
will lease bandwidth on designated segments of our network between Edmonton and
Toronto, and either purchase dark fiber or acquire indefeasible rights of use on
other network segments for $153 million.
NETWORK INFRASTRUCTURE. Our strategy is to market to customers on a local,
regional and national basis. We market participation in infrastructure segments
of our network through personal contacts and relationships with prospective
customers, which consist primarily of large telecommunications companies. We
believe that we are known to most of our target customer group and that we have
good relations with them.
Our current targeted customer base is comprised of approximately 200
companies. Most of our marketing and sales team have prior industry experience
with these companies, including MCI WorldCom, Inc. ("MCI WorldCom"), Sprint
Corporation ("Sprint"), AT&T Corp. ("AT&T"), Qwest Communications International
Inc. ("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 are also able
to identify potential participant and co-development customers that initially
approach us because of our reputation and experience in the design, construction
and development of fiber optic facilities.
EUROPE
NETWORK SERVICES. Our strategy in Europe is to target customers by specific
geographic regions who have a need for network services in areas covered by
those portions of our network. In
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Europe, we intend to build out separate sales and marketing organizations by
region to enable us to address the specific market, product and regulatory needs
of our customers. Initially, we intend to have regional offices in England,
France, Germany and Scandinavia and will add additional offices as we expand our
European network. Each sales and marketing managing director will report
directly to our head of European sales and marketing who will be responsible for
coordinating our European efforts with our North American and overseas teams.
This structure will allow us to provide our customers seamless service from
anywhere in Europe to anywhere in North America. We recently signed a contract
with an affiliate of PSINet to deliver high-speed bandwidth services from New
York to London.
UNDERSEA CABLES
Our cable projects have been designed to be responsive to potential
customers' concerns, including the offer of diverse routes and landing sites,
protected capacity on two separate cables, seamless city-to-city availability
using our extensive backhaul terrestrial network and a firm, near-term delivery
date. In North America we have teams segregated by service provision type and in
Europe geographically by country. We are currently developing our sales
organization in the United States, Europe and South America to market and
distribute capacity on our cable. In addition to our direct sales efforts, we
have received referenced introductions from our suppliers.
Our pricing strategy is to offer capacity at the lowest cost in the market
to our initial customers and reflects our belief that large buyers of capacity
will seek significant discounts and flexible payment terms in order to contract
for purchases prior to the ready-for-service date. We are offering a program
which gives initial buyers of capacity the option to make additional purchases
on system upgrades, at a cost which is a significant discount to current market
prices. Similarly, our proposed pricing of ongoing operations and maintenance
services reflects significant volume discounts and lower prices for upgrade
capacity versus the flat unit pricing traditionally offered in the marketplace.
NETWORK DESIGN AND INFRASTRUCTURE
Our network utilizes state-of-the-art technologies based on DWDM optics and
packet-switched routing. This approach greatly reduces the complexity and number
of component systems that previously were required to deliver voice and data
services. Our network has the following characteristics:
ADVANCED FIBER OPTIC CABLE. Our network benefits from technologically
advanced fiber optic cable, including Corning E-leaf and single mode fiber that
allows us to expand our DWDM system to maximize the potential of DWDM
technologies.
DENSE WAVE DIVISION MULTIPLEXING. DWDM allows for increased network
capacity through the transmission of multiple waves of light over a single fiber
optic strand. Our DWDM optical system electronics are installed in shelters and
POPs in carrier interconnect locations along the route. Each route includes
several spans that are comprised of optical terminals at the ends of the span
and a combination of optical line amplifiers, electrical signal regeneration and
optical add/drop terminals to complete the path. Each system operates on a
single fiber providing bi-directional transport of up to 160 channels of OC-192
(10 gbps) wavelengths. The current network plan calls for a minimum of four
OC-48 channels per route, with four OC-192 channels installed in routes where we
believe that there will be sufficient market demand.
OPTICAL TECHNOLOGY. Our network's optical design will enable us to upgrade
installed equipment or to add new equipment 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. We will use optical ring protection
devices where a customer requires redundant services.
ATM CORE SWITCHING AND PROTECTION. In place of the SONET equipment used by
older network architectures, we have chosen to use ATM as both the protection
and the switching layers
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to deliver services in addition to optical channels derived on the DWDM
equipment. ATM core switching is a packet-based switching and transmission
technology which sends various types of information, including voice, data and
video, in fixed-size cells. We utilize advanced equipment by Marconi plc which
enables packet-based networks to carry voice and data more efficiently and at a
lower cost than traditional voice and data networks. The initial core switches
have a throughput capacity of 40 gbps and network link speed of 2.5 gbps.
The ATM packet elements use multiple optical channels connecting directly to
the DWDM equipment providing meshed topology, a method of circuit protection
that is more reliable than a simple ring topology. The use of the PNNI
hierarchical routing protocol collects circuits into virtual paths and greatly
reduces the number of channels that the ATM switch is required to restore in the
event of an optical failure. This approach allows for the scalability and the
restoration timeframes that are as good as, or better than, those of a
traditional SONET-based architecture. Due to the nature of the ATM
configuration, all of the circuits are fully protected and there are no single
points of failure other than the customer connection port. This enables us to
offer traditional as well as dedicated IP services with guaranteed availability
in excess of 99.9% compared to the market standard of 99.7%.
MULTI-SERVICE PLATFORM. Our multi-service operating systems allow voice,
data and Internet services to be provided using a single ATM operating system.
Most communications service providers in North America, South America and Europe
use multiple platforms for the provision of different services, which create
distinct networks and increased operating and capital costs for each service
provided.
NETWORK OPERATIONS CENTER
The Network Operations Center ("NOC") is the human service connection
between our customers and the technology that ultimately delivers their
services. Pursuant to an agreement with Urbanlink, we have the services of a NOC
in Vancouver 24x7. We will have redundant network services through Nortel until
June 30, 2000. As a result of the GlobleNet acquisition, we will have an
additional NOC in Bermuda that we intend to use to support the 360AMERICAS
cable.
We are in the process of building our NOC in Dublin, Ireland. Our Dublin NOC
will be primarily responsible for European operations and will be on line in
October 2000. Each NOC will serve as a back up to the other.
In addition to the two main NOCs in Vancouver and Dublin, we are also
designing support centers in Denver to maintain North American cable operations
and the 360ATLANTIC cable. The NOCs allow us to provide the following services:
- directing the repair efforts of cable restoration, optical and ATM system
repairs and maintenance;
- providing network management for the optical and ATM elements;
- providing POP and customer record management; and
- providing circuitry for customer and internal circuits.
We are using a design based on IP technology that integrates 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
particular management services to our customers in a secure and reliable way.
NETWORK CONSTRUCTION
The portions of our network constructed by us are designed to maximize
expandability and flexibility. Generally, at least 144 fiber optic strands will
be installed on major builds throughout the network. In high demand areas, 264
fibers or more may be installed in order to meet anticipated
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demand as well as to enable us to swap fiber for fiber in other geographic areas
both in the North American market and internationally.
Our network installation process along railroad ROW combines traditional
railroad activities and modern engineering and building techniques. Conduit and
fiber on railroad ROW is generally installed with our patented railplow. The
railplow reduces the time necessary to install network infrastructure on
railroad ROW because it allows movement of construction crews on and off the
tracks on short notice to allow trains to pass. As a result, we can construct
networks on railroad ROW much more quickly and efficiently than our competitors
who use traditional plow trains, which are not able to move on and off railroad
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 some circumstances, our ownership of this
company would be subject to change and our license would become non-exclusive.
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 some 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. This is accomplished through the use of access boxes that
are installed along the network at approximately four to five mile intervals.
The access boxes also allow for the making of repairs, replacement of fiber and
installation of 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 an average of 45 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. 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.
RIGHTS-OF-WAY AND PERMITTING
To implement our business plan successfully, we must obtain licenses and
permits from third-party landowners and governmental authorities and complete
particular 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. ROW agreements and permits provide a
contractual interest and do not create an interest in land. See "Risk
Factors--Need for
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Rights-of-Way." 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. Alternative ROW for some 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
Ledcor Industries construction project was obtained from two Canadian railways.
In June 1999, we announced agreements with CN and IC 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. We believe that these ROW will be valuable to us,
particularly with the advantages of the railplow and the ROW's geographic
location. The ROW obtained from each of CN and IC may be subject to legal
challenge. See "Risk Factors--Need for Rights-of-Way."
In Europe, all of our current and planned network assets have been acquired
through purchases or swaps of North American fiber optic cable, so there has
been no need thus far to obtain ROW in Europe. For 360ATLANTIC 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 the
United States, Ireland and the United Kingdom. One license for which we applied
in Canada has been approved and a second license application in Canada is
pending. We also applied for various permits and consents for 360ATLANTIC in
Ireland, Canada, the United Kingdom and the United States. Approximately 45% of
these permits and consents have been granted and the remaining 55% 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.
SUPPLIERS
The principal components of our network are fiber optic cable and conduit.
For those portions of our network that we construct ourselves, we purchase such
fiber optic cable and conduit 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
The telecommunications industry is extremely competitive particularly
concerning price and service. It is relatively common for TSPs to be both
customers and competitors. This is a concept referred to as co-opetition.
Therefore, we face competition and co-opetition from existing and planned TSPs
and customers on each of our planned routes. We compete primarily on the basis
of price, availability, transmission quality and reliability, customer service
and the location of our systems.
We believe that our competitive advantages in North America, Europe and
South America 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 that independence, services designed for the wholesale market and
simple billing systems will enable us to gain a significant position in this
market niche. We believe that our competitive advantages in providing our
undersea cable include
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our ability to provide end-to-end connectivity between major North American,
European and South American cities and attractive pricing of capacity by initial
purchasers of capacity.
There are currently several communications companies with long distance and
city ring fiber optic networks and colocation facilities in North America,
Europe, South America and Asia. In North America, these include companies such
as Level 3 Communications, Inc. ("Level 3"), Qwest and Williams Communications
Group, Inc. ("Williams"). In Europe, these include companies such as MCI
WorldCom, Global Crossing Ltd. ("Global Crossing"), Global TeleSystems Europe
B.V., Viatel Inc., KPNQwest N.V., Colt Telecom Group plc, Energis plc and
Carrier 1 International S.A. In South America, these companies include IMPSAT
Corporation and Telemar.
We believe that other companies are planning networks that, if constructed,
could employ advanced technology similar to that of our network. These
competitors, as well as traditional carriers, including AT&T, MCI WorldCom,
Sprint (MCI WorldCom and Sprint have recently entered into an agreement to
merge) Deutsche Telekom AG, France Telecom S.A., British Telecommunications plc,
Mannesmann AG and Cable & Wireless plc, may compete directly with us for
customers.
UNDERSEA CABLES
360ATLANTIC. The route addressed by 360ATLANTIC is currently served by
several undersea cables. We anticipate that we will face competition primarily
from new transatlantic cable systems, including:
(i) AC-2, a transatlantic cable system which is being developed by
Global Crossing;
(ii) FLAG Atlantic, a 50/50 joint venture between Global
Telesystems Inc. and Flag Telecom;
(iii) Level 3's linear Yellow cable project; and
(iv) Tyco International Ltd.'s proposed transatlantic cable project.
Three of these systems, including 360ATLANTIC, will have fully protected
ring designs. 360ATLANTIC will be the first of the new systems to be ready for
commercial service, and will be competing for clients directly with the other
two new ring systems.
360AMERICAS. We anticipate that we will face competition from the following
cable systems, all of which are currently under construction:
- Americas-2, a new carriers' consortium cable system with a scheduled ready
for service date in the first half of 2000 that will connect Brazil,
Venezuela, Florida and the Carribean;
- South American Crossing, a new self-healing ring cable system being
developed by Global Crossing Ltd. that will link coastal countries in
South America to Global Crossing's planned Mid-Atlantic Crossing in St.
Croix, U.S.V.I. and Global Crossing's planned Pan American Crossing in Ft.
Amador, Panama; and
- The SAm-I cable system, a self-healing ring cable system being developed
by Telefonica Internacional S.A. and Tyco International Ltd. that will
connect the United States, Guatemala, Brazil, Argentina, Chile, Peru and
Colombia.
EMPLOYEES
As of December 31, 1999, we had approximately 1,000 full-time and seasonal
employees. 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
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whose employees may be represented by other unions or covered by collective
bargaining agreements.
PROPERTIES
We have executive and administrative offices in Vancouver, British Columbia
and Seattle, Washington. We also have administrative, sales, engineering and
operations offices located in Vancouver, Denver and Toronto. In addition to the
NOC located in Vancouver, British Columbia, we are building a NOC located in
Dublin, Ireland, which is scheduled to be completed in November 2000.
All of our offices are leased on a short-term basis except for our Toronto
office, which we occupy under a lease expiring in 2009. We expect to open
additional offices in multiple jurisdictions globally as required.
LEGAL PROCEEDINGS
From time to time, we may be a party to various legal proceedings arising in
the ordinary course of our business. We are not party to any material legal
proceedings.
In July 1999, after issuing a Certificate of Public Convenience and
Necessity ("CPCN") to Worldwide Fiber Networks, Inc. ("360-NI"), the California
Public Utilities Commission ("CPUC") issued a "stop work" order which required
us to submit an environmental assessment to comply with the California
Environmental Quality Act. We complied with this order and submitted the
required information. On January 6, 2000, the CPUC issued an order modifying the
CPCN, authorizing the recommencement of construction and adopting a mitigated
negative declaration imposing certain conditions on continued project
construction. We have since recommenced construction in compliance with the
terms of the CPUC order and do not expect that such compliance will have any
material delaying effect on ongoing construction. The CPUC retained jurisdiction
in further proceedings to determine the amount, if any, of civil penalties that
may be imposed upon us for construction that occurred in California prior to the
"stop work" order. This proceeding is ongoing, and we presently have no estimate
of any fines or penalties that may be imposed. The maximum allowable penalty
permitted by the California Public Utilities Code would be $3.6 million for the
period between December 2, 1998 and July 6, 1999.
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 360NETWORKS INC. See "Relationships and
Related Party Transactions--Transactions with Ledcor--Description of
reorganization and related agreements--Railplow." As we develop value-added data
services we intend, when appropriate, to seek patents and other intellectual
property protection on an on-going basis. We currently do not have patentable
rights with respect to any value-added data services, and we cannot assure you
that we will in the future develop any such rights.
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MANAGEMENT
The following lists the persons who will be our officers and directors at
the time of this offering:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- -------- --------
<S> <C> <C>
OFFICERS
Gregory Maffei......................... 39 President, Chief Executive Officer and Director
Larry Olsen............................ 50 Vice Chairman, Chief Financial Officer and Director
Ron Stevenson.......................... 47 Vice Chairman and Director
Stephen Stow........................... 46 Managing Director, Asia
Joel Allen............................. 50 Senior Vice President, Marine Capacity Sales
Lionel Desmarais....................... 47 Senior Vice President, Network Construction
David Love............................. 51 Senior Vice President, Network Operations
William Sumner......................... 43 Senior Vice President, Carrier Services
Bruce Tinney........................... 47 Senior Vice President, Infrastructure Sales
Jerry Tharp............................ 65 President, 360-USA
Stephen Baker.......................... 51 Vice President and Chief Technology Officer
Ashwin Chitamun........................ 32 Vice President, European Network Development
Jayne Hart............................. 39 Acting Vice President, Human Resources
Michael Leitner........................ 32 Vice President, Corporate Development
Scott Lyons............................ 45 Vice President, Marine Services
Catherine McEachern.................... 45 Vice President and General Counsel
William Walls.......................... 34 Vice President, Finance
Vanessa Wittman........................ 33 Vice President, Corporate Development
DIRECTORS
David Lede (2)......................... 52 Chairman of the Board
Clifford Lede.......................... 44 Vice Chairman and Director
Glenn Creamer (2)...................... 37 Director
Claude Mongeau (1)..................... 38 Director
Andrew Rush (1)........................ 42 Director
Gene Sykes (1)......................... 42 Director
James Voelker (2)...................... 49 Director
</TABLE>
- ------------------------
(1) Member of the audit committee.
(2) Member of the compensation committee.
Kevin Compton, a general partner in Kleiner Perkins Caufield & Byers, John
Malone, Chairman of Liberty Media Corporation, and John Stanton, Chairman and
Chief Executive of Western Wireless Corp. and VoiceStream Wireless Corp., have
agreed to join our board of directors following completion of this offering.
Mr. Compton has agreed to join our compensation committee following completion
of this offering.
GREGORY MAFFEI has served as Chief Executive Officer and a Director since
January 2000 and President since March 2000. Prior to that, Mr. Maffei served as
the Chief Financial Officer of Microsoft Corporation. Mr. Maffei joined
Microsoft in 1993 and, prior to becoming Chief Financial Officer, served as Vice
President, Corporate Development, and Treasurer. Mr. Maffei serves as
non-executive Chairman of Expedia Inc. and as a director of Starbucks
Corporation, Avenue A Inc. and Optical Networks, Inc. He has previously served
on boards of telecommunications related companies including ServiceCo LLC (Road
Runner), United Global Communications (UGC), SkyTel Corp. and Asia Global
Crossing.
LARRY OLSEN has served as Vice Chairman, Chief Financial Officer and a
Director since our inception. Mr. Olsen previously acted as a consultant to
Ledcor Industries in respect of its telecommunications division. Mr. Olsen is
also a member of the Board and Executive Committee of
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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 Managing Director of Promet Petroleum.
RON STEVENSON has served as our Vice Chairman since March 2000, a Director
since our inception, was previously our President and is a Director of
Ledcor Inc. Before joining us, Mr. Stevenson spent 28 years with Ledcor. From
1989 to 1998, Mr. Stevenson was Executive Vice President of Operations for
Ledcor Industries' telecommunications and civil divisions and was responsible
for construction and project development.
STEPHEN STOW has served as Managing Director, Asia since March 2000 and was
previously our Executive Vice President, Corporate Development and a Director of
ours. Mr. Stow previously acted as a consultant to Ledcor Industries in respect
of its telecommunications division. Mr. Stow previously served as a principal in
various venture capital activities. From 1992 to 1995, Mr. Stow was Co-head and
Director of Corporate Finance for National Westminster Bank's Asian investment
banking operations.
JOEL ALLEN has served as Senior Vice President, Marine Capacity Sales since
March 2000 and previously served as Senior Vice President, Global Marketing and
Sales since November 1999. Mr. Allen has over 24 years of international and
domestic telecommunications experience. Prior to joining us, Mr. Allen was the
President of AllenConsultants and GlobalNetworkPartners, international
consultancy and cable development firms. He served as Executive Vice President,
Sales and Marketing/Business Development with Bell Atlantic Network Systems
(Bermuda), the exclusive representive for the FLAG Cable System sales. Previous
to that, Mr. Allen held numerous management positions with telecommunications
companies.
LIONEL DESMARAIS has served as Senior Vice President, Network Construction
since our inception. Before joining us, Mr. Desmarais spent 12 years with
Ledcor. From 1993 to 1998, Mr. Desmarais was Vice President of Ledcor's
telecommunications division and has been responsible for overseeing the
successful execution of numerous long-distance fiber optic networks, including
the construction project that we did for Ledcor and the Calgary-Edmonton
network.
DAVID LOVE has served as our Senior Vice President, Network Operations since
September 1999. Mr. Love's involvement in the telecommunications industry, both
domestic and international, spans over 28 years. Prior to joining us, Mr. Love
managed large network deployments and multi-state network operations at US West.
He has international experience with MediaOne International directing the design
and network operations for broadband services using hybrid fiber coax technology
in Belgium.
WILLIAM SUMNER has served as Senior Vice President, Carrier Services since
January 2000. Prior to joining us, Mr. Sumner was the Vice President, Operations
for MediaOne from 1996 to 2000, the Senior National Account Manager for MCI
Telecommunications Inc. (now MCI WorldCom Inc.) from 1991 to 1996 and a Director
of MFS Inc., the first competitive local exchange carrier, from 1987 to 1990.
BRUCE TINNEY has been our Senior Vice President, Infrastructure Sales since
our inception. Before joining us, Mr. Tinney spent more than 22 years in the
telecommunications industry in a variety of executive positions, including
Director of Business Development for Qwest Communications from 1996 to 1998 and
Vice President of Operations for Fanch Communications from 1991 to 1996. Before
joining Fanch Communications Mr. Tinney spent over 15 years with Time Warner
Communications in a number of leadership positions.
JERRY THARP has overseen our U.S. operations as President of 360-USA since
our inception. Mr. Tharp's involvement in the telecommunications industry spans
over 40 years. Before joining us, Mr. Tharp was the Director of Business
Development for Mi-Tech from 1996 to 1997 and the Vice
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President, Construction and Engineering for Qwest Communications International
Inc. from 1994 to 1996. From 1987 to 1994, Mr. Tharp held several positions with
MCI WorldCom Inc. dealing with ROW, construction and engineering issues. His
telecommunications career started with US West and its predecessor corporation,
where he held numerous positions.
STEPHEN BAKER has served as Vice President and Chief Technology Officer
since April 1999. Before joining us, Mr. Baker held several senior positions
from 1996 to 1999 with Call-Net Enterprises Inc., including Vice President,
Strategic Technology in Canada. Before that time, Mr. Baker served for seven
years as Chief Executive Officer and then Chief Technology Officer of Integrated
Network Services Inc.
ASHWIN CHITAMUN has served as Vice President, European Network Development
since August 1999. Mr. Chitamun has held various positions in engineering,
marketing and sales with Bell Canada, AT&T Canada and most recently with
fONOROLA Inc. He has also consulted at the senior management level to Telus
Communications.
JAYNE HART joined us in March 2000 as Acting Vice President of Human
Resources. She has 15 years of professional human resources experience in the
telecommunications industry. Her responsibilities have included the development
and implementation of staffing strategies, employee relations and recognition
and incentive programs.
MICHAEL LEITNER joined us as Vice President, Corporate Development in March
2000. Prior to that, Mr. Leitner was a Senior Director of Corporate Development
for Microsoft Corporation. In this capacity, Mr. Leitner managed Microsoft's
strategic partnerships, corporate investment strategy, acquisitions and
alliances across all of Microsoft's business units and customer channels. Prior
to joining Microsoft in 1998, Mr. Leitner was a Vice President in the Technology
Mergers and Acquisitions group of Merrill Lynch.
SCOTT LYONS has served as Vice President, Marine Services since our
inception. From 1997 to 1998, Mr. Lyons was Vice President of Ledcor's marine
division and was responsible for its creation and management. Before that time,
Mr. Lyons was President of Aztech Enterprises from 1995 to 1997, President and
Chief Operating Officer of Hard Suits Inc. from 1994 to 1995 and from 1990 to
1994 was Chief Operating Officer of Rockwater Limited, a subsidiary of Brown and
Root specializing in marine construction.
CATHERINE MCEACHERN joined us in June 1999 as General Counsel and was
appointed Vice President and Corporate Secretary in September 1999. She
graduated from Osgoode Hall Law School in 1977 and has practiced predominantly
in the telecommunications area for the past ten years. She is a former partner
in the law firm of Farris, Vaughan, Wills and Murphy.
WILLIAM WALLS, our Vice President, Finance, has been with us since our
inception. Before joining us, Mr. Walls was a principal in various venture
capital activities and has been a Director or Chief Financial Officer of several
Canadian and U.S. publicly listed companies, including Polymer Solutions, Inc. a
producer of industrial paints, coatings and adhesives, and International
Absorbents Inc., a manufacturer of industrial and consumer absorbent products.
VANESSA WITTMAN recently joined us as Vice President, Corporate Development.
Prior to that, Ms. Wittman was a Senior Director of Corporate Development for
Microsoft Corporation, managing its international partnership, investment and
acquisition efforts. Prior to joining Microsoft, Ms. Wittman was the Chief
Financial Officer of Metricom, Inc. She has also served as a partner at Sterling
Payot Company, a San Francisco venture capital firm, and was an Associate in
Morgan Stanley's Global Media Corporate Finance Group.
DAVID LEDE has served as Chairman of our board since our inception, was
Chief Executive Officer from our inception until January 2000, has served as
Chairman and Chief Executive Officer of Ledcor Inc. since 1983. Mr. Lede has
been with Ledcor for 32 years, and, before becoming
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Chairman and Chief Executive Officer of Ledcor Inc., held various management
positions such as President, Vice President, Operations Manager and
Superintendent.
CLIFFORD LEDE has served as Vice Chairman since our inception, has been Vice
Chairman and Chief Operating Officer of Ledcor Inc. since 1983 and has served as
President of Ledcor Industries since 1983 and Chief Executive Officer since
August 1999. Mr. Lede has been with Ledcor for 25 years. Clifford Lede and David
Lede are brothers.
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. Mr. Creamer is a Director of Carrier1 International,
Celpage, Inc., Epoch Networks Inc., Hubco S.A. and Wireless One Network L.P.
CLAUDE MONGEAU joined us as a Director in January 2000. Mr. Mongeau was
recently named Senior Vice-President and Chief Financial Officer of CN. Prior to
that appointment and since 1995, Mr. Mongeau was Vice-President, Strategic and
Financial Planning of CN.
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'Ethanol de Synthese, Nextel Partners and American
Tissue Inc.
GENE SYKES joined us as a Director in March 2000. Mr. Sykes has been a
Managing Director of Goldman, Sachs & Co. since 1992. Mr. Sykes has been Co-head
of the High Technology Group at Goldman, Sachs & Co. since 1997 and is currently
Co-head of Goldman, Sachs & Co.'s, worldwide technology investing activities.
Mr. Sykes currently serves as a Director of Priceline WebHouse Club.
JAMES VOELKER joined us as a Director in July 1999. Mr. Voelker's career in
telecommunications spans over 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 the President and a Director 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. Mr. Voelker
currently serves as a Director of Comdisco, Inc. and Epoch Networks, Inc.
STRATEGIC ADVISORY COMMITTEE
Our Strategic Advisory Committee will advise us on network technology
directions, help us develop products and services to meet the requirements of
our customers and capitalize on the convergence of telecommunications and
high-bandwidth applications and services.
The following persons have agreed to join our Strategic Advisory Committee:
<TABLE>
<S> <C> <C>
Michael Dell
Terence Matthews
Rupert Murdoch
Dr. Nathan Myhrvold
Anthony Naughtin
Denis O'Brien, Jr.
</TABLE>
MICHAEL DELL has been Chairman and Chief Executive Officer of Dell Computer
Corporation since May 1984.
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TERENCE MATTHEWS founded Newbridge Networks Corporation in June 1986 and has
served as Chairman and Chief Executive Officer since that time.
RUPERT MURDOCH is the Chairman and Chief Executive Officer of News
Corporation.
DR. NATHAN MYHRVOLD is the Chief Technology Officer of Microsoft
Corporation.
ANTHONY NAUGHTIN founded InterNAP Network Services Corporation and has
served as InterNAP's Chief Executive Officer since May 1996.
DENIS O'BRIEN, JR., has been Chairman of Esat Telecom Group plc since its
formation in 1996.
ARRANGEMENTS WITH RESPECT TO DIRECTORS' NOMINATIONS
Under the terms of a shareholders' agreement among shareholders holding more
than 99% of our shares immediately prior to the completion of the offering, we
agreed to set the maximum number of our board of directors at seventeen members
and to nominate as directors:
- one designee from each of our private equity investors, namely affiliates
of Tyco International Ltd., Providence Equity Partners Inc., DLJ Merchant
Banking Partners II L.P. ("DLJ") and GS Capital Partners III, L.P.
("GS Capital"), so long as, in each case, each investor continues to hold
a prescribed number of our Subordinate Voting Shares;
- Mr. Maffei together with two of his additional designees so long as he
remains our Chief Executive Officer; and
- the balance from designees of a subsidiary of Ledcor Inc.
Under the terms of the shareholders' agreement, each shareholder other than
DLJ and GS Capital also agreed to vote for the foregoing nominees other than the
respective designees of DLJ and GS Capital in connection with their election to
our board of directors.
EMPLOYMENT AGREEMENT
Mr. Maffei became our Chief Executive Officer effective January 18, 2000
pursuant to an employment agreement entered into on December 22, 1999. The
employment agreement has a term ending on June 30, 2003, subject to annual
extensions thereafter. Mr. Maffei will receive an initial salary of $150,000 per
year and is entitled to participate in any executive bonus plan that we may
adopt. If Mr. Maffei dies or becomes disabled during his employment, he will be
entitled to receive a lump sum payment of $10 million. If Mr. Maffei's
employment terminates otherwise than for cause, he will be entitled to receive a
payment equal to three times his then base salary.
BOARD COMMITTEES
Upon the completion of the offering, our board of directors will have two
standing committees: an Audit Committee and a Compensation Committee. All of the
members of our Audit Committee will be persons who are not our officers or
employees or officers or employees of any of our affiliates. The Audit Committee
will select and engage, on our behalf, the independent public accountants to
audit our annual financial statements, and will review and approve the planned
scope of the annual audit. The Compensation Committee will establish
remuneration levels for our senior officers and will perform such functions as
provided under our stock option plan.
COMPENSATION OF DIRECTORS
The independent directors, other than those designated by our private equity
investors, will each receive a grant of options to purchase 25,000 Subordinate
Voting Shares at fair market value at the time of their appointment and an
annual grant of an additional 10,000 options each year thereafter, all of which
options will vest over two years.
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EXECUTIVE COMPENSATION
The following table sets forth the compensation that was paid by us during
the fiscal year ending on December 31, 1999 and 1998, respectively, to our then
Chief Executive Officer and the four individuals who were the most highly
compensated executive officers during fiscal year 1999 (the "Named Executive
Officers").
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG-TERM COMPENSATION
------------------------------------ ------------------------------------------------
OTHER SECURITIES
ANNUAL RESTRICTED UNDERLYING
COMPEN- STOCK OPTIONS LTIP ALL OTHER
NAME AND PRINCIPAL SALARY BONUS SATION AWARDS GRANTED PAYOUTS COMPEN-
POSITION YEAR(1) ($) ($) ($) ($) (#) ($) SATION
- ------------------ -------- --------- --------- ------------ ---------- ------------ -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
David Lede(2)........ 1999 -- -- -- -- 1,600,000 -- --
Chief Executive 1998 -- -- -- -- -- -- --
Officer
Ron Stevenson........ 1999 157,312 350,000 7,619 -- 1,600,000 -- --
President 1998 78,045 59,417 13,722 -- -- -- --
Larry Olsen(3)....... 1999 136,054 350,000 -- -- 1,600,000 -- -- --
Vice Chairman & 1998 78,045 59,417 4,685 -- -- --
Chief Financial
Officer
Stephen Stow(4)...... 1999 136,054 235,000 -- -- 1,600,000 -- --
Executive Vice- 1998 78,045 59,417 2,677 -- -- -- --
President
Lionel Desmarais..... 1999 133,307 235,000 4,422 -- 1,600,000 -- --
Senior Vice- 1998 70,281 48,193 8,668 -- -- -- --
President
Directors and 1999 1,108,086 1,535,510 36,970 -- 11,520,000 -- --
Officers (as a 1998 413,260 253,655 48,728 -- -- -- --
Group).............
</TABLE>
- --------------------------
(1) We commenced operations on May 31, 1998.
(2) We paid Ledcor Cdn.$200,000 per month under the management services
agreement which commenced on May 31, 1998. David Lede and Clifford Lede, our
Vice-Chairman, do not receive remuneration from us for their services.
(3) The amounts indicated represent fees paid to a company wholly owned and
controlled by Mr. Olsen.
(4) The amounts indicated represent fees paid to a company wholly owned and
controlled by Mr. Stow and his spouse.
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The following table sets forth particular information concerning options
with respect to shares granted to the Named Executive Officers during the fiscal
year ended December 31, 1999:
<TABLE>
<CAPTION>
TITLE AND PERCENT OF
NUMBER OF TOTAL
SECURITIES OPTIONS/SAR'S UNEXERCISED
UNDERLYING GRANTED TO OPTIONS AT
OPTIONS/SAR'S EMPLOYEES IN EXERCISE OR DECEMBER 31, 1999
GRANTED FISCAL YEAR 1999 BASE PRICE (#) EXERCISABLE/ EXPIRATION
NAME (#) (%) ($/SHARE) UNEXERCISABLE(1) DATE
- ---- ------------- ---------------- ----------- ----------------- ---------------
<S> <C> <C> <C> <C> <C>
David Lede........... 1,600,000/nil 3.7 0.625 400,000/1,200,000 January 5, 2009
Ron Stevenson........ 1,600,000/nil 3.7 0.625 400,000/1,200,000 January 5, 2009
Stephen Stow......... 1,600,000/nil 3.7 0.625 400,000/1,200,000 January 5, 2009
Larry Olsen.......... 1,600,000/nil 3.7 0.625 400,000/1,200,000 January 5, 2009
Lionel Desmarais..... 1,600,000/nil 3.7 0.625 400,000/1,200,000 January 5, 2009
</TABLE>
- --------------------------
(1) The options are exercisable in four equal annual installments commencing on
June 30, 1999.
STOCK OPTION PLAN
Our 1998 Long Term Incentive and Share Award Plan (as amended) permits the
grant of non-qualified stock options, incentive stock options, share
appreciation rights, restricted shares, restricted share units, performance
shares, performance units, dividend equivalents and other share-based awards to
employees and directors of ours or of our affiliates and subsidiaries. Any other
person who provides ongoing services to us or our affiliates is also eligible
for an award under the plan. A maximum of 71,133,008 Subordinate Voting Shares
may be subject to awards by us under the plan, and the maximum number of
Subordinate Voting Shares for which options and share appreciation rights may be
granted by us during a calendar year to any eligible person under the plan is
8,000,000. In addition, the aggregate number of Subordinate Voting Shares
reserved for issuance to any one person must not exceed 5% of our issued and
outstanding Subordinate Voting Shares. The number of Subordinate Voting Shares
issued or reserved pursuant to the plan (or pursuant to outstanding awards) is
subject to adjustment on account of share splits, share exchanges, mergers and
other changes in the Subordinate Voting Shares, to prevent dilution or
enlargement of a participant's rights under the plan. If any grants under the
plan are cancelled, surrendered or otherwise terminated without a distribution
of Subordinate Voting Shares, then those shares will again be available for
further awards by us under the plan.
ADMINISTRATION
The plan is administered by the compensation committee of our board of
directors, which may delegate its duties and powers to officers or managers of
ours or of our affiliates and subsidiaries. Our compensation committee has the
sole discretion to determine the eligible persons to whom awards may be granted
under the plan, the type and number of awards to be granted, and to what extent
an award may be settled in cash, Subordinate Voting Shares, property or other
awards.
OPTIONS
The plan permits our compensation committee to grant rights to purchase
Subordinate Voting Shares. The exercise price for each option granted under the
plan is set by the compensation committee. Unless otherwise determined by our
compensation committee, the term of each option will be ten years from the date
of the grant and the option will become exercisable in four equal annual
installments beginning on the first anniversary of the date of the grant.
Incentive stock options may be granted to our employees and those of our
subsidiaries, while non-qualified stock options may be issued to all eligible
participants. Any incentive stock options
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that are awarded by our compensation committees will comply in all respects with
Section 422 of the U.S. Internal Revenue Code.
SHARE APPRECIATION RIGHTS
Our compensation committees may grant share appreciation rights independent
of or in connection with an option. Each share appreciation right will entitle a
participant upon exercise to an amount equal to the excess of (1) the fair
market value on the exercise date of one Subordinate Voting Share over (2) the
exercise price of the share appreciation right as determined by our compensation
committees as of the date of grant of the share appreciation right. Payment will
be made in Subordinate Voting Shares, cash or property, as specified in the
award agreement or as determined by our compensation committee.
RESTRICTED SHARES
Restricted shares awarded by our compensation committees under the plan will
be subject to restrictions on transferability and other restrictions. The
restrictions will lapse as our compensation committee determines. If the
employment of a holder of restricted shares is terminated during a restriction
period, any Subordinate Voting Shares then subject to restrictions, and any
accrued and unpaid dividends, or dividend equivalents, will be forfeited unless
our compensation committee waives the forfeiture. Except to the extent
restricted by the award agreement, holders of restricted shares will have the
right to vote the restricted shares.
RESTRICTED SHARES UNITS
Our compensation committee may grant a right under the plan to receive
Subordinate Voting Shares or cash at the end of a specified period. Our
compensation committee may impose additional restrictions on the restricted
share units. If employment of a participant is terminated, or upon failure to
satisfy other conditions precedent to the delivery of cash or Subordinate Voting
Shares under the grant, all restricted share units still subject to a
restriction will be forfeited unless our compensation committee waives the
forfeiture.
PERFORMANCE SHARES AND PERFORMANCE UNITS
The plan permits our compensation committee to make awards based on the
attainment of performance objectives set by the committees for a performance
period of one or more years. At the beginning of a performance period, our
compensation committee will determine the range of Subordinate Voting Shares, in
the case of performance shares, and the range of dollar values, in the case of
performance units, which will be paid if the relevant measure of performance is
met.
DIVIDEND EQUIVALENTS
Our compensation committee may grant dividend equivalents under the plan
which give the participant the right to receive cash, Subordinate Voting Shares
or other property equal in value to dividends paid with respect to a specified
number of Subordinate Voting Shares. Dividend equivalents may be awarded by our
compensation committee alone or in connection with another type of award and may
be paid concurrently or on a deferred basis.
OTHER SHARE BASED AWARDS
The plan permits our compensation committee, subject to limitations under
applicable law, to grant to eligible persons awards that may be denominated or
payable in, valued in whole or in part by reference to, or otherwise based on,
or related to, Subordinate Voting Shares as deemed by our compensation committee
to be consistent with the purposes of the plan.
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TRANSFERABILITY
Unless otherwise determined by our compensation committee, subject to
receipt of necessary regulatory approvals, awards granted under the plan are not
transferable other than by will or by the laws of descent and distribution.
CHANGE IN CONTROL
In the event of a change of control (as defined in the plan), all
outstanding awards then held by participants which have restrictions or
limitations shall become fully exercisable at the time of the change of control,
and all performance criteria and other conditions to the payment of awards will
be deemed to be achieved and will be waived by us at the time of the change of
control.
AMENDMENT AND TERMINATION
Upon receipt of necessary regulatory approvals, our board of directors may
amend, alter, suspend, discontinue or terminate the plan in any respect, at any
time, without the consent of holders of awards or our shareholders (except to
the extent shareholder approval is required by Section 422 of the U.S. Internal
Revenue Code), PROVIDED, HOWEVER, no amendment, alteration, suspension,
discontinuation, or termination of the plan may materially and adversely affect
the rights of a holder of an award and without his or her consent.
OUTSTANDING OPTIONS TO PURCHASE SECURITIES
The following describes, as of April 14, 2000, our outstanding options
granted to our executive officers, directors, employees and others:
<TABLE>
<CAPTION>
NUMBER OF EXERCISE PRICE
SUBORDINATE PER SUBORDINATE
VOTING SHARES VOTING
SUBJECT TO OPTION SHARE(1) EXPIRY DATE
----------------- --------------- --------------------
<S> <C> <C> <C>
Executive Officers (10 persons in
total)................................. 11,360,000 $ 0.625 January 5, 2009 to
April 1, 2009
160,000 $ 1.25 June 17, 2009
336,000 $ 5.00 January 24, 2010
336,000 initial public April 30, 2010
offering price
Directors who are not also executive
officers (Six persons in total)........ 2,290,000 $ 0.625 January 5, 2009 to
June 16, 2009
Employees (611 persons in total)......... 16,812,880 $ 0.625 January 5, 2009 to
June 16, 2009
8,150,400 $ 1.25 June 17, 2009 to
November 30, 2009
5,864,500 $ 5.00 January 24, 2010 to
March 17, 2010
3,576,300 initial public March 18, 2010 to
offering price April 30, 2010
Employees of affiliates other than
subsidiaries (61 persons in total)..... 1,120,000 $ 0.625 January 5, 2009
2,065,600 $ 1.25 June 17, 2009
290,000 $ 5.00 January 24, 2009
140,000 initial public April 30, 2010
offering price
</TABLE>
- ------------------------
(1) The market value is not determinable as the Subordinate Voting Shares were
not publicly traded at the date of grant. We believe the exercise price
represents the fair value of the Subordinate Voting Shares at the date of
grant.
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PRINCIPAL AND SELLING SHAREHOLDER
PRINCIPAL SHAREHOLDERS
The following table describes the beneficial ownership of our Class C
Multiple Voting Shares and Class B Subordinate Voting Shares as of April 14,
2000 by (i) each person or company known by us to own more than 10% of our
Class C Multiple Voting Shares or Class B Subordinate Voting Shares, and
(ii) all of our directors and officers as a group. As of April 14, 2000, there
were 81,840,000 Class C Multiple Voting Shares and 57,629,600 Class B
Subordinate Voting Shares outstanding.
To calculate a shareholder's percentage of beneficial ownership, we must
include in the numerator and denominator those shares underlying options
beneficially owned by that shareholder. Options held by other shareholders,
however, are disregarded in this calculation. Therefore, in both this table and
the following table, the denominator used in calculating beneficial ownership
among our shareholders may differ.
<TABLE>
<CAPTION>
CLASS C MULTIPLE CLASS B SUBORDINATE
VOTING SHARES(1) VOTING SHARES(1)
--------------------------- ---------------------------
NUMBER OF PERCENTAGE NUMBER OF PERCENTAGE
SHARES OF CLASS SHARES OF CLASS
NAME OF BENEFICIALLY BENEFICIALLY BENEFICIALLY BENEFICIALLY
BENEFICIAL OWNER OWNED OWNED OWNED OWNED
- --------------------------------------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Ten percent holders:
Worldwide Fiber Holdings Ltd.
(2).............................. 72,000,000 88% 54,303,200 94%
All directors and officers as a
group................................ 9,840,000 12% 3,326,400 6%
</TABLE>
- ------------------------
(1) Concurrent with the closing of this offering, we will reorganize our share
capital. Pursuant to this reorganization, (i) the Class C Multiple Voting
Shares will be redesignated as Multiple Voting Shares and (ii) the Class B
Subordinate Voting Shares will be converted into Class A Non-Voting Shares,
which will be redesignated as Subordinate Voting Shares. See "Description of
Capital Stock and Share Capital Reorganization."
(2) Upon the completion of this offering and the transactions contemplated
herein, Worldwide Fiber Holdings Ltd. and Ledcor Limited Partnership will
beneficially own in the aggregate 72,000,000 Multiple Voting Shares and
308,988,774 Subordinate Voting Shares, or 88% and 42% of such class of
shares, respectively.
Worldwide Fiber Holdings Ltd. is an indirect, wholly owned subsidiary of
Ledcor Inc. David and Clifford Lede own, in the aggregate, more than 50% of the
outstanding shares of Ledcor Inc. The shares of Ledcor Inc. are not publicly
traded in the United States or Canada. Larry Olsen, our Vice Chairman and Chief
Financial Officer, and Madison Square Inc. (a corporation owned by the Stephen
Stow (1995) Family Trust, of which Stephen Stow, our Managing Director, Asia, is
one of the beneficiaries), ("Madison Square"), each presently has the
irrevocable right to buy ("IRTB") from Worldwide Fiber Holdings Ltd. and Ledcor
Limited Partnership 5% of our shares owned by such entities. The numbers in the
tables above and below do not reflect this right. The IRTBs in respect of our
shares are successors to IRTBs in respect of the assets of the
telecommunications division of Ledcor Industries. The IRTBs were granted in
respect of consultancy services provided to Ledcor Industries by Mr. Olsen and
Mr. Stow through their respective consulting companies
SELLING SHAREHOLDER
The following table describes the ownership of our Class A Non-Voting Shares
by our selling shareholder as of April 14, 2000 and as adjusted to reflect the
sale of Class A Non-Voting Shares
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by such selling shareholder in the offering. As of April 14, 2000 there were
395,770,480 Class A
Non-Voting Shares outstanding and 77,781,511 Class A Non-Voting Shares issuable
upon conversion of all outstanding Preferred Shares.
<TABLE>
<CAPTION>
PERCENTAGE
NUMBER OF BENEFICIALLY NUMBER OF
SHARES OWNED NUMBER OF SHARES PERCENTAGE
NAME OF BENEFICIALLY PRIOR SHARES BENEFICIALLY BENEFICIALLY
SELLING OWNED PRIOR TO TO THE OFFERED IN OWNED AFTER THE OWNED AFTER THE
SHAREHOLDER THE OFFERING(1) OFFERING THIS OFFERING OFFERING(2) OFFERING
- --------------------- --------------- ------------ ------------- ---------------- ----------------
<S> <C> <C> <C> <C> <C>
Ledcor Limited
Partnership(3)..... 301,266,400 39% 1,650,000 264,136,637 32%
</TABLE>
- ------------------------
(1) Concurrent with the closing of this offering, we will reorganize our share
capital. Pursuant to this reorganization, the Class A Non-Voting Shares will
be redesignated as Subordinate Voting Shares. See "Description of Capital
Stock and Share Capital Reorganization."
(2) Includes sale of approximately 35 million Subordinate Voting Shares issued
in private placements to be consummated concurrently with the offering.
(3) The general partner of Ledcor Limited Partnership is Ledcor Industries
Limited, a wholly owned subsidiary of Ledcor.
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RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
TRANSACTIONS WITH LEDCOR
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 some other assets related to
the business of Ledcor Industries' telecommunications division. As part of the
reorganization, we also entered into the construction services agreements to
complete a construction project for Ledcor. Effective August 31, 1998, Ledcor
transferred to us their 50% interest in 360-USA and, in March 2000, 360-USA
became our wholly owned subsidiary.
The material agreements we entered into with Ledcor in connection with the
reorganization are as follows:
RAILPLOW. Effective May 31, 1998, the patent for the railplow which we use
in connection with the construction of some portions of our network on railroad
ROW were transferred to a subsidiary of Ledcor that we refer to as "Patent Co.,"
and we were concurrently granted a non-exclusive license for its use at our
request. 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 us. 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. We currently receive immaterial amounts of
management staff, administrative and other support pursuant to a management
services agreement with Ledcor. Under this agreement, prior to January 1, 2000
we reimbursed Ledcor for some of the related costs and paid a monthly fee of
Cdn.$200,000. Beginning January 1, 2000, the Cdn. $200,000 monthly obligation
was eliminated. This agreement is terminable at any time by either party.
EMPLOYEE SERVICES AGREEMENTS. We were previously a party to two employee
services agreements with Ledcor. Under these agreements, Ledcor provided us with
personnel for the design, engineering, construction and installation of the
network, and we reimbursed Ledcor for the direct costs of these personnel. These
agreements have terminated.
CONSTRUCTION SERVICES AGREEMENTS. We were previously party to 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 some 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 particular losses, liabilities, damages and
claims that may arise under the agreements. In return, Ledcor paid us an amount
equal to costs incurred plus 15% of our total costs. Either party may terminate
these agreements 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 us.
SALE AND TRANSFER AGREEMENTS. We entered into a series of agreements that
transferred equipment and other assets of Ledcor Industries' telecommunications
division including a minimum of 12 strands of dark fiber along Ledcor
Industries' project across Canada and the northeast United States.
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PURCHASE OF SHARES OF 360-USA
Effective August 31, 1998, each of Ledcor and Mi-Tech transferred their 50%
interest in 360-NI to 360-USA, a newly incorporated Nevada corporation. In
exchange, each of Ledcor and Mi-Tech acquired 50% of the common shares of
360-USA. At the same time, Ledcor exchanged with 360-USA a promissory note in
the amount of $3,915,000 payable by 360-NI to Ledcor for a promissory note of
the same face value payable by 360-USA to Ledcor. In addition, Mi-Tech exchanged
with 360-USA a promissory note in the amount of $7,231,230 payable by 360-NI to
Mi-Tech for a promissory note of the same face value payable by 360-USA to
Mi-Tech.
In a subsequent series of transfers, also effective August 31, 1998, Ledcor
transferred to us their shares of 360-USA and the $3,915,000 promissory note
payable by 360-USA to Ledcor. In exchange, we issued additional shares and a
promissory note of the same face value to Ledcor.
In March 2000, we agreed with Mi-Tech to acquire its remaining 25% interest
in 360-USA for 24,000,000 Subordinate Voting Shares.
ACQUISITION, CONSTRUCTION AND CONSTRUCTION MANAGEMENT OF FIBER OPTIC NETWORK
ASSETS
On September 27, 1999, we concluded a transaction with Ledcor whereby we
acquired particular fiber optic network assets in consideration of the issue of
72,000,000 of our Class C Multiple Voting Shares. In addition, we assumed
defined rights and obligations under build agreements with a third party,
including obligations relating to the completion of those builds and particular
support structure, maintenance, license and access and underlying rights
obligations.
On June 25, 1999, we concluded a transaction with Ledcor whereby Ledcor
would complete an approximate 156-mile portion of the fiber optic build between
Portland and Sacramento for approximately $23.7 million.
Effective as of May 1, 1999, we concluded a transaction with Ledcor whereby
personnel of Ledcor who were involved in the designing and planning of the
360ATLANTIC cable stations will oversee management and supervision of
construction of these facilities for a fee of approximately $1.7 million.
On August 4, 1999, we reached an agreement with Ledcor whereby Ledcor would
construct communications shelters on various segments of our network builds for
approximately $4.3 million.
CANADIAN TELECOMMUNICATIONS ARRANGEMENT
On April 17, 2000 we concluded a series of transactions to transfer our
Canadian telecommunication transmission facilities and certain related
facilities to Urbanlink. The assets were transferred at fair market value which
was approximately $16 million. The consideration for the transfer was the
non-voting participating shares described below. For accounting purposes the
transfers were undertaken at carrying value which was approximately
$6.4 million. The arrangement allows 360NETWORKS to issue voting, as opposed to
non-voting, shares in connection with the offering and allows us to more easily
expand our operations globally through acquisitions. A subsidiary of Ledcor owns
66 2/3% of the voting non-participating shares and 49% of the non-voting
participating shares of the holding company which wholly owns Urbanlink, and we
own 33 1/3% of the voting non-participating shares and 51% of the non-voting
participating shares of that company. The share ownership of Ledcor, including
the controlling interest owned by David and Clifford Lede, directors of
360NETWORKS, is described under "Principal and Selling Shareholder." To acquire
its non-voting participating shares, a subsidiary of Ledcor contributed
Subordinate Voting Shares of 360NETWORKS. Concurrent with the closing of the
arrangement we entered into certain non-exclusive resale arrangements with
Urbanlink, under which we will receive bandwidth capacity for resale purposes, a
NOC Operating Agreement pursuant to which Urbanlink will operate the Vancouver
NOC and a Shareholders Agreement with the subsidiary of Ledcor that requires us
to purchase the shares of the holding company in the event of a change in the
TELECOMMUNICATIONS ACT (Canada)
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that eliminates the requirement that Canadian telecommunications carriers be
owned and controlled by Canadians. Although the value of future transactions
under these agreements cannot be ascertained now, the agreements have been
negotiated to reflect fair market terms. We will contribute certain
telecommunications assets under construction to Urbanlink in the future and a
subsidiary of Ledcor will contribute additional Subordinate Voting Shares at
values to be determined in the future.
LEASES
Ledcor leases our facilities in Toronto to us for approximately $881,000 per
year under agreements that expire in 2009.
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.$900 million for the fiscal year ended August 31, 1999
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, MTS Netcom Inc.,
AT&T, AT&T Canada, Alaska Fiber Star, FONOROLA Inc., Mi-Link Communications,
LLC, Champlain Telephone Company and World Net Communications Inc.
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 FONOROLA, Sprint
Canada and AT&T Canada. After the successful completion of this project, Ledcor
began, as a developer, the first trans-Canadian fiber optic cable network.
The foundation of Ledcor's success and growth over the last 52 years has
been built on the strength of its dedicated people, ability to control costs and
its conservative but entrepreneurial approach to business. Ledcor believes it
has maintained an excellent reputation for the quality of its products and
services in its markets and enjoys substantial repeat business from major
customers.
TRANSACTIONS WITH CANADIAN NATIONAL
In March 2000, we acquired the minority interest of each of 360-CN and IC
LLC, as a result of which we issued to CN Subordinate Voting Shares, subject to
adjustment based on the number of Subordinate Voting Shares issued to certain
other parties and based on the total value of Subordinate Voting Shares issued
in this transaction (based on the initial public offering price) being not less
than $100 million and not more than $160 million. Based upon the assumed initial
public offering price of $13 per share the number of Subordinate Voting Shares
issued to CN will equal 12,307,692. In addition, Claude Mongeau, a Senior
Vice-President and the Chief Financial Officer of CN, recently became one of our
directors.
PURCHASE OF SHARES BY CHIEF EXECUTIVE OFFICER
On December 22, 1999, Gregory Maffei purchased 52,160,000 of our Class A
Non-Voting Shares and 9,840,000 of our Class C Multiple Voting Shares for
$77.5 million, representing approximately 8% of our total equity diluted on a
fully diluted basis. To facilitate the sale, we advanced an amount equal to the
purchase price to Mr. Maffei under a limited recourse note
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<PAGE>
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 the repurchase of some or all
of his shares by us or, at our option, Worldwide Fiber Holdings Ltd.
IRREVOCABLE RIGHTS TO BUY
Larry Olsen, our Vice Chairman and Chief Financial Officer, and Madison
Square, each presently has the irrevocable right to acquire from Worldwide Fiber
Holdings Ltd. and Ledcor Limited Partnership up to 5% of our shares owned by
each and to participate pro rata in sales of shares made by those entities. Mr.
Olsen and Madison Square have exercised their rights to participate in certain
private equity sales to be made by Ledcor concurrently with the consummation of
this offering.
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DESCRIPTION OF CAPITAL STOCK
AND SHARE CAPITAL REORGANIZATION
Concurrent with the closing of the offering, we will reorganize our share
capital so that it will consist of the following three classes of shares:
- Subordinate Voting Shares,
- Multiple Voting Shares, and
- Preferred Shares, issuable in series,
each with the rights and attributes described below:
SUBORDINATE VOTING SHARES
Our holders of Subordinate Voting Shares will be entitled to one vote per
share at any meeting of our shareholders except meetings at which only
shareholders of a specified class of shares (other than the Subordinate Voting
Shares) are entitled to vote. Subject to the preference of any outstanding
Preferred Shares, the holders of Subordinate Voting Shares will be entitled to
participate equally with holders of Multiple Voting Shares in any dividends our
board of directors declares out of funds legally available for the payment of
dividends. If we are liquidated, dissolved or wound up, holders of Subordinate
Voting Shares are entitled to share ratably with holders of Multiple Voting
Shares in all assets remaining after payment of our liabilities and any
liquidation preferences of any outstanding Preferred Shares.
The Subordinate Voting Shares may not be subdivided, consolidated,
reclassified or otherwise changed unless, at the same time, the Multiple Voting
Shares are subdivided, consolidated, reclassified or otherwise changed equally,
share-for-share, in the same proportion and in the same manner.
MULTIPLE VOTING SHARES
Holders of Multiple Voting Shares will be entitled to ten votes per share at
any meeting of our shareholders except meetings at which only shareholders of a
specified class of shares (other than the Multiple Voting Shares) are entitled
to vote. Subject to the preference of any outstanding Preferred Shares, the
holders of Multiple Voting Shares are entitled to participate equally with
holders of Subordinate Voting Shares in any dividends our board of directors
declares out of funds legally available for the payment of dividends. If we are
liquidated, dissolved or wound up, holders of Multiple Voting Shares are
entitled to share rateably with holders of Subordinate Voting Shares in all
assets remaining after payment of our liabilities and any liquidation
preferences of any outstanding Preferred Shares. Each Multiple Voting Shares is
convertible at any time, at the option of the holder, into one Subordinate
Voting Share.
The Multiple Voting Shares may not be subdivided, consolidated, reclassified
or otherwise changed unless, at the same time, the Subordinate Voting Shares are
subdivided, consolidated, reclassified or otherwise changed equally,
share-for-share, in the same proportion and in the same manner.
NEW PREFERRED SHARES ISSUABLE IN SERIES
On the closing of the offering, our board of directors will be authorized,
without further action by the shareholders, to issue Preferred Shares in one or
more series and to set the number of shares constituting any such series and the
designation, rights, privileges, restrictions and conditions attaching to the
shares of such series including dividend rights and rates, redemption provisions
(including sinking fund provisions), rights of conversion or exchange,
liquidation
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preferences and voting rights, if any. The Preferred Shares as a class are
entitled to priority over the Subordinate Voting Shares and Multiple Voting
Shares if our Board of Directors decides to pay any dividends, and, if we are
dissolved, liquidated or wound up, the Preferred Shares are entitled as a class
to priority in respect of return of capital. Except as required by law or the
provisions of any designated series of Preferred Shares, the holders of
Preferred Shares as a class are not entitled to receive notice of, attend or
vote at any meeting of our shareholders.
TAKE-OVER BID PROTECTION
Under applicable Canadian law, an offer to purchase Multiple Voting Shares
would not necessarily require that an offer be made to purchase Subordinate
Voting Shares. As a result, and to comply with policies adopted by Canadian
securities regulatory authorities and The Toronto Stock Exchange, our holders of
Multiple Voting Shares will enter into a transfer restriction agreement (the
"Transfer Restriction Agreement") with respect to not less than 80% of the
Multiple Voting Shares, effective upon the closing of this offering, with
Montreal Trust Company of Canada, as trustee, and us in order to provide the
holders of Subordinate Voting Shares with particular rights in the event of a
"take-over bid" for Multiple Voting Shares under Canadian law. A "take-over
bid", generally defined, is an offer to acquire outstanding equity or voting
shares of a class, where, upon completion of the offer, the offeror would own
more than 20% of the shares of the class.
Under the Transfer Restriction Agreement, the parties will agree not to sell
the Multiple Voting Shares owned by them, and which are subject to the Transfer
Restriction Agreement, directly or indirectly, pursuant to a take-over bid, as
defined by applicable securities legislation, under circumstances in which
securities legislation would have required the same offer or follow up offer to
be made to all holders of Subordinate Voting Shares if the sale had been of
Subordinate Voting Shares rather than Multiple Voting Shares.
One circumstance where securities legislation would not require the same
offer to be made to all holders of Subordinate Voting Shares is if: (i) the
purchase is made from not more than five persons; (ii) the bid is not made
generally to holders of the Multiple Voting Shares; and (iii) the price does not
exceed 115% of the market price of the Subordinate Voting Shares.
The prohibition on sales of Multiple Voting Shares will not apply if an
offer identical in all material respects is made concurrently to purchase
Subordinate Voting Shares, which identical offer has no condition attached other
than the right not to take up and pay for shares tendered if no shares are
purchased pursuant to the offer for Multiple Voting Shares. Under the Transfer
Restriction Agreement, the parties will also agree not to transfer any Multiple
Voting Shares which are subject to the Transfer Restriction Agreement (other
than a transfer to a pledgee, as security or to another party to the Transfer
Restriction Agreement) unless the purchaser is or becomes a party to the
Transfer Restriction Agreement.
SHARE CAPITAL REORGANIZATION
Our Memorandum of Association currently authorizes us to issue
100,000,000,000 Class A Non-Voting Shares, 100,000,000,000 Class B Subordinate
Voting Shares, 100,000,000,000 Class C Multiple Voting Shares and
200,045,000,000 Preferred Shares divided into 100,000,000,000 Series A
Non-Voting Preferred Shares, 100,000,000,000 Series B Subordinate Voting
Preferred Shares and 45,000,000 Class C Redeemable Preferred Shares. Concurrent
with the closing of the offering, the following share conversions and steps to
reorganize our capital will occur resulting in the share capital structure
described above:
- the holders of our existing Class B Subordinate Voting Shares will cause
the company to convert their shares into Class A Non-Voting Shares and all
authorized but unissued Class B Subordinate Voting Shares will be
cancelled,
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- the Series A Non-Voting Preferred Shares will be converted into Class A
Non-Voting Shares and all of the authorized but unissued Series A
Non-Voting Preferred Shares, Series B Subordinate Voting Preferred Shares
and Series C Redeemable Preferred Shares will be cancelled,
- our existing Class A Non-Voting Shares will be redesignated as Subordinate
Voting Shares and their share conditions shall be amended to provide the
holders with one vote per share and otherwise attach those rights and
attributes described above,
- our existing Class C Multiple Voting Shares will be redesignated as
Multiple Voting Shares and their share conditions will be amended to
provide the holders with ten votes per share, and
- a class consisting of 500,000,000,000 Preferred Shares, issuable in
series, will be authorized and created.
STRATEGIC INVESTORS
Affiliates of Comcast Corporation, MSD Capital L.P., the private investment
fund for Michael Dell, Liberty Media Corporation, News Corporation, Shaw
Communications Inc., Oak Investment Partners, Denis O'Brien, Jr., Kleiner
Perkins Caufield & Byers, Dr. Nathan Myhrvold, GT Group Telecom, Inc., InterNAP
Network Services Corporation, divine interVentures, inc., RLM Holdings LLC and
PSINet Inc. and certain shareholders of GlobeNet, including Boston Ventures
Limited Partnership V, Kelso Investment Associates VI and Providence Equity
Partners III, have purchased or agreed to purchase from Ledcor in private
transactions an aggregate of approximately 58.3 million Subordinate Voting
Shares for total cash consideration of approximately $608.5 million. The average
price per share paid or agreed to be paid by these strategic and private
investors is less than the initial public offering price. The purchasers of
these Subordinate Voting Shares have agreed that they will not transfer their
shares for 12 months. Ledcor is in discussions to, and may agree to, issue
Subordinate Voting Shares to a limited number of additional private and
strategic investors in transactions which are expected to close shortly after
the closing of this offering. Those investors include certain financial
institutions and strategic investors that may buy notes in our concurrent debt
offerings. If all of these transactions are completed, Ledcor will sell
approximately 23 million Subordinate Voting Shares for total consideration of
approximately $250 million
REGISTRATION RIGHTS
Substantially all of our shareholders, with the exception of Worldwide Fiber
Holdings Ltd., Ledcor Limited Partnership and MacKenzie Partners LLC, have
registration rights, including demand and piggyback registration rights. These
shareholders own an aggregate of 287,244,777 Subordinate Voting Shares. All of
these shareholders have agreed not to dispose of or hedge any of their
Subordinate Voting Shares during the period from the date of this prospectus
continuing through the periods set forth herein. In addition, substantially all
of our shareholders have agreed that they will not transfer their shares for at
least 12 months. See "Shares Eligible for Future Sale."
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SHARES ELIGIBLE FOR FUTURE SALE
Prior to this offering, there has been no market for our Subordinate Voting
Shares. Future sales of substantial amounts of our Subordinate Voting Shares in
the public market could adversely affect prevailing market prices. Sales of
substantial amounts of our Subordinate Voting Shares in the public market after
any restrictions on sale lapse could adversely affect the prevailing market
price of the Subordinate Voting Shares and impair our ability to raise equity
capital in the future.
Upon completion of the offering, we will have 729,416,907 Subordinate Voting
Shares outstanding and outstanding options to purchase 52,501,680 Subordinate
Voting Shares, assuming no additional option or warrant grants or exercises
after March 17, 2000. The great majority of the Subordinate Voting Shares sold
in the offering will be subject to the lock-up agreements described below. We
expect that the Subordinate Voting Shares sold in the offering, including any
shares issued upon exercise of the underwriters' over-allotment option, will be
freely tradable without restriction under the Securities Act, unless purchased
by our "affiliates" as that term is defined in Rule 144 under the Securities
Act.
The remaining Subordinate Voting Shares outstanding and any Subordinate
Voting Shares subject to outstanding options which are not issued pursuant to a
registration statement are or will be "restricted securities" within the meaning
of Rule 144. Restricted securities may be sold in the public market only if the
sale is registered or if it qualifies for an exemption from registration, such
as under Rule 144, 144(k) or 701 promulgated under the Securities Act, which are
summarized below. Sales of restricted securities in the public market, or the
availability of such shares for sale, could adversely affect the market price of
the Subordinate Voting Shares.
LOCK-UP AGREEMENTS
Our directors, officers and various other shareholders, who together hold
substantially all of our securities, have entered into lock-up agreements in
connection with this offering. These lock-up agreements generally provide that
the following holders will not offer, sell, contract to sell, grant any option
to purchase or otherwise dispose of our Subordinate Voting Shares or any
securities exercisable for or convertible into our Subordinate Voting Shares
owned by them for the following periods after the date of this prospectus
without the prior written consent of Goldman, Sachs & Co. and Donaldson, Lufkin
& Jenrette Securites Corporation and 360NETWORKS:
- Ledcor and Worldwide Fiber Holdings Ltd.--24 months;
- our strategic investors, certain shareholders of GlobeNet (in connection
with their strategic investment), Mr. Maffei, Madison Square, our
directors, CN, Michels, and the consultant--12 months; and
- our vice presidents--6 months.
The lock-up agreements cover Subordinate Voting Shares, notwithstanding possible
earlier eligibility for sale under the provisions of Rules 144, 144(k) and 701.
RULE 144
In general, under Rule 144 as currently in effect, after the expiration of
the lock-up agreements, a person who has beneficially owned restricted
securities for at least one year would be entitled to sell within any
three-month period a number of shares that does not exceed the greater of:
- one percent of the number of shares of Subordinate Voting Shares then
outstanding, which will equal approximately 7,294,169 shares immediately
after this offering; and
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- the average weekly trading volume of our Subordinate Voting Shares during
the four calendar weeks preceding the sale, which we cannot determine at
this time.
Sales under Rule 144 are also subject to requirements with respect to manner
of sale, notice and the availability of current public information about us.
RULE 144(K)
Under Rule 144(k), a person who is not deemed to have been our affiliate at
any time during the three months preceding a sale, and who has beneficially
owned the shares proposed to be sold for at least two years, may sell these
shares without complying with the manner of sale, public information, volume
limitation or notice requirements of Rule 144.
RULE 701
Rule 701, as currently in effect, permits our employees, officers, directors
or consultants who purchased shares pursuant to options granted prior to
July 21, 1998, under a written compensatory plan or contract to resell such
shares in reliance upon Rule 144, but without compliance with some restrictions.
Rule 701 provides that affiliates may sell their Rule 701 shares under Rule 144
ninety days after effectiveness without complying with the holding period
requirement and that non-affiliates may sell such shares in reliance on
Rule 144 ninety days after effectiveness without complying with the holding
period, public information, volume limitation or notice requirements of
Rule 144.
REGISTRATION RIGHTS
We have granted various registration rights to some of our shareholders,
which will enable these shareholders to cause us to register their shares for
sale either in connection with the exercise of a demand registration right or,
subject to particular cutbacks by managing underwriters, "piggyback"
registration rights. For a summary of these rights, please refer to the section
of this prospectus entitled "Share Capital Reorganization and Description of
Capital Stock--Registration Rights."
CANADIAN RESALE RESTRICTIONS
The Subordinate Voting Shares outstanding immediately prior to the offering
or issued pursuant to the exercise of options granted prior to the offering may
not be sold or otherwise disposed of for value in Canada, except pursuant to
either a prospectus, a discretionary exemption or a statutory exemption
available only in specific limited circumstances, unless or until, among other
things, we have been a reporting issuer for at least twelve months and
disclosure to applicable Canadian securities regulatory authorities has been
made. We have applied to applicable Canadian securities regulatory authorities
to permit after six months sales of Subordinate Voting Shares issued upon
exercise of options granted prior to the offering without the requirement that
we be a reporting issuer for at least twelve months prior to such sales. We will
become a reporting issuer in each of the provinces of Canada upon the filing of
this prospectus with, and the issuance of a receipt therefor by, such Canadian
securities regulatory authorities. In addition, sales of our shares in Canada by
our control shareholders (generally, persons or companies who alone or in
combination with others hold a sufficient number of securities to affect
materially the control of the issuer) will be restricted.
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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 "Risk Factors--Telecommunications
Regulation--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 competitive local exchange
carrier ("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 four
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 LECs, including incumbent
local exchange carriers ("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 Federal Communications
Commission ("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 Services--Universal Service." Private
carriers may also be subject to access charges if interconnected to LECs.
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TELECOMMUNICATIONS SERVICES
Some of our services, such as the provision of bandwidth capacity and lit
fiber, may be treated as telecommunications services by the FCC. If some of our
services are treated as telecommunications services a significant number of
federal regulatory requirements will be applicable to those services.
The law essentially defines telecommunications carriers to include entities
offering telecommunications services for a fee directly to the public or to
classes of users so as to be effectively available directly to the public,
regardless of the facilities used. "Telecommunications" is defined as the
transmission, between or among points specified by the user, of information of
the user's choosing, without change in the form or content of the information as
sent and received. For the reasons stated above regarding our belief that we are
not a common carrier, we also believe that we are not a telecommunications
carrier concerning our dark fiber offerings. The FCC has ruled that the term
"telecommunications carrier" is the same as the definition of common carrier
and, therefore, a company providing fiber facilities on an individualized and
selective basis, as we propose, is probably not a telecommunications carrier. A
decision to this effect has been appealed to federal court. A decision on this
appeal reversing or remanding the FCC's conclusion could require that our
services be treated as common carriage. Some 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 some 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 non-dominant common carrier. The FCC imposes regulations
on common carriers such as the Regional Bell Operating Companies ("RBOCs") that
have some degree of market power ("dominant carriers"). The FCC imposes less
regulation on common carriers without market power ("non-dominant carriers").
Under the FCC's rules, we would be a non-dominant 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 incumbent local exchange carriers ("ILECs") and CLECs described in
the next section. All telecommunications carriers must also ensure that they do
not install network features, functions
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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 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 non-dominant interstate
interexchange carriers ("IXCs") 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 LECs. 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 particular
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 non-dominant
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 non-dominant IXCs 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.
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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 some
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
subscriber's name, telephone number and address, if that information is
published or accepted for publication in any directory format. Under the FCC's
rules, a carrier may only use a customer's proprietary network information to
market a service that is "necessary to, or used in," the provision of a service
that the carrier already provides to the customer, unless it receives the
customer's prior oral or written consent to use that information to market other
services. The Court of Appeals for the Tenth Circuit recently invalidated the
FCC's rules with respect to how a carrier must obtain customer authorization for
the use of customer proprietary network information. The FCC is 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 2000 because we had no significant end user revenues
in 1999. 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
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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 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.
COMPETITIVE LOCAL EXCHANGE CARRIERS OFFERINGS
It is unclear whether we would be viewed as a CLEC with respect to the
provision of some of our services. A CLEC 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
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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
LEC 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-local access and transport area
("LATA") services and for intra-LATA toll services. LECs are required to
implement dialing parity for intra-LATA toll services during 1999.
ACCESS TO ROW. 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 particular 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
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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
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 some 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
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year. In anticipation of receiving inter-LATA approval, some 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.
SectionSection34-39 ("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.
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:
- require the certification of TSPs,
- regulate the rates of intrastate offerings and the terms and conditions of
both intrastate and certain interstate service offerings and
- 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.
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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 have 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 we do 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 challenged. None of our tariffs has
been changed to date. Various state regulators may attempt to regulate our 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.
CANADA
We offer bandwidth services to our customers in Canada through resale
arrangements. Under these resale arrangements, we obtain the use of transmission
facilities on a non-exclusive, contractual basis from Urbanlink and then offer
bandwidth services to our customers through the subsequent sale or lease, on a
commercial basis, of these contracted facilities. As a reseller, we are not
generally subject to the regulatory requirements of the Telecommunications Act
(Canada). However, there can be no assurance that the regulation of resellers in
Canada may not become more extensive in the future. In addition, while we
believe that our operations as a reseller in Canada fully comply with Canadian
law, there can be no assurance that a future determination of the Canadian
Radio-television and Telecommunications Commission or events beyond our control
will not result in a change in our status or affect our ability to offer
services in Canada.
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
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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 should be converted into a
revenue-based regime under which contribution would be paid on a percentage of a
TSP'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 the majority of our activities in Canada are subject
to the requirement to pay contribution under the current contribution regime.
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
"telecommunications common carrier" is not eligible to operate in Canada unless
it is owned and controlled by Canadians. Furthermore, no more than 20% of the
members of the board of directors of a telecommunications common carrier may be
non-Canadian and no more than 20% of the voting shares of a telecommunications
common 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 of a
telecommunications common carrier may be beneficially owned or controlled by
non-Canadians and neither the telecommunications common carrier nor its parent
may be otherwise controlled in fact by non-Canadians.
Although we believe that our activities in Canada, including the Canadian
telecommunications arrangement, comply with the foreign ownership provisions of
the Telecommunications Act, there can be no assurance that a future Canadian
Radio-television and Telecommunications Commission determination or events
beyond our control will not result in our being required to comply with the
ownership provisions of the Telecommunications Act.
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 TCC. As a result, acquirers 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 TSPs 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 obtained by us from Urbanlink,
would be exempt from the Canadian ownership provisions contained in the
Telecommunications Act.
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In addition to determining the status of IRUs 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,
TSPs 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 our bandwidth services in Canada may choose to purchase, lease or
obtain IRUs 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 bandwidth
services in Canada, which could have a material adverse effect on our business,
financial condition and results of operations.
On September 18, 1998, the Stentor alliance announced that, while it will
continue to coordinate national network management for the regionally based
ILECs, it will cease other joint initiatives in national product development,
marketing and other areas. We believe that the restructuring of the Stentor
alliance, the launch by Bell Canada of its national telecommunications company,
the merger of BC TELECOM Inc. and TELUS to create BCT.Telus and the merger of
ILECs in Atlantic Canada to create Aliant will create increased opportunities
for us in the Canadian carrier market as the ILECs expand beyond their
traditional serving territories.
CRTC PROCEEDINGS
On March 19, 1999, Urbanlink's predecessor filed an application with the
Canadian Radio-television and Telecommunications Commission seeking orders under
the Telecommunications Act which would permit Urbanlink's predecessor 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
Urbanlink's network facilities within that city. In an answer to that
application, the City of Vancouver took the position that Urbanlink's
predecessor was 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 some of
the carriers that have obtained indefeasible rights of use from Urbanlink's
predecessor 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 Urbanlink's predecessor 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 the March 19, 1999
application of Urbanlink's predecessor 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 requested by Urbanlink's predecessor in its initial
application to the Canadian Radio-television and Telecommunications Commission
could result in increased costs to us which could have a material adverse effect
on our business, financial condition and results of operations.
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In a related matter, the City of Vancouver has served Telus, a conduit
provider to Urbanlink, with notices to terminate, effective December 31, 2000,
most existing agreements between Telus and the City for access to street
crossings and other municipal property. The City has stated that this will allow
an opportunity for meaningful negotiation based on the terms and conditions that
the Canadian Radio-television and Telecommunications Commission ultimately
prescribes for access to municipal property. We currently have IRUs in Urbanlink
facilities that are placed in the Telus conduit in the City of Vancouver. The
results of any such negotiations could lead to increased maintenance and
operation charges to us by Urbanlink. If our continued access to this conduit is
jeopardized, our ability to operate our Vancouver network may be impaired and
our business could be adversely affected.
EUROPEAN UNION
Regulations of telecommunications in the European Union (Austria, Belgium,
Denmark, Finland, France, Germany, Greece, Ireland, Italy, Luxembourg, The
Netherlands, Portugal, Spain, Sweden and the United Kingdom) is subject to the
requirements of European Union Law. Apart from general antitrust rules, the
relevant European Union law mainly consists of directives adopted by the
European Council and the European Commission (pursuant to the Treaty of Rome),
which are addressed to, and are binding on, the member states of the European
Union, and which require implementation in the national laws of those states.
These directives are intended to establish harmonized core regulatory
requirements across the European Union. They do not, however, cover every aspect
of telecommunications regulation. In addition, in some cases they give a choice
of different options to the member countries, or are limited to giving general
principles, the detailed implementation of which must be established by the
relevant national legislation.
European Union law requires that many of the rules concerning licensing,
interconnection, retail service and technical issues should have substantially
the same effect in all member countries. However, due to the permitted
discretion as to how EU rules are given effect within national boundaries,
and/or due to ambiguity in the EU rules giving rise to different interpretations
and/or due to failure by member states to properly implement such rules by the
required deadline or correctly, there are often important differences in the
applicable rules between member states. Private parties may, in reliance on
European Union Directives, be able to bring actions in their national courts
against national laws or regulations which fail to properly implement EU
Directives but legal proceedings are costly and take a long time. The European
Commission may bring actions in the European Court of Justice against the member
states for failure to implement EU legislation properly, but such action may
also take a long time, and the European Commission does not always take such
action or only takes such action after a considerable delay. In consequence, for
practical purposes, there may be significant differences between the rules
applying in different member states, even where European Law is intended to
introduce rules which are similar in effect.
A Commission Directive known as the Full Competition Directive required all
member states except those with express derogations (Greece, Ireland,
Luxembourg, Portugal and Spain) to permit competition in all telecommunications
services by removing restrictions on the provision of telecommunications
services and telecommunications infrastructure by January 1, 1998.
A directive known as the Licensing Directive establishes a framework for the
granting of national authorizations and licenses "for the purpose of providing
telecommunications services, including authorizations for the establishment
and/or operation of telecommunications networks required for the provision of
such services." We are advised that there is substantial support for the view
that this directive, and/or other directives only enable member states to
require telecommunications licenses, authorizations, or other forms of
permission, to the extent that a telecommunications service is being provided
and that absent such service, as in the case of the
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mere construction or control of or provision of unlit optical fiber cables, no
telecommunications license, authorization or other permission can be required
under European Union law. However we are also advised not all member states may
interpret the requirements of European Union law in this manner, and that for
practical purposes it is therefore necessary to analyze national law and
regulation in each case. When we are operating or in control of fiber which is
functioning or "lit" we are advised that we may on the other hand, in any
particular member state, be required, to apply for an individual license if we
are deemed to be providing a public telecommunications network or publicly
available voice telephony services, or that we may benefit from applying for
such a license to gain the rights to numbers and to gain access to ROW in
respect of land. Alternatively, in some countries, we may simply be required to
comply with a notification or registration procedures.
A directive known as the Interconnection Directive requires that in any
member state where we eventually offer leased lines to user premises, or control
access to network termination points identified by numbers in the national
numbering plan, we will have the right to negotiate interconnection with any
other operators and the obligation to negotiate such interconnection when so
requested. In addition, to the extent that we offer "bearer capabilities,"
individual member states may give us the right (and, if so, the obligation) to
negotiate interconnection with other operators.
The Interconnection Directive also requires that to the extent that we are
included by any member state in the class of operators with a right and
obligation to interconnect as just described, then fixed network operators
deemed by the member state regulator, to have "significant market power" (as
defined in that directive) must offer us interconnection on standard, cost
oriented, non-discriminatory and transparent terms. However, to the extent that
we are not granted any interconnection rights in any member state, we will not
be entitled to cost-oriented charges from such an operator, and may be required
to pay tariffs which are significantly higher in most member states.
The European Commission has recommended that cost-oriented interconnection
charges which some fixed network operators with significant market power are
required to apply, should be based on long run incremental costs, which is
similar to TELRIC, the cost model used by the FCC in the US. However, in the
absence of appropriate accounts or models of such rates, the Commission has
published benchmark interconnection rates, above which national regulators
should seek justification from the relevant fixed network operator.
Each European Union member state in which we currently conduct our business
has a different regulatory regime and such differences are expected to continue.
In addition, in connection with the Telia agreement we will be operating a
segment of our European network in Norway, which is not a member of the European
Union and therefore not subject to the various rules and regulations governing
European Union member states. Norway does however have its own regulatory regime
to which our operations will be subject.
360AMERICAS
Our planned 360AMERICAS undersea fiber optic cable facilities and
telecommunications services, including backhaul services, may be subject to
regulation in each jurisdiction where the 360AMERICAS cable and the BUS-1
undersea fiber optic cable system that connects Bermuda and the United States
("BUS-1") land. GlobeNet currently has in place all of the necessary licenses to
land and provide services from the BUS-1 system. In order to implement fully the
360AMERICAS cable, it may be necessary for GlobeNet to obtain authority to land
the cable and to offer telecommunications services, including backhaul, to our
customers in each jurisdiction in which the cable lands. See "Risk
Factors--Government Regulation."
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UNITED STATES
In the United States, the laws and regulations pertaining to undersea cable
systems and telecommunications services are well developed and an established
set of rules and procedures exist. GlobeNet has reviewed with Alcatel our
various options with respect to the most optimal landing locations. On June 2,
1999, GlobeNet submitted a cable landing license application to the FCC seeking
authority to land and operate the 360AMERICAS cable in Tuckerton, New Jersey
(next to the landing stations for the BUS-1 system) and Boca Raton, Florida. On
December 10, 1999, the FCC granted TeleBermuda International Limited ("TBI"), a
wholly owned subsidiary of GlobeNet, a landing license for the 360AMERICAS
cable.
TBI's U.S. affiliate, TeleBermuda International L.L.C. ("TBI L.L.C."), was
formed in May 1996 as a limited liability company under the laws of the State of
Delaware. TBI L.L.C. holds the landing license for the BUS-1 system in the
United States issued by the FCC, as well as certain ownership and leasehold
rights with respect to BUS-1 system assets located in the United States. TBI
L.L.C. is a wholly owned subsidiary of TBI. Previously, TBI held a 20% ownership
interest in TBI L.L.C., and Elbac Cable Corporation ("Elbac") held the remaining
80% ownership interest. On October 29, 1999, the FCC issued a Memorandum Opinion
and Order granting authority for TBI to acquire Elbac, including the 80%
ownership interest held by Elbac in TBI L.L.C. This transaction was consummated
on November 1, 1999, thus providing TBI with a 100% ownership interest in TBI
L.L.C.
TBI is authorized to operate in the United States as a common carrier
pursuant to Section 214 of the Communications Act of 1934, as amended. This
allows TBI to provide any telecommunications services, including backhaul
services, to or from the United States via any means, including our current and
future undersea fiber optic cable systems.
BRAZIL AND VENEZUELA
In countries such as Brazil and Venezuela with recently privatized
telecommunications industries, many of the telecommunications laws and
regulations are relatively new and still evolving. In both of these countries,
there are no current statutes or regulations regarding the landing of undersea
fiber optic cable facilities. Accordingly, authorities have been consulted with
the appropriate regulatory authorities in Brazil (ANATEL) and Venezuela
(CONATEL). Based on these consultations, GlobeNet believes that it is the first
private undersea fiber optic cable operator to request governmental approval to
land an international fiber optic cable system in either jurisdiction. These
consultations have indicated to GlobeNet that the procompetitive effects of
deregulation and the desire to attract foreign investment have created flexible
regulatory environments in Brazil and Venezuela that are receptive to projects
such as the 360AMERICAS cable.
The need for new undersea fiber optic cable systems is particularly strong
in these countries where former monopoly providers previously controlled access
to and from the country through their ownership of international capacity on
traditional consortium cable systems. Although competition in the provision of
telecommunications services has begun to be introduced in both jurisdictions,
the former monopoly carriers continue to control the existing inventory of
available undersea fiber optic capacity that lands in each country. Accordingly,
capacity remains scarce and very expensive.
BRAZIL
On March 2, 1999, GlobeNet submitted a request to ANATEL seeking authority
to construct, land and operate the 360AMERICAS cable in Brazil. On October 13,
1999, in a response to this request, ANATEL indicated that the provision of
submarine cable infrastructure does not constitute a
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telecommunications service and therefore no ANATEL license is necessary to
construct, own and operate the 360AMERICAS cable.
Established regulations and procedures exist for obtaining
telecommunications services licenses in Brazil. Our operating subsidiary in
Brazil has received the necessary telecommunications services licenses from
ANATEL to provide backhaul services in Brazil. It is GlobeNet's expectation that
we will be able to sell or lease submarine cable fiber optic facilities to all
entities with authority to provide telecommunication services in Brazil. Under
the current regulatory regime in Brazil only Embratel and INTELIG have the
appropriate authority to offer long-distance and international switched voice
telephony services in Brazil. ANATEL is currently providing licenses on a
routine basis for companies seeking to offer international private network
services. It is not anticipated that regulatory authority will be required for
carrier-to-carrier contracts or the offering of value-added services. Thus,
today GlobeNet should be able to sell its facilities to the two public switched
telephony licensees, all private line licensees and value-added service
providers. The government of Brazil has announced that in January 2002, it will
lift current restrictions on the number of licensees in Brazil who may provide
switched voice telephony. At that time, GlobeNet should also be able to offer
our facilities to new competitive switched voice telephony providers.
VENEZUELA
On March 16, 1999, GlobeNet submitted a letter to CONATEL seeking guidance
on what licenses or permits from CONATEL may be necessary to land the
360AMERICAS cable in Venezuela. In response to this letter, CONATEL informed
GlobeNet in writing that no authorization or permit from CONATEL is required to
construct and land the 360AMERICAS cable in Venezuela. Based on advice provided
by CONATEL, GlobeNet does not believe that any CONATEL permits or concessions
are necessary to operate the cable or sell capacity on the cable. In order to
provide backhaul services in Venezuela, GlobeNet must obtain a Private Network
Concession, which is required under Venezuelan law to install and operate a
telecommunications network for commercial purposes. GlobeNet shortly plans to
submit an application to CONATEL for this license. Although GlobeNet cannot
assure you that it will be granted this license, GlobeNet does not believe that
it will not be successful in obtaining it. It is GlobeNet's expectation that it
will be able to sell or lease submarine cable fiber optic facilities to all
entities with authority to provide telecommunications and value added network
services in Venezuela. Under the existing regulatory framework in Venezuela,
only CANTV can offer international public switched telephony services in
Venezuela. However, the Concession Agreement between the Republic of Venezuela
and CANTV provides that in November 2000 the telecommunications market will be
open for additional competition and the appropriate authority will be granted to
a number of companies seeking to offer switched voice telephony services.
Currently, CONATEL is issuing authority on a routine basis to companies seeking
to offer international or domestic private network services. Thus, today
GlobeNet can sell facilities to CANTV and private network and value added
service providers. Additionally, in November 2000 GlobeNet will be able to sell
facilities to newly licensed switched voice telephony providers.
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DESCRIPTION OF INDEBTEDNESS
NOTES OFFERED IN CONCURRENT DEBT OFFERINGS
We expect the terms of the notes that we currently intend to issue in our
concurrent debt offerings to be similar to the terms of our 1999 Notes as
described below. The closing of this offering is not conditioned on the closing
of either of the debt offerings.
1999 NOTES
GENERAL. The 1999 Notes are senior obligations of ours, limited to
$500 million in principal amount, and mature on August 1, 2009. The 1999 Notes,
which were issued pursuant to the 1999 Indenture, accrue interest at a rate of
12% per annum. Interest is payable each August 1 and February 1, commencing on
February 1, 2000.
RANKING. The 1999 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 1998 Notes (see below).
OPTIONAL REDEMPTION. The 1999 Notes are not redeemable prior to August 1,
2004. Thereafter, the 1999 Notes will be redeemable, in whole or in part, at our
option, at the redemption prices set forth in the 1999 Indenture, plus accrued
and unpaid interest to the applicable redemption date. Specifically, if redeemed
during the 12-month period beginning on August 1 of the years set forth below,
the redemption price will be that amount, expressed as a percentage of the
principal amount of the 1999 Notes, listed below:
<TABLE>
<CAPTION>
YEAR REDEMPTION PRICE
- ---- ------------------
<S> <C>
2004..................................................... 106.000%
2005..................................................... 104.000%
2006..................................................... 102.000%
2007..................................................... 100.000%
</TABLE>
In addition, (1) prior to August 1, 2002, we may redeem up to 35% of the sum
of (a) the originally issued principal amount of the 1999 Notes and (b) any
subsequent notes issued under the 1999 Indenture, at 112% 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 sum of (a) the originally issued principal amount of
the 1999 Notes and (b) any subsequent notes issued under the 1999 Indenture,
remains outstanding after the occurrence of the redemption and (2) we may redeem
the 1999 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 1999 Notes will have the right to require us to repurchase all or any part of
that holder's 1999 Notes at a purchase price in cash equal to 101% of their
principal amount, plus accrued and unpaid interest to the date of purchase.
COVENANTS. The 1999 Indenture contains certain covenants that, among other
things, limit our ability and the ability of our restricted subsidiaries to:
- borrow money;
- pay dividends on stock or repurchase stock;
- make investments;
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- use assets as security in other transactions; and
- sell certain assets or merge with or into other companies.
EVENTS OF DEFAULT. The 1999 Indenture contains customary events of default,
including:
- defaults in the payment of principal, premium or interest;
- defaults in the compliance with covenants contained in the 1999 Indenture;
- cross defaults on more than $10 million of other indebtedness;
- failure to pay more than $10 million of judgments that have not been
stayed by appeal or otherwise; and
- the bankruptcy of 360NETWORKS INC. or certain of its subsidiaries.
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 1999 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:
<TABLE>
<CAPTION>
YEAR REDEMPTION PRICE
- ---- ------------------
<S> <C>
2003.................................................... 106.250%
2004.................................................... 100.000%
</TABLE>
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
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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 our ability and the ability of our restricted subsidiaries to:
- borrow money;
- pay dividends on stock or repurchase stock;
- make investments;
- use assets as security in other transactions; and
- sell certain assets or merge with or into other companies.
EVENTS OF DEFAULT. The 1998 Indenture contains customary events of default,
including:
- defaults in the payment of principal, premium or interest;
- defaults in the compliance with covenants contained in the 1998 Indenture;
- cross defaults on more than $10 million of other indebtedness;
- failure to pay more than $10 million of judgments that have not been
stayed by appeal or otherwise; and
- the bankruptcy of 360NETWORKS INC. or certain of its subsidiaries.
360ATLANTIC CREDIT FACILITY
In February 2000, a group of our subsidiaries entered into $565 million
senior secured credit facilities arranged by Goldman Sachs Credit Partners L.P.,
DLJ Capital Funding, Inc., Credit Suisse First Boston and Export Development
Corporation. This credit facility consists of a $365 million tranche A term loan
facility, a $175 million tranche B term loan facility and a $25 million working
capital revolving credit facility. Our subsidiaries have borrowed $175 million
under this credit facility and will use these proceeds, as well as future
proceeds, for the development, design, engineering, construction and
installation of 360ATLANTIC.
The indebtedness outstanding under this credit facility is guaranteed by
four of our subsidiaries within the borrowing group and is secured by all of
their capital stock and substantially all of the assets and property owned by
our subsidiaries within the borrowing group. This credit facility is
non-recourse to 360NETWORKS INC.
The credit facility contains customary covenants which restrict and limit
the ability of our subsidiaries within the borrowing group with respect to,
among other things, incurring indebtedness, entering into merger or
consolidation transactions, making certain restricted payments, creating liens
on assets, making investments and entering into sale and leaseback transactions
and transactions with affiliates. The credit facility also limits the ability of
our
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subsidiaries within the borrowing group to engage in activities unrelated to
360ATLANTIC. In addition, the credit facility also requires that our
subsidiaries within the borrowing group comply with various financial covenants,
including the receipt of a minimum amount of revenue derived from sales of
capacity on 360ATLANTIC, maximum leverage ratios and a limit on capital
expenditures.
The credit facility also contains customary events of default, including the
nonpayment of principal, interest, fees or other amounts, a cross-default with
respect to other obligations of our subsidiaries within the borrowing group,
failure to materially comply with certain covenants, conditions or provisions
under the credit facility, the making of materially false or misleading
representations or warranties, the occurrence of any default under material
contracts related to 360ATLANTIC that could have a material adverse effect on
our subsidiaries within the borrowing group, the failure to achieve the
commercial operation date of 360ATLANTIC by a specified date, the occurrence of
reorganization, bankruptcy, insolvency or similar proceedings or the occurrence
of a change of control. Upon the occurrence and during the continuance of an
event of default under the credit facility, all obligations under the credit
facility could be deemed to be immediately due and payable.
PROPOSED CREDIT FACILITY
We have accepted an underwritten commitment from The Chase Manhattan Bank
and an affiliate of Donaldson, Lufkin & Jenrette Securities Corporation to
provide up to $1.0 billion of financing under a senior credit facility. This
commitment is subject to negotiation of definitive documentation and other
closing and lending conditions. Amounts borrowed under this facility will be
required to be used in compliance with restrictions contained under our
indentures. There can be no assurance that this credit facility will be entered
into in a timely fashion or at all.
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MATERIAL UNITED STATES AND CANADIAN INCOME TAX CONSIDERATIONS
In this section we summarize the material U.S. federal and Canadian federal
income tax consequences of the ownership and disposition of Subordinate Voting
Shares beneficially owned by individuals, corporations, trusts and estates
which:
- for purposes of the U.S. Internal Revenue Code of 1986, as amended through
the date hereof (the "Code"), are U.S. persons and, for purposes of the
Income Tax Act (Canada) (the "Income Tax Act") and the Canada-United
States Income Tax Convention (1980), are residents of the United States
and not resident in Canada;
- hold Subordinate Voting Shares as capital assets for purposes of the Code
and capital property for purposes of the Income Tax Act;
- deal at arm's length with us for purposes of the Income Tax Act; and
- do not and will not use or hold the Subordinate Voting Shares in carrying
on a business in Canada.
We will refer to persons who satisfy the above conditions as "Unconnected
U.S. Shareholders."
The tax consequences of an investment in Subordinate Voting Shares by
persons who are not Unconnected U.S. Shareholders may differ materially from the
tax consequences discussed in this section. The Income Tax Act contains rules
relating to securities held by some financial institutions. We do not discuss
these rules and holders that are financial institutions should consult their own
tax advisors.
This discussion is based upon the following, all as currently in effect:
- the Income Tax Act and regulations under the Income Tax Act;
- the Code and Treasury regulations under the Code;
- the Canada-United States Income Tax Convention (1980);
- the administrative policies and practices published by the Canadian
Customs and Revenue Agency, formerly Revenue Canada;
- all specific proposals to amend the Income Tax Act and the regulations
under the Income Tax Act that have been publicly announced by or on behalf
of the Minister of Finance (Canada) prior to the date of this registration
statement;
- the administrative policies published by the U.S. Internal Revenue
Service; and
- judicial decisions.
All of the foregoing are subject to change either prospectively or
retroactively. We do not take into account the tax laws of the various provinces
or territories of Canada or the tax laws of the various state and local
jurisdictions of the United States or foreign jurisdictions.
THIS DISCUSSION SUMMARIZES THE MATERIAL U.S. FEDERAL AND CANADIAN FEDERAL
INCOME TAX CONSIDERATIONS OF THE OWNERSHIP AND DISPOSITION OF SUBORDINATE VOTING
SHARES. THIS DISCUSSION DOES NOT ADDRESS ALL POSSIBLE TAX CONSEQUENCES RELATING
TO AN INVESTMENT IN SUBORDINATE VOTING SHARES. WE HAVE NOT TAKEN INTO ACCOUNT
YOUR PARTICULAR CIRCUMSTANCES AND DO NOT ADDRESS CONSEQUENCES PECULIAR TO YOU IF
YOU ARE SUBJECT TO SPECIAL PROVISIONS OF U.S. OR CANADIAN 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 SUBORDINATE VOTING SHARES AS PART OF A "STRADDLE," "HEDGE" OR
"CONVERSION TRANSACTION," AND UNCONNECTED U.S. SHAREHOLDERS THAT HAVE A
"FUNCTIONAL CURRENCY" OTHER THAN
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THE U.S. DOLLAR OR THAT OWN SUBORDINATE VOTING SHARES THROUGH A PARTNERSHIP OR
OTHER PASS-THROUGH ENTITY). THEREFORE, YOU SHOULD CONSULT YOUR OWN TAX ADVISOR
REGARDING THE TAX CONSEQUENCES OF PURCHASING SUBORDINATE VOTING SHARES IN THIS
OFFERING.
U.S. FEDERAL INCOME TAX CONSIDERATIONS
Subject to the discussion below regarding Foreign Personal Holding Company
Rules, Passive Foreign Investment Company Rules and Controlled Foreign
Corporation Rules, this section summarizes U.S. federal income tax consequences
of the ownership and disposition of Subordinate Voting Shares.
As an Unconnected U.S. Shareholder, you generally will be required to
include in income dividend distributions paid by us to the extent of our current
or accumulated earnings and profits attributable to the distribution as computed
based on U.S. income tax principles. The amount of any cash distribution paid in
Canadian dollars will be equal to the U.S. dollar value of the Canadian dollars
on the date of distribution based on the exchange rate on such date, regardless
of whether the payment is in fact converted to U.S. dollars and without
reduction for Canadian withholding tax. (For a discussion of Canadian
withholding taxes applicable to dividends paid by us, see "Certain Canadian
Federal Income Tax Considerations.") You will generally be entitled to a foreign
tax credit or deduction in an amount equal to the Canadian tax withheld. To the
extent distributions paid by us on the Subordinate Voting Shares exceed our
current or accumulated earnings and profits, they will be treated first as a
return of capital up to your adjusted tax basis in the shares and then as
capital gain from the sale or exchange of the shares.
Dividends paid by us generally will constitute foreign source dividend
income and "passive income" for purposes of the foreign tax credit, which could
reduce the amount of foreign tax credits available to you. The Code applies
various limitations on the amount of foreign tax credits that may be available
to a U.S. taxpayer. Because of the complexity of those limitations, you should
consult your own tax advisor with respect to the availability of foreign tax
credits.
Dividends paid by us on the Subordinate Voting Shares generally will not be
eligible for the "dividends received" deduction.
If you sell the Subordinate Voting Shares, you generally will recognize gain
or loss in an amount equal to the difference between the amount realized on the
sale and your adjusted tax basis in the shares. Any such gain or loss will be
long-term or short-term capital gain or loss, depending on whether the shares
have been held by you for more than one year, and will generally be U.S. source
gain or loss.
Dividends paid by us on the Subordinate Voting Shares generally will not be
subject to U.S. information reporting or the 31% backup withholding tax unless
they are paid in the United States through a U.S. or U.S.-related paying agent,
including a broker. If you furnish the paying agent with a duly completed and
signed Form W-9, such dividends will not be subject to the backup withholding
tax. You will be allowed a refund or a credit equal to any amount withheld under
the U.S. backup withholding tax rules against your U.S. federal income tax
liability, provided you furnish the required information to the Internal Revenue
Service.
FOREIGN PERSONAL HOLDING COMPANY RULES
Special U.S. tax rules apply to a shareholder of a foreign personal holding
company ("FPHC"). We would be classified as a FPHC in any taxable year if both
of the following tests are satisfied:
- five or fewer individuals who are U.S. citizens or residents own or are
deemed to own more than 50% of the total voting power of all classes of
our stock entitled to vote or the total value of our stock; and
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- at least 60% of our gross income consists of "foreign personal holding
company income," which generally includes passive income such as
dividends, interest, gains from the sale or exchange of stock or
securities, rents and royalties.
We believe that we are not a FPHC, and we do not expect to become a FPHC as
a result of the offering. However, we can not assure you that we will not
qualify as a FPHC in the future.
PASSIVE FOREIGN INVESTMENT COMPANY RULES
The passive foreign investment company ("PFIC") provisions of the Code can
have significant tax effects on Unconnected U.S. Shareholders. We could be
classified as a PFIC if, after the application of certain "look through" rules,
for any taxable year, either:
- 75% or more of our gross income is "passive income," which includes
interest, dividends and certain rents and royalties; or
- the average quarterly percentage, by fair market value of our assets that
produce or are held for the production of "passive income" is 50% or more
of the fair market value of all our assets.
To the extent we own at least 25% by value of the stock of another
corporation, we are treated for purposes of the PFIC tests as owning our
proportionate share of the assets of such corporation, and as receiving directly
our proportionate share of the income of such corporation.
Distributions which constitute "excess distributions" from a PFIC and
dispositions of Subordinate Voting Shares of a PFIC are subject to the following
special rules: (1) the excess distributions (generally any distributions
received by an Unconnected U.S. Shareholder on the shares in any taxable year
that are greater than 125% of the average annual distributions received by such
Unconnected U.S. Shareholder in the three preceding taxable years, or the
Unconnected U.S. Shareholder's holding period for the shares, if shorter) or
gain would be allocated ratably over an Unconnected U.S. Shareholder's holding
period for the shares, (2) the amount allocated to the current taxable year and
any taxable year prior to the first taxable year in which we are a PFIC would be
treated as ordinary income in the current taxable year, and (3) the amount
allocated to each of the other taxable years would be subject to the highest
rate of tax on ordinary income in effect for that year and to an interest charge
based on the value of the tax deferred during the period during which the shares
are owned.
Subject to specific limitations, Unconnected U.S. Shareholders who actually
or constructively own marketable shares in a PFIC may make an election under
section 1296 of the Code to mark those shares to market annually, rather than
being subject to the above-described rules. Amounts included in or deducted from
income under this mark-to-market election and actual gains and losses realized
upon disposition, subject to specific limitations, will be treated as ordinary
gains or losses. For this purpose, we believe that our shares will be treated as
"marketable securities" within the meaning of Section 1296(e)(1) of the Code.
We believe that we will not be a PFIC for the current fiscal year and we do
not expect to become a PFIC in future years. Whether we are a PFIC in any year
and the tax consequences relating to PFIC status will depend on the composition
of our income and assets, including cash. You should be aware, however, that if
we are or become a PFIC we may not be able or willing to satisfy record-keeping
requirements that would enable you to make a "qualified electing fund" election.
You should consult your tax advisor with respect to how the PFIC rules affect
your tax situation.
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CONTROLLED FOREIGN CORPORATION RULES
If more than 50% of the voting power or total value of all classes of our
shares is owned, directly or indirectly, by U.S. shareholders, each of which
owns 10% or more of the total combined voting power of all classes of our
shares, we could be treated as a controlled foreign corporation ("CFC") under
Subpart F of the Code. This classification would require such 10% or greater
shareholders to include in income their pro rata shares of our "Subpart F
Income," as defined in the Code. In addition, under Section 1248 of the Code,
gain from the sale or exchange of shares by an Unconnected U.S. Shareholder who
is or was a 10% or greater shareholder at any time during the five year period
ending with the sale or exchange will be ordinary dividend income to the extent
of our earnings and profits attributable to the shares sold or exchanged.
We believe that we are not a CFC and we will not become a CFC as a result of
the offering. However, we can not assure you that we will not become a CFC in
the future.
CERTAIN CANADIAN FEDERAL INCOME TAX CONSIDERATIONS
In this section, we summarize the material anticipated Canadian federal
income tax considerations relevant to your purchase of Subordinate Voting
Shares.
Under the Income Tax Act, assuming you are an Unconnected U.S. Shareholder,
and provided the Subordinate Voting Shares are listed on a prescribed stock
exchange, which includes The Toronto Stock Exchange and Nasdaq, you will
generally be exempt from Canadian tax on a capital gain realized on an actual or
deemed disposition of the Subordinate Voting Shares unless you alone or together
with persons with whom you did not deal at arm's length owned or had rights to
acquire 25% or more of our issued shares of any class at any time during the
five year period before the actual or deemed disposition.
Dividends paid, credited or deemed to have been paid or credited on the
Subordinate Voting Shares to Unconnected U.S. Shareholders will be subject to a
Canadian withholding tax at a rate of 25% under the Income Tax Act. Under the
Canada-United States Income Tax Convention (1980), the rate of withholding tax
on dividends generally applicable to Unconnected U.S. Shareholders who
beneficially own the dividends is reduced to 15%. In the case of Unconnected
U.S. Shareholders that are corporations that beneficially own at least 10% of
our voting shares, the rate of withholding tax on dividends generally is reduced
to 5%.
Canada does not currently impose any federal estate taxes or succession
duties. However, if you die, there is generally a deemed disposition of the
Subordinate Voting Shares held at that time for proceeds of disposition equal to
the fair market value of the Subordinate Voting Shares immediately before the
death. Capital gains realized on the deemed disposition, if any, will have the
income tax consequences described above.
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UNDERWRITING
We, the selling shareholder and the underwriters for the offering (the
"Underwriters") named below have entered into an underwriting agreement with
respect to the shares being offered. Subject to certain conditions, each
Underwriter has severally agreed to purchase the number of shares indicated in
the following table. Goldman, Sachs & Co. and Donaldson, Lufkin & Jenrette
Securities Corporation, Credit Suisse First Boston Corporation, TD
Securities Inc., Bear, Stearns & Co. Inc., BMO Nesbitt Burns Inc., Morgan
Stanley & Co. Incorporated, Chase Securities Inc., RBC Dominion Securities Inc.
and Warburg Dillon Read LLC are the representatives of the Underwriters.
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITERS SHARES
- ------------ ------------------
<S> <C>
Goldman, Sachs & Co.........................................
Donaldson, Lufkin & Jenrette Securities Corporation.........
Credit Suisse First Boston Corporation......................
TD Securities Inc...........................................
Bear, Stearns & Co. Inc.....................................
BMO Nesbitt Burns Inc.......................................
Morgan Stanley & Co. Incorporated...........................
Chase Securities Inc........................................
RBC Dominion Securities Inc.................................
Warburg Dillon Read LLC.....................................
-----------
Total................................................. 46,275,000
===========
</TABLE>
Goldman, Sachs & Co., Donaldson, Lufkin & Jenrette Securities Corporation,
Credit Suisse First Boston Corporation, TD Securities Inc., Bear, Stearns &
Co. Inc., BMO Nesbitt Burns Inc., Morgan Stanley & Co. Incorporated, Chase
Securities Inc., RBC Dominion Securities Inc. and Warburg Dillon Read LLC will,
either directly or through their U.S. broker-dealer affiliates, offer the
Subordinate Voting Shares in the U.S. Goldman, Sachs & Co. (through its Canadian
dealer affiliate, Goldman Sachs Canada Inc.), Credit Suisse First Boston
Corporation (through its Canadian dealer affiliate, Credit Suisse First Boston
Securities Canada Inc.), TD Securities Inc., BMO Nesbitt Burns Inc., Morgan
Stanley & Co. Incorporated (through its Canadian dealer affiliate, Morgan
Stanley Canada Limited), RBC Dominion Securities Inc. and Warburg Dillon Read
LLC (through its Canadian dealer affiliate, Bunting Warburg Dillon Read Inc.)
will offer the Subordinate Voting Shares for sale in Canada. In addition, the
Underwriters, through their international affiliates, will offer the Subordinate
Voting Shares for sale outside of the United States and Canada.
If the Underwriters sell more shares than the total number set forth in the
table above, the Underwriters have an option to buy up to an additional
6,941,250 shares from us to cover such sales. They may exercise that option for
30 days. If any shares are purchased pursuant to this option, the Underwriters
will severally purchase shares in approximately the same proportion as set forth
in the table above.
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The following table shows the per share and total underwriting discounts and
commissions to be paid to the Underwriters by us and the selling shareholder.
Such amounts are shown assuming both no exercise and full exercise of the
Underwriters' option to purchase additional shares.
<TABLE>
<CAPTION>
PAID BY 360NETWORKS INC.
No Exercise Full Exercise
------------ -------------
<S> <C> <C>
Per share................................................... $ $
Total....................................................... $ $
</TABLE>
<TABLE>
<CAPTION>
Paid by selling shareholder
No Exercise Full Exercise
------------ -------------
<S> <C> <C>
Per share................................................... $ $
Total....................................................... $ $
</TABLE>
Shares sold by the Underwriters to the public will initially be offered at
the initial price to public set forth on the cover of this prospectus. Any
shares sold by the Underwriters to securities dealers may be sold at a discount
of up to $ per share from the initial price to the public. Any
such securities dealers may resell any shares purchased from the Underwriters to
certain other brokers or dealers at a discount of up to $ per
share from the initial price to public. If all the shares are not sold at the
initial price to public, the representatives may change the offering price and
the other selling terms.
The underwriting agreement provides that the obligations of the Underwriters
to purchase the Subordinate Voting Shares listed above are subject to certain
conditions set forth therein. The Underwriters are committed to purchase all of
the Subordinate Voting Shares offered by this prospectus (other than those
covered by the Underwriters' over-allotment option described below), if any are
purchased. In the event of default by any Underwriter, the underwriting
agreement provides that, in certain circumstances, the purchase commitments of
the non-defaulting Underwriters may be increased or the underwriting agreement
may be terminated. The obligations of the Underwriters under the underwriting
agreement are several and may be terminated in their discretion on the basis of
their assessment of the state of the financial markets and upon the occurrence
of certain stated events.
We, our officers, directors and substantially all of our shareholders have
agreed with the Underwriters not to dispose of or hedge any of their Subordinate
Voting Shares or securities convertible into or exchangeable for shares of
Subordinate Voting Shares during the period from the date of this prospectus
continuing through the periods set forth herein after the date of this
prospectus, except with the prior written consent of Goldman, Sachs & Co.,
Donaldson, Lufkin & Jenrette Securities Corporation and 360NETWORKS. See "Shares
Eligible for Future Sale".
In connection with the offering, the Underwriters may purchase, over-allot
or effect transactions on The Toronto Stock Exchange, on the Nasdaq National
Market, in the over-the-counter market or otherwise, which stabilize or maintain
the market price of the Subordinate Voting Shares at a level that might not
otherwise prevail on the exchange. These transactions may include short sales,
stabilizing transactions and purchases to cover positions created by short
sales. Short sales involve the sale by the Underwriters of a greater number of
shares than they are required to purchase in the offering. Stabilizing
transactions consist of certain bids or purchases made for the purpose of
preventing or retarding a decline in the market price of the Subordinate Voting
Shares while the offering is in progress.
In addition, in the U.S. the Underwriters also may impose a penalty bid.
This occurs when a particular Underwriter repays to the Underwriters a portion
of the underwriting discount received by it because the representatives have
repurchased shares sold by or for the account of such Underwriter in stabilizing
or short covering transactions. These activities by the Underwriters may
stabilize, maintain or otherwise affect the market price of the Subordinate
Voting Shares. As a result, the price of the Subordinate Voting Shares may be
higher than the price that otherwise might
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exist in the open market. If these activities are commenced, they may be
discontinued by the Underwriters at any time.
Pursuant to policy statements issued by the Ontario Securities Commission
and the Commission des valeurs mobilieres du Quebec, the Underwriters may not,
throughout the period of distribution, bid for or purchase Subordinate Voting
Shares. The foregoing restriction is subject to certain exceptions, on the
condition that the bid or purchase not be engaged in for the purpose of creating
actual or apparent active trading in or raising the price of the Subordinate
Voting Shares. Those exceptions include a bid or purchase permitted under the
by-laws and rules of The Toronto Stock Exchange relating to market stabilization
and passive market making activities and a bid or purchase made for or on behalf
of a customer where the order was not solicited during the period of
distribution. Subject to the foregoing, in connection with this offering and
pursuant to the first-mentioned exception, the Underwriters may over-allot or
effect transactions which stabilize or maintain the market price of the
Subordinate Voting Shares at levels other than those which might otherwise
prevail on the open market. Such transactions, if commenced, may be discontinued
at any time.
The Subordinate Voting Shares have been approved for listing on The Nasdaq
National Market under the symbol "TSIX", subject to official notice of issuance.
The Toronto Stock Exchange has conditionally approved the listing of the
Subordinate Voting Shares under the symbol "TSX". Listing is subject to us
fulfilling all of the requirements of The Toronto Stock Exchange on or before
July 11, 2000, including the distribution of the Subordinate Voting Shares to a
minimum number of public shareholders.
Prior to the offering, there has been no public market for the Subordinate
Voting Shares. Consequently, the initial public offering price has been
determined through negotiations among us and Goldman, Sachs & Co. and Donaldson,
Lufkin & Jenrette Securities Corporation on behalf of the Underwriters. Among
the factors considered in making such determination were the prevailing market
conditions, our financial condition, our prospects and the prospects for our
industry in general, our management and the market prices of securities for
companies in businesses similar to ours.
The Underwriters do not expect sales to discretionary accounts to exceed
five percent of the total number of shares offered.
We estimate that our share of the total expenses of the offering, excluding
underwriting discounts and commissions, will be approximately $3 million.
We and the selling shareholder have agreed to indemnify the several
Underwriters against certain liabilities, including liabilities under the
Securities Act of 1933.
At our request, the Underwriters have reserved, at the initial public
offering price, approximately 5% of the Subordinate Voting Shares to be sold in
this offering for sale to our directors and employees and directors and
employees of our affiliates and certain other persons.
The number of shares available for sale to the general public will be
reduced by the number of reserved shares sold. Any reserved shares not so
purchased will be offered by the Underwriters to the general public on the same
basis as other shares offered hereby.
On September 9, 1999, affiliates of each of Goldman, Sachs & Co. and
Donaldson, Lufkin & Jenrette Securities Corporation invested in a private
placement of our redeemable convertible preferred shares. These shares will be
converted or exchanged into Subordinate Voting Shares concurrently with the
closing of this offering. Pursuant to a purchase price adjustment provision in
the purchase agreement governing the private placement, additional preferred
shares were issued to such affiliates in February 2000 and March 2000, upon the
issuance of Subordinate Voting Shares to CN and Michels, respectively, in
exchange for its interests in certain of our subsidiaries. In December 1999,
pursuant to that same purchase price adjustment provision, additional preferred
shares were again issued to such affiliates concurrently with the purchase by
Mr. Gregory Maffei,
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<PAGE>
our Chief Executive Officer, of our capital stock. In addition, under a
shareholders agreement entered into in connection with the preferred share
purchase, each such affiliate received the right to designate a member to our
board of directors. For more information, please refer to the section entitled
"Management."
In addition, in connection with our $565 million 360ATLANTIC credit
facility, affiliates of each of Goldman, Sachs & Co., Donaldson, Lufkin &
Jenrette Securities Corporation and Credit Suisse First Boston Corporation are
acting as lead arrangers and affiliates of each of TD Securities Inc. and BMO
Nesbitt Burns Inc. are acting as managing agents, for which they expect to
receive customary fees and expense reimbursements.
In addition, in connection with the GlobeNet acquisition, affiliates of each
of TD Securities Inc. and Credit Suisse First Boston Corporation, shareholders
of GlobeNet, will purchase our Subordinate Voting Shares concurrently with this
offering and at the initial public offering price. TD Securities is also acting
as GlobeNet's financial advisor in connection with the GlobeNet acquisition and
will receive customary compensation for those services.
An affiliate of Morgan Stanley & Co. Incorporated is currently providing
financial valuation services to one of our subsidiaries, for which it will
receive customary fees.
Each of Donaldson, Lufkin & Jenrette Securities Corporation, Goldman, Sachs
& Co., Bear, Stearns & Co. Inc., Chase Securities Inc., Credit Suisse First
Boston Corporation, Morgan Stanley & Co. Incorporated, Salomon Smith Barney
Inc., RBC Dominion Securities Corporation and TD Securities (USA) Inc. is acting
as an initial purchaser in connection with the concurrent debt offerings.
Affiliates of Donaldson, Lufkin & Jenrette Securities Corporation and Chase
Securities Inc. have made a commitment to provide up to $1.0 billion to us under
a credit facility. Those affiliates will receive customary financing fees in
connection with such facility.
Gene Sykes, a director of ours, is a Managing Director of Goldman, Sachs &
Co., and Andrew Rush, a director of ours, is a Managing Director of DLJ Merchant
Banking II, Inc., an affiliate of Donaldson, Lufkin & Jenrette Securities
Corporation.
In addition to the foregoing, from time to time the Underwriters or their
affiliates may in the future engage in investment banking services with us, for
which they will receive customary compensation.
LEGAL MATTERS
The validity of the Subordinate Voting Shares offered in this prospectus and
certain legal matters concerning the Subordinate Voting Shares in connection
with the offering will be passed upon for us by Cahill Gordon & Reindel, New
York, New York (concerning matters of U.S. law), Farris, Vaughan, Wills &
Murphy, Vancouver, British Columbia (concerning matters of Canadian law) and
Stewart McKelvey Stirling Scales, Halifax, Nova Scotia (concerning matters of
Nova Scotia law).
Certain legal matters concerning the Subordinate Voting Shares in connection
with the offering will be passed upon for the Underwriters by Latham & Watkins,
New York, New York (concerning matters of U.S. law) and Osler, Hoskin & Harcourt
LLP, Toronto, Ontario (concerning matters of Canadian law).
EXPERTS
We have included in this prospectus our audited consolidated financial
statements for the year ended December 31, 1999 and period ended December 31,
1998 along with PricewaterhouseCoopers LLP's auditors' report on these financial
statements. PricewaterhouseCoopers LLP, chartered accountants, Vancouver,
British Columbia, issued the report as experts in auditing and accounting.
109
<PAGE>
The divisional financial statements of the predecessor division as of
May 31, 1998 and for each of the periods ended on May 31, 1998 and August 31,
1997 included in this prospectus, have been audited by Deloitte & Touche LLP,
Edmonton, Alberta, as stated in their report contained in this prospectus.
The audited consolidated financial statements of GlobeNet Communications
Group Limited for the years ended December 31, 1999, 1998 and 1997 included in
this prospectus, have been audited by PricewaterhouseCoopers LLP, chartered
accountants, Toronto, Ontario, as stated in their report contained in this
prospectus.
ENFORCEABILITY OF CIVIL LIABILITIES AGAINST FOREIGN PERSONS
We are a corporation organized under the laws of Nova Scotia, 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.
WHERE YOU CAN FIND MORE INFORMATION
We have filed with the Securities and Exchange Commission a registration
statement on Form F-1 under the Securities Act, and the rules and regulations
promulgated thereunder, concerning the Subordinate Voting Shares 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. Any statement in this prospectus about
any of our contracts or other documents is not necessarily complete. If the
contract or document is filed as an exhibit to the registration statement, the
contract or document is deemed to modify the description contained in this
prospectus. You must review the exhibits themselves for a complete description
of the contract or document.
You may review a copy of the registration statement, including exhibits and
schedules filed with it, at the Commission's public reference facilities in Room
1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, and at
the regional offices of the Commission located at 7 World Trade Center, 13th
Floor, New York, New York 10048 and at the Northwestern Atrium Center, 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661. You may also obtain copies
of such materials from the Public Reference Section of the Commission, Room
1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, at
prescribed rates. You may call the Commission at 1-800-SEC-0330 for further
information on the public reference rooms. The Commission maintains a web site
(http://www.sec.gov) that contains reports, proxy and information statements and
other information regarding registrants that file electronically with the
Commission.
You may read and copy any reports, statements or other information that we
file with the Commission at the addresses indicated above, and you may also
access them electronically at the web site set forth above. These Commission
filings are also available to the public from commercial document retrieval
services.
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
110
<PAGE>
and content of proxy statements to shareholders and relating to short swing
profits reporting and liability.
Following consummation of the offering, we will be required to file reports
and other information with the securities commission in all provinces of Canada.
You are invited to read and copy any reports, statements or other information,
other than confidential filings, that we file with the provincial securities
commissions. These filings are also electronically available from the Canadian
System for Electronic Document Analysis and Retrieval (SEDAR)
(http://www.sedar.com), the Canadian equivalent of the Commission's electronic
document gathering and retrieval system.
COPIES OF ANY DOCUMENTS REFERRED TO IN THIS PROSPECTUS AND FILED WITH THE
COMMISSION CAN BE OBTAINED WITHOUT CHARGE BY CONTACTING THE SECRETARY, C/O
360NETWORKS INC., 1500-1066 West Hastings Street, Vancouver, BC Canada V6E 3X1.
Telephone number: (604) 681-1994. In order to obtain timely delivery of these
documents you must request this information no later than five business days
before the date on which you would like to receive the documents.
111
<PAGE>
360NETWORKS INC.
(FORMERLY WORLDWIDE FIBER INC.)
INDEX TO PRO FORMA FINANCIAL INFORMATION
(UNAUDITED)
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Pro Forma Consolidated Balance Sheet as at December 31,
1999...................................................... PF-2
Pro Forma Consolidated Income Statement for the year ended
December 31, 1999......................................... PF-3
Notes to Pro Forma Financial Information.................... PF-4
</TABLE>
PF-1
<PAGE>
360NETWORKS INC.
(FORMERLY WORLDWIDE FIBER INC.)
PRO FORMA CONSOLIDATED BALANCE SHEET
(UNAUDITED)
AS AT DECEMBER 31, 1999
(TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF U.S. DOLLARS)
<TABLE>
<CAPTION>
PRO FORMA
GLOBENET ----------------------------
COMMUNICATIONS ACQUISITION PRO FORMA
360NETWORKS INC. GROUP LIMITED ADJUSTMENTS COMBINED ADJUSTMENTS
$ $ $ $ $
----------------- ----------------- ------------ ---------- ------------
<S> <C> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents....... 521,362 -- -- 521,362 548,119 4(i)
-- 681,500 4(iii)
Restricted cash -- 79,998 -- 79,998 --
Short term investments.......... 21,167 -- -- 21,167 --
Accounts receivable............. 35,351 3,878 -- 39,229 --
Unbilled revenue................ 115,661 -- -- 115,661 --
Inventory....................... 196,959 -- -- 196,959
Deferred tax asset.............. 8,838 -- -- 8,838 --
--------- -------- -------- --------- ----------
899,338 83,876 -- 983,214 1,229,619
RESTRICTED CASH................. -- 448,399 -- 448,399 --
PROPERTY AND EQUIPMENT--NET..... 77,009 49,148 -- 126,157 (6,444)4(iv)
ASSETS UNDER CONSTRUCTION....... 300,403 98,062 -- 398,465
DEFERRED TAX ASSET.............. 12,040 -- -- 12,040 --
DEFERRED FINANCING COSTS--NET... 22,199 24,743 (24,743)4(ii) 22,199 18,500 4(iii)
OTHER........................... -- 1,104 -- 1,104 --
EQUITY ACCOUNTED FOR
INVESTMENT...................... -- -- -- -- 6,444 4(iv)
GOODWILL........................ -- -- 425,264 4(ii) 888,388 --
306,924 4(v)
156,200 4(vi)
--------- -------- -------- --------- ----------
1,310,989 705,332 863,645 2,879,966 1,248,119
========= ======== ======== ========= ==========
LIABILITIES
CURRENT LIABILITIES
Accounts payable and accrued
liabilities................... 191,178 57,296 -- 248,474 --
Deferred revenue................ 18,831 -- -- 18,831 --
Income taxes payable............ 34,343 -- -- 34,343 --
--------- -------- -------- --------- ----------
244,352 57,296 -- 301,648 --
DEFERRED REVENUE................ -- 6,455 -- 6,455 --
DEFERRED TAX LIABILITY.......... 3,073 -- -- 3,073 --
SENIOR NOTES AND OTHER LONG TERM
DEBT.......................... 675,000 400,000 -- 1,075,000 700,000 4(iii)
--------- -------- -------- --------- ----------
922,425 463,751 -- 1,386,176 700,000
MINORITY INTEREST............... 8,876 -- (8,876)4(v) -- --
REDEEMABLE CONVERTIBLE PREFERRED
STOCK......................... 349,827 -- -- 349,827 (349,827)4(viii)
SHAREHOLDERS' EQUITY
Class A Non Voting Shares....... 236,436 -- 642,102 4(ii) 1,350,538 (1,350,538)4(ix)
312,000 4(v)
160,000 4(vi)
Subordinate Voting Shares....... -- -- -- -- 548,119 4(i)
349,827 4(viii)
1,360,993 4(ix)
Multiple Voting Shares.......... -- -- -- -- 45,232 4(ix)
Class B Subordinate Voting
Shares........................ 10,455 -- -- 10,455 (10,455)4(ix)
Class C Multiple Voting
Shares........................ 45,232 -- -- 45,232 (45,232)4(ix)
Other capital accounts.......... (221,387) -- -- (221,387) 25,196 4(vii)
GlobeNet share capital.......... -- 272,434 (272,434)4(ii) -- --
Deficit......................... (40,875) (30,853) 30,853 4(ii) (40,875) (25,196)4(vii)
--------- -------- -------- --------- ----------
29,861 241,581 872,521 1,143,963 897,946
--------- -------- -------- --------- ----------
1,310,989 705,332 863,645 2,879,966 1,248,119
========= ======== ======== ========= ==========
<CAPTION>
PRO FORMA
CONSOLIDATED BALANCE
SHEET
$
---------------------
<S> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents....... 1,750,981
Restricted cash 79,998
Short term investments.......... 21,167
Accounts receivable............. 39,229
Unbilled revenue................ 115,661
Inventory....................... 196,959
Deferred tax asset.............. 8,838
---------
2,212,833
RESTRICTED CASH................. 448,399
PROPERTY AND EQUIPMENT--NET..... 119,713
ASSETS UNDER CONSTRUCTION....... 398,465
DEFERRED TAX ASSET.............. 12,040
DEFERRED FINANCING COSTS--NET... 40,699
OTHER........................... 1,104
EQUITY ACCOUNTED FOR
INVESTMENT...................... 6,444
GOODWILL........................ 888,388
---------
4,128,085
=========
LIABILITIES
CURRENT LIABILITIES
Accounts payable and accrued
liabilities................... 248,474
Deferred revenue................ 18,831
Income taxes payable............ 34,343
---------
301,648
DEFERRED REVENUE................ 6,455
DEFERRED TAX LIABILITY.......... 3,073
SENIOR NOTES AND OTHER LONG TERM
DEBT.......................... 1,775,000
---------
2,086,176
MINORITY INTEREST............... --
REDEEMABLE CONVERTIBLE PREFERRED
STOCK......................... --
SHAREHOLDERS' EQUITY
Class A Non Voting Shares....... --
Subordinate Voting Shares....... 2,258,939
Multiple Voting Shares.......... 45,232
Class B Subordinate Voting
Shares........................ --
Class C Multiple Voting
Shares........................ --
Other capital accounts.......... (196,191)
GlobeNet share capital.......... --
Deficit......................... (66,071)
---------
2,041,909
---------
4,128,085
=========
</TABLE>
PF-2
<PAGE>
360NETWORKS INC.
(FORMERLY WORLDWIDE FIBER INC.)
PRO FORMA CONSOLIDATED INCOME STATEMENT
(UNAUDITED)
FOR THE YEAR ENDED DECEMBER 31, 1999
(TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF U.S. DOLLARS EXCEPT PER SHARE
AMOUNTS)
<TABLE>
<CAPTION>
PRO FORMA
GLOBENET -------------------------
COMMUNICATIONS PRO FORMA
360NETWORKS INC. GROUP LIMITED ACQUISITION COMBINED ADJUSTMENTS
$ $ ADJUSTMENTS $ $
----------------- ----------------- ------------ ---------- ------------
<S> <C> <C> <C> <C> <C>
Revenue....................... 359,746 26,348 -- 386,094 --
Costs......................... 250,612 10,989 -- 261,601 --
------------ ------- ------- ------- -----------
Gross Profit.................. 109,134 15,359 -- 124,493 --
------------ ------- ------- ------- -----------
Expenses
General and administrative.... 21,846 15,104 -- 36,950 3,584 5(v)
Stock-based compensation...... 7,116 4,207 -- 11,323 --
Depreciation.................. 2,998 1,854 -- 4,852 --
17,011 5(i)
Amortization of goodwill...... -- -- 18,525 5(ii) 35,536 --
------------ ------- ------- ------- -----------
31,960 21,165 35,536 88,661 3,584
------------ ------- ------- ------- -----------
77,174 (5,806) (35,536) 35,832 (3,584)
Interest expense.............. 33,908 20,965 (1,310)5(i) 53,563 132,367 5(iii)
Interest income............... 18,122 12,588 -- 30,710 --
------------ ------- ------- ------- -----------
Income (loss) before income
taxes, minority interest and
equity accounted for
investment.................. 61,388 (14,183) (34,226) 12,979 (135,951)
(61,994)5(iv)
Provision for income taxes.... 30,314 141 -- 30,455 2,690 5(v)
------------ ------- ------- ------- -----------
Income (loss) before minority
interest and equity
accounted for investment.... 31,074 (14,324) (34,226) (17,476) (76,647)
Income attributable to
minority interest and equity
accounted for investment.... (7,434) (773) 7,434 5(ii (773) --
------------ ------- ------- ------- -----------
Net income (loss) for the
year........................ 23,640 (15,097) (26,792) (18,249) (76,647)
============ ======= ======= ======= ===========
Basic and fully diluted loss
per share................... $ (0.03)
Weighted average number of
shares used to compute basic
and fully diluted loss per
share....................... 327,313,808 5(vi)
<CAPTION>
PRO FORMA
CONSOLIDATED INCOME
STATEMENT
$
---------------------
<S> <C>
Revenue....................... 386,094
Costs......................... 261,601
------------
Gross Profit.................. 124,493
------------
Expenses
General and administrative.... 40,534
Stock-based compensation...... 11,323
Depreciation.................. 4,852
Amortization of goodwill...... 35,536
------------
92,245
------------
32,248
Interest expense.............. 185,930
Interest income............... 30,710
------------
Income (loss) before income
taxes, minority interest and
equity accounted for
investment.................. (122,972)
Provision for income taxes.... (28,849)
------------
Income (loss) before minority
interest and equity
accounted for investment.... (94,123)
Income attributable to
minority interest and equity
accounted for investment.... (773)
------------
Net income (loss) for the
year........................ (94,896)
============
Basic and fully diluted loss
per share................... $ (0.16)
Weighted average number of
shares used to compute basic
and fully diluted loss per
share....................... 617,783,263
</TABLE>
PF-3
<PAGE>
360NETWORKS INC.
(FORMERLY WORLDWIDE FIBER INC.)
NOTES TO PRO FORMA FINANCIAL INFORMATION
(UNAUDITED)
FOR THE YEAR ENDED DECEMBER 31, 1999
(TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF U.S. DOLLARS)
1. NATURE AND PURPOSE OF PRO FORMA FINANCIAL INFORMATION
The pro forma consolidated balance sheet of 360NETWORKS INC. (formerly
Worldwide Fiber Inc.) (the "Company") as at December 31, 1999 assumes the
following transactions occurred on December 31, 1999: (i) the issuance of
44,625,000 Subordinate Voting Shares in a public offering for cash consideration
of $580,125,000, net of commissions of $29,006,250 and offering expenses of
$3,000,000; (ii) the Company's acquisition of GlobeNet Communications Group
Limited ("GlobeNet"); (iii) the issuance of $700,000,000 13.5% Notes ("Notes");
(iv) the Canadian telecommunications arrangement of certain assets; (v) the
Company's acquisition of Michels' shares in WFI USA, (the "Michels minority
interest acquisition") in exchange for Subordinate Voting Shares of the Company;
(vi) the Company's acquisition of Canadian National Railway Company's ("CN")
minority equity interest in WFI-CN Fibre Inc. and the Company's acquisition of
Illinois Central Railroad Company's ("IC") minority equity interest in Worldwide
Fiber LLC (collectively the "CN/IC minority interest acquisition") in exchange
for Subordinate Voting Shares of the Company; (vii) the issuance of additional
Series A Non-Voting Preferred Shares to the holders of Series A Non-Voting
Preferred Shares made in connection with the issuance of shares to CN, IC and
Michels; (viii) the conversion or exchange of Series A Non-Voting Preferred
Shares into Subordinate Voting Shares and; (ix) the reorganization of the
Company's share capital.
The pro forma consolidated income statement of the Company for the year
ended December 31, 1999 assumes that the following transactions occurred on
January 1, 1999: (i) the Company's acquisition of GlobeNet; (ii) the elimination
of minority interest earnings and amortization of goodwill as a result of the
Michels and CN/IC minority interest acquisitions and (iii) the effect of the
interest expense including amortization of deferred financing costs relating to
the Notes and $500,000,000 12% senior notes issued July 28, 1999 (the "1999
Notes").
2. BASIS OF PRESENTATION
The unaudited pro forma consolidated balance sheet and consolidated income
statement 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 and 5.
The unaudited pro forma consolidated balance sheet and income statement as
at and for the year ended December 31, 1999 are based on the audited historical
consolidated financial statements of the Company for the year ended
December 31, 1999 and audited historical consolidated financial statements of
GlobeNet for the year ended December 31, 1999.
The unaudited pro forma financial statements give effect to the acquisition
by the Company of GlobeNet in a transaction to be accounted for as a purchase.
The unaudited pro forma consolidated balance sheet is based on the individual
balance sheets of the Company and GlobeNet, and has been prepared to reflect the
acquisition by the Company of GlobeNet as of December 31, 1999. The unaudited
proforma income statement is based on the individual statements of income of the
Company and GlobeNet and combines the results of the operations for the year
ended December 31, 1999 as if the acquisition occurred on January 1, 1999.
PF-4
<PAGE>
360NETWORKS INC.
(FORMERLY WORLDWIDE FIBER INC.)
NOTES TO PRO FORMA FINANCIAL INFORMATION (CONTINUED)
(UNAUDITED)
FOR THE YEAR ENDED DECEMBER 31, 1999
(TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF U.S. DOLLARS)
2. BASIS OF PRESENTATION (CONTINUED)
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, 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 statement include those disclosed in the
consolidated financial statements of the Company.
4. PRO FORMA CONSOLIDATED BALANCE SHEET ASSUMPTIONS AND ADJUSTMENTS AS AT
DECEMBER 31, 1999
(I) ISSUANCE OF SHARES IN A PUBLIC OFFERING
This adjustment records the issuance of 44,625,000 Subordinate Voting Shares
in a public offering for cash consideration of $49,392,499. This adjustment is
recorded net of commissions of $29,006,250 and offering expenses of $3,000,000.
(II) ACQUISITION OF GLOBENET
The pro forma balance sheet has been prepared to reflect the Company's
acquisition of GlobeNet in exchange for shares of the Company. This acquisition
has been accounted for under the purchase method of accounting. Proforma
adjustments and assumptions are made to reflect:
- The issuance of 49,392,499 Subordinate Voting Shares assuming a
purchase price of $642,102,492.
- The elimination of GlobeNet's Shareholders' Equity of $241,581,000;
- The assumption that GlobeNet's long term debt will not be repaid as a
result of a change in control of GlobeNet;
PF-5
<PAGE>
360NETWORKS INC.
(FORMERLY WORLDWIDE FIBER INC.)
NOTES TO PRO FORMA FINANCIAL INFORMATION (CONTINUED)
(UNAUDITED)
FOR THE YEAR ENDED DECEMBER 31, 1999
(TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF U.S. DOLLARS)
4. PRO FORMA CONSOLIDATED BALANCE SHEET ASSUMPTIONS AND ADJUSTMENTS AS AT
DECEMBER 31, 1999 (CONTINUED)
- The allocation of the purchase price is as follows:
<TABLE>
<S> <C>
Purchase price.............................................. $ 642,102
Less: book value of net assets acquired..................... 241,581
------------
Excess of cost over book value of net assets acquired....... $ 400,521
============
Allocation of excess of cost over book value of net assets
acquired:
Deferred financing costs.................................. $ (24,743)
Goodwill.................................................. 425,264
============
$ 400,521
============
</TABLE>
Goodwill will be amortized over 25 years. The purchase price allocation is
preliminary subject to management's due diligence and the execution of
definitive agreements, which may result in a different allocation than presented
in these pro forma financial statements. This may result in a re-allocation of
the excess of cost over the book value of net assets to pro forma inventory,
property and equipment, assets under construction or long-term debt.
(III) ISSUANCE OF $700,000,000 13.5% NOTES
This adjustment records the issuance of $700,000,000 13.5% notes due 2010
(the "Notes") assuming the Notes were issued on December 31, 1999. Commissions
of $17,500,000 and issuance expenses of $1,000,000 have been recorded as
deferred financing costs which will be amortized over 10 years using the
effective interest rate method.
(IV) CANADIAN TELECOMMUNICATIONS ARRANGEMENT OF CERTAIN ASSETS
This adjustment records the transfer of certain telecommunications
facilities included in property & equipment to a company (the "transferee")
owned 66 2/3% by a subsidiary of Ledcor and 33 1/3% by the Company. This
transaction is recorded at the carrying value of the assets transferred of
$6,444,000 as the transaction is between parties under common control. The
Company's investment in the transferee is recorded using the equity basis of
accounting.
(V) MICHELS MINORITY INTEREST ACQUISITION
This adjustment records the Company's acquisition of the shares in WFI USA
in exchange for 24,000,000 Subordinate Voting Shares of the Company. This
proforma adjustment assumes a purchase price of $312,000,000. The number of
Subordinate Voting Shares to be issued will be
PF-6
<PAGE>
360NETWORKS INC.
(FORMERLY WORLDWIDE FIBER INC.)
NOTES TO PRO FORMA FINANCIAL INFORMATION (CONTINUED)
(UNAUDITED)
FOR THE YEAR ENDED DECEMBER 31, 1999
(TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF U.S. DOLLARS)
4. PRO FORMA CONSOLIDATED BALANCE SHEET ASSUMPTIONS AND ADJUSTMENTS AS AT
DECEMBER 31, 1999 (CONTINUED)
based on an initial public offering price which is assumed to be $13 per share.
The allocation of the purchase price is as follows:
<TABLE>
<S> <C>
Purchase price.............................................. $ 312,000
Less: book value of net assets acquired..................... 5,076
------------
Excess of cost over book value of net assets acquired....... 306,924
============
Allocation of excess of cost over book value of net assets
acquired:
Goodwill.................................................. 306,924
============
</TABLE>
Goodwill will be amortized over 25 years. The purchase price allocation is
preliminary subject to a detailed assessment of the fair values of the
underlying assets. This assessment may result in a re-allocation of the excess
of cost over the book value of net assets to pro forma inventory, property and
equipment and assets under construction.
(VI) CN/IC MINORITY INTEREST ACQUISITION
This adjustment records the Company's acquisition of the shares in WFI-CN
Fibre Inc. and Worldwide Fiber LLC in exchange for 12,307,692 Subordinate Voting
Shares of the Company. The pro forma adjustment assumes a purchase price of
$160,000,000. The number of Subordinate Voting Shares to be issued will be based
on an initial public offering price which is assumed to be $13 per share. The
allocation of the purchase price is as follows:
<TABLE>
<S> <C>
Purchase price.............................................. $160,000
Less: book value of net assets acquired..................... 3,800
--------
Excess of cost over book value of net assets acquired....... 156,200
========
Allocation of excess of cost over book value of net assets
acquired:
Goodwill.................................................. 156,200
========
</TABLE>
Goodwill will be amortized over 25 years. The purchase price allocation is
subject to a detailed assessment of the fair values of the underlying assets.
This assessment may result in a re-allocation of the excess of cost over the
book value of net assets to pro forma inventory, property and equipment and
assets under construction.
(VII) ISSUANCE OF SERIES A NON-VOTING PREFERRED SHARES
This adjustment records the issuance of 9,771,190 Series A Non-Voting
Preferred Shares to the holders of the Series A Non-Voting Preferred Shares in
accordance with the purchase price adjustment provisions in the subscription
agreements. This issuance is made in connection with the issuance of Subordinate
Voting Shares to CN, IC and Michels.
PF-7
<PAGE>
360NETWORKS INC.
(FORMERLY WORLDWIDE FIBER INC.)
NOTES TO PRO FORMA FINANCIAL INFORMATION (CONTINUED)
(UNAUDITED)
FOR THE YEAR ENDED DECEMBER 31, 1999
(TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF U.S. DOLLARS)
4. PRO FORMA CONSOLIDATED BALANCE SHEET ASSUMPTIONS AND ADJUSTMENTS AS AT
DECEMBER 31, 1999 (CONTINUED)
(VIII) CONVERSION OR EXCHANGE OF SERIES A NON-VOTING PREFERRED SHARES INTO
SUBORDINATE VOTING SHARES
This adjustment records the conversion or exchange of all issued and
outstanding Series A Non-Voting Preferred Shares into Subordinate Voting Shares.
(IX) SHARE CAPITAL REORGANIZATION
This adjustment records the reorganization of share capital as follows:
- The conversion of all outstanding Class B Subordinate Voting Shares into
Class A Non-Voting Shares
- The redesignation of all outstanding Class A Non-Voting Shares to
Subordinate Voting Shares
- The redesignation of all outstanding Class C Multiple Voting Shares to
Multiple Voting Shares.
5. PRO FORMA CONSOLIDATED INCOME STATEMENT ASSUMPTIONS AND ADJUSTMENTS FOR THE
YEAR ENDED DECEMBER 31, 1999
(I) ACQUISITION OF GLOBENET
The pro forma income statement has been prepared to reflect the following
adjustments and assumptions resulting from the acquisition of GlobeNet:
- This elimination of the amortization of deferred financing costs of
$1,310,000 related to GlobeNet's debt.
- The amortization of goodwill of $17,011,000.
- The assumption that GlobeNet's long term debt will not be repaid as a
result of a change in control of GlobeNet.
(II) MICHELS AND CN/IC MINORITY INTEREST ACQUISITIONS
This adjustment records the amortization of goodwill from the acquisition of
the minority equity interests of Michels and CN/IC and elimination of minority
interest earnings assuming the acquisitions occurred on January 1, 1999.
(III) INTEREST EXPENSE ON THE NOTES AND 1999 NOTES
This adjustment records the interest expense, including amortization of
deferred financing costs of $132,367,000 for the year ended December 31, 1999
assuming the Notes and the 1999 Notes were issued on January 1, 1999.
Amortization of the deferred financing costs was computed based on the effective
interest rate method. The Company would have capitalized a portion of interest
PF-8
<PAGE>
360NETWORKS INC.
(FORMERLY WORLDWIDE FIBER INC.)
NOTES TO PRO FORMA FINANCIAL INFORMATION (CONTINUED)
(UNAUDITED)
FOR THE YEAR ENDED DECEMBER 31, 1999
(TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF U.S. DOLLARS)
5. PRO FORMA CONSOLIDATED INCOME STATEMENT ASSUMPTIONS AND ADJUSTMENTS FOR THE
YEAR ENDED DECEMBER 31, 1999 (CONTINUED)
expense related to the Notes and the 1999 Notes to the cost of the fiber optic
network assets constructed in 1999, which is not reflected in these pro forma
statements.
(IV) INCOME TAXES
This adjustment records an income tax recovery of $28,849,000 for 1999 using
an effective tax rate of 45.6%. 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
$3,584,000 for 1999 and Federal Large Corporation taxes of $2,690,000 for 1999
resulting from the proforma adjustments in notes 4 and 5.
(VI) PRO FORMA BASIC AND FULLY DILUTED LOSS PER SHARE
The weighted average number of shares used to compute pro forma basic and
fully diluted loss per share is determined as follows:
<TABLE>
<S> <C>
Weighted average number of shares used to compute historical
basic and fully diluted loss per share.................... 327,313,808
Issuance of shares in a public offering..................... 44,625,000
Purchase of GlobeNet........................................ 49,392,499
Purchase of Michels minority equity interest................ 24,000,000
Purchase of CN/IC minority equity interests................. 12,307,692
Issuance and conversion or exchange of Series A Non-Voting
Preferred Shares.......................................... 160,722,502
Reciprocal shareholdings adjustment from the Canadian
telecommunications arrangement transaction................ (578,238)
-----------
617,783,263
===========
</TABLE>
Pro forma loss available to common stockholders is computed as follows:
<TABLE>
<S> <C>
Pro forma net loss........................................ $ (94,896)
Stock dividend............................................ (5,000)
------------
Pro forma net loss available to common stockholders....... $ (99,896)
============
</TABLE>
PF-9
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
--------
<S> <C>
360NETWORKS INC. (FORMERLY WORLDWIDE FIBER INC.) AUDITED
FINANCIAL STATEMENTS FOR THE PERIOD ENDED DECEMBER 31,
1998 AND YEAR ENDED DECEMBER 31, 1999
Auditors' Report............................................ F-2
Consolidated Balance Sheets................................. F-3
Consolidated Income Statements.............................. F-4
Consolidated Statements of Changes in Shareholders'
Equity.................................................... F-5
Consolidated Statements of Cash Flows....................... F-6
Notes to Consolidated Financial Statements.................. F-7
WORLDWIDE FIBER (USA), INC. AUDITED FINANCIAL STATEMENTS FOR
THE PERIOD ENDED DECEMBER 31, 1998
Report of Independent Accountants........................... F-28
Consolidated Income Statement............................... F-29
Consolidated Statement of Changes in Shareholders' Equity... F-30
Consolidated Statement of Cash Flows........................ F-31
Notes to Consolidated Financial Statements.................. F-32
LEDCOR INDUSTRIES LIMITED--TELECOMMUNICATIONS DIVISION
Auditors' Report............................................ F-37
Divisional Balance Sheet.................................... F-38
Divisional Statements of Operations and Retained Earnings... F-39
Divisional Statements of Cash Flows......................... F-40
Notes to the Divisional Financial Statements................ F-41
GLOBENET COMMUNICATIONS GROUP LIMITED
Auditors' Report............................................ F-48
Consolidated Balance Sheets................................. F-49
Consolidated Statements of Changes in Shareholders'
Equity.................................................... F-50
Consolidated Statements of Operations....................... F-51
Consolidated Statements of Cash Flows....................... F-52
Notes to Consolidated Financial Statements.................. F-53
</TABLE>
F-1
<PAGE>
AUDITORS' REPORT
TO THE DIRECTORS AND SHAREHOLDERS OF
360NETWORKS INC. (FORMERLY WORLDWIDE FIBER INC.)
We have audited the consolidated balance sheets of 360NETWORKS INC.
(formerly Worldwide Fiber Inc.) as at December 31, 1999 and 1998 and the
consolidated income statements and statements of changes in shareholders' equity
and cash flows for the year ended December 31, 1999 and 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 audits.
We conducted our audits in accordance with generally accepted auditing
standards in the United States. 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,
1999 and 1998 and the results of its operations and its cash flows for the year
ended December 31, 1999 and 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.
On February 25, 2000 except for Note 16 which is as of March 20, 2000, we
reported separately to the Directors of 360NETWORKS INC. on consolidated
financial statements for the year ended December 31, 1999 and period from
February 5, 1998 (date of incorporation) to December 31, 1998 prepared in
accordance with generally accepted accounting principles in Canada.
PricewaterhouseCoopers LLP
Vancouver, Canada
February 25, 2000 except for Note 15 which is
as of March 20, 2000
F-2
<PAGE>
360NETWORKS INC.
(FORMERLY WORLDWIDE FIBER INC.)
CONSOLIDATED BALANCE SHEETS
AS AT DECEMBER 31, 1999 AND 1998
(TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF U.S. DOLLARS)
<TABLE>
<CAPTION>
1999 1998
----------- ----------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents................................... $ 521,362 $ 156,366
Short term investments...................................... 21,167 --
Accounts receivable (note 4)................................ 35,351 3,272
Unbilled revenue (note 4)................................... 115,661 10,582
Inventory (note 4).......................................... 196,959 29,230
Due from parent-net (note 6)................................ -- 13,412
Deferred tax asset (note 11)................................ 8,838 --
---------- ----------
899,338 212,862
PROPERTY AND EQUIPMENT--NET (note 4)........................ 77,009 4,014
ASSETS UNDER CONSTRUCTION................................... 300,403 11,461
DEFERRED TAX ASSET (note 11)................................ 12,040 1,273
DEFERRED FINANCING COSTS--NET............................... 22,199 6,650
---------- ----------
$1,310,989 $ 236,260
========== ==========
LIABILITIES
CURRENT LIABILITIES
Accounts payable and accrued liabilities (notes 4 and 6).... $ 191,178 $ 20,296
Deferred revenue............................................ 18,831 13,651
Income taxes payable........................................ 34,343 7,609
---------- ----------
244,352 41,556
DEFERRED TAX LIABILITY (note 11)............................ 3,073 --
SENIOR NOTES (note 7)....................................... 675,000 175,000
---------- ----------
922,425 216,556
MINORITY INTEREST........................................... 8,876 1,443
REDEEMABLE CONVERTIBLE PREFERRED STOCK
Authorized:
100,000,000,000 Series A Non-Voting Redeemable Convertible
Preferred Shares
100,000,000,000 Series B Subordinate Voting Redeemable
Convertible Preferred Shares
45,000,000 Series C Redeemable Preferred Shares, no par
value
Issued and outstanding:
150,951,312 (1998--nil) Series A Non-Voting Redeemable
Convertible Preferred Shares (including accretion of
discount from redemption value of $6,465,000 and net of
issuance costs of $1,638,000) (note 8).................. 349,827 --
SHAREHOLDERS' EQUITY
Capital stock (note 9)
Authorized:
Unlimited number of Class A Non-Voting, Class B
Subordinate Voting and Class C Multiple Voting Shares,
no par value
Issued and outstanding:
353,426,400 (1998--nil) Class A Non-Voting Shares....... 236,436 --
82,629,600 (1998--80,004,800) Class B Subordinate Voting
Shares................................................. 10,455 7,400
81,840,000 (1998--nil) Class C Multiple Voting Shares... 45,232 --
OTHER CAPITAL ACCOUNTS...................................... (221,387) 1,841
(DEFICIT) RETAINED EARNINGS................................. (40,875) 9,020
---------- ----------
29,861 18,261
---------- ----------
$1,310,989 $ 236,260
========== ==========
COMMITMENTS (NOTE 14)
SUBSEQUENT EVENTS (NOTE 15)
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-3
<PAGE>
360NETWORKS INC.
(FORMERLY WORLDWIDE FIBER INC.)
CONSOLIDATED INCOME STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 1999 AND 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 EXCEPT PER SHARE
AMOUNTS)
<TABLE>
<CAPTION>
1999 1998
------------- -----------
<S> <C> <C>
REVENUE..................................................... $ 359,746 $ 164,319
COSTS....................................................... 250,612 147,621
------------ -----------
GROSS PROFIT................................................ 109,134 16,698
------------ -----------
EXPENSES
Selling, general and administrative....................... 21,846 2,274
Stock-based compensation.................................. 7,116 --
Depreciation.............................................. 2,998 464
------------ -----------
31,960 2,738
------------ -----------
77,174 13,960
INTEREST EXPENSE............................................ 33,908 492
INTEREST INCOME............................................. 18,122 267
------------ -----------
INCOME BEFORE EQUITY INCOME, INCOME TAXES AND MINORITY
INTEREST.................................................. 61,388 13,735
EQUITY INCOME (NOTE 5)...................................... -- 928
------------ -----------
INCOME BEFORE INCOME TAXES AND MINORITY INTEREST............ 61,388 14,663
PROVISION FOR INCOME TAXES (NOTE 11)........................
Current................................................... 40,338 5,643
Deferred.................................................. (10,024) --
------------ -----------
30,314 5,643
31,074 9,020
MINORITY INTEREST........................................... 7,434 --
------------ -----------
NET INCOME FOR THE PERIOD................................... $ 23,640 $ 9,020
============ ===========
BASIC AND FULLY DILUTED (LOSS) EARNINGS PER SHARE
(NOTE 2).................................................. $ (0.03) $ 0.43
WEIGHTED AVERAGE NUMBER OF SHARES USED TO COMPUTE BASIC AND
FULLY DILUTED (LOSS) EARNINGS PER SHARE................... 327,313,808 20,964,178
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE>
360NETWORKS INC.
(FORMERLY WORLDWIDE FIBER INC.)
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
FOR THE YEAR ENDED DECEMBER 31, 1999 AND
PERIOD FROM FEBRUARY 5, 1998 (DATE OF INCORPORATION) TO DECEMBER 31, 1998
(TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF U.S. DOLLARS)
<TABLE>
<CAPTION>
CLASS B SUBORDINATE VOTING
SHARES (FORMERLY CLASS A CLASS C MULTIPLE
CLASS A NON-VOTING SHARES COMMON SHARES) VOTING SHARES
--------------------------- --------------------------- ---------------------
NUMBER OF NUMBER OF NUMBER OF
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
------------- ----------- --------------- --------- ---------- --------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, FEBRUARY 5, 1998 -- $ -- -- $ -- -- $ --
Incorporation shares issued, February
5, 1998............................ 1,600 --
Issuance of shares for certain Ledcor
assets with deferred tax asset
(note 5)........................... 3,200 7,400
Issuance of shares for investments
(note 5)........................... 80,000,000 --
Excess of proceeds over cost on fiber
optic strands to be reacquired from
parent company (note 1)............
Comprehensive income
Net earnings for the period........
Accumulated other comprehensive
income-foreign currency
translation......................
Total comprehensive income...........
----------- -------- -------------- -------- ---------- -------
BALANCE, DECEMBER 31, 1998........... -- -- 80,004,800 7,400 -- --
Issuance of shares for certain Ledcor
assets with deferred tax asset
(note 1)........................... 319,995,200 25,019
Repurchase of Class B Subordinate
Voting Shares in exchange for Class
B Subordinate Voting Shares and (400,000,000) (32,419)
Series C Redeemable Preferred
Shares(note 9)................... 381,496,000 32,419
Issuance of shares for cash
(note 9)........................... 2,400,000 5,832
Redemption of Series C Redeemable
Preferred Shares and stock dividend
(note 9)...........................
Issuance of shares for certain Ledcor
assets with deferred tax asset
(note 1)........................... 72,000,000 5,872
Issuance of shares (note 9).......... 52,160,000 208,640 9,840,000 39,360
Conversion of Class B Subordinate
Voting Shares to Class A Non-Voting
Shares (note 9).................... 301,266,400 27,796 (301,266,400) (27,796)
Accretion of Preferred Stock to
redemption value...................
Purchase price adjustment to
Preferred Shares...................
Employee option grants...............
Amortization of deferred compensation
expense............................
Comprehensive income.................
Net income for the period..........
Accumulated other comprehensive
income-foreign currency
translation......................
Total comprehensive income...........
----------- -------- -------------- -------- ---------- -------
BALANCE, DECEMBER 31, 1999........... 353,426,400 $236,436 82,629,600 $ 10,455 81,840,000 $45,232
=========== ======== ============== ======== ========== =======
<CAPTION>
OTHER CAPITAL ACCOUNTS
------------------------------------------------------
ACCUMULATED
ADDITIONAL OTHER (DEFICIT) TOTAL
NOTE PAID IN DEFERRED COMPREHENSIVE RETAINED SHAREHOLDERS'
RECEIVABLE CAPITAL COMPENSATION INCOME EARNINGS EQUITY
---------- ---------- ------------ ------------- --------- -------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, FEBRUARY 5, 1998 $ -- $ -- $ -- $ -- $ -- $ --
Incorporation shares issued, February
5, 1998............................ --
Issuance of shares for certain Ledcor
assets with deferred tax asset
(note 5)........................... 1,088 8,488
Issuance of shares for investments
(note 5)........................... --
Excess of proceeds over cost on fiber
optic strands to be reacquired from
parent company (note 1)............ 1,154 1,154
Comprehensive income
Net earnings for the period........ 9,020
Accumulated other comprehensive
income-foreign currency
translation...................... (401)
Total comprehensive income........... 8,619
-------- -------- --------- ----- -------- --------
BALANCE, DECEMBER 31, 1998........... -- 2,242 -- (401) 9,020 18,261
Issuance of shares for certain Ledcor
assets with deferred tax asset
(note 1)........................... 25,019
Repurchase of Class B Subordinate
Voting Shares in exchange for Class
B Subordinate Voting Shares and (32,419)
Series C Redeemable Preferred
Shares(note 9)................... 32,419
Issuance of shares for cash
(note 9)........................... (2,832) 3,000
Redemption of Series C Redeemable
Preferred Shares and stock dividend
(note 9)........................... (45,000) (45,000)
Issuance of shares for certain Ledcor
assets with deferred tax asset
(note 1)........................... (2,242) 3,630
Issuance of shares (note 9).......... (77,500) (170,500) --
Conversion of Class B Subordinate
Voting Shares to Class A Non-Voting
Shares (note 9).................... --
Accretion of Preferred Stock to
redemption value................... (6,465) (6,465)
Purchase price adjustment to
Preferred Shares................... 22,070 (22,070) --
Employee option grants............... 22,337 (22,337) --
Amortization of deferred compensation
expense............................ 7,116 7,116
Comprehensive income.................
Net income for the period.......... 23,640
Accumulated other comprehensive
income-foreign currency
translation...................... 660
Total comprehensive income........... 24,300
-------- -------- --------- ----- -------- --------
BALANCE, DECEMBER 31, 1999........... $(77,500) $ 44,407 $(188,553) $ 259 $(40,875) $ 29,861
======== ======== ========= ===== ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
<PAGE>
360NETWORKS INC.
(FORMERLY WORLDWIDE FIBER INC.)
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1999 AND PERIOD FROM FEBRUARY 5, 1998
(DATE OF INCORPORATION) TO DECEMBER 31, 1998
(TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF U.S. DOLLARS)
<TABLE>
<CAPTION>
1999 1998
--------- ---------
<S> <C> <C>
CASH FLOWS USED IN OPERATING ACTIVITIES
Net income for the year..................................... $ 23,640 $ 9,020
Adjustments to reconcile net income to net cash used for
operating activities
Depreciation.............................................. 2,998 464
Amortization of deferred financing costs.................. 1,732 --
Equity income............................................. -- (928)
Stock-based compensation.................................. 7,116 --
Changes in operating working capital items
Accounts receivable....................................... (31,887) (196)
Unbilled revenue.......................................... (103,597) (992)
Inventory................................................. (164,713) (5,517)
Due from parent........................................... 13,841 (16,230)
Accounts payable and accrued liabilities.................. 151,420 2,904
Deferred revenue.......................................... (14,008) 13,708
Income taxes payable...................................... 26,405 6,491
Advances to WFI USA....................................... -- (21,783)
Deferred income taxes..................................... (10,024) --
--------- --------
(97,077) (13,059)
--------- --------
CASH FLOWS (USED IN) FROM INVESTING ACTIVITIES
Additions to assets under construction...................... (283,598) --
Additions to property and equipment......................... (16,518) (1,065)
Purchase of short-term investments.......................... (21,167) --
Cash acquired on acquisition of WFI USA..................... -- 2,242
--------- --------
(321,283) 1,177
--------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of capital stock..................... 348,000 --
Proceeds from issuance of notes............................. 500,000 175,000
Deferred financing costs.................................... (17,281) (6,650)
Redemption of Series C Redeemable Preferred Shares.......... (45,000) --
--------- --------
785,719 168,350
--------- --------
Effect of exchange rate changes on cash..................... (2,363) (102)
--------- --------
Net increase in cash and cash equivalents................... 364,996 156,366
--------- --------
Cash and cash equivalents, beginning of period.............. 156,366 --
--------- --------
Cash and cash equivalents, end of period.................... $ 521,362 $156,366
========= ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
<PAGE>
360NETWORKS INC.
(FORMERLY WORLDWIDE FIBER INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998
(TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF U.S. DOLLARS)
1. THE COMPANY
360NETWORKS INC. (formerly Worldwide Fiber Inc.) (the "Company") was
incorporated on February 5, 1998 and is indirectly a 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
May 31, 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 ended December 31, 1998, the
Company's revenues related primarily to the Construction Services Agreements
with Ledcor (see note 1(b)). For the year ended December 31, 1999, the Company's
revenue is derived primarily from the construction of fibre optic network assets
for telecommunications companies in North America.
TRANSACTIONS WITH LEDCOR AND ITS AFFILIATES
a) On May 31, 1998, the Company entered into undertaking agreements
whereby certain fiber optic network assets, located in Canada and the U.S.
would be transferred to the Company by Ledcor in exchange for 319,995,200
Class A Non-Voting 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 was 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 are recorded at the carrying amount
of the assets in the accounts of Ledcor. The cost of property and equipment
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 is reflected as a deferred tax asset.
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 72,000,000 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
property and equipment acquired amounted to $25,289,000, the cost of the
assets in the accounts of Ledcor. The Company also received a deferred tax
benefit of $3,341,000, 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.
b) Construction Services Agreements entered into May 31, 1998, 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
F-7
<PAGE>
360NETWORKS INC.
(FORMERLY WORLDWIDE FIBER INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999 AND 1998
(TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF U.S. DOLLARS)
network assets from Ledcor, the revenues and costs associated with this
portion of the agreement have not been reflected in the income statement for
the period ended December 31, 1998. The costs to construct the network were
reflected on completion of construction and the issuance of the shares. As
at December 31, 1998, the Company had 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
$945,000, had been excluded from the consolidated income statement and had
been reported as additional paid in capital.
c) A Management Services Agreement was entered into May 31, 1998 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.
d) Employee Services Agreements were entered into May 31, 1998 whereby
the Company obtains the services of certain employees from Ledcor on a cost
reimbursement basis.
e) The Company has entered into an agreement with Ledcor, whereby
personnel of Ledcor who were involved in the designing and planning of the
transatlantic 360ATLANTIC cable stations will oversee management and
supervision of construction of these facilities for a fee to Ledcor of
approximately $1,700,000.
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% interests
in Worldwide Fiber (USA), Inc. ("WFI USA"), WFI-CN Fiber Inc. and Worldwide
Fiber IC LLC. 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 1998 consolidated income statement and statement of cash
flows accounted 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 sheets include WFI USA's assets and liabilities, and
minority interest therein.
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-8
<PAGE>
360NETWORKS INC.
(FORMERLY WORLDWIDE FIBER INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999 AND 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.
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.
PROPERTY AND EQUIPMENT
Fiber optic network assets constructed for the Company's own use are
recorded as property and equipment when the asset is fully constructed. Fiber
optic network assets, construction equipment and other property and equipment
are recorded at cost. Property and equipment are depreciated using the following
rates and methods:
(a) Fiber optic network assets--straight-line method over 25 years.
(b) Equipment--hourly usage rates, estimated to depreciate the equipment
over the estimated useful lives of the equipment.
ASSETS UNDER CONSTRUCTION
Assets under construction include fiber optic network assets constructed for
the Company's own use and include direct expenditures of materials and labour,
indirect costs attributable to the projects and interest.
LONG-LIVED ASSETS
The company reviews the carrying amount of long-lived assets for impairment
whenever events or changes in circumstances indicate that the carrying amount
may not be recoverable. The determination of any impairment would include a
comparison of estimated future operating cash flows anticipated to be generated
during the remaining life of the asset to the net carrying value of the asset.
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") determined on an average cost basis.
Construction supplies and small tools inventory are recorded at the lower of
cost and replacement value.
F-9
<PAGE>
360NETWORKS INC.
(FORMERLY WORLDWIDE FIBER INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999 AND 1998
(TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF U.S. DOLLARS)
REVENUE RECOGNITION
Revenue for services provided to Ledcor for construction projects is
recognized in the period the construction services are performed based on the
costs incurred.
Revenue and income from construction contracts to develop fiber optic
network assets are determined on the percentage-of-completion basis using the
cost-to-cost method. Provision is made for all anticipated losses as soon as
they become evident. Claims for additional contract compensation are not
recognized until resolved.
UNBILLED REVENUE
Revenue recognized using the percentage-of-completion basis (see "Revenue
recognition") less billings to date is recorded as unbilled revenue. Unbilled
revenue classified as current represent billings expected to be collected within
the following fiscal year. Billings are rendered on the achievement of certain
construction milestones.
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 in the year ended December 31, 1999 was $17,467,000 (December 31,
1998--$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.
DEFERRED REVENUE
Cash received from customers pursuant to contracts where construction has
not commenced is recorded as deferred revenue.
FOREIGN CURRENCY TRANSLATION AND TRANSACTIONS
The functional currency of the Company's operations located in countries
other than the U.S. is generally the domestic currency. The consolidated
financial statements are translated to U.S. 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 accumulated as a component of other comprehensive income in shareholders'
equity. Net gains and losses resulting from foreign exchange transactions are
included in the consolidated income statement.
F-10
<PAGE>
360NETWORKS INC.
(FORMERLY WORLDWIDE FIBER INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999 AND 1998
(TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF U.S. DOLLARS)
COMPREHENSIVE INCOME
Comprehensive income consists of currency translation adjustments and net
income.
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 is based on
provisions of enacted tax laws; the effects of future changes in tax laws or
rates are not anticipated. The measurement of deferred tax assets is reduced, if
necessary, by a valuation allowance, where, based on available evidence, the
probability of realization of the deferred tax asset does not meet a more likely
than not criteria.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The fair value of the Company's financial instruments, consisting of cash
and cash equivalents, short-term investments, accounts receivable, unbilled
revenue, due from parent, accounts payable and accrued liabilities, and income
taxes payable approximate their carrying values due to their short-term nature.
As at December 31, 1999, the fair value of the $500,000,000 12% Senior Notes was
$515,000,000 and the fair value of the $175,000,000 12.5% Senior Notes ("1998
Notes") was $182,000,000. The fair value of the 1998 Notes at December 31, 1998
approximated its carrying value. Fair value is based on a quoted market price.
EARNINGS PER SHARE
Basic earnings per share is computed by dividing net income available to
common stockholders by the weighted average number of common shares (including
Class A Non-Voting Shares, Class B Subordinate Voting Shares and Class C
Multiple Voting Shares) outstanding for the period. Diluted earnings per share
reflects the potential dilution of securities by including other potential
common stock, including stock options and redeemable convertible preferred
shares, in the weighted average number of common shares outstanding for a
period, if dilutive.
The following table sets forth the computation of (loss) earnings per share:
<TABLE>
<CAPTION>
1999 1998
$ $
------------- -----------
<S> <C> <C>
Net income...................................... 23,640 9,020
Less:
Stock dividend................................ 5,000 --
Preferred stock accretion..................... 6,465 --
Purchase price adjustment to preferred
shares...................................... 22,070 --
============ ===========
Net (loss) income available to common
stockholders.................................. (9,895) 9,020
============ ===========
</TABLE>
F-11
<PAGE>
360NETWORKS INC.
(FORMERLY WORLDWIDE FIBER INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999 AND 1998
(TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF U.S. DOLLARS)
The Redeemable Convertible Preferred Shares and stock options are not
included in the computation of fully diluted earnings per share as their effect
is anti-dilutive.
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.
In June 1999, the Financial Accounting Standards Boards (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, title must transfer to a lessee in order for a lease transaction
to be accounted for as a sales-type lease. The accounting for indefeasible
rights of use of fiber optic network assets is evolving and currently being
considered by accounting standard setters in the U.S. These changes may have a
significant effect on the Company, however it is not possible to determine the
consequences of such changes until further accounting guidance has been
developed.
COMPARATIVE FINANCIAL INFORMATION
Certain prior year amounts have been reclassified to conform to the current
year presentation.
3. SUPPLEMENTAL CASH FLOW INFORMATION
<TABLE>
<CAPTION>
1999 1998
$ $
-------- --------
<S> <C> <C>
Cash paid for income taxes................................ 13,944 --
Cash paid for interest.................................... 21,391 --
Supplemental non-cash investing and financing activities:
Issuance of common shares for
Certain Ledcor assets................................. 47,172 8,488
Deferred revenue...................................... 25,000 --
Additional 25% investment in WFI USA in exchange for
surrender of note receivable........................ -- 3,915
Series C Redeemable Preferred stock dividend............ 5,000 --
Accretion of Preferred Stock to redemption value........ 6,465 --
</TABLE>
F-12
<PAGE>
360NETWORKS INC.
(FORMERLY WORLDWIDE FIBER INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999 AND 1998
(TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF U.S. DOLLARS)
4. BALANCE SHEET COMPONENTS
<TABLE>
<CAPTION>
1999 1998
$ $
-------- --------
<S> <C> <C>
Accounts receivable
Trade accounts receivable............................... 34,736 3,107
Interest receivable and other........................... 615 165
------- ------
35,351 3,272
======= ======
Unbilled revenue
Revenue earned on uncompleted contracts................. 333,116 22,236
Less: Billings to date.................................. 217,455 11,654
------- ------
115,661 10,582
======= ======
</TABLE>
<TABLE>
<S> <C> <C>
Inventory
Fiber optic network assets.............................. 188,013 28,085
Construction supplies and small tools................... 8,946 1,145
------- ------
196,959 29,230
======= ======
Property and equipment
Land.................................................... 5,891 --
Fiber optic network assets.............................. 64,079 --
Equipment............................................... 10,501 4,478
------- ------
80,471 4,478
Less: Accumulated depreciation.......................... 3,462 464
------- ------
Property and equipment--net............................... 77,009 4,014
======= ======
</TABLE>
<TABLE>
<S> <C> <C>
Accounts payable and accrued liabilities
Subcontractor and supplier costs........................ 100,461 13,468
Subcontractor holdbacks payable......................... 25,676 4,843
Other accrued liabilities............................... 36,474 1,493
Interest payable........................................ 28,567 492
------- ------
191,178 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
F-13
<PAGE>
360NETWORKS INC.
(FORMERLY WORLDWIDE FIBER INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999 AND 1998
(TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF U.S. DOLLARS)
of ten years, renewable annually upon completion of the initial term. As part of
this transaction, Ledcor retained all existing construction contracts related to
the business. This transaction was between entities under common control and has
been accounted for using the carrying amounts recorded in Ledcor's accounts. The
tax basis of substantially all the Canadian assets transferred to the Company
was 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 additional paid in capital. As consideration for the transaction,
the Company issued 3,200 Class A Common Shares to Ledcor.
The assets transferred and consideration given, in connection with this
transaction, were as follows:
<TABLE>
<CAPTION>
$
<S> <C>
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 additional paid in capital...... 8,488
=====
</TABLE>
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 32,000,000 Class A Non-Voting 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 48,000,000 Class A
Non-Voting 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
F-14
<PAGE>
360NETWORKS INC.
(FORMERLY WORLDWIDE FIBER INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999 AND 1998
(TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF U.S. DOLLARS)
income of WFI USA from May 31, 1998 to December 31, 1998 in the amount of
$928,000. Prior to May 31, 1998, the equity interest was reported as part of the
Telecommunications 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:
<TABLE>
<CAPTION>
$
<S> <C>
Current assets.............................................. 3,742
Inventory................................................... 6,048
Fiber optic network assets.................................. 1,795
Current liabilities......................................... 10,052
</TABLE>
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:
a) 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.
b) Is restricted from selling, transferring, encumbering or divesting its
ownership or control of WFI USA.
c) 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-15
<PAGE>
360NETWORKS INC.
(FORMERLY WORLDWIDE FIBER INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999 AND 1998
(TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF U.S. DOLLARS)
6. DUE FROM PARENT
The amounts due to and from parent 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, for the period ended December 31, 1998, due to fiber optic network
assets to be transferred to the Company as described in note 1(b). The balance
as at December 31, 1999 of $7,297,000, is included in accounts payable.
7. SENIOR NOTES
On July 28, 1999 the Company issued $500,000,000 12% senior notes (the
"Notes"). 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, 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.
On December 23, 1998, the Company issued $175,000,000 12.5% senior notes
(the "1998 Notes"). The 1998 Notes are unsecured obligations of the Company
bearing interest at 12.5% payable semi-annually. The 1998 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 1998 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 1998 Notes
Indenture, the holders of the 1998 Notes can require the Company to repurchase
all or part of the 1998 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 1998 Notes Indenture, exceeds $10,000,000, the
Company is required to make an offer to repurchase the maximum principal amounts
of 1998 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 1998 Notes. Under
this Excess Cash Flow provision, the Company is not required to repurchase more
than 25% of the original principal amount of the 1998 Notes prior to
December 31, 2003.
The Notes and 1998 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, repurchase
equity interests or subordinated indebtedness, engage in sale and leaseback
transactions, create certain liens, enter into certain transactions with
F-16
<PAGE>
360NETWORKS INC.
(FORMERLY WORLDWIDE FIBER INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999 AND 1998
(TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF U.S. DOLLARS)
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.
8. REDEEMABLE CONVERTIBLE PREFERRED STOCK
On September 9, 1999 the Company authorized various classes of preferred
shares.
SERIES A NON-VOTING CONVERTIBLE PREFERRED SHARES
On September 9, 1999, the Company issued 141,868,928 Series A Non-Voting
Convertible Preferred Shares ("Series A Preferred Shares") for $345,000,000. On
December 22, 1999, the Company issued an additional 9,082,384 Series A Preferred
Shares to the holders of such shares pursuant to the terms of their original
purchase agreement dated September 7, 1999.
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
capital 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 $2.43
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.
SERIES B SUBORDINATE VOTING CONVERTIBLE PREFERRED SHARES
The Series B Subordinate Voting Convertible Preferred Shares ("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 capital 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 $2.43 per share plus an adjustment equal to 6% per
annum of the purchase
F-17
<PAGE>
360NETWORKS INC.
(FORMERLY WORLDWIDE FIBER INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999 AND 1998
(TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF U.S. DOLLARS)
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, 80,000,000 Series C Redeemable Preferred Shares
("Series C Preferred Shares") were issued pursuant to a stock dividend and
640,000,000 Series C Preferred Shares were issued pursuant to a share
re-organization. Subsequently, the Company repurchased the 720,000,000 issued
Series C Preferred Shares for $45,000,000 (note 9). 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.
9. CAPITAL STOCK
On September 9, 1999 the Company authorized various classes of capital stock
(see "Share capital transactions").
The holders of the Class A Non-Voting Shares, Class B Subordinate Voting
Shares, and Class C Multiple Voting Shares participate equally in 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 of 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 capital 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 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-18
<PAGE>
360NETWORKS INC.
(FORMERLY WORLDWIDE FIBER INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999 AND 1998
(TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF U.S. DOLLARS)
SHARE CAPITAL TRANSACTIONS
On September 9, 1999, the Company amended its share capital by
re-designating 400,000,000 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 80,000,000 Series C Redeemable Preferred
Shares for $5,000,000. Concurrently, the Company repurchased the 400,000,000
outstanding Class B Subordinate Voting Shares from its parent in exchange for
the issuance of 381,496,000 Class B Subordinate Voting Shares and 640,000,000
Series C Redeemable Preferred Shares. The Company then redeemed the 720,000,000
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 2,400,000 Class B Subordinate Voting
Shares for $3,000,000.
On November 24, 1999, a shareholder converted 301,266,400 Class B
Subordinate Voting Shares into 301,266,400 Class A Non-Voting Shares. On
December 22, 1999, the Company issued 52,160,000 Class A Non-Voting Shares and
9,840,000 Class C Multiple Voting Shares under an employment agreement to an
executive officer for $77,500,000. The Company also received a promissory note
of $77,500,000 from the executive officer.
On November 24, 1999, the Board of Directors approved an eight-for-one share
split of all classes of the Company's stock. All share amounts in 1998 and 1999
have been presented on a post stock split basis.
10. STOCK BASED COMPENSATION
STOCK OPTION PLAN
The Company has a Long Term Incentive and Share Award Plan that permits the
grant of non-qualified stock options, incentive stock options, share
appreciation rights, restricted shares, restricted share units, performance
shares, performance units, dividend equivalents and other share-based awards to
employees and directors. A maximum of 7,133,008 Class A Non-Voting shares may be
subject to awards under the plan, which generally have a vesting period of four
years. The stock options have terms expiring on or before November 15, 2009.
F-19
<PAGE>
360NETWORKS INC.
(FORMERLY WORLDWIDE FIBER INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999 AND 1998
(TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF U.S. DOLLARS)
Stock option transactions during 1999 were as follows:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
NUMBER OF EXERCISE
OPTIONS PRICE $
----------- ---------
<S> <C> <C>
Balance--December 31, 1998.......................... -- --
Options granted................................... 43,412,480 0.77
Options cancelled................................. -- --
Options exercised................................. -- --
---------- -----
Balance--December 31, 1999.......................... 43,412,480 0.77
========== =====
</TABLE>
The weighted average fair value of options granted in 1999 was $1.29.
The following table summarizes information about stock options outstanding
at December 31, 1999:
<TABLE>
<CAPTION>
WEIGHTED AVERAGE OPTIONS
NUMBER OUTSTANDING REMAINING CONTRACTUAL EXERCISABLE AT
EXERCISE PRICE$ AT DECEMBER 31, 1999 LIFE (YEARS) DECEMBER 31, 1999
- --------------------- --------------------- --------------------- -------------------
<S> <C> <C> <C>
0.63 33,786,880 9.0 8,822,080
1.25 9,625,600 9.5 --
<CAPTION>
- --------------------- --------------------- --------------------- -------------------
0.63-1.25 43,412,480 9.2 8,822,080
<S> <C> <C> <C>
<S> <C>
Net income for the year..................................... $23,640
Additional compensation expense............................. (1,425)
-------
Pro forma net income for the year........................... 22,215
=======
Pro forma basic and fully diluted loss per share............ $ .04
</TABLE>
F-20
<PAGE>
360NETWORKS INC.
(FORMERLY WORLDWIDE FIBER INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999 AND 1998
(TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF U.S. DOLLARS)
The pro forma compensation expense is estimated using the Black Scholes
option-pricing model assuming no dividend yield and the following weighted
average assumptions for options granted during the year ended December 31, 1999:
<TABLE>
<S> <C>
Expected volatility (private company)....................... 0.0%
Risk free interest rate..................................... 5.2%
Expected life (in years).................................... 4.0
</TABLE>
RESTRICTED STOCK AND OTHER STOCK ISSUANCES
During the year, the Company issued stock to certain directors and officers
of the Company. To the extent that these stock issuances are considered to be
below fair value, stock based compensation is recognized and amortized over the
appropriate periods. The Company recognized $176,164,000 of deferred stock-based
compensation related to stock issued to these officers and directors in 1999 of
which $2,832,000 was expensed in the year.
The shares issued to the executive officer are subject to a repurchase by
the Company at the lesser of fair market value of the shares and the original
purchase price of the shares plus interest. The restriction lapsed with respect
to 15,500,000 shares immediately on commencement of employment and lapses for
12,400,000 shares in 2000, 13,639,968 shares in 2001 and 2002 and the remainder
in 2003. Under certain conditions, the executive officer may put back a certain
number of shares to the Company, or at the option of the Company to Worldwide
Fiber Holdings Ltd., at fair market value to repay the promissory note. Deferred
compensation related to these shares will be amortized over the periods covered
by the repurchase restriction.
11. INCOME TAXES
INCOME BEFORE EQUITY INCOME, INCOME TAXES AND MINORITY INTEREST.
The components of income before equity income, income taxes and minority
interest are as follows:
<TABLE>
<CAPTION>
1999 1998
$ $
-------- --------
<S> <C> <C>
Canadian.................................................... 46,881 5,683
U.S......................................................... 14,507 8,052
------ ------
61,388 13,735
====== ======
</TABLE>
F-21
<PAGE>
360NETWORKS INC.
(FORMERLY WORLDWIDE FIBER INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999 AND 1998
(TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF U.S. DOLLARS)
CURRENT INCOME TAXES
The provision for current income taxes consists of the following:
<TABLE>
<CAPTION>
1999 1998
$ $
-------- --------
<S> <C> <C>
Canadian.................................................... 25,742 2,599
U.S. federal................................................ 11,775 2,563
U.S. state and local........................................ 2,821 481
------ -----
40,338 5,643
====== =====
</TABLE>
The provision for income taxes differs from the amount computed by applying
the statutory income tax rate to net income before taxes as follows:
<TABLE>
<CAPTION>
1999 1998
% %
-------- --------
<S> <C> <C>
Canadian statutory rate..................................... 45.6 45.6
Foreign tax at other than Canadian statutory rate........... (5.0) (4.5)
Stock based compensation.................................... 5.8 --
Investment income........................................... 1.6 --
Other....................................................... 1.3 --
---- ----
49.3 41.1
==== ====
</TABLE>
F-22
<PAGE>
360NETWORKS INC.
(FORMERLY WORLDWIDE FIBER INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999 AND 1998
(TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF U.S. DOLLARS)
DEFERRED INCOME TAXES
Significant components of the Company's deferred tax asset and liability are
as follows:
<TABLE>
<CAPTION>
1999 1998
$ $
-------------- --------------
<S> <C> <C>
DEFERRED TAX ASSET
Expenses not deductible in current period......... 8,838 --
Tax loss carryforwards............................ 4,259 --
Property and equipment............................ 7,596 1,088
Other............................................. 185 185
------ ------
20,878 1,273
Valuation allowance............................... -- --
------ ------
NET DEFERRED TAX ASSET............................ 20,878 1,273
====== ======
DEFERRED TAX LIABILITY
Property and equipment............................ 1,760 --
Financing costs................................... 1,313 --
------ ------
3,073 --
====== ======
</TABLE>
Management believes that, based on a number of factors, it is more likely
than not that the deferred tax asset will be fully utilized, such that no
valuation allowance has been recorded.
12. 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,
short-term investments, 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 and short-term investments 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. Accounts
receivable was comprised of 22 customers at December 31, 1999 and 12 customers
at December 31, 1998.
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. The
Company's three largest customers represented 22%, 15% and 10% of the Company's
total revenue for 1999. 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.
F-23
<PAGE>
360NETWORKS INC.
(FORMERLY WORLDWIDE FIBER INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999 AND 1998
(TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF U.S. DOLLARS)
13. 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, the U.S. and Europe including a
transatlantic link. A significant portion of the transatlantic link will be
owned by a subsidiary in Barbados. Revenues, property and equipment, assets
under construction, and deferred financing costs are located as follows:
<TABLE>
<CAPTION>
PROPERTY AND DEFERRED
EQUIPMENT-- ASSETS UNDER FINANCING
REVENUES NET CONSTRUCTION COSTS--NET
------------------- ------------------- ------------------- -------------------
1999 1998 1999 1998 1999 1998 1999 1998
$ $ $ $ $ $ $ $
-------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Canada................. 170,705 84,534 38,206 3,794 46,683 4,424 22,199 6,650
U.S.................... 189,041 79,785 33,669 220 53,221 7,037 -- --
Barbados............... -- -- -- -- 169,648 -- --
Europe................. -- -- 5,134 -- 30,851 -- --
------- ------- ------ ----- ------- ------ ------ -----
359,746 164,319 77,009 4,014 300,403 11,461 22,199 6,650
======= ======= ====== ===== ======= ====== ====== =====
</TABLE>
The revenues are based on the location of the construction activities.
14. 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, in the normal course of business, entered into various
agreements 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. Future minimum payments on
significant rights of ways are as follows:
<TABLE>
<S> <C>
2000........................................................ $25,051
2001........................................................ $17,051
2002........................................................ $17,051
</TABLE>
F-24
<PAGE>
360NETWORKS INC.
(FORMERLY WORLDWIDE FIBER INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999 AND 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, 1999 are as follows:
<TABLE>
<S> <C>
2000........................................................ $7,489
2001........................................................ $6,244
2002........................................................ $3,349
2003........................................................ $1,153
2004........................................................ $ 671
</TABLE>
The Company pays Ledcor approximately $825,000 per year in connection with
its lease of the Toronto facilities. The lease expires in 2009.
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 trans-Atlantic cable project called
"360ATLANTIC". The initial contract price is approximately $607 million. The
Company paid $214 million in the year ended December 31, 1999 on this contract.
(1998--$NIL)
The Company has placed purchase orders of $27 million with suppliers of
bandwidth equipment.
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 along certain of their respective rail transportation systems (the
"Routes"). In connection with these license agreements, the Company formed
subsidiary companies with CN (WFI-CN Fibre Inc.) and IC (Worldwide Fiber LLC)
(the Company having a 75% interest and CN or IC having the remaining 25%
interest) for the purpose of licensing the rights-of-way from CN and IC and
developing the projects along the Routes.
15. SUBSEQUENT EVENTS
SHARE CAPITAL REORGANIZATION
Concurrent with the closing of a public offering, the Company will
reorganize the share capital as follows: the holders of existing Class B
Subordinate Voting Shares will convert or exchange their shares into Class A
Non-Voting Shares and all authorized but unissued Class B Subordinate Voting
Shares will be cancelled; the Series A Non-Voting Preferred Shares will be
converted or exchanged into our Class A Non-Voting Shares and all of the
authorized but unissued Series A Preferred Shares, Series B Preferred Shares and
Series C Preferred Shares will be cancelled; the existing
F-25
<PAGE>
360NETWORKS INC.
(FORMERLY WORLDWIDE FIBER INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999 AND 1998
(TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF U.S. DOLLARS)
Class A Non-Voting Shares will be redesignated as Subordinate Voting Shares and
the terms shall be amended to provide the holders with one vote per share; the
existing Class C Multiple Voting Shares will be amended to provide the holders
with 10 votes per share and the Class C Multiple Voting Shares will be
redesignated as Multiple Voting Shares; and a class of unlimited Preferred
Shares, issuable in series will be created.
GLOBENET ACQUISITION
The Company has entered into a definitive agreement to acquire 100% of the
outstanding shares of GlobeNet Communications Group Limited in exchange for
approximately $640 million worth of newly created Subordinate Voting Shares. The
number of Subordinate Voting Shares to be issued by the Company will be based on
an initial public offering price.
ACQUISITION OF REMAINING 25% OF WFI-USA
The Company has entered into a commitment with Mi-Tech to acquire its 25%
interest in WFI-USA in exchange for $312 million worth of Class A Non-Voting
Shares of the Company. The number of shares to be issued by the Company will be
determined based on an initial public offering price.
CN/IC
On March 6, 2000, the Company entered into an agreement with CN and IC to
acquire their respective 25% interests in WFI-CN Fibre Inc. and Worldwide
Fiber IC LLC in exchange for $160 million worth of Class A Non-Voting Shares of
the Company. The number of Class A Non-Voting Shares to be issued by the Company
will be based on an initial public offering price. Pursuant to this agreement,
payment terms for right-of-way fees were amended requiring the right-of-way fees
to be paid over a three year term.
CANADIAN TELECOMMUNICATIONS ARRANGEMENT
The Company has entered into an arrangement to transfer certain Canadian
telecommunications equipment and related facilities to a subsidiary of Ledcor
which will be held 66 2/3% by Ledcor and 33 1/3% by the Company in exchange for
51% of the non-voting participating shares of the subsidiary.
ACQUISITION OF COLOCATION FACILITIES
The Company has agreed, subject to execution of definitive agreements to
acquire colocation facilities in a number of North American cities. The
aggregate purchase price for these acquisitions is $156 million payable in a
combination of cash and newly created Subordinate Voting Shares.
360ATLANTIC CREDIT FACILITY
The Company has entered into a credit agreement with certain lenders
pursuant to which the lenders have provided a credit facility totalling
U.S. $565,000,000.
F-26
<PAGE>
360NETWORKS INC.
(FORMERLY WORLDWIDE FIBER INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999 AND 1998
(TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF U.S. DOLLARS)
SHARE SPLIT
On March 20, 2000, the Board of Directors approved a two-for-one share split
of all classes of the Company's stock. All share amounts in 1998 and 1999 have
been presented on a post-stock split basis.
SHARE ISSUANCES
Subsequent to December 31, 1999, the Company issued 411,214 Class A
Non-Voting Shares to a consultant of the Company. In addition, the Company will
issue additional Series A Preferred Shares in connection with the purchase price
adjustment provisions of a subscription agreement.
NAME CHANGE
On March 14, 2000, the Company changed its name from Worldwide Fiber Inc. to
360NETWORKS INC.
F-27
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Directors and Shareholders of
Worldwide Fiber (USA), 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. 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-28
<PAGE>
WORLDWIDE FIBER (USA), INC.
CONSOLIDATED INCOME STATEMENT
FOR THE PERIOD FROM FEBRUARY 11, 1998 TO DECEMBER 31, 1998
(TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF U.S. DOLLARS)
<TABLE>
<S> <C>
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)
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-29
<PAGE>
WORLDWIDE FIBER (USA), INC.
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
FOR THE PERIOD FROM FEBRUARY 11, 1998 TO DECEMBER 31, 1998.
(TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF U.S. DOLLARS)
<TABLE>
<CAPTION>
CLASS A NONVOTING
VOTING COMMON
PREFERRED SHARES RETAINED
SHARES 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-30
<PAGE>
WORLDWIDE FIBER (USA), 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)
<TABLE>
<S> <C>
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
========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-31
<PAGE>
WORLDWIDE FIBER (USA), INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998
(TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF U.S. DOLLARS)
1. THE COMPANY
Worldwide Fiber (USA), Inc. (the "Company"), 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") 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.
(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.
F-32
<PAGE>
WORLDWIDE FIBER (USA), INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998
(TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF U.S. DOLLARS)
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.
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.
F-33
<PAGE>
WORLDWIDE FIBER (USA), INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998
(TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF U.S. DOLLARS)
3. SUPPLEMENTAL CASH FLOW INFORMATION
<TABLE>
<S> <C>
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
</TABLE>
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.
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.
F-34
<PAGE>
WORLDWIDE FIBER (USA), INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998
(TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF U.S. DOLLARS)
5. PROVISION FOR INCOME TAXES
The provision for current income taxes attributable to net income consists
of the following:
<TABLE>
<S> <C>
U.S. federal................................................ $953
U.S. state and local........................................ 27
----
$980
====
</TABLE>
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.
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.
F-35
<PAGE>
WORLDWIDE FIBER (USA), 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:
<TABLE>
<S> <C>
1999........................................................ $205
2000........................................................ 83
2001........................................................ 50
2002........................................................ 34
2003 and thereafter......................................... --
</TABLE>
F-36
<PAGE>
AUDITORS' REPORT
To the Directors of
Ledcor Industries Limited
We have audited the divisional balance sheet of Ledcor Industries Limited--
Telecommunications Division as at May 31, 1998 and the divisional statements of
operations and retained earnings and cash flows for the nine months ended
May 31, 1998 and year ended August 31, 1997. 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 and
the results of its operations and cash flows for the periods ended May 31, 1998
and August 31, 1997 in accordance with generally accepted accounting principles
in the United States.
Deloitte & Touche LLP
Edmonton, Canada
November 30, 1998
F-37
<PAGE>
LEDCOR INDUSTRIES LIMITED--
TELECOMMUNICATIONS DIVISION
DIVISIONAL BALANCE SHEET
(ALL FIGURES ARE IN U.S. DOLLARS)
<TABLE>
<CAPTION>
MAY 31, 1998
-------------
<S> <C>
ASSETS
CURRENT
Trade accounts receivable (Note 4).......................... $ 5,538,543
Accounts receivable holdbacks (Note 4)...................... 4,474,731
Unbilled revenue (Note 5)................................... 5,842,845
Inventory................................................... 15,710,561
-----------
31,566,680
FIXED ASSETS (Note 6)....................................... 7,982,103
-----------
$39,548,783
===========
LIABILITIES
CURRENT
Trade accounts payable...................................... $ 3,148,456
Accrued payroll............................................. 3,431,709
Accrued liabilities......................................... 587,750
Accounts payable holdbacks.................................. 4,412,221
Income taxes payable........................................ 5,509,000
-----------
17,089,136
DEFERRED TAX LIABILITIES (Note 7)........................... 2,657,000
INTER-DIVISIONAL ACCOUNT (Note 8)........................... 10,932,703
-----------
30,678,839
-----------
COMMITMENTS (Note 9)
DIVISIONAL EQUITY
Cumulative foreign exchange (loss) gain..................... (1,641,049)
Divisional retained earnings................................ 10,510,993
-----------
8,869,944
-----------
$39,548,783
===========
</TABLE>
See accompanying notes to the divisional financial statements.
F-38
<PAGE>
LEDCOR INDUSTRIES LIMITED
TELECOMMUNICATIONS DIVISION
DIVISIONAL STATEMENTS OF
OPERATIONS AND RETAINED EARNINGS
(ALL FIGURES ARE IN U.S. DOLLARS)
<TABLE>
<CAPTION>
NINE MONTHS
ENDED MAY 31, YEAR ENDED
1998 AUGUST 31, 1997
--------------- ----------------
<S> <C> <C>
Revenue generated from contracts......................... $54,633,888 $58,007,652
Contract costs........................................... 45,321,566 49,184,985
----------- -----------
Gross margin............................................. 9,312,322 8,822,667
General and administrative expenses...................... 710,240 863,373
----------- -----------
Net divisional income for the period, before taxes....... 8,602,082 7,959,294
Income tax expense (recovery)
Current.................................................. 5,509,000 338,000
Deferred................................................. (1,600,000) 3,282,000
----------- -----------
Net divisional income for the period..................... 4,693,082 4,339,294
DIVISIONAL RETAINED EARNINGS, BEGINNING OF PERIOD........ 5,817,911 1,478,617
----------- -----------
DIVISIONAL RETAINED EARNINGS, END OF PERIOD.............. $10,510,993 $ 5,817,911
=========== ===========
</TABLE>
See accompanying notes to the divisional financial statements.
F-39
<PAGE>
LEDCOR INDUSTRIES LIMITED--TELECOMMUNICATIONS DIVISION
DIVISIONAL STATEMENTS OF CASH FLOWS
(ALL FIGURES ARE IN U.S. DOLLARS)
<TABLE>
<CAPTION>
NINE MONTHS YEAR ENDED
ENDED MAY 31, AUGUST 31,
1998 1997
------------- ------------
<S> <C> <C>
OPERATING ACTIVITIES
Net divisional income for the period........................ $ 4,693,082 $ 4,339,294
Adjustments to reconcile net divisional income to net cash
provided by operating activities
Depreciation and amortization............................. 316,597 111,791
Deferred taxes............................................ (1,600,000) 3,282,000
Foreign exchange (gain) loss.............................. (169,000) (68,000)
Changes in assets and liabilities
Decrease (increase) in accounts receivable................ 12,963,167 (17,656,537)
Increase in accounts receivable holdbacks................. (1,028,160) (3,292,919)
Decrease (increase) in unbilled revenue................... (2,234,835) 1,405,418
Increase in inventory..................................... (10,470,309) (5,240,252)
Increase (decrease) in accounts payable................... (9,707,407) 11,136,272
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) gain........... (1,647,737) 12,655
------------ ------------
Net cash provided (used) by operating activities.......... (2,502,337) (3,920,863)
------------ ------------
INVESTING ACTIVITIES
Purchase of construction equipment and other................ (2,403,827) (1,119,183)
Fiber optic strands under construction...................... (4,423,830) --
------------ ------------
Net cash used by investing activities....................... (6,827,657) (1,119,183)
------------ ------------
FINANCING ACTIVITIES
Increase in income taxes payable............................ 5,171,000 333,000
Net advances to (from) the division......................... 4,158,994 4,707,046
------------ ------------
Net cash provided (used) by financing activities............ 9,329,994 5,040,046
------------ ------------
NET CHANGE IN CASH, END OF PERIOD........................... $ -- $ --
============ ============
Additional amounts paid by the Company and allocated to the
Division
Interest.................................................... $ 115,311 $ 677,715
Rent........................................................ 1,198,360 497,265
Income taxes................................................ 338,000 5,000
------------ ------------
$ 1,651,671 $ 1,179,980
============ ============
</TABLE>
See accompanying notes to the divisional financial statements.
F-40
<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.
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 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.
F-41
<PAGE>
LEDCOR INDUSTRIES LIMITED--TELECOMMUNICATIONS DIVISION
NOTES TO THE DIVISIONAL FINANCIAL STATEMENTS (CONTINUED)
(ALL FIGURES ARE IN U.S. DOLLARS)
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:
- Construction equipment--hourly usage rates, estimated to depreciate the
equipment, over estimated useful lives, ranging from three to five years.
- Fiber optic strands, under construction--depreciation, at appropriate
rates, will be provided for when the related fiber optic systems are in
use.
- 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.
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.
F-42
<PAGE>
LEDCOR INDUSTRIES LIMITED--TELECOMMUNICATIONS DIVISION
NOTES TO THE DIVISIONAL FINANCIAL STATEMENTS (CONTINUED)
(ALL FIGURES ARE IN U.S. DOLLARS)
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.
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, 1998
-------------
<S> <C>
Costs incurred on uncompleted contracts..................... $45,321,566
Margin...................................................... 9,312,322
Customer advance deposits applied against contracts......... (25,259,100)
Less billings to date....................................... (23,531,943)
-----------
$ 5,842,845
===========
</TABLE>
F-43
<PAGE>
LEDCOR INDUSTRIES LIMITED--TELECOMMUNICATIONS DIVISION
NOTES TO THE DIVISIONAL FINANCIAL STATEMENTS (CONTINUED)
(ALL FIGURES ARE IN U.S. DOLLARS)
6. FIXED ASSETS
<TABLE>
<CAPTION>
MAY 31, 1998
-------------
<S> <C>
Construction equipment...................................... $3,796,102
Fiber optic strands, under construction..................... 4,423,830
Other....................................................... 529,456
----------
8,749,388
Less accumulated depreciation............................... 767,285
----------
$7,982,103
==========
</TABLE>
7. DEFERRED TAX LIABILITIES
The components of the deferred tax liabilities are as follows:
<TABLE>
<CAPTION>
MAY 31, 1998
-------------
<S> <C>
Deferred tax assets
Accounts payable holdback................................... $1,986,000
Loss carryforward........................................... --
----------
Gross deferred tax assets................................... 1,986,000
----------
Deferred tax liabilities
Accounts receivable holdback................................ 2,014,000
Unbilled revenue............................................ 2,629,000
Inter-divisional account loss carryforward.................. --
----------
Gross deferred tax liabilities.............................. 4,643,000
----------
$2,657,000
==========
</TABLE>
Reconciliation of deferred tax liabilities:
<TABLE>
<CAPTION>
MAY 31, 1998
-------------
<S> <C>
Deferred tax liabilities, beginning of period............... $4,426,000
Deferred tax (recovery) expense............................. (1,600,000)
Foreign exchange gain....................................... (169,000)
----------
Deferred tax liabilities, end of period..................... $2,657,000
==========
</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.
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.
F-44
<PAGE>
LEDCOR INDUSTRIES LIMITED--TELECOMMUNICATIONS DIVISION
NOTES TO THE DIVISIONAL FINANCIAL STATEMENTS (CONTINUED)
(ALL FIGURES ARE IN U.S. DOLLARS)
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:
<TABLE>
<S> <C>
Nine months ending May 31, 1998............................. $1,198,360
</TABLE>
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>
YEAR ENDED AUGUST
NINE MONTHS ENDED 31,
MAY 31, 1998 1997
----------------- -----------------
<S> <C> <C>
Customers
fONOROLA............................................... 62% 64%
Bell Canada............................................ 28% --
Alaska Filter Star..................................... -- 25%
Sprint Canada.......................................... -- --
AT&T Canada............................................ -- --
Supplier
Pirelli Cables......................................... 13% 27%
</TABLE>
F-45
<PAGE>
LEDCOR INDUSTRIES LIMITED--TELECOMMUNICATIONS DIVISION
NOTES TO THE DIVISIONAL FINANCIAL STATEMENTS (CONTINUED)
(ALL FIGURES ARE IN U.S. DOLLARS)
The Division also had significant accounts receivable from FONOROLAwhich
accounted for the following percentages of trade accounts receivable:
<TABLE>
<CAPTION>
MAY 31, 1998
-------------
<S> <C>
FONOROLA.................................................... 39%
</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.
The carrying values of the financial instruments of the Division as at
May 31, 1998 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>
May 31, 1998................ $35,826,795 66% $18,807,093 34%
August 31, 1997............. $42,611,672 73% $15,395,980 27%
</TABLE>
<TABLE>
<CAPTION>
CANADA U.S.
--------------------------------- ---------------------------------
TOTAL IDENTIFIABLE ASSETS AMOUNT PERCENTAGE OF TOTAL AMOUNT PERCENTAGE OF TOTAL
- ------------------------- ----------- ------------------- ----------- -------------------
<S> <C> <C> <C> <C>
May 31, 1998................ $29,204,452 71% $11,928,580 29%
</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,
F-46
<PAGE>
LEDCOR INDUSTRIES LIMITED--TELECOMMUNICATIONS DIVISION
NOTES TO THE DIVISIONAL FINANCIAL STATEMENTS (CONTINUED)
(ALL FIGURES ARE IN U.S. DOLLARS)
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 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-47
<PAGE>
AUDITORS' REPORT
TO THE DIRECTORS AND SHAREHOLDERS OF
GLOBENET COMMUNICATIONS GROUP LIMITED
We have audited the accompanying consolidated balance sheets of GlobeNet
Communications Group Limited as of December 31, 1999 and 1998 and the related
consolidated statements of shareholders' equity, operations and cash flows for
the years ended December 31, 1999, 1998 and 1997. These financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of GlobeNet
Communications Group Limited at December 31, 1999 and 1998 and the results of
its operations and its cash flows for the years ended December 31, 1999, 1998
and 1997 in conformity with accounting principles generally accepted in the
United States.
PricewaterhouseCoopers LLP
CHARTERED ACCOUNTANTS
Toronto, Canada
February 16, 2000
F-48
<PAGE>
GLOBENET COMMUNICATIONS GROUP LIMITED
CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31, 1999 AND 1998
(IN THOUSANDS OF U.S. DOLLARS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
1999 1998
$ $
--------- --------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash........................................................ -- 3,030
Restricted cash (note 3).................................... 79,998 --
Accounts receivable (net of allowance of $224; 1998--$80)... 2,096 1,847
Other receivables........................................... 150 718
Due from related party (note 4)............................. -- 1,363
Prepaid expenses and deposits............................... 1,632 338
-------- --------
83,876 7,296
Restricted cash (note 3).................................... 448,399 --
Fixed assets (note 5)....................................... 49,148 26,182
Construction in progress (note 6)........................... 98,062 --
Other assets (note 7)....................................... 25,847 1,411
Equity accounted for investments............................ -- 21,371
-------- --------
705,332 56,260
-------- --------
LIABILITIES
CURRENT LIABILITIES
Accounts payable (note 8)................................... 36,179 3,871
Accrued liabilities (note 8)................................ 21,117 4,971
Current portion of long-term debt (note 9).................. -- 3,000
-------- --------
57,296 11,842
LONG-TERM DEBT (note 9)..................................... 400,000 35,019
DEFERRED REVENUE (note 10).................................. 6,455 2,695
-------- --------
463,751 49,556
-------- --------
SHAREHOLDERS' EQUITY
SHARE CAPITAL (notes 12 and 13)
Class A shares, 100 shares authorized, par value $1.50 each
nil
(1998--100) shares issued and outstanding................. -- --
Class B shares, 2,000 shares authorized, par value $1.50
each 1,000
(1998--nil) shares issued and outstanding................. 2 --
Common shares, 24,000,000 authorized, par value $1.50 each
17,043,900 (1998--3,515,927) shares issued and
outstanding............................................... 25,566 5,274
ADDITIONAL PAID-IN CAPITAL.................................. 246,866 16,377
DEFICIT..................................................... (30,853) (14,947)
-------- --------
241,581 6,704
-------- --------
705,332 56,260
======== ========
COMMITMENTS (note 16)
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-49
<PAGE>
GLOBENET COMMUNICATIONS GROUP LIMITED
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
(IN THOUSANDS OF U.S. DOLLARS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
PAR PAR TOTAL
VALUE OF VALUE OF ADDITIONAL SHARE-
CLASS A CLASS B CLASS B COMMON COMMON PAID-IN HOLDERS'
SHARES SHARES SHARES SHARES SHARE CAPITAL DEFICIT EQUITY
---------- ---------- ---------- ----------- ----------- ------------- -------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
December 31, 1996....... -- -- $-- 3,487,916 $ 5,232 $ 16,200 $ (4,707) $ 16,725
Shares options
exercised............. -- -- -- 28,011 42 42 -- 84
Share options issued.... -- -- -- -- -- 135 -- 135
Shares issued........... 100 -- -- -- -- -- -- --
Net loss for the year... -- -- -- -- -- -- (5,296) (5,296)
---- ----- --- ---------- -------- -------- -------- --------
December 31, 1997....... 100 -- -- 3,515,927 5,274 16,377 (10,003) 11,648
Net loss for the year... -- -- -- -- -- -- (4,944) (4,944)
---- ----- --- ---------- -------- -------- -------- --------
December 31, 1998....... 100 -- -- 3,515,927 5,274 16,377 (14,947) 6,704
Compensatory share
options............... -- -- -- -- -- 8,758 -- 8,758
Deferred compensation... -- -- -- -- -- (4,551) -- (4,551)
Share options
exercised............. -- -- -- 129,041 194 754 -- 948
Shares issued in private
equity financing...... -- -- -- 13,263,646 19,895 250,683 -- 270,578
Share issue costs....... -- -- -- -- -- (11,665) -- (11,665)
Shares issued........... -- 1,000 2 -- -- -- -- 2
Shares issued on
conversion of
subordinated debt and
exercise of
warrants.............. -- -- -- 1,635,286 2,453 14,860 -- 17,313
Shares purchased and
cancelled............. (100) -- -- (1,500,000) (2,250) (28,350) -- (30,600)
Net loss for the year... -- -- -- -- -- -- (15,906) (15,906)
---- ----- --- ---------- -------- -------- -------- --------
December 31, 1999....... -- 1,000 $ 2 17,043,900 $ 25,566 $246,866 $(30,853) $241,581
==== ===== === ========== ======== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-50
<PAGE>
GLOBENET COMMUNICATIONS GROUP LIMITED
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
(IN THOUSANDS OF U.S. DOLLARS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
1999 1998 1997
$ $ $
-------- -------- --------
<S> <C> <C> <C>
REVENUES
Telecommunications services................................. 26,033 24,940 4,962
IRU capacity (note 10)...................................... 315 1,784 --
------- ------ ------
26,348 26,724 4,962
------- ------ ------
EXPENSES
Carrier charges............................................. 10,989 15,129 3,559
Cost of IRU capacity........................................ -- 547 --
General and administrative expenses (notes 4 and 15)........ 19,311 9,328 4,961
Amortization of fixed assets................................ 1,854 1,502 429
------- ------ ------
32,154 26,506 8,949
------- ------ ------
OPERATING LOSS.............................................. (5,806) 218 (3,987)
Interest on long-term debt.................................. 20,427 3,863 1,055
Accrued contingent interest (note 9)........................ 538 960 382
Interest income............................................. (12,588) (170) (193)
------- ------ ------
LOSS BEFORE INCOME TAXES, MINORITY INTEREST, EQUITY
ACCOUNTED FOR INVESTMENTS AND EXTRAORDINARY ITEM.......... (14,183) (4,435) (5,231)
Provision for income taxes.................................. (141) (36) (53)
------- ------ ------
LOSS BEFORE MINORITY INTEREST, EQUITY ACCOUNTED FOR
INVESTMENTS AND EXTRAORDINARY ITEM........................ (14,324) (4,471) (5,284)
Minority interest (note 11)................................. -- 204 249
Loss from equity accounted for investments (note 11)........ (773) (677) (261)
------- ------ ------
LOSS BEFORE EXTRAORDINARY ITEM.............................. (15,097) (4,944) (5,296)
Extraordinary loss relating to extinguishment of debt (note
9)........................................................ (809) -- --
------- ------ ------
NET LOSS AND COMPREHENSIVE LOSS FOR THE YEAR................ (15,906) (4,944) (5,296)
------- ------ ------
BASIC AND FULLY DILUTED LOSS PER COMMON SHARE BEFORE
EXTRAORDINARY ITEM........................................ (1.52) (1.41) (1.52)
------- ------ ------
BASIC AND FULLY DILUTED LOSS PER COMMON SHARE RELATING TO
THE EXTRAORDINARY LOSS FROM THE EXTINGUISHMENT OF DEBT.... (0.08) -- --
------- ------ ------
BASIC AND FULLY DILUTED LOSS PER COMMON SHARE (note 14)..... (1.60) (1.41) (1.52)
------- ------ ------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-51
<PAGE>
GLOBENET COMMUNICATIONS GROUP LIMITED
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
(IN THOUSANDS OF U.S. DOLLARS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
1999 1998 1997
--------- -------- --------
$ $ $
<S> <C> <C> <C>
CASH PROVIDED BY (USED IN)
OPERATING ACTIVITIES
Net loss for the year....................................... (15,906) (4,944) (5,296)
Items not involving cash
Amortization of fixed assets.............................. 1,854 1,502 429
Write-down of other assets................................ -- 201 --
Amortization of other assets.............................. 1,949 321 305
Extraordinary loss-extinguishment of debt................. 809 -- --
Minority interest......................................... -- (204) (249)
Loss from equity accounted for investments................ 773 677 261
Accrued contingent interest............................... 538 960 382
Gain on granting of indefeasible rights of use and loss on
sale of capital assets.................................. -- (970) --
Compensatory share options................................ 4,207 -- --
Net change in non-cash operating items
Accounts receivable....................................... (249) (577) (1,270)
Other receivables......................................... 568 970 (1,688)
Note receivable........................................... (32) -- --
Prepaid expenses and deposits............................. (1,294) (138) 32
Accounts payable.......................................... 1,265 (6,369) 9,669
Accrued liabilities....................................... 13,778 3,908 959
Deferred revenue.......................................... 3,760 1,174 1,521
Recoverable duties........................................ -- -- 392
--------- ------- --------
CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES............. 12,020 (3,489) 5,447
--------- ------- --------
FINANCING ACTIVITIES
Issuance of common shares................................... 259,861 -- 84
Purchase and cancellation of common shares, net of fees..... (30,600) -- --
Proceeds from issuance of long-term debt.................... 400,500 9,350 29,740
Repayment of long-term debt................................. (23,677) (2,413) --
Deferred financing costs.................................... (26,514) -- (1,472)
Other assets................................................ (653) -- --
Loans provided by minority shareholders..................... -- -- 807
--------- ------- --------
CASH PROVIDED BY FINANCING ACTIVITIES....................... 578,917 6,937 29,159
--------- ------- --------
INVESTING ACTIVITIES
Restricted cash............................................. (528,397) -- 2,015
Purchase of fixed assets.................................... (4,139) (1,791) (22,662)
Construction in progress (note 6)........................... (62,799) -- --
Granting of indefeasible rights of use and proceeds on sale
of capital assets......................................... -- 1,596 --
Change in other assets...................................... 5 (218) (2)
Due from related party...................................... 1,363 (1,363) --
Proceeds from sale of equity accounted for investment....... -- 410 --
Advances to equity accounted for investee................... -- (411) (22,479)
--------- ------- --------
CASH (USED IN) INVESTING ACTIVITIES......................... (593,967) (1,777) (43,128)
--------- ------- --------
INCREASE (DECREASE) IN CASH FOR THE YEAR.................... (3,030) 1,671 (8,522)
CASH--BEGINNING OF YEAR..................................... 3,030 1,359 9,881
--------- ------- --------
CASH--END OF YEAR........................................... -- 3,030 1,359
--------- ------- --------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-52
<PAGE>
GLOBENET COMMUNICATIONS GROUP LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
(IN THOUSANDS OF U.S. DOLLARS, EXCEPT SHARE AND PER SHARE AMOUNTS)
1 NATURE OF OPERATIONS
GlobeNet Communications Group Limited provides international
telecommunications services to both residential and commercial customers and is
a provider of telecommunications capacity. The Company is currently developing a
fibre optic submarine cable system called Atlantica-1 that will link Bermuda,
North and South America and offer capacity between major cities in the United
States, Bermuda, Brazil, Venezuela and Argentina. Atlantica-1 is currently being
constructed.
In November 1997, the Company deployed a fibre optic submarine cable system
which connects Bermuda and the United States ("BUS-1"). The Company provides
international telecommunications services to both residential and commercial
customers in Bermuda through a subsidiary company, TeleBermuda International
Limited ("TBI") through the BUS-1.
On January 10, 1997, TBI was granted its public telecommunications service
licence in Bermuda under the provisions of the Telecommunications Act, 1986 and
the Public Telecommunication Service (Licence) Regulations, 1988 for a five-year
term and began commercial operations in May 1997. TBI has an interconnection
agreement with the Bermuda Telephone Company ("BTC"), the domestic carrier in
Bermuda. No consideration was paid by the Company in relation to these
agreements.
2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
These consolidated financial statements are prepared in accordance with
accounting principles generally accepted in the United States. The following is
a summary of the significant accounting policies followed in the preparation of
these consolidated financial statements.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company
and all of its subsidiary companies. Intercompany accounts and transactions have
been eliminated on consolidation.
USE OF SIGNIFICANT ACCOUNTING ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles in the United States requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosures of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting periods. Actual results could significantly differ from
those estimates.
REVENUE, DEFERRED REVENUE AND COST RECOGNITION
REVENUE: The Company provides telecommunication services and the granting
or leasing of indefeasible rights of use ("IRU") interests in its
telecommunications infrastructure.
The Company records as revenue the amount of telecommunications services
rendered, as measured primarily by the minutes of traffic processed, after
deducting an estimate of the traffic for
F-53
<PAGE>
GLOBENET COMMUNICATIONS GROUP LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
(IN THOUSANDS OF U.S. DOLLARS, EXCEPT SHARE AND PER SHARE AMOUNTS)
2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
which revenue will not be collected. Historical deductions have not been
material. Service discounts and incentives are accounted for as a reduction of
revenue when granted, or where provided in relation to a service contract,
rateably over the contract period.
The Company has entered into certain IRU agreements. Such agreements are
accounted for as either service or lease transactions. Those IRU agreements that
meet all of the following characteristics have been accounted for as leases:
(a) The purchaser has exclusive right to the purchased capacity for a
specified period, generally the estimated useful life of the system,
which is 25 years.
(b) The Company cannot sell or otherwise use any of the purchaser's unused
capacity for the term of the agreement.
(c) The purchased capacity is physically limited to discrete channels on the
purchaser's own dedicated circuits at a specified amount of capacity,
which cannot be exceeded. The specific circuits are agreed to by the
parties.
(d) The Company has no right to move the purchased capacity to another
discrete channel from the purchaser's dedicated circuits without the
purchaser's permission.
IRU agreements that meet these criteria are accounted for as lease
transactions. If the transactions meet the sales type lease criteria of
Financial Accounting Standard No. 13, including those related to collectibility
of the payments and the absence of any important uncertainties surrounding
unreimbursable costs yet to be incurred by the Company, then revenue is
recognized in the period that the IRUs are transferred and the capacity is
available for service. If these criteria are not met, the transactions are
accounted for as operating leases and revenue is recognized over the term of the
lease.
To date, the Company has not entered into any IRU agreements that are
considered to be service transactions. Revenue from service transactions would
be recognized as earned over the term of the agreement.
In addition, we note that the accounting for sales of capacity is evolving,
and is currently under consideration by accounting standard setters. Any change
in accounting literature may affect the timing and method of recognition of
these revenues and related costs.
Revenues from private line services are recognized as earned.
DEFERRED REVENUE: Rent from the operating leases of capacity in the
telecommunications infrastructure to third party carriers is deferred and
recognized over the term of the lease on a straight-line basis. Revenue from the
sale of prepaid calling cards is recognized as the services are provided.
COST: Carrier charges are comprised primarily of local access charges and
international termination costs. These costs are recognized based on traffic
volume.
F-54
<PAGE>
GLOBENET COMMUNICATIONS GROUP LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
(IN THOUSANDS OF U.S. DOLLARS, EXCEPT SHARE AND PER SHARE AMOUNTS)
2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
FIXED ASSETS
Fixed assets are recorded at cost less accumulated amortization.
Amortization commences when an asset is available for use, and is calculated in
a systematic manner based on the expected useful lives of the assets as follows:
<TABLE>
<CAPTION>
ASSET CATEGORY BASIS RATE
- ----------------------------------------------------- ------------------- -----------------
<S> <C> <C>
Fibre optic submarine cable.......................... straight-line 25 years
Network and telecommunications equipment............. straight-line 10 years
Leasehold improvements............................... straight-line term of the lease
Computer equipment................................... straight-line 3 years
Furniture and office equipment....................... diminishing balance 20% per year
Software............................................. straight-line 5 years
</TABLE>
CONSTRUCTION IN PROGRESS
Construction in progress includes direct expenditures for the construction
of the Company's Atlantica-1 project and is stated at cost. Costs are
capitalized once it is probable that the fibre optic cable system will be
constructed, otherwise they are expensed as incurred. Capitalized costs include
costs incurred under the construction contract, advisory, consulting and legal
fees and interest.
DEFERRED FINANCING COSTS
Deferred financing costs represent debt issuance costs, which are amortized
over the estimated term of the related debt.
INVESTMENTS
The Company's investments are accounted for using the equity method.
FOREIGN CURRENCY TRANSLATION
Monetary assets and liabilities denominated in foreign currencies are
translated into U.S. dollars at exchange rates prevailing at the balance sheet
date. Revenues and expenses are translated into U.S. dollars at the average
rates of exchange prevailing at the dates of the respective transactions.
Transactions are translated into U.S. dollars at the exchange rates in effect at
the time the transactions occur. Exchange gains and losses arising on
translation are included in the operating results for the year.
Assets and liabilities of non-Bermudian subsidiaries where the functional
currency is other than the U.S. dollar are translated at the exchange rate in
effect at the balance sheet date. Revenues and expenses are translated at
average exchange rates prevailing during the year.
F-55
<PAGE>
GLOBENET COMMUNICATIONS GROUP LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
(IN THOUSANDS OF U.S. DOLLARS, EXCEPT SHARE AND PER SHARE AMOUNTS)
2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
FINANCIAL INSTRUMENTS
The fair value of financial assets and liabilities represents the amount at
which these instruments could be exchanged in an arm's length transaction
between willing parties.
As at December 31, 1999, the carrying amounts of financial assets and
liabilities in the consolidated balance sheet approximate their fair values due
to the short-term nature of these instruments.
The reported amount of fixed rate long-term debt instruments is estimated to
approximate fair value as actual rates are consistent with rates estimated to be
currently available for debt of similar terms and remaining maturities.
In addition, the Company has entered into an interest rate cap agreement to
modify the interest characteristics of part of its outstanding long-term debt.
This agreement involves an exchange of amounts based on a fixed interest rate
for amounts based on a variable interest rate whenever the interest rate exceeds
the cap specified in the agreement. The premium paid by the Company upon
entering in the agreement is amortized over the term of the agreement and
recognized as an adjustment of interest expense related to the debt. The Company
does not use derivative financial instruments for speculative trading purposes.
As of December 31, 1999, the carrying value approximates fair value.
INCOME TAXES
Under current Bermuda laws, the Company is not required to pay any taxes in
Bermuda on either income or capital gains. The Company has received an
undertaking from the Minister of Finance in Bermuda, pursuant to the Exempted
Undertakings Tax Protection Act 1966, which exempts the Company from any such
tax until March 28, 2016. Subsidiaries in other jurisdictions are subject to
local taxes.
STOCK BASED COMPENSATION
The Company applies APB Opinion 25 ("Accounting for Stock Issued to
Employees") in accounting for its stock option plan, and, accordingly, does not
recognize compensation cost at the time options are granted unless the exercise
price is less than the market price of the stock on the measurement date.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133
("SFAS 133"), "Accounting for Derivative Instruments and Hedging Activities"
which is effective for fiscal years beginning after June 15, 2000. SFAS 133, as
amended, requires the Company to recognize all derivatives as either assets or
liabilities and measure those instruments at fair value. It further provides
criteria for derivative instruments to be designated as fair value, cash flow,
and foreign currency hedges and establishes respective accounting standards for
reporting changes in the fair value of the derivative instruments. Upon
adoption, the Company will be required to adjust hedging
F-56
<PAGE>
GLOBENET COMMUNICATIONS GROUP LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
(IN THOUSANDS OF U.S. DOLLARS, EXCEPT SHARE AND PER SHARE AMOUNTS)
2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
instruments to fair value in the balance sheet and recognize the offsetting
gains or losses as adjustments to be reported in net income or other
comprehensive income, as appropriate. Management has not determined the impact
of this statement on its financial position, results of operations and cash
flows.
FASB Interpretation No. 43, "Real Estate Sales--an interpretation of FASB
Statement No. 66," was issued in June 1999. It clarifies the standards for
recognition of profit on all real estate sales transactions, including those
related to fibre optic cable that cannot be removed and used separately from the
real estate without incurring significant costs. This interpretation is
effective for all applicable transactions after June 30, 1999. However, no such
transactions have been entered into after June 30, 1999 and we have not yet
completed our analysis of the applicability or the impact of this statement on
future transactions.
3 RESTRICTED CASH
Components of restricted cash are:
<TABLE>
<CAPTION>
1999 1998
$ $
-------- --------
<S> <C> <C>
Cash....................................................... 6,628 --
Cash equivalents maturing within 90 days:
Commercial paper......................................... 513,703 --
Term deposit............................................. 8,066 --
------- --------
528,397 --
Less: Current portion...................................... 79,998 --
======= ========
448,399 --
======= ========
</TABLE>
The Company's use of cash is generally restricted under the terms of the
Credit Facility to operating and capital expenditures related to the Atlantica-1
project and to other telecommunications activities. The investment of the cash
is restricted to investments with a minimum credit rating of A-1 by Standard and
Poor's or P-1 by Moody's.
4 RELATED PARTY TRANSACTIONS
a) On August 26, 1998, TBI loaned CAD$2,000 ($1,292) to the Chairman and Chief
Executive Officer of the Company. This loan and all outstanding interest
thereon were repaid in full in January 1999.
b) In September 1997, the Company entered into a service agreement with First
Bermuda Securities Ltd., of which a Director of the Company is the Chief
Executive Officer. Under this agreement, First Bermuda Securities Ltd.
provides the Company with various financial and business advisory services.
Payments made to First Bermuda Securities in 1999 were $81 (1998--$125;
1997--$145) and are included in general and administrative expenses.
F-57
<PAGE>
GLOBENET COMMUNICATIONS GROUP LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
(IN THOUSANDS OF U.S. DOLLARS, EXCEPT SHARE AND PER SHARE AMOUNTS)
5 FIXED ASSETS
<TABLE>
<CAPTION>
1999
ACCUMULATED
COST AMORTIZATION NET
$ $ $
-------- ------------- --------
<S> <C> <C> <C>
Land........................................................ 2,611 -- 2,611
Fibre optic submarine cable................................. 44,459 3,756 40,703
Network and telecommunications equipment.................... 5,328 1,037 4,291
Leasehold improvements...................................... 1,154 226 928
Computer equipment.......................................... 596 346 250
Furniture and office equipment.............................. 266 67 199
Software.................................................... 240 74 166
------ ----- ------
54,654 5,506 49,148
====== ===== ======
</TABLE>
<TABLE>
<CAPTION>
1998
ACCUMULATED
COST AMORTIZATION NET
$ $ $
-------- ------------- --------
<S> <C> <C> <C>
Fibre optic submarine cable................................. 21,881 971 20,910
Network and telecommunications equipment.................... 4,415 549 3,866
Leasehold improvements...................................... 944 140 804
Computer equipment.......................................... 470 167 303
Furniture and office equipment.............................. 140 38 102
Software.................................................... 224 27 197
------ ----- ------
28,074 1,892 26,182
====== ===== ======
</TABLE>
6 CONSTRUCTION IN PROGRESS
The Company is currently constructing a fibre optic submarine cable system
called Atlantica-1 linking Bermuda, North and South America. As of December 31,
1999, costs of $98,062 have been capitalized and included in this amount is
capitalized interest of $4,220 (1998--$nil).
7 OTHER ASSETS
<TABLE>
<CAPTION>
1999 1998
$ $
-------- --------
<S> <C> <C>
Deferred financing costs, net of accumulated amortization
of $1,936 (1998--$626).................................... 24,743 981
Other....................................................... 1,104 430
------ -----
25,847 1,411
====== =====
</TABLE>
F-58
<PAGE>
GLOBENET COMMUNICATIONS GROUP LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
(IN THOUSANDS OF U.S. DOLLARS, EXCEPT SHARE AND PER SHARE AMOUNTS)
8 ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
Accounts payable are comprised as follows:
<TABLE>
<CAPTION>
1999 1998
$ $
-------- --------
<S> <C> <C>
Atlantica-1 payables........................................ 31,043 --
Trade payables.............................................. 1,873 777
Foreign carrier settlement payables......................... 3,263 3,037
Other payables.............................................. -- 57
------ -----
36,179 3,871
====== =====
</TABLE>
Accrued liabilities are comprised as follows:
<TABLE>
<CAPTION>
1999 1998
$ $
-------- --------
<S> <C> <C>
Interest payable............................................ 18,266 2,002
Foreign carrier accrual..................................... 480 880
Equalization payment accrual................................ 470 668
Other accruals.............................................. 1,901 1,421
------ -----
21,117 4,971
====== =====
</TABLE>
Foreign carrier settlement payables and foreign carrier accrual represent
costs for foreign traffic payable to other carriers.
9 LONG-TERM DEBT
<TABLE>
<CAPTION>
1999 1998
$ $
-------- --------
<S> <C> <C>
Term loan (a)............................................... -- 21,990
Operating credit facility (a)............................... -- 1,687
Subordinated debentures and retractable warrants (a)........ -- 13,000
Accrued contingent interest (a)............................. -- 1,342
Senior notes (b)............................................ 300,000 --
Bank credit facility (c).................................... 100,000 --
------- ------
400,000 38,019
Less: Current portion....................................... -- 3,000
------- ------
400,000 35,019
======= ======
</TABLE>
(a) On July 14, 1999, the term loan, operating credit facility and certain
accrued interest on the subordinated debentures were repaid. As well, all of
the remaining obligations to the subordinated debentureholders were retired
when the subordinated debentureholders elected
F-59
<PAGE>
GLOBENET COMMUNICATIONS GROUP LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
(IN THOUSANDS OF U.S. DOLLARS, EXCEPT SHARE AND PER SHARE AMOUNTS)
9 LONG-TERM DEBT (CONTINUED)
to exercise their warrants and convert the principal and remaining accrued
interest on their subordinated debt into 1,635,286 common shares. In
connection with the foregoing, deferred financing costs of $809 were written
off as a result of the debt extinguishment.
(b) On July 14, 1999, the Company issued debt in the principal amount of
$300,000 in the form of 13% senior notes maturing July 15, 2007. Interest on
these notes is payable semi-annually in arrears commencing January 15, 2000.
The notes are unsecured.
(c) On July 14, 1999, the Company secured a bank credit facility ("Credit
Facility") of up to $400,000, consisting of various term facilities
totalling $390,000 and a revolving credit facility of $10,000. In addition,
under the Credit Facility, the Company may also request an additional
facility of up to $50,000 subject to lender approval and other restrictions.
The Credit Facility matures in 2005. Interest rates on the Credit Facility
range from LIBOR plus 3.5% to LIBOR plus 4.0% and availability of funds
under the Credit Facility is subject to certain terms and conditions.
Commitment fees for the Credit Facility were $2,541.
Substantially all of the assets of GlobeNet Communications Holdings Ltd. and
of its present and future direct and indirect subsidiaries have been pledged as
collateral for the Credit Facility. GlobeNet Communications Holdings Ltd. is a
wholly owned subsidiary of the Company. In addition, a third party supplier has
provided an initial guarantee subject to certain conditions and adjustments of
up to $100,000 for one of the term facilities.
On December 22, 1999, the Company entered into an interest rate cap
transaction effectively fixing the interest rate on $50,000 of the Credit
Facility at 7.0% for a three-year term.
As at December 31, 1999 the unused facility was $300,000 and the average
rate of interest during 1999 was 9.7%.
The principal repayments required in the next five years and thereafter in
respect of the senior notes and the Credit Facility are as follows:
<TABLE>
<CAPTION>
$
--------
<S> <C> <C>
Fiscal year 2002.................................................. 1,000
2003.................................................. 1,000
2004.................................................. 1,000
2005.................................................. 97,000
2006.................................................. --
Thereafter............................................ 300,000
-------
400,000
=======
</TABLE>
10 GRANTING OF INDEFEASIBLE RIGHTS OF USE AND LEASING OF THE FIBRE OPTIC
SUBMARINE CABLE
a) During 1998, the Company granted indefeasible rights of use ("IRUs") in its
fibre optic submarine cable to certain third party carriers for a period of
25 years for $1,521. The costs
F-60
<PAGE>
GLOBENET COMMUNICATIONS GROUP LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
(IN THOUSANDS OF U.S. DOLLARS, EXCEPT SHARE AND PER SHARE AMOUNTS)
10 GRANTING OF INDEFEASIBLE RIGHTS OF USE AND LEASING OF THE FIBRE OPTIC
SUBMARINE CABLE (CONTINUED)
recognized with the granting of the IRUs are calculated as total capacity
granted in relation to the total cost of the activated fibre optic submarine
cable times the total cost of the fibre optic submarine cable system. In
addition, under these IRU agreements, the third party carrier is responsible
for paying its pro rata share of restoration costs. These costs are
accounted for as expenses as they are incurred, less a recovery of expense
being recorded to reflect the required pro rata reimbursement from the IRU
customer.
b) The Company has entered into an agreement to provide capacity in its fibre
optic submarine cable to a third party. This arrangement is being accounted
for as an operating lease. The term of the lease is for the greater of 25
years or the operational life of the fibre optic submarine cable. If the
operational life is less than 10 years, the Company must provide a refund on
a pro rata basis for each year short of the 10-year period. For the first
four years of the agreement, the Company is responsible for maintenance and
operating costs, thereafter the lessee will pay a monthly charge for
operating and maintenance costs. The total rental payment for this agreement
was $8,000, of which $4,000 was paid in 1999 and $3,000 in 1998. The
remaining payment of $1,000 is due on September 24, 2000. Lease income is
being recognized on a straight-line basis over the 25-year term. During
1999, lease income of $315 (1998--$263; 1997--$nil) was recognized.
Under this agreement, the third party has the right to enter into a second
lease of capacity in the fibre optic submarine cable commencing September 24,
2001. The consideration for the second lease will be $4,000 payable upon
activation of the second circuit. If the third party elects not to proceed with
the second lease a penalty of $250 is payable to the Company.
11 MINORITY INTEREST AND EQUITY ACCOUNTED FOR INVESTMENTS
ROCOM TBI LIMITED
During 1998, the Company sold its interest in Rocom TBI Limited, a
telecommunications services joint venture in the United Kingdom, for total
consideration of $820 (L500), of which $410 (L250) was received in cash and a
remaining receivable of $410 (L250) is included in other assets.
TELEBERMUDA INTERNATIONAL L.L.C.
On November 1, 1999, The Company indirectly acquired the 80% interest in
TeleBermuda International L.L.C. ("TBI L.L.C.") that it did not previously own
for nominal consideration pursuant to a Put and Call Agreement entered into in
May 1996. TBI L.L.C. holds the landing license for the Company's Bermuda to
United States cable system ("BUS-1") in the United States, a 50% interest in the
BUS-1 and a 100% interest in the U.S. landing plant. From May 1996 to
November 1, 1999, the Company's 20% investment in TBI L.L.C. was accounted for
using the equity method. Under the equity method, the Company reported 100% of
the losses of TBI L.L.C. as the Company had certain rights and obligations
related to the investment, including the requirement to fund operations and
capital expenditures.
F-61
<PAGE>
GLOBENET COMMUNICATIONS GROUP LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
(IN THOUSANDS OF U.S. DOLLARS, EXCEPT SHARE AND PER SHARE AMOUNTS)
11 MINORITY INTEREST AND EQUITY ACCOUNTED FOR INVESTMENTS (CONTINUED)
Summarized financial information for TBI L.L.C. at and for the year ended
December 31, 1998 is as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
1998
$
--------------
<S> <C>
BALANCE SHEET
Current asset............................................... 2
Non-current asset........................................... 21,432
Current liabilities......................................... 62
Non-current liabilities..................................... 22,803
STATEMENT OF OPERATIONS
Revenues.................................................... --
Expenses.................................................... 943
Net loss from TBI L.L.C..................................... (943)
</TABLE>
12 SHARE CAPITAL
a) Authorized
The Board of Directors has the authority to issue common shares, securities
convertible into common shares or grant options, up to a maximum of 20% of the
fully diluted shares of the Company pursuant to a general mandate of the
shareholders. This mandate will expire at the next annual meeting of the
shareholders, unless it is re-approved at that meeting.
During 1999, the authorized common shares of the Company were increased by
10,499,900 effective June 15, 1999 and 6,500,200 effective July 12, 1999 to an
aggregate total of 24,000,000 common shares. In addition, the Company bye-laws
authorized the creation of 100 Class B shares. On July 12, 1999, the authorized
Class B shares of the Company were increased by 1,900.
Class B restricting voting shares are entitled to a maximum of $1.50 par
value on any liquidation of the Company. The holders of these shares are the
only shareholders permitted to hold common shares representing more than 35% of
the aggregate issued share capital of the Company at any time or shares
representing more than 35% of the votes attaching to all issued shares of the
Company at any time. Approval of the holders of the majority of Class B share is
required before changes may be made to any of the Company's governing documents
and certain specific transactions.
b) Capital transactions
i) On October 3, 1997, 100 common shares were converted into Class A
shares. On July 14, 1999, the Company purchased and cancelled 100
Class A shares at their par value of $1.50 per share.
F-62
<PAGE>
GLOBENET COMMUNICATIONS GROUP LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
(IN THOUSANDS OF U.S. DOLLARS, EXCEPT SHARE AND PER SHARE AMOUNTS)
12 SHARE CAPITAL (CONTINUED)
ii) On July 14, 1999, the Company issued for cash 1000 Class B shares at
their par value of $1.50.
iii) On July 14, 1999, the Company issued 13,263,646 common shares for cash
at $20.40 per share and aggregate proceeds of $258,913, net of expenses
related to the offering of $11,665. On the same date, the subordinated
debenture holders elected to exercise their warrants and convert the
principal and remaining accrued interest at their carrying amounts into
1,635,286 shares aggregating $17,313. On August 9, 1999, the Company
purchased for cancellation 1,500,000 common shares at $20.40 per share
for a total cost of $30,600. Commissions of $450 were paid to First
Bermuda Securities Ltd., of which a Director of the Company is the Chief
Executive Officer.
13 COMMON SHARE OPTIONS
The Company, awards options to employees, officers and directors of the
Company under the terms of the 1997 and 1998 Share Option and Incentive Plans.
In addition, the Board has the authority to grant options outside of these plans
under separate stock option agreements. A summary of the outstanding common
share purchase option activities is as follows:
<TABLE>
<CAPTION>
1999 1998 1997
--------------------- --------------------- ---------------------
WEIGHTED WEIGHTED WEIGHTED
COMMON AVERAGE COMMON AVERAGE COMMON AVERAGE
SHARES EXERCISE SHARES EXERCISE SHARES EXERCISE
PURCHASE PRICE PURCHASE PRICE PURCHASE PRICE
OPTIONS $ OPTIONS $ OPTIONS $
--------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Options outstanding at
beginning of year............ 543,489 5.15 556,489 5.22 352,500 3.21
Options granted................ 1,277,019 13.14 -- -- 232,000 8.00
Options exercised.............. (129,041) 7.37 -- -- (28,011) 3.00
Options forfeited.............. (11,670) 13.06 (13,000) 8.00 -- --
--------- ----- ------- ---- ------- ----
Options outstanding at
year-end..................... 1,679,797 11.00 543,489 5.15 556,489 5.22
========= ===== ======= ==== ======= ====
Options exercisable at
year-end..................... 844,462 8.93 440,309 4.49 374,489 3.87
========= ===== ======= ==== ======= ====
</TABLE>
These options expire on various dates from 2001 to 2009 and generally vest
over a three-year period.
F-63
<PAGE>
GLOBENET COMMUNICATIONS GROUP LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
(IN THOUSANDS OF U.S. DOLLARS, EXCEPT SHARE AND PER SHARE AMOUNTS)
13 COMMON SHARE OPTIONS (CONTINUED)
The following table summarizes information concerning outstanding and
exercisable options at December 31, 1999:
<TABLE>
<CAPTION>
WEIGHTED AVERAGE
EXERCISE REMAINING CONTRACTUAL NUMBER OF SHARE
PRICE LIFE (YEARS) OF OPTIONS NUMBER OF OPTIONS OPTIONS EXERCISABLE AT
$ OUTSTANDING OUTSTANDING DECEMBER 31, 1999
- ---------------------- ----------------------- ------------------ ------------------------
<S> <C> <C> <C>
0.01.................. 6.09 45,000 45,000
1.00.................. 1.41 26,863 26,863
3.00.................. 2.03 180,000 180,000
8.00.................. 8.00 153,275 102,942
8.50.................. 2.77 50,000 50,000
9.00.................. 9.20 760,640 280,638
19.00................. 9.56 35,000 30,000
20.40................. 8.65 429,019 129,019
--------- -------
1,679,797 844,462
========= =======
</TABLE>
i) On December 18, 1998 and May 21, 1999, the Board of Directors issued
263,000 options and 5,000 options, respectively to employees and certain
officers and directors at an exercise price of $9.00 per option, vesting
over a three-year period, under the 1998 Share Option and Incentive Plan.
In July 1999, when these options were approved by the shareholders, the
market price of these options was $20.40. The difference between the
market price and the exercise price has been reflected as deferred
compensation in the statement of shareholders' equity and is being
amortized over the vesting period as at December 31, 1999. Compensation
expense in the amount of $1,794 has been recorded in the financial
statements.
On July 9, 1999, 35,000 options, with an exercise price of $19.00 with a
ten-year term were granted to certain directors. The market price of
these options on the measurement date was $20.40. The vesting of these
options occurred on July 14, 1999. The difference between the exercise
price and market price at the time of vesting amounted to $49 and has
been reflected as compensation expense.
On April 12, 1999, the Company granted 540,000 options at an exercise
price of $9.00 with a ten-year term to certain officers and directors.
These options vest in three separate tranches based upon the Company
meeting certain milestones related to the Atlantica-1 project. On
July 14, 1999, the first vesting milestone occurred on 165,000 of these
options, when the financing was secured and the vesting period for
another 165,000 options was determined. The difference between the
exercise price and the market value amortized over the vesting period
amounted to $2,364 and has been reflected as compensation expense.
F-64
<PAGE>
GLOBENET COMMUNICATIONS GROUP LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
(IN THOUSANDS OF U.S. DOLLARS, EXCEPT SHARE AND PER SHARE AMOUNTS)
13 COMMON SHARE OPTIONS (CONTINUED)
On October 7, 1999, the Company granted 429,019 options at an exercise
price of $20.40 to certain officers. Of these options, 129,019 vest
immediately and 300,000 vest over three years although vesting on these
options may be accelerated as a result of certain events.
On October 22, 1999, the Company granted 5,000 options at an exercise
price of $19.00 to an employee. These options vest over three years.
Total stock-based compensation expense included in general and
administrative expenses for the year ended December 31, 1999 is $4,207
(1998--$nil; 1997--$nil).
Had the Company elected to recognize compensation cost based on the fair
value of the options granted at the grant date as prescribed by SFAS 123, the
pro forma effects to reported net loss for the year and basic and fully diluted
loss per common share, would be as follows:
<TABLE>
<CAPTION>
1999 1998 1997
$ $ $
-------- -------- --------
<S> <C> <C> <C>
Net loss for the year--as reported.......................... 15,906 4,944 5,296
Net loss for the year--pro forma............................ 15,906 5,047 5,296
Basic and fully diluted loss per common share--as
reported.................................................. 1.60 1.41 1.52
Basic and fully diluted loss per common share--pro forma.... 1.60 1.43 1.52
</TABLE>
The fair value of each option grant has been estimated using the
Black-Scholes option pricing model, using a volatility assumption of 20%
(1998--20%; 1997--20%), expected life of 7 years (1998--7 years; 1997 -7 years),
a dividend rate of nil (1998--$nil; 1997--$nil) and a risk-free interest rate of
5.64% (1998--5.28%; 1997--6.33%).
The above pro forma effects on the net loss for the year may not be
representative of the effects on the net loss for the year for future periods as
option grants typically vest over several years and additional options are
generally granted each year.
14 BASIC AND FULLY DILUTED LOSS PER COMMON SHARE
The basic loss per common share is calculated using the weighted average
number of common shares outstanding of 9,911,341 (1998--3,515,927;
1997--3,492,915). The weighted average number of common shares on a fully
diluted basis is calculated on the same basis as the basic weighted average
number of shares as the Company is in a loss position and the effects of
possible conversion would be anti-dilutive.
F-65
<PAGE>
GLOBENET COMMUNICATIONS GROUP LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
(IN THOUSANDS OF U.S. DOLLARS, EXCEPT SHARE AND PER SHARE AMOUNTS)
15 SUPPLEMENTAL INFORMATION
i) Included in general and administrative expense are the following:
<TABLE>
<CAPTION>
1999 1998 1997
$ $ $
-------- -------- --------
<S> <C> <C> <C>
Rent................................................... 426 342 242
Bad debt............................................... 212 114 91
Advertising............................................ 312 224 148
</TABLE>
ii) Amounts paid for interest and income taxes are as follows:
<TABLE>
<CAPTION>
1999 1998 1997
$ $ $
-------- -------- --------
<S> <C> <C> <C>
Interest.............................................. 4,517 1,901 540
Income taxes.......................................... 70 36 51
</TABLE>
16 COMMITMENTS
a) The Company has entered into operating lease agreements for its premises and
for maintenance of its fibre optic cable. Minimum lease commitments pursuant
to these leases over the next five years and thereafter are as follows:
<TABLE>
<CAPTION>
$
--------
<S> <C> <C>
Year ending December 31, 2000..................................... 2,538
2001..................................... 1,059
2002..................................... 1,028
2003..................................... 1,061
2004..................................... 1,035
Thereafter............................... 12,128
------
18,849
======
</TABLE>
b) On June 16, 1999, the Company entered into a supply contract with Alcatel
Submarine Networks ("Alcatel") to construct a fibre optic submarine cable
called Atlantica-1 for a total contract price of $620,861, (of which $93,129
has been recorded at December 31, 1999), which is subject to amendment by
the mutual agreement of the parties.
Future payments are based upon a specified billing schedule and are due when
the corresponding project milestone has been achieved and engineer acceptance
has been provided.
F-66
<PAGE>
GLOBENET COMMUNICATIONS GROUP LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
(IN THOUSANDS OF U.S. DOLLARS, EXCEPT SHARE AND PER SHARE AMOUNTS)
16 COMMITMENTS (CONTINUED)
The future minimum payments, beyond the $93,129 that has been recorded as of
December 31, 1999, required as a result of the contract, are as follows:
<TABLE>
<CAPTION>
$
--------
<S> <C>
Year ending December 31, 2000............................... 465,646
2001........................................................ 62,086
-------
527,732
-------
</TABLE>
c) As of December 31, 1999, the Company was committed to $2,901 of future
construction costs under its participation in a cable network construction
and maintenance agreement.
d) In the normal course of business, the Company has also entered into a number
of contracts under which it is committed to the purchase and supply of
telecommunication services at fixed prices. It is not anticipated that
losses will be incurred on these contracts.
17 SEGMENTED INFORMATION
The Company operates predominantly in the international telecommunications
services business and substantially all of the Company's business activity was
conducted in Bermuda.
18 SUBSEQUENT EVENT
On February 15, 2000, the Company signed a contract variation with Alcatel
for the fixed price turnkey supply of all six undersea cable stations and the
associated overland routes from the cable stations to the cable beach landing
points at a cost of approximately $50 million.
F-67
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
No dealer, salesperson or other person is authorized to give any information
or to represent anything not contained in this prospectus. You must not rely on
any unauthorized information or representations. This prospectus is an offer to
sell only the Subordinate Voting Shares offered hereby, but only under
circumstances and in jurisdictions where it is lawful to do so. The information
contained in this prospectus is current only as of its date.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
--------
<S> <C>
Prospectus Summary................... 1
Risk Factors......................... 11
Use of Proceeds...................... 30
Dividend Policy...................... 31
Description of Our Capital Stock..... 31
Exchange Rates....................... 32
Dilution............................. 32
Capitalization....................... 33
Selected Financial Data.............. 34
Management's Discussion and Analysis
of Financial Condition and Results
of Operations...................... 38
Business............................. 46
Management........................... 63
Principal and Selling Shareholder.... 72
Relationships and Related Party
Transactions....................... 74
Description of Capital Stock and
Share Capital Reorganization....... 78
Shares Eligible for Future Sale...... 81
Regulation........................... 83
Description of Indebtedness.......... 98
Material United States and Canadian
Income Tax Considerations.......... 102
Underwriting......................... 106
Legal Matters........................ 109
Experts.............................. 109
Enforceability of Civil Liabilities
Against Foreign Persons............ 110
Where You Can Find More Information.. 110
Index to Pro Forma Financial
Statements......................... PF-1
Index to Financial Statements........ F-1
</TABLE>
------------------------
THROUGH AND INCLUDING , 2000 (THE 25TH DAY AFTER THE DATE OF
THIS PROSPECTUS), ALL DEALERS THAT EFFECT TRANSACTIONS IN THESE SECURITIES,
WHETHER OR NOT PARTICIPATING IN THIS OFFERING, MAY BE REQUIRED TO DELIVER A
PROSPECTUS. THIS IS IN ADDITION TO A DEALER'S OBLIGATION TO DELIVER A PROSPECTUS
WHEN ACTING AS AN UNDERWRITER AND WITH RESPECT TO ITS UNSOLD ALLOTMENTS OR
SUBSCRIPTION.
46,275,000 Shares
[LOGO]
Subordinate Voting Shares
----------------
PROSPECTUS
----------------
GOLDMAN, SACHS & CO.
DONALDSON, LUFKIN & JENRETTE
CREDIT SUISSE FIRST BOSTON
TD SECURITIES
BEAR, STEARNS & CO. INC.
BMO NESBITT BURNS
MORGAN STANLEY DEAN WITTER
CHASE H&Q
RBC DOMINION SECURITIES CORPORATION
WARBURG DILLON READ LLC
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
THIS PROSPECTUS HAS BEEN FILED UNDER PROCEDURES IN EACH OF THE PROVINCES OF
CANADA WHICH PERMIT CERTAIN INFORMATION WITH RESPECT TO THESE SECURITIES TO BE
DETERMINED AFTER THE PROSPECTUS HAS BECOME FINAL AND PERMIT THE OMISSION FROM
THIS PROSPECTUS OF SUCH INFORMATION. SUCH PROCEDURES REQUIRE THE DELIVERY TO
PURCHASERS OF A PROSPECTUS OR A PROSPECTUS SUPPLEMENT CONTAINING THIS OMITTED
INFORMATION WITHIN A SPECIFIED PERIOD OF TIME AFTER AGREEING TO PURCHASE ANY OF
THESE SECURITIES, AND SUCH INFORMATION SHALL BE DEEMED TO BE INCORPORATED BY
REFERENCE INTO THIS PROSPECTUS AS OF THE DATE OF THE SUPPLEMENTED PROSPECTUS.
THIS PROSPECTUS CONSTITUTES A PUBLIC OFFERING OF THESE SECURITIES ONLY IN THOSE
JURISDICTIONS WHERE THEY MAY BE LAWFULLY OFFERED FOR SALE AND THEREIN ONLY BY
PERSONS PERMITTED TO SELL SUCH SECURITIES. NO SECURITIES COMMISSION OR SIMILAR
AUTHORITY IN CANADA HAS IN ANY WAY PASSED UPON THE MERITS OF THE SECURITIES
OFFERED HEREUNDER, AND ANY REPRESENTATION TO THE CONTRARY IS AN OFFENCE. THE
COMPANY HAS FILED A REGISTRATION STATEMENT ON FORM F-1 WITH THE UNITED STATES
SECURITIES AND EXCHANGE COMMISSION, UNDER THE UNITED STATES SECURITIES ACT OF
1933, AS AMENDED, WITH RESPECT TO THESE SECURITIES.
INITIAL PUBLIC OFFERING AND SECONDARY OFFERING APRIL 18, 2000
[LOGO]
U.S. $ -
46,275,000 SUBORDINATE VOTING SHARES
This offering of 46,275,000 Subordinate Voting Shares (the "Subordinate
Voting Shares") of 360NETWORKS INC. (the "Company" or "360NETWORKS") consists of
a new issue by the Company of 44,625,000 Subordinate Voting Shares and a
secondary offering of 1,650,000 Subordinate Voting Shares being sold by the
selling shareholder named in the U.S. Prospectus referred to below. The Company
will not receive any of the proceeds of the sale of Subordinate Voting Shares by
the selling shareholder.
This prospectus incorporates the prospectus (the "U.S. Prospectus") included
in a Registration Statement on Form F-1 filed with the United States Securities
and Exchange Commission. The offering price of the Subordinate Voting Shares
will be determined by negotiation between the Company and Goldman, Sachs & Co.,
Donaldson, Lufkin & Jenrette Securities Corporation, Credit Suisse First Boston
Corporation, TD Securities Inc., Bear, Stearns & Co. Inc., BMO Nesbitt
Burns Inc., Morgan Stanley & Co. Incorporated, Hambrecht & Quist LLC, RBC
Dominion Securities Inc. and Warburg Dillon Read LLC (collectively, the
"Underwriters"). The Subordinate Voting Shares are being offered in Canada by
Goldman Sachs Canada Inc., Credit Suisse First Boston Securities Canada Inc., TD
Securities Inc., BMO Nesbitt Burns Inc., Morgan Stanley Canada Limited, Bunting
Warburg Dillon Read Inc. and RBC Dominion Securities Inc. (collectively, the
"Canadian Underwriters").
THERE IS CURRENTLY NO MARKET THROUGH WHICH THE SUBORDINATE VOTING SHARES MAY
BE SOLD. The Toronto Stock Exchange has conditionally approved the listing of
the Subordinate Voting Shares under the symbol "TSX". Listing is subject to the
Company fulfilling all of the requirements of The Toronto Stock Exchange on or
before July 11, 2000, including the distribution of the Subordinate Voting
Shares to a minimum number of public shareholders. The Subordinate Voting Shares
have been approved for listing on the Nasdaq National Market under the symbol
"TSIX", subject to official notice of issuance. The offering price of each
Subordinate Voting Share, after giving effect to this offering, and other
material transactions but before exercise of the Underwriters' over-allotment
option, exceeds the Company's consolidated net tangible book value as of
December 31, 1999 by U.S.$11.63, resulting in a dilution of 89%. See "Dilution".
AN INVESTMENT IN SUBORDINATE VOTING SHARES IS SUBJECT TO A NUMBER OF RISK
FACTORS WHICH SHOULD BE CAREFULLY REVIEWED BY PROSPECTIVE PURCHASERS. SEE "RISK
FACTORS".
- --------------------------------------------------------------------------------
PRICE: U.S.$- PER SUBORDINATE VOTING SHARE
-----------------------------------------------------------------
<TABLE>
<CAPTION>
NET PROCEEDS TO
PRICE UNDERWRITING NET PROCEEDS SELLING
TO PUBLIC COMMISSION TO THE COMPANY(1) SHAREHOLDER(1)
-------------- -------------- ------------------ ----------------
<S> <C> <C> <C> <C>
Per Subordinate Voting Share............................ U.S.$ - U.S.$ - U.S.$ - U.S.$ -
Total(2)................................................ U.S.$ - U.S.$ - U.S.$ - U.S.$ -
</TABLE>
- ----------------------------------
(1) Before deducting expenses of this offering, estimated at U.S.$ - , payable
by the Company, on its own behalf and on behalf of the selling shareholder,
out of general corporate funds.
(2) The Company has granted to the Underwriters an option exercisable not later
than 30 days after the date of the closing of this offering to purchase up
to 6,941,250 additional Subordinate Voting Shares to cover over-allotments,
if any. If the option is exercised, the Underwriters will offer the
additional Subordinate Voting Shares at the price per Subordinate Voting
Share shown above. If the option is exercised, the total Price to Public,
Underwriting Commission and Net Proceeds to the Company would be U.S.$ - ,
U.S.$ - , and U.S.$ - , respectively. This prospectus also qualifies the
distribution of the Subordinate Voting Shares upon the Underwriters'
exercise of the over-allotment option. See "Underwriting" in the U.S.
Prospectus.
The number of Subordinate Voting Shares offered in this offering may be
increased or decreased by up to 9,255,000 Subordinate Voting Shares.
The Canadian Underwriters, as principals, conditionally offer the
Subordinate Voting Shares, subject to prior sale, if, as and when issued and
sold by the Company and accepted by the Underwriters, in accordance with the
conditions contained in the underwriting agreement referred to under
"Underwriting" in the U.S. Prospectus and subject to the approval of certain
legal matters by Farris, Vaughan, Wills & Murphy and Cahill Gordon & Reindel, on
behalf of the Company, and by Osler, Hoskin & Harcourt LLP and Latham & Watkins,
on behalf of the Canadian Underwriters.
Subscriptions will be received subject to rejection or allotment in whole or
in part, and the right is reserved to close the subscription books at any time
without notice. It is expected that definitive certificates evidencing the
Subordinate Voting Shares will be available for delivery at closing which is
expected to occur on or about - , 2000 or such later date as the Company and
the Underwriters may agree but in any event not later than - , 2000.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
--------
<S> <C>
U.S. Prospectus
Prospectus Summary........................................ 1
Risk Factors.............................................. 11
Use of Proceeds........................................... 30
Dividend Policy........................................... 31
Description of Our Capital Stock.......................... 31
Exchange Rates............................................ 32
Dilution.................................................. 32
Capitalization............................................ 33
Selected Financial Data................................... 34
Management's Discussion and Analysis of Financial
Condition and Results of Operations.................... 38
Business.................................................. 45
Management................................................ 62
Principal and Selling Shareholders........................ 72
Relationships and Related Party Transactions.............. 73
Share Capital Reorganization and Description of Capital
Stock.................................................. 77
Shares Eligible for Future Sale........................... 80
Regulation................................................ 82
Description of Indebtedness............................... 97
Material United States and Canadian Income Tax
Considerations......................................... 101
Underwriting.............................................. 105
Legal Matters............................................. 108
Experts................................................... 108
Enforceability of Civil Liabilities against Foreign
Persons................................................ 109
Where you Can find More Information....................... 109
Index to Pro Forma Financial Information.................. PF-1
Index to Financial Statements............................. F-1
Supplemental Canadian Disclosure
Corporate Matters......................................... C-1
Financial Presentation.................................... C-1
Capitalization............................................ C-2
Dilution.................................................. C-4
Management's Discussion and Analysis of Financial
Condition and Results of Operations.................... C-4
Prior Sales of Class A Non-Voting Shares.................. C-4
Material Contracts........................................ C-4
Auditors, Registrar and Transfer Agent.................... C-5
Promoter.................................................. C-5
Eligibility for Investment................................ C-5
Purchasers' Statutory Rights.............................. C-6
Continuous Disclosure..................................... C-6
Information Incorporated By Reference..................... C-6
Index to Pro Forma Financial Information.................. CPF-1
Index to Canadian Financial Statements.................... CF-1
Certificate of the Company................................ CC-1
Certificate of the Canadian Underwriters.................. CC-2
</TABLE>
i
<PAGE>
RISK FACTORS
Investment in the Company's Subordinate Voting Shares is subject to a number
of risk factors that prospective investors should carefully consider. These risk
factors include: the Company's limited history of operations; risks associated
with development and expansion of the Company's network; risk that network
failure or disruptions could adversely affect the Company's operating results;
the Company's limited experience in offering bandwidth and value added network
services; risk that prices for the Company's network services and fiber assets
will decline; the need to obtain additional rights-of-way; risks associated with
the Company's joint ventures; risks associated with the Company's operations in
international markets; competition; dependence of the Company on third parties,
including suppliers; rapid technological change which could reduce the demand
for fiber optic systems; potential conflicts of interest with Ledcor Inc. and
its subsidiaries; the Company's negative cash flow during the network
construction period; the Company's substantial leverage; the Company's need for
additional borrowings; the ability of the Company to service its debt; the
Company's holding company structure; restrictions imposed by the terms of the
Company's indebtedness; the discretion of the Company's management over the use
of proceeds; extensive telecommunications regulation applicable to the Company;
the impact of currency exchange rate fluctuations; potential price volatility of
the Subordinate Voting Shares; the impact of future sales of the Subordinate
Voting Shares; the voting attributes of the Company's issued and outstanding
shares which may deter a third party from acquiring the Company; lack of
anticipated cash dividends; and dilution. See "Risk Factors" in the U.S.
Prospectus.
ii
<PAGE>
SUPPLEMENTAL CANADIAN DISCLOSURE
In accordance with the requirements of applicable securities laws in all
provinces of Canada, the disclosure in the U.S. Prospectus incorporated in this
prospectus is supplemented with the following additional disclosure. ALL DOLLAR
AMOUNTS IN THIS PROSPECTUS ARE STATED IN U.S. DOLLARS EXCEPT WHERE OTHERWISE
INDICATED.
CORPORATE MATTERS
The principal and head office of 360NETWORKS INC. (formerly Worldwide
Fiber Inc.) is located at 1500 - 1066 West Hastings Street, Vancouver, British
Columbia, Canada, V6E 3X1. The Company was incorporated under the laws of the
province of Alberta on February 5, 1998, was continued as a corporation under
the CANADA BUSINESS CORPORATIONS ACT on August 17, 1999 and was continued as a
company under the COMPANIES ACT (Nova Scotia) on April 17, 2000. Immediately
prior to the closing of the offering, the memorandum and articles of association
of the Company will be amended so that the share capital has the rights and
attributes described in the U.S. Prospectus under "Share Capital Reorganization
and Description of Capital Stock".
FINANCIAL PRESENTATION
Consistent with the Company's practice since its incorporation, its
historical consolidated financial statements and those of its predecessor
division are presented in accordance with United States generally accepted
accounting principles ("U.S. GAAP"). These financial statements are included in
the U.S. Prospectus. In accordance with applicable Canadian securities laws,
these financial statements have also been presented herein in accordance with
Canadian generally accepted accounting principles ("Canadian GAAP").
The Company's historical consolidated financial statements under Canadian
GAAP (the "Canadian Statements") for the years ended December 31, 1999 and
December 31, 1998 and those of its predecessor division for the periods ended
May 31, 1998, August 31, 1997 and 1996 and March 31, 1996 differ materially from
the Company's historical consolidated financial statements under U.S. GAAP (the
"U.S. Statements") in the following three respects:
- Under U.S. GAAP, all assets and liabilities were translated into United
States dollars using period end exchange rates. Under Canadian GAAP,
monetary assets and liabilities were translated into United States dollars
using period end exchange rates and non-monetary assets and liabilities
using historical exchange rates.
- In the Company's consolidated financial statements for the year ended
December 31, 1999, its redeemable convertible preferred shares are
presented as a separate line item between liabilities and shareholders'
equity in the U.S. Statements and are apportioned and presented as debt
and equity components as required under Canadian GAAP in the Canadian
Statements. As a result of this classification, additional interest
expense of $25,977,000 on the redeemable convertible preferred shares has
been recorded in the Canadian Statements.
- As required under U.S. GAAP, stock-based compensation charges of
$7.1 million have been recorded in the Company's U.S. Statements for the
year ended December 31, 1999. In accordance with Canadian GAAP, no
stock-based compensation charges have been recorded in the Canadian
Statements.
C-1
<PAGE>
CAPITALIZATION
The table below describes the Company's consolidated cash and capitalization
presented in accordance with Canadian GAAP as of December 31, 1999 and as of
March 31, 2000 on an actual basis and on a pro forma as adjusted basis to give
effect to:
- the issuance of 44,625,000 Subordinate Voting Shares for net proceeds to
us of approximately $548 million;
- the acquisition of all outstanding stock of GlobeNet;
- the issuance of $700 million of senior notes in the concurrent debt
offerings;
- the acquisition of the minority equity interests in certain of our
subsidiaries and related issuance of Series A Non-Voting Preferred Shares;
- the conversion or exchange of our redeemable convertible preferred shares
into Subordinate Voting Shares and our share capital reorganization; and
- the completion of the $565 million 360ATLANTIC credit facility, of which
$175 million has been drawn.
C-2
<PAGE>
This table should be read in conjunction with the Company's consolidated
financial statements, including the notes thereto, included elsewhere in this
prospectus and the U.S. Prospectus.
<TABLE>
<CAPTION>
DECEMBER 31, 1999
DECEMBER 31, 1999 MARCH 31, 2000 PRO FORMA
ACTUAL ACTUAL AS ADJUSTED
------------------- ------------------ -------------------
(UNAUDITED) (UNAUDITED)
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Debt (including current portion):
12 1/2% senior notes due
2005(2)...................... 175,000 175,000 175,000
12% senior notes due 2009(2)... 500,000 500,000 500,000
360ATLANTIC credit
facility(1).................. -- 175,000 175,000
Globenet 360AMERICAS secured
credit facility.............. -- -- 100,000
Globenet 13% senior notes due
2007......................... -- -- 300,000
Debt component of redeemable
convertible preferred
shares(3).................... 270,049 272,144 --
New notes(2)................... -- -- 700,000
---------- ---------- ----------
Total debt..................... $ 945,049 $1,122,144 $1,950,000
========== ========== ==========
Shareholders' equity
Subordinate Voting Shares(4)... -- -- 2,115,268
Multiple Voting Shares......... -- -- 18,172
Class A Non-Voting Shares...... 92,996 92,996 --
Class B Subordinate Voting
Shares....................... 7,623 7,623 --
Class C Multiple Voting
Shares....................... 18,172 18,172 --
Redeemable convertible
preferred shares............. 82,379 82,379 --
Other capital accounts......... (55,430) (55,430) (55,430)
Deficit (5).................... (36,360) (36,360) (36,360)
---------- ---------- ----------
109,380 109,380 2,041,650
---------- ---------- ----------
TOTAL CAPITALIZATION........... $1,054,429 $1,231,524 $3,991,650
========== ========== ==========
</TABLE>
- ------------------------
(1) Secured by property and assets held by certain subsidiaries and relating to
the Company's Hibernia project. The facility is non-recourse to 360NETWORKS.
(2) Unsecured obligations ranking PARI PASSU with each other.
(3) The redeemable convertible preferred shares will be converted or exchanged
into Subordinate Voting Shares concurrent with the closing of the offering.
On the closing of the offering, an unlimited number of preferred shares
issuable in series will be created, but none will be issued or outstanding.
See "Share Capital Reorganization and Description of Capital Stock" in the
U.S. Prospectus.
(4) Does not include 52,501,680 Subordinate Voting Shares issuable upon exercise
of options under the Company's 1998 Long Term Incentive and Share Award Plan
(as amended), and the exercise of 1,902,000 stock options and issuance of
411,214 Subordinate Voting Shares to a consultant after December 31, 1999.
See "Management--Stock Option Plan" and "--Outstanding Options to Purchase
Securities" in the U.S. Prospectus.
(5) March 31, 2000 deficit is based on the deficit to December 31, 1999.
C-3
<PAGE>
DILUTION
The calculation under the heading "Dilution" in the U.S. Prospectus
incorporated herein has been prepared on the basis of U.S. GAAP which does not
differ materially from the dilution calculations under Canadian GAAP.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
The Management's Discussion and Analysis ("MD&A") and Selected Financial
Data in the U.S. Prospectus incorporated herein have been prepared on the basis
of U.S. GAAP. As the Company's Canadian Statements do not differ from the
Company's U.S. Statements, except as described under "Financial Presentation"
above, the MD&A and Selected Financial Data have not been presented on the basis
of Canadian GAAP in this prospectus.
PRIOR SALES OF CLASS A NON-VOTING SHARES(1)
During the 12 months prior to March 22, 2000, the Company issued the
Class A Non-Voting Shares indicated below for the consideration indicated.
<TABLE>
<CAPTION>
NUMBER OF CONSIDERATION PER
DATE CLASS A NON-VOTING SHARES ISSUED CLASS A NON-VOTING SHARE
- ---- --------------------------------- --------------------------
<S> <C> <C>
December 22, 1999 52,160,000 $1.25
November 18, 1999 301,266,400 One Class B
Subordinate Voting Share
March 15, 2000 411,214 $0.41
March 20, 2000 14,920,866(2) 25% equity interest
in WFI-CN Fibre Inc and
Worldwide Fiber IC LLC
</TABLE>
- ------------------------
(1) Concurrent with the closing of the offering, the Company will reorganize
its share capital. Pursuant to such reorganization the Class A Non-Voting
Shares will be redesignated as Subordinate Voting Shares. See "Description
of Capital Stock and Share Capital Reorganization" in the U.S. Prospectus.
(2) To be reduced to 12,307,692 shares based on an assumed initial public
offering price of $13. See Note 4(vi) to the Pro Forma Financial
Information.
MATERIAL CONTRACTS
The material contracts entered into by the Company during the two year
period prior to the date of this prospectus, other than contracts entered into
in the ordinary course of business, are as follows:
1. Underwriting Agreement to be dated April 19, 2000 relating to the sale
of the Subordinate Voting Shares and referred to under "Underwriting" in
the U.S. Prospectus.
2. Transfer Restriction Agreement dated April 18, 2000 described under the
heading "Share Capital Reorganization and Description of Capital
Stock--Take-over Bid Protection" in the U.S. Prospectus.
3. Shareholders' Agreement dated September 9, 1999 between the Company and
certain institutional investors, as amended by an amendment and waiver
dated December 22, 1999.
4. Indenture dated as of July 28, 1999 between the Company and HSBC Bank
USA relating to the Company's $500 million 12% Senior Notes due 2009.
C-4
<PAGE>
5. Indenture dated as of December 23, 1998 between the Company and HSBC
Bank USA relating to the Company's $175 million 12 1/2% Senior Notes due
2005.
Copies of the above, together with certain other contracts filed as exhibits
to the Company's Registration Statement on Form F-1, may be inspected during
ordinary office business hours at the head office of the Company, located at
1500 - 1066 West Hastings Street, Vancouver, British Columbia, Canada during the
period of distribution of the Subordinate Voting Shares and for a period of
30 days thereafter or may be viewed at www.sec.gov as exhibits to the Company's
Registration Statement on Form F-1.
AUDITORS, REGISTRAR AND TRANSFER AGENT
The auditors of the Company are PricewaterhouseCoopers LLP, 1111 West
Hastings Street, Vancouver, British Columbia, Canada, V6E 3R2.
The divisional financial statements of the predecessor division as of
May 31, 1998 and August 31, 1997 and for each of the periods ended on May 31,
1998 and August 31, 1997, included in this prospectus, have been audited by
Deloitte & Touche LLP, Edmonton, Alberta, as stated in their report contained in
this prospectus.
The audited consolidated financial statements of GlobeNet Communications
Group Limited for the years ended December 31, 1999, 1998 and 1997 included in
this prospectus, have been audited by PricewaterhouseCoopers LLP, Toronto,
Ontario, as stated in their report contained in this prospectus.
The registrar and transfer agent for the Subordinate Voting Shares in Canada
is Montreal Trust Company of Canada at its principal stock and bond transfer
offices located in Vancouver and Toronto.
PROMOTER
Ledcor Industries Limited took the initiative in founding and organizing the
business of the Company and is an affiliate of the controlling shareholder of
the Company and, as a result, is a "promoter" of the Company under the
securities legislation in certain of the provinces of Canada. A description of
the nature of the relationship between Ledcor Industries Limited, its affiliates
and the Company, is described in the U.S. Prospectus under "Relationships and
Related Party Transactions" and "Principal and Selling Shareholders".
ELIGIBILITY FOR INVESTMENT
In the opinion of Farris, Vaughan, Wills & Murphy, Canadian counsel to the
Company, and Osler, Hoskin & Harcourt LLP, Canadian counsel to the Underwriters,
the Subordinate Voting Shares, when listed on a prescribed stock exchange within
the meaning of the INCOME TAX ACT (Canada) and the regulations thereunder (the
"Act"), will be qualified investments under the Act for trusts governed by
registered retirement savings plans, registered retirement income funds,
deferred profit sharing plans and registered education savings plans. For these
purposes, each of the Nasdaq National Market and The Toronto Stock Exchange is a
prescribed stock exchange. Based on a certificate from the Company as to certain
factual matters, in the opinion of such counsel, the Subordinate Voting Shares,
if issued on the date hereof, would not, on the date hereof, be foreign property
for purposes of the Act.
Eligibility of the Subordinate Voting Shares offered hereby for investment
by purchasers to whom any of the following statutes apply is, in certain cases,
governed by criteria which such purchasers are required to establish as policies
or guidelines pursuant to the applicable statute (and, where applicable, the
regulations thereunder) and is subject to the prudent investment standards and
general investment provisions provided therein:
INSURANCE COMPANIES ACT (Canada)
PENSION BENEFITS STANDARDS ACT, 1985 (Canada)
TRUST AND LOAN COMPANIES ACT (Canada)
FINANCIAL INSTITUTIONS ACT (British Columbia)
C-5
<PAGE>
PENSION BENEFITS STANDARDS ACT (British Columbia)
EMPLOYMENT PENSION PLANS ACT (Alberta)
LOAN AND TRUST CORPORATIONS ACT (Alberta)
THE INSURANCE ACT (Manitoba)
PENSION BENEFITS ACT (Ontario)
LOAN AND TRUST CORPORATIONS ACT (Ontario)
AN ACT RESPECTING TRUST COMPANIES AND SAVINGS COMPANIES (Quebec) (for a
trust company, as defined therein, which invests its own funds and funds
received as deposits or a savings company, as defined therein, which
invests its own funds)
AN ACT RESPECTING INSURANCE (Quebec) (in respect of insurers, as defined
therein, incorporated under the laws of the Province of Quebec; other
than guarantee fund corporations)
SUPPLEMENTAL PENSION PLANS ACT (Quebec) for an insured plan, as defined
therein.
PURCHASERS' STATUTORY RIGHTS
Securities legislation in several of the provinces of Canada provides
purchasers with the right to withdraw from an agreement to purchase securities
within two business days after receipt, or deemed receipt, of a prospectus and
any amendment. In several of the provinces securities legislation also provides
a purchaser with remedies for rescission or, in some provinces, damages where
the prospectus and any amendment contains a misrepresentation or is not
delivered to the purchaser, provided that such remedies for rescission or
damages are exercised by the purchaser within the time limit prescribed by the
securities legislation of the purchaser's province. A purchaser should refer to
any applicable provisions of the securities legislation of the puchaser's
province for the particulars of these rights or consult with a legal advisor.
CONTINUOUS DISCLOSURE
Upon the filing of the final prospectus with the securities regulatory
authorities in the various provinces of Canada, the Company will become a
reporting issuer under the securities laws of those of such jurisdictions that
provide for a reporting issuer regime. Pursuant to the rules of the securities
regulatory authority of the Province of Ontario, the Company is exempt from
certain of the requirements of the laws of such jurisdiction relating to
continuous disclosure in its Annual Information Form and Management's Discussion
and Analysis filings. These rules generally permit the Company to comply with
certain informational requirements applicable in the U.S. instead of the
continuous disclosure requirements normally applicable in Ontario, provided that
the relevant documents are filed with the securities regulatory authorities in
Ontario.
INFORMATION INCORPORATED BY REFERENCE
The information permitted to be omitted from this prospectus will be
contained in a supplemented prospectus and will be incorporated by reference
herein as of the date of such supplemented prospectus.
C-6
<PAGE>
360NETWORKS INC.
(FORMERLY WORLDWIDE FIBER INC.)
INDEX TO PRO FORMA FINANCIAL INFORMATION
(UNAUDITED)
<TABLE>
<S> <C>
Compilation Report.......................................... CPF-2
Pro Forma Consolidated Balance Sheet as at December 31,
1999...................................................... CPF-3
Pro Forma Consolidated Income Statement for the year ended
December 31, 1999......................................... CPF-4
Notes to Pro Forma Financial Information.................... CPF-5
</TABLE>
CPF-1
<PAGE>
COMPILATION REPORT
TO THE BOARD OF DIRECTORS OF
360NETWORKS INC.
We have reviewed, as to compilation only, the accompanying the pro forma
consolidated balance sheet of 360NETWORKS INC. (formerly Worldwide Fiber Inc.)
as at December 31, 1999 and the pro forma consolidated income statement for the
year then ended which have been prepared for inclusion in the Prospectus dated
April 18, 2000 relating to the sale and issue of Subordinate Voting Shares. In
our opinion, the pro forma consolidated balance sheet and the pro forma
consolidated income statement have been properly compiled to give effect to the
proposed transactions and the assumptions described in the notes thereto.
"PricewaterhouseCoopers LLP"
April 18, 2000 CHARTERED ACCOUNTANTS
Vancouver, Canada
CPF-2
<PAGE>
360NETWORKS INC.
(FORMERLY WORLDWIDE FIBER INC.)
PRO FORMA CONSOLIDATED BALANCE SHEET
(UNAUDITED)
AS AT DECEMBER 31, 1999
(TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF U.S. DOLLARS)
<TABLE>
<CAPTION>
GLOBENET PRO FORMA PRO FORMA
COMMUNICATIONS ---------------------------- CONSOLIDATED
360NETWORKS GROUP ACQUISITION PRO FORMA BALANCE
INC. LIMITED ADJUSTMENTS COMBINED ADJUSTMENTS SHEET
$ $ $ $ $ $
------------- ----------------- ------------ ---------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents.... 521,362 -- -- 521,362 548,119 4(i) 1,750,981
681,500 4(iii)
Restricted cash.............. -- 79,998 -- 79,998 -- 79,998
Short-term investments....... 21,167 -- -- 21,167 -- 21,167
Accounts receivable.......... 35,351 3,878 -- 39,229 -- 39,229
Unbilled revenue............. 115,661 -- -- 115,661 -- 115,661
Inventory.................... 196,959 -- -- 196,959 -- 196,959
Deferred tax asset........... 8,838 -- -- 8,838 -- 8,838
--------- ------- -------- --------- ---------- ---------
899,338 83,876 -- 983,214 1,229,619 2,212,833
RESTRICTED CASH.............. -- 448,399 -- 448,399 -- 448,399
PROPERTY AND
EQUIPMENT--NET............. 77,009 49,148 -- 126,157 (6,444)4(iv) 119,713
ASSETS UNDER CONSTRUCTION.... 300,403 98,062 -- 398,465 398,465
DEFERRED TAX ASSET........... 12,040 -- -- 12,040 -- 12,040
DEFERRED FINANCING
COSTS--NET................. 22,199 24,743 (24,743)4(ii) 22,199 18,500 4(iii) 40,699
OTHER........................ -- 1,104 -- 1,104 -- 1,104
EQUITY ACCOUNTED FOR
INVESTMENT................. -- -- -- -- 6,444 4(iv) 6,444
GOODWILL..................... -- -- 425,264 4(ii) 888,388 -- 888,388
306,924 4(v)
156,200 4(vi)
--------- ------- -------- --------- ---------- ---------
1,310,989 705,332 863,645 2,879,966 1,248,119 4,128,085
========= ======= ======== ========= ========== =========
LIABILITIES
CURRENT LIABILITIES
Accounts payable and accrued
liabilities................ 191,437 57,296 -- 248,733 -- 248,733
Deferred revenue............. 18,831 -- -- 18,831 -- 18,831
Income taxes payable......... 34,343 -- -- 34,343 -- 34,343
--------- ------- -------- --------- ---------- ---------
244,611 57,296 -- 301,907 -- 301,907
DEFERRED REVENUE............. -- 6,455 -- 6,455 -- 6,455
DEFERRED TAX LIABILITY....... 3,073 -- -- 3,073 -- 3,073
SENIOR NOTES AND OTHER
LONG-TERM DEBT............. 675,000 400,000 -- 1,075,000 700,000 4(iii) 1,775,000
DEBT COMPONENT OF REDEEMABLE
CONVERTIBLE PREFERRED
SHARES..................... 270,049 -- -- 270,049 (270,049)4(vii) --
--------- ------- -------- --------- ---------- ---------
1,192,733 463,751 -- 1,656,484 429,951 2,086,435
MINORITY INTEREST............ 8,876 -- (8,876)4(v) -- -- --
SHAREHOLDERS' EQUITY:
Redeemable convertible
preferred shares........... 82,379 -- -- 82,379 (82,379)4(vii) --
Shareholder's
equity--GlobeNet........... -- 272,434 (272,434)4(ii) -- -- --
Class A Non-Voting Shares.... 92,996 -- 642,102 4(ii) 1,207,098 (1,207,098)4(viii) --
312,000 4(v)
160,000 4(vi)
Subordinate Voting Shares.... -- -- -- -- 548,119 4(i) 2,115,268
352,428 4(vii)
1,214,721 4(viii)
Multiple Voting Shares....... -- -- -- -- 18,172 4(viii) 18,172
Class B Subordinate Voting
Shares..................... 7,623 -- -- 7,623 (7,623)4(viii) --
Class C Multiple Voting
Shares..................... 18,172 -- -- 18,172 (18,172)4(viii) --
Other capital accounts....... (55,430) -- -- (55,430) -- (55,430)
Deficit...................... (36,360) (30,853) 30,853 4(ii) (36,360) -- (36,360)
--------- ------- -------- --------- ---------- ---------
109,380 241,581 872,521 1,223,482 818,868 2,041,650
--------- ------- -------- --------- ---------- ---------
1,310,989 705,332 863,645 2,879,966 1,248,119 4,128,085
========= ======= ======== ========= ========== =========
</TABLE>
CPF-3
<PAGE>
360NETWORKS INC.
(FORMERLY WORLDWIDE FIBER INC.)
PRO FORMA CONSOLIDATED INCOME STATEMENT
(UNAUDITED)
FOR THE YEAR ENDED DECEMBER 31, 1999
(TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF U.S. DOLLARS EXCEPT PER SHARE
AMOUNTS)
<TABLE>
<CAPTION>
GLOBENET
COMMU- PRO FORMA PRO FORMA
NICATIONS ------------------------- CONSOLIDATED
360NETWORKS GROUP ACQUISITION PRO FORMA INCOME
INC. LIMITED ADJUSTMENTS COMBINED ADJUSTMENTS STATEMENT
$ $ $ $ $ $
------------- --------- ------------ ---------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
REVENUE........................ 359,746 26,348 -- 386,094 -- 386,094
COSTS.......................... 250,612 10,989 -- 261,601 -- 261,601
----------- ------- ------- ------- ----------- -----------
GROSS PROFIT................... 109,134 15,359 -- 124,493 -- 124,493
----------- ------- ------- ------- ----------- -----------
EXPENSES
Selling, general and
administrative............... 21,846 15,104 -- 36,950 3,584 5(v) 40,534
Stock-based compensation....... -- 4,207 (4,207) 5(i) -- -- --
Depreciation................... 2,998 1,854 -- 4,852 -- 4,852
Amortization of goodwill....... -- -- 17,011 5(i) 35,536 -- 35,536
18,525 5(ii)
----------- ------- ------- ------- ----------- -----------
24,844 21,165 31,829 77,338 3,584 80,922
----------- ------- ------- ------- ----------- -----------
84,290 (5,806) (31,329) 47,155 (3,584) 43,571
INTEREST EXPENSE............... 59,885 20,965 (1,310) 5(i) 79,540 132,367 5(iii) 186,189
(25,718)5(vi)
INTEREST INCOME................ 18,122 12,588 -- 30,710 -- 30,710
LOSS ON DEBT EXTINGUISHMENT.... -- 809 (809) 5(i) -- -- --
----------- ------- ------- ------- ----------- -----------
INCOME (LOSS) BEFORE INCOME
TAXES, MINORITY INTEREST AND
EQUITY ACCOUNTED FOR
INVESTMENT................... 42,527 (14,992) (29,210) (1,675) (110,233) (111,908)
PROVISION FOR (RECOVERY OF)
INCOME TAXES................. 30,314 141 -- 30,455 2,690 5(v) (17,121)
(50,266)5(iv)
----------- ------- ------- ------- ----------- -----------
INCOME (LOSS) BEFORE MINORITY
INTEREST AND EQUITY ACCOUNTED
FOR INVESTMENT............... 12,213 (15,133) (29,210) (32,130) (62,657) (94,787)
INCOME ATTRIBUTABLE TO MINORITY
INTEREST AND EQUITY ACCOUNTED
FOR INVESTMENT............... (7,434) (773) 7,434 5(ii (773) -- (773)
----------- ------- ------- ------- ----------- -----------
NET INCOME (LOSS) FOR THE
YEAR......................... 4,779 (15,906) (21,776) (32,903) (62,657) (95,560)
=========== ======= ======= ======= =========== ===========
BASIC AND FULLY DILUTED LOSS
PER SHARE.................... $ (0.02) $ (0.16)
WEIGHTED AVERAGE NUMBER OF
SHARES USED TO COMPUTE BASIC
AND FULLY DILUTED LOSS PER
SHARE........................ 327,313,808 5(vii) 617,783,263
</TABLE>
CPF-4
<PAGE>
360NETWORKS INC.
(FORMERLY WORLDWIDE FIBER INC.)
NOTES TO PRO FORMA FINANCIAL INFORMATION
(UNAUDITED)
FOR THE YEAR ENDED DECEMBER 31, 1999
(TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF U.S. DOLLARS)
1 NATURE AND PURPOSE OF PRO FORMA FINANCIAL INFORMATION
The pro forma consolidated balance sheet of the 360NETWORKS INC. (formerly
Worldwide Fiber Inc.) (the "Company") as at December 31, 1999 assumes the
following transactions occurred on December 31, 1999: (i) the issuance of
44,625,000 Subordinate Voting Shares in a public offering for cash consideration
of $580,125,000 net of commissions of $29,006,250 and offering expenses of
$3,000,000; (ii) the Company's acquisition of GlobeNet Communications Group
Limited ("GlobeNet"); (iii) the issuance of $700,000,000 13.5% Notes ("Notes");
(iv) the Canadian telecommunications arrangement of certain assets; (v) the
Company's acquisition of Michels' shares in WFI USA, (the "Michels minority
interest acquisition") in exchange for Subordinate Voting Shares of the Company;
(vi) the Company's acquisition of Canadian National Railway Company's ("CN")
minority equity interest in WFI-CN Fibre Inc. and the Company's acquisition of
Illinois Central Railroad Company's ("IC") minority equity interest in Worldwide
Fiber LLC (collectively the "CN/IC minority interest acquisition") in exchange
for Subordinate Voting Shares of the Company; (vii) the conversion or exchange
of Series A Non-Voting Preferred Shares into Subordinate Voting Shares; and
(viii) the reorganization of the Company's share capital.
The pro forma consolidated income statement of the Company for the year
ended December 31, 1999 assumes that the following transactions occurred on
January 1, 1999: (i) the Company's acquisition of GlobeNet; (ii) the elimination
of minority interest earnings and the amortization of goodwill arising from the
Michels and CN/IC minority interest acquisitions; and (iii) the effect of the
interest expense including amortization of deferred financing costs relating to
the Notes and $500,000,000 12% senior notes issued July 28, 1999 (the "1999
Notes").
2 BASIS OF PRESENTATION
The unaudited pro forma consolidated balance sheet and consolidated income
statement have been prepared by management in accordance with generally accepted
accounting principles in Canada and the pro forma assumptions and adjustments
described in notes 1, 4 and 5.
The unaudited pro forma consolidated balance sheet and income statement as
at and for the year ended December 31, 1999 are based on the audited historical
consolidated financial statements of the Company for the year ended
December 31, 1999 and audited historical consolidated financial statements of
GlobeNet for the year ended December 31, 1999.
The unaudited pro forma financial information give effect to the acquisition
by the Company of GlobeNet in a transaction to be accounted for as a purchase
(the "Acquisition"). The unaudited pro forma consolidated balance sheet is based
on the individual balance sheets of the Company and GlobeNet, and has been
prepared to reflect the Acquisition as at December 31, 1999. The unaudited pro
forma income statement is based on the individual statements of income of the
Company and GlobeNet and combines the results of the operations for the year
ended December 31, 1999 as if the Acquisition occurred on January 1, 1999.
The unaudited pro forma consolidated financial information is not
necessarily indicative of the results that actually would have occured if the
transactions reflected herein had been completed on the
CPF-5
<PAGE>
360NETWORKS INC.
(FORMERLY WORLDWIDE FIBER INC.)
NOTES TO PRO FORMA FINANCIAL INFORMATION (CONTINUED)
(UNAUDITED)
FOR THE YEAR ENDED DECEMBER 31, 1999
(TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF U.S. DOLLARS)
2 BASIS OF PRESENTATION (CONTINUED)
dates indicated nor do they purport to project the results of operations for any
future periods. The unaudited pro forma consolidated financial information
should be read in conjunction with the description of the transactions and the
consolidated financial statements of the Company and GlobeNet included elsewhere
in this prospectus.
3 SIGNIFICANT ACCOUNTING POLICIES
The significant accounting policies used in the preparation of the pro forma
consolidated balance sheet and income statement include those disclosed in the
consolidated financial statements of the Company.
4 PRO FORMA CONSOLIDATED BALANCE SHEET ASSUMPTIONS AND ADJUSTMENTS AS AT
DECEMBER 31, 1999
(I) ISSUANCE OF SHARES IN A PUBLIC OFFERING
This adjustment records the issuance of 44,625,000 Subordinate Voting Shares
in a public offering for cash consideration of $580,125,000. This adjustment is
recorded net of commisions of $29,006,250 and offering expenses of $3,000,000.
(II) ACQUISITION OF GLOBENET
The pro forma balance sheet has been prepared to reflect the Company's
acquisition of GlobeNet in exchange for shares of the Company. This acquisition
has been accounted for under the purchase method of accounting. Pro forma
adjustments and assumptions are made to reflect:
- The issuance of 49,392,499 Subordinate Voting Shares assuming a purchase
price of $642,102,492.
- The elimination of GlobeNet's Shareholders' Equity of $241,581,000;
- The elimination of stock-based compensation expense in GlobeNet to conform
to the Company's accounting policy;
- The assumption that GlobeNet's long term debt will not be repaid as a
result of a change in control of GlobeNet;
CPF-6
<PAGE>
360NETWORKS INC.
(FORMERLY WORLDWIDE FIBER INC.)
NOTES TO PRO FORMA FINANCIAL INFORMATION (CONTINUED)
(UNAUDITED)
FOR THE YEAR ENDED DECEMBER 31, 1999
(TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF U.S. DOLLARS)
4 PRO FORMA CONSOLIDATED BALANCE SHEET ASSUMPTIONS AND ADJUSTMENTS AS AT
DECEMBER 31, 1999 (CONTINUED)
- The allocation of the purchase price is as follows:
<TABLE>
<CAPTION>
<S> <C>
Purchase price.............................................. $642,102
Less: book value of net assets acquired..................... 241,581
--------
Excess of cost over book value of net assets acquired....... $400,521
========
Allocation of excess of cost over book value of net assets
acquired:
Deferred financing costs.................................. $(24,743)
Goodwill.................................................. 425,264
--------
$400,521
========
</TABLE>
Goodwill will be amortized over 25 years. The purchase price allocation is
preliminary subject to management's due diligence and execution of definitive
agreements, which may result in a different allocation than presented in these
pro forma financial statements. This may result in an adjustment to pro forma
inventory, property and equipment, assets under construction or long-term debt.
(III) ISSUANCE OF $700,000,000 13.5% NOTES
This adjustment records the issuance of $700,000,000 13.5% notes due 2010
(the "Notes") assuming the Notes were issued on December 31, 1999. Commissions
of $17,500,000 and issuance expenses of $1,000,000 have been recorded as
deferred financing costs which will be amortized over 10 years using the
effective interest rate method.
(IV) CANADIAN TELECOMMUNICATIONS ARRANGEMENT OF CERTAIN ASSETS
This adjustment records the transfer of certain telecommunications
facilities included in property & equipment to a company (the "transferee")
owned 66 2/3% by a subsidiary of Ledcor and 33 1/3% by the Company. This
transaction is recorded at the carrying value of the assets transferred of
$6,444,000 as the transaction is between parties under common control. The
Company's investment in the transferee is recorded using the equity basis of
accounting.
(V) MICHELS MINORITY INTEREST ACQUISITION
This adjustment records the Company's acquisition of the shares in WFI USA
in exchange for 24,000,000 Subordinate Voting Shares of the Company. This pro
forma adjustment assumes a purchase price of $312,000,000. The number of
Subordinate Voting Shares to be issued will be based on an initial
CPF-7
<PAGE>
360NETWORKS INC.
(FORMERLY WORLDWIDE FIBER INC.)
NOTES TO PRO FORMA FINANCIAL INFORMATION (CONTINUED)
(UNAUDITED)
FOR THE YEAR ENDED DECEMBER 31, 1999
(TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF U.S. DOLLARS)
4 PRO FORMA CONSOLIDATED BALANCE SHEET ASSUMPTIONS AND ADJUSTMENTS AS AT
DECEMBER 31, 1999 (CONTINUED)
public offering price which is assumed to be $13 per share. The allocation of
the purchase price is as follows:
<TABLE>
<CAPTION>
<S> <C>
Purchase price.............................................. $312,000
Less: book value of net assets acquired..................... 5,076
--------
Excess of cost over book value of net assets acquired....... $306,924
========
Allocation of excess of cost over book value of net assets
acquired:
Goodwill.................................................. $306,924
========
</TABLE>
Goodwill will be amortized over 25 years. The purchase price allocation is
preliminary and subject to a detailed assessment of the fair values of the
underlying assets. This assessment may result in a re-allocation of the excess
of cost over the book value of net assets to pro forma inventory, property and
equipment and assets under construction.
(VI) CN/IC MINORITY INTEREST ACQUISITION
This adjustment records the Company's acquisition of the shares in WFI-CN
Fibre Inc. and Worldwide Fiber LLC in exchange for 12,307,692 Subordinate Voting
Shares of the Company. The pro forma adjustment assumes a purchase price of
$160,000,000. The number of Subordinate Voting Shares to be issued will be based
on an initial public offering price which is assumed to be $13 per share. The
allocation of the purchase price is as follows:
<TABLE>
<CAPTION>
<S> <C>
Purchase price.............................................. $160,000
Less: book value of net assets acquired..................... 3,800
--------
Excess of cost over book value of net assets acquired....... $156,200
========
Allocation of excess of cost over book value of net assets
acquired:
Goodwill.................................................. $156,200
========
</TABLE>
Goodwill will be amortized over 25 years. The purchase price allocation is
subject to a detailed assessment of the fair values of the underlying assets.
This assessment may result in a re-allocation of the excess of cost over the
book value of net assets to pro forma inventory, property and equipment and
assets under construction.
(VII) CONVERSION OR EXCHANGE OF SERIES A NON-VOTING PREFERRED SHARES INTO
SUBORDINATE VOTING SHARES
This adjustment records the conversion or exchange of all issued and
outstanding Series A Non-Voting Preferred Shares into Subordinate Voting Shares.
CPF-8
<PAGE>
360NETWORKS INC.
(FORMERLY WORLDWIDE FIBER INC.)
NOTES TO PRO FORMA FINANCIAL INFORMATION (CONTINUED)
(UNAUDITED)
FOR THE YEAR ENDED DECEMBER 31, 1999
(TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF U.S. DOLLARS)
4 PRO FORMA CONSOLIDATED BALANCE SHEET ASSUMPTIONS AND ADJUSTMENTS AS AT
DECEMBER 31, 1999 (CONTINUED)
(VIII) SHARE CAPITAL REORGANIZATION
This adjustment records the reorganization of share capital as follows:
- The conversion of all outstanding Class B Subordinate Voting Shares into
Class A Non-Voting Shares.
- The redesignation of all outstanding Class A Non-Voting Shares to
Subordinate Voting Shares.
- The redesignation of all outstanding Class C Multiple Voting Shares to
Multiple Voting Shares.
5 PRO FORMA CONSOLIDATED INCOME STATEMENT ASSUMPTIONS AND ADJUSTMENTS FOR THE
YEAR ENDED DECEMBER 31, 1999
(I) ACQUISITION OF GLOBENET
The pro forma income statement has been prepared to reflect the following
adjustments and assumptions resulting from the acquisition of GlobeNet:
- The elimination of the amortization of deferred financing costs of
$1,310,000 related to GlobeNet's debt.
- The amortization of goodwill of $17,011,000.
- The assumption that GlobeNet's long term debt will not be repaid as a
result of a change in control of GlobeNet. If the Company had repurchased
GlobeNet's $300,000,000 13% notes using proceeds from the Notes assumed to
have an interest rate of 12%, pro forma interest expense net of taxes
would be lower by $768,000 and a loss on extinguishment of debt net of
taxes of $1,632,000 would have been recorded as a result of the premium
paid on repurchase of GlobeNet's notes.
- The elimination of stock based compensation expense included in GlobeNet's
Financial statements to conform to the Company's Canadian GAAP accounting
policy whereby no stock based compensation is recorded on stock options
granted.
II) MICHELS AND CN/IC MINORITY INTEREST ACQUISITIONS
This adjustment records the amortization of goodwill from the acquisition of
the minority equity interests of Michels and CN/IC and elimination of minority
interest earnings assuming the acquisitions occurred on January 1, 1999.
III) INTEREST EXPENSE ON THE NOTES AND 1999 NOTES
This adjustment records the interest expense, including amortization of
deferred financing costs of $132,367,000 for the year ended December 31, 1999,
assuming the Notes and the 1999 Notes were issued on January 1, 1999.
Amortization of the deferred financing costs was computed based on the
CPF-9
<PAGE>
360NETWORKS INC.
(FORMERLY WORLDWIDE FIBER INC.)
NOTES TO PRO FORMA FINANCIAL INFORMATION (CONTINUED)
(UNAUDITED)
FOR THE YEAR ENDED DECEMBER 31, 1999
(TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF U.S. DOLLARS)
5 PRO FORMA CONSOLIDATED INCOME STATEMENT ASSUMPTIONS AND ADJUSTMENTS FOR THE
YEAR ENDED DECEMBER 31, 1999 (CONTINUED)
effective interest rate method. The Company would have a capitalized a portion
of interest expense related to the Notes and the 1999 Notes to the cost of the
fiber optic network assets constructed in 1999, which is not reflected in these
pro forma statements.
IV) INCOME TAXES
This adjustment records an income tax recovery of $17,121,000 for 1999 using
an effective tax rate of 45.6%. 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 B.C. Corporation Capital taxes
of $3,584,000 for 1999 and Federal Large Corporation taxes of $2,690,000 for
1999 resulting from the pro forma adjustments in notes 4 and 5.
VI) INTEREST ON DEBT COMPONENT OF REDEEMABLE CONVERTIBLE PREFERRED SHARES
This adjustment eliminates interest on the debt component of the redeemable
convertible preferred shares assuming the shares were converted to Subordinate
Voting Shares on September 7, 1999 (date of issuance).
CPF-10
<PAGE>
360NETWORKS INC.
(FORMERLY WORLDWIDE FIBER INC.)
NOTES TO PRO FORMA FINANCIAL INFORMATION (CONTINUED)
(UNAUDITED)
FOR THE YEAR ENDED DECEMBER 31, 1999
(TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF U.S. DOLLARS)
5 PRO FORMA CONSOLIDATED INCOME STATEMENT ASSUMPTIONS AND ADJUSTMENTS FOR THE
YEAR ENDED DECEMBER 31, 1999 (CONTINUED)
VII) PRO FORMA BASIC AND FULLY DILUTED LOSS PER SHARE
The weighted average number of shares used to compute pro forma basic and
fully diluted loss per share is determined as follows:
<TABLE>
<CAPTION>
<S> <C>
Weighted average number of shares used to compute historical
basic and fully diluted loss per share.................... 327,313,808
Issuance of shares in a public offering..................... 44,625,000
Purchase of GlobeNet........................................ 49,392,499
Purchase of Michels minority equity interest................ 24,000,000
Purchase of CN/IC minority equity interests................. 12,307,692
Issuance and conversion or exchange of Series A Non-Voting
Preferred Shares.......................................... 160,722,502
Reciprocal shareholdings adjustment from the Canadian
telecommunications arrangement transaction................ (578,238)
-----------
617,783,263
===========
Pro forma loss available to common stockholders is computed
as follows:
Pro forma net loss.......................................... (95,560)
Stock dividend.............................................. (5,000)
-----------
Pro forma net loss available to common stockholders......... (100,560)
===========
</TABLE>
CPF-11
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
--------
<S> <C>
360NETWORKS INC. (FORMERLY WORLDWIDE FIBER INC.) AUDITED
FINANCIAL STATEMENTS FOR THE PERIOD ENDED DECEMBER 31,
1998 AND YEAR ENDED DECEMBER 31, 1999
Auditors' Report............................................ CF-2
Consolidated Balance Sheets................................. CF-3
Consolidated Income Statements.............................. CF-5
Consolidated Statements of Changes in Shareholders'
Equity.................................................... CF-6
Consolidated Statements of Cash Flows....................... CF-7
Notes to Consolidated Financial Statements.................. CF-8
LEDCOR INDUSTRIES LIMITED--TELECOMMUNICATIONS DIVISION
Auditors' Report............................................ CF-28
Divisional Balance Sheets................................... CF-29
Divisional Statements of Operations and Retained Earnings... CF-30
Divisional Statements of Cash Flows......................... CF-31
Notes to Divisional Financial Statements.................... CF-32
GLOBENET COMMUNICATIONS GROUP LIMITED
Auditors' Report............................................ CF-40
Consolidated Balance Sheets................................. CF-41
Consolidated Statements of Changes in Shareholders'
Equity.................................................... CF-42
Consolidated Statements of Operations....................... CF-43
Consolidated Statements of Cash Flows....................... CF-44
Notes to Consolidated Financial Statements.................. CF-45
</TABLE>
CF-1
<PAGE>
AUDITORS' REPORT
To the Directors and Shareholders of 360NETWORKS INC.
We have audited the consolidated balance sheets of 360NETWORKS INC. (formerly
Worldwide Fiber Inc.) as at December 31, 1999 and 1998 and the consolidated
income statements, and statements of changes in shareholders' equity and cash
flows for the year ended December 31, 1999 and period from February 5, 1998
(date of incorporation) to December 31, 1998. These consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with Canadian generally accepted auditing
standards. Those standards require that we plan and perform an audit to obtain
reasonable assurance whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
In our opinion, these consolidated financial statements present fairly, in all
material respects, the financial position of the Company as at December 31, 1999
and 1998 and the results of its operations and the changes in its cash flows for
the year ended December 31, 1999 and the period from February 5, 1998 (date of
incorporation) to December 31, 1998, in accordance with Canadian generally
accepted accounting principles.
PricewaterhouseCoopers LLP
Chartered Accountants
Vancouver, Canada
February 25, 2000 except for Note 16
which is as of March 20, 2000
CF-2
<PAGE>
360NETWORKS INC.
(FORMERLY WORLDWIDE FIBER INC.)
CONSOLIDATED BALANCE SHEETS
AS AT DECEMBER 31, 1999 AND 1998
(TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF U.S. DOLLARS)
<TABLE>
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents................................... $ 521,362 $156,366
Short term investments...................................... 21,167 --
Accounts receivable (note 4)................................ 35,351 3,272
Unbilled revenue (note 4)................................... 115,661 10,582
Inventory (note 4).......................................... 196,959 29,230
Due from parent-net (note 6)................................ -- 13,412
Deferred tax asset (note 11)................................ 8,838 --
---------- --------
899,338 212,862
PROPERTY AND EQUIPMENT--NET (note 4)........................ 77,009 4,014
ASSETS UNDER CONSTRUCTION................................... 300,403 11,461
DEFERRED TAX ASSET (note 11)................................ 12,040 1,273
DEFERRED FINANCING COSTS.................................... 22,199 6,650
---------- --------
$1,310,989 $236,260
========== ========
</TABLE>
<TABLE>
<S> <C> <C> <C>
Director "GREGORY MAFFEI" Director "LARRY OLSEN"
------------------------- -------------------------
Gregory Maffei Larry Olsen
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
CF-3
<PAGE>
360NETWORKS INC.
(FORMERLY WORLDWIDE FIBER INC.)
CONSOLIDATED BALANCE SHEETS
AS AT DECEMBER 31, 1999 AND 1998
(TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF U.S. DOLLARS)
<TABLE>
<S> <C> <C>
LIABILITIES
CURRENT LIABILITIES
Accounts payable and accrued liabilities (note 4)........... $ 191,437 $ 19,895
Deferred revenue............................................ 18,831 13,651
Income taxes payable........................................ 34,343 7,609
---------- --------
244,611 41,155
DEFERRED TAX LIABILITY...................................... 3,073 --
SENIOR NOTES (note 7)....................................... 675,000 175,000
DEBT COMPONENT OF REDEEMABLE CONVERTIBLE PREFERRED SHARES... 270,049 --
---------- --------
1,192,733 216,155
MINORITY INTEREST........................................... 8,876 1,443
SHAREHOLDERS' EQUITY
Authorized:
100,000,000,000 Series A Non-Voting Redeemable Convertible
Preferred Shares,.......................................
100,000,000,000 Series B Subordinate Voting Redeemable
Convertible Preferred Shares,...........................
45,000,000 Series C Redeemable Preferred Shares, no par
value...................................................
Unlimited number of Class A Non-Voting, Class B
Subordinate
Voting and Class C Multiple Voting shares, no par
value...................................................
Issued and outstanding:
150,951,312 Series A Non-Voting Redeemable Convertible
Preferred Shares (net of issuance costs of $1,638,000
and adjusted for accretion to redemption value) (note
8)...................................................... 82,379
353,426,400 (1998--Nil) Class A Non-Voting Shares (note
9)...................................................... 92,996 --
82,629,600 (1998--80,004,800) Class B Subordinate Voting
Shares
(note 9)................................................ 7,623 7,400
81,840,000 Class C Multiple Voting Shares (note 9)........ 18,172 --
OTHER CAPITAL ACCOUNTS...................................... (55,430) 2,242
(DEFICIT) RETAINED EARNINGS................................. (36,360) 9,020
---------- --------
109,380 18,662
---------- --------
$1,310,989 $236,260
========== ========
COMMITMENTS (note 14)
SUBSEQUENT EVENTS (note 16)
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
CF-4
<PAGE>
360NETWORKS INC.
(FORMERLY WORLDWIDE FIBER INC.)
CONSOLIDATED INCOME STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 1999
AND 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 EXCEPT PER SHARE
AMOUNTS)
<TABLE>
<CAPTION>
1999 1998
-------------- --------------
<S> <C> <C>
Revenue..................................................... $ 359,746 $ 164,319
Costs....................................................... 250,612 147,621
------------ ------------
Gross profit................................................ 109,134 16,698
------------ ------------
Expenses
Selling, general and administrative....................... 21,846 2,274
Depreciation.............................................. 2,998 464
------------ ------------
24,844 2,738
------------ ------------
84,290 13,960
Interest expense............................................ 59,885 492
Interest income............................................. 18,122 267
------------ ------------
Income before equity income, income taxes and minority
interest.................................................. 42,527 13,735
Equity income (note 5)...................................... -- 928
------------ ------------
Income before income taxes and minority interest............ 42,527 14,663
Provision for income taxes (note 11)
Current................................................... 40,338 5,643
Deferred.................................................. (10,024) --
------------ ------------
30,314 5,643
------------ ------------
Income before minority interest............................. 12,213 9,020
Minority interest........................................... 7,434 --
------------ ------------
Net income for the period................................... $ 4,779 $ 9,020
============ ============
(Loss) earnings per share................................... $ (0.02) $ 0.43
Weighted average number of shares used to compute basic and
fully diluted (loss) earnings per share................... 327,313,808 20,964,178
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
CF-5
<PAGE>
360NETWORKS INC.
(FORMERLY WORLDWIDE FIBER INC.)
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
FOR THE YEAR ENDED DECEMBER 31, 1999 AND
PERIOD FROM FEBRUARY 5, 1998 (DATE OF INCORPORATION) TO DECEMBER 31, 1998
(TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF U.S. DOLLARS)
<TABLE>
<CAPTION>
CLASS B SUBORDINATE SERIES A
VOTING SHARES NON-VOTING
CLASS A NON- (FORMERLY CLASS C MULTIPLE CONVERTIBLE
VOTING SHARES CLASS A COMMON) VOTING SHARES PREFERRED SHARES
---------------------- ----------------------- --------------------- ----------------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
----------- -------- ------------ -------- ---------- -------- ----------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE--FEBRUARY 5, 1998 -- $ -- -- $ -- -- $ -- -- $ --
Incorporation shares
issued..................... 1,600 $ --
Issuance of shares for
certain Ledcor assets with
deferred tax asset (note
5)......................... 3,200 7,400
Issuance of shares for
investments (note 5)....... 80,000,000 --
Excess of proceeds over cost
on fiber optic strands to
be reacquired from parent
company (note 1)...........
Net income for the period....
----------- ------- ------------ -------- ---------- ------- ----------- -------
BALANCE, DECEMBER 31, 1998... -- -- 80,004,800 7,400 -- -- --
Issuance of shares for
certain Ledcor assets with
deferred tax assets........ 319,995,200 25,019
Repurchase of Class B
Subordinate Voting Shares
in exchange for Class B
Subordinate Voting Shares
and Series C Redeemable
Preferred Shares........... (400,000,000) (32,419)
Shares(note 9)............... 381,496,000 32,419
Issuance of shares for cash
(note 9)................... 2,400,000 3,000
Redemption of Series C
Redeemable Preferred Shares
and stock dividend (note
9).........................
Issuance of shares for
certain Ledcor assets with
deferred tax assets (note
1)......................... 72,000,000 5,872
Issuance of shares for cash
(net of share issuance
costs and adjusted for
accretion to redemption
value)..................... 150,951,312 82,379
Issuance of shares
(note 9)................... 52,160,000 65,200 9,840,000 12,300
Conversion of Class B
Subordinate Voting Shares
to Class A Non-Voting
Shares (note 9)............ 301,266,400 27,796 (301,266,400) (27,796)
Purchase price adjustment to
preferred shares...........
Net Income for the period....
----------- ------- ------------ -------- ---------- ------- ----------- -------
BALANCE, DECEMBER 31, 1999.. 353,426,400 $92,996 82,629,600 $ 7,623 81,840,000 $18,172 150,951,312 $82,379
=========== ======= ============ ======== ========== ======= =========== =======
<CAPTION>
OTHER RETAINED TOTAL
CAPITAL EARNINGS SHAREHOLDERS'
ACCOUNTS (DEFICIT) EQUITY
------------ --------- --------------
<S> <C> <C> <C>
BALANCE--FEBRUARY 5, 1998 $ -- $ -- $ --
Incorporation shares
issued..................... $ --
Issuance of shares for
certain Ledcor assets with
deferred tax asset (note
5)......................... 1,088 -- 8,488
Issuance of shares for
investments (note 5)....... --
Excess of proceeds over cost
on fiber optic strands to
be reacquired from parent
company (note 1)........... 1,154 1,154
Net income for the period.... 9,020 9,020
-------- -------- --------
BALANCE, DECEMBER 31, 1998... 2,242 9,020 18,662
Issuance of shares for
certain Ledcor assets with
deferred tax assets........ 25,019
Repurchase of Class B
Subordinate Voting Shares
in exchange for Class B
Subordinate Voting Shares
and Series C Redeemable
Preferred Shares........... (32,419)
Shares(note 9)............... 32,419
Issuance of shares for cash
(note 9)................... 3,000
Redemption of Series C
Redeemable Preferred Shares
and stock dividend (note
9)......................... (45,000) (45,000)
Issuance of shares for
certain Ledcor assets with
deferred tax assets (note
1)......................... (2,242) 3,630
Issuance of shares for cash
(net of share issuance
costs and adjusted for
accretion to redemption
value)..................... 82,379
Issuance of shares
(note 9)................... (77,500) --
Conversion of Class B
Subordinate Voting Shares
to Class A Non-Voting
Shares (note 9)............ --
Purchase price adjustment to
preferred shares........... 22,070 (5,159) 16,911
Net Income for the period.... 4,779 4,779
-------- -------- --------
BALANCE, DECEMBER 31, 1999.. $(55,430) $(36,360) $109,380
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
CF-6
<PAGE>
360NETWORKS INC.
(FORMERLY WORLDWIDE FIBER INC.)
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1999 AND
PERIOD FROM FEBRUARY 5, 1998 (DATE OF INCORPORATION) TO
DECEMBER 31, 1998.
(TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF U.S. DOLLARS)
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------
1999 1998
-------------- --------------
<S> <C> <C>
CASH FLOWS USED IN OPERATING ACTIVITIES
Net income for the period................................... $ 4,779 $ 9,020
Adjustments to reconcile net income to net cash used for
operating activities
Depreciation.............................................. 2,998 464
Amortization of deferred finance costs.................... 1,732 --
Equity (income) loss...................................... -- (928)
Interest recorded on redeemable convertible preferred
shares.................................................. 25,977 --
Changes in non-cash working capital items
Accounts receivable..................................... (31,887) (196)
Unbilled revenue........................................ (103,597) (992)
Inventory............................................... (164,713) (5,517)
Due from parent......................................... 13,841 (16,230)
Accounts payable and accrued liabilities................ 151,420 2,904
Deferred revenue........................................ (14,008) 13,708
Income taxes payable.................................... 26,405 6,491
Advances to WFI USA..................................... -- (21,783)
Deferred income taxes................................... (10,024)
--------- --------
(97,077) (13,059)
--------- --------
CASH FLOWS (USED IN) FROM INVESTING ACTIVITIES
Additions to assets under construction...................... (283,598) --
Additions to property and equipment......................... (16,518) (1,065)
Purchase of short-term investments.......................... (21,167) --
Cash acquired on acquisition of WFI USA..................... -- 2,242
--------- --------
(321,283) 1,177
--------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of capital stock..................... 348,000 --
Issuance of notes........................................... 500,000 175,000
Deferred financing costs.................................... (17,281) (6,650)
Repurchase of Series C redeemable preferred shares.......... (45,000) --
--------- --------
785,719 168,350
--------- --------
Effect of exchange rate changes on cash..................... (2,363) (102)
--------- --------
Net increase in cash and cash equivalents................... 364,996 $156,366
--------- --------
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD.............. 156,366 --
--------- --------
CASH AND CASH EQUIVALENTS, END OF PERIOD.................... $ 521,362 $156,366
========= ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
CF-7
<PAGE>
360NETWORKS INC.
(FORMERLY WORLDWIDE FIBER INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998
(TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF U.S. DOLLARS)
1. THE COMPANY
360NETWORKS INC. (formerly Worldwide Fiber Inc.) (the "Company") was
incorporated on February 5, 1998 and is indirectly a 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 ended December 31, 1998, the
Company's revenues related to Construction Services Agreements with Ledcor (see
Note 1(b)). For the year ended December 31, 1999, the Company's revenue is
primarily derived from the construction of fiber optic network assets for
telecommunications companies in North America.
TRANSACTIONS WITH LEDCOR AND ITS AFFILIATES
(a) On May 31, 1998, the Company entered into undertaking agreements whereby
certain fiber optic network assets, located in Canada and the U.S. would be
transferred to the Company by Ledcor in exchange for 319,995,200 Class A
Non-Voting 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 was 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 the 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 is reflected as a deferred tax asset.
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 72,000,000 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 $25,289,000, the cost of the assets in the
accounts of Ledcor. The Company also received a deferred tax benefit of
$3,341,000, 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.
(b) Construction Services Agreements were entered into May 31, 1998 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 the income statement for the
period ended December 31, 1998. The costs to construct the network were
reflected on completion of construction and the issuance of the shares. As
at December 31, 1998, the Company had billed Ledcor $18,138,000 for the
services related to
CF-8
<PAGE>
360NETWORKS INC.
(FORMERLY WORLDWIDE FIBER INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999 AND 1998
(TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF U.S. DOLLARS)
1. THE COMPANY (CONTINUED)
construction of the fiber optic network assets which exceeded their costs by
$2,099,000. This excess, net of income taxes of $945,000, had been excluded
from the consolidated income statement and had been reported as contributed
surplus included in other capital accounts.
(c) A Management Services Agreement was entered into May 31, 1998 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.
(d) Employee Services Agreements were entered into May 31, 1998 whereby the
Company obtains the services of certain employees from Ledcor on a cost
reimbursement basis.
(e) The Company has entered into an agreement with Ledcor whereby personnel of
Ledcor who were involved in the designing and planning of the transatlantic
Hibernia cable stations will oversee management and supervision of
construction of these facilities for a fee of approximately $1,700,000.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
These consolidated financial statements have been prepared in accordance
with generally accepted accounting principles in Canada and include the accounts
of the Company, its wholly owned subsidiaries and its 75% interests in Worldwide
Fiber (USA), Inc. ("WFI USA"), WFI-CN Fiber Inc. and Worldwide Fiber IC LLC. 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 1998 consolidated income statement and statement of cash
flows accounted 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 sheets include WFI USA's assets and liabilities, and
minority interest therein.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions which affect the reported amounts of assets and liabilities and the
disclosure of contingent assets and liabilities at the date of the financial
statements and revenues and expenses for the period reported. Actual results
could differ from those estimates.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents consists of cash on deposit and highly liquid
short-term interest bearing securities with maturity at the date of purchase of
three months or less.
CF-9
<PAGE>
360NETWORKS INC.
(FORMERLY WORLDWIDE FIBER INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999 AND 1998
(TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF U.S. DOLLARS)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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.
PROPERTY AND EQUIPMENT
Fiber optic network assets constructed for the Company's own use are
recorded as property and equipment when the asset is fully constructed. Fiber
optic network assets, construction equipment and other assets are recorded at
cost. Property and equipment are depreciated using the following rates and
methods:
- Fiber optic network assets--straight-line over 25 years.
- Equipment--hourly usage rates, estimated to depreciate the equipment over
the estimated useful lives of the equipment.
ASSETS UNDER CONSTRUCTION
Assets under construction include fiber optic network assets constructed for
the company's own use and include direct expenditures of materials and labor,
indirect costs attributable to the projects and interest.
LONG-LIVED ASSETS
The Company reviews the carrying amount of long-lived assets for impairment
whenever events or changes in circumstances indicate that the carrying amount
may not be recoverable. The determination of any impairment would include a
comparison of estimated future operating cash flows anticipated to be generated
during the remaining life of the assets to the net carrying value of the asset.
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") determined on an average cost basis.
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.
CF-10
<PAGE>
360NETWORKS INC.
(FORMERLY WORLDWIDE FIBER INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999 AND 1998
(TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF U.S. DOLLARS)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Revenue and income from construction contracts to develop fiber optic
network assets are determined on the percentage-of-completion basis using the
cost-to-cost method. Provision is made for all anticipated losses as soon as
they become evident. Claims for additional contract compensation are not
recognized until resolved.
UNBILLED REVENUE
Revenue recognized using the percentage-of-completion basis (see "Revenue
recognition") less billings to date is recorded as unbilled revenue. Unbilled
revenue classified as current represents billings expected to be collected
within the following fiscal year. Billings are rendered on the achievement of
certain construction milestones.
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 as at December 31, 1999 was $17,467,000 (December 31, 1998--$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.
DEFERRED REVENUE
Cash received from customers pursuant to contracts where construction has
not commenced is recorded as deferred revenue.
FOREIGN CURRENCY TRANSLATIONS AND TRANSACTIONS
The functional currency of the Company's operations located in countries
other than the U.S. is generally the domestic currency. The consolidated
financial statements are translated to U.S. 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 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 is based on
provisions of
CF-11
<PAGE>
360NETWORKS INC.
(FORMERLY WORLDWIDE FIBER INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999 AND 1998
(TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF U.S. DOLLARS)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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
criterion.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The fair value of the Company's financial instruments, consisting of cash
and cash equivalents, short-term investments, accounts receivable, unbilled
revenue, due from parent, accounts payable and accrued liabilities, and income
taxes payable approximate their carrying values due to their short-term nature.
As at December 31, 1999, the fair value of the $500,000,000 12% Senior Notes was
$515,000,000 and the fair value of the $175,000,000 12.5% Senior Notes ("1998
Notes") was $182,000,000. The fair value of the 1998 Notes at December 31, 1998
approximated its carrying value. Fair value is based on a quoted market price.
EARNINGS PER SHARE
Basic earnings per share is computed by dividing net income available to
common stockholders by the weighted average number of common shares (including
Class A Non-Voting Shares, Class B Subordinate Voting Shares and Class C
Multiple Voting Shares) outstanding for the period. Fully diluted earnings per
share reflects the potential dilution of securities by including other potential
common stock, including stock options and Redeemable Convertible Preferred
Shares, in the weighted average number of common shares outstanding for a
period, if dilutive.
The following table sets forth the computation of (loss) earnings per share:
<TABLE>
<CAPTION>
1999 1998
----------- ----------
<S> <C> <C>
Net income................................................ $ 4,779 $ 9,020
Less:
Stock dividend.......................................... 5,000 --
Purchase price adjustment to preferred shares........... 5,159 --
----------- ----------
Net (loss) income available to common stockholders........ (5,380) 9,020
=========== ==========
</TABLE>
The Redeemable Convertible Preferred Shares and stock options are not
included in the computation of fully diluted loss per share as their effect is
anti-dilutive.
CF-12
<PAGE>
360NETWORKS INC.
(FORMERLY WORLDWIDE FIBER INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999 AND 1998
(TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF U.S. DOLLARS)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
COMPARATIVE FINANCIAL INFORMATION
Certain prior year amounts have been reclassified to conform to the current
year presentation.
3. SUPPLEMENTAL CASH FLOW INFORMATION
<TABLE>
<CAPTION>
1999 1998
-------------- --------------
<S> <C> <C>
Cash paid for income taxes.................................. $13,944 $ --
Cash paid for interest...................................... 21,391 --
Supplemental non-cash investing and financing activities
Issuance of common shares for:
Certain Ledcor assets............................... 47,172 8,488
Deferred revenue.................................... 25,000 --
Additional 25% investment in WFI USA in exchange for
surrender of note receivable...................... -- 3,915
Series C Redeemable Preferred Stock dividend............ 5,000 --
Accretion of preferred stock to redemption value........ 6,465 --
</TABLE>
CF-13
<PAGE>
360NETWORKS INC.
(FORMERLY WORLDWIDE FIBER INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999 AND 1998
(TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF U.S. DOLLARS)
4. BALANCE SHEET COMPONENTS
<TABLE>
<CAPTION>
1999 1998
-------------- --------------
<S> <C> <C>
Accounts receivable
Trade accounts receivable................................. $ 34,736 $ 3,107
Interest and other........................................ 615 165
-------- -------
$ 35,351 $ 3,272
======== =======
Unbilled revenue
Revenue earned on uncompleted contracts................... $333,116 $22,236
Less: Billings to date.................................... 217,455 11,654
-------- -------
$115,661 $10,582
======== =======
Inventory
Fiber optic network assets................................ $188,013 $28,085
Construction supplies and small tools..................... 8,946 1,145
-------- -------
$196,959 $29,230
======== =======
Property and equipment
Land...................................................... $ 5,891 $ --
Fiber optic network assets................................ 64,079 --
Equipment................................................. 10,501 4,478
-------- -------
80,471 4,478
Less: Accumulated depreciation............................ 3,462 (464)
-------- -------
Property and equipment--net................................. $ 77,009 $ 4,014
======== =======
Accounts payable and accrued liabilities
Subcontractor and supplier costs.......................... $100,461 $13,067
Subcontractor holdbacks payable........................... 25,676 4,843
Accrued liabilities....................................... 36,733 1,493
Interest payable.......................................... 28,567 492
-------- -------
$191,437 $19,895
======== =======
</TABLE>
CF-14
<PAGE>
360NETWORKS INC.
(FORMERLY WORLDWIDE FIBER INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999 AND 1998
(TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF U.S. DOLLARS)
5. ACQUISITIONS
TELECOMMUNICATIONS DIVISION ASSETS
Effective May 31, 1998, the Company entered into a series of agreements
whereby equipment, fiber optic network assets and other assets related to the
business of the Telecommunications Division of Ledcor were transferred to the
Company. In addition, the Company was granted a license to use Ledcor's patented
rail plow technology. This license agreement was for an initial term of ten
years, renewable annually upon completion of the initial term. As part of this
transaction, Ledcor retained all existing construction contracts related to the
business. This transaction was between entities under common control and has
been accounted for using the carrying amounts recorded in Ledcor's accounts. The
tax basis of substantially all the Canadian assets transferred to the Company
was 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 other capital accounts. As consideration for the transaction, the
Company issued 3,200 Class A shares to Ledcor.
The assets transferred and consideration given, in connection with this
transaction were as follows:
<TABLE>
<S> <C>
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 included
in other capital accounts............................. $8,488
======
</TABLE>
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 32,000,000 Class A Non-Voting 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 48,000,000 Class A
Non-Voting Shares of the Company and
CF-15
<PAGE>
360NETWORKS INC.
(FORMERLY WORLDWIDE FIBER INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999 AND 1998
(TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF U.S. DOLLARS)
5. ACQUISITIONS (CONTINUED)
the issuance of a promissory note by the Company. WFI USA was a joint venture
with Mi-Tech Communications LLC ("Mi-Tech") which held the remaining 50%
interest in WFI USA. WFI USA's operations consist primarily of developing fiber
optic network assets in the United States.
As this transaction was between entities under common control, it was
accounted for in a manner similar to a pooling of interests. These financial
statements reflect the equity interest in the income of WFI USA from May 31,
1998 to December 31, 1998 in the amount of $928,000. Prior to May 31, 1998, the
equity interest was reported as part of the Telecommunications 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:
<TABLE>
<S> <C>
Current assets.............................................. $ 3,742
Inventory................................................... 6,048
Fixed assets................................................ 1,795
Current liabilities......................................... 10,052
</TABLE>
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:
- 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.
- Is restricted from selling, transferring, encumbering or divesting its
ownership or control of WFI USA.
- 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.
CF-16
<PAGE>
360NETWORKS INC.
(FORMERLY WORLDWIDE FIBER INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999 AND 1998
(TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF U.S. DOLLARS)
6. DUE FROM PARENT
The amounts due to and from parent 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, for the period ended December 31, 1998, due to fiber optic network
assets to be transferred to the Company as described in note 1(b). The balance
as at December 31, 1999, of $7,297,000, is included in accounts payable.
7. SENIOR NOTES
On July 28, 1999 the Company issued 500,000,000 12% senior notes (the
"Notes"). 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, 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.
On December 23, 1998, the Company issued $175,000,000 12.5% senior notes
(the "1998 Notes"). The 1998 Notes are unsecured obligations of the Company
bearing interest at 12.5% payable semi-annually. The 1998 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 1998 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 1998 Notes
Indenture, the holders of the 1998 Notes can require the Company to repurchase
all or part of the 1998 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 1998 Notes Indenture, exceeds $10,000,000, the
Company is required to make an offer to repurchase the maximum principal amounts
of 1998 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 1998 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 and 1998 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.
CF-17
<PAGE>
360NETWORKS INC.
(FORMERLY WORLDWIDE FIBER INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999 AND 1998
(TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF U.S. DOLLARS)
8. REDEEMABLE CONVERTIBLE PREFERRED STOCK
On September 9, 1999 the Company authorized various classes of preferred
shares.
SERIES A NON-VOTING REDEEMABLE CONVERTIBLE PREFERRED SHARES
On September 9, 1999, the Company issued 141,868,928 Series A Non-Voting
Convertible Preferred Shares ("Series A Preferred Shares") for $345,000,000. On
December 22, 1999, the Company issued an additional 9,082,384 Series A Preferred
Shares to the holders of such shares pursuant to the terms of their original
purchase agreement dated September 7, 1999.
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
capital 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 $2.43
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.
SERIES B SUBORDINATE VOTING REDEEMABLE CONVERTIBLE PREFERRED SHARES
The Series B Subordinate Voting Convertible Preferred Shares ("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 capital 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 $2.43 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
CF-18
<PAGE>
360NETWORKS INC.
(FORMERLY WORLDWIDE FIBER INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999 AND 1998
(TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF U.S. DOLLARS)
8. REDEEMABLE CONVERTIBLE PREFERRED STOCK (CONTINUED)
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, 80,000,000 Series C Redeemable Preferred Shares
("Series C Preferred Shares") were issued pursuant to a stock dividend and
640,000,000 Series C Preferred Shares were issued pursuant to a share
re-organization. Subsequently, the Company repurchased the 720,000,000 issued
Series C Preferred Shares for $45,000,000 (note 9). 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.
9. CAPITAL STOCK
On September 9, 1999 the Company authorized various classes of capital stock
(see "Share Capital Transactions"):
The holders of the Class A Non-Voting Shares, Class B Subordinate Voting
Shares, and Class C Multiple Voting Shares participate equally in 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 capital 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 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.
SHARE CAPITAL TRANSACTIONS
On September 9, 1999, the Company amended its share capital by
re-designating 400,000,000 Class A voting Shares to Class B Subordinate Voting
Shares, cancelling its remaining classes of shares
CF-19
<PAGE>
360NETWORKS INC.
(FORMERLY WORLDWIDE FIBER INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999 AND 1998
(TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF U.S. DOLLARS)
9. CAPITAL STOCK (CONTINUED)
and creating Class A Non-Voting Shares, Class C Multiple Voting Shares, Series A
and B Redeemable Convertible Preferred Shares and Series C Redeemable Preferred
Shares. Subsequently, the Company declared a stock dividend of 80,000,000
Series C Redeemable Preferred Shares for $5,000,000. Concurrently, the Company
repurchased the 400,000,000 outstanding Class B Subordinate Voting Shares from
its parent in exchange for the issuance of 381,496,000 Class B Subordinate
Voting Shares and 640,000,000 Series C Redeemable Preferred Shares. The Company
then redeemed the 720,000,000 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 2,400,000 Class B Subordinate Voting
Shares for $3,000,000.
On November 24, 1999 a shareholder converted 301,266,400 Class B Subordinate
Voting Shares into 301,266,400 Class A Non-Voting Shares. On December 22, 1999,
the Company issued 52,160,000 Class A Non-Voting Shares and 9,840,000 Class C
Multiple Voting Shares under an employment agreement to an executive officer for
$77,500,000. The Company also received a promissory note of $77,500,000 from the
executive officer.
The shares issued to the executive officer are subject to a repurchase by
the Company at the lesser of fair market value of the shares and the original
purchase price of the shares plus interest. The restriction lapsed with respect
to 15,500,000 shares immediately on commencement of employment and lapses for
12,400,000 shares in 2000, 13,639,968 shares in 2001 and 2002 and the remainder
in 2003. Under certain conditions, the executive officer may put back a certain
number of shares to the Company, or at the option of the Company to Worldwide
Fiber Holdings Ltd., at fair market value to repay the promissory note.
On November 24, 1999, the Board of Directors approved an eight-for-one share
split of all classes of the Company's stock. All share amounts for 1998 and 1999
have been presented on a post stock split basis.
10. STOCK OPTION PLAN
The Company has a Long Term Incentive and Share Award Plan that permits the
grant of non-qualified stock options, incentive stock options, share
appreciation rights, restricted shares, restricted share units, performance
shares, performance units, dividend equivalents and other share based awards to
employees and directors. A maximum of 71,133,008 Class A Non-Voting Shares may
be subject to awards under the plan, which generally have a vesting period of
four years. The stock options have terms expiring on or before
November 15, 2009.
CF-20
<PAGE>
360NETWORKS INC.
(FORMERLY WORLDWIDE FIBER INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999 AND 1998
(TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF U.S. DOLLARS)
10. STOCK OPTION PLAN (CONTINUED)
Stock option transactions during 1999 were as follows:
<TABLE>
<CAPTION>
WEIGHTED-
NUMBER OF AVERAGE
OPTIONS EXERCISE PRICE
----------- --------------
$
<S> <C> <C>
Balance--December 31, 1998
Options granted...................................... 43,412,480 0.77
Options cancelled.................................... -- --
Options exercised.................................... -- --
---------- ----
Balance--December 31, 1999............................. 43,412,480 0.77
========== ====
</TABLE>
The following table summarizes information about stock options outstanding
at December 31, 1999:
<TABLE>
<CAPTION>
NUMBER OPTIONS
OUTSTANDING AT WEIGHTED AVERAGE EXERCISABLE AT
EXERCISE DECEMBER 31, REMAINING DECEMBER 31,
PRICE 1999 CONTRACTUAL LIFE (YEARS) 1999
-------- -------------- ------------------------ --------------
$
<S> <C> <C> <C>
0.63 33,786,880 9.0 8,822,080
1.25 9,625,600 9.5 --
- --------------------- ---------- --------- ---------
0.63-1.25 43,412,480 9.2 8,822,080
===================== ========== ========= =========
</TABLE>
11. INCOME TAXES
INCOME BEFORE EQUITY INCOME, INCOME TAXES AND MINORITY INTEREST
The components of income before equity income, income taxes and minority
interest, are as follows:
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Canadian............................................... $28,020 $ 5,683
U.S.................................................... 14,507 8,052
------- -------
$42,527 $13,735
======= =======
</TABLE>
CF-21
<PAGE>
360NETWORKS INC.
(FORMERLY WORLDWIDE FIBER INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999 AND 1998
(TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF U.S. DOLLARS)
11. INCOME TAXES (CONTINUED)
CURRENT INCOME TAXES
The provision for current income taxes consists of the following:
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Canadian.................................................... $25,742 $2,599
U.S. federal................................................ 11,775 2,563
U.S. state and local........................................ 2,821 481
------- ------
$40,338 $5,643
======= ======
</TABLE>
The provision for income taxes differs from the amount computed by applying
the statutory income tax rate to net income before taxes as follows:
<TABLE>
<CAPTION>
1999 1998
-------- --------
% %
<S> <C> <C>
Canadian statutory rate..................................... 45.6 45.6
Foreign tax at other than Canadian statutory rate........... (5.0) (4.5)
Investment income........................................... 1.6 --
Non-deductible interest recorded on redeemable convertible
preferred shares.......................................... 27.8 --
Other....................................................... 1.3 --
---- ----
71.3 41.1
==== ====
</TABLE>
CF-22
<PAGE>
360NETWORKS INC.
(FORMERLY WORLDWIDE FIBER INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999 AND 1998
(TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF U.S. DOLLARS)
11. INCOME TAXES (CONTINUED)
DEFERRED INCOME TAXES
Significant components of the Company's deferred tax asset and liability are
as follows:
<TABLE>
<CAPTION>
1999 1998
-------- --------
<S> <C> <C>
DEFERRED TAX ASSET
Expenses not deductible in current year................... $ 8,838 $ --
Tax loss carryforwards.................................... 4,259 --
Property and equipment.................................... 7,596 1,088
Other..................................................... 185 185
------- ------
20,878 1,273
Valuation allowance......................................... -- --
------- ------
Net deferred tax asset...................................... $ -- $ --
======= ======
DEFERRED TAX LIABILITY
Property and equipment.................................... $ 1,760 $ --
Financing costs........................................... 1,313 --
------- ------
$ 3,073 $ --
======= ======
</TABLE>
Management believes that, based on a number of factors, it is more likely
than not that the deferred tax asset will be fully utilized, such that no
valuation allowance has been recorded.
Tax losses arising in 1999 of $9,342,000 expire in 2006.
12. 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,
short-term investments, 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 and short-term investments 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 maximum amount of credit risk exposure is limited to the carrying
amounts of these financial instruments.
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. Accounts
receivable was comprised of 22 customers at December 31, 1999 and 12 customers
at December 31, 1998.
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
CF-23
<PAGE>
360NETWORKS INC.
(FORMERLY WORLDWIDE FIBER INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999 AND 1998
(TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF U.S. DOLLARS)
12. CONCENTRATION OF CREDIT RISK (CONTINUED)
revenues for the period ended December 31, 1998 was earned from construction
services provided to Ledcor.
13. 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, the U.S. and Europe including a
transatlantic link. A significant portion of the transatlantic link will be
owned by a subsidiary in Barbados. Revenues, property and equipment, assets
under construction, and deferred financing costs are located as follows:
<TABLE>
<CAPTION>
DEFERRED
PROPERTY AND ASSETS UNDER FINANCING
REVENUES EQUIPMENT--NET CONSTRUCTION COSTS--NET
--------------------- --------------------- --------------------- ---------------------
1999 1998 1999 1998 1999 1998 1999 1998
--------- --------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Canada............... $170,705 $ 84,534 $ 38,206 $ 3,794 $ 46,683 $ 4,424 $ 22,199 $ 6,650
U.S. ................ 189,041 79,785 33,669 220 53,221 7,037 -- --
Barbados............. -- -- -- -- 169,648 -- -- --
Europe............... -- -- 5,134 -- 30,851 -- -- --
-------- -------- -------- -------- -------- -------- -------- --------
$359,746 $164,319 $ 77,009 $ 4,014 $300,403 $ 11,461 $ 22,199 $ 6,650
-------- -------- -------- -------- -------- -------- -------- --------
</TABLE>
The revenues are based on the location of the construction activities.
CF-24
<PAGE>
360NETWORKS INC.
(FORMERLY WORLDWIDE FIBER INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999 AND 1998
(TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF U.S. DOLLARS)
14. 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 period 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. Future minimum payments under significant right of way
agreements are as follows:
<TABLE>
<S> <C>
2000........................................................ $25,051
2001........................................................ $17,051
2002........................................................ $17,051
</TABLE>
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, 1999 are as follows:
<TABLE>
<S> <C>
2000........................................................ $7,489
2001........................................................ $6,244
2002........................................................ $3,349
2003........................................................ $1,153
2004........................................................ $ 671
</TABLE>
The Company pays Ledcor approximately $825,000 per year in connection with its
lease of the Toronto facilities. The lease expires in 2009.
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 called
"360ATLANTIC". The initial contract price is approximately $607 million. The
Company paid $214 million in the year ended December 31, 1999 on this contract.
The Company has placed purchase orders of approximately $27,000,000 with
suppliers of bandwidth equipment.
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 along certain of their respective rail transportation systems (the
"Routes"). In connection with these license agreements, the
CF-25
<PAGE>
360NETWORKS INC.
(FORMERLY WORLDWIDE FIBER INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999 AND 1998
(TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF U.S. DOLLARS)
14. COMMITMENTS (CONTINUED)
Company formed subsidiary companies with CN (WFI-CN Fibre Inc.) and IC
(Worldwide Fiber LLC) (the Company having a 75% interest and CN or IC having the
remaining 25% interest) for the purpose of licensing the rights-of-way from CN
and IC and developing the projects along the Routes.
15. 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
the 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. Although the change in date has occurred, it is not possible to conclude
that all aspects of the year 2000 Issue that may affect the entity, including
those related to customers, suppliers or other third parties, have been fully
resolved.
16. SUBSEQUENT EVENTS
SHARE CAPITAL REORGANIZATION
Concurrent with the closing of a public offering, the Company will
reorganize the share capital as follows: the holders of existing Class B
Subordinate Voting Shares will convert or exchange their shares into Subordinate
Voting Shares and all authorized but unissued Class B Subordinate Voting Shares
will be cancelled; the Series A Preferred Shares will be converted into
Subordinate Voting Shares and all of the authorized but unissued Series A
Preferred Shares, Series B Preferred Shares and Series C Preferred Shares will
be cancelled; existing Class A Non-Voting Shares will be redesignated as
Subordinate Voting Shares and the terms shall be amended to provide the holders
with one vote per share and; the existing Class C Multiple Voting Shares will be
amended to provide the holders with 10 votes per share and the Class C Multiple
Voting Shares will be redesignated as Multiple Voting Shares; and a class of
unlimited Preferred Shares, issuable in series will be created.
GLOBENET ACQUISITION
The Company has entered into a definitive agreement to acquire 100% of the
outstanding shares of GlobeNet Communications Group Limited in exchange for
approximately $640 million worth of newly created Subordinate Voting Shares. The
number of Subordinate Voting Shares to be issued by the Company will be adjusted
based on an initial public offering price.
ACQUISITION OF REMAINING 25% IN WFI-USA
The Company has entered into a commitment with Mi-Tech to acquire its 25%
interest in WFI-USA in exchange for $312 million worth of Class A Non-Voting
Shares of the Company. The number of shares to be issued by the Company will be
determined based on an initial public offering price.
CF-26
<PAGE>
360NETWORKS INC.
(FORMERLY WORLDWIDE FIBER INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999 AND 1998
(TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF U.S. DOLLARS)
16. SUBSEQUENT EVENTS (CONTINUED)
CN/IC
On March 6, 2000, the Company entered into an agreement with CN and IC to
acquire their respective 25% interests in WFI-CN Fibre Inc. and Worldwide Fiber
IC LLC in exchange for $160 million worth of Class A Non-Voting Shares of the
Company. The number of Class A Non-Voting Shares to be issued by the Company
will be based on an initial public offering price. Pursuant to this agreement,
payment terms for right-of-way fees were amended requiring the right-of-way fees
to be paid over a three year term.
CANADIAN TELECOMMUNICATIONS ARRANGEMENT
The Company has entered into an arrangement to transfer certain Canadian
telecommunications equipment and related facilities to a subsidiary of Ledcor
which will be held 66 2/3% by Ledcor and 33 1/3% by the Company in exchange for
51% of the non-voting participating shares of the subsidiary.
ACQUISITION OF COLOCATION FACILITIES
The Company has agreed, subject to execution of definitive agreements to
acquire colocation facilities in a number of North American cities. The
aggregate purchase price for these acquisitions is $156 million payable in a
combination of cash and newly created Subordinated Voting Shares.
360ATLANTIC CREDIT FACILITY
The Company has entered into a credit agreement with certain lenders
pursuant to which the lenders have provided a credit facility totalling U.S.
$565,000,000.
SHARE SPLIT
On March 20, 2000, the Board of Directors approved a two-for-one share split
of all classes of the Company's stock. All share amounts in 1998 and 1999 have
been presented on a post stock split basis.
SHARE ISSUANCES
Subsequent to December 31, 1999, the Company has issued 411,214 Class A
Non-Voting Shares to a consultant of the Company. In addition, the Company will
issue additional Series A Preferred Shares in connection with the purchase price
adjustment provisions of the subscription agreement.
NAME CHANGE
On March 14, 2000, the Company changed its name from Worldwide Fiber Inc. to
360NETWORKS INC.
CF-27
<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 Canadian 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 Canadian generally accepted accounting
principles.
/s/ Deloitte & Touche LLP
Edmonton, Canada
November 30, 1998
CF-28
<PAGE>
LEDCOR INDUSTRIES LIMITED--
TELECOMMUNICATIONS DIVISION
DIVISIONAL BALANCE SHEETS
(ALL FIGURES ARE IN U.S. DOLLARS)
<TABLE>
<CAPTION>
MAY 31, AUGUST 31, AUGUST 31,
1998 1997 1996
------------ ----------- -----------
<S> <C> <C> <C>
ASSETS
CURRENT
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........................................... 16,976,078 5,240,252 --
----------- ----------- ----------
32,832,197 30,796,543 6,012,253
FIXED ASSETS (Note 6)............................... 8,300,835 1,471,043 463,651
----------- ----------- ----------
$41,133,032 $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)................... 10,875,903 6,780,397 2,060,696
----------- ----------- ----------
30,622,039 26,449,675 4,997,287
----------- ----------- ----------
COMMITMENTS (Note 9)
DIVISIONAL EQUITY
Divisional retained earnings........................ 10,510,993 5,817,911 1,478,617
----------- ----------- ----------
$41,133,032 $32,267,586 $6,475,904
=========== =========== ==========
</TABLE>
See accompanying notes to the divisional financial statements.
CF-29
<PAGE>
LEDCOR INDUSTRIES LIMITED
TELECOMMUNICATIONS DIVISION
DIVISIONAL STATEMENTS OF
OPERATIONS AND RETAINED EARNINGS
(ALL FIGURES ARE IN U.S. DOLLARS)
<TABLE>
<CAPTION>
NINE MONTHS FIVE MONTHS
ENDED YEAR ENDED ENDED YEAR ENDED
MAY 31, AUGUST 31, AUGUST 31, MARCH 31,
1998 1997 1996 1996
------------- ----------- ------------ -----------
<S> <C> <C> <C> <C>
Revenue generated from contracts..... $54,633,888 $58,007,652 $7,372,942 $3,823,790
Contract costs....................... 45,321,566 49,184,985 5,768,543 3,463,514
----------- ----------- ---------- ----------
Gross margin......................... 9,312,322 8,822,667 1,604,399 360,276
General and administrative
expenses........................... 710,240 863,373 90,993 57,357
----------- ----------- ---------- ----------
Net divisional income for the period,
before taxes....................... 8,602,082 7,959,294 1,513,406 302,919
Income tax expense (recovery)
Current.............................. 5,509,000 338,000 5,000 3,000
Deferred............................. (1,600,000) 3,282,000 681,000 136,000
----------- ----------- ---------- ----------
Net divisional income for the
period............................. 4,693,082 4,339,294 827,406 163,919
DIVISIONAL RETAINED EARNINGS,
BEGINNING OF PERIOD................ 5,817,911 1,478,617 651,211 487,292
----------- ----------- ---------- ----------
DIVISIONAL RETAINED EARNINGS, END OF
PERIOD............................. $10,510,993 $ 5,817,911 $1,478,617 $ 651,211
=========== =========== ========== ==========
</TABLE>
See accompanying notes to the divisional financial statements.
CF-30
<PAGE>
LEDCOR INDUSTRIES LIMITED--TELECOMMUNICATIONS DIVISION
DIVISIONAL STATEMENTS OF CASH FLOWS
(ALL FIGURES ARE IN U.S. DOLLARS)
<TABLE>
<CAPTION>
FIVE
NINE MONTHS MONTHS YEAR
ENDED YEAR ENDED ENDED ENDED
MAY 31, AUGUST 31, AUGUST 31, MARCH 31,
1998 1997 1996 1996
------------- ------------ ----------- ----------
<S> <C> <C> <C> <C>
OPERATING ACTIVITIES
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.................... (11,735,826) (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 -- --
------------ ------------ ----------- ---------
Net cash provided (used) by operating
activities............................. (2,120,117) (3,933,518) (3,074,708) 658,505
------------ ------------ ----------- ---------
INVESTING ACTIVITIES
Purchase of construction equipment and
other.................................... (2,403,827) (1,119,183) (180,923) (71,706)
Fiber optic strands under construction..... (4,742,562) -- -- --
------------ ------------ ----------- ---------
Net cash used by investing activities...... (7,146,389) (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........ 4,095,506 4,719,701 3,250,624 586,799
------------ ------------ ----------- ---------
Net cash provided (used) by financing
activities............................... 9,266,506 5,052,701 3,255,624 586,799
------------ ------------ ----------- ---------
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.
CF-31
<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 Canadian generally accepted accounting principles.
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 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.
CF-32
<PAGE>
LEDCOR INDUSTRIES LIMITED--TELECOMMUNICATIONS DIVISION
NOTES TO THE DIVISIONAL FINANCIAL STATEMENTS (CONTINUED)
(ALL FIGURES ARE IN U.S. DOLLARS)
2. ACCOUNTING POLICIES (CONTINUED)
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:
- Construction equipment--hourly usage rates, estimated to depreciate the
equipment, over estimated useful lives, ranging from three to five
years.
- Fiber optic strands, under construction--depreciation, at appropriate
rates, will be provided for when the related fiber optic systems are in
use.
- 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.
G) TRANSLATION OF FOREIGN CURRENCY
The functional currency of the Division is the Canadian dollar. The
financial statements are translated into United States dollars.
Transactions are translated into United States dollars at rates of
exchange at the time of such transactions. At balance sheet date,
monetary assets and liabilities are translated at current rates of
exchange. Exchange gains and losses are included in the divisional
statement of operations. There were no long-term foreign currency
denominated monetary items during these periods.
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.
CF-33
<PAGE>
LEDCOR INDUSTRIES LIMITED--TELECOMMUNICATIONS DIVISION
NOTES TO THE DIVISIONAL FINANCIAL STATEMENTS (CONTINUED)
(ALL FIGURES ARE IN U.S. DOLLARS)
3. USE OF ESTIMATES IN THE FINANCIAL STATEMENTS (CONTINUED)
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.
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.
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
<TABLE>
<CAPTION>
AUGUST 31,
MAY 31, -------------------------
1998 1997 1996
----------- ----------- -----------
<S> <C> <C> <C>
Costs and billings on uncompleted contracts included
in the divisional financial statements are as
follows:
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
=========== =========== ===========
</TABLE>
CF-34
<PAGE>
LEDCOR INDUSTRIES LIMITED--TELECOMMUNICATIONS DIVISION
NOTES TO THE DIVISIONAL FINANCIAL STATEMENTS (CONTINUED)
(ALL FIGURES ARE IN U.S. DOLLARS)
6. FIXED ASSETS
<TABLE>
<CAPTION>
AUGUST 31,
MAY 31, ----------------------
1998 1997 1996
---------- ---------- ---------
<S> <C> <C> <C>
Construction equipment................................... $3,796,102 $1,869,048 $802,548
Fiber optic strands, under construction.................. 4,742,562 -- --
Other.................................................... 529,456 52,683 --
---------- ---------- --------
9,068,120 1,921,731 802,548
Less accumulated depreciation............................ 767,285 450,688 338,897
---------- ---------- --------
$8,300,835 $1,471,043 $463,651
========== ========== ========
</TABLE>
7. DEFERRED TAX LIABILITIES
The components of the deferred tax liabilities are as follows:
<TABLE>
<CAPTION>
AUGUST 31,
MAY 31, -----------------------
1998 1997 1996
---------- ---------- ----------
<S> <C> <C> <C>
Deferred tax assets
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
========== ========== ==========
</TABLE>
Reconciliation of deferred tax liabilities:
<TABLE>
<CAPTION>
AUGUST 31,
MAY 31, -----------------------
1998 1997 1996
---------- ---------- ----------
<S> <C> <C> <C>
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.
CF-35
<PAGE>
LEDCOR INDUSTRIES LIMITED--TELECOMMUNICATIONS DIVISION
NOTES TO THE DIVISIONAL FINANCIAL STATEMENTS (CONTINUED)
(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:
<TABLE>
<S> <C>
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
</TABLE>
CF-36
<PAGE>
LEDCOR INDUSTRIES LIMITED--TELECOMMUNICATIONS DIVISION
NOTES TO THE DIVISIONAL FINANCIAL STATEMENTS (CONTINUED)
(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
------------------- --------------- ------------------- ---------------
<S> <C> <C> <C> <C>
Customers
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 FONOROLAwhich
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.
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.
CF-37
<PAGE>
LEDCOR INDUSTRIES LIMITED--TELECOMMUNICATIONS DIVISION
NOTES TO THE DIVISIONAL FINANCIAL STATEMENTS (CONTINUED)
(ALL FIGURES ARE IN U.S. DOLLARS)
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>
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% $ -- --
</TABLE>
<TABLE>
<CAPTION>
CANADA U.S.
TOTAL IDENTIFIABLE --------------------------------- ---------------------------------
ASSETS AMOUNT PERCENTAGE OF TOTAL AMOUNT PERCENTAGE OF TOTAL
- ----------------------- ----------- ------------------- ----------- -------------------
<S> <C> <C> <C> <C>
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 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.
CF-38
<PAGE>
LEDCOR INDUSTRIES LIMITED--TELECOMMUNICATIONS DIVISION
NOTES TO THE DIVISIONAL FINANCIAL STATEMENTS (CONTINUED)
(ALL FIGURES ARE IN U.S. DOLLARS)
14. SUBSEQUENT EVENTS (CONTINUED)
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.
CF-39
<PAGE>
AUDITORS' REPORT
TO THE DIRECTORS AND SHAREHOLDERS OF
GLOBENET COMMUNICATIONS GROUP LIMITED
We have audited the accompanying consolidated balance sheets of GLOBENET
COMMUNICATIONS GROUP LIMITED as at December 31, 1999 and 1998 and the
consolidated statements of shareholders' equity, operations and cash flows for
the years ended December 31, 1999, 1998 and 1997. These financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with Canadian generally accepted auditing
standards. Those standards require that we plan and perform an audit to obtain
reasonable assurance whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
In our opinion, these consolidated financial statements present fairly, in all
material respects, the financial position of GLOBENET COMMUNICATIONS GROUP
LIMITED as at December 31, 1999 and 1998 and the results of its operations and
its cash flows for the years ended December 31, 1999, 1998 and 1997 in
accordance with Canadian generally accepted accounting principles.
PricewaterhouseCoopers LLP
CHARTERED ACCOUNTANTS
Toronto, Canada
February 16, 2000
CF-40
<PAGE>
GLOBENET COMMUNICATIONS GROUP LIMITED
CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31, 1999 AND 1998
(IN THOUSANDS OF U.S. DOLLARS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
1999 1998
$ $
--------- ---------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash........................................................ -- 3,030
Restricted cash (note 3).................................... 79,998 --
Accounts receivable (net of allowance of $224; 1998--$80)... 2,096 1,847
Other receivables........................................... 150 718
Due from related party (note 4)............................. -- 1,363
Prepaid expenses and deposits............................... 1,632 338
-------- --------
83,876 7,296
Restricted cash (note 3).................................... 448,399 --
Fixed assets (note 5)....................................... 49,148 26,182
Construction in progress (note 6)........................... 98,062 --
Other assets (note 7)....................................... 25,847 1,411
Equity accounted for investments............................ -- 21,371
-------- --------
705,332 56,260
======== ========
LIABILITIES
CURRENT LIABILITIES
Accounts payable (note 8)................................... 36,179 3,871
Accrued liabilities (note 8)................................ 21,117 4,971
Current portion of long-term debt (note 9).................. -- 3,000
-------- --------
57,296 11,842
LONG-TERM DEBT (note 9)..................................... 400,000 35,019
DEFERRED REVENUE (note 10).................................. 6,455 2,695
-------- --------
463,751 49,556
-------- --------
SHAREHOLDERS' EQUITY
SHARE CAPITAL (notes 12 and 13)
Class A shares, 100 shares authorized, par value $1.50 each
nil (1998--100) shares issued and outstanding............. -- --
Class B shares, 2,000 shares authorized, par value $1.50
each
1,000 (1998--nil) shares issued and outstanding 2 --
Common shares, 24,000,000 authorized, par value $1.50 each
17,043,900 (1998--3,515,927) shares issued and
outstanding............................................... 25,566 5,274
ADDITIONAL PAID-IN CAPITAL.................................. 246,866 16,377
DEFICIT..................................................... (30,853) (14,947)
-------- --------
241,581 6,704
-------- --------
705,332 56,260
======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
CF-41
<PAGE>
GLOBENET COMMUNICATIONS GROUP LIMITED
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
(IN THOUSANDS OF U.S. DOLLARS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
PAR PAR TOTAL
VALUE OF VALUE OF ADDITIONAL SHARE-
CLASS A CLASS B CLASS B COMMON COMMON PAID-IN HOLDERS'
SHARES SHARES SHARES SHARES SHARES CAPITAL DEFICIT EQUITY
-------- -------- -------- ---------- -------- ---------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
December 31, 1996.................... -- -- $-- 3,487,916 $ 5,232 $ 16,200 $ (4,707) $ 16,725
Shares options exercised............. -- -- -- 28,011 42 42 -- 84
Share options issued................. -- -- -- -- -- 135 -- 135
Shares issued........................ 100 -- -- -- -- -- -- --
Net loss for the year................ -- -- -- -- -- -- (5,296) (5,296)
---- ----- --- ---------- ------- -------- -------- --------
December 31, 1997.................... 100 -- -- 3,515,927 5,274 16,377 (10,003) 11,648
Net loss for the year................ -- -- -- -- -- -- (4,944) (4,944)
---- ----- --- ---------- ------- -------- -------- --------
December 31, 1998.................... 100 -- -- 3,515,927 5,274 16,377 (14,947) 6,704
Compensatory share options........... -- -- -- -- -- 8,758 -- 8,758
Deferred compensation................ -- -- -- -- -- (4,551) -- (4,551)
Share options exercised.............. -- -- -- 129,041 194 754 -- 948
Shares issued in private equity
financing.......................... -- -- -- 13,263,646 19,895 250,683 -- 270,578
Share issue costs.................... -- -- -- -- -- (11,665) -- (11,665)
Shares issued........................ -- 1,000 2 -- -- -- -- 2
Shares issued on conversion of
subordinated debt and exercise of
warrants........................... -- -- -- 1,635,286 2,453 14,860 -- 17,313
Shares purchased and cancelled....... (100 ) -- -- (1,500,000) (2,250) (28,350) -- (30,600)
Net loss for the year................ -- -- -- -- -- -- (15,906) (15,906)
---- ----- --- ---------- ------- -------- -------- --------
December 31, 1999.................... -- 1,000 $ 2 17,043,900 $25,566 $246,866 $(30,853) $241,581
==== ===== === ========== ======= ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
CF-42
<PAGE>
GLOBENET COMMUNICATIONS GROUP LIMITED
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
(IN THOUSANDS OF U.S. DOLLARS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
1999 1998 1997
$ $ $
-------- -------- --------
<S> <C> <C> <C>
REVENUES
Telecommunications services................................. 26,033 24,940 4,962
IRU capacity (note 10)...................................... 315 1,784 --
------- ------ ------
26,348 26,724 4,962
------- ------ ------
EXPENSES
Carrier charges............................................. 10,989 15,129 3,559
Cost of IRU capacity........................................ -- 547 --
General and administrative expenses (notes 4 and 15)........ 19,311 9,328 4,961
Amortization of fixed assets................................ 1,854 1,502 429
------- ------ ------
32,154 26,506 8,949
------- ------ ------
OPERATING LOSS.............................................. (5,806) 218 (3,987)
Interest on long-term debt.................................. 20,427 3,863 1,055
Accrued contingent interest (note 9)........................ 538 960 382
Interest income............................................. (12,588) (170) (193)
Loss relating to extinguishment of debt (note 9)............ 809 -- --
------- ------ ------
LOSS BEFORE INCOME TAXES, MINORITY INTEREST AND EQUITY
ACCOUNTED FOR INVESTMENTS................................. (14,992) (4,435) (5,231)
Provision for income taxes.................................. (141) (36) (53)
------- ------ ------
LOSS BEFORE MINORITY INTEREST AND EQUITY ACCOUNTED FOR
INVESTMENTS............................................... (15,133) (4,471) (5,284)
Minority interest (note 11)................................. -- 204 249
Loss from equity accounted for investments (note 11)........ (773) (677) (261)
------- ------ ------
NET LOSS FOR THE YEAR....................................... (15,906) (4,944) (5,296)
======= ====== ======
BASIC AND FULLY DILUTED LOSS PER COMMON SHARE (note 14)..... (1.60) (1.41) (1.52)
======= ====== ======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
CF-43
<PAGE>
GLOBENET COMMUNICATIONS GROUP LIMITED
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
(IN THOUSANDS OF U.S. DOLLARS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
1999 1998 1997
$ $ $
-------- -------- --------
<S> <C> <C> <C>
CASH PROVIDED BY (USED IN)
OPERATING ACTIVITIES
Net loss for the year....................................... (15,906) (4,944) (5,296)
Items not involving cash
Amortization of fixed assets.............................. 1,854 1,502 429
Write-down of other assets................................ -- 201 --
Amortization of other assets.............................. 1,949 321 305
Loss related to extinguishment of debt.................... 809 -- --
Minority interest......................................... -- (204) (249)
Loss from equity accounted for investments................ 773 677 261
Accrued contingent interest............................... 538 960 382
Gain on granting of indefeasible rights of use and loss on
sale of capital assets.................................. -- (970) --
Compensatory share options................................ 4,207 -- --
Net change in non-cash operating items
Accounts receivable....................................... (249) (577) (1,270)
Other receivables......................................... 568 970 (1,688)
Note receivable........................................... (32) -- --
Prepaid expenses and deposits............................. (1,294) (138) 32
Accounts payable.......................................... 1,265 (6,369) 9,669
Accrued liabilities....................................... 13,778 3,908 959
Deferred revenue.......................................... 3,760 1,174 1,521
Recoverable duties........................................ -- -- 392
-------- ------ -------
CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES............. 12,020 (3,489) 5,447
-------- ------ -------
FINANCING ACTIVITIES
Issuance of common shares................................... 259,861 -- 84
Purchase and cancellation of common shares, net of fees..... (30,600) -- --
Proceeds from issuance of long-term debt.................... 400,500 9,350 29,740
Repayment of long-term debt................................. (23,677) (2,413) --
Deferred financing costs.................................... (26,514) -- (1,472)
Other assets................................................ (653) -- --
Loans provided by minority shareholders..................... -- -- 807
-------- ------ -------
CASH PROVIDED BY FINANCING ACTIVITIES....................... 578,917 6,937 29,159
-------- ------ -------
INVESTING ACTIVITIES
Restricted cash............................................. (528,397) -- 2,015
Purchase of fixed assets.................................... (4,139) (1,791) (22,662)
Construction in progress (note 6)........................... (62,799) -- --
Granting of indefeasible rights of use and proceeds on sale
of capital assets......................................... -- 1,596 --
Change in other assets...................................... 5 (218) (2)
Due from related party...................................... 1,363 (1,363) --
Proceeds from sale of equity accounted for investment....... -- 410 --
Advances to equity accounted for investee................... -- (411) (22,479)
-------- ------ -------
CASH (USED IN) INVESTING ACTIVITIES......................... (593,967) (1,777) (43,128)
-------- ------ -------
INCREASE (DECREASE) IN CASH FOR THE YEAR.................... (3,030) 1,671 (8,522)
CASH--BEGINNING OF YEAR..................................... 3,030 1,359 9,881
-------- ------ -------
CASH--END OF YEAR........................................... -- 3,030 1,359
======== ====== =======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
CF-44
<PAGE>
GLOBENET COMMUNICATIONS GROUP LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
(IN THOUSANDS OF U.S. DOLLARS, EXCEPT SHARE AND PER SHARE AMOUNTS)
1 NATURE OF OPERATIONS
GlobeNet Communications Group Limited provides international
telecommunications services to both residential and commercial customers and is
a provider of telecommunications capacity. The Company is currently developing a
fibre optic submarine cable system called Atlantica-1 that will link Bermuda,
North and South America and offer capacity between major cities in the United
States, Bermuda, Brazil, Venezuela and Argentina. Atlantica-1 is currently being
constructed.
In November 1997, the Company deployed a fibre optic submarine cable system
which connects Bermuda and the United States ("BUS-1"). The Company provides
international telecommunications services to both residential and commercial
customers in Bermuda through a subsidiary company, TeleBermuda International
Limited ("TBI") through the BUS-1.
On January 10, 1997, TBI was granted its public telecommunications service
licence in Bermuda under the provisions of the Telecommunications Act, 1986 and
the Public Telecommunication Service (Licence) Regulations, 1988 for a five-year
term and began commercial operations in May 1997. TBI has an interconnection
agreement with the Bermuda Telephone Company ("BTC"), the domestic carrier in
Bermuda. No consideration was paid by the Company in relation to these
agreements.
2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
These consolidated financial statements are prepared in accordance with
Canadian generally accepted accounting principles ("Canadian GAAP"). These
principles conform in all material respects with accounting principles generally
accepted in the United States ("United States GAAP") except as described in
note 19. The following is a summary of the significant accounting policies
followed in the preparation of these consolidated financial statements.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company
and all of its subsidiary companies. Intercompany accounts and transactions have
been eliminated on consolidation.
USE OF SIGNIFICANT ACCOUNTING ESTIMATES
The preparation of financial statements in conformity with Canadian
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosures of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting periods. Actual results could significantly differ from those
estimates.
REVENUE, DEFERRED REVENUE AND COST RECOGNITION
REVENUE: The Company provides telecommunication services and the granting
or leasing of indefeasible rights of use ("IRU") interests in its
telecommunications infrastructure.
The Company records as revenue the amount of telecommunications services
rendered, as measured primarily by the minutes of traffic processed, after
deducting an estimate of the traffic for which revenue will not be collected.
Historical deductions have not been material. Service discounts and
CF-45
<PAGE>
GLOBENET COMMUNICATIONS GROUP LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
(IN THOUSANDS OF U.S. DOLLARS, EXCEPT SHARE AND PER SHARE AMOUNTS)
2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
incentives are accounted for as a reduction of revenue when granted, or where
provided in relation to a service contract, rateably over the contract period.
The Company has entered into certain IRU agreements. Such agreements are
accounted for as either service or lease transactions. Those IRU agreements that
meet all of the following characteristics have been accounted for as leases:
(a) The purchaser has exclusive right to the purchased capacity for a specified
period, generally the estimated useful life of the system, which is
25 years.
(b) The Company cannot sell or otherwise use any of the purchaser's unused
capacity for the term of the agreement.
(c) The purchased capacity is physically limited to discrete channels on the
purchaser's own dedicated circuits at a specified amount of capacity, which
cannot be exceeded. The specific circuits are agreed to by the parties.
(d) The Company has no right to move the purchased capacity to another discrete
channel from the purchaser's dedicated circuits without the purchaser's
permission.
IRU agreements that meet these criteria are accounted for as lease
transactions. If the transactions meet the sales type lease criteria, including
those related to collectibility of the payments and the absence of any important
uncertainties surrounding unreimbursable costs yet to be incurred by the
Company, then revenue is recognized in the period that the IRUs are transferred
and the capacity is available for service. If these criteria are not met, the
transactions are accounted for as operating leases and revenue is recognized
over the term of the lease.
To date, the Company has not entered into any IRU agreements that are
considered to be service transactions. Revenue from service transactions would
be recognized as earned over the term of the agreement.
In addition, we note that the accounting for sales of capacity is evolving,
and is currently under consideration by accounting standard setters. Any change
in accounting literature may affect the timing and method of recognition of
these revenues and related costs.
Revenues from private line services are recognized as earned.
DEFERRED REVENUE: Rent from the operating leases of capacity in the
telecommunications infrastructure to third party carriers is deferred and
recognized over the term of the lease on a straight-line basis. Revenue from the
sale of prepaid calling cards is recognized as the services are provided.
COST: Carrier charges are comprised primarily of local access charges and
international termination costs. These costs are recognized based on traffic
volume.
CF-46
<PAGE>
GLOBENET COMMUNICATIONS GROUP LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
(IN THOUSANDS OF U.S. DOLLARS, EXCEPT SHARE AND PER SHARE AMOUNTS)
2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
FIXED ASSETS
Fixed assets are recorded at cost less accumulated amortization.
Amortization commences when an asset is available for use, and is calculated in
a systematic manner based on the expected useful lives of the assets as follows:
<TABLE>
<CAPTION>
ASSET CATEGORY BASIS RATE
- --------------------------------------- ------------------------------- -------------------------------
<S> <C> <C>
Fibre optic submarine cable straight-line 25 years
Network and telecommunications straight-line 10 years
equipment
Leasehold improvements straight-line term of the lease
Computer equipment straight-line 3 years
Furniture and office equipment diminishing balance 20% per year
Software straight-line 5 years
</TABLE>
CONSTRUCTION IN PROGRESS
Construction in progress includes direct expenditures for the construction
of the Company's Atlantica-1 project and is stated at cost. Costs are
capitalized once it is probable that the fibre optic cable system will be
constructed, otherwise they are expensed as incurred. Capitalized costs include
costs incurred under the construction contract, advisory, consulting and legal
fees and interest.
DEFERRED FINANCING COSTS
Deferred financing costs represent debt issuance costs, which are amortized
over the estimated term of the related debt.
INVESTMENTS
The Company's investments are accounted for using the equity method.
FOREIGN CURRENCY TRANSLATION
Monetary assets and liabilities denominated in foreign currencies are
translated into U.S. dollars at exchange rates prevailing at the balance sheet
date. Revenues and expenses are translated into U.S. dollars at the average
rates of exchange prevailing at the dates of the respective transactions.
Transactions are translated into U.S. dollars at the exchange rates in effect at
the time the transactions occur. Exchange gains and losses arising on
translation are included in the operating results for the year.
Assets and liabilities of non-Bermudian subsidiaries where the functional
currency is other than the U.S. dollar are translated at the exchange rate in
effect at the balance sheet date. Revenues and expenses are translated at
average exchange rates prevailing during the year.
CF-47
<PAGE>
GLOBENET COMMUNICATIONS GROUP LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
(IN THOUSANDS OF U.S. DOLLARS, EXCEPT SHARE AND PER SHARE AMOUNTS)
2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
FINANCIAL INSTRUMENTS
The fair value of financial assets and liabilities represents the amount at
which these instruments could be exchanged in an arm's length transaction
between willing parties.
As at December 31, 1999, the carrying amounts of financial assets and
liabilities in the consolidated balance sheet approximate their fair values due
to the short-term nature of these instruments.
The reported amount of fixed rate long-term debt instruments is estimated to
approximate fair value as actual rates are consistent with rates estimated to be
currently available for debt of similar terms and remaining maturities.
In addition, the Company has entered into an interest rate cap agreement to
modify the interest characteristics of part of its outstanding long-term debt.
This agreement involves an exchange of amounts based on a fixed interest rate
for amounts based on a variable interest rate whenever the interest rate exceeds
the cap specified in the agreement. The premium paid by the Company upon
entering in the agreement is amortized over the term of the agreement and
recognized as an adjustment of interest expense related to the debt. The Company
does not use derivative financial instruments for speculative trading purposes.
As of December 31, 1999, the carrying value approximates fair value.
INCOME TAXES
Under current Bermuda laws, the Company is not required to pay any taxes in
Bermuda on either income or capital gains. The Company has received an
undertaking from the Minister of Finance in Bermuda, pursuant to the Exempted
Undertakings Tax Protection Act 1966, which exempts the Company from any such
tax until March 28, 2016. Subsidiaries in other jurisdictions are subject to
local taxes.
STOCK BASED COMPENSATION
The Company does not recognize compensation cost at the time options are
granted unless the exercise price is less than the market price of the stock on
the measurement date.
CF-48
<PAGE>
GLOBENET COMMUNICATIONS GROUP LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
(IN THOUSANDS OF U.S. DOLLARS, EXCEPT SHARE AND PER SHARE AMOUNTS)
3 RESTRICTED CASH
Components of restricted cash are:
<TABLE>
<CAPTION>
1999 1998
--------- --------
$ $
<S> <C> <C>
Cash........................................................ 6,628 --
Cash equivalents maturing within 90 days:
Commercial paper.......................................... 513,703 --
Term deposit.............................................. 8,066 --
-------- ----
528,397 --
Less: Current portion....................................... 79,998 --
-------- ----
448,399 --
======== ====
</TABLE>
The Company's use of cash is generally restricted under the terms of the
Credit Facility to operating and capital expenditures related to the Atlantica-1
project and to other telecommunications activities. The investment of the cash
is restricted to investments with a minimum credit rating of A-1 by Standard and
Poor's or P-1 by Moody's.
4 RELATED PARTY TRANSACTIONS
a) On August 26, 1998, TBI loaned CAD$2,000 ($1,292) to the Chairman and Chief
Executive Officer of the Company. This loan and all outstanding interest
thereon were repaid in full in January 1999.
b) In September 1997, the Company entered into a service agreement with First
Bermuda Securities Ltd., of which a Director of the Company is the Chief
Executive Officer. Under this agreement, First Bermuda Securities Ltd.
provides the Company with various financial and business advisory services.
Payments made to First Bermuda Securities in 1999 were $81 (1998--$125;
1997--$145) and are included in general and administrative expenses.
CF-49
<PAGE>
GLOBENET COMMUNICATIONS GROUP LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
(IN THOUSANDS OF U.S. DOLLARS, EXCEPT SHARE AND PER SHARE AMOUNTS)
5 FIXED ASSETS
<TABLE>
<CAPTION>
1999
-----------------------------------
ACCUMULATED
COST AMORTIZATION NET
$ $ $
-------- ------------- --------
<S> <C> <C> <C>
Land...................................................... 2,611 -- 2,611
Fibre optic submarine cable............................... 44,459 3,756 40,703
Network and telecommunications equipment.................. 5,328 1,037 4,291
Leasehold improvements.................................... 1,154 226 928
Computer equipment........................................ 596 346 250
Furniture and office equipment............................ 266 67 199
Software.................................................. 240 74 166
------- ----- -------
54,654 5,506 49,148
======= ===== =======
</TABLE>
<TABLE>
<CAPTION>
1998
-----------------------------------
ACCUMULATED
COST AMORTIZATION NET
$ $ $
-------- ------------- --------
<S> <C> <C> <C>
Fibre optic submarine cable............................... 21,881 971 20,910
Network and telecommunications equipment.................. 4,415 549 3,866
Leasehold improvements.................................... 944 140 804
Computer equipment........................................ 470 167 303
Furniture and office equipment............................ 140 38 102
Software.................................................. 224 27 197
------- ------ -------
28,074 1,892 26,182
======= ====== =======
</TABLE>
6 CONSTRUCTION IN PROGRESS
The Company is currently constructing a fibre optic submarine cable system
called Atlantica-1 linking Bermuda, North and South America. As of December 31,
1999, costs of $98,062 have been capitalized and included in this amount is
capitalized interest of $4,220 (1998--$nil).
7 OTHER ASSETS
<TABLE>
<CAPTION>
1999 1998
$ $
-------- --------
<S> <C> <C>
Deferred financing costs, net of accumulated amortization of
$1,936 (1998--$626)....................................... 24,743 981
Other....................................................... 1,104 430
------ -----
25,847 1,411
====== =====
</TABLE>
CF-50
<PAGE>
GLOBENET COMMUNICATIONS GROUP LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
(IN THOUSANDS OF U.S. DOLLARS, EXCEPT SHARE AND PER SHARE AMOUNTS)
8 ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
Accounts payable are comprised as follows:
<TABLE>
<CAPTION>
1999 1998
$ $
-------- --------
<S> <C> <C>
Atlantica-1 payables........................................ 31,043 --
Trade payables.............................................. 1,873 777
Foreign carrier settlement payables......................... 3,263 3,037
Other payables.............................................. -- 57
------- ------
36,179 3,871
======= ======
</TABLE>
ACCRUED LIABILITIES ARE COMPRISED AS FOLLOWS:
<TABLE>
<CAPTION>
1999 1998
$ $
-------- --------
<S> <C> <C>
Interest payable............................................ 18,266 2,002
Foreign carrier accrual..................................... 480 880
Equalization payment accrual................................ 470 668
Other accruals.............................................. 1,901 1,421
------- ------
21,117 4,971
======= ======
</TABLE>
Foreign carrier settlement payables and foreign carrier accrual represent
costs for foreign traffic payable to other carriers.
9 LONG-TERM DEBT
<TABLE>
<CAPTION>
1999 1998
$ $
--------- --------
<S> <C> <C>
Term loan (a)............................................... -- 21,990
Operating credit facility (a)............................... -- 1,687
Subordinated debentures and retractable warrants (a)........ -- 13,000
Accrued contingent interest (a)............................. -- 1,342
Senior notes (b)............................................ 300,000 --
Bank credit facility (c).................................... 100,000 --
-------- -------
400,000 38,019
Less: Current portion....................................... -- 3,000
-------- -------
400,000 35,019
======== =======
</TABLE>
(a) On July 14, 1999, the term loan, operating credit facility and certain
accrued interest on the subordinated debentures were repaid. As well, all of
the remaining obligations to the subordinated debentureholders were retired
when the subordinated debentureholders elected to exercise their
CF-51
<PAGE>
GLOBENET COMMUNICATIONS GROUP LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
(IN THOUSANDS OF U.S. DOLLARS, EXCEPT SHARE AND PER SHARE AMOUNTS)
9 LONG-TERM DEBT (CONTINUED)
warrants and convert the principal and remaining accrued interest on their
subordinated debt into 1,635,286 common shares. In connection with the
foregoing, deferred financing costs of $809 were written off as a result of
the debt extinguishment.
(b) On July 14, 1999, the Company issued debt in the principal amount of
$300,000 in the form of 13% senior notes maturing July 15, 2007. Interest on
these notes is payable semi-annually in arrears commencing January 15, 2000.
The notes are unsecured.
(c) On July 14, 1999, the Company secured a bank credit facility ("Credit
Facility") of up to $400,000, consisting of various term facilities
totalling $390,000 and a revolving credit facility of $10,000. In addition,
under the Credit Facility, the Company may also request an additional
facility of up to $50,000 subject to lender approval and other restrictions.
The Credit Facility matures in 2005. Interest rates on the Credit Facility
range from LIBOR plus 3.5% to LIBOR plus 4.0% and availability of funds
under the Credit Facility is subject to certain terms and conditions.
Commitment fees for the Credit Facility were $2,541.
Substantially all of the assets of GlobeNet Communications Holdings Ltd. and
of its present and future direct and indirect subsidiaries have been pledged
as collateral for the Credit Facility. GlobeNet Communications
Holdings Ltd. is a wholly owned subsidiary of the Company. In addition, a
third party supplier has provided an initial guarantee subject to certain
conditions and adjustments of up to $100,000 for one of the term facilities.
On December 22, 1999, the Company entered into an interest rate cap
transaction effectively fixing the interest rate on $50,000 of the Credit
Facility at 7.0% for a three-year term.
As at December 31, 1999 the unused facility was $300,000 and the average rate
of interest during 1999 was 9.7%.
The principal repayments required in the next five years and thereafter in
respect of the senior notes and the Credit Facility are as follows:
<TABLE>
<CAPTION>
$
---------
<S> <C>
Fiscal year 2002............................................ 1,000
2003........................................................ 1,000
2004........................................................ 1,000
2005........................................................ 97,000
2006........................................................ --
Thereafter.................................................. 300,000
--------
400,000
========
</TABLE>
CF-52
<PAGE>
GLOBENET COMMUNICATIONS GROUP LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
(IN THOUSANDS OF U.S. DOLLARS, EXCEPT SHARE AND PER SHARE AMOUNTS)
10 GRANTING OF INDEFEASIBLE RIGHTS OF USE AND LEASING OF THE FIBRE OPTIC
SUBMARINE CABLE
a) During 1998, the Company granted indefeasible rights of use ("IRUs") in
its fibre optic submarine cable to certain third party carriers for a
period of 25 years for $1,521. The costs recognized with the granting of
the IRUs are calculated as total capacity granted in relation to the
total cost of the activated fibre optic submarine cable times the total
cost of the fibre optic submarine cable system. In addition, under these
IRU agreements, the third party carrier is responsible for paying its pro
rata share of restoration costs. These costs are accounted for as
expenses as they are incurred, less a recovery of expense being recorded
to reflect the required pro rata reimbursement from the IRU customer.
b) The Company has entered into an agreement to provide capacity in its
fibre optic submarine cable to a third party. This arrangement is being
accounted for as an operating lease. The term of the lease is for the
greater of 25 years or the operational life of the fibre optic submarine
cable. If the operational life is less than 10 years, the Company must
provide a refund on a pro rata basis for each year short of the 10-year
period. For the first four years of the agreement, the Company is
responsible for maintenance and operating costs, thereafter the lessee
will pay a monthly charge for operating and maintenance costs. The total
rental payment for this agreement was $8,000, of which $4,000 was paid in
1999 and $3,000 in 1998. The remaining payment of $1,000 is due on
September 24, 2000. Lease income is being recognized on a straight-line
basis over the 25-year term. During 1999, lease income of $315
(1998--$263; 1997--$nil) was recognized.
Under this agreement, the third party has the right to enter into a
second lease of capacity in the fibre optic submarine cable commencing
September 24, 2001. The consideration for the second lease will be $4,000
payable upon activation of the second circuit. If the third party elects
not to proceed with the second lease a penalty of $250 is payable to the
Company.
11 MINORITY INTEREST AND EQUITY ACCOUNTED FOR INVESTMENTS
ROCOM TBI LIMITED
During 1998, the Company sold its interest in Rocom TBI Limited, a
telecommunications services joint venture in the United Kingdom, for total
consideration of $820 (L500), of which $410 (L250) was received in cash and a
remaining receivable of $410 (L250) is included in other assets.
TELEBERMUDA INTERNATIONAL L.L.C.
On November 1, 1999, The Company indirectly acquired the 80% interest in
TeleBermuda International L.L.C. ("TBI L.L.C.") that it did not previously own
for nominal consideration pursuant to a Put and Call Agreement entered into in
May 1996. TBI L.L.C. holds the landing license for the Company's Bermuda to
United States cable system ("BUS-1") in the United States, a 50% interest in the
BUS-1 and a 100% interest in the U.S. landing plant. From May 1996 to
November 1, 1999, the Company's 20% investment in TBI L.L.C. was accounted for
using the equity method. Under the equity method, the Company reported 100% of
the losses of TBI L.L.C. as the Company had certain rights and obligations
related to the investment, including the requirement to fund operations and
capital expenditures.
CF-53
<PAGE>
GLOBENET COMMUNICATIONS GROUP LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
(IN THOUSANDS OF U.S. DOLLARS, EXCEPT SHARE AND PER SHARE AMOUNTS)
11 MINORITY INTEREST AND EQUITY ACCOUNTED FOR INVESTMENTS (CONTINUED)
Summarized financial information for TBI L.L.C. at and for the year ended
December 31, 1998 is as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
1998
$
--------------
<S> <C>
BALANCE SHEET
Current asset............................................... 2
Non-current asset........................................... 21,432
Current liabilities......................................... 62
Non-current liabilities..................................... 22,803
STATEMENT OF OPERATIONS
Revenues.................................................... --
Expenses.................................................... 943
Net loss from TBI L.L.C..................................... (943)
</TABLE>
12 SHARE CAPITAL
a) Authorized
The Board of Directors has the authority to issue common shares, securities
convertible into common shares or grant options, up to a maximum of 20% of the
fully diluted shares of the Company pursuant to a general mandate of the
shareholders. This mandate will expire at the next annual meeting of the
shareholders, unless it is re-approved at that meeting.
During 1999, the authorized common shares of the Company were increased by
10,499,900 effective June 15, 1999 and 6,500,200 effective July 12, 1999 to an
aggregate total of 24,000,000 common shares. In addition, the Company bye-laws
authorized the creation of 100 Class B shares. On July 12, 1999, the authorized
Class B shares of the Company were increased by 1,900.
Class B restricting voting shares are entitled to a maximum of $1.50 par
value on any liquidation of the Company. The holders of these shares are the
only shareholders permitted to hold common shares representing more than 35% of
the aggregate issued share capital of the Company at any time or shares
representing more than 35% of the votes attaching to all issued shares of the
Company at any time. Approval of the holders of the majority of Class B share is
required before changes may be made to any of the Company's governing documents
and certain specific transactions.
b) Capital transactions
i) On October 3, 1997, 100 common shares were converted into Class A
shares. On July 14, 1999, the Company purchased and cancelled 100
Class A shares at their par value of $1.50 per share.
ii) On July 14, 1999, the Company issued for cash 1000 Class B shares at
their par value of $1.50.
CF-54
<PAGE>
GLOBENET COMMUNICATIONS GROUP LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
(IN THOUSANDS OF U.S. DOLLARS, EXCEPT SHARE AND PER SHARE AMOUNTS)
12 SHARE CAPITAL (CONTINUED)
iii) On July 14, 1999, the Company issued 13,263,646 common shares for cash
at $20.40 per share and aggregate proceeds of $258,913, net of expenses
related to the offering of $11,665. On the same date, the subordinated
debenture holders elected to exercise their warrants and convert the
principal and remaining accrued interest at their carrying amounts into
1,635,286 shares aggregating $17,313. On August 9, 1999, the Company
purchased for cancellation 1,500,000 common shares at $20.40 per share
for a total cost of $30,600. Commissions of $450 were paid to First
Bermuda Securities Ltd., of which a Director of the Company is the
Chief Executive Officer.
13 COMMON SHARE OPTIONS
The Company, awards options to employees, officers and directors of the
Company under the terms of the 1997 and 1998 Share Option and Incentive Plans.
In addition, the Board has the authority to grant options outside of these plans
under separate stock option agreements. A summary of the outstanding common
share purchase option activities is as follows:
<TABLE>
<CAPTION>
1999 1998 1997
--------------------- --------------------- ---------------------
COMMON WEIGHTED COMMON WEIGHTED COMMON WEIGHTED
SHARES AVERAGE SHARES AVERAGE SHARES AVERAGE
PURCHASE EXERCISE PURCHASE EXERCISE PURCHASE EXERCISE
OPTIONS PRICE $ OPTIONS PRICE $ OPTIONS PRICE $
--------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Options outstanding at beginning of year............ 543,489 5.15 556,489 5.22 352,500 3.21
Options granted..................................... 1,277,019 13.14 -- -- 232,000 8.00
Options exercised................................... (129,041) 7.37 -- -- (28,011) 3.00
Options forfeited................................... (11,670) 13.06 (13,000) 8.00 -- --
--------- ----- ------- ---- ------- ----
Options outstanding at year-end..................... 1,679,797 11.00 543,489 5.15 556,489 5.22
========= ===== ======= ==== ======= ====
Options exercisable at year-end..................... 844,462 8.93 440,309 4.49 374,489 3.87
========= ===== ======= ==== ======= ====
</TABLE>
These options expire on various dates from 2001 to 2009 and generally vest
over a three-year period.
CF-55
<PAGE>
GLOBENET COMMUNICATIONS GROUP LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
(IN THOUSANDS OF U.S. DOLLARS, EXCEPT SHARE AND PER SHARE AMOUNTS)
13 COMMON SHARE OPTIONS (CONTINUED)
The following table summarizes information concerning outstanding and
exercisable options at December 31, 1999:
<TABLE>
<CAPTION>
WEIGHTED AVERAGE
REMAINING
CONTRACTUAL NUMBER OF SHARE
EXERCISE LIFE (YEARS) OF OPTIONS NUMBER OF OPTIONS OPTIONS EXERCISABLE AT
PRICE $ OUTSTANDING OUTSTANDING DECEMBER 31, 1999
- ------- ----------------------- ------------------ ----------------------
<S> <C> <C> <C>
0.01 6.09 45,000 45,000
1.00 1.41 26,863 26,863
3.00 2.03 180,000 180,000
8.00 8.00 153,275 102,942
8.50 2.77 50,000 50,000
9.00 9.20 760,640 280,638
19.00 9.56 35,000 30,000
20.40 8.65 429,019 129,019
--------- -------
1,679,797 844,462
========= =======
</TABLE>
i) On December 18, 1998 and May 21, 1999, the Board of Directors issued
263,000 options and 5,000 options, respectively to employees and certain
officers and directors at an exercise price of $9.00 per option, vesting
over a three-year period, under the 1998 Share Option and Incentive Plan.
In July 1999, when these options were approved by the shareholders, the
market price of these options was $20.40. The difference between the
market price and the exercise price has been reflected as deferred
compensation in the statement of shareholders' equity and is being
amortized over the vesting period as at December 31, 1999. Compensation
expense in the amount of $1,794 has been recorded in the financial
statements.
On July 9, 1999, 35,000 options, with an exercise price of $19.00 with a
ten-year term were granted to certain directors. The market price of
these options on the measurement date was $20.40. The vesting of these
options occurred on July 14, 1999. The difference between the exercise
price and market price at the time of vesting amounted to $49 and has
been reflected as compensation expense.
On April 12, 1999, the Company granted 540,000 options at an exercise
price of $9.00 with a ten-year term to certain officers and directors.
These options vest in three separate tranches based upon the Company
meeting certain milestones related to the Atlantica-1 project. On
July 14, 1999, the first vesting milestone occurred on 165,000 of these
options, when the financing was secured and the vesting period for
another 165,000 options was determined. The difference between the
exercise price and the market value amortized over the vesting period
amounted to $2,364 and has been reflected as compensation expense.
On October 7, 1999, the Company granted 429,019 options at an exercise
price of $20.40 to certain officers. Of these options, 129,019 vest
immediately and 300,000 vest over three years although vesting on these
options may be accelerated as a result of certain events.
CF-56
<PAGE>
GLOBENET COMMUNICATIONS GROUP LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
(IN THOUSANDS OF U.S. DOLLARS, EXCEPT SHARE AND PER SHARE AMOUNTS)
13 COMMON SHARE OPTIONS (CONTINUED)
On October 22, 1999, the Company granted 5,000 options at an exercise
price of $19.00 to an employee. These options vest over three years.
Total stock-based compensation expense included in general and
administrative expenses for the year ended December 31, 1999 is $4,207
(1998--$nil; 1997--$nil).
14 BASIC AND FULLY DILUTED LOSS PER COMMON SHARE
The basic loss per common share is calculated using the weighted average
number of common shares outstanding of 9,911,341 (1998 - 3,515,927;
1997 - 3,492,915). The weighted average number of common shares on a fully
diluted basis is calculated on the same basis as the basic weighted average
number of shares as the Company is in a loss position and the effects of
possible conversion would be anti-dilutive.
15 SUPPLEMENTAL INFORMATION
i) Included in general and administrative expense are the following:
<TABLE>
<CAPTION>
1999 1998 1997
$ $ $
-------- -------- --------
<S> <C> <C> <C>
Rent................................................... 426 342 242
Bad debt............................................... 212 114 91
Advertising............................................ 312 224 148
</TABLE>
ii) Amounts paid for interest and income taxes are as follows:
<TABLE>
<CAPTION>
1999 1998 1997
$ $ $
-------- -------- --------
<S> <C> <C> <C>
Interest.............................................. 4,517 1,901 540
Income taxes.......................................... 70 36 51
</TABLE>
CF-57
<PAGE>
GLOBENET COMMUNICATIONS GROUP LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
(IN THOUSANDS OF U.S. DOLLARS, EXCEPT SHARE AND PER SHARE AMOUNTS)
16 COMMITMENTS
a) The Company has entered into operating lease agreements for its premises
and for maintenance of its fibre optic cable. Minimum lease commitments
pursuant to these leases over the next five years and thereafter are as
follows:
<TABLE>
<CAPTION>
$
--------
<S> <C>
Year ending December 31, 2000............................... 2,538
2001........................................................ 1,059
2002........................................................ 1,028
2003........................................................ 1,061
2004........................................................ 1,035
Thereafter.................................................. 12,128
-------
18,849
=======
</TABLE>
b) On June 16, 1999, the Company entered into a supply contract with
Alcatel Submarine Networks ("Alcatel") to construct a fibre optic
submarine cable called Atlantica-1 for a total contract price of
$620,861, (of which $93,129 has been recorded at December 31, 1999),
which is subject to amendment by the mutual agreement of the parties.
Future payments are based upon a specified billing schedule and are due
when the corresponding project milestone has been achieved and engineer
acceptance has been provided. The future minimum payments, beyond the
$93,129 that has been recorded as of December 31, 1999, required as a
result of the contract, are as follows:
<TABLE>
<CAPTION>
$
--------
<S> <C>
Year ending December 31, 2000............................... 465,646
2001................................ 62,086
-------
527,732
=======
</TABLE>
c) As of December 31, 1999, the Company was committed to $2,901 of future
construction costs under its participation in a cable network
construction and maintenance agreement.
d) In the normal course of business, the Company has also entered into a
number of contracts under which it is committed to the purchase and
supply of telecommunication services at fixed prices. It is not
anticipated that losses will be incurred on these contracts.
17 SEGMENTED INFORMATION
The Company operates predominantly in the international telecommunications
services business and substantially all of the Company's business activity was
conducted in Bermuda.
CF-58
<PAGE>
GLOBENET COMMUNICATIONS GROUP LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
(IN THOUSANDS OF U.S. DOLLARS, EXCEPT SHARE AND PER SHARE AMOUNTS)
18 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. Although the change in date has occurred, it is not possible to conclude
that all aspects of the Year 2000 Issue that may affect the entity, including
those related to customers, suppliers, or other third parties, have been fully
resolved.
19 RECONCILIATION TO UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES
The consolidated financial statements of the Company have been prepared in
accordance with Canadian GAAP. The following adjustments and/or additional
disclosures, would be required in order to present the financial statements in
accordance with United States GAAP.
a) Stock based compensation
The Company applies APB Opinion 25 ("Accounting for Stock Issued to
Employees") in accounting for its stock option plan, and, accordingly
does not recognize compensation cost at the time options are granted
unless the exercise price is less than the market price of the stock on
the measurement date.
Had the Company elected to recognize compensation cost based on the fair
value of the options granted at the grant date as prescribed by
SFAS 123, the pro forma effects to reported net loss for the year and
basic and fully diluted loss per common share, would be as follows:
<TABLE>
<CAPTION>
1999 1998 1997
$ $ $
-------- -------- --------
<S> <C> <C> <C>
Net loss for the year--as reported................... 15,906 4,944 5,296
Net loss for the year--pro forma..................... 15,906 5,047 5,296
Basic and fully diluted loss per common share--as
reported........................................... 1.60 1.41 1.52
Basic and fully diluted loss per common share--pro
forma.............................................. 1.60 1.43 1.52
</TABLE>
The fair value of each option grant has been estimated using the
Black-Scholes option pricing model, using a volatility assumption of 20%
(1998 - 20%; 1997 - 20%), expected life of 7 years (1998 - 7 years;
1997 - 7 years), a dividend rate of nil (1998--$nil; 1997--$nil) and a
risk-free interest rate of 5.64% (1998 - 5.28%; 1997 - 6.33%).
The above pro forma effects on the net loss for the year may not be
representative of the effects on the net loss for the year for future
periods as option grants typically vest over several years and additional
options are generally granted each year.
CF-59
<PAGE>
GLOBENET COMMUNICATIONS GROUP LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
(IN THOUSANDS OF U.S. DOLLARS, EXCEPT SHARE AND PER SHARE AMOUNTS)
19 RECONCILIATION TO UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES
(CONTINUED)
b) Revenue recognition
FASB Interpretation No. 43, "Real Estate Sales--an interpretation of FASB
Statement No. 66," was issued in June 1999. It clarifies the standards
for recognition of profit on all real estate sales transactions,
including those related to fibre optic cable that cannot be removed and
used separately from the real estate without incurring significant costs.
This interpretation is effective for all applicable transactions after
June 30, 1999. However, no such transactions have been entered into after
June 30, 1999 and we have not yet completed our analysis of the
applicability or the impact of this statement on future transactions.
c) Derivative instruments and hedging activities
In June 1998, the Financial Accounting Standards Board issued SFAS
No. 133 ("SFAS 133"), "Accounting for Derivative Instruments and Hedging
Activities" which is effective for fiscal years beginning after June 15,
2000. SFAS 133, as amended, requires the Company to recognize all
derivatives as either assets or liabilities and measure those instruments
at fair value. It further provides criteria for derivative instruments to
be designated as fair value, cash flow, and foreign currency hedges and
establishes respective accounting standards for reporting changes in the
fair value of the derivative instruments. Upon adoption, the Company will
be required to adjust hedging instruments to fair value in the balance
sheet and recognize the offsetting gains or losses as adjustments to be
reported in net income or other comprehensive income, as appropriate.
Management has not determined the impact of this statement on its
financial position, results of operations and cash flows.
20 SUBSEQUENT EVENT
On February 15, 2000, the Company signed a contract variation with Alcatel
for the fixed price turnkey supply of all six undersea cable stations and the
associated overland routes from the cable stations to the cable beach landing
points at a cost of approximately $50 million.
CF-60
<PAGE>
CERTIFICATE OF THE COMPANY
Dated: April 18, 2000
The foregoing, together with the information deemed to be incorporated
herein by reference, as of the date of the supplemented prospectus providing the
information permitted to be omitted from this prospectus, will constitute full,
true and plain disclosure of all material facts relating to the securities
offered by this prospectus as required by Part 9 of the SECURITIES ACT (British
Columbia), Part 8 of the SECURITIES ACT (Alberta), Part XI of THE SECURITIES
ACT, 1988 (Saskatchewan), Part VII of THE SECURITIES ACT (Manitoba), Part XV of
the SECURITIES ACT (Ontario), Section 63 of the SECURITIES ACT (Nova Scotia),
Section 13 of the SECURITY FRAUDS PREVENTION ACT (New Brunswick), Part II of the
SECURITIES ACT (Prince Edward Island) and Part XIV of the SECURITIES ACT
(Newfoundland) and the respective rules and regulations thereunder and, for the
purposes of the SECURITIES ACT (Quebec) and the Regulations thereunder, will not
contain any misrepresentation likely to affect the value or the market price of
the securities to be distributed hereunder.
<TABLE>
<S> <C>
(Signed) GREGORY B. MAFFEI LARRY OLSEN
Chief Executive Officer (Signed) Chief Financial Officer
On behalf of the Board of Directors
DAVID LEDE CLIFFORD LEDE
(Signed) Chairman (Signed) Vice-Chairman
PROMOTER
Ledcor Industries Limited
BY: (Signed) DAVID LEDE
Chairman
</TABLE>
CC-1
<PAGE>
CERTIFICATE OF THE CANADIAN UNDERWRITERS
Dated: April , 2000
To the best of our knowledge, information and belief, the foregoing,
together with the information deemed to be incorporated herein by reference, as
of the date of the supplemented prospectus providing the information permitted
to be omitted from this prospectus, will constitute full, true and plain
disclosure of all material facts relating to the securities offered by this
prospectus as required by Part 9 of the SECURITIES ACT (British Columbia),
Part 8 of the SECURITIES ACT (Alberta), Part XI of THE SECURITIES ACT, 1988
(Saskatchewan), Part VII of THE SECURITIES ACT (Manitoba), Part XV of the
SECURITIES ACT (Ontario), Section 13 of the SECURITY FRAUDS PREVENTION ACT (New
Brunswick), Section 64 of the SECURITIES ACT (Nova Scotia), Part II of the
SECURITIES ACT (Prince Edward Island), Part XIV of the SECURITIES ACT,
(Newfoundland) and the respective rules and regulations thereunder and, for the
purposes of the SECURITIES ACT (Quebec) and the Regulations thereunder, to our
knowledge, will not contain any misrepresentation that is likely to affect the
value or the market price of the securities to be distributed hereunder.
<TABLE>
<S> <C>
GOLDMAN SACHS CANADA INC.
BY: (SIGNED) EVAN SIDDALL
CREDIT SUISSE FIRST BOSTON TD SECURITIES INC.
SECURITIES CANADA INC.
BY: (SIGNED) BRIAN C. IMRIE BY: (SIGNED) PATRICK B. MENELEY
BMO NESBITT BURNS INC. MORGAN STANLEY CANADA LIMITED
BY: (SIGNED) ALEXANDER G. RHIND BY: (SIGNED) STEVEN A. MAYER
BUNTING WARBURG DILLON READ INC. RBC DOMINION SECURITIES INC.
BY: (SIGNED) DAVID C.W. MACDONALD BY: (SIGNED) NEIL M. SELFE
</TABLE>
The following includes the name of every person or company having an
interest, directly or indirectly, to the extent of not less than 5% in the
capital of:
GOLDMAN SACHS CANADA INC.: a wholly-owned subsidiary of The Goldman Sachs
Group, Inc.;
CREDIT SUISSE FIRST BOSTON SECURITIES CANADA INC.: an indirect subsidiary of
Credit Suisse First Boston, a Swiss Bank;
TD SECURITIES INC.: a wholly-owned subsidiary of a Canadian chartered bank;
BMO NESBITT BURNS INC.: a wholly-owned subsidiary of BMO Nesbitt Burns
Corporation Limited, an indirect majority-owned subsidiary of a Canadian
chartered bank;
MORGAN STANLEY CANADA LIMITED: a wholly-owned subsidiary of Morgan Stanley
International Incorporated;
BUNTING WARBURG DILLON READ INC.: a wholly-owned subsidiary of Bunting Warburg
Dillon Read Limited; and
RBC DOMINION SECURITIES INC.: a direct wholly-owned subsidiary of a Canadian
chartered bank.
CC-2
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the costs and expenses, other than
underwriting discounts and commissions, payable by the Company in connection
with the sale of the Class A Subordinate Voting Shares being registered (all
amounts are estimated except the SEC Registration Fee, the Nasdaq National
Market Listing Fee) and The Toronto Stock Exchange Listing Fee:
<TABLE>
<CAPTION>
AMOUNT TO
BE PAID
----------
<S> <C>
SEC Registration Fee........................................ $ 196,687
Canadian Securities Commissions Filing Fees................. 322,771
NASD Filing Fee............................................. 30,500
Transfer Agent Fee.......................................... 7,500
Nasdaq National Market Listing Fee.......................... 95,000
The Toronto Stock Exchange Listing Fee...................... 50,000
Blue Sky Qualification Fees and Expenses.................... 7,500
Accounting Fees and Expenses................................ 400,000
Legal Fees and Expenses..................................... 1,400,000
Printing Expenses........................................... 450,000
Miscellaneous............................................... 40,042
----------
Total..................................................... $3,000,000
</TABLE>
ITEM 14. 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 the Company or such
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 such 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
such 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 such 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
II-1
<PAGE>
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 81 of the Act, the Company has purchased
insurance against potential claims against the directors and officers of the
Company and against loss for which the Company may be required or permitted by
law to indemnify such directors and officers.
Pursuant to Section 104 of the COMPANIES ACT (Nova Scotia), every director,
manager, Secretary, Treasurer and other officer or servant of the Company shall
be indemnified by the Company against, and it shall be the duty of the directors
out of the funds of the Company to pay, all costs, losses and expenses that any
such director, manager, Secretary, Treasurer or other officer or servant may
incur or become liable to pay by reason of any contract entered into, or act or
thing done by him or her as such officer or servant or in any way in the
discharge of his or her duties including travelling expenses; and the amount for
which such indemnity is proved shall immediately attach as a lien on the
property of the Company and have priority as against the members over all other
claims.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
(a) The Company has issued and sold the following unregistered securities in
the following transactions (unless otherwise indicated share numbers reflect our
8 for 1 stock split):
(1) On our incorporation on February 5, 1998, we issued 800 Class "A" Voting
Common Shares (now Class B Subordinate Voting Shares) to Ledcor Industries
Limited for $70.
(2) On May 31, 1998, we issued 1600 Class "A" Voting Common Shares (now
Class B Subordinate Voting Shares) to Ledcor Industries Limited for equipment,
fiber optic strands and other assets related to the telecommunications division
of Ledcor Industries Limited.
(3) On August 31, 1998, we issued 24,000,000 Class "A" Voting Common Shares
(now Class B Subordinate Voting Shares) to Worldwide Fiber Holdings Ltd. as
partial consideration for a 50% interest in, and a promissory note of $3,915,000
from, Worldwide Fiber (USA) Inc.
(4) On December 1, 1998 we issued 16,000,000 Class "A" Voting Common Shares
(now Class B Subordinate Voting Shares) to Worldwide Fiber Holdings Ltd. for 50
Class A common shares of Ledcor Holdings Ltd.
(5) Pursuant to an Indenture dated December 23, 1998, the Company issued
senior notes with a face value of $175,000,000 to Qualified Institutional Buyers
in reliance on the exemption found in Rule 144A of the Securities Act of 1933,
as amended, or to persons outside the United States in compliance with
Regulation S, of the Securities Act of 1933, as amended. The notes are unsecured
obligations of the Company bearing interest at 12 1/2% interest payable
semi-annually.
(6) On March 31, 1999 the Company completed a series of transactions whereby
certain fiber optic network assets were transferred to the Company by Worldwide
Fiber Holdings Ltd. in exchange for 159,997,600 Class "A" Voting Common Shares
(now Class B Subordinate Voting 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.
(7) Pursuant to an Indenture dated July 28, 1999, the Company issued senior
notes with a face value of $500,000,000, to Qualified Institutional Buyers in
reliance on the exemption found in Rule 144A of the Securities Act of 1933, as
amended, or to persons outside the United States in compliance with
Regulation S, of the Securities Act of 1933, as amended. The notes are unsecured
obligations of the Company bearing interest at 12% interest payable
semi-annually.
II-2
<PAGE>
(8) On August 31, 1999 the Company issued 1,200,000 Class "A" Voting Common
Shares (now Class B Subordinate Voting Shares) to Mackenzie Partners, LLC for
$3,000,000 cash.
(9) On September 9, 1999, the Company repurchased 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-subdivision) Series C Redeemable Preferred Shares.
(10) On September 9, 1999 and December 22, 1999, respectively, the Company
issued 70,934,464 and 4,541,192, respectively, Series A Non-Voting Preferred
Shares to affiliates of Tyco International Ltd., Providence Equity
Partners Inc., DLJ Merchant Banking Partners II L.P. and GS Capital
Partners III, L.P. for $300,000,000 in cash.
(11) On September 27, 1999, the Company issued 36,000,000 Class C Multiple
Voting Shares to Ledcor and assumed certain other rights and obligations in
consideration for certain fiber optic network assets valued at cost in the
accounts of Ledcor at $26,349,800.
(12) On December 22, 1999, 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.
(13) From January 5, 1999 through January 24, 2000, the Company issued
options to purchase an aggregate of 22,892,540 Class A Non-Voting Shares to
directors, officers and employees of the Company and its affiliates. Each option
was for a ten year term and the options are exercisable at prices ranging from
$1.25 to $10.00.
(14) On March 13, 2000, the Company issued 411,214 Class A Non-Voting Shares
to Ramsey Beirne Investment Partners, LLC in consideration for certain
consulting services valued by the consultant at approximately $999,995.
(b) The issuances of the securities set forth in paragraphs 1, 2, 3, 4, 6, 9
and 11 above were deemed to be not subject to registration under the Securities
Act because they were extraterritorial issuances not subject to the Securities
Act or other U.S. securities laws. The issuances of the securities set forth in
(a) paragraphs 5 and 7 were deemed to be exempt from registration under the
Securities Act in reliance on Section 4(2) of the Securities Act regarding the
initial purchasers, to be resold in reliance on Rule 144A and Regulation S of
the Securities Act and (b) paragraphs 8, 10, 12 and 14 were deemed to be exempt
from registration under the Securities Act in reliance on Section 4(2) of the
Securities Act, in each case as transactions by an issuer not involving any
public offering. The issuance of securities set forth in paragraph 13 was deemed
to be exempt from registration under the Securities Act in reliance on
Section 4(2) of the Securities Act and Rule 701 promulgated under the Securities
Act as a transaction by an issuer not involving any public offering and a
transaction pursuant to compensatory benefit plans and contracts relating to
compensation as provided under Rule 701. The recipients of such securities
represented their intentions to acquire the securities for investment only and
not with a view to, or for sale in connection with, any distribution thereof and
appropriate legends were affixed to the certificates representing the securities
issued in such transactions.
II-3
<PAGE>
ITEM 16. EXHIBITS.
The following exhibits are filed as part of this Registration Statement:
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ----------- -----------
<S> <C>
1.1 Form of Underwriting Agreement between Worldwide Fiber Inc.
and the Underwriters
dated , 2000.
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.
3.4 Memorandum of Association of 360NETWORKS INC.
3.5 Articles of Association of 360NETWORKS INC.
3.6 Form of Memorandum of Association of 360NETWORKS INC.
(effective upon closing).
3.7 Form of Articles of Association of 360NETWORKS INC.
(effective upon closing).
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.
4.9* Voting Agreement between certain shareholders of GlobeNet
Communications Group Limited and Worldwide Fiber Inc. dated
March 11, 2000.
4.10* Form of Trust Agreement among Worldwide Fiber Holdings Ltd.,
Gregory B. Maffei, Madison Square Inc., Larry R. Olsen,
Worldwide Fiber Inc. and Trust Company dated as of ,
2000.
5.1 Opinion of Stewart McKelvey Stirling Scales 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.
dated December 31, 1998.
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.
</TABLE>
II-4
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ----------- -----------
<S> <C>
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.
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.
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.
</TABLE>
II-5
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ----------- -----------
<S> <C>
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* Amended and Restated Share Purchase Agreement between Ledcor
Industries Limited, Ledcor Industries Inc. and Worldwide
Fiber Inc. dated September 7, 1999.
10.29* 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.
10.30* Stock Purchase Agreement by and between Worldwide Fiber Inc.
and Gregory B. Maffei, dated December 22, 1999.
10.31* Agreement and Plan of Arrangement between Worldwide Fiber
Inc. and GlobeNet Communications Group Limited dated as of
March 11, 2000.
10.32* Share Exchange Agreement by and among 360NETWORKS INC.,
Worldwide Fiber Networks Ltd., Ledcor Communications Ltd.,
Ledcor Industries, Inc., Worldwide Fiber (USA), Inc.,
Mi-Tech Communications, LLC, Ledcor Inc. and Michels
Pipeline Construction, Inc. dated as of March 20, 2000.
10.33* Share Exchange Agreement by and among Worldwide Fiber Inc.
and Canadian National Railway Company dated as of March 6,
2000.
10.34* Purchase Agreement by and between IC Fiber Holding Inc.,
Worldwide Fiber IC Holdings, Inc. and Illinois Central
Railroad Company dated as of March 3, 2000.
10.35 Urbanlink Reorganization Definitive Agreement between
360NETWORKS INC., Worldwide Fiber Holdings Ltd. and WFI
Urbanlink Ltd., dated April 17, 2000.
10.36 Asset Purchase Agreement between Ledcor Communications Ltd.
and WFI Urbanlink Ltd., dated April 17, 2000.
10.37 Asset Purchase Agreement between WFI-CN Fibre Inc. and WFI
Urbanlink Ltd., dated April 17, 2000.
10.38 Asset Purchase Agreement between Worldwide Fiber (F.O.T.S.)
No. 3, Ltd. and WFI Urbanlink Ltd., dated April 17, 2000.
10.39 Asset Purchase Agreement between Worldwide Fiber Network
Services Ltd. and WFI Urbanlink Ltd., dated April 17, 2000.
10.40 Reseller Agreement between 360NETWORKS INC., Worldwide Fiber
Network Services Ltd. and WFI Urbanlink Ltd., dated
April 17, 2000.
10.41 Initial Capacity Purchase Agreement under the Reseller
Agreement between Worldwide Fiber Network Services Ltd. and
WFI Urbanlink Ltd., dated April 17, 2000.
10.42 Network Operating Center Agreement between 360NETWORKS INC.,
Worldwide Fiber Network Services Ltd. and WFI Urbanlink
Ltd., dated April 17, 2000.
10.43 Rollover Agreement between 360 Urbanlink Ltd. and Urbanlink
Holdings, Ltd., dated April 17, 2000.
10.44 Rollover Agreement between Worldwide Fiber Holdings Ltd. and
Urbanlink Holdings, Ltd. regarding transfer of Subordinate
Voting Shares of 360network services inc., dated April 17,
2000.
10.45 Unanimous Shareholders Agreement for Urbanlink Holdings
between 360NETWORKS INC., 360 Urbanlink Ltd., Worldwide
Fiber Holdings Ltd., Urbanlink Holdings Ltd. and WFI
Urbanlink Ltd., dated April 17, 2000.
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 PricewaterhouseCoopers LLP, Independent Auditors.
23.4 Consent of Kevin Compton.
23.5 Consent of John Malone.
23.6 Consent of John Stanton.
</TABLE>
II-6
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ----------- -----------
<S> <C>
23.7 Consent of Farris, Vaughan, Wills & Murphy.
23.8 Consent of Stewart McKelvey Stirling Scales (included in
Exhibit 5.1).
24.1* Powers of Attorney authorizing execution of Registration
Statement on Form F-1 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-1 on behalf of WFI Fiber Inc.
</TABLE>
- ------------------------
* Previously filed.
ITEM 17. UNDERTAKINGS.
The undersigned registrant hereby undertakes:
(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;
(2) That, for purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of Prospectus filed as part of
this Registration Statement in reliance upon Rule 430A and contained in a form
of prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Securities Act shall be deemed to be part of this Registration
Statement as of the time it was declared effective; and
(3) That, for the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of prospectus
shall be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
II-7
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1993, the undersigned
Registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form F-1 and has duly caused this Amendment
No. 2 to the Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in Vancouver, BC, Canada on April 18,
2000.
<TABLE>
<S> <C> <C>
360NETWORKS INC.
By: /s/ GREGORY MAFFEI
-----------------------------------------
Name: Gregory Maffei
Title: Chief Executive Officer
</TABLE>
II-8
<PAGE>
POWER OF ATTORNEY
Each of the undersigned hereby constitutes and appoints David Lede and Larry
Olsen and each of them (with full power to each of them to act alone) his true
and lawful attorney-in-fact, with power of substitution and resubstitution, in
his name, place and stead, in any and all capacities, to sign any and all
amendments (including post-effective amendments) and supplements to this
Registration Statement, and any registration statement for this offering that is
to be effective upon the filing pursuant to Rule 462(b) under the Securities Act
of 1933, and to file the same, with exhibits thereto and other documents in
connection therewith, with the Commission, granting unto said attorneys-in-fact
and agents, and each of them, full power and authority to do and perform each
and every act and thing requisite and necessary to be done in and about the
premises, as fully to all intents and purposes as he might or could do in
person, hereby ratifying and confirming all that said attorneys-in-fact and
agents, or any or them, or their substitutes, may lawfully do or cause to be
done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 2 to the Registration Statement has been signed by the following persons in
the capacities and on the date indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
*
------------------------------------------- Chairman of the Board April 18, 2000
David Lede
*
------------------------------------------- Director (Principal April 18, 2000
Gregory Maffei Executive Officer)
*
------------------------------------------- Vice Chairman April 18, 2000
Clifford Lede
* Vice Chairman (Principal
------------------------------------------- Financial and Accounting April 18, 2000
Larry Olsen Officer)
*
------------------------------------------- Director April 18, 2000
Ron Stevenson
*
------------------------------------------- Director April 18, 2000
Stephen Stow
/s/ CLAUDE MONGEAU
------------------------------------------- Director April 18, 2000
Claude Mongeau
------------------------------------------- Director April 18, 2000
James F. Voelker
*
------------------------------------------- Director April 18, 2000
Andrew Rush
</TABLE>
II-9
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ GENE SYKES
------------------------------------------- Director April 18, 2000
Gene Sykes
*
------------------------------------------- Director April 18, 2000
Glenn Creamer
WFI Fiber Inc.
WFI Fiber Inc. (Authorized U.S. April 18, 2000
Representative)
</TABLE>
<TABLE>
<S> <C> <C> <C>
By: *
---
Larry
Olsen,
Authorized
Signatory
* Pursuant
to Power
of
Attorney
filed
with
the
Commission
as
Exhibit
24.1 or
24.2
By: /s/ LARRY
OLSEN
--- Attorney-in-fact April 18, 2000
Olsen
</TABLE>
II-10
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ----------- -----------
<C> <S>
1.1 Form of Underwriting Agreement between Worldwide Fiber Inc.
and the Underwriters dated , 2000.
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.
3.4 Memorandum of Association of 360NETWORKS INC.
3.5 Articles of Association of 360NETWORKS INC.
3.6 Form of Memorandum of Association of 360NETWORKS INC.
(effective upon closing).
3.7 Form of Articles of Association of 360NETWORKS INC.
(effective upon closing).
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.
4.9 * Voting Agreement between certain shareholders of GlobeNet
Communications Group Limited and Worldwide Fiber Inc. dated
March 11, 2000.
4.10* Form of Trust Agreement among Worldwide Fiber Holdings Ltd.,
Gregory B. Maffei, Madison Square Inc., Larry R. Olsen,
Worldwide Fiber Inc. and Trust Company dated as of ,
2000.
5.1 Opinion of Stewart McKelvey Stirling Scales 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.
dated December 31, 1998.
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.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ----------- -----------
<C> <S>
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.
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.
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* Amended and Restated Share Purchase Agreement between Ledcor
Industries Limited, Ledcor Industries Inc. and Worldwide
Fiber Inc. dated September 7, 1999.
10.29* 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.
10.30* Stock Purchase Agreement by and between Worldwide Fiber Inc.
and Gregory B. Maffei, dated December 22, 1999.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ----------- -----------
<C> <S>
10.31* Agreement and Plan of Arrangement between Worldwide Fiber
Inc. and GlobeNet Communications Group Limited dated as of
March 11, 2000.
10.32* Share Exchange Agreement by and among 360NETWORKS INC.,
Worldwide Fiber Networks Ltd., Ledcor Communications Ltd.,
Ledcor Industries, Inc., Worldwide Fiber (USA), Inc.,
Mi-Tech Communications, LLC, Ledcor Inc. and Michels
Pipeline Construction, Inc. dated as of March 20, 2000.
10.33* Share Exchange Agreement by and among Worldwide Fiber Inc.
and Canadian National Railway Company dated as of March 6,
2000.
10.34* Purchase Agreement by and between IC Fiber Holding Inc.,
Worldwide Fiber IC Holdings, Inc. and Illinois Central
Railroad Company dated as of March 3, 2000.
10.35 Urbanlink Reorganization Definitive Agreement between
360NETWORKS INC., Worldwide Fiber Holdings Ltd. and WFI
Urbanlink Ltd., dated April 17, 2000.
10.36 Asset Purchase Agreement between Ledcor Communications Ltd.
and WFI Urbanlink Ltd., dated April 17, 2000.
10.37 Asset Purchase Agreement between WFI-CN Fibre Inc. and WFI
Urbanlink Ltd., dated April 17, 2000.
10.38 Asset Purchase Agreement between Worldwide Fiber (F.O.T.S.)
No. 3, Ltd. and WFI Urbanlink Ltd., dated April 17, 2000.
10.39 Asset Purchase Agreement between Worldwide Fiber Network
Services Ltd. and WFI Urbanlink Ltd., dated April 17, 2000.
10.40 Reseller Agreement between 360NETWORKS INC., Worldwide Fiber
Network Services Ltd. and WFI Urbanlink Ltd., dated
April 17, 2000.
10.41 Initial Capacity Purchase Agreement under the Reseller
Agreement between Worldwide Fiber Network Services Ltd. and
WFI Urbanlink Ltd., dated April 17, 2000.
10.42 Network Operating Center Agreement between 360NETWORKS INC.,
Worldwide Fiber Network Services Ltd. and WFI Urbanlink
Ltd., dated April 17, 2000.
10.43 Rollover Agreement between 360 Urbanlink Ltd. and Urbanlink
Holdings, Ltd., dated April 17, 2000.
10.44 Rollover Agreement between Worldwide Fiber Holdings Ltd. and
Urbanlink Holdings, Ltd. regarding transfer of Subordinate
Voting Shares of 360network services inc., dated April 17,
2000.
10.45 Unanimous Shareholders Agreement for Urbanlink Holdings
between 360NETWORKS INC., 360 Urbanlink Ltd., Worldwide
Fiber Holdings Ltd., Urbanlink Holdings Ltd. and WFI
Urbanlink Ltd. dated April 17, 2000.
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 PricewaterhouseCoopers LLP, Independent Auditors.
23.4 Consent of Kevin Compton.
23.5 Consent of John Malone.
23.6 Consent of John Stanton.
23.7 Consent of Farris, Vaughan, Wills & Murphy.
23.8 Consent of Stewart McKelvey Stirling Scales (included in
Exhibit 5.1).
24.1 * Powers of Attorney authorizing execution of Registration
Statement on Form F-1 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-1 on behalf of WFI Fiber Inc.
</TABLE>
- ------------------------
* Previously filed.
<PAGE>
Exhibit 1.1
360NETWORKS INC.
SUBORDINATE VOTING SHARES
------------
UNDERWRITING AGREEMENT
----------------------
April __, 2000
Goldman, Sachs & Co.,
Donaldson, Lufkin & Jenrette Securities Corporation,
Credit Suisse First Boston Corporation,
TD Securities Inc.,
Bear, Stearns & Co. Inc.,
BMO Nesbitt Burns Inc.,
Morgan Stanley & Co. Incorporated,
Chase Securities Inc.,
RBC Dominion Securities Inc.
Warburg Dillon Read LLC
As Representatives of the several Underwriters and Sub-Underwriters
named in Schedule A hereto,
c/o Goldman, Sachs & Co.
85 Broad Street,
New York, New York 10004
Ladies and Gentlemen:
360NETWORKS INC., a company continued under the laws of Nova Scotia,
Canada (the "COMPANY"), proposes, subject to the terms and conditions stated
herein, to issue and sell to the Underwriters named in Schedule A hereto (the
"UNDERWRITERS") an aggregate of 44,625,000 Subordinate Voting Shares and, at the
election of the Underwriters, up to 6,941,250 additional Subordinate Voting
Shares of the Company and Ledcor Limited Partnership (the "SELLING SHAREHOLDER")
proposes, subject to the terms and conditions stated herein, to sell to the
Underwriters an aggregate of 1,650,000 Subordinate Voting Shares. The aggregate
of 46,275,000 shares to be sold by the Company and the Selling Shareholder is
herein called the "FIRM SHARES" and the aggregate of 6,941,250 additional shares
to be sold by the Company is herein called the "OPTIONAL SHARES". The Firm
Shares and the Optional Shares that the Underwriters elect to purchase pursuant
to Section 2 hereof are herein collectively called the "SHARES".
1. (a) The Company represents and warrants to, and agrees with,
each of the Underwriters and Sub-Underwriters (as defined in Section 2(b))
and the Selling Shareholder that:
(i) A registration statement on Form F-1 (File No. 33-95621)
(the "INITIAL REGISTRATION STATEMENT") in respect of the Shares has
been filed with the Securities and Exchange Commission (the
"COMMISSION"); the Initial Registration Statement and any
post-effective amendment thereto, each in the form heretofore delivered
to you, and, excluding exhibits thereto, for each of the other
Underwriters, have been declared effective by the Commission in such
form; other than a registration statement, if any, increasing the size
of the offering (a "RULE 462(B) REGISTRATION STATEMENT"),
<PAGE>
filed pursuant to Rule 462(b) under the Securities Act of 1933, as
amended (the "ACT"), which became effective upon filing, no other
document with respect to the Initial Registration Statement has
heretofore been filed with the Commission; and no stop order suspending
the effectiveness of the Initial Registration Statement, any
post-effective amendment thereto or the Rule 462(b) Registration
Statement, if any, has been issued and no proceeding for that purpose
has been initiated or threatened by the Commission (any preliminary
prospectus included in the Initial Registration Statement or filed with
the Commission pursuant to Rule 424(a) of the rules and regulations of
the Commission under the Act is hereinafter called a "PRELIMINARY
PROSPECTUS"; the various parts of the Initial Registration Statement
and the Rule 462(b) Registration Statement, if any, including all
exhibits thereto and including the information contained in the form of
final prospectus filed with the Commission pursuant to Rule 424(b)
under the Act in accordance with Section 4(a) hereof and deemed by
virtue of Rule 430A under the Act to be part of the Initial
Registration Statement at the time it was declared effective, each as
amended at the time such part of the Initial Registration Statement
became effective or such part of the Rule 462(b) Registration
Statement, if any, became or hereafter becomes effective, are
hereinafter collectively called the "REGISTRATION STATEMENT"; and such
final prospectus, in the form first filed pursuant to Rule 424(b) under
the Act, is hereinafter called the "PROSPECTUS";
(ii) No order preventing or suspending the use of any
Preliminary Prospectus has been issued by the Commission, and each
Preliminary Prospectus, at the time of filing thereof, conformed in all
material respects to the requirements of the Act and the rules and
regulations of the Commission thereunder, and did not contain an untrue
statement of a material fact or omit to state a material fact required
to be stated therein or necessary to make the statements therein, in
the light of the circumstances under which they were made, not
misleading; PROVIDED, HOWEVER, that this representation and warranty
shall not apply to any statements or omissions made in reliance upon
and in conformity with information furnished in writing to the Company
by an Underwriter through Goldman, Sachs & Co. or Donaldson, Lufkin &
Jenrette Securities Corporation ("DLJ") expressly for use therein or by
the Selling Shareholder expressly for use in the preparation of the
answers therein to Items 7 and 11(item 11 of form 20F) of Form F-1;
(iii) The Registration Statement conforms, and the Prospectus
and any further amendments or supplements to the Registration Statement
or the Prospectus will conform, in all material respects to the
requirements of the Act and the rules and regulations of the Commission
thereunder and do not and will not, as of the applicable effective date
as to the Registration Statement and any amendment thereto and as of
the applicable filing date as to the Prospectus and any amendment or
supplement thereto, contain an untrue statement of a material fact or
omit to state a material fact required to be stated therein or
necessary to make the statements therein not misleading; PROVIDED,
HOWEVER, that this representation and warranty shall not apply to any
statements or omissions made in reliance upon and in conformity with
information furnished in writing to the Company by an Underwriter
through Goldman, Sachs & Co. or DLJ expressly for use therein or by the
Selling Shareholder expressly for use in the preparation of the answers
therein to Items 7 and 11(item 11 of form 20F) of Form F-1;
(iv) The preliminary prospectus dated January 28, 2000 (the
"CANADIAN PRELIMINARY PROSPECTUS") and the amended preliminary
prospectus dated March 22, 2000 (the "AMENDED CANADIAN PRELIMINARY
PROSPECTUS"), together with the other
2
<PAGE>
required documentation supplemental thereto, have been filed in the
English language and, where applicable, the French language with the
applicable securities regulatory authority (each, a "CANADIAN
COMMISSION") in each of the provinces of Canada (collectively, the
"CANADIAN JURISDICTIONS") in conformity with applicable Canadian
Securities Laws (as defined below) and receipts for each of the
Canadian Preliminary Prospectus and the Amended Canadian Preliminary
Prospectus have been obtained from or on behalf of each of the Canadian
Commissions. "CANADIAN SECURITIES LAWS" means the applicable securities
laws of each of the Canadian Jurisdictions and the respective rules,
regulations and published policies thereunder;
(v) The Canadian Preliminary Prospectus and the Amended
Canadian Preliminary Prospectus, as of the respective times of filing
thereof, (i) did not include a misrepresentation, (ii) constituted
full, true and plain disclosure of all material facts relating to the
Shares, and to the Company and its subsidiaries taken as a whole, (iii)
did not include any untrue statement of a material fact or omit to
state a material fact necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading; PROVIDED, HOWEVER, that this representation and warranty
shall not apply to any statements or omissions made in reliance upon
and in conformity with information furnished in writing to the Company
by an Underwriter through Goldman, Sachs & Co. and DLJ expressly for
use therein; and (iv) conformed in all material respects to the
requirements of the Canadian Securities Laws in each of the Canadian
Jurisdictions;
(vi) If the Company has elected to use the rules and
procedures of Canadian Securities Laws for the pricing of securities
after the final receipt for a prospectus has been obtained (the "PREP
PROCEDURES") in connection with the distribution of the Shares in
Canada, the Company (A) has obtained the exemption orders or rulings
issued by the Canadian Commissions permitting the Company to use the
PREP Procedures in connection with the distribution of the Shares in
Canada (the "PREP EXEMPTION ORDERS"); (B) has prepared and filed in the
English language and, where applicable, the French language with each
of the Canadian Commissions the final prospectus dated April __, 2000
(the "CANADIAN FINAL PROSPECTUS") omitting the information, if any,
that is omitted from the Canadian Prospectus (as defined) in accordance
with the PREP Procedures and the PREP Exemption Orders but that is
deemed under the PREP Procedures and the PREP Exemption Orders to be
incorporated by reference into the Canadian Prospectus as of the date
of the Canadian Prospectus (the "PREP INFORMATION"); (C) will prepare
and file in the English language and, where applicable, the French
language, promptly after pricing of the Firm Shares with each of the
Canadian Commissions a supplemented Canadian Final Prospectus setting
forth the PREP Information; and (D) the Company shall fulfill and
comply with all Canadian Securities Laws to enable the Shares to be
lawfully distributed to the public in each of the Canadian
Jurisdictions;
(vii) No order preventing or suspending the use of the
Canadian Preliminary Prospectus or the Amended Canadian Preliminary
Prospectus has been issued by any of the Canadian Commissions;
(viii) The Canadian Prospectus (as defined below) (and any
amendments or supplements thereto), as of the time of filing thereof,
the Time of Delivery (as defined in Section 3(a)) and any settlement
date (i) will conform in all material respects to the
3
<PAGE>
requirements of the applicable Canadian Securities Laws in each of the
Canadian Jurisdictions, (ii) will not include a misrepresentation,
(iii) will constitute full, true and plain disclosure of all material
facts relating to the Shares, and to the Company and its subsidiaries
taken as a whole and (iv) will not include any untrue statement of a
material fact or omit to state a material fact necessary in order to
make the statements therein, in light of the circumstances under which
they were made, not misleading; PROVIDED, HOWEVER, that this
representation and warranty shall not apply to any statements or
omissions made in reliance upon and in conformity with information
furnished in writing to the Company by an Underwriter through Goldman,
Sachs & Co. and DLJ expressly for use therein. "CANADIAN PROSPECTUS"
means the supplemented Canadian Final Prospectus, incorporating the
PREP Information, to be dated April __, 2000 (in both the English and
French languages unless the context indicates otherwise) used in Canada
relating to the Shares or, if the Company does not elect to use the
PREP Procedures in connection with the distribution of the Shares in
Canada, means the Canadian Final Prospectus;
(ix) Neither the Company nor any of its subsidiaries has
sustained since the date of the latest audited financial statements
included in the Prospectus and the Canadian Prospectus any material
loss or interference with its business from fire, explosion, flood or
other calamity, whether or not covered by insurance, or from any labor
dispute or court or governmental action, order or decree, otherwise
than as set forth or contemplated in the Prospectus and the Canadian
Prospectus; and, since the respective dates as of which information is
given in the Registration Statement, the Prospectus and the Canadian
Prospectus, there has not been any change in the capital stock or
long-term debt of the Company or any of its subsidiaries or any
material adverse change, or any development involving a prospective
material adverse change, in or affecting the general affairs,
management, financial position, shareholders' equity or results of
operations of the Company and its subsidiaries, otherwise than as set
forth or contemplated in the Prospectus and the Canadian Prospectus;
(x) The entities listed on Schedule B hereto are the only
subsidiaries, direct or indirect, of the Company (collectively, the
"SUBSIDIARIES"). The only Subsidiaries that are material for purposes
for this Agreement (the "MATERIAL SUBSIDIARIES") are listed on Schedule
C attached hereto. Each of the Subsidiaries which is not a Material
Subsidiary carries on no active business. All of the outstanding shares
of capital stock of each of the Company's Material Subsidiaries and WFI
Urbanlink Ltd. ("Urbanlink"), 360 Urbanlink, Urbanlink Holdings Ltd.
("CARRIER HOLDCO") and Urbanlink Equipment Ltd. (collectively, the
"URBANLINK COMPANIES") have been duly authorized and validly issued and
are fully paid and non-assessable, and, except for Ledcom Holdings
Ltd., Carrier Holdco, Urbanlink and Urbanlink Equipment Ltd. are owned
by the Company, directly or indirectly through one or more
subsidiaries, free and clear of any security interest, claim, lien
encumbrance, or adverse interest of any nature (each, a "LIEN"). Ledcom
Holdings Ltd. is owned 50% by the Company and 50% by Ledcor Inc., in
the case of the Company, directly or indirectly, through one or more
subsidiaries, free and clear of any Lien except for the security
interest granted to Ledcor Inc. pursuant to the Unanimous Shareholders
Agreement, dated as of December 1, 1998, by and among Worldwide Fiber
Communications Ltd., Ledcor Inc., Ledcor Industries Limited and Ledcor
Holdings Ltd. Each of Urbanlink and Urbanlink Equipment Ltd. is owned
100% by Carrier Holdco, free and clear of any Lien, the voting
securities of Carrier Holdco are owned 33 1/3% by the Company and 66
2/3% by Worldwide Fiber Holdings Ltd. ("WFH"), and the
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remaining equity securities of Carrier Holdco are owned 51% by the
Company and 49% by WFH, in each case free and clear of any Lien;
(xi) The Company, its Material Subsidiaries and each of the
Urbanlink Companies have good and marketable title to all real property
and good title to all personal property owned by them which is material
to the business of the Company, its Material Subsidiaries and
Urbanlink, in each case free and clear of all Liens and defects, except
such as are described in the Prospectus and the Canadian Prospectus or
such as do not materially affect the value of such property taken as a
whole and do not materially interfere with the use made and proposed to
be made of such property by the Company, its Material Subsidiaries
taken as a whole and Urbanlink and any real property and buildings held
under lease by the Company, its Material Subsidiaries and Urbanlink are
held by them under valid, subsisting and enforceable leases with such
exceptions as are not material and do not interfere with the use made
and proposed to be made of such property and buildings by the Company,
its subsidiaries and Urbanlink, in each case except as described in the
Prospectus and the Canadian Prospectus;
(xii) Each of the Company, its subsidiaries and each of the
Urbanlink Companies has been duly organized, is validly existing as a
corporation or limited liability company, as applicable, in good
standing under the laws of its jurisdiction of incorporation,
organization, amalgamation or continuance and has the requisite,
corporate or other, power and authority to carry on its business as
described in the Prospectus and the Canadian Prospectus, and to own,
lease and operate its properties, and each is duly qualified and is in
good standing as a foreign corporation, partnership or limited
liability company, as applicable, authorized to do business in each
jurisdiction in which the nature of its business or its ownership or
leasing of property requires such qualification, except where the
failure to be so qualified would not have a material adverse effect on
the business, prospects, financial condition or results of operations
of the Company, its subsidiaries and Urbanlink, taken as a whole (a
"MATERIAL ADVERSE EFFECT");
(xiii) On completion of the offering, the Company will have
authorized capital as set forth in the Prospectus and the Canadian
Prospectus, and all of the issued shares in the capital of the Company
("STOCK") will be duly and validly authorized and issued as fully paid
and non-assessable and conform to the description of the Stock
contained in the Prospectus and the Canadian Prospectus;
(xiv) The Shares to be issued and sold by the Company to the
Underwriters hereunder have been duly and validly allotted and, when
issued and delivered against payment therefor as provided herein, will
be duly and validly issued and fully paid and non-assessable and, at
the Time of Delivery (as defined in Section 3(a)), will conform to the
description of the Shares contained in the Prospectus and the Canadian
Prospectus;
(xv) The execution and delivery of this Agreement and the
transfer restriction agreement to be entered into on or before the
First Time of Delivery among the Company, WFH and Gregory B. Maffei and
Montreal Trust Company of Canada (the "TRANSFER RESTRICTION
AGREEMENT"), the establishment and implementation of the Canadian
Telecommunications Arrangement (as described in the Canadian
Prospectus), the issue and sale of the Shares to be sold by the Company
and the compliance by the Company and, if applicable, Gregory B. Maffei
and WFH with all of
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the provisions of this Agreement and the Transfer Restriction Agreement
and the consummation of the transactions herein and therein
contemplated will not (a) require any consent, approval, authorization
or other order of, or qualification with, any court or governmental
body or agency (except the registration under the Act of the Shares and
such as may be required or previously obtained under the securities or
Blue Sky laws of the various states or the Canadian Securities Laws)
other than consents, approvals, authorizations or other orders of, or
qualifications with, any court or governmental body or agency the
failure of which to be obtained would not, in the aggregate, have a
Material Adverse Effect, (b) conflict with or constitute a breach of
any of the terms or provisions of, or a default under, the Memorandum
of Association or Articles of Association of the Company, WFH or any of
the Material Subsidiaries or any of the Urbanlink Companies or any
indenture, loan agreement, mortgage, lease or other agreement or
instrument that is material to the Company, and its subsidiaries, taken
as a whole, to which the Company, or WFH or any of its subsidiaries or
the Urbanlink Companies is a party or by which the Company or WFH or
any of its subsidiaries or the Urbanlink Companies or their respective
property is bound, except those violations or conflicts which would
not, in the aggregate, have a Material Adverse Effect, (c) violate or
conflict with any applicable law or any rule, regulation, judgment,
order or decree of any court or any governmental body or agency having
jurisdiction over the Company, WFH, any of the Material Subsidiaries or
the Urbanlink Companies or their respective property, (d) result in the
imposition or creation of (or the obligation to create or impose) a
Lien under, any agreement or instrument to which the Company, WFH, any
of the Material Subsidiaries or the Urbanlink Companies is a party or
by which the Company, WFH, any of their subsidiaries or the Urbanlink
Companies or their respective property is bound except as would not
have a Material Adverse Effect, or (e) result in the termination,
suspension or revocation of any Authorization (as defined below) of the
Company, WFH or any of the Material Subsidiaries or the Urbanlink
Companies or result in any other impairment of the rights of the holder
of any such Authorization except such terminations, suspensions,
revocations or impairments as would not have a Material Adverse Effect;
(xvi) None of the Company, or any of the Company's Material
Subsidiaries or the Urbanlink Companies is in violation of its
respective (a) articles or by-laws or (b) Memorandum of Association or
Articles of Association or in default in the performance of any
obligation, agreement, covenant or condition contained in any
indenture, loan agreement, mortgage, lease or other agreement or
instrument that is material to the Company and its subsidiaries, taken
as a whole, to which the Company, Urbanlink or any of the Company's
subsidiaries is a party or by which the Company, Urbanlink or any of
the Company's subsidiaries or their respective property is bound,
except violations or defaults which would not, in the aggregate, have a
Material Adverse Effect;
(xvii) The statements set forth in the Prospectus and the
Canadian Prospectus under the captions "Description of our Capital
Stock" and "Description of Capital Stock and Share Capital
Reorganization", insofar as they purport to constitute a summary of the
terms of the Stock, under the caption "Material United States and
Canadian Income Tax Considerations", "Relationships and Related Party
Transactions", "Description of Indebtedness" and under the caption
"Underwriting", insofar as they purport to describe the provisions of
the laws and documents referred to therein, are accurate, complete and
fair;
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(xviii) Other than as set forth in the Prospectus or the
Canadian Prospectus, there are no legal or governmental proceedings
pending or, to the best of the Company's knowledge, threatened to which
the Company or any of its Material Subsidiaries or the Urbanlink
Companies is or could be a party or to which any of their respective
property is or could be subject, which might result, singly or in the
aggregate, in a Material Adverse Effect or materially and adversely
affect the ability of the Company or any of its subsidiaries to perform
its obligations under this Agreement, to consummate the transactions
contemplated hereby or to establish and implement the Canadian
Telecommunications Arrangement;
(xix) The Company is not and, after giving effect to the
offering and sale of the Shares, will not be an "investment company",
as such term is defined in the Investment Company Act of 1940, as
amended (the "INVESTMENT COMPANY ACT");
(xx) The accountants, PricewaterhouseCoopers LLP and Deloitte
& Touche LLP, that have certified the financial statements and
supporting schedules included in the Prospectus and the Canadian
Prospectus are independent public accountants with respect to the
Company and its predecessor, as required by the Act and the Exchange
Act and the rules and regulations thereunder and are independent with
respect to the Company within the meaning of the Companies Act (Nova
Scotia). To the best knowledge of the Company, the historical financial
statements and PRO FORMA financial information, together with related
schedules and notes, set forth in the Prospectus and the Canadian
Prospectus comply as to form in all material respects with the
requirements applicable to registration statements on Form F-1 under
the Act and the Canadian Securities Laws, respectively;
(xxi) (i) There are no restrictions on the corporate power and
capacity of the Company and, to the knowledge of the Company, of WFH,
to enter into this Agreement and the Transfer Restriction Agreement, to
issue and sell the Shares, or to carry out its obligations hereunder
and thereunder; (ii) the execution and delivery of this Agreement and
the Transfer Restriction Agreement and the consummation at the Time of
Delivery (as defined in Section 3(a)) of the transactions contemplated
herein and therein and the establishment and implementation of the
Canadian Telecommunications Arrangement have been duly authorized by
all necessary corporate action on the part of the Company and, to
knowledge of the Company, of WFH; and (iii) when duly executed and
delivered by each of the Company, Gregory B. Maffei and WFH, the
Transfer Restriction Agreement will constitute a valid and binding
obligation of the Company, and to the knowledge of the Company, of each
of WFH and Gregory B. Maffei and will be enforceable against the
Company, and to the knowledge of the Company, of each of WFH and
Gregory B. Maffei in accordance with its terms, subject to applicable
bankruptcy, insolvency, reorganization, moratorium, fraudulent
conveyance, transfer and other laws relating to or affecting creditors'
rights and remedies generally and to general principles of equity
(regardless of whether enforcement is sought in a proceeding at law or
in equity);
(xxii) This Agreement has been duly authorized, executed and
delivered by the Company;
(xxiii) The listing of the Shares on The Toronto Stock
Exchange has been approved by such exchange subject only to filing of
documents and evidence of
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satisfactory distribution in accordance with the requirements of such
exchange on or before July 11, 2000. The Nasdaq Stock Market, Inc. has
conditionally approved the Shares for listing on the Nasdaq National
Market, subject to compliance with only customary listing conditions.
The definitive form of certificate for the Shares has been duly
approved and adopted by the Company and complies with the provisions of
the Companies Act (Nova Scotia) and the requirements of The Toronto
Stock Exchange;
(xxiv) Montreal Trust Company of Canada at its principal
offices in Toronto, and Vancouver and HSBC Bank USA at its principal
offices in New York have been duly appointed as the transfer agent and
registrar for the Company's Subordinate Voting Shares in Canada and the
United States, respectively;
(xxv) Except for withholding tax eligible on any amount paid
or credited, or deemed to be paid or credited, to a non-resident person
as, on account for, or in lieu of payment of, or in satisfaction of a
dividend, no stamp duty, registration or documentary taxes, duties or
similar charges are payable to the Canadian government or to any
political subdivision or taxing authority thereof or therein in
connection with (A) the issuance, sale and delivery by the Company and
the Selling Shareholder to or for the respective accounts of the
Underwriters of the Shares, (B) the sale and delivery outside Canada by
the Underwriters of the Shares to the initial purchasers thereof in the
manner contemplated in this Agreement, or (C) the payment or crediting
by the Company or the Selling Shareholder of any commission or fee to
or for the respective account of any Underwriter who is not resident in
Canada, provided that a commission or fee is payable in respect of
services rendered by such Underwriter outside of Canada;
(xxvi) No goods and services tax imposed under the federal
laws of Canada will be collectible by an Underwriter in respect of the
payment or crediting of any discount, commission or fee as contemplated
by this Agreement to any Underwriter, provided that any such discount,
commission or fee is payable in respect of services performed by such
Underwriter wholly outside of Canada;
(xxvii) Except as disclosed in the Prospectus and the Canadian
Prospectus, none of the Company, any of the Company's Material
Subsidiaries or the Urbanlink Companies is a party or subject to the
provision of any injunction, judgment, decree or order of any court,
regulatory body, administrative agency or other governmental body
except as would not have a Material Adverse Effect;
(xxviii) The Company, Urbanlink and each of the Company's
Material Subsidiaries is in compliance with all applicable statutes,
laws, ordinances, administrative or governmental rules and regulations
of the jurisdictions in which it is conducting its business except
where a failure to be in such compliance would not have a Material
Adverse Effect;
(xxix) Except as discussed in the Prospectus or the Canadian
Prospectus, neither the Company nor any of its Material Subsidiaries
has violated any foreign, federal, state, provincial or local law or
regulation relating to the protection of human health and safety, the
environment or hazardous or toxic substances or wastes, pollutants or
contaminants ("ENVIRONMENTAL LAWS"), any provisions of the Employee
Retirement Income Security Act of 1974, as amended ("ERISA") and
provisions of any federal or provincial pension standards legislation
(or rules, regulations and
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administration policies thereunder) in Canada, or any provisions of the
Foreign Corrupt Practices Act or the rules and regulations promulgated
thereunder, except for such violations which, singly or in the
aggregate, would not have a Material Adverse Effect;
(xxx) Except as described in the Prospectus or the Canadian
Prospectus, there are no costs or liabilities associated with
Environmental Laws (including, without limitation, any capital or
operating expenditures required for clean-up (including, without
limitation, to remediate any substance which exceeds decommissioning,
remediation or similar guidelines, standards or criteria under
Environmental Laws or applied by governmental authorities acting under
Environmental Laws), closure of properties or compliance with
Environmental Laws or any Authorization, any related constraints on
operating activities and any potential liabilities to third parties or
as a result of government action) which would, singly or in the
aggregate, have a Material Adverse Effect;
(xxxi) Except as disclosed in the Prospectus and the Canadian
Prospectus, each of the Company, its Material Subsidiaries and the
Urbanlink Companies has all permits, licenses, certificates, consents,
exemptions, waivers, franchises, authorizations and other approvals
(each, an "AUTHORIZATION") of, and has made all filings with and
notices to, all governmental or regulatory authorities and
self-regulatory organizations and all courts and other tribunals,
including without limitation, under any applicable Environmental Laws,
as are necessary to own, lease, license and operate its respective
properties and to conduct its business except where the failure to have
any such Authorization or to make any such filing or notice would not,
singly or in the aggregate, have a Material Adverse Effect. Except as
disclosed in the Prospectus and the Canadian Prospectus, each such
Authorization is valid and in full force and effect and each of the
Company and its Material Subsidiaries is in compliance with all the
terms and conditions thereof and with the rules and regulations of the
authorities and governing bodies having jurisdiction with respect
thereto except where failure to comply would not have a Material
Adverse Effect; and no event has occurred (including, without
limitation, the receipt of any notice from any authority or governing
body) which allows or, after notice or lapse of time or both, would
allow, revocation, suspension or termination of any such Authorization
or results or, after notice or lapse of time or both, would result in
any other impairment of the rights of the holder of any such
Authorization except where such event would not have a Material Adverse
Affect; and such Authorizations contain no restrictions that are
burdensome to the Company or any of its Material Subsidiaries except as
would not, singly or in the aggregate, have a Material Adverse Effect;
(xxxii) No "nationally recognized statistical rating
organization" as such term is defined for purposes of Rule 436(g)(2)
under the Act (i) has imposed (or has informed the Company that it is
considering imposing) any condition (financial or otherwise) on the
Company's retaining any rating assigned to the Company, any securities
of the Company or (ii) has indicated to the Company that it is
considering (a) the downgrading, suspension, or withdrawal of, or any
review for a possible change that does not indicate the direction of
the possible change in, any rating so assigned or (b) any change in the
outlook for any rating of the Company, or any securities of the
Company;
(xxxiii) Since the respective dates as of which information is
given in the Prospectus and the Canadian Prospectus other than as set
forth in the Prospectus and
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the Canadian Prospectus, respectively, (exclusive of any amendments or
supplements thereto subsequent to the date of this Agreement), (i)
there has not occurred any material adverse change or any development
involving a prospective material adverse change in the condition,
financial or otherwise, or the earnings, business, management or
operations of the Company and its subsidiaries, taken as a whole, (ii)
there has not been any material adverse change or any development
involving a prospective material adverse change in the capital stock or
in the long-term debt of the Company or any of its subsidiaries and
(iii) none of the Company, Urbanlink or any of the Company's
subsidiaries has incurred any material liability or obligation, direct
or contingent;
(xxxiv) The Company is a "foreign issuer" as defined in Rule
902 under the Act;
(xxxv) The Company and each of its Canadian subsidiaries as
set forth in Schedule D, Urbanlink and Carrier Holdco (collectively,
the "CANADIAN COMPANIES") hold all Canadian Radio-television and
Telecommunications Commission ("CRTC") and Industry Canada licenses or
authorizations and possess adequate certificates, authorities or
permits issued by appropriate governmental agencies or bodies necessary
to conduct the business now operated by them, other than those the
absence of which could not reasonably be expected to, individually or
in the aggregate, have a Material Adverse Effect and have not received
any notice of proceedings relating to the revocation or modification of
any such certificate, authority or permit that, if determined
adversely, could reasonably be expected to, individually or in the
aggregate, have a Material Adverse Effect;
(xxxvi) The Canadian Telecommunications Arrangement (as
described in the Prospectus and the Canadian Prospectus) including the
execution, delivery and performance by the parties thereto of (i) the
Reseller Agreement dated - , 2000 between Urbanlink, the Company and
Worldwide Fiber Network Services Ltd. ("WF Services"), (ii) the
Co-Development Agreement dated - , 2000 between the Company and
Urbanlink, (iii) the Definitive Agreement dated - , 2000 between
Urbanlink and the Company, (iv) the Shareholders Agreement dated - ,
2000 between Carrier Holdco, Urbanlink, the Company, 360 Urbanlink Ltd.
and WFH, (v) the Capacity Purchase Agreement dated - , 2000 between
Urbanlink and WF Services, (vi) the Fibre Optic Maintenance Agreement
dated - , 2000 between Urbanlink and WF Services, (vii) the Roll-Over
Agreement dated - , 2000 between 360 Urbanlink Ltd. and Ledcor
Communications Ltd., (viii) the Roll-Over Agreement dated - , 2000
between 360 Urbanlink Ltd. and WFI-CN Fibre Inc., (ix) the Roll-Over
Agreement dated - , 2000 between 360 Urbanlink Ltd. and Worldwide Fiber
(F.O.T.S.) No. 3, Ltd., (x) the Roll-Over Agreement dated - , 2000
between 360 Urbanlink Ltd. and WF Services, (xi) the Roll-Over
Agreement dated - , 2000 between 360 Urbanlink Ltd. and Worldwide Fiber
Networks Ltd., (xii) the Roll-Over Agreement dated - , 2000 between
Carrier Holdco and 360 Urbanlink Ltd., (xiii) the Roll-Over Agreement
dated - , 2000 between Carrier Holdco and WFH, (xiv) the Asset Purchase
Agreement dated - , 2000 between Urbanlink and Ledcor Communications
Ltd., (xv) the Asset Purchase Agreement dated - , 2000 between WFI-CN
Fibre Inc. and Ledcor Cayer Inc., (xvi) the Asset Purchase Agreement
dated - , 2000 between Urbanlink and WF Services, (xvii) the Asset
Purchase Agreement dated - , 2000 between Urbanlink Equipment Ltd. and
WF Services, (xviii) the Asset Purchase Agreement dated - , 2000
between Urbanlink and WFI-CN Fibre Inc., (xvix) the Asset Purchase
Agreement dated - , 2000 between Urbanlink and Ledcor Communications
Ltd., (xx) the Asset Purchase Agreement dated
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- , 2000 between Urbanlink and Worldwide Fiber (F.O.T.S.) No. 3, Ltd.,
(xxi) the Asset Purchase Agreement dated - , 2000 between Urbanlink and
WFI-CN Fibre Inc., (xxii) the Asset Purchase Agreement dated - , 2000
between WFI-CN Fibre Inc. and Ledcor Communications Ltd., (xxiii) the
Asset Purchase Agreement dated - , 2000 between WFI-CN Fibre Inc. and
Ledcor Cayer Inc. and (xxiv) the Asset Purchase Agreement dated - ,
2000 between WFI-CN Fibre Inc. and Ledcor Communications Ltd. will not
violate or conflict with any provisions of the Telecommunications Act
or the Ownership Regulations (as defined below) or any applicable law,
rule, regulation, judgment, decision, order or decree of any court or
any governmental body or agency having jurisdiction over any of the
Canadian Companies and will not result in any tax or other consequence
to the Company, actual or contingent, which will have a Material
Adverse Effect;
(xxxvii) (i) Urbanlink is eligible to operate as a
telecommunications common carrier in Canada, as defined under and in
accordance with the Telecommunications Act (Canada) (the
"TELECOMMUNICATIONS ACT") and the Canadian Telecommunications Common
Carrier Ownership and Control Regulations (the "OWNERSHIP
Regulations"); (ii) none of the Canadian Companies violates the
prohibition contained in subsection 16(4) of the Telecommunications Act
against operating in Canada as a telecommunications common carrier when
ineligible to do so; (iii) control of Urbanlink is not exercised by any
person(s) that is (are) not Canadian, in accordance with the meanings
ascribed to the term "control" under the Telecommunications Act and the
term "Canadian" under the Ownership Regulations; and (iv) the Canadian
Companies are not in violation of any judgment, decree, order, writ,
law, statute, rule or regulation rendered or enacted in Canada
respecting telecommunications and the regulation within Canada of
telecommunications common carriers, as defined in the
Telecommunications Act, applicable to the Canadian Companies, or any
interpretation or policy relating thereto known to be applicable by and
to them;
(xxxviii)(i) Not less than eighty percent of the members of
the board of directors of Urbanlink are individual Canadians, as
defined under the Ownership Regulations; (ii) Canadians, as defined
under the Ownership Regulations, beneficially own, directly or
indirectly, in the aggregate and otherwise than by way of security
only, not less than eighty percent of the issued and outstanding voting
shares, as defined under the Ownership Regulations, of Urbanlink; (iii)
Carrier Holdco, in respect of its ownership of and control over
Urbanlink is a carrier holding corporation, as defined under the
Ownership Regulations; and (iv) Carrier Holdco is a carrier holding
corporation that is a qualified corporation, as defined under the
Ownership Regulations;
(xxxix) With the exception of Urbanlink, no other Canadian
Company operates in Canada as a telecommunications common carrier as
that term is defined in the Telecommunications Act;
(xl) Except as disclosed in the Prospectus, neither the
Company nor its subsidiaries is currently, nor will the conduct of its
business as described in the Prospectus cause it to be subject to the
provisions of the Communications Act of 1934, as amended by the
Telecommunications Act of 1996 (the "COMMUNICATIONS Act") or to any
rules, regulations and policies of the Federal Communications
Commission (the "FCC") related hereto;
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(xli) The Company and its Material Subsidiaries are in
compliance with all federal, state and local telecommunications laws,
rules, regulations and policies (i) in the United States to which they
are subject, including the Communications Act and the related rules,
regulations and policies of the FCC except as would not have a Material
Adverse Effect and (ii) in Europe to which they are subject, including
the Full Competition Directive, the Licensing Directive, and the
Interconnection Directive and the related rules, regulations and
policies of each of the member states of the European Union except as
would not have a Material Adverse Effect;
(xlii) The Company and its subsidiaries, and as of the First
Time of Delivery (as defined in Section 3(a)) Urbanlink will, own or
possess, or can acquire on reasonable terms, all patents, patent
rights, licenses, inventions, copyrights, know-how (including trade
secrets and other unpatented and/or unpatentable proprietary or
confidential information, systems or procedures), trademarks, service
marks and trade names ("INTELLECTUAL PROPERTY") currently employed by
them in connection with the business now operated by them except where
the failure to own or possess or otherwise be able to acquire such
intellectual property would not, singly or in the aggregate, have a
Material Adverse Effect; and neither the Company nor any of its
subsidiaries has received any notice of infringement of or conflict
with asserted rights of others with respect to any of such intellectual
property which, singly or in the aggregate, if the subject of an
unfavorable decision, ruling or finding, would have a Material Adverse
Effect;
(xliii) Except as disclosed in the Prospectus and the Canadian
Prospectus, no relationship, direct or indirect, exists between or
among the Company or any of its subsidiaries or affiliates on the one
hand, and the directors, officers, Shareholders, customers or suppliers
of the Company or any of its subsidiaries or affiliates on the other
hand, which is required by the Act or Canadian Securities Laws to be
described in the Prospectus or the Canadian Prospectus;
(xliv) There is no (i) significant unfair labor practice
complaint, grievance or arbitration proceeding pending or threatened
against the Company or any of its subsidiaries before the National
Labor Relations Board, Canada Labor Relations Board or any state,
provincial, or local labor relations board, (ii) strike, labor dispute,
slowdown or stoppage pending or threatened against the Company or any
of its subsidiaries or (iii) union representation question existing
with respect to the employees of the Company or any of its
subsidiaries, except in the case of clauses (i), (ii) and (iii) for
such actions which, singly or in the aggregate, would not have a
Material Adverse Effect. To the best knowledge of the Company, no
collective bargaining organizing activities are taking place with
respect to the Company or any of its subsidiaries;
(xlv) The Company and each of its subsidiaries maintain a
system of internal accounting controls sufficient to provide reasonable
assurance that (i) transactions are executed in accordance with
management's general or specific authorizations; (ii) transactions are
recorded as necessary to permit preparation of financial statements in
conformity with the United States generally accepted accounting
principles and to maintain asset accountability; (iii) access to assets
is permitted only in accordance with management's general or specific
authorization; and (iv) the recorded accountability for assets is
compared with the existing assets at reasonable intervals and
appropriate action is taken with respect to any differences;
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(xlvi) All material tax returns required to be filed by the
Company and each of its subsidiaries in any jurisdiction have been
filed, other than those filings being contested in good faith, and all
material taxes, including withholding taxes, penalties and interest,
assessments, fees and other charges due pursuant to such returns or
otherwise or pursuant to any assessment received by the Company or any
of its subsidiaries have been paid, other than those being contested in
good faith and for which adequate reserves have been provided except
where failure to file would not have a Material Adverse Effect;
(xlvii) The Company has made available to the Underwriters
true and complete copies of all agreements between the Company or any
of its directors, officers or employees on one hand and Ledcor and
Urbanlink, or any of their respective directors, officers or employees
on the other hand;
(xlviii) the Shares are not subject to any registration rights
or preemptive rights pursuant to any shareholder agreement or any other
agreement, other than rights that have been expressly waived by the
parties to any such agreements; and
(xlix) Neither the Company nor any of its Restricted
Subsidiaries, as defined in the indenture governing the Company's 12%
Senior Notes due 2009, nor is any of its or their respective property
or assets subject to, any obligation (including, without limitation,
any mortgage, assignment, pledge, charge or other security interest)
under the Hibernia Facility (as defined).
(b) The Selling Shareholder represents and warrants to, and
agrees with, each of the Underwriters, Sub-Underwriters and the Company that:
(i) All consents, approvals, authorizations and orders
necessary for the execution and delivery by the Selling Shareholder of
this Agreement, and for the sale and delivery of the Shares to be sold
by the Selling Shareholder hereunder, have been obtained; and the
Selling Shareholder has full right, power and authority to enter into
this Agreement, and to sell, assign, transfer and deliver the Shares to
be sold by the Selling Shareholder hereunder;
(ii) The sale of the Shares to be sold by the Selling
Shareholder hereunder and the compliance by the Selling Shareholder
with all of the provisions of this Agreement and the consummation of
the transactions herein contemplated will not conflict with or result
in a breach or violation of any of the terms or provisions of, or
constitute a default under, any statute, indenture, mortgage, deed of
trust, loan agreement or other agreement or instrument to which the
Selling Shareholder is a party or by which the Selling Shareholder is
bound or to which any of the property or assets of the Selling
Shareholder is subject, nor will such action result in any violation of
the provisions of the Certificate of Incorporation or By-laws of the
Selling Shareholder if the Selling Shareholder is a corporation or the
Partnership Agreement of the Selling Shareholder if the Selling
Shareholder is a partnership or any statute or any order, rule or
regulation of any court or governmental agency or body having
jurisdiction over the Selling Shareholder or the property of the
Selling Shareholder;
(iii) This Agreement has been duly and validly executed and
delivered on behalf of the Selling Shareholder;
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(iv) The Selling Shareholder has, and immediately prior to the
each Time of Delivery (as defined in Section 3(a)) the Selling
Shareholder will have, good and valid title to the Shares to be sold by
the Selling Shareholder hereunder, free and clear of all liens,
encumbrances, equities or claims; and, upon delivery of such Shares and
payment therefor pursuant hereto, good and valid title to such Shares,
free and clear of all liens, encumbrances, equities or claims, will
pass to the several Underwriters;
(v) During the period beginning from the date hereof and
continuing to and including the date 180 days after the date of the
Prospectus, not to offer, sell, contract to sell or otherwise
dispose of, except as provided hereunder, any securities of the
Company that are substantially similar to the Subordinate Voting
Shares, including but not limited to any securities that are
convertible into or exchangeable for, or that represent the right to
receive, Subordinate Voting Shares or any such substantially similar
securities (other than pursuant to employee stock option plans
existing on, or upon the conversion or exchange of convertible or
exchangeable securities outstanding as of, the date of this
Agreement), without your prior written consent; except for those
securities the sale of which by the Selling Shareholder is
contemplated by the Prospectus and the Canadian Final Prospectus;
(vi) The Selling Shareholder has not taken and will not take,
directly or indirectly, any action which is designed to or which has
constituted or which might reasonably be expected to cause or result in
stabilization or manipulation of the price of any security of the
Company to facilitate the sale or resale of the Shares;
(vii) To the extent that any statements or omissions made in
the Registration Statement, any Preliminary Prospectus, the Prospectus,
the Canadian Preliminary Prospectus, the Amended Canadian Preliminary
Prospectus, the Canadian Prospectus or any amendment or supplement
thereto are made in reliance upon and in conformity with written
information furnished to the Company by the Selling Shareholder
expressly for use therein, such Preliminary Prospectus, the
Registration Statement, the Canadian Preliminary Prospectus and the
Amended Canadian Preliminary Prospectus did, and the Prospectus and the
Canadian Prospectus and any further amendments or supplements to the
Registration Statement, the Prospectus and the Canadian Prospectus,
when they become effective or are filed with the Commission or the
Canadian Commissions, as the case may be, will conform in all material
respects to the requirements of the Act and the rules and regulations
of the Commission thereunder and the Canadian Securities Laws and will
not contain any untrue statement of a material fact or omit to state
any material fact required to be stated therein or necessary to make
the statements therein not misleading;
(viii) In order to document the Underwriters' compliance with
the reporting and withholding provisions of the Tax Equity and Fiscal
Responsibility Act of 1982 with
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respect to the transactions herein contemplated, the Selling
Shareholder will deliver to you prior to or at the First Time of
Delivery (as defined in Section 3(a)) a properly completed and executed
United States Treasury Department Form W-9 (or other applicable form or
statement specified by Treasury Department regulations in lieu
thereof); and
(ix) The obligations of the Selling Shareholder hereunder
shall not be terminated by operation of law whether, in the case of a
partnership, by the dissolution of such partnership, or by the
occurrence of any other event; if any such partnership should be
dissolved, or if any other such event should occur, before the delivery
of the Shares hereunder, certificates representing the Shares shall be
delivered by or on behalf of the Selling Shareholder in accordance with
the terms and conditions of this Agreement;
2. Subject to the terms and conditions herein set forth, (a) the
Company and the Selling Shareholder agree, severally and not jointly, to sell to
each of the Underwriters, and each of the Underwriters agrees, severally and not
jointly, to purchase from the Company and the Selling Shareholder, at a purchase
price per share of $.............., the number of Firm Shares (to be adjusted by
you so as to eliminate fractional shares) determined by multiplying the
aggregate number of Shares to be sold by the Company and the Selling Shareholder
as set forth opposite its name in Schedule E hereto by a fraction, the numerator
of which is the aggregate number of Firm Shares to be purchased by such
Underwriter as set forth opposite the name of such Underwriter in Schedule A
hereto and the denominator of which is the aggregate number of Firm Shares to be
purchased by all of the Underwriters from the Company and the Selling
Shareholder hereunder and (b) in the event and to the extent that the
Underwriters shall exercise the election to purchase Optional Shares as provided
below, the Company agrees to sell to each of the Underwriters, and each of the
Underwriters agrees, severally and not jointly, to purchase from the Company, at
the purchase price per share set forth in clause (a) of this Section 2, that
portion of the number of Optional Shares as to which such election shall have
been exercised (to be adjusted by you so as to eliminate fractional shares)
determined by multiplying such number of Optional Shares by a fraction the
numerator of which is the maximum number of Optional Shares which such
Underwriter is entitled to purchase as set forth opposite the name of such
Underwriter in Schedule A hereto and the denominator of which is the maximum
number of Optional Shares that all of the Underwriters are entitled to purchase
hereunder.
The Company, as and to the extent indicated in Schedule E hereto,
hereby grants, to the Underwriters the right to purchase at their election up to
6,941,250 Optional Shares, at the purchase price per share set forth in the
paragraph above, for the sole purpose of covering sales of shares in excess of
the number of Firm Shares. Any such election to purchase Optional Shares shall
be made in proportion to the maximum number of Optional Shares to be sold by the
Company as set forth in Schedule E hereto initially with respect to the Optional
Shares to be sold by the Company. Any such election to purchase Optional Shares
may be exercised only by written notice from you to the Company, given within a
period of 30 calendar days after the date of this Agreement and setting forth
the aggregate number of Optional Shares to be purchased and the date on which
such Optional Shares are to be delivered, as determined by you but in no event
earlier than the First Time of Delivery (as defined in Section 3(a)) or, unless
you and the Company otherwise agree in writing, earlier than two or later than
ten business days after the date of such notice.
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(a) Upon the authorization by you of the release of the Firm
Shares, the several Underwriters propose to offer the Firm Shares for sale upon
the terms and conditions set forth in the Prospectus.
(b) The Company understands that a portion of the Shares may
be offered and sold in the Canadian Jurisdictions by Goldman Sachs Canada Inc.,
Credit Suisse First Boston Securities Canada Inc., Morgan Stanley Canada
Limited, and Bunting Warburg Dillon Read Inc. (collectively, the
"SUB-UNDERWRITERS") and TD Securities Inc., BMO Nesbitt Burns Inc. and RBC
Dominion Securities Inc. pursuant to the Canadian Prospectus. Any Shares so sold
by the Sub-Underwriters will be purchased by the Sub-Underwriters from their
respective Underwriter affiliates at the Time of Delivery (as defined in Section
3(a)) at a price equal to the purchase price set forth in Section 2 above or
such purchase price less an amount to be mutually agreed upon by the
Sub-Underwriter and its Underwriter affiliate, which amount shall not be greater
than the underwriting commission set forth on the cover page of the Prospectus
and the Canadian Prospectus.
(c) The Underwriters shall give prompt written notice to
the Company and the Selling Shareholder when, in the opinion of the
Underwriters, they have ceased distribution to the public of the Firm Shares
or the Optional Shares, as the case may be, and after the First Time of
Delivery or the Second Time of Delivery, as the case may be, of the total
proceeds realized in each of the provinces from such distribution.
3. (a) The Shares to be purchased by each Underwriter hereunder,
in definitive form, and in such authorized denominations and registered in such
names as Goldman, Sachs & Co. and DLJ may request upon at least forty-eight
hours' prior notice to the Company and the Selling Shareholder shall be
delivered by or on behalf of the Company and the Selling Shareholder to Goldman,
Sachs & Co. and DLJ, through the facilities of the Depository Trust Company
("DTC"), for the account of such Underwriter, against payment by or on behalf of
such Underwriter of the purchase price therefor by wire transfer of Federal
(same-day) funds to the account specified by the Company and the Selling
Shareholder, as their interests may appear, to Goldman, Sachs & Co. and DLJ at
least forty-eight hours in advance. The Company will cause the certificates
representing the Shares to be made available for checking and packaging at least
twenty-four hours prior to the Time of Delivery (as defined below) with respect
thereto at the office of DTC or its designated custodian (the "DESIGNATED
OFFICE"). The time and date of such delivery and payment shall be, with respect
to the Firm Shares, 9:00 a.m., New York time, on April __, 2000 or such other
time and date as Goldman, Sachs & Co. and DLJ, the Company and the Selling
Shareholder may agree upon in writing, and, with respect to the Optional Shares,
9:00 a.m., New York time, on the date specified by Goldman, Sachs & Co. and DLJ
in the written notice given by Goldman, Sachs & Co. and DLJ of the Underwriters'
election to purchase such Optional Shares, or such other time and date as
Goldman, Sachs & Co., DLJ and the Company may agree upon in writing. Such time
and date for delivery of the Firm Shares is herein called the "FIRST TIME OF
DELIVERY", such time and date for delivery of the Optional Shares, if not the
First Time of Delivery, is herein called the "SECOND TIME OF DELIVERY", and each
such time and date for delivery is herein called a "TIME OF DELIVERY".
(b) The documents to be delivered at each Time of Delivery
by or on behalf of the parties hereto pursuant to Section 6 hereof, including
the cross receipt for the Shares, will be delivered at the offices of Latham
& Watkins, 885 Third Avenue, New York, New York
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10022 (the "CLOSING LOCATION"), and the Shares will be delivered at the
Designated Office, all at such Time of Delivery. A meeting will be held at the
Closing Location on the New York Business Day next preceding such Time of
Delivery, at which meeting the final drafts of the documents to be delivered
pursuant to the preceding sentence will be available for review by the parties
hereto. For the purposes of this Section 3, "NEW YORK BUSINESS DAY" shall mean
each Monday, Tuesday, Wednesday, Thursday and Friday which is not a day on which
banking institutions in New York are generally authorized or obligated by law or
executive order to close.
4. The Company agrees with each of the Underwriters and
Sub-Underwriters:
(a) To (i) prepare the Prospectus in a form approved by you
and to file such Prospectus pursuant to Rule 424(b) under the Act not later than
the Commission's close of business on the second business day following the
execution and delivery of this Agreement, or, if applicable, such earlier time
as may be required by Rule 430A(a)(3) under the Act; (ii) obtain a Mutual
Reliance Review Decision document for the Canadian Final Prospectus from the
Principal Regulator of the Canadian Commissions not later than 5:00 p.m.
(Vancouver time) on the business day next following the date of this Agreement
and, if the Company has elected to use the PREP Procedures in connection with
the distribution of the Shares in Canada, to file the Canadian Prospectus, in a
form approved by you, with each of the Canadian Commissions not later than the
time of filing of the Prospectus with the Commission, and in any event, in
accordance with the PREP Procedures and the PREP Exemption Orders; (iii) advise
you, promptly, when the Canadian Prospectus shall have been filed with the
Canadian Commissions; (iv) advise you, promptly, after it receives any
communication from any Canadian Commission or any other regulatory authority in
Canada relating to the Canadian Prospectus, the offering of the Shares or the
listing of the Shares on The Toronto Stock Exchange; and (v) make no further
amendment or any supplement to the Registration Statement, Prospectus or
Canadian Prospectus which shall be disapproved by you promptly after reasonable
notice thereof; (vi) advise you, promptly after it receives notice thereof, of
the time when any amendment to the Registration Statement has been filed or
becomes effective or any supplement to the Prospectus or any amended Prospectus
has been filed and to furnish you with copies thereof; (vii) advise you,
promptly after it receives notice thereof, of the issuance by the Commission or
any Canadian Commission of any stop order, cease trading order or of any order
preventing or suspending the use of any Preliminary Prospectus or prospectus,
Canadian Preliminary Prospectus, Amended Canadian Preliminary Prospectus,
Canadian Final Prospectus, Canadian Prospectus or any Canadian Prospectus
Amendment (as defined) of the suspension of the qualification of the Shares for
offering or sale in any jurisdiction, of the initiation or threatening of any
proceeding for any such purpose, or of any request by the Commission or a
Canadian Commission for the amending or supplementing of the Registration
Statement, Prospectus or Canadian Prospectus or for additional information; and,
(viii) in the event of the issuance of any stop order, cease trading order or of
any order preventing or suspending the use of any Preliminary Prospectus or
prospectus, Canadian Preliminary Prospectus, Amended Canadian Preliminary
Prospectus, Canadian Final Prospectus, Canadian Prospectus or any Canadian
Prospectus Amendment (as defined) or suspending any such qualification, promptly
to use its best efforts to obtain the withdrawal of such order;
(b) Promptly from time to time to take such action as you may
reasonably request to qualify the Shares for offering and sale under the
securities laws of such jurisdictions as you may request and to comply with such
laws so as to permit the continuance of sales and dealings therein in such
jurisdictions for as long as may be necessary to complete the distribution of
the Shares, provided that in connection therewith the Company shall not be
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<PAGE>
required to qualify as a foreign corporation or to file a general consent to
service of process in any jurisdiction;
(c) Prior to 10:00 A.M., New York City time, on the New York
Business Day next succeeding the date of this Agreement and from time to time,
to furnish the Underwriters and Sub-Underwriters with copies of the Prospectus
in New York City and the Canadian Prospectus in both the English and French
languages in Toronto and Montreal in such quantities as you may reasonably
request, and, if the delivery of a prospectus is required at any time prior to
the expiration of nine months after the time of issue of the Prospectus in
connection with the offering or sale of the Shares and if at such time any
events shall have occurred as a result of which the Prospectus or the Canadian
Prospectus as then amended or supplemented would include an untrue statement of
a material fact or omit to state any material fact necessary in order to make
the statements therein, in the light of the circumstances under which they were
made when such Prospectus or Canadian Prospectus is delivered, not misleading,
or, if for any other reason it shall be necessary during such period to amend or
supplement the Prospectus or the Canadian Prospectus in order to comply with the
Act, to notify you and upon your request to prepare and furnish without charge
to each Underwriter and to any dealer in securities as many copies as you may
from time to time reasonably request of an amended Prospectus or Canadian
Prospectus or a supplement to the Prospectus or Canadian Prospectus which will
correct such statement or omission or effect such compliance, and in case any
Underwriter is required to deliver a prospectus in connection with sales of any
of the Shares at any time nine months or more after the time of issue of the
Prospectus, upon your request but at the expense of such Underwriter, to prepare
and deliver to such Underwriter as many copies as you may request of an amended
or supplemented Prospectus complying with Section 10(a)(3) of the Act;
(d) If at any time it shall be necessary to amend or
supplement the Canadian Prospectus (each such amendment or supplement, a
"CANADIAN PROSPECTUS AMENDMENT") to comply with Section 4(c) or to otherwise
comply with Canadian Securities Laws, the Company promptly will (i) prepare and
file with each of the Canadian Commissions, an amendment or supplement in a form
approved by you which will effect such compliance and file such Canadian
Prospectus Amendment with the Canadian Commission in each of the Canadian
Jurisdictions where such filing is required and (ii) supply such Canadian
Prospectus Amendment to you in such quantities as you may reasonably request.
The Company shall deliver to the Underwriters, concurrently with the delivery of
any Canadian Prospectus Amendment, opinions similar to those referred to in
Sections 7(l) and 7(m) with respect to such Canadian Prospectus Amendment, if a
French language version of such Canadian Prospectus Amendment is required to be
filed;
(e) To make generally available to its securityholders as soon
as practicable, but in any event not later than eighteen months after the
effective date of the Registration Statement (as defined in Rule 158(c) under
the Act), an earnings statement of the Company and its subsidiaries (which need
not be audited) complying with Section 11(a) of the Act and the rules and
regulations of the Commission thereunder (including, at the option of the
Company, Rule 158);
(f) During the period beginning from the date hereof and
continuing to and including the date 180 days after the date of the
Prospectus, not to offer, sell, contract to sell or otherwise dispose of,
except as provided hereunder, any securities of the Company that are
substantially similar to the Subordinate Voting Shares, including but not
limited to any securities that are convertible
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into or exchangeable for, or that represent the right to receive, Subordinate
Voting Shares or any such substantially similar securities (other than
pursuant to employee stock option plans existing on, or upon the conversion
or exchange of convertible or exchangeable securities outstanding as of, the
date of this Agreement), without your prior written consent except for those
Securities the sale of which by the Company is contemplated by the Prospectus
and the Final Canadian Prospectus or securities issued as consideration in
connection with strategic investments or acquisitions of businesses,
technologies or products complementary to ours, in which the Company may
otherwise engage, so long as the recipients of such securities agree to be
bound by the restriction set forth in this representation for the remainder
of the 180-day period;
(g) To furnish to its shareholders as soon as practicable
after the end of each fiscal year an annual report (including a balance sheet
and statements of income, shareholders' equity and cash flows of the Company and
its consolidated subsidiaries certified by independent public accountants) and,
as soon as practicable after the end of each of the first three quarters of each
fiscal year (beginning with the fiscal quarter ending after the effective date
of the Registration Statement), to make available to its shareholders
consolidated summary financial information of the Company and its subsidiaries
for such quarter in reasonable detail;
(h) During a period of five years from the effective date of
the Registration Statement, to furnish to you copies of all reports or other
communications (financial or other) furnished to shareholders, and to deliver to
you (i) as soon as they are available, copies of any reports and financial
statements furnished to or filed with the Commission or any national securities
exchange on which any class of securities of the Company is listed; and (ii)
such additional information concerning the business and financial condition of
the Company as you may from time to time reasonably request (such financial
statements to be on a consolidated basis to the extent the accounts of the
Company and its subsidiaries are consolidated in reports furnished to its
shareholders generally or to the Commission);
(i) To use the net proceeds received by it from the sale of
the Shares pursuant to this Agreement in the manner specified in the Prospectus
under the caption "Use of Proceeds";
(j) To use its best efforts to effect the listing of the
Shares on The Toronto Stock Exchange (the "Exchange") and list for quotation the
Shares on the National Association of Securities Dealers Automated Quotations
National Market System ("NASDAQ");
(k) To cause the Canadian Telecommunications Arrangement to be
established prior to the First Time of Delivery;
(l) To file with the Commission such information on Form 10-Q
or Form 10-K as may be required by Rule 463 under the Act; and
(m) If the Company elects to rely upon Rule 462(b), the
Company shall file a Rule 462(b) Registration Statement with the Commission in
compliance with Rule 462(b) by 10:00 P.M., Washington, D.C. time, on the date of
this Agreement, and the Company shall at the time of filing either pay to the
Commission the filing fee for the Rule 462(b) Registration Statement or give
irrevocable instructions for the payment of such fee pursuant to Rule 111(b)
under the Act.
5. The Company and the Selling Shareholder covenant and agree with one
another and with the several Underwriters that (a) the Company and the Selling
Shareholder will pay or cause to be paid their respective pro rata share based
on the proceeds received by the Company and the Selling Shareholder hereunder,
as the case may be, of the following: (i) the
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fees, disbursements and expenses of the Company's counsel and accountants in
connection with the registration of the Shares under the Act and all other
expenses in connection with the preparation, printing and filing of the
Registration Statement, any Preliminary Prospectus, the Canadian Preliminary
Prospectus, the Amended Canadian Preliminary Prospectus, the Prospectus and the
Canadian Prospectus and amendments and supplements thereto and the mailing and
delivering of copies thereof to the Underwriters and dealers; (ii) the cost of
printing or producing any Agreement among Underwriters, this Agreement, the Blue
Sky Memorandum, closing documents (including any compilations thereof) and any
other documents in connection with the offering, purchase, sale and delivery of
the Shares; (iii) all expenses in connection with the qualification of the
Shares for offering and sale under state, and any relevant foreign, securities
laws as provided in Section 5(b) hereof, including the fees and disbursements of
counsel for the Underwriters in connection with such qualification and in
connection with the Blue Sky survey (iv) all fees and expenses in connection
with listing the Shares on the Exchange and NASDAQ; and (v) the filing fees
incident to, and the fees and disbursements of counsel for the Underwriters in
connection with, securing any required review by the National Association of
Securities Dealers, Inc. of the terms of the sale of the Shares; and (b) the
Company will pay or cause to be paid: (i) the cost of preparing stock
certificates; (ii) the cost and charges of any transfer agents or registrars and
(iii) all other costs and expenses incident to the performance of its
obligations hereunder which are not otherwise specifically provided for in this
Section 5; and (c) the Selling Shareholder will pay or cause to be paid all
costs and expenses incident to the performance of the Selling Shareholder's
obligations hereunder which are not otherwise specifically provided for in this
Section, including (i) any fees and expenses of counsel for the Selling
Shareholder, and (ii) all expenses and taxes incident to the sale and delivery
of the Shares to be sold by the Selling Shareholder to the Underwriters
hereunder. It is understood, however, that the Company shall bear, and the
Selling Shareholder shall not be required to pay or to reimburse the Company
for, the cost of any other matters not directly relating to the sale and
purchase of the Shares pursuant to this Agreement, and that, except as provided
in this Section, and Sections 7 and 10 hereof, the Underwriters will pay all of
their own costs and expenses, including the fees of their counsel, stock
transfer taxes on resale of any of the Shares by them, and any advertising
expenses connected with any offers they may make.
6. The obligations of the Underwriters hereunder, as to the Shares to
be delivered at each Time of Delivery, shall be subject, in their discretion, to
the condition that all representations and warranties and other statements of
the Company and of the Selling Shareholder herein are, at and as of such Time of
Delivery, true and correct, the condition that the Company and the Selling
Shareholder shall have performed all of their obligations hereunder theretofore
to be performed, and the following additional conditions:
(a) (1) The Prospectus shall have been filed with the
Commission pursuant to Rule 424(b) within the applicable time period prescribed
for such filing by the rules and regulations under the Act and in accordance
with Section 4(a) hereof; if the Company has elected to rely upon Rule 462(b),
the Rule 462(b) Registration Statement shall have become effective by 10:00
P.M., Washington, D.C. time, on the date of this Agreement; no stop order
suspending the effectiveness of the Registration Statement or any part thereof
shall have been issued and no proceeding for that purpose shall have been
initiated or threatened by the Commission; and all requests for additional
information on the part of the Commission shall have been complied with to your
reasonable satisfaction; and (2) the Canadian Final Prospectus shall have been
filed with each
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of the Canadian Commissions and receipts obtained therefor and, if the Company
has elected to use the PREP Procedures in connection with the distribution of
the Shares in Canada, the Canadian Prospectus shall have been filed with each of
the Canadian Commissions within the applicable time period prescribed by and in
accordance with Section 4(a) hereof, and all other steps or proceedings shall
have been taken that may be necessary to enable the Shares to be lawfully
distributed to the public in each of the Canadian Jurisdictions;
(b) (i) Latham & Watkins, counsel for the Underwriters, shall
have furnished to you such written opinion or opinions, dated such Time of
Delivery, with respect to the matters as you may reasonably request and (ii)
Osler, Hoskin & Harcourt LLP, Canadian counsel for the Underwriters shall have
furnished to you such written opinion or opinions, dated such Time of Delivery
with respect to the matters as you may reasonably request, and each such counsel
shall have received such papers and information as they may reasonably request
to enable them to pass upon such matters;
(c) (1) Cahill Gordon and Reindel, U.S. counsel for the
Company, shall have furnished to you their written opinion or opinions, dated
such Time of Delivery, in form and substance satisfactory to you, to the effect
that:
(i) assuming due authorization by the Company, this
Agreement has been duly executed and delivered by the
Company, to the extent that execution and delivery
are governed by New York law;
(ii) the statements under the caption "Description of
Indebtedness" in the Prospectus, insofar as such
statements constitute a summary of the documents
referred to therein, fairly summarize in all material
respects such documents;
(iii) the statements in the Prospectus under the caption
"Material United States and Canadian Income Tax
Considerations," to the extent they constitute
matters of United States law or legal conclusions
with respect thereto, have been prepared or reviewed
by us and are correct in all material respects and
fairly summarize the matters set forth therein;
(iv) the execution, delivery and performance by the
Company of this Agreement, the issuance and sale by
the Company of the Shares, the compliance by the
Company with all provisions hereof and thereof and
the consummation of the transactions contemplated
hereby and thereby: (i) do not conflict with or
violate any federal statute of the United States of
America or any statute of the State of New York or
any rule or regulation thereunder (provided that no
opinion is expressed in this paragraph as to
compliance with the Act, any state securities or blue
sky laws or the Telecommunications Act of 1996, as
amended, and the rules and regulations thereunder);
or (ii) conflict with or constitute a breach of any
of the terms or provisions of, or a default under,
the indenture governing the Company's 12% Senior
Notes due 2009, the indenture governing the Company's
12 1/2% Senior Notes due 2008, the indenture
governing the Company's U.S. Dollar ___% Senior
Notes due 2008, the indenture governing the Company's
Euro ___% Senior Notes due 2008, the agreement
governing the Hibernia project financing
Facilities entered into by the Company, Goldman
Sachs, DLJ, Credit Suisse First Boston, Toronto
Dominion, Bank of Montreal and EDC (the "HIBERNIA
FACILITIES");
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(v) the Company is not and, after giving effect to the
offering and sale of the Shares and the application
of the net proceeds thereof as described in the
Prospectus, will not be, an "investment company" as
such term is defined in the Investment Company Act of
1940, as amended;
(vi) assuming the due authorization, execution and
delivery of this Agreement by each party thereto, the
Company has validly and irrevocably submitted to the
jurisdiction of any United States or state court in
the State of New York, County of New York, has
expressly accepted the non-exclusive jurisdiction of
any such court and has validly and irrevocably
appointed CT Corporation System as its authorized
agent in any suit or proceeding against them
instituted by the Underwriters based on or arising
under this Agreement;
(vii) each of Worldwide Fiber IC LLC, IC Fiber Alabama LLC,
IC Fiber Illinois LLC, IC Fiber Iowa LLC, IC Fiber
Kentucky LLC, IC Fiber Louisiana LLC, IC Fiber
Mississippi LLC and IC Fiber Tennessee LLC
(collectively, the "DELAWARE COMPANIES") has been
duly organized as a Delaware limited liability
Company, and is validly existing and in good standing
under the laws of Delaware; there are no restrictions
on the power and capacity of each of the Delaware
Companies to own and lease property and assets and to
carry on business; and
(viii) the Registration Statement and the Prospectus and any
further amendments and supplements thereto made by
the Company prior to such Time of Delivery (other
than the financial statements and related schedules
therein, as to which such counsel need express no
opinion) comply as to form in all material respects
with the requirements of the Act and the rules and
regulations thereunder and they do not know of any
amendment to the Registration Statement required to
be filed or of any contracts or other documents of a
character required to be filed as an exhibit to the
Registration Statement or required to be described in
the Registration Statement or the Prospectus which
are not filed or described as required.
The opinion of Cahill Gordon and Reindel described in Section 6(c)(1)
above shall be rendered to you at the request of the Company and shall so state
therein. In addition, such counsel shall state that it has participated in
conferences, by person or by telephone, with officers and other representatives
of the Company, with representatives of the chartered accountants for the
Company and with representatives of the Underwriters and their counsel. At such
meetings the contents of the Registration Statement and Prospectus and related
matters were discussed among the parties present at such meetings. Although such
counsel will not be passing upon and will not assume any responsibility for the
accuracy, completeness or fairness of the statements contained in the
Registration Statement and Prospectus except as set forth in paragraphs (ii) and
(iii) above, such counsel shall advise the Underwriters that they have no reason
to believe that, as of its effective date, the Registration Statement or any
further amendment thereto made by the Company prior to such Time of Delivery
(other than the financial statements and related schedules therein, as to which
such counsel need express no opinion) contained an untrue statement of a
material fact or omitted to state a material fact required to be stated therein
or necessary to make the
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statements therein not misleading or that, as of its date, the Prospectus or any
further amendment or supplement thereto made by the Company prior to such Time
of Delivery (other than the financial statements and related schedules therein,
as to which such counsel need express no opinion) contained an untrue statement
of a material fact or omitted to state a material fact necessary to make the
statements therein, in the light of the circumstances under which they were
made, not misleading or that, as of such Time of Delivery, either the
Registration Statement or the Prospectus or any further amendment or supplement
thereto made by the Company prior to such Time of Delivery (other than the
financial statements and related schedules therein, as to which such counsel
need express no opinion) contains an untrue statement of a material fact or
omits to state a material fact necessary to make the statements therein, in the
light of the circumstances under which they were made, not misleading.
(c) (2) Farris, Vaughan, Wills & Murphy, counsel for the
Company, shall have furnished to you their written opinion or opinions, dated
such Time of Delivery, in form and substance satisfactory to you, to the effect
that:
(i) each of the Canadian Companies is a corporation duly
incorporated and validly existing under the laws of its jurisdiction of
incorporation; each of the Canadian Companies has the corporate power
and capacity to own and lease property and assets and to carry on
business as described in the Prospectus and the Canadian Prospectus;
(ii) each of the Canadian Companies is qualified or
registered to carry on business as an extra-provincial corporation in
each jurisdiction in which it is required to be so qualified or
registered;
(iii) the Company has authorized capital as set forth in
the Prospectus and the Canadian Prospectus, and all of the issued
shares of capital stock of the Company (including the Shares being
delivered at such Time of Delivery) have been duly and validly allotted
and issued and are outstanding as fully paid and non-assessable; and
the Shares conform to the description contained in the Canadian
Prospectus;
(iv) there are no statutory rights, including pre-emptive
or similar rights, to purchase or otherwise acquire shares or sell or
otherwise transfer the share capital of the Company pursuant to any
provision of the laws of Nova Scotia or the federal laws of Canada
applicable therein or the Memorandum of Association or Articles of
Association of the Company;
(v) all of the issued shares of each Canadian Company that
is a subsidiary of the Company have been duly and validly authorized
and issued and are outstanding as fully paid and non-assessable;
(vi) to the best of such counsel's knowledge and other
than as set forth in the Prospectus and the Canadian Prospectus, there
are no pending or threatened legal or governmental proceedings to which
any of the Canadian Companies is a party which questions the validity
of this Agreement or the Transfer Restriction Agreement or any action
taken or to be taken pursuant hereto or thereto or, if determined
adversely to any of the Canadian Companies, would individually or in
the aggregate have a Material Adverse Effect;
(vii) the Company has the corporate power and capacity to
enter into this Agreement and the Transfer Restriction Agreement and to
carry out its obligations under this Agreement and the Transfer
Restriction Agreement; the execution and delivery of this Agreement and
the Transfer Restriction Agreement and the
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consummation of the transactions contemplated hereby and thereby have
been duly authorized by all necessary corporate action on the part of
the Company;
(viii) each of this Agreement and the Transfer Restriction
Agreement has been duly authorized, executed and delivered by the
Company, and the Transfer Restriction Agreement is a valid and legally
binding agreement, enforceable against the Company in accordance with
its terms subject to applicable bankruptcy, insolvency, reorganization,
moratorium, fraudulent conveyance, transfer and other laws relating to
or affecting creditors' rights and remedies generally and to general
principles of equity (regardless of whether enforcement is sought in a
proceeding at law or in equity);
(ix) WFH has the corporate power and capacity to enter
into the Transfer Restriction Agreement and to carry out its
obligations under the Transfer Restriction Agreement; the execution and
delivery of the Transfer Restriction Agreement and the consummation of
the transactions contemplated thereby have been duly authorized by all
necessary corporate action on the part of WFH ;
(x) The Transfer Restriction Agreement has been duly
authorized, executed and delivered by WFH, and the Transfer Restriction
Agreement is a valid and legally binding agreement, enforceable against
WFH in accordance with its terms subject to applicable bankruptcy,
insolvency, reorganization, moratorium, fraudulent conveyance, transfer
and other laws relating to or affecting creditors' rights and remedies
generally and to general principles of equity (regardless of whether
enforcement is sought in a proceeding at law or in equity);
(xi) the execution and delivery by the Company of this
Agreement and the Transfer Restriction Agreement, the issue and sale of
the Shares being delivered at such Time of Delivery to be sold by the
Company, the compliance by the Company with all of the provisions of
this Agreement and the Transfer Restriction Agreement, the compliance
by WFH with all of the provisions of the Transfer Restriction Agreement
and the consummation of the transactions contemplated in this Agreement
and the Transfer Restriction Agreement will not conflict with or result
in a breach or violation, of the provisions of the Memorandum of
Association or Articles of Association of the Company or any laws of
the Province of British Columbia or Nova Scotia or the federal laws of
Canada;
(xii) the statements set forth in the Prospectus and the
Canadian Prospectus under the captions "Description of our Capital
Stock" and "Description of Capital Stock and Share Capital
Reorganization," insofar as they purport to constitute a summary of the
terms of the Stock, fairly summarize in all material respects the
attributes of such Stock, and the statements set forth under the
captions "Regulation - Canada," "Shares Eligible for Future Sale -
Canadian Resale Restrictions," "Risk Factors - Extensive Regulation -
Canada," and "Enforceability of Civil Liabilities Against Foreign
Persons," insofar as such disclosure describes or summarizes matters of
Canadian law or constitutes conclusions of Canadian law, fairly
summaries such matters or conclusions of law;
(xiii) the form of certificate for the Shares has been
duly approved and adopted by the Company and complies with the
provisions of the Companies Act (Nova Scotia) and the requirements of
The Toronto Stock Exchange;
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(xiv) The listing of the Shares on The Toronto Stock
Exchange has been approved by such Exchange, subject only to the filing
of documents and evidence of satisfactory distribution in accordance
with the requirements of such Exchange on or before July 11, 2000.
(xv) the statements contained in the Prospectus and the
Canadian Prospectus under the caption "Material United States and
Canadian Income Tax Considerations - Certain Canadian Federal Income
Tax Considerations" and, "Eligibility for Investment" fairly and
accurately describe the principal Canadian federal income tax
consequences under the INCOME TAX ACT (Canada);
(xvi) Montreal Trust Company of Canada at its principal
stock and bond offices in Vancouver and Toronto and HSBC Bank USA have
been duly appointed as the transfer agents and registrars for the
Shares;
(xvii) the statements in the Canadian Prospectus under the
heading "Purchasers' Statutory Rights" are correct insofar as such
statements are, or refer to, statements of law or legal conclusions
relating to the laws of the Canadian Jurisdictions;
(xviii) The Canadian Telecommunications Arrangement (as
described in the Prospectus and the Canadian Prospectus) including the
execution, delivery and performance of the Canadian Telecommunications
Agreements by the parties thereto will not violate or conflict with any
provisions of the Telecommunications Act or the Ownership Regulations,
any applicable rule, regulation, judgment, order or decree of the
Canadian Radio-television and Telecommunications Commission (the
"CRTC") or Industry Canada or the articles or by-laws, or the
Memorandum of Association or Articles of Association, as the case may
be, of each of the parties thereto;
(xix) no filing, license, consent, permission, approval,
authorization, or order of any court or governmental agency or body in
Canada is required to be obtained by the Canadian Companies under the
laws of the Provinces of British Columbia or Nova Scotia or the federal
laws of Canada applicable therein, in connection with the execution,
delivery and performance of this Agreement by the Company or to permit
the issue, delivery and sale by the Company of the Shares, except such
filings, licenses, consents, permissions, approvals, authorizations or
orders that have been obtained;
(xx) No filing, license, consent, permission, approval,
authorization, or order of any court or governmental agency of body in
Canada is required to be obtained by any of the Canadian Companies from
the CRTC or Industry Canada in connection with the Canadian
Telecommunications Arrangement;
(xxi) the choice of law provisions set forth in Section 16
hereof, is legal, valid and binding under the laws of the Province of
British Columbia and the federal laws of Canada applicable therein,
provided that such choice of law is bona fide (in the sense that it was
not made with a view to avoiding the consequences of the laws of any
other jurisdiction) and provided that such choice of law is not
contrary to public policy, as that term is applied by the courts in the
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Province of British Columbia ("PUBLIC POLICY"); such counsel knows of
no Public Policy reason why the courts in the Province of British
Columbia (a "CANADIAN COURT") would not give effect to the choice of
New York law as the proper law of this Agreement and if this Agreement
is sought to be enforced in the Province of British Columbia in
accordance with the laws applicable thereto as chosen by the parties,
namely New York law, a Canadian Court would, subject to the foregoing,
recognize the choice of New York law, and, upon appropriate evidence as
to such law being adduced, apply such law; provided that none of the
provisions of this Agreement, or of applicable New York law, are
contrary to Public Policy or foreign revenue, expropriation or penal
laws; provided, however, that, in matters of procedure, the laws of the
Province of British Columbia will be applied and a Canadian Court will
retain discretion to decline to hear such action if it is contrary to
Public Policy for it to do so, or if it is not the proper forum to hear
such an action, or if concurrent proceedings are being brought
elsewhere;
(xxii) there are no reasons, to such counsel's knowledge,
under the laws of the Province of British Columbia or the federal laws
of Canada applicable therein or with respect to the application of New
York law by a Canadian Court, why enforcement of this Agreement would
be avoided on the grounds of Public Policy;
(xxiii) the Company has the legal capacity to sue and be
sued in its own name under the laws of the Province of British Columbia
and the federal laws of Canada applicable therein; the Company has the
power to submit, and has irrevocably submitted, to the non-exclusive
jurisdiction of the federal or state courts located in the Borough of
Manhattan in The City of New York (a "NEW YORK COURT") and has validly
and irrevocably appointed CT Corporation System as its authorized agent
for the purpose described in Section 16 hereof; the Company has the
power to submit, and has irrevocably submitted, to the non-exclusive
jurisdiction of the New York Court and has validly and irrevocably
appointed CT Corporation System as its authorized agent under the laws
of the Province of British Columbia and the federal laws of Canada
applicable therein; the irrevocable submission of the Company to the
non-exclusive jurisdiction of the New York Court and the waivers by it
of any immunity and any objection to the venue of the proceeding in a
New York Court herein is legal, valid and binding under the laws of the
Province of British Columbia and the federal laws of Canada applicable
therein, and such counsel knows of no reason why a Canadian Court would
not give effect to such submission and waivers; the irrevocable
submission of the Company to the non-exclusive jurisdiction of the New
York Court and the waivers by the Company of any immunity and any
objection to the venue of the proceeding in a New York Court herein is
legal, valid and binding under the laws of the Province of British
Columbia and the federal laws of Canada applicable therein, and such
counsel knows of no reason why a Canadian Court would not give effect
to such submission and waivers;
(xxiv) service of process in the manner set forth in
Section 16 hereof will be effective to confer valid personal
jurisdiction over the Company under the laws of the Province of British
Columbia and the federal laws of Canada applicable therein;
(xxv) a Canadian Court will recognize as valid and final,
and will enforce, any final and conclusive judgment in personam, of any
New York Court that is not impeachable as void or voidable under the
internal laws of the State of New York for a sum certain in respect of
the enforcement of the obligations of the Company under this Agreement,
if (i) the court rendering such judgment had jurisdiction over the
judgment debtor, as recognized by the Canadian Court (and submission by
the Company in this Agreement to the jurisdiction of the New York
Court, will be sufficient for this purpose), (ii) such judgment was not
obtained by fraud or in a manner contrary to natural justice
26
<PAGE>
and the enforcement thereof would not be inconsistent with Public
Policy, or contrary to any order made by the Attorney General of Canada
under the Foreign Extraterritorial Measures Act (Canada), (iii) the
enforcement of such judgment does not constitute, directly or
indirectly, the enforcement of foreign revenue, expropriatory or penal
laws, (iv) the action to enforce such judgment is commenced within the
applicable limitation period and (v) such counsel knows of no Public
Policy reason for avoiding the recognition of judgments of a New York
Court under this Agreement under the laws of the Province of British
Columbia and the federal laws of Canada applicable therein;
(xxvi) all necessary documents have been filed, all
requisite proceedings have been taken and all legal requirements have
been fulfilled by the Company in order to qualify the Shares for
distribution and sale to the public in each of the Canadian
Jurisdictions by or through persons appropriately registered under the
Canadian Securities Laws who have complied with all relevant provisions
of such laws;
(xxvii) Except for withholding tax eligible on any amount
paid or credited, or deemed to be paid or credited to a non-resident
person as, on account or in lieu of payment of, or in satisfaction of a
dividend, no stamp duty, registration or documentary taxes, duties or
similar charges are payable to the Canadian government or to any
political subdivision or taxing authority thereof or therein in
connection with (A) the issuance, sale and delivery by the Company and
the Selling Shareholder to or for the respective accounts of the
Underwriters of the Shares or (B) the sale and delivery outside Canada
by the Underwriters of the Shares to the initial purchasers thereof in
the manner contemplated in this Agreement, no withholding tax will be
payable by or on behalf of the Underwriters to the Canadian government
or to any political subdivision or taxing authority thereof or therein
in connection with (A) the issuance, sale and delivery by the Company
and the Selling Shareholder to or for the respective accounts of the
Underwriters of the Shares, (B) the sale and delivery outside Canada by
the Underwriters of the Shares to the initial purchasers thereof in the
manner contemplated in this Agreement; or (C) the payment or crediting
by the Company or the Selling Shareholder of any commission or fee to
or for the respective account of any Underwriter who is not resident in
Canada, provided that commission or fee is payable in respect of
services rendered by such Underwriter outside of Canada.
(xxviii) No goods and services tax imposed under the
federal laws of Canada will be collectible by an Underwriter in respect
of the payment or crediting of any discount, commission or fee as
contemplated by this Agreement to any Underwriters, provided that any
such discount, commission or fee is payable in respect of services
performed by such Underwriter wholly outside of Canada;
(xxix) (a) Urbanlink is eligible to operate as a
telecommunications common carrier in Canada, as defined under and in
accordance with the Telecommunications Act (Canada) (the
"Telecommunications Act") and the Canadian Telecommunications Common
Carrier Ownership and Control Regulations (the "OWNERSHIP
Regulations"); (b) none of the Canadian Companies violates the
prohibition contained in subsection 16(4) of the Telecommunications Act
against operating in Canada as a telecommunications common carrier when
ineligible to do so; (c) control of Urbanlink is not exercised by any
person(s) that is (are) not Canadian, in accordance with the meanings
ascribed to the term "control" under the Telecommunications Act and the
term "Canadian" under the Ownership Regulations; and (d) none of the
Canadian Companies
27
<PAGE>
is in violation of any judgment, decree, order, writ, law, statute,
rule or regulation rendered or enacted in Canada respecting
telecommunications and the regulation within Canada of
telecommunications common carriers, as defined in the
Telecommunications Act, applicable to any of the Canadian Companies, or
any interpretation or policy relating thereto known to such counsel to
be applicable to them;
(xxx) after giving effect to the performance by the
Company of its obligations under this Agreement at such Time of
Delivery:
(a) not less than eighty percent of the members of
the board of directors of Urbanlink are individual
Canadians, as defined under the Ownership Regulations;
(b) Canadians, as defined under the Ownership
Regulations beneficially own, directly or indirectly, in
the aggregate and otherwise than by way of security only,
at least 80% of the issued and outstanding voting shares,
as defined under the Ownership Regulations, of Urbanlink;
(c) Carrier Holdco, in respect of its ownership of
and control over Urbanlink, is a carrier holding
corporation, as defined under the Ownership Regulations;
and
(d) Carrier Holdco is a carrier holding corporation
that is a qualified corporation, as defined under the
Ownership Regulations;
(e) no notices, reports or other filings are
required to be made by any of the Canadian Companies,
either prior to or immediately after giving effect to the
performance by the Company of its obligations under this
Agreement at such Time of Delivery, with, nor are any
consents, registrations, applications, approvals, permits,
licenses or authorizations required to be obtained by any
of the Canadian Companies from the CRTC or Industry Canada
pursuant to Canadian telecommunications law in connection
with the performance by the Company of its obligations
under this Agreement at such Time of Delivery;
(f) to the knowledge of such counsel, and except as
described in the Prospectus and the Canadian Prospectus,
no litigation, regulatory proceeding or investigation is
pending against the Canadian Companies in connection with
the requirements of Canadian telecommunications law
existing at such Time of Delivery; and
(g) with the exception of Urbanlink, no other
Canadian Company operates in Canada as a
telecommunications common carrier as that term is defined
in the Telecommunications Act.
Such counsel shall also confirm the accuracy of the statements set
forth under the heading "Eligibility for Investment" in the Canadian Prospectus.
Such counsel shall also confirm that at the date of the Registration
Statement, Prospectus and Canadian Prospectus and at such Time of Delivery that
no facts have come to their attention in the course of their review that lead
them to believe that the Registration
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Statement, Prospectus and Canadian Prospectus contained or contains any untrue
statement of a material fact, or omitted or omits to state a material fact
necessary to make a statement therein not misleading in light of the
circumstances under which it was made, within the meaning of the Securities Act
(British Columbia).
The opinion of Farris, Vaughan, Wills & Murphy described in Section
6(c)(2) above (i) shall be rendered to you at the request of the Company and
shall so state therein, (ii) as to matters of Alberta law, will rely upon the
opinion of the Company's Alberta Counsel, McLennan Ross, (iii) as to matters of
Nova Scotia law, will rely upon the opinion of Stewart McKelvey Stirling Scales
(iv) as to matters of law in the other Canadian Jurisdictions, other than
British Columbia, will rely upon counsel of good standing whom they believe to
be reliable and who are acceptable to you; and (v) as to matters of fact, to the
extent they deem proper, on certificates of responsible officers of the Company
and public officials.
(c) (3) Beckley, Singleton, Jemison, Cobeaga & List, Chtd., special
Nevada counsel for the Company, shall have furnished to you their written
opinion or opinions, dated such Time of Delivery, in form and substance
satisfactory to you to the effect that:
(i) each of PFL Holdings, Inc., Worldwide Fiber (USA),
Inc., Ledcor Communications, Inc., Worldwide Fiber IC Holdings, Inc.
(fka Worldwide Fiberlink, Inc.), Worldwide Fiber Networks, Inc. (fka
Pacific Fiber Link POR-SAC, Inc.), Pacific Fiber Link Sea-Por, Inc.,
Worldwide Fiber Network Services, Inc., WFI Fiber Inc. and Worldwide
Fiber (F.O.T.S.), Inc. (collectively, the "NEVADA SUBSIDIARIES") has
been duly incorporated, is validly existing as a corporation in good
standing under the laws of the State of Nevada and has the corporate
power and authority to carry on its business as described in the
Prospectus and to own, lease and operate its properties;
(ii) each of the Nevada Subsidiaries is duly qualified and
is in good standing as a foreign corporation authorized to do business
in each jurisdiction in which the nature of its business or its
ownership or leasing of property requires such qualification, except
where the failure to be so qualified would not have a Material Adverse
Effect;
(iii) all of the outstanding shares of capital stock of
each of the Nevada Subsidiaries has been duly authorized and validly
issued and is fully paid and non-assessable, and are owned by the
Company, free and clear of any Lien;
(iv) the execution, delivery, and performance of this
Agreement will not conflict with or constitute a breach of any of the
terms or provisions of, or a default under, the Articles or Bylaws of
any of the Nevada Subsidiaries, or any indenture, loan agreement,
mortgage, lease or other agreement or instrument that is material to
the Nevada Subsidiaries, taken as a whole, to which any of the Nevada
Subsidiaries is a party or by which any of the Nevada Subsidiaries is
bound; violate or conflict with any applicable law or any rule,
regulation, judgment, order or decree of any court or any governmental
body or agency having jurisdiction over any of the Nevada Subsidiaries
or their respective property; result in the imposition or creation of
(or the obligation to create or impose) a Lien under, any agreement or
instrument to which any of the Nevada Subsidiaries or their respective
property is bound; or result in the termination, suspension or
revocation of any Authorization of any of the Nevada Subsidiaries or
result in any other impairment of the rights of the holder of such
Authorization; and
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(v) there are no known legal or governmental proceedings
pending or threatened to which any of the Nevada Subsidiaries is or
could be a party or to which any of their property is or could be
subject, which might result, singly or in the aggregate, in a Material
Adverse Effect.
The opinion of Beckley, Singleton, Jemison, Cobeaga & List, Chtd.
described in Section 6(c)(3) above shall be rendered to you at the request of
the Company and shall so state therein.
(c) (4) Wiley Rein & Fielding, special regulatory counsel for the
Company, shall have furnished to you their written opinion or opinions, dated
such Time of Delivery, in form and substance satisfactory to you to the effect
that the statements, with respect to federal communications law, under the
captions "Regulation--United States," and "Risk Factors--Extensive
Regulation--United States" in the Prospectus, insofar as such statements as a
whole constitute a summary of the legal matters, documents and proceedings
referred to therein, fairly present in all material respects such legal matters,
documents and proceedings. The opinion of Wiley Rein & Fielding described in
this Section 6(c)(4) shall be rendered to you at the request of the Company and
shall so state therein.
(c) (5) Bird & Bird, special regulatory counsel for the Company, shall
have furnished to you their written opinion or opinions, dated such Time of
Delivery, in form and substance satisfactory to you, to the effect that the
statements, with respect to European regulatory matters, under the captions
"Regulation--European Union" and "Risk Factors--Extensive Regulation" (to the
extent such section deals with European Regulatory matters) in the Prospectus
insofar as such statements as a whole constitute a summary of the legal matters,
documents and proceedings referred to therein, fairly present in all material
respects such legal matters, documents and proceedings. The opinion of Bird &
Bird described in this Section 6(c)(5) shall be rendered to you at the request
of the company and shall so state therein.
(d) The counsel for the Selling Shareholder, as indicated
in Schedule E hereto, shall have furnished to you their written opinion with
respect to the Selling Shareholder dated such Time of Delivery, in form and
substance satisfactory to you, to the effect that:
(i) This Agreement has been duly authorized, executed
and delivered by or on behalf of the Selling Shareholder; and the
sale of the Shares to be sold by the Selling Shareholder hereunder
and the compliance by the Selling Shareholder with all of the
provisions of this Agreement, and the consummation of the
transactions herein and therein contemplated will not conflict with
or result in a breach or violation of any agreement which the
Selling Shareholder has represented to such counsel as material to
the Selling Shareholder, all of which are listed on a schedule to
the opinion of such counsel, nor will such action result in any
violation of the provisions of the Partnership Agreement of the
Selling Shareholder or any order, rule or regulation known to such
counsel of any court or governmental agency or body having
jurisdiction over the Selling Shareholder or the property of the
Selling Shareholder;
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(iii) No consent, approval, authorization or order of any
court or governmental agency or body is required for the consummation
of the transactions contemplated by this Agreement in connection with
the Shares to be sold by the Selling Shareholder hereunder, except
[name any such consent, approval, authorization or order] which [has]
[have] been duly obtained and [is] [are] in full force and effect, such
as have been obtained under the Act and the Canadian Securities Laws
in connection with the purchase and distribution of such Shares by the
Underwriters;
(iv) Immediately prior to such Time of Delivery, the
Selling Shareholder had full right, power and authority to sell,
assign, transfer and deliver the Shares to be sold by the Selling
Shareholder hereunder; and
(v) There are no reasons, to such counsel's knowledge,
under the laws of the Province of Alberta, or the federal laws of
Canada applicable therein or with respect to the application of New
York law by a Canadian Court, why enforcement of this Agreement would
be avoided on the grounds of Public Policy.
In rendering the opinion in paragraph (iv), such counsel may rely upon
a certificate of the Selling Shareholder in respect of matters of fact as to
ownership of the Shares sold by the Selling Shareholder, provided that such
counsel shall state that they believe that both you and they are justified in
relying upon such certificate;
(e) On the date of the Prospectus and the Canadian
Prospectus at a time prior to the execution of this Agreement, at 9:30 a.m., New
York City time, on the effective date of any post-effective amendment to the
Registration Statement filed subsequent to the date of this Agreement and also
at each Time of Delivery, PricewaterhouseCoopers LLP and Deloitte & Touche LLP
shall have furnished to you a letter or letters, dated the respective dates of
delivery thereof, in form and substance satisfactory to you, containing the
information and statements of the type ordinarily included in accountants'
"comfort letters" to underwriters with respect to the financial statements and
certain financial information contained in the Registration Statement,
Prospectus and Canadian Prospectus;
(f) (i) Neither the Company nor any of its subsidiaries
shall have sustained since the date of the latest audited financial statements
included in the Prospectus and the Canadian Prospectus any loss or interference
with its business from fire, explosion, flood or other calamity, whether or not
covered by insurance, or from any labor dispute or court or governmental action,
order or decree, otherwise than as set forth or contemplated in the Prospectus
and the Canadian Prospectus, and (ii) since the respective dates as of which
information is given in the Prospectus and the Canadian Prospectus there shall
not have been any change in the capital stock or long-term debt of the Company
or any of its subsidiaries or any change, or any development involving a
prospective change, in or affecting the general affairs, management, financial
position, shareholders' equity or results of operations of the
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Company and its subsidiaries, otherwise than as set forth or contemplated in the
Prospectus and the Canadian Prospectus, the effect of which, in any such case
described in clause (i) or (ii), is in the judgment of the Representatives so
material and adverse as to make it impracticable or inadvisable to proceed with
the public offering or the delivery of the Shares being delivered at such Time
of Delivery on the terms and in the manner contemplated in the Prospectus and
the Canadian Prospectus;
(g) On or after the date hereof (i) no downgrading shall
have occurred in the rating accorded the Company's debt securities by any
"nationally recognized statistical rating organization", as that term is defined
by the Commission for purposes of Rule 436(g)(2) under the Act, and (ii) no such
organization shall have publicly announced that it has under surveillance or
review, with possible negative implications, its rating of any of the Company's
debt securities;
(h) On or after the date hereof there shall not have
occurred any of the following: (i) the suspension or material limitation of
trading in securities or other instruments on the New York Stock Exchange, The
Toronto Stock Exchange, the American Stock Exchange or the Nasdaq National
Market or limitation on prices for securities or other instruments on any such
exchange or the Nasdaq National Market, (ii) the suspension or material
limitation of trading of any securities of the Company on any exchange or in the
over-the-counter market, (iii) the declaration of a banking moratorium by either
federal or New York State authorities or authorities in Canada or any province
thereof, (iv) a change or development involving a prospective change in taxation
affecting the Company, the Shares or the transfer thereof or the imposition of
exchange controls by the United States or Canada, (v) the outbreak or escalation
of hostilities involving the United States or Canada or the declaration by the
United States or Canada of a national emergency or war, if the effect of any
such event specified in this clause (v) in the judgment of the Representatives
makes it impracticable or inadvisable to proceed with the public offering or the
delivery of the Shares being delivered at such Time of Delivery on the terms and
in the manner contemplated in the Prospectus, (vi) the occurrence of any
material adverse change in the existing financial, political or economic
conditions in the United States or Canada or elsewhere which, in the judgment of
the Representatives would materially and adversely affect the financial markets
or the market for the Shares and other equity securities, (vii) the enactment,
publication, decree or other promulgation of any federal, state, provincial or
municipal statute, regulation, rule or order of any court or other governmental
authority which in the judgment of the Representatives materially and adversely
affects, or will materially and adversely affect, the business, prospects,
financial condition or results of operations of the Company and its
subsidiaries, taken as a whole, or (viii) the taking of any action by any
federal, state, provincial, municipal or local government or agency in respect
of its monetary or fiscal affairs which in the judgment of the Representatives
has a material adverse effect on the financial markets in the United States or
Canada.
(i) The Shares at such Time of Delivery shall have been
conditionally approved for listing on the Exchange, subject to the Company
fulfilling all of the requirements of the Exchange, and shall be listed for
quotation on NASDAQ;
(j) the Canadian Telecommunications Arrangement shall have
been established and the Canadian Telecommunications Agreements shall have been
executed and delivered by each of the parties thereto;
32
<PAGE>
(k) The Company has obtained and delivered to the
Underwriters executed copies of an agreement from each of the parties listed on
Schedule G hereto agreeing not to sell, transfer of hypothecate their Shares for
a set period of time in form and substance satisfactory to you;
(l) The Company shall have complied with the provisions of
Section 4(c) hereof with respect to the furnishing of prospectuses on the New
York Business Day next succeeding the date of this Agreement;
(m) PricewaterhouseCoopers LLP shall have furnished to the
Underwriters an opinion, dated the respective dates of the documents enumerated
below, in form and substance satisfactory to the Underwriters that the French
language versions of the pro forma financial statements and notes to such
statements, the historical financial statements and notes to such statements and
the related auditors' reports on such statements, the Management's Discussion
and Analysis of Financial Condition and Results of Operations and the tables of
financial and accounting information and notes thereto (collectively, the
"Financial Information") contained in each of the Canadian Preliminary
Prospectus, the Amended Canadian Preliminary Prospectus, the Canadian Final
Prospectus and the Canadian Prospectus are in all material respects a complete
and proper translation of the English language versions thereof.
(n) Lafleur, Brown, Quebec counsel to the Company, shall
have furnished to the Underwriters an opinion, in form and substance
satisfactory to the Underwriters, dated the respective dates of the documents
enumerated below, that, except for the Financial Information as to which they
need express no opinion, the French language version of each of the Canadian
Preliminary Prospectus, the Amended Canadian Preliminary Prospectus, the
Canadian Final Prospectus and the Canadian Prospectus is in all material
respects a complete and proper translation of the English language version
thereof and that such version is not susceptible of any materially different
interpretation with respect to any matter contained therein; and that all laws
relating to the use of the French language will have been complied with in
connection with the offer and sale of the Shares in the Province of Quebec.
(o) On or prior to such Time of Delivery, the Transfer
Restriction Agreement, in form and substance satisfactory to the Underwriters
and their counsel, shall have been executed and delivered to you by the parties
thereto.
(p) The Company and the Selling Shareholder shall have
furnished or caused to be furnished to you at such Time of Delivery certificates
of officers of the Company and of the Selling Shareholder, respectively,
satisfactory to you as to the accuracy of the representations and warranties of
the Company and the Selling Shareholder, respectively, herein at and as of such
Time of Delivery, as to the performance by the Company and the Selling
Shareholder of all of their respective obligations hereunder to be performed at
or prior to such Time of Delivery, and as to such other matters as you may
reasonably request, and the Company shall have furnished or caused to be
furnished certificates as to the matters set forth in subsections (a) and (f) of
this Section.
7. (a) The Company and the Selling Shareholder, jointly and severally,
will indemnify and hold harmless each Underwriter and Sub-Underwriter against
any losses, claims, damages or liabilities, joint or several, to which such
Underwriter and Sub-Underwriter may become subject, under the Act, the Canadian
Securities Laws or otherwise, insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or are based
33
<PAGE>
upon (i) an untrue statement or alleged untrue statement of a material fact
contained in any Preliminary Prospectus, the Registration Statement or the
Prospectus, or any amendment or supplement thereto, or arise out of or are based
upon the omission or alleged omission to state therein a material fact required
to be stated therein or necessary to make the statements therein not misleading
or (ii) any misrepresentation or alleged misrepresentation (as defined in the
Canadian Securities Laws) contained in the Canadian Preliminary Prospectus, the
Amended Canadian Preliminary Prospectus, the Canadian Final Prospectus, the
Canadian Prospectus, any Canadian Prospectus Amendment, or any untrue, false or
misleading statement therein, or any omission or alleged omission to state
therein any material fact or information required to be stated therein or
necessary to make any of the statements therein not misleading in light of the
circumstances in which they were made, and will reimburse each Underwriter and
Sub-Underwriter for any legal or other expenses reasonably incurred by such
Underwriter and Sub-Underwriter in connection with investigating or defending
any such action or claim as such expenses are incurred; PROVIDED, HOWEVER, that
the Company and the Selling Shareholder shall not be liable in any such case to
the extent that any such loss, claim, damage or liability arises out of or is
based upon an untrue statement or alleged untrue statement or omission or
alleged omission made in any Preliminary Prospectus, the Registration Statement,
the Prospectus or any such amendment or supplement, the Canadian Preliminary
Prospectus, the Amended Canadian Preliminary Prospectus, the Canadian Final
Prospectus, the Canadian Prospectus or any Canadian Prospectus Amendment, in
reliance upon and in conformity with written information furnished to the
Company by any Underwriter through Goldman, Sachs & Co. or DLJ expressly for use
therein; PROVIDED, FURTHER, that the Selling Shareholder will not be liable for
any amounts pursuant to this Section 7(a) in excess of the total proceeds to the
Selling Shareholder from the sale of the Shares.
(b) Each Underwriter and Sub-Underwriter will indemnify and hold
harmless the Company and the Selling Shareholder against any losses, claims,
damages or liabilities to which the Company or the Selling Shareholder may
become subject, under the Act, the Canadian Securities Laws or otherwise,
insofar as such losses, claims, damages or liabilities (or actions in respect
thereof) arise out of or are based upon an untrue statement or alleged untrue
statement of a material fact contained in any Preliminary Prospectus, the
Registration Statement or the Prospectus, or any amendment or supplement
thereto, the Canadian Preliminary Prospectus, the Amended Canadian Preliminary
Prospectus, the Canadian Final Prospectus, the Canadian Prospectus or any
Canadian Prospectus Amendment or arise out of or are based upon the omission or
alleged omission to state therein a material fact required to be stated therein
or necessary to make the statements therein not misleading, in each case to the
extent, but only to the extent, that such untrue statement or alleged untrue
statement or omission or alleged omission was made in any Preliminary
Prospectus, the Registration Statement or the Prospectus or any such amendment
or supplement, the Canadian Preliminary Prospectus, the Amended Canadian
Preliminary Prospectus, the Canadian Final Prospectus, the Canadian Prospectus
or any Canadian Prospectus Amendment in reliance upon and in conformity with
written information furnished to the Company by such Underwriter or
Sub-Underwriter through Goldman, Sachs & Co. or DLJ expressly for use therein;
and will reimburse the Company and the Selling Shareholder for any legal or
other expenses reasonably incurred by the Company or the Selling Shareholder in
connection with investigating or defending any such action or claim as such
expenses are incurred.
(c) Promptly after receipt by an indemnified party under subsection
(a) or (b) above of notice of the commencement of any action, such indemnified
party shall, if a claim in respect thereof is to be made against the
indemnifying party under such subsection, notify the
34
<PAGE>
indemnifying party in writing of the commencement thereof; but the omission so
to notify the indemnifying party shall not relieve it from any liability which
it may have to any indemnified party otherwise than under such subsection. In
case any such action shall be brought against any indemnified party and it shall
notify the indemnifying party of the commencement thereof, the indemnifying
party shall be entitled to participate therein and, to the extent that it shall
wish, jointly with any other indemnifying party similarly notified, to assume
the defense thereof, with counsel satisfactory to such indemnified party (who
shall not, except with the consent of the indemnified party, be counsel to the
indemnifying party), and, after notice from the indemnifying party to such
indemnified party of its election so to assume the defense thereof, the
indemnifying party shall not be liable to such indemnified party under such
subsection for any legal expenses of other counsel or any other expenses, in
each case subsequently incurred by such indemnified party, in connection with
the defense thereof other than reasonable costs of investigation. No
indemnifying party shall, without the written consent of the indemnified party,
effect the settlement or compromise of, or consent to the entry of any judgment
with respect to, any pending or threatened action or claim in respect of which
indemnification or contribution may be sought hereunder (whether or not the
indemnified party is an actual or potential party to such action or claim)
unless such settlement, compromise or judgment (i) includes an unconditional
release of the indemnified party from all liability arising out of such action
or claim and (ii) does not include a statement as to or an admission of fault,
culpability or a failure to act, by or on behalf of any indemnified party. No
Indemnifying Party shall be required to indemnify an Indemnified Party for any
amount paid or payable by such Indemnified Party in the settlement of any
action, proceeding or investigation without the written consent of such
Indemnifying Party, with consent which shall not be unreasonably withheld.
(d) If the indemnification provided for in this Section 7 is
unavailable to or insufficient to hold harmless an indemnified party under
subsection (a) or (b) above in respect of any losses, claims, damages or
liabilities (or actions in respect thereof) referred to therein, then each
indemnifying party shall contribute to the amount paid or payable by such
indemnified party as a result of such losses, claims, damages or liabilities (or
actions in respect thereof) in such proportion as is appropriate to reflect the
relative benefits received by the Company and the Selling Shareholder on the one
hand and the Underwriters and Sub-Underwriters on the other from the offering of
the Shares. If, however, the allocation provided by the immediately preceding
sentence is not permitted by applicable law or if the indemnified party failed
to give the notice required under subsection (c) above, then each indemnifying
party shall contribute to such amount paid or payable by such indemnified party
in such proportion as is appropriate to reflect not only such relative benefits
but also the relative fault of the Company and the Selling Shareholder on the
one hand and the Underwriters and Sub-Underwriters on the other in connection
with the statements or omissions which resulted in such losses, claims, damages
or liabilities (or actions in respect thereof), as well as any other relevant
equitable considerations. The relative benefits received by the Company and the
Selling Shareholder on the one hand and the Underwriters and the
Sub-Underwriters on the other shall be deemed to be in the same proportion as
the total net proceeds from the offering (before deducting expenses) received by
the Company and the Selling Shareholder bear to the total underwriting discounts
and commissions received by the Underwriters and the Sub-Underwriters, in each
case as set forth in the table on the cover page of the Prospectus and the
Canadian Prospectus. The relative fault shall be determined by reference to,
among other things, whether the untrue or alleged untrue statement of a material
fact or the omission or alleged omission to state a material fact relates to
information supplied by the Company or the Selling Shareholder on the one hand
or the Underwriters and Sub-Underwriters on the other and the parties' relative
intent, knowledge, access to information and opportunity to correct or prevent
35
<PAGE>
such statement or omission. The Company, the Selling Shareholder and the
Underwriters and Sub-Underwriters agree that it would not be just and equitable
if contributions pursuant to this subsection (d) were determined by PRO RATA
allocation (even if the Underwriters and Sub-Underwriters were treated as one
entity for such purpose) or by any other method of allocation which does not
take account of the equitable considerations referred to above in this
subsection (d). The amount paid or payable by an indemnified party as a result
of the losses, claims, damages or liabilities (or actions in respect thereof)
referred to above in this subsection (d) shall be deemed to include any legal or
other expenses reasonably incurred by such indemnified party in connection with
investigating or defending any such action or claim. Notwithstanding the
provisions of this subsection (d), no Underwriter or Sub-Underwriter shall be
required to contribute any amount in excess of the amount by which the total
price at which the Shares underwritten by it and distributed to the public were
offered to the public exceeds the amount of any damages which such Underwriter
or Sub-Underwriter has otherwise been required to pay by reason of such untrue
or alleged untrue statement or omission or alleged omission. No person guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of the Act)
shall be entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation. The Underwriters' and Sub-Underwriters'
obligations in this subsection (d) to contribute are several in proportion to
their respective underwriting obligations and not joint.
(e) The obligations of the Company and the Selling Shareholder
under this Section 7 shall be in addition to any liability which the Company and
the Selling Shareholder may otherwise have and shall extend, upon the same terms
and conditions, to each person, if any, who controls any Underwriter or
Sub-Underwriter within the meaning of the Act; and the obligations of the
Underwriters and Sub-Underwriters under this Section 7 shall be in addition to
any liability which the respective Underwriters and Sub-Underwriters may
otherwise have and shall extend, upon the same terms and conditions, to each
officer and director of the Company (including any person who, with his or her
consent, is named in the Registration Statement as about to become a director of
the Company) and to each person, if any, who controls the Company or the Selling
Shareholder within the meaning of the Act.
8. (a) If any Underwriter shall default in its obligation to purchase
the Shares which it has agreed to purchase hereunder at a Time of Delivery, you
may in your discretion arrange for you or another party or other parties to
purchase such Shares on the terms contained herein. If within thirty-six hours
after such default by any Underwriter you do not arrange for the purchase of
such Shares, then the Company and the Selling Shareholder shall be entitled to a
further period of thirty-six hours within which to procure another party or
other parties satisfactory to you to purchase such Shares on such terms. In the
event that, within the respective prescribed periods, you notify the Company and
the Selling Shareholder that you have so arranged for the purchase of such
Shares, or the Company and the Selling Shareholder notify you that they have so
arranged for the purchase of such Shares, you or the Company and the Selling
Shareholder shall have the right to postpone a Time of Delivery for a period of
not more than seven days, in order to effect whatever changes may thereby be
made necessary in the Registration Statement, the Prospectus or the Canadian
Prospectus, or in any other documents or arrangements, and the Company agrees to
file promptly any amendments to the Registration Statement, the Prospectus or
the Canadian Prospectus which in your opinion may thereby be made necessary. The
term "Underwriter" as used in this Agreement shall include any person
substituted under this Section with like effect as if such person had originally
been a party to this Agreement with respect to such Shares.
36
<PAGE>
(b) If, after giving effect to any arrangements for the purchase of
the Shares of a defaulting Underwriter or Underwriters by you and the Company
and the Selling Shareholder as provided in subsection (a) above, the aggregate
number of such Shares which remains unpurchased does not exceed one-eleventh of
the aggregate number of all the Shares to be purchased at such Time of Delivery,
then the Company and the Selling Shareholder shall have the right to require
each non-defaulting Underwriter to purchase the number of Shares which such
Underwriter agreed to purchase hereunder at such Time of Delivery and, in
addition, to require each non-defaulting Underwriter to purchase its pro rata
share (based on the number of Shares which such Underwriter agreed to purchase
hereunder) of the Shares of such defaulting Underwriter or Underwriters for
which such arrangements have not been made; but nothing herein shall relieve a
defaulting Underwriter from liability for its default.
(c) If, after giving effect to any arrangements for the purchase of
the Shares of a defaulting Underwriter or Underwriters by you and the Company
and the Selling Shareholder as provided in subsection (a) above, the aggregate
number of such Shares which remains unpurchased exceeds one-eleventh of the
aggregate number of all of the Shares to be purchased at such Time of Delivery,
or if the Company and the Selling Shareholder shall not exercise the right
described in subsection (b) above to require non-defaulting Underwriters to
purchase Shares of a defaulting Underwriter or Underwriters, then this Agreement
(or, with respect to the Second Time of Delivery, the obligations of the
Underwriters to purchase and of the Company to sell the Optional Shares) shall
thereupon terminate, without liability on the part of any non-defaulting
Underwriter or the Company or the Selling Shareholder, except for the expenses
to be borne by the Company and the Selling Shareholder and the Underwriters as
provided in Section 5 hereof and the indemnity and contribution agreements in
Section 7 hereof; but nothing herein shall relieve a defaulting Underwriter from
liability for its default.
9. The respective indemnities, agreements, representations, warranties
and other statements of the Company, the Selling Shareholder and the several
Underwriters and Sub-Underwriters, as set forth in this Agreement or made by or
on behalf of them, respectively, pursuant to this Agreement, shall remain in
full force and effect, regardless of any investigation (or any statement as to
the results thereof) made by or on behalf of any Underwriter or Sub-Underwriter
or any controlling person of any Underwriter or Sub-Underwriter, or the Company,
or the Selling Shareholder, or any officer or director or controlling person of
the Company, or any controlling person of the Selling Shareholder, and shall
survive delivery of and payment for the Shares.
Anything herein to the contrary notwithstanding, the indemnity
agreement of the Company in subsection (a) of Section 7 hereof, the
representations and warranties in subsections (a)(ii) and (a)(iii) of Section 1
hereof and any representation or warranty as to the accuracy of the Registration
Statement or the Prospectus contained in any certificate furnished by the
Company pursuant to Section 6 hereof, insofar as they may constitute a basis for
indemnification for liabilities (other than payment by the Company of expenses
incurred or paid in the successful defense of any action, suit or proceeding)
arising under the Act, shall not extend to the extent of any interest therein of
a controlling person or partner of an Underwriter or Sub-Underwriter who is a
director, officer or controlling person of the Company when the Registration
Statement has become effective or who, with his or her consent, is named in the
Registration Statement as about to become a director of the Company, except in
each case to the extent that an interest of such character shall have been
determined by a court of appropriate jurisdiction as not against public policy
as expressed in the Act. Unless in the opinion of counsel for the Company the
matter has been settled by controlling precedent, the
37
<PAGE>
Company will, if a claim for such indemnification is asserted, submit to a court
of appropriate jurisdiction the question of whether such interest is against
public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
10. If this Agreement shall be terminated pursuant to Section 8 hereof,
neither the Company nor the Selling Shareholder shall then be under any
liability to any Underwriter or Sub-Underwriter except as provided in Sections 5
and 7 hereof; but, if for any other reason any Shares are not delivered by or on
behalf of the Company and the Selling Shareholder as provided herein, the
Company and the Selling Shareholder pro rata (based on the number of Shares to
be sold by the Company and Selling Shareholder hereunder) will reimburse the
Underwriters and Sub-Underwriters through you for all out-of-pocket expenses
approved in writing by you, including fees and disbursements of counsel,
reasonably incurred by the Underwriters and Sub-Underwriters in making
preparations for the purchase, sale and delivery of the Shares not so delivered,
but the Company and the Selling Shareholder shall then be under no further
liability to any Underwriter or Sub-Underwriter in respect of the Shares not so
delivered except as provided in Sections 5 and 7 hereof.
11. In all dealings hereunder, you shall act on behalf of each of the
Underwriters and Sub-Underwriters, and the parties hereto shall be entitled to
act and rely upon any statement, request, notice or agreement on behalf of any
Underwriter or Sub-Underwriter made or given by you jointly or by Goldman, Sachs
& Co. and DLJ on behalf of you as the representatives.
All statements, requests, notices and agreements hereunder shall be in
writing, and if to the Underwriters or the Sub-Underwriters shall be delivered
or sent by mail, telex or facsimile transmission to you as the representatives
in care of Goldman, Sachs & Co., 32 Old Slip, 21st Floor, New York, New York
10005, Attention: Registration Department; if to the Selling Shareholder shall
be delivered or sent by mail, telex or facsimile transmission to counsel for the
Selling Shareholder at its address set forth in Schedule E hereto; and if to the
Company shall be delivered or sent by mail, telex or facsimile transmission to
the address of the Company set forth in the Registration Statement, Attention:
Secretary; provided, however, that any notice to an Underwriter or its
Sub-Underwriter affiliate pursuant to Section 7(c) hereof shall be delivered or
sent by mail, telex or facsimile transmission to such Underwriter or its
Sub-Underwriter affiliate at its address set forth in its Underwriters'
Questionnaire or telex constituting such Questionnaire, which address will be
supplied to the Company or the Selling Shareholder by you on request. Any such
statements, requests, notices or agreements shall take effect upon receipt
thereof.
12. This Agreement shall be binding upon, and inure solely to the
benefit of, the Underwriters, the Sub-Underwriters, the Company and the Selling
Shareholder and, to the extent provided in Sections 7 and 9 hereof, the officers
and directors of the Company and each person who controls the Company, the
Selling Shareholder or any Underwriter or Sub-Underwriter, and their respective
heirs, executors, administrators, successors and assigns, and no other person
shall acquire or have any right under or by virtue of this Agreement. No
purchaser of any of the Shares from any Underwriter or Sub-Underwriter shall be
deemed a successor or assign by reason merely of such purchase.
13. Time shall be of the essence of this Agreement. As used herein, the
term "business day" shall mean any day when the Commission's office in
Washington, D.C. is open for business.
38
<PAGE>
14. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE
WITH THE LAWS OF THE STATE OF NEW YORK.
15. This Agreement may be executed by any one or more of the parties
hereto in any number of counterparts, each of which shall be deemed to be an
original, but all such counterparts shall together constitute one and the same
instrument.
16. The Company and its subsidiaries agree that any suit, action or
proceeding against them brought by any Underwriter or Sub-Underwriter, the
directors, officers, employees and agents of any Underwriter, or by any person
who controls any Underwriter or Sub-Underwriter, arising out of or based upon
this Agreement or the transactions contemplated hereby, may be instituted in any
State or Federal court in The City of New York, and waive any objection which
they may now or hereafter have to the laying of venue of any such proceeding,
and irrevocably submit to the non-exclusive jurisdiction of such courts in any
suit, action or proceeding. Each of the Company and the Selling Shareholder has
appointed CT Corporation System as its authorized agent (the "AUTHORIZED AGENT")
upon whom process may be served in any suit, action or proceeding arising out of
or based upon this Agreement or the transactions contemplated herein that may be
instituted in any State or Federal court in The City of New York, by any
Underwriter or Sub-Underwriter, the directors, officers, employees and agents of
any Underwriter or Sub-Underwriter, or by any person, if any, who controls any
Underwriter or Sub-Underwriter, and expressly accept the non-exclusive
jurisdiction of any such court in respect of any such suit, action or
proceeding. Each of the Company and the Selling Shareholder hereby represents
and warrants that the Authorized Agent has accepted such appointment and has
agreed to act as said agent for service of process, and each of the Company and
the Selling Shareholder agrees to take any and all action, including the filing
of any and all documents that may be necessary to continue such appointment in
full force and effect as aforesaid. Service of process upon the Authorized Agent
shall be deemed, in every respect, effective service of process upon the Company
or the Selling Shareholder, as the case may be. Notwithstanding the foregoing,
any action arising out of or based upon this Agreement may be instituted by any
Underwriter or Sub-Underwriter, the directors, officers, employees and agents of
any Underwriter or Sub-Underwriter, or by any person who controls any
Underwriter or Sub-Underwriter, in any court of competent jurisdiction in
Canada.
39
<PAGE>
If the foregoing is in accordance with your understanding, please sign
and return to us one for the Company and each of the Representatives plus one
for each counsel, if any counterparts hereof, and upon the acceptance hereof by
you, on behalf of each of the Underwriters and the Sub-Underwriters, this letter
and such acceptance hereof shall constitute a binding agreement among each of
the Underwriters and the Sub-Underwriters, the Company and the Selling
Shareholder. It is understood that your acceptance of this letter on behalf of
each of the Underwriters and the Sub-Underwriters is pursuant to the authority
set forth in a form of Agreement among Underwriters, the form of which shall be
submitted to the Company and the Selling Shareholder for examination, upon
request, but without warranty on your part as to the authority of the signers
thereof.
Very truly yours,
360NETWORKS INC.
By:
-----------------------------------
Name:
Title:
LEDCOR LIMITED PARTNERSHIP
By:
-----------------------------------
Name:
Title:
Accepted as of the date hereof:
Goldman, Sachs & Co.,
Donaldson, Lufkin & Jenrette Securities Corporation
Credit Suisse First Boston Securities Corporation,
TD Securities Inc.,
Bear, Stearns & Co. Inc.,
BMO Nesbitt Burns Inc.,
Morgan Stanley & Co. Incorporated,
Chase Securities Inc.,
RBC Dominion Securities Inc.
Warburg Dillon Read LLC.
BY:
---------------------------------------------
(Goldman, Sachs & Co.)
BY:
---------------------------------------------
(Donaldson, Lufkin & Jenrette Securities Corporation)
On behalf of each of the Underwriters and Sub-Underwriters
40
<PAGE>
SCHEDULE A
<TABLE>
<CAPTION>
NUMBER OF OPTIONAL
SHARES TO BE
TOTAL NUMBER OF PURCHASED IF
FIRM SHARES MAXIMUM OPTION
UNDERWRITER TO BE PURCHASED EXERCISED
----------- --------------- ------------------
<S> <C> <C>
Goldman, Sachs & Co.................................................
Donaldson, Lufkin & Jenrette Securities Corporation.................
Credit Suisse First Boston Corporation..............................
TD Securities Inc...................................................
Bear, Stearns & Co. Inc.............................................
BMO Nesbitt Burns Inc...............................................
Morgan Stanley & Co. Incorporated...................................
Chase Securities Inc................................................
RBC Dominion Securities Inc.........................................
Warburg Dillon Read LLC.............................................
--------------- ------------------
Total............................................................... 46,000,000 6,900,000
=============== ==================
SUB-UNDERWRITERS
----------------
</TABLE>
Goldman Sachs Canada Inc.
Credit Suisse First Boston Securities Canada Inc.
Morgan Stanley Canada Limited
Bunting Warburg Dillon Read Inc.
41
<PAGE>
SCHEDULE B
----------
SUBSIDIARIES
Ledcom Holdings Ltd.
Ledcor Communications Ltd.
Ledcor Cayer Inc.
Ledcor Engineering Inc.
Worldwide Fiber Finance Ltd.
Worldwide Fiber Networks Ltd.
Worldwide Fiber (F.O.T.S.) Ltd.
Worldwide Fiber (F.O.T.S.) No. 2, Inc.
WFI-CN Fibre Inc.
Worldwide Fiber Comuncations Ltd.
Worldwide Fiber (F.O.T.S.) No. 3, Ltd.
WFNS Holdings Ltd.
Worldwide Fiber Network Services Ltd.
Ledcor Communications, Inc.
Worldwide Fiber (USA), Inc.
Worldwide Fiber Networks, Inc.
Worldwide Fiber (F.O.T.S.), Inc.
Worldwide Fiber IC Holdings, Inc.
Worldwide Fiber IC LLC
IC Fiber Alabama LLC
IC Fiber Illinois LLC
IC Fiber Iowa LLC
IC Fiber Kentucky LLC
IC Fiber Mississippi LLC
IC Fiber Tennessee LLC
PFL Holdings, Inc.
Pacific Fiber Link SEA-POR, Inc.
Worldwide Fiber Network Services, Inc.
WFI Liquidity Management Hungary Limited Liability Company
WFI Urbanlink Ltd.
WFI Fiber Inc.
Worldwide Fiber Networks (UK) Limited
360 Urbanlink Ltd.
Urbanlink Holdings Ltd.
Urbanlink Equipment Ltd.
WFI Metrobuild Ltd.
Worldwide Telecom (Bermuda) Holdings Ltd.
Worldwide Telecom Limited
Worldwide Telecom (Bermuda) Ltd.
Worldwide Telecom (Barbados) Inc.
Worldwide Telecom (Denmark) ApS
Worldwide Telecom (Canada) Inc.
Worldwide Telecom (USA) Inc.
WTI Telecom (Ireland) Limited
WTI Telecom (UK) Limited
Worldwide Telecom Distribution (USA) Inc.
42
<PAGE>
WTI Telecom Distribution (UK) Limited
360pacific (Bermuda) holdings ltd.
360pacific (Bermuda) ltd.
Threesixty pacific (Barbados) inc.
360pacific (USA) inc.
43
<PAGE>
SCHEDULE C
MATERIAL SUBSIDIARIES
Ledcom Holdings Ltd.
Ledcor Communications Ltd.
Ledcor Cayer Inc.
Worldwide Fiber Finance Ltd.
Worldwide Fiber Networks Ltd.
Worldwide Fiber (F.O.T.S.) Ltd.
Worldwide Fiber (F.O.T.S.) No. 2, Inc.
WFI-CN Fibre Inc.
Worldwide Fiber Comuncations Ltd.
Worldwide Fiber (F.O.T.S.) No. 3, Ltd.
WFNS Holdings Ltd.
Worldwide Fiber Network Services Ltd.
Ledcor Communications, Inc.
Worldwide Fiber (USA), Inc.
Worldwide Fiber Networks, Inc.
Worldwide Fiber (F.O.T.S.), Inc.
Worldwide Fiber IC Holdings, Inc.
Worldwide Fiber IC LLC
IC Fiber Alabama LLC
IC Fiber Illinois LLC
IC Fiber Iowa LLC
IC Fiber Kentucky LLC
IC Fiber Mississippi LLC
IC Fiber Tennessee LLC
Worldwide Fiber Network Services, Inc.
WFI Liquidity Management Hungary Limited Liability Company
WFI Urbanlink Ltd.
WFI Fiber Inc.
Worldwide Fiber Networks (UK) Limited
360 Urbanlink Ltd.
Urbanlink Holdings Ltd.
Urbanlink Equipment Ltd.
WFI Metrobuild Ltd.
Worldwide Telecom (Bermuda) Holdings Ltd.
Worldwide Telecom Limited
Worldwide Telecom (Bermuda) Ltd.
Worldwide Telecom (Barbados) Inc.
Worldwide Telecom (Danmark) ApS
Worldwide Telecom (Canada) Inc.
Worldwide Telecom (USA) Inc.
WTI Telecom (Ireland) Limited
WTI Telecom (UK) Limited
Worldwide Telecom Distribution (USA) Inc.
WTI Telecom Distribution (UK) Limited
Threesixty pacific (Barbados) inc.
44
<PAGE>
SCHEDULE D
CANADIAN COMPANIES
Ledcom Holdings Ltd.
Ledcor Communications Ltd.
Ledcor Cayer Inc.
Ledcor Engineering Inc.
Worldwide Fiber Finance Ltd.
Worldwide Fiber Networks Ltd.
Worldwide Fiber (F.O.T.S.) Ltd.
Worldwide Fiber (F.O.T.S.) No. 2, Inc.
WFI-CN Fibre Inc.
Worldwide Fiber Comuncations Ltd.
Worldwide Fiber (F.O.T.S.) No. 3, Ltd.
WFNS Holdings Ltd.
Worldwide Fiber Network Services Ltd.
WFI Urbanlink Ltd.
360 Urbanlink Ltd.
Urbanlink Holdings Ltd.
Urbanlink Equipment Ltd.
WFI Metrobuild Ltd.
Worldwide Telecom (Canada) Inc.
45
<PAGE>
SCHEDULE E
<TABLE>
<CAPTION>
NUMBER OF OPTIONAL
SHARES TO BE
TOTAL NUMBER OF SOLD IF
FIRM SHARES MAXIMUM OPTION
TO BE SOLD EXERCISED
--------------- ------------------
<S> <C> <C>
The Company........................................................ 44,625,000 6,941,250
The Selling Shareholder (a):................................... 1,650,000 0
----------- ----------
Total..................................................... 46,275,000 6,900,000
=========== ==========
</TABLE>
- ----------
(a) The Selling Shareholder is represented by McLennan Ross.
46
<PAGE>
SCHEDULE F
(subject to completion)
DLJ Merchant Banking Partners II L.P.
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.
Mackenzie Partners, LLC
Ledcor Inc.
Boston Ventures Limited Partnership V
TD Capital Group Limited
Kelso Investment
Associates VI, L.P.
KEP VI, L.L.C.
Capital Communications CDPQ, Inc.
Providence Equity Partners III, L.P.
Providence Equity Operating Partners III, L.P.
Spectrum Equity Investors III, L.P.
Spectrum Entrepreneurs' Fund, L.P.
Spectrum III Investment Managers' Fund, L.P.
Sandler Capital Partners IV, L.P.
Sandler Capital Partners IV FTE, L.P.
Ontario Municipal Employees Retirement Board
Nautilus Equity Investors, LLC
IHI Hydro, Inc.
the Directors of the Company:
Greg Maffei
David Lede
Clifford Lede
Larry Olsen
Ron Stevenson
Glenn Creamer
Claude Mongeau
Andrew Rush
Gene Sykes
James Voelker
the Vice Presidents of the Company:
Steven Stowe
Lionel Desmarais
David Love
William Sumner
Joel Allen
Stephen Baker
Ashwin Chitamun
47
<PAGE>
Jayne Hart
Michael Leitner
Scott Lyons
Catherine McEachern
Bruce Tinney
William Walls
Vanessa Wittman
Bernie Stene
Brian Johnson
David Brierley
Derek Gill
Dawn Breen
Ed Remingon
Gary Anderson
George Hoar
George Parker
Herb Heise
Jayne Hart
Jerry Tharp
Jim Cox
John Shaban
Patrick Summers
Robert Cayer
Scott Vallentine
Steve Lake
Ledcor Limited Partnership
Worldwide Fiber Holdings Ltd.
Madison Square, Inc.
Comcast TSIX Holding, Inc. (shares from Comcast Corporation)
Liberty WF Holdings LLC
RLM Holdings, LLC
MSD Capital L.P.
MSD Select Sponsors Venture I, LLC
MSD Portfolio L.P. - Investments
DBV Investments, L.P.
MSD ED I, LLC
Susan L. Dell Separate Property Trust
Shaw Communications Inc.
Oak Investment Partners IX
an affiliate of Denis O'Brien, Jr.
Kleiner Perkins Caufield & Byers
InterNAP Network Services Corporation
divine interVentures, inc.
Dr. Nathan Myhrvold
GT Group Telecom Services
48
<PAGE>
[PSINet Strategic Investments, Inc.]
[America On Line]
[News Corp]
[an affiliate of Thomas Kwok]
[Singapore Telecommunications Limited]
Canadian National Railway Company
MI-Tech Communications, LLC
William Blair & Company,
Ramsey Bierne,
49
<PAGE>
Exhibit 3.4
MEMORANDUM OF ASSOCIATION
OF
360NETWORKS INC.
1. The name of the Company is 360NETWORKS INC.
2. There are no restrictions on the objects and powers of the Company and
the Company shall expressly have the following powers:
(a) To sell or dispose of its undertaking, or a substantial part
thereof;
(b) To distribute any of its property IN SPECIE among its members;
and
(c) To amalgamate with any company or other body of persons.
3. The liability of the members is limited.
4. The capital of the Company is 100,000,000,000 Class A Non-Voting
Shares, 100,000,000,000 Class B Subordinate Voting Shares,
100,000,000,000 Class C Multiple Voting Shares, and 200,045,000,000
Preferred Shares divided into 100,000,000,000 Series A Non-Voting
Preferred Shares, 100,000,000,000 Series B Subordinate Voting Preferred
Shares and 45,000,000 Series C Redeemable Preferred Shares, all without
nominal or par value, and all having the rights, restrictions,
conditions and limitations set out in Annex 1 hereto with power to
divide the shares in the capital for the time being into several
classes and to attach thereto respectively any preferred, deferred or
qualified rights, privileges or conditions, including restrictions on
voting rights and including redemption and purchase of such shares,
subject, however, to the provisions of the COMPANIES ACT of Nova
Scotia.
<PAGE>
ANNEX I
The rights, privileges, restrictions and conditions attaching to each class of
shares and each existing series of shares of the Company are as follows:
A. CLASS A NON-VOTING SHARES, CLASS B SUBORDINATE VOTING
SHARES AND CLASS C MULTIPLE VOTING SHARES
The Class A Non-Voting Shares, Class B Subordinate Voting Shares and Class C
Multiple Voting Shares shall have attached thereto the following rights,
privileges, restrictions and conditions:
1. DIVIDENDS
1.1 Subject to any preference or priority as to the payment of
dividends upon shares of any class or series ranking in priority to the Class A
Non-Voting Shares, Class B Subordinate Voting Shares or Class C Multiple Voting
Shares in respect of the payment of dividends, the holders of Class A Non-Voting
Shares, Class B Subordinate Voting Shares and Class C Multiple Voting Shares
shall, except as otherwise hereinafter provided, be entitled to participate
equally with each other, share for share, as to dividends and the Company shall
pay dividends thereon, as and when declared by the Board of Directors of the
Company out of moneys properly applicable to the payment of dividends, in equal
amounts per share and at the same time on each Class A Non-Voting Share, Class B
Subordinate Voting Share and Class C Multiple Voting Share outstanding as at the
respective record dates for the payment of such dividends.
2. DISSOLUTION
2.1 In the event of the liquidation, dissolution or winding-up of
the Company or other distribution of assets of the Company among shareholders
for the purpose of winding up its affairs, all of the property and assets of the
Company which remain, after payment of all amounts attributed and properly
payable to the holders of any shares ranking in priority to the Class A
Non-Voting Shares, Class B Subordinate Voting Shares and Class C Multiple Voting
Shares in respect of payment upon liquidation, dissolution or winding-up of the
Company or other distribution of assets of the Company among shareholders for
the purpose of winding up its affairs, shall be paid or distributed equally,
share for share, to the holders of the Class A Non-Voting Shares, Class B
Subordinate Voting Shares and Class C Multiple Voting Shares, without preference
or distinction outstanding as at the respective record dates for such payment.
3. SUBDIVISION OR CONSOLIDATION
3.1 None of the Class A Non-Voting Shares, Class B Subordinate
Voting Shares or Class C Multiple Voting Shares shall be subdivided,
consolidated, reclassified or otherwise changed unless contemporaneously
therewith the shares of each other such class is subdivided, consolidated,
reclassified or otherwise changed equally, share for share, in the same
proportion and in the same manner.
<PAGE>
- 2 -
4. VOTING RIGHTS
4.1 Except as provided in the COMPANIES ACT (NOVA SCOTIA), the
holders of the Class A Non-Voting Shares shall not be entitled to vote at any
meeting of the shareholders of the Company. The holders of the Class A
Non-Voting Shares shall be entitled to receive notice of and to attend (in
person or by proxy) and be heard at all meetings of the shareholders of the
Company (other than separate meetings of the holders of the shares of any other
class of shares of the Company or of the shares of any series of shares of any
other class of shares of the Company).
4.2 The holders of the Class B Subordinate Voting Shares shall be
entitled, as such, to receive notice of and to attend (in person or by proxy)
and be heard at all meetings of the shareholders of the Company (other than
separate meetings of the holders of shares of any other class of shares of the
Company or of shares of any series of shares of any other class of shares of the
Company) and to vote at all such meetings and each holder of Class B Subordinate
Voting Shares shall be entitled at any such meeting to one vote per Class B
Subordinate Voting Share held by such holder as at the record date for such
meeting, provided that if the Company proposes to (i) sell, lease or exchange
all or substantially all of its property and assets to or with a person or
persons other than one or more wholly owned subsidiaries of the Company, or (ii)
liquidate, dissolve, wind up or distribute its assets among the shareholders of
the Company for the purpose of winding up its affairs, each holder of Class B
Subordinate Voting Shares shall be entitled to twenty votes per Class B
Subordinate Voting Share held in respect of any such matter.
4.3 The holders of the Class C Multiple Voting Shares shall be
entitled, as such, to receive notice of and attend (in person or by proxy) and
be heard at all meetings of the shareholders of the Company (other than separate
meetings of the holders of shares of any other class of shares of the Company or
any series of shares of such other class of shares of the Company) and to vote
at all such meetings and each holder of Class C Multiple Voting Shares shall be
entitled at any such meeting to twenty votes per Class C Multiple Voting Share
held by such holder as at the record date for such meeting.
5. CONVERSION OF CLASS A NON-VOTING SHARES INTO CLASS B
SUBORDINATE VOTING SHARES
5.1 Subject to compliance with the provisions of Section 5.2 of
this Article A, each holder of Class A Non-Voting Shares shall be entitled at
any time and from time to time to have all or any part of the Class A Non-Voting
Shares held by such holder converted into fully paid and non-assessable Class B
Subordinate Voting Shares upon the basis of one Class B Subordinate Voting Share
for each Class A Non-Voting Share in respect of which the conversion right is
exercised.
5.2 Before any holder of Class A Non-Voting Shares shall be
entitled to convert the same into Class B Subordinate Voting Shares, such holder
shall surrender the certificate or certificates therefor, duly endorsed, at the
office of the Company or of any transfer agent for the Class A Non-Voting
Shares, together with a written notice to the Company stating therein: the name
or names in which the certificate or certificates for Class B Subordinate Voting
Shares are to be issued; the number of Class A Non-Voting Shares to be
converted; and notice of such holder's election to convert such Class A
Non-Voting Shares. After giving such notice in
<PAGE>
- 3 -
writing, the election of the holder of Class A Non-Voting Shares shall be
irrevocable. The Company shall, within three (3) days of such written notice,
issue and deliver at such office to such holder of Class A Non-Voting Shares, or
to the nominee or nominees of such holder, a certificate or certificates for the
number of Class B Subordinate Voting Shares to which such holder shall be
entitled as aforesaid. Such conversion shall be deemed to have been made
immediately prior to the close of business on the date of such surrender of the
shares of Class A Non-Voting Shares to be converted, and the person or persons
entitled to receive the shares of Class B Subordinate Voting Shares issuable
upon such conversion shall be treated for all purposes as the record holder or
holders of such Class B Subordinate Voting Shares as of such date. The issuance
of certificates for Class B Subordinate Voting Shares, upon conversion of the
Class A Non-Voting Shares, shall be made without charge to the holder but the
holder shall pay any stamp, documentary or similar tax imposed on or in respect
of such conversion. If less than all of the Class A Non-Voting Shares
represented by any certificate are to be converted, the holder shall be entitled
to receive a new certificate representing the number of Class A Non-Voting
Shares represented by the original certificate which are not to be converted.
5.3 The Company shall at no time close its transfer books against
the transfer of any Class A Non-Voting Shares, or of any Class B Subordinate
Voting Shares issuable upon the conversion of any Class A Non-Voting Shares, in
any manner which interferes with the timely conversion of such Class A
Non-Voting Shares, except as may be otherwise be required to comply with
applicable laws or the provisions of the Attachment to these Articles.
6. CONVERSION OF CLASS B SUBORDINATE VOTING SHARES INTO
CLASS A NON-VOTING SHARES
6.1 Subject to compliance with the provisions of Section 6.2 of
this Article A, each holder of Class B Subordinate Voting Shares shall be
entitled at any time and from time to time to have all or any part of the Class
B Subordinate Voting Shares held by such holder converted into fully paid and
non-assessable Class A Non-Voting Shares upon the basis of one Class A
Non-Voting Share for each Class B Subordinate Voting Share in respect of which
the conversion right is exercised.
6.2 Before any holder of Class B Subordinate Voting Shares shall
be entitled to convert the same into Class A Non-Voting Shares, such holder
shall surrender the certificate or certificates therefor, duly endorsed, at the
office of the Company or of any transfer agent for the Class B Subordinate
Voting Shares, together with a written notice to the Company stating therein:
the name or names in which the certificate or certificates for Class A
Non-Voting Shares are to be issued; the number of Class B Subordinate Voting
Shares to be converted; and notice of such holder's election to convert such
Class B Subordinate Voting Shares. After giving such notice in writing, the
election of the holder of Class B Subordinate Voting Shares shall be
irrevocable. The Company shall, within three (3) days of such written notice,
issue and deliver at such office to such holder of Class B Subordinate Voting
Shares, or to the nominee or nominees of such holder, a certificate or
certificates for the number of Class A Non-Voting Shares to which such holder
shall be entitled as aforesaid. Such conversion shall be deemed to have been
made immediately prior to the close of business on the date of such surrender of
the shares of Class B Subordinate Voting Shares to be converted, and the person
or persons entitled to receive the shares of Class A Non-Voting Shares issuable
upon such conversion shall be treated for all purposes as the record holder or
holders of such Class A Non-Voting Shares as of
<PAGE>
- 4 -
such date. The issuance of certificates for Class A Non-Voting Shares, upon
conversion of the Class B Subordinate Voting Shares, shall be made without
charge to the holder but the holder shall pay any stamp, documentary or similar
tax imposed on or in respect of such conversion. If less than all of the Class B
Subordinate Voting Shares represented by any certificate are to be converted,
the holder shall be entitled to receive a new certificate representing the
number of Class B Subordinate Voting Shares represented by the original
certificate which are not to be converted.
6.3 The Company shall at no time close its transfer books against
the transfer of any Class B Subordinate Voting Shares, or of any Class A
Non-Voting Shares issuable upon the conversion of any Class B Subordinate Voting
Shares, in any manner which interferes with the timely conversion of such Class
B Subordinate Voting Shares, except as may be otherwise be required to comply
with applicable laws or the provisions of the Attachment to these Articles.
6.4 (1) The Company shall be entitled, at any time, to convert the
Class B Subordinate Voting Shares into Class A Non-Voting Shares on a one for
one basis.
(2) Before the Company shall be entitled to convert Class B
Subordinate Voting Shares into Class A Non-Voting Shares pursuant to Section
6.4(1) of this Article A, the Company shall not less than one day and not more
than 20 days before the date specified for conversion (the "Conversion Date")
send by prepaid first class mail or deliver to the registered address of each
person who at the date not more than 7 days prior to the date of mailing or
delivery is a registered holder of Class B Subordinate Voting Shares to be
converted, a notice in writing of the intention of the Company to convert the
Class B Subordinate Voting Shares registered in the name of such holder.
Accidental failure or omission to give such notice to one (1) or more holders
shall not affect the validity of such conversion, but upon such failure or
omission being discovered notice shall be given forthwith to such holder or
holders and such notice shall have the same force and effect as if given in due
time. Such notice shall set out the number of Class B Subordinate Voting Shares
held by the person to whom it is addressed which are to be converted, the
Conversion Date and the place or places at which holders of Class B Subordinate
Voting Shares may present and surrender such shares for conversion. After the
giving of such notice in writing, the election of the Company shall be
irrevocable.
(3) Within three (3) days following the Conversion Date, the
Company shall, on presentation and surrender of the certificate or certificates
representing the Class B Subordinate Voting Shares called for conversion at the
place or places specified in the notice of conversion, issue and deliver to such
holder of Class B Subordinate Voting Shares, or to the nominee or nominees of
such holder, a certificate or certificates for the number of Class A Non-Voting
Shares entitled as aforesaid. Such conversion shall be deemed to have been made
immediately prior to the close of business on the Conversion Date or, if the
Company is converting the Class B Subordinate Voting Shares into Class A
Non-Voting Shares in connection with a Qualified IPO (as defined in Section 1.13
of Article C), immediately prior to the consummation of the Qualified IPO and
the person or persons entitled to receive the Class A Non-Voting Shares issuable
upon such conversion shall be treated for all purposes as the record holder or
holders of such Class A Non-Voting Shares as of such date. The issuance of
certificates for Class A Non-Voting Shares, upon conversion of the Class B
Subordinate Voting Shares, shall be made without charge to the holder but the
holder shall pay any governmental or other tax imposed on or in respect of such
conversion.
<PAGE>
- 5 -
(4) The Company shall have the right at any time on or after the
Conversion Date to deposit the certificate or certificates representing Class A
Non-Voting Shares into trust for holders of the Class B Subordinate Voting
Shares called for conversion, which have not at the date of such deposit been
surrendered in connection with such conversion. Certificates deposited into
trust shall be held by the Company or other designated person named in the
notice of conversion or in a subsequent notice to the registered holders of the
Class B Subordinate Voting Shares in respect of which the deposit was made. Upon
such deposit being made, Class B Subordinate Voting Shares in respect of which
such deposit shall have been made shall be deemed to have been converted and the
rights of the holders thereof after such deposit or such Conversion Date, as the
case may be shall be, limited to receiving the certificate or certificates
representing the Class A Non-Voting Shares to which they are entitled upon
presentation and surrender of the certificate or certificates representing the
Class B Subordinate Voting Shares being converted.
7. CONVERSION OF CLASS B SUBORDINATE VOTING SHARES INTO
SERIES A NON-VOTING PREFERRED SHARES
7.1 Subject to compliance with the provisions of Section 7.2 of
this Article A, at any time prior to September 9, 2000, each holder of Class B
Subordinate Voting Shares shall be entitled at any time and from time to time to
have all or any part of the Class B Subordinate Voting Shares held by such
holder converted into fully paid and non-assessable Series A Non-Voting
Preferred Shares. Upon conversion, each Class B Subordinate Voting Share in
respect of which the conversion right is exercised pursuant to this Section 7.1
will be converted into a number of Series A Preferred Shares equal to the Class
B Conversion Ratio. For the purposes of this Section 7.1, "Class B Conversion
Ratio" shall initially equal one and shall automatically adjust so that it is
always equal to the inverse of the Conversion Ratio as defined in Section 1.13
of Article C.
7.2 Before any holder of Class B Subordinate Voting Shares shall
be entitled to convert the same into Series A Non-Voting Preferred Shares, such
holder shall surrender the certificate or certificates therefor, duly endorsed,
at the office of the Company or of any transfer agent for the Class B
Subordinate Voting Shares, together with a written notice to the Company stating
therein: the name or names in which the certificate or certificates for Series A
Non-Voting Preferred Shares are to be issued; the number of Class B Subordinate
Voting Shares to be converted; and notice of such holder's election to convert
such Class B Subordinate Voting Shares. After giving such notice in writing, the
election of the holder of Class B Subordinate Voting Shares shall be
irrevocable. The Company shall, within three (3) days of such written notice,
issue and deliver at such office to such holder of Class B Subordinate Voting
Shares, or to the nominee or nominees of such holder, a certificate or
certificates for the number of Series A Non-Voting Preferred Shares to which
such holder shall be entitled as aforesaid. Such conversion shall be deemed to
have been made immediately prior to the close of business on the date of such
surrender of the shares of Class B Subordinate Voting Shares to be converted,
and the person or persons entitled to receive the shares of Series A Non-Voting
Preferred Shares issuable upon such conversion shall be treated for all purposes
as the record holder or holders of such Series A Non-Voting Preferred Shares as
of such date. The issuance of certificates for Series A Non-Voting Preferred
Shares, upon conversion of the Class B Subordinate Voting Shares, shall be made
without charge to the holder but the holder shall pay any stamp, documentary or
similar tax imposed on or in respect of such conversion. If less than all of the
<PAGE>
- 6 -
Class B Subordinate Voting Shares represented by any certificate are to be
converted, the holder shall be entitled to receive a new certificate
representing the number of Class B Subordinate Voting Shares represented by the
original certificate which are not to be converted.
7.3 The Company will at no time close its transfer books against
the transfer of any Class B Subordinate Voting Shares, or of any Series A
Non-Voting Preferred Shares issued or issuable upon the conversion of any Class
B Subordinate Voting Shares, in any manner which interferes with the timely
conversion of such Class B Subordinate Voting Shares, except as may otherwise be
required to comply with applicable laws or the provisions of the Attachment to
these Articles.
7.4 No fractional shares shall be issued upon the conversion of
the Class B Subordinate Voting Shares and the number of Series A Non-Voting
Preferred Shares to be issued shall be rounded down to the nearest whole share.
No payment shall be made in respect of any unissued or rounded fraction. Whether
or not fractional shares are issuable upon such conversion shall be determined
on the basis of the total number of shares of Class B Subordinate Voting Shares
the holder is at the time converting into Series A Non-Voting Preferred Shares
and the number of Series A Non-Voting Preferred Shares issuable upon such
aggregate conversion.
8. CONVERSION OF CLASS C MULTIPLE VOTING SHARES INTO CLASS A
NON-VOTING SHARES AND/OR CLASS B SUBORDINATE VOTING
SHARES
8.1 Subject to compliance with the provisions of Section 8.2 of
this Article A, each holder of Class C Multiple Voting Shares shall be entitled
at any time and from time to time to have all or any part of the Class C
Multiple Voting Shares held by such holder converted into fully paid and
non-assessable Class A Non-Voting Shares or Class B Subordinate Voting Shares
upon the basis of one Class A Non-Voting Share or one Class B Subordinate Voting
Share for each Class C Multiple Voting Share for which the conversion right
provided for in this Section 8.1 is exercised, as specified by the holder of the
Class C Multiple Voting Shares in the notice in writing given to the Company or
any transfer agent in exercise of such conversion right.
8.2 Before any holder of Class C Multiple Voting Shares shall be
entitled to convert the same into Class A Non-Voting Shares and/or Class B
Subordinate Voting Shares, such holder shall surrender the certificate or
certificates therefor, duly endorsed, at the office of the Company or of any
transfer agent for the Class C Multiple Voting Shares, together with a written
notice to the Company stating therein: the name or names in which the
certificate or certificates for Class A Non-Voting Shares and/or Class B
Subordinate Voting Shares are to be issued; the number of Class C Multiple
Voting Shares to be converted; notice of such holder's election to convert such
Class C Multiple Voting Shares; and the number of Class A Non-Voting Shares
and/or Subordinate Voting Shares into which the Class C Multiple Voting Shares
are to be converted. After giving such notice in writing, the election of the
holder of Class C Multiple Voting Shares shall be irrevocable. The Company
shall, within three (3) days of such written notice, issue and deliver at such
office to such holder of Class C Multiple Voting Shares, or to the nominee or
nominees of such holder, a certificate or certificates for the number of Class A
Non-Voting Shares and/or Class B Subordinate Voting Shares, as the case may be,
to which such holder shall be entitled as aforesaid. Such conversion shall be
deemed to have been made
<PAGE>
- 7 -
immediately prior to the close of business on the date of such surrender of the
shares of Class C Multiple Voting Shares, to be converted, and the person or
persons entitled to receive the shares of Class A Non-Voting Shares and/or Class
B Subordinate Voting Shares issuable upon such conversion shall be treated for
all purposes as the record holder or holders of such Class A Non-Voting Shares
and/or Class B Subordinate Voting Shares, as the case may be, as of such date.
The issuance of certificates for Class A Non-Voting Shares and/or Class B
Subordinate Voting Shares, upon conversion of the Class C Multiple Voting Shares
shall be made without charge to the holder but the holder shall pay any stamp,
documentary or similar tax imposed on or in respect of such conversion. If less
than all of the Class C Multiple Voting Shares represented by any certificate
are to be converted, the holder shall be entitled to receive a new certificate
representing the number of Class C Multiple Voting Shares represented by the
original certificate which are not to be converted.
8.3 The Company will at no time close its transfer books against
the transfer of any Class C Multiple Voting Shares, or of any Class B
Subordinate Voting Shares or Class A Non-Voting Shares issuable upon the
conversion of any Class C Multiple Voting Shares, in any manner which interferes
with the timely conversion of such Class C Multiple Voting Shares, except as may
otherwise be required to comply with applicable laws.
B. PREFERRED SHARES
The rights, privileges, restrictions and conditions attaching to the Preferred
Shares, as a class, are as follows:
1. DIRECTORS' AUTHORITY TO ISSUE ONE OR MORE SERIES
1.1 The Board of Directors of the Company may issue the Preferred
Shares at any time and from time to time in not more than three series. Before
the first shares of a particular series are issued, the Board of Directors of
the Company shall fix the number of shares in such series and shall determine,
subject to the limitations set out in the Articles, the designation, rights,
privileges, restrictions and conditions to attach to the shares of such series
including, without limiting the generality of the foregoing, the rate or rates,
amount or method or methods of calculation of preferential dividends, whether
cumulative or non-cumulative or partially cumulative, and whether such rate(s),
amount or method(s) of calculation shall be subject to change or adjustment in
the future, the currency or currencies of payment, the date or dates and place
or places of payment thereof and the date or dates from which such preferential
dividends shall accrue, the redemption price and terms and conditions of
redemption (if any), the rights of retraction (if any), and the prices and other
terms and conditions of any rights of retraction and whether any additional
rights of retraction may be vested in such holders in the future, voting rights
and conversion or exchange rights (if any) and any sinking fund, purchase fund
or other provisions attaching thereto. Before the issue of the first shares of a
series, the Board of Directors of the Company shall send to the Registrar (as
defined in the COMPANIES ACT (NOVA SCOTIA)) any necessary documentation in the
prescribed form containing a description of such series including the
designation, rights, privileges, restrictions and conditions determined by the
directors.
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2. RANKING OF PREFERRED SHARES
2.1 No rights, privileges, restrictions or conditions attaching to
a series of Preferred Shares shall confer upon a series a priority in respect of
dividends or return of capital over any other series of Preferred Shares then
outstanding. The Preferred Shares of each series shall rank on a parity with the
Preferred Shares of every other series with respect to priority in the payment
of dividends and the return of capital and the distribution of assets of the
Company in the event of the liquidation, dissolution or winding-up of the
Company, whether voluntary or involuntary, or any other distribution of the
assets of the Company among its shareholders for the purpose of winding up its
affairs.
2.2 The Preferred Shares shall be entitled to priority over the
Common Shares (as defined in Article C) of the Company and over any other shares
of any other class of the Company ranking junior to the Preferred Shares with
respect to priority in the payment of dividends and the return of capital and
the distribution of assets in the event of the liquidation, dissolution or
winding-up of the Company, whether voluntary or involuntary, or any other
distribution of the assets of the Company among its shareholders for the purpose
of winding up its affairs.
2.3 The Preferred Shares of any series may also be given such
other preferences, not inconsistent with the provisions hereof, over the Common
Shares and over any other shares ranking junior to the Preferred Shares as may
be determined in the case of such series of Preferred Shares.
3. VOTING RIGHTS
3.1 Except as otherwise provided by law or in accordance with any
voting rights which may from time to time be attached to any series of Preferred
Shares, the holders of the Preferred Shares as a class shall not be entitled as
such to receive notice of, to attend or to vote at any meeting of the
shareholders of the Company.
C. SERIES A NON-VOTING PREFERRED SHARES
1. SERIES RIGHTS
1.1 DESIGNATION AND NUMBER
The first series of Preferred Shares shall consist of
100,000,000,000 Preferred Shares, which shares shall be designated as Series A
Non-Voting Preferred Shares (the "Series A Non-Voting Preferred Shares") and
which, in addition to the rights, privileges, restrictions and conditions
attached to the Preferred Shares as a class, shall have attached thereto the
rights, privileges, restrictions and conditions as set forth herein. The Company
shall only issue Series A Non-Voting Preferred Shares pursuant to the Purchase
Agreement or upon the conversion of Series B Subordinate Voting Preferred Shares
or upon the conversion of the Class B Subordinate Voting Shares in compliance
with the terms of the Shareholders Agreement.
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1.2 DIVIDENDS
The holders of Series A Non-Voting Preferred Shares shall be
entitled to receive dividends equivalent on a per share basis to any dividends
declared, paid, issued or distributed with respect to shares of Common Shares
into which such share of Series A Non-Voting Preferred Shares could be converted
pursuant to the provisions of Section 1.6 of this Article C, on the record date
for the determination of holders of Common Shares entitled to such dividends.
The Board of Directors may not declare, and the Company shall not pay, issue or
distribute, any dividend on any Common Shares unless simultaneously the Board of
Directors declares, and the Company pays, issues or distributes the dividend on
the Series A Non-Voting Preferred Shares specified in the first sentence of this
Section 1.2. The holders of Series A Non-Voting Preferred Shares shall not be
entitled to any dividend other than, or in excess of, the dividends as
hereinbefore provided.
1.3 VOTING RIGHTS
Except as required by law or otherwise provided for in this
Article C, the holders of the Series A Non-Voting Preferred Shares shall not be
entitled to vote at any meeting of the shareholders of the Company. The holders
of the Series A Non-Voting Preferred Shares shall be entitled to receive notice
of and to attend (in person or by proxy) and be heard at all meetings of the
shareholders of the Company (other than separate meetings of the holders of the
shares of any other class of shares of the Company or of the shares of any
series of shares of any other class of shares of the Company).
1.4 RETIRED SHARES
Any Series A Non-Voting Preferred Shares converted, purchased
or otherwise acquired by the Company in any manner whatsoever shall be retired
and cancelled promptly after the acquisition thereof. None of such Series A
Non-Voting Preferred Shares shall be reissued by the Company.
1.5 LIQUIDATION, DISSOLUTION OR WINDING UP
(1) Upon (i) any liquidation, dissolution or winding up of the
Company, whether voluntary or involuntary, (ii) a sale of all or substantially
all of the assets of the Company or (iii) a reorganization of the Company
required by any court or administrative body in order to comply with any
provision of law (each of the events referred to in clauses (i), (ii) and (iii)
being referred to as a "Liquidation"), the holders of Series A Non-Voting
Preferred Shares shall be entitled to receive and to be paid out of assets of
the Company available for distribution to its shareholders, before any payment
or distribution shall be made on any Junior Shares, the greater of (i) the
Series A Non-Voting Liquidation Value with respect to each such outstanding
Series A Non-Voting Preferred Share, and (ii) the amount which would have been
paid in such Liquidation, based upon the number of Class A Non-Voting Shares
into which a Series A Non-Voting Preferred Share could be converted pursuant to
the provisions of Section 1.6 of this Article C. If, upon any Liquidation of the
Company, the assets of the Company available for distribution shall be
insufficient to pay in full the Series A Non-Voting Liquidation Value with
respect to each outstanding Series A Non-Voting Preferred Share, then such
assets shall be distributed among the holders of Series A Non-Voting Preferred
Shares ratably in accordance
<PAGE>
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with the respective amounts that would be payable on such Series A Non-Voting
Preferred Shares if such assets were sufficient to permit payment in full of all
amounts payable thereon.
(2) After the payment to the holders of Series A Non-Voting
Preferred Shares of the full amount of the liquidating distribution to which
they are entitled under this Section 1.5, the holders of the Series A Non-Voting
Preferred Shares as such shall have no right or claim to any of the remaining
assets of the Company and shall not be entitled to share in any further
distribution of assets of the Company.
(3) Any consolidation, merger or other business combination of the
Company with or into any other Person (as defined in Section 1.13 of this
Article C) or Persons shall be deemed to be a Liquidation for purposes of this
Section 1.5, except for any such merger, consolidation or other business
combination where, after the completion of such transaction, the holders of
voting shares in the capital of the Company immediately prior to such merger,
consolidation or other business combination will beneficially own a majority of
the voting shares in the capital of the surviving or acquiring entity.
Notwithstanding the foregoing, no consolidation, merger or other business
combination of the Company with or into any other Person shall be deemed to be a
Liquidation for the purposes of this Section 1.5 if the holders of not less than
85% of the issued and outstanding Series A Non-Voting Preferred Shares waive in
writing the provisions of this Section 1.5 with respect to such event.
(4) "Series A Non-Voting Liquidation Value" determined as of any
date shall mean, in respect of each Series A Non-Voting Preferred Share, the sum
of (A) an amount equal to the Initial Purchase Price plus an amount equal to six
percent (6%) of the Initial Purchase Price, compounded annually on each
anniversary of the Initial Issue Date prior to the date of determination and (B)
all declared but unpaid dividends per Series A Non-Voting Preferred Shares, if
any. The Series A Non-Voting Liquidation Value shall also be subject to
adjustment as provided in Section 1.5(6) of this Article C.
(5) Notwithstanding the foregoing, (i) the rate of six percent
(6%) referred to in Clause (A) of Section 1.5(4) of this Article C shall be read
as eight percent (8%) from such time and as long as an Event of Default shall
have occurred and be continuing and (ii) no amount shall be added to the Initial
Purchase Price pursuant to clause (A) of Section 1.5(4) of this Article C if the
Company shall consummate a Qualified IPO prior to the first anniversary of the
Initial Issue Date.
(6) The Series A Non-Voting Liquidation Value shall be multiplied
by a factor equal to the sum of (x) 1.00 and (y) the Additional Issuance Ratio
if and for so long as the Company is in default in the performance of or
compliance with Section 1.4(a), 1.4(b) or 1.4(c) of the Purchase Agreement.
1.6 CONVERSION
(1) If a Conversion Event occurs, each Series A Non-Voting
Preferred Share may, at the option of the Company, and in compliance with the
provisions of Section 1.6(4) of this Article C, be converted into a number of
Class A Non-Voting Shares equal to the Conversion Ratio. In addition, at the
option of the holder of any Series A Non-Voting Preferred Shares, such holder
shall have the right, at any time and from time to time, by written notice to
the Company,
<PAGE>
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to convert each Series A Non-Voting Preferred Share owned by such holder into
(a) a number of Class A Non-Voting Shares equal in the aggregate to the
Conversion Ratio or (b) Series B Subordinate Voting Preferred Shares on a one
for one basis, in each case without payment of any additional consideration.
(2) The Conversion Ratio, determined at any time, shall equal one
(1.00) plus an adjustment equal to six percent (6%) of the Conversion Ratio,
compounded annually on each anniversary of the Initial Issue Date prior to the
date of determination but, from such time and as long as an Event of Default
shall have occurred and be continuing, the rate of six percent (6%) referred to
above in this Section 1.6(2) shall be read as eight percent (8%); provided,
however, that if the Company consummates a Qualified IPO prior to the first
anniversary of the Initial Issue Date then no adjustment shall be made pursuant
to this sentence. The Conversion Ratio shall also be adjusted as provided below
in this Section 1.6(2). The Conversion Ratio shall be multiplied by a factor
equal to the sum of (x) 1.00 and (y) the Additional Issuance Ratio if and for so
long as the Company is in default in the performance of or compliance with
Section 1.4(a), 1.4(b) or 1.4(c) of the Purchase Agreement. The Conversion Ratio
shall also be subject to adjustment from time to time as follows:
(a) If the Company at any time or from time to time after the
Initial Issue Date (A) pays any dividend or makes any distribution in additional
Common Shares of the Company or of securities convertible into, or exchangeable
or exercisable for, shares of Common Shares of the Company, (B) subdivides the
outstanding Common Shares, (C) combines the outstanding Common Shares into a
smaller number of shares or (D) issues by reclassification of the Common Shares
any shares in the capital of the Company, then, and in each such case, the
Conversion Ratio in effect immediately prior to such event or the record date
therefor, whichever is earlier, shall be adjusted so that the holder of Series A
Non-Voting Preferred Shares thereafter convertible into Class A Non-Voting
Shares pursuant to this Section 1.6 of this Article C shall be entitled to
receive the number and type of Class A Non-Voting Shares or other securities of
the Company which such holder would have owned or have been entitled to receive
after the happening of any of the events described above had such Series A
Non-Voting Preferred Shares been converted into Class A Non-Voting Shares
immediately prior to the happening of such event or the record date therefore,
whichever is earlier. An adjustment made pursuant to this clause (a) shall
become effective (x) in the case of any such dividend or distribution,
immediately after the close of business on the record date for the determination
of holders of Common Shares entitled to receive such dividend or distribution,
or (y) in the case of such subdivision, reclassification or combination, at the
close of business on the day upon which such corporate action becomes effective.
(b) If the Company issues to all (or substantially all)
holders of Common Shares any rights or subscriptions to purchase Common Shares
or Common Share Equivalents after the Initial Issue Date at a price per Common
Share (or having a conversion or exercise price per share in the case of Common
Share Equivalents) of less than either (i) the Series A Non-Voting Liquidation
Value or (ii) the Market Price of the Common Shares on the earlier of the date
of such issuance or the record date therefor (the "Applicable Date") then, in
each such case the Conversion Ratio shall be adjusted by multiplying (A) the
Conversion Ratio in effect at the close of business on the day immediately prior
to the Applicable Date by (B) a fraction, the numerator of which shall be the
sum of (1) the number of Common Shares outstanding at the close of business on
the date immediately prior to the Applicable Date and (2) the number of
<PAGE>
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additional Common Shares issued or issuable upon acceptance, conversion,
exchange or exercise of such rights or subscriptions (or upon conversion,
exchange or exercise of Common Share Equivalents issued or issuable pursuant to
such rights or subscriptions), and the denominator of which shall be the sum of
(x) the number of Common Shares outstanding at the close of business on the date
immediately prior to the Applicable Date and (y) the number of Common Shares
which would be purchasable for the aggregate consideration received by the
Company upon issuance of such Common Shares or Common Share Equivalents or
receivable by the Company for the total number of Common Shares issuable upon
acceptance, conversion, exchange or exercise of such rights or subscriptions (or
upon conversion, exchange or exercise of Common Share Equivalents issued or
issuable pursuant to such rights or subscriptions) if the price per share for
such purchase, conversion, exchange or exercise was equal to the greater of (i)
the Series A Non-Voting Liquidation Value or (ii) the Market Price of the Common
Shares as of the Applicable Date. An adjustment made pursuant to this clause (b)
shall become effective immediately after the close of business on the Applicable
Date.
(c) Except with respect to Deemed Outstanding Securities (as
defined below), if the Company issues any Common Shares (or Common Share
Equivalents) after the Initial Issue Date at a price per Common Share (or having
a conversion or exercise price per share in the case of Common Share
Equivalents) of less than either (i) the Series A Non-Voting Liquidation Value
or (ii) the Market Price of the Common Shares on the date of issuance of such
Common Shares (or Common Share Equivalents), then, in each such case, the
Conversion Ratio shall be adjusted by multiplying (A) the Conversion Ratio in
effect at the close of business on the day immediately prior to the date of
issuance of such Common Shares (or Common Share Equivalents) by (B) a fraction,
the numerator of which shall be the sum of (l) the number of Common Shares
outstanding at the close of business on the date immediately prior to the date
of issuance of such Common Shares (or Common Share Equivalents) and (2) the
number of such additional Common Shares and the number of Common Shares issued
or issuable upon conversion, exchange or exercise of such Common Share
Equivalents, and the denominator of which shall be the sum of (x) the number of
Common Shares outstanding on the date immediately prior to the date of issuance
of such Common Shares (or Common Share Equivalents) and (y) the number of Common
Shares which would be purchasable for the aggregate consideration received by
the Company upon issuance of such Common Shares or Common Share Equivalents or
receivable by the Company for the total number of Common Shares issuable or
issuable upon conversion, exchange or exercise of Common Share Equivalents if
the price per share for such purchase, conversion, exchange or exercise was
equal to the greater of (i) the Series A Non-Voting Liquidation Value or (ii)
the Market Price of the Common Shares as of the date of issuance of such Common
Shares (or Common Share Equivalents). An adjustment made pursuant to this clause
(c) shall be made on the next Business Day following the date on which any such
issuance is made and shall be effective retroactively to the close of business
on the date of such issuance. "Deemed Outstanding Securities" shall mean (i) the
stock options and Class A Non-Voting Shares to be issued upon the exercise of
such stock options, initially issued or issuable, or Permitted Reissued Options
(as defined in the Purchase Agreement) pursuant to the 1998 Long Term Incentive
and Share Award Plan (Amended) of the Company exercisable for a maximum of
4,445,813 Class A Non-Voting Shares; (ii) any Series A Non-Voting Preferred
Shares issued pursuant to the Purchase Agreement or any Class A Non-Voting
Shares or Series B Subordinate Voting Preferred Shares issued on the conversion
of the Series A Non-Voting Preferred Shares; (iii) 4,500,000 Common Shares
issued, or to be issued, in consideration for the acquisition by the Company of
fiber assets and related rights and
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obligations from Ledcor Industries Limited or Ledcor Industries Inc. under the
amended and restated Share Purchase Agreement dated September 7, 1999 between
Ledcor Industries Limited, Ledcor Industries Inc. and the Company; (iv) any
Class A Non-Voting Shares issued on conversion of the Series B Subordinate
Voting Shares; (v) any Common Shares or Common Share Equivalent issued pursuant
to any Minority Roll-Up Transaction; (vi) any Common Shares, or Common Share
Equivalents issued pursuant to an event described in clauses (a) or (b) of this
Section 1.6(2); or (vii) 26,080,000 Class A Non-Voting Shares and 4,920,000
Class C Multiple Voting Shares issued to Gregory B. Maffei.
(d) For purposes of this Section 1.6(2) the aggregate
consideration receivable by the Company in connection with the issuance of
Common Shares and/or Common Share Equivalents shall be deemed to be equal to the
sum of the aggregate offering price (before deduction of underwriting discounts
or commissions and expenses payable to third parties, if any) of all such Common
Shares and/or Common Share Equivalents plus the minimum aggregate amount, if
any, payable upon conversion, exchange or exercise of any such Common Share
Equivalents. Upon the expiration or termination of any unconverted, unexchanged
or unexercised Common Share Equivalents for which an adjustment has been made
pursuant to clause (b) or clause (c) of this Section 1.6(2), the adjustments
shall forthwith be reversed to effect such Conversion Ratio as would have been
in effect at the time of such expiration or termination had such Common Share
Equivalents, to the extent outstanding immediately prior to such expiration or
termination, never been issued. The consideration received by the Company in
connection with the sale or issuance of Common Shares (or Common Share
Equivalents) shall be computed as follows:
(A) insofar as such consideration consists of cash,
such consideration shall equal the aggregate amount of cash received by the
Company prior to amounts paid or payable for accrued interest or accrued
dividends and prior to any commissions or expenses paid by the Company;
(B) insofar as such consideration consists of
property other than cash, such consideration shall be calculated at the fair
value thereof at the time of such issue, as determined in good faith by the
Board of Directors, which shall be based upon a written opinion of an investment
banking or appraisal firm of national standing in the United States if such
consideration is given a value exceeding $10 million; and
(C) in the event Common Shares or Common Share
Equivalents are issued together with other securities or other assets of the
Company for consideration that is allocable to both such Common Shares and
Common Share Equivalents, and to such other securities and assets, the portion
of such consideration allocable to such Common Shares or Common Share
Equivalents shall be that set forth in the instruments and agreements issued or
entered into in connection with such transaction, and if no such allocation is
so set forth, then the portion of such consideration allocable to such Common
Shares or Common Share Equivalents, calculated as provided in clauses (A) and
(B) above, as determined in good faith by the Board of Directors.
(e) For purposes of this Section 1.6(2) the number of Common
Shares at any time outstanding shall mean the aggregate of all Common Shares
then outstanding (other than any Common Shares then owned or held by or for the
account of the Company).
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(f) If the Company shall take a record of the holders of its
Common Shares for the purpose of entitling them to receive a dividend or other
distribution and shall thereafter, and before such dividend or distribution is
paid or delivered to shareholders entitled thereto, legally abandon its plan to
pay or deliver such dividend or distribution, then no adjustment in the
Conversion Ratio then in effect shall be made by reason of the taking of such
record, and any such adjustment previously made as a result of the taking of
such record shall be reversed.
(3) Subject to compliance with the provisions of Section 1.6(5) of this
Article C, each holder of Series A Non-Voting Preferred Shares shall be entitled
at any time and from time to time to have all or any part of the Series A
Non-Voting Preferred Shares held by such holder converted into validly issued,
fully paid and non-assessable Series B Subordinate Voting Preferred Shares upon
the basis of one Series B Subordinate Voting Preferred Share for each Series A
Non-Voting Preferred Share in respect of which the conversion right is
exercised.
(4) Before the Company shall be entitled to convert Series A Non-Voting
Preferred Shares into Class A Non-Voting Shares pursuant to Section 1.6(1) of
this Article C, the Company shall not less than 10 days and not more than 20
days before the date specified for conversion (the "Conversion Date") send by
prepaid first class mail or deliver to the registered address of each person who
at the date not more than 7 days prior to the date of mailing or delivery is a
registered holder of Series A Non-Voting Preferred Shares to be converted a
notice in writing of the intention of the Company to convert the Series A
Non-Voting Preferred Shares registered in the name of such holder. Accidental
failure or omission to give such notice to one (1) or more holders shall not
affect the validity of such conversion, but upon such failure or omission being
discovered notice shall be given forthwith to such holder or holders and such
notice shall have the same force and effect as if given in due time. Such notice
shall set out the number of Series A Non-Voting Preferred Shares held by the
person to whom it is addressed which are to be converted, the Conversion Ratio,
the Conversion Date and the place or places at which holders of Series A
Non-Voting Preferred Shares may present and surrender such shares for
conversion. After the giving of such notice in writing, the election of the
Company shall be irrevocable.
(a) Within three (3) days following the Conversion Date, the
Company shall, on presentation and surrender of the certificate or certificates
representing the Series A Non-Voting Preferred Shares called for conversion at
the place or places specified in the notice of conversion, issue and deliver to
such holder of Series A Non-Voting Preferred Shares, or to the nominee or
nominees of such holder, a certificate or certificates for the number of Class A
Non-Voting Shares entitled as aforesaid. Such conversion shall be deemed to have
been made immediately prior to the close of business on the Conversion Date or,
if the Conversion Event is a Qualified IPO, then immediately prior to the
consummation of the Qualified IPO, and the person or persons entitled to receive
the Class A Non-Voting Shares issuable upon such conversion shall be treated for
all purposes as the record holder or holders of such Class A Non-Voting Shares
as of such date. The issuance of certificates for Class A Non-Voting Shares,
upon conversion of the Series A Non-Voting Preferred Shares, shall be made
without charge to the holder but the holder shall pay any governmental or other
tax imposed on or in respect of such conversion. If less than all of the Series
A Non-Voting Preferred Shares represented by any certificate are to be
converted, the holder shall be entitled to receive a new certificate
representing the number of Series A Non-Voting Preferred Shares represented by
the original certificate which are not to be converted.
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(b) The Company shall have the right at any time on or after
the Conversion Date to deposit the certificate or certificates representing
Class A Non-Voting Shares into trust for holders of the Series A Non-Voting
Preferred Shares called for conversion, which have not at the date of such
deposit been surrendered in connection with such conversion. Certificates
deposited into trust shall be held by the Company or other designated person
named in the notice of conversion or in a subsequent notice to the registered
holders of the Series A Non-Voting Preferred Shares in respect of which the
deposit was made. Upon such deposit being made, the Series A Non-Voting
Preferred Shares in respect of which such deposit shall have been made shall be
deemed to have been converted and the rights of the holders thereof after such
deposit or such Conversion Date, as the case may be shall be, limited to
receiving the certificate or certificates representing the Class A Non-Voting
Shares to which they are entitled upon presentation and surrender of the
certificate or certificates representing the Series A Non-Voting Preferred
Shares being converted.
(5) Before any holder of Series A Non-Voting Preferred Shares
shall be entitled to convert the same into Class A Non-Voting Shares or Series B
Subordinate Voting Preferred Shares such holder shall surrender the certificate
or certificates therefor, duly endorsed, at the office of the Company or of any
transfer agent for the Series A Non-Voting Preferred Shares, together with a
written notice to the Company stating therein: the name or names in which the
certificate or certificates for Common Shares or Preferred Shares are to be
issued; the number of Series A Non-Voting Preferred Shares to be converted; and
notice of such holder's election to convert such Series A Non-Voting Preferred
Shares. After giving such notice in writing, the election of the holder of
Series A Non-Voting Preferred Shares shall be irrevocable although may be
subject to the condition described below when the conversion is in connection
with an underwritten public offering. The Company shall, within three (3) days
of such written notice, issue and deliver at such office to such holder of
Series A Non-Voting Preferred Shares, or to the nominee or nominees of such
holder, a certificate or certificates for the number of Class A Non-Voting
Shares or Series B Subordinate Voting Preferred Shares, as the case may be, to
which such holder shall be entitled as aforesaid. Such conversion shall be
deemed to have been made immediately prior to the close of business on the date
of such surrender of the Series A Non-Voting Preferred Shares to be converted,
and the person or persons entitled to receive the shares of Class A Non-Voting
Shares or Series B Subordinate Voting Preferred Shares, as the case may be,
issuable upon such conversion shall be treated for all purposes as the record
holder or holders of such Class A Non-Voting Shares or Series B Subordinate
Voting Preferred Shares, as the case may be, as of such date. If the conversion
is in connection with an underwritten public offering of securities (other than
a Qualified IPO), the conversion into Common Shares may, at the option of any
holder tendering Series A Non-Voting Preferred Shares for conversion, be
conditioned upon the closing with the underwriters of the sale of securities
pursuant to such offering, in which event the person(s) entitled to receive the
Common Shares upon conversion of the Series A Non-Voting Preferred Shares shall
not be deemed to have converted such Series A Non-Voting Preferred Shares until
immediately prior to the closing of such sale of securities. The issuance of
certificates for Class A Non-Voting Shares or Series B Subordinate Voting
Preferred Shares, as the case may be, upon conversion of the Series A Non-Voting
Preferred Shares shall be made without charge to the holder but the holder shall
pay any stamp, documentary or similar tax imposed on or in respect of such
conversion. If less than all of the Series A Non-Voting Preferred Shares
represented by any certificate are to be converted, the holder shall be entitled
to receive a new certificate representing the number of Series A Non-Voting
Preferred Shares which are not to be converted.
<PAGE>
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(6) The Company shall at no time close its transfer books against
the transfer of any Series A Non-Voting Preferred Shares, or of any Class A
Non-Voting Shares or Series B Subordinate Voting Preferred Shares issuable upon
the conversion of any Series A Non-Voting Preferred Shares, in any manner which
interferes with the timely conversion of such Series A Non-Voting Preferred
Shares, except as may otherwise be required to comply with applicable laws or
the provisions of the Attachment to these Articles.
(7) As used in this Section 1.6 the term "Class A Non-Voting
Shares" shall mean and include the Company's Class A Non-Voting Shares as
constituted on the Initial Issue Date, and shall also include any shares of any
class of the capital of the Company thereafter authorized which shall neither be
limited to a fixed sum or percentage in respect of the rights of the holders
thereof to participate in dividends nor be entitled to a preference in the
distribution of assets upon the voluntary or involuntary liquidation,
dissolution or winding up of the Company provided that the Class A Non-Voting
Shares receivable upon conversion of Series A Non-Voting Preferred Shares shall
include only shares designated as Class A Non-Voting Shares of the Company on
the Initial Issue Date, or in case of any reorganization or reclassification of
the outstanding shares thereof, the shares, securities or assets to be issued in
exchange for such Class A Non-Voting Shares pursuant thereto.
(8) If the Company shall be a party to any transaction including
without limitation, an amalgamation, arrangement, consolidation, sale of all or
substantially all of the Company's assets or a reorganization, reclassification
or recapitalization of the capital of the Company but excluding any transaction
for which provision for adjustment is otherwise made in this Section 1.6 (each
of the foregoing being referred to as a "Transaction"), in each case, as a
result of which Class A Non-Voting Shares are converted into the right to
receive shares, securities or other property (including, without limitation,
cash or any combination thereof), each Series A Non-Voting Preferred Share shall
thereafter be convertible into the number of shares or other securities or
property to which a holder of the number of Class A Non-Voting Shares of the
Company deliverable upon conversion of such Series A Non-Voting Preferred Shares
would have been entitled upon such Transaction; and, in any such case,
appropriate adjustment (as determined by the Board of Directors) shall be made
in the application of the provisions set forth in this Section 1.6 with respect
to the rights and interest thereafter of the holders of the Series A Non-Voting
Preferred Shares, to the end that the provisions set forth in this Section 1.6
shall thereafter be applicable, as nearly as reasonably may be, in relation to
any shares or other property thereafter deliverable upon the conversion of the
Series A Non-Voting Preferred Shares. The Company shall not effect any
Transaction unless prior to or simultaneously with the consummation thereof the
Company or purchaser, as the case may be, shall provide in its charter document
that each Series A Non-Voting Preferred Share shall be converted into such
shares, securities or property as, in accordance with the foregoing provisions,
each such holder is entitled to receive. The provisions of this Section 1.6(8)
shall similarly apply to successive Transactions.
(9) No fractional shares shall be issued upon the conversion of
any share or shares of the Series A Non-Voting Preferred Shares, and the number
of Common Shares to be issued shall be rounded down to the nearest whole share.
Whether or not fractional shares are issuable upon such conversion shall be
determined on the basis of the total number of shares of Series A Non-Voting
Preferred Shares the holder is at the time converting into Common Shares or
Series
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B Subordinate Voting Preferred Shares and the number of Common Shares or
Series B Subordinate Voting Preferred Shares issuable upon such aggregate
conversion.
(10) If an event not specified in this Section 1.6 occurs that has
substantially the same economic effect on the Series A Non-Voting Preferred
Shares as those specifically enumerated above in this Section 1.6, then this
Section 1.6 shall be construed liberally, mutatis mutandis, in order to give the
holders of Series A Non-Voting Preferred Shares the intended benefit of the
protections provided under this Section 1.6. In such event, the Company's Board
of Directors shall make an appropriate adjustment in the Conversion Ratio so as
to protect the rights of the holders of Series A Non-Voting Preferred Shares;
provided that no such adjustment shall increase or decrease the Conversion Ratio
as otherwise determined pursuant to this Section 1.6 or decrease the number of
Class A Non-Voting Shares issuable upon conversion of each Series A Non-Voting
Preferred Share.
(11) The Company will not, by amendment of its Articles or through
any reorganization, transfer of assets, consolidation, merger, dissolution,
issue or sale of securities or any other voluntary action, avoid or seek to
avoid the observance or performance of any of the terms to be observed or
performed hereunder by the Company, and will at all times in good faith assist
in the carrying out of all the provisions of this Section 1.6 and in the taking
of all such action as may be necessary or appropriate in order to protect the
conversion rights of the holders of the Series A Non-Voting Preferred Shares
against impairment.
(12) All calculations under this Section 1.6 shall be made to (a)
the nearest cent or (b) the nearest one hundredth of a share or (c) the nearest
one percent, as the case may be.
1.7 NOTICE OF CERTAIN EVENTS
In case, at any time while any Series A Non-Voting Preferred
Shares are outstanding,
(1) the Company shall declare a dividend (or any other
distribution) on its Common Shares;
(2) the Company shall authorize the issuance to the holders of its
Common Shares, of Common Share Equivalents, or rights or warrants to subscribe
for or purchase Common Shares or of any other subscriptions rights or warrants;
(3) the Company shall authorize any reorganization,
reclassification or recapitalization of its Common Shares;
(4) the Company shall authorize the consolidation or merger of the
Company into or with any other person, the sale or transfer of all or
substantially all of its business or assets to another person, or any other
similar business combination or transaction; or
(5) the Company shall authorize the voluntary or involuntary
dissolution, liquidation or winding up on the Company,
then the Company shall promptly deliver to the transfer agent of the Series A
Non-Voting Preferred Shares, if any, and to each of the holders of Series A
Non-Voting Preferred Shares at
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their last addresses as they shall appear on the register for the Series A
Non-Voting Preferred Shares, at least 15 days before the date hereafter
specified (or the earlier of the dates hereinafter specified, in the event that
more than one date is specified), a notice describing such event and stating (A)
the date on which a record is to be taken for the purpose of such dividend,
distribution, rights or warrants, or, if a record is not to be taken, the date
as of which the holders of Common Shares of record to be entitled to such
dividend, distribution, rights or warrants are to be determined, or (B) the date
on which any such reclassification, reorganization, recapitalization,
consolidation, merger, sale, transfer, dissolution, liquidation or winding up is
expected to become effective, and the date as of which it is expected that
holders of Common Shares of record shall be entitled to exchange their Common
Shares for securities or other property (including cash), if any, deliverable
upon such reclassification, consolidation, merger, sale, transfer, dissolution,
liquidation or winding up.
1.8 REPORTS AS TO ADJUSTMENT
Upon any adjustment of the Conversion Ratio then in effect
pursuant to the provisions of Section 1.6 of this Article C then, and in each
such case, the Company shall promptly deliver to each of the holders of the
Series A Non-Voting Preferred Shares, a certificate signed by an officer of the
Company setting forth in reasonable detail the event requiring the adjustment,
the method by which such adjustment was calculated and the Conversion Ratio then
in effect following such Adjustment. Where appropriate, such notice to holders
of the Series A Non-Voting Preferred Shares may be given in advance.
1.9 MANDATORY REDEMPTION
On November 2, 2009 (the "Redemption Date"), the Company shall
redeem all the Series A Non-Voting Preferred Shares then outstanding and not
theretofore surrendered for conversion, as follows: Thirty days prior to the
Redemption Date, the Company shall give written notice to all holders of Series
A Non-Voting Preferred Shares which shall specify the Redemption Date. For each
Series A Non-Voting Preferred Share which is to be redeemed, the Company shall
be obligated on the Redemption Date to pay and deliver share certificates to the
holder thereof (upon surrender by such holder at the Company's principal
executive office of the certificate representing such share or an Affidavit of
Loss with respect thereto) (a) an amount in immediately available funds equal to
the Series A Non-Voting Liquidation Value, and (b) such number of Class A
Non-Voting Shares as have an aggregate Market Price (as determined on the day
immediately before the Redemption Date) equal to the excess of the Market Price
(as determined on the day immediately before the Redemption Date) of the Series
A Non-Voting Preferred Share over the Series A Non-Voting Liquidation Value. All
Class A Non-Voting Shares shall, when issued as contemplated herein, be validly
issued, fully paid and non-assessable. If the funds of the Company legally
available for redemption of the Series A Non-Voting Preferred Shares on the
Redemption Date are insufficient to redeem the total number of such shares to be
redeemed on such date, then those funds which are legally available shall be
used to redeem the maximum possible number of such shares ratably among the
holders thereof, based upon the aggregate Series A Non-Voting Liquidation Value
of such Series A Non-Voting Preferred Shares held by each such holder. At any
time thereafter when additional funds of the Company are legally available for
the redemption of Series A Non-Voting Preferred Shares, such funds shall
immediately be used to redeem on a similar ratable basis the balance of such
shares. Notwithstanding the foregoing, each holder of Series A Non-Voting
Preferred Shares shall be entitled to convert all or any portion of such
holder's shares pursuant to Section 1.6 of this Article C prior to the
Redemption Date and thereafter until such Series A Non-Voting Preferred Shares
are redeemed.
1.10 RESERVATION OF SHARES ISSUABLE UPON CONVERSION
The Company shall at all times reserve and keep available out
of its authorized but unissued Class A Non-Voting Shares and out of its
authorized but unissued Preferred Shares solely for the purpose of effecting the
conversion of the issued or issuable Series A Non-Voting Preferred Shares, such
number of its Class A Non-Voting Shares and Series B Subordinate Voting
Preferred Shares, as the case may be, as shall from time to time be sufficient
to effect the conversion of all outstanding Series A Non-Voting Preferred
Shares, and if at any time the number of authorized but unissued Class A
Non-Voting Shares or Series B Subordinate Voting Preferred Shares shall not be
sufficient to effect the conversion of all then outstanding Series A Non-Voting
Preferred Shares, the Company will take all such corporate action as may be
necessary to increase its authorized but unissued Class A Non-Voting Shares or
Series B Subordinate Voting Preferred Shares to such number of shares as shall
be sufficient for such purpose. All Class A Non-Voting Shares and Series B
Subordinate Voting Preferred Shares shall, when issued upon conversion as
contemplated herein, be validly issued, fully paid and non-assessable.
1.11 LISTING ON SECURITIES EXCHANGES, ETC.
The Company will list on each national securities exchange on
which any Common Shares may at any time be listed, subject to official notice of
issuance upon the conversion of the Series A Non-Voting Preferred Shares, all
Class A Non-Voting Shares from time to time issuable upon the conversion of
Series A Non-Voting Preferred Shares and will maintain such listing as long as
any Class A Non-Voting Shares are listed.
1.12 CERTAIN COVENANTS
Any registered holder of Series A Non-Voting Preferred Shares
may proceed to protect and enforce its rights and the rights of any other
holders of Series A Non-Voting Preferred Shares with any and all remedies
available at law or in equity.
1.13 DEFINITIONS
In addition to any other terms defined herein for purposes of
this Article C, the following terms shall have the meaning indicated (references
to particular sections of the Purchase Agreement or Shareholders Agreement shall
include any amended, successor or substitute provisions in such agreements, as
they may be amended from time to time in accordance with their respective
terms):
"Additional Issuance Ratio" is defined in Section 1.4(b) of
the Purchase Agreement.
"Affidavit of Loss" an affidavit or agreement satisfactory to
the Company to indemnify the Company (without the need to post any bond or other
security for such obligation)
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from any loss incurred in connection with the loss of any share certificate
evidencing shares of the Company's Capital Securities.
"Business Day" means any day other than a Saturday, Sunday or
a day when commercial banks in New York City or Vancouver, British Columbia are
required to be closed.
"Capital Securities" means, as to any Person that is a
Company, the authorized shares of such Person's capital stock, including all
classes of common, preferred, voting and non voting capital stock, and, as to
any Person that is not a corporation or an individual, the ownership interests
in such Person, including, without limitation, the right to share in profits and
losses, the right to receive distributions of cash and property, and the right
to receive allocations of items of income, gain, loss, deduction and credit and
similar items from such Person, whether or not such interests include voting or
similar rights entitling the holder thereof to exercise control over such
Person.
"Common Share Equivalent" shall mean securities convertible
into, or exchangeable or exercisable for Common Shares of any class.
"Common Shares" means the Class " Non-Voting Shares, Class B
Subordinate Voting Shares and Class C Multiple Voting Shares in the capital of
the Company.
"Conversion Event" means (i) a Qualified IPO or (ii) (x) there
shall occur an underwritten public offering providing gross proceeds to the
Company and selling shareholders of at least U.S. $150,000,000 before deducting
underwriting discounts, commissions and offering expenses and (y) thereafter the
closing price for a period of 45 consecutive trading days per listed Common
Share is at least 300% of the 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 Company pursuant to Section 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). For purposes of clause (ii) above, the
closing price of each day shall be the last sale price or, in case no such sale
takes place on such day, the average of the closing bid and asked prices in
either case as reported in the principal consolidated transaction reporting
system with respect to securities listed on the principal national securities
exchange on which the listed Common Shares are listed or the last quoted sale
price or, if not so quoted, the average of the high bid and low asked prices in
the over-the-counter market, as reported by the NASDAQ.
"Conversion Ratio" determined as of any date, shall equal the
number of Class A Non-Voting Shares (in the aggregate) into which one share of
Series A Non-Voting Preferred Shares is convertible pursuant to Section 1.6 of
this Article C.
The term "distribution" shall include the transfer of cash or
property to the holders of a class of shares of the Company, without
consideration, whether by way of dividend or otherwise (except a dividend in
shares of such class), or the purchase or redemption of shares of the Company,
for cash or property, including such transfer, purchase or redemption by a
subsidiary of the Company. The time of any distribution by way of dividends
shall be the date of declaration thereof, and the time of any distribution by
purchase or redemption of shares shall be the date on which cash or property is
transferred by the Company, whether or not pursuant to a
<PAGE>
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contract of an earlier date; provided, however, that, where a debt security is
issued in exchange for shares, the time of the distribution is the date when a
Company acquires the shares for such exchange.
"Dollars" and the symbol "$" shall mean, unless otherwise
indicated, U.S. dollars, and the symbol "C$" shall refer to Canadian dollars.
"Employee Shares" is defined in Section 1.4(b) of the Purchase
Agreement.
"Event of Default" means (i) the Company shall default in the
performance of or compliance with the terms of Section 1.9 of this Article C or
(ii) Ledcor Inc. shall default in the performance of or compliance with Section
12.4 of the Shareholders Agreement.
"Initial Issue Date" means the date on which the first Series
A Non-Voting Preferred Shares were issued by the Company.
"Initial Purchase Price" means, U.S. $38.909 per Series A
Non-Voting Preferred Share, (as equitably adjusted to reflect any stock split,
stock dividend, combination, reorganization, recapitalization, reclassification
or other similar event involving Common Shares after the Initial Issue Date).
"Junior Shares" shall mean any of the Company's Common Shares
and all other Capital Securities of the Company (other than the Series A
Non-Voting Preferred Shares and the Series B Subordinate Voting Preferred
Shares, which shall rank equally with the Series A Non-Voting Preferred Shares).
"Market Price" of any security with a Minimum Float means the
average of the closing prices of such security's sales on all securities
exchanges on which such security may at the time be listed, or, if there have
been no sales on any such exchange on any day, the average of the highest bid
and lowest asked prices on all such exchanges at the end of such day, or, if on
any day such security is not so listed, the average of the representative bid
and asked prices quoted in the NASDAQ System as of 4:00 P.M., New York time, or,
if on any day such security is not quoted in the NASDAQ System, the average of
the highest bid and lowest asked prices on such day in the domestic
over-the-counter market as reported by the National Quotation Bureau,
Incorporated, or any similar successor organization, in each such case averaged
over a period of 21 days consisting of the day as of which "Market Price" is
being determined and the 20 consecutive Business Days prior to such day. If
there is not a Minimum Float with respect to the Series A Non-Voting Preferred
Shares, then the Market Price of a Series A Non-Voting Preferred Share shall be
determined as equal to the Market Price of a Common Share times the number of
Common Shares into which the Series A Non-Voting Preferred Share is convertible
as of the date of determination of the Market Price. If at any time such
security does not have a Minimum Float or is not listed on any securities
exchange or quoted in the NASDAQ System or the over-the-counter market, the
"Market Price" shall be the fair value thereof determined jointly by the Company
and the holders of a majority of the Series A Non-Voting Preferred Shares. If
such parties are unable to reach agreement within a reasonable period of time,
such fair value shall be determined by an independent appraiser experienced in
valuing securities jointly selected by the Company and the holders of a majority
of the Series A Non-Voting Preferred Shares. If the Company and the holders of a
majority of the Series A Non-Voting Preferred
<PAGE>
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Shares are unable to agree on the selection of an independent appraiser within
30 days of the date when the holders of a majority of the Series A Non-Voting
Preferred Shares have first delivered notice in writing to the Company of the
name of a proposed independent appraiser, then the holders of a majority of the
Series A Non-Voting Preferred Shares may request the President of the American
Arbitration Association to appoint an independent appraiser and such appointment
shall be final and binding for purposes of determination of the Market Price in
question. The determination of such appraiser shall be final and binding upon
the parties, and the Company shall pay the fees and expenses of such appraiser.
"Minimum Float" is achieved if the product of (i) the closing
price of a security listed on any securities exchange or quoted in the NASDAQ
system or the over-the-counter market multiplied by (ii) the number of shares or
units of such security registered pursuant to the United States Securities Act
of 1933, as then in effect, and held by the public is at least U.S.
$150,000,000.
"Minority Roll-Up Transaction" is defined in Section 1.4(b) of
the Purchase Agreement.
"Minority Roll-Up Factor" means the sum of (i) 1.00 plus (ii)
the Additional Issuance Ratio.
"Minority Roll-Up Shares" is defined in Section 1.4(b) of the
Purchase Agreement.
"Person" shall include an individual, partnership,
association, body corporate, trustee, executor, administrator or legal
representative.
"Public Sale" is defined in Section 1.27 of the Shareholders
Agreement.
"Purchase Agreement" means the Preferred Share Purchase
Agreement dated September 7, 1999 among the Company and the parties named as
"Investors" therein, as the same may be amended from time to time in accordance
with its terms.
"Qualified IPO" shall mean the Company's first BONA FIDE
underwritten public offering of Common Shares pursuant to a preliminary
prospectus and a prospectus if under Canadian federal and provincial securities
laws and pursuant to an effective registration statement under the United States
Securities Act of 1933, as amended, (i) resulting in at least U.S. $150,000,000
of gross aggregate proceeds to the Company and any selling stockholders 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
obtained by dividing U.S.$345,000,000 by the number of Series A Non-Voting
Preferred Shares, Common Shares or Common Share Equivalents issued by the
Company 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), and
(iii) upon the consummation of which the Class A Non-Voting Shares or Class B
Subordinate Voting Shares are listed on The Toronto Stock Exchange and on a U.S.
national securities exchange or quoted on Nasdaq National Market.
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"Shareholders Agreement" means the Shareholders Agreement
dated as of September 9, 1999 among the Company and the parties named therein,
as the same may be amended from time to time in accordance with its terms.
D. SERIES B SUBORDINATE VOTING PREFERRED SHARES
1. SERIES RIGHTS
1.1 DESIGNATION AND NUMBER
The second series of Preferred Shares shall consist of
100,000,000,000 Preferred Shares, which shares shall be designated as Series B
Subordinate Voting Preferred Shares (the "Series B Subordinate Voting Preferred
Shares") and which, in addition to the rights, privileges, restrictions and
conditions attached to the Preferred Shares as a class, shall have attached
thereto the rights, privileges, restrictions and conditions as set forth herein.
The Company shall only issue Series B Subordinate Voting Preferred Shares
pursuant to the Purchase Agreement or upon the conversion of Series A Non-Voting
Preferred Shares.
1.2 DIVIDENDS
The holders of Series B Subordinate Voting Preferred Shares
shall be entitled to receive dividends equivalent on a per share basis to any
dividends declared, paid, issued or distributed with respect to shares of Common
Shares into which such share of Series B Subordinate Voting Preferred Shares
could be converted pursuant to the provisions of Section 1.6 of this Article D,
on the record date for the determination of holders of Common Shares entitled to
such dividends. The Board of Directors may not declare, and the Company shall
not pay, issue or distribute, any dividend on any Common Shares unless
simultaneously the Board of Directors declares, and the Company pays, issues or
distributes the dividend on the Series B Subordinate Voting Preferred Shares
specified in the first sentence of this Section 1.2. The holders of Series B
Subordinate Voting Preferred Shares shall not be entitled to any dividend other
than, or in excess of, the dividends as hereinbefore provided.
1.3 VOTING RIGHTS
The holders of the Series B Subordinate Voting Preferred
Shares shall be entitled, as such, to receive notice of and to attend (in person
or by proxy) and be heard at all meetings of the shareholders of the Company
(other than separate meetings of the holders of shares of any other class of
shares of the Company or of shares of any series of shares of any such other
class of shares) and to vote at all such meetings and each holder of Series B
Subordinate Voting Preferred Shares shall be entitled to one vote at any such
meeting per Series B Subordinate Voting Preferred Share held by such holder as
at the record date for such meeting.
1.4 RETIRED SHARES
Any Series B Subordinate Voting Preferred Shares converted,
purchased or otherwise acquired by the Company in any manner whatsoever shall be
retired and cancelled promptly after the acquisition thereof. None of such
Series B Subordinate Voting Preferred Shares shall be reissued by the Company.
<PAGE>
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1.5 LIQUIDATION, DISSOLUTION OR WINDING UP
(1) Upon (i) any liquidation, dissolution or winding up of the
Company, whether voluntary or involuntary, (ii) a sale of all or substantially
all of the assets of the Company or (iii) a reorganization of the Company
required by any court or administrative body in order to comply with any
provision of law (each of the events referred to in clauses (i), (ii) and (iii)
being referred to as a "Liquidation"), the holders of Series B Subordinate
Voting Preferred Shares shall be entitled to receive and to be paid out of
assets of the Company available for distribution to its shareholders, before any
payment or distribution shall be made on any Junior Shares, the greater of (i)
the Series B Subordinate Voting Liquidation Value with respect to each such
outstanding Series B Subordinate Voting Preferred Share, and (ii) the amount
which would have been paid in such Liquidation, based upon the number of Class B
Subordinate Voting Shares into which a Series B Subordinate Voting Preferred
Share could be converted pursuant to the provisions of Section 1.6 of this
Article D. If, upon any Liquidation of the Company, the assets of the Company
available for distribution shall be insufficient to pay in full the Series B
Subordinate Voting Liquidation Value with respect to each outstanding Series B
Subordinate Voting Preferred Share, then such assets shall be distributed among
the holders of Series B Subordinate Voting Preferred Shares ratably in
accordance with the respective amounts that would be payable on such Series B
Subordinate Voting Preferred Shares if such assets were sufficient to permit
payment in full of all amounts payable thereon.
(2) After the payment to the holders of Series B Subordinate
Voting Preferred Shares of the full amount of the liquidating distribution to
which they are entitled under this Section 1.5, the holders of the Series B
Subordinate Voting Preferred Shares as such shall have no right or claim to any
of the remaining assets of the Company and shall not be entitled to share in any
further distribution of assets of the Company.
(3) Any consolidation, merger or other business combination of the
Company with or into any other Person or Persons shall be deemed to be a
Liquidation for purposes of this Section 1.5, except for any such merger,
consolidation or other business combination where, after the completion of such
transaction, the holders of voting shares in the capital of the Company
immediately prior to such merger, consolidation or other business combination
will beneficially own a majority of the voting shares in the capital of the
surviving or acquiring entity. Notwithstanding the foregoing, no consolidation,
merger or other business combination of the Company with or into any other
Person shall be deemed to be a Liquidation for the purposes of this Section 1.5
if the holders of not less than 85% of the issued and outstanding Series B
Subordinate Voting Preferred Shares waive in writing the provisions of this
Section 1.5 with respect to such event.
(4) "Series B Subordinate Voting Liquidation Value" determined as
of any date shall mean, in respect of each Series B Subordinate Voting Preferred
Share, the sum of (A) an amount equal to the Initial Purchase Price plus an
amount equal to six percent (6%) of the Initial Purchase Price, compounded
annually on each anniversary of the Initial Issue Date prior to the date of
determination and (B) all declared but unpaid dividends per Series B Subordinate
Voting Preferred Shares, if any. The Series B Subordinate Voting Liquidation
Value shall also be subject to adjustment as provided in Section 1.5(6) of this
Article D.
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(5) Notwithstanding the foregoing, (i) the rate of six percent
(6%) referred to in Clause (A) of Section 1.5(4) of this Article D shall be read
as eight percent (8%) from such time and as long as an Event of Default shall
have occurred and be continuing and (ii) no amount shall be added to the Initial
Purchase Price pursuant to clause (A) of Section 1.5(4) of this Article D if the
Company shall consummate a Qualified IPO prior to the first anniversary of the
Initial Issue Date.
(6) The Series B Subordinate Voting Liquidation Value shall be
multiplied by a factor equal to the sum of (x) 1.00 and (y) the Additional
Issuance Ratio if and for so long as the Company is in default in the
performance of or compliance with Section 1.4(a), 1.4(b) or 1.4(c) of the
Purchase Agreement.
1.6 CONVERSION
(1) If a Conversion Event occurs, each Series B Subordinate Voting
Preferred Share may, at the option of the Company, and in compliance with the
provisions of Section 1.6(4) of this Article D, be converted into a number of
Class B Subordinate Voting Shares equal to the Conversion Ratio. In addition, at
the option of the holder of any Series B Subordinate Voting Preferred Shares,
such holder shall have the right, at any time and from time to time, by written
notice to the Company, to convert each Series B Subordinate Voting Preferred
Share owned by such holder into (a) a number of Class B Subordinate Voting
Shares equal in the aggregate to the Conversion Ratio or (b) Series A Non-Voting
Preferred Shares on a one for one basis, in each case without payment of any
additional consideration.
(2) The Conversion Ratio, determined at any time, shall equal one
(1.00) plus an adjustment equal to six percent (6%) of the Conversion Ratio,
compounded annually on each anniversary of the Initial Issue Date prior to the
date of determination but, from such time and as long as an Event of Default
shall have occurred and be continuing, the rate of six percent (6%) referred to
above in this Section 1.6(2) shall be read as eight percent (8%); provided,
however, that if the Company consummates a Qualified IPO prior to the first
anniversary of the Initial Issue Date then no adjustment shall be made pursuant
to this sentence. This Conversion Ratio shall also be adjusted as provided below
in this Section 1.6(2). The Conversion Ratio shall be multiplied by a factor
equal to the sum of (x) 1.00 and (y) the Additional Issuance Ratio if and for so
long as the Company is in default in the performance of or compliance with
Section 1.4(a), 1.4(b) or 1.4(c) of the Purchase Agreement. The Conversion Ratio
shall also be subject to adjustment from time to time as follows:
(a) If the Company at any time or from time to time after the
Initial Issue Date (A) pays any dividend or makes any distribution in additional
Common Shares of the Company or of securities convertible into, or exchangeable
or exercisable for, shares of Common Shares of the Company, (B) subdivides the
outstanding Common Shares, (C) combines the outstanding Common Shares into a
smaller number of shares or (D) issues by reclassification of the Common Shares
any shares in the capital of the Company, then, and in each such case, the
Conversion Ratio in effect immediately prior to such event or the record date
therefor, whichever is earlier, shall be adjusted so that the holder of Series B
Subordinate Voting Preferred Shares thereafter convertible into Class B
Subordinate Voting Shares pursuant to this Section 1.6 shall be entitled to
receive the number and type of Class B Subordinate Voting Shares or other
securities of the Company which such holder would have owned or have been
entitled to receive after the
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happening of any of the events described above had such Series B Subordinate
Voting Preferred Shares been converted into Class B Subordinate Voting Shares
immediately prior to the happening of such event or the record date therefore,
whichever is earlier. An adjustment made pursuant to this clause (a) shall
become effective (x) in the case of any such dividend or distribution,
immediately after the close of business on the record date for the determination
of holders of Common Shares entitled to receive such dividend or distribution,
or (y) in the case of such subdivision, reclassification or combination, at the
close of business on the day upon which such corporate action becomes effective.
(b) If the Company issues to all (or substantially all)
holders of Common Shares any rights or subscriptions to purchase Common Shares
or Common Share Equivalents after the Initial Issue Date at a price per Common
Share (or having a conversion or exercise price per share in the case of Common
Share Equivalents) of less than either (i) the Series B Subordinate Voting
Liquidation Value or (ii) the Market Price of the Common Shares on the earlier
of the date of such issuance or the record date therefor (the "Applicable Date")
then, in each such case the Conversion Ratio shall be adjusted by multiplying
(A) the Conversion Ratio in effect at the close of business on the day
immediately prior to the Applicable Date by (B) a fraction, the numerator of
which shall be the sum of (1) the number of Common Shares outstanding at the
close of business on the date immediately prior to the Applicable Date and (2)
the number of additional Common Shares issued or issuable upon acceptance,
conversion, exchange or exercise of such rights or subscriptions (or upon
conversion, exchange or exercise of Common Share Equivalents issued or issuable
pursuant to such rights or subscriptions), and the denominator of which shall be
the sum of (x) the number of Common Shares outstanding at the close of business
on the date immediately prior to the Applicable Date and (y) the number of
Common Shares which would be purchasable for the aggregate consideration
received by the Company upon issuance of such Common Shares or Common Share
Equivalents or receivable by the Company for the total number of Common Shares
issuable upon acceptance conversion, exchange or exercise of such rights or
subscriptions (or upon conversion, exchange or exercise of Common Share
Equivalents issued or issuable pursuant to such rights or subscriptions) if the
price per share for such purchase, conversion, exchange or exercise was equal to
the greater of (i) the Series B Subordinate Voting Liquidation Value or (ii) the
Market Price of the Common Shares as of the Applicable Date. An adjustment made
pursuant to this clause (b) shall become effective immediately after the close
of business on the Applicable Date.
(c) Except with respect to Deemed Outstanding Securities (as
defined below), if the Company issues any Common Shares (or Common Share
Equivalents) after the Initial Issue Date at a price per Common Share (or having
a conversion or exercise price per share in the case of Common Share
Equivalents) of less than either (i) the Series B Subordinate Voting Liquidation
Value or (ii) the Market Price of the Common Shares on the date of issuance of
such Common Shares (or Common Share Equivalents), then, in each such case, the
Conversion Ratio shall be adjusted by multiplying (A) the Conversion Ratio in
effect at the close of business on the day immediately prior to the date of
issuance of such Common Shares (or Common Share Equivalents) by (B) a fraction,
the numerator of which shall be the sum of (l) the number of Common Shares
outstanding at the close of business on the date immediately prior to the date
of issuance of such Common Shares (or Common Share Equivalents) and (2) the
number of such additional Common Shares and the number of Common Shares issued
or issuable upon conversion, exchange or exercise of such Common Share
Equivalents, and the denominator of which shall be the sum of (x) the number of
Common Shares outstanding on the date
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immediately prior to the date of issuance of such Common Shares (or Common Share
Equivalents) and (y) the number of Common Shares which would be purchasable for
the aggregate consideration received by the Company upon issuance of such Common
Shares or Common Share Equivalents or receivable by the Company for the total
number of Common Shares issuable or issuable upon conversion, exchange or
exercise of Common Share Equivalents if the price per share for such purchase,
conversion, exchange or exercise was equal to the greater of (i) the Series B
Subordinate Voting Liquidation Value or (ii) the Market Price of the Common
Shares as of the date of issuance of such Common Shares (or Common Share
Equivalents). An adjustment made pursuant to this clause (c) shall be made on
the next Business Day following the date on which any such issuance is made and
shall be effective retroactively to the close of business on the date of such
issuance. "Deemed Outstanding Securities" shall mean (i) the stock options and
Class A Non-Voting Shares to be issued upon the exercise of such stock options,
initially issued or issuable, or Permitted Reissued Options (as defined in the
Purchase Agreement) pursuant to the 1998 Long Term Incentive and Share Award
Plan (Amended) of the Company exercisable for a maximum of 4,445,813 Class A
Non-Voting Shares; (ii) any Series A Non-Voting Preferred Shares issued pursuant
to the Purchase Agreement or any Class B Subordinate Voting Shares or Series A
Non-Voting Preferred Shares issued on the conversion of the Series B Subordinate
Voting Preferred Shares; (iii) 4,500,000 Common Shares issued, or to be issued,
in consideration for the acquisition by the Company of fiber assets and related
rights and obligations from Ledcor Industries Limited or Ledcor Industries Inc.
under the amended and restated Share Purchase Agreement dated September 7, 1999
between Ledcor Industries Limited, Ledcor Industries Inc. and the Company; (iv)
any Class A Non-Voting Shares issued on conversion of the Series B Subordinate
Voting Shares; (v) any Common Shares or Common Share Equivalents issued pursuant
to a Minority Roll-Up Transaction; (vi) any Common Shares, or Common Share
Equivalents issued pursuant to an event described in clauses (a) or (b) of this
Section 1.6(2); or (vii) 26,080,000 Class A Non-Voting Shares and 4,920,000
Class C Multiple Voting Shares issued to Gregory B. Maffei.
(d) For purposes of this Section 1.6(2) the aggregate
consideration receivable by the Company in connection with the issuance of
Common Shares and/or Common Share Equivalents shall be deemed to be equal to the
sum of the aggregate offering price (before deduction of underwriting discounts
or commissions and expenses payable to third parties, if any) of all such Common
Shares and/or Common Share Equivalents plus the minimum aggregate amount, if
any, payable upon conversion, exchange or exercise of any such Common Share
Equivalents. Upon the expiration or termination of any unconverted, unexchanged
or unexercised Common Share Equivalents for which an adjustment has been made
pursuant to clause (b) or clause (c) of this Section 1.6(2), the adjustments
shall forthwith be reversed to effect such Conversion Ratio as would have been
in effect at the time of such expiration or termination had such Common Share
Equivalents, to the extent outstanding immediately prior to such expiration or
termination, never been issued. The consideration received by the Company in
connection with the sale or issuance of Common Shares (or Common Share
Equivalents) shall be computed as follows:
(A) insofar as such consideration consists of cash,
such consideration shall equal the aggregate amount of cash received by the
Company prior to amounts paid or payable for accrued interest or accrued
dividends and prior to any commissions or expenses paid by the Company;
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(B) insofar as such consideration consists of
property other than cash, such consideration shall be calculated at the fair
value thereof at the time of such issue, as determined in good faith by the
Board of Directors, which shall be based upon a written opinion of an investment
banking or appraisal firm of national standing in the United States if such
consideration is given a value exceeding $10 million; and
(C) in the event Common Shares or Common Share
Equivalents are issued together with other securities or other assets of the
Company for consideration that is allocable to both such Common Shares and
Common Share Equivalents, and to such other securities and assets, the portion
of such consideration allocable to such Common Shares or Common Share
Equivalents shall be that set forth in the instruments and agreements issued or
entered into in connection with such transaction, and if no such allocation is
so set forth, then the portion of such consideration allocable to such Common
Shares or Common Share Equivalents, calculated as provided in clauses (A) and
(B) above, as determined in good faith by the Board of Directors.
(e) For purposes of this Section 1.6(2) the number of
Common Shares at any time outstanding shall mean the aggregate of all Common
Shares then outstanding (other than any Common Shares then owned or held by or
for the account of the Company).
(f) If the Company shall take a record of the holders of
its Common Shares for the purpose of entitling them to receive a dividend or
other distribution and shall thereafter, and before such dividend or
distribution is paid or delivered to shareholders entitled thereto, legally
abandon its plan to pay or deliver such dividend or distribution, then no
adjustment in the Conversion Ratio then in effect shall be made by reason of the
taking of such record, and any such adjustment previously made as a result of
the taking of such record shall be reversed.
(3) Subject to compliance with the provisions of Section 1.6(5) of
this Article D, each holder of Series B Subordinate Voting Preferred Shares
shall be entitled at any time and from time to time to have all or any part of
the Series B Subordinate Voting Preferred Shares held by such holder converted
into validly issued, fully paid and non-assessable Series A Non-Voting Preferred
Shares upon the basis of one Series A Non-Voting Preferred Share for each Series
B Subordinate Voting Preferred Share in respect of which the conversion right is
exercised.
(4) Before the Company shall be entitled to convert Series B
Subordinate Voting Preferred Shares into Class B Subordinate Voting Shares
pursuant to Section 1.6(1) of this Article D, the Company shall not less than 10
days and not more than 20 days before the date specified for conversion (the
"Conversion Date") send by prepaid first class mail or deliver to the registered
address of each person who at the date not more than 7 days prior to the date of
mailing or delivery is a registered holder of Series B Subordinate Voting
Preferred Shares to be converted a notice in writing of the intention of the
Company to convert the Series B Subordinate Voting Preferred Shares registered
in the name of such holder. Accidental failure or omission to give such notice
to one (1) or more holders shall not affect the validity of such conversion, but
upon such failure or omission being discovered notice shall be given forthwith
to such holder or holders and such notice shall have the same force and effect
as if given in due time. Such notice shall set out the number of Series B
Subordinate Voting Preferred Shares held by the person to whom it is addressed
which are to be converted, the Conversion Ratio, the Conversion Date and the
place or places at which holders of Series B Subordinate Voting Preferred Shares
may
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present and surrender such shares for conversion. After the giving of such
notice in writing, the election of the Company shall be irrevocable.
(a) Within three (3) days following the Conversion Date,
the Company shall, on presentation and surrender of the certificate or
certificates representing the Series B Subordinate Voting Preferred Shares
called for conversion at the place or places specified in the notice of
conversion, issue and deliver to such holder of Series B Subordinate Voting
Preferred Shares, or to the nominee or nominees of such holder, a certificate or
certificates for the number of Class B Subordinate Voting Shares entitled as
aforesaid. Such conversion shall be deemed to have been made immediately prior
to the close of business on the Conversion Date, and the person or persons
entitled to receive the Class B Subordinate Voting Shares issuable upon such
conversion shall be treated for all purposes as the record holder or holders of
such Class B Subordinate Voting Shares as of such date. The issuance of
certificates for Class B Subordinate Voting Shares, upon conversion of the
Series B Subordinate Voting Preferred Shares, shall be made without charge to
the holder but the holder shall pay any stamp, documentary or similar tax
imposed on or in respect of such conversion. If less than all of the Series B
Subordinate Voting Preferred Shares represented by any certificate are to be
converted, the holder shall be entitled to receive a new certificate
representing the number of Series B Subordinate Voting Shares represented by the
original certificate which are not to be converted.
(b) The Company shall have the right at any time on or
after the Conversion Date to deposit the certificate or certificates
representing Class B Subordinate Voting Shares into trust for holders of the
Series B Subordinate Voting Preferred Shares called for conversion, which have
not at the date of such deposit been surrendered in connection with such
conversion. Certificates deposited into trust shall be held by the Company or
other designated person named in the notice of conversion or in a subsequent
notice to the registered holders of the Series B Subordinate Voting Preferred
Shares in respect of which the deposit was made. Upon such deposit being made,
the Series B Subordinate Voting Preferred Shares in respect of which such
deposit shall have been made shall be deemed to have been converted and the
rights of the holders thereof after such deposit or such Conversion Date, as the
case may be, shall be limited to receiving the certificate or certificates
representing the Class B Subordinate Voting Shares to which they are entitled
upon presentation and surrender of the certificate or certificates representing
the Series B Subordinate Voting Preferred Shares being converted.
(5) Before any holder of Series B Subordinate Voting Preferred
Shares shall be entitled to convert the same into Class B Subordinate Voting
Shares or Series A Non-Voting Preferred Shares such holder shall surrender the
certificate or certificates therefor, duly endorsed, at the office of the
Company or of any transfer agent for the Series B Subordinate Voting Preferred
Shares, together with a written notice to the Company stating therein: the name
or names in which the certificate or certificates for Common Shares or Preferred
Shares are to be issued; the number of Series B Subordinate Voting Preferred
Shares to be converted; and notice of such holder's election to convert such
Series B Subordinate Voting Preferred Shares. After giving notice in writing,
the election of the holder of Series B Subordinate Voting Preferred Shares shall
be irrevocable although may be subject to the condition described below when the
conversion is in connection with an underwritten public offering. The Company
shall, within three (3) days of such written notice, issue and deliver at such
office to such holder of Series B Subordinate Voting Preferred Shares, or to the
nominee or nominees of such holder, a certificate or certificates for the number
of Class B Subordinate Voting Shares or Series A Non-Voting
<PAGE>
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Preferred Shares, as the case may be, to which such holder shall be entitled as
aforesaid. Such conversion shall be deemed to have been made immediately prior
to the close of business on the date of such surrender of the Series B
Subordinate Voting Preferred Shares to be converted, and the person or persons
entitled to receive the shares of Class B Subordinate Voting Shares or Series A
Non-Voting Preferred Shares, as the case may be, issuable upon such conversion
shall be treated for all purposes as the record holder or holders of such Class
B Subordinate Voting Shares or Series A Non-Voting Preferred Shares, as the case
may be, as of such date. If the conversion is in connection with an underwritten
public offering of securities (other than a Qualified IPO), the conversion into
Common Shares may, at the option of any holder tendering Series B Subordinate
Voting Preferred Shares for conversion, be conditioned upon the closing with the
underwriters of the sale of securities pursuant to such offering, in which event
the person(s) entitled to receive the Common Shares upon conversion of the
Series B Subordinate Voting Preferred Shares shall not be deemed to have
converted such Series B Subordinate Voting Preferred Shares until immediately
prior to the closing of such sale of securities. The issuance of certificates
for Class B Subordinate Voting Shares or Series A Non-Voting Preferred Shares,
as the case may be, upon conversion of the Series B Subordinate Voting Preferred
Shares shall be made without charge to the holder thereof for any issuance tax
in respect thereof, provided that the Company shall not be required to pay any
tax which may be payable in respect of any transfer involved in the issuance and
delivery of any certificate in a name other than that of the holder of the
Series B Subordinate Voting Preferred Shares which is being converted.
(6) The Company shall at no time close its transfer books against
the transfer of any Series B Subordinate Voting Preferred Shares, or of any
Class B Subordinate Voting Shares or Series A Non-Voting Preferred Shares
issuable upon the conversion of any Series B Subordinate Voting Preferred
Shares, in any manner which interferes with the timely conversion of such Series
B Subordinate Voting Preferred Shares, except as may otherwise be required to
comply with applicable laws or the provisions of the Attachment for these
Articles.
(7) As used in this Section 1.6 the term "Class B Subordinate
Voting Shares" shall mean and include the Company's issued Class B Subordinate
Voting Shares as constituted on the Initial Issue Date, and shall also include
any shares of any class of the capital of the Company thereafter authorized
which shall neither be limited to a fixed sum or percentage in respect of the
rights of the holders thereof to participate in dividends nor be entitled to a
preference in the distribution of assets upon the voluntary or involuntary
liquidation, dissolution or winding up of the Company provided that the Class B
Subordinate Voting Shares receivable upon conversion of Series B Subordinate
Voting Preferred Shares shall include only shares designated as Class B
Subordinate Voting Shares of the Company on the Initial Issue Date, or in case
of any reorganization or reclassification of the outstanding shares thereof, the
shares, securities or assets to be issued in exchange for such Class B
Subordinate Voting Shares pursuant thereto.
(8) If the Company shall be a party to any transaction including
without limitation, an amalgamation, arrangement, consolidation, sale of all or
substantially all of the Company's assets or a reorganization, reclassification
or recapitalization of the capital of the Company but excluding any transaction
for which provision for adjustment is otherwise made in this Section 1.6 (each
of the foregoing being referred to as a "Transaction"), in each case, as a
result of which Class B Subordinate Voting Shares are converted into the right
to receive shares, securities or other property (including, without limitation,
cash or any combination thereof), each Series B Subordinate Voting Preferred
Share shall thereafter be convertible into the number of
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shares or other securities or property to which a holder of the number of Class
B Subordinate Voting Shares of the Company deliverable upon conversion of such
Series B Subordinate Voting Preferred Shares would have been entitled upon such
Transaction; and, in any such case, appropriate adjustment (as determined by the
Board of Directors) shall be made in the application of the provisions set forth
in this Section 1.6 with respect to the rights and interest thereafter of the
holders of the Series B Subordinate Voting Preferred Shares, to the end that the
provisions set forth in this Section 1.6 shall thereafter be applicable, as
nearly as reasonably may be, in relation to any shares or other property
thereafter deliverable upon the conversion of the Series B Subordinate Voting
Preferred Shares. The Company shall not effect any Transaction unless prior to
or simultaneously with the consummation thereof the Company or purchaser, as the
case may be, shall provide in its charter document that each Series B
Subordinate Voting Preferred Share shall be converted into such shares,
securities or property as, in accordance with the foregoing provisions, each
such holder is entitled to receive. The provisions of this Section 1.6(8) shall
similarly apply to successive Transactions.
(9) No fractional shares shall be issued upon the conversion of
any share or shares of the Series B Subordinate Voting Preferred Shares, and the
number of Common Shares to be issued shall be rounded down to the nearest whole
share. Whether or not fractional shares are issuable upon such conversion shall
be determined on the basis of the total number of shares of Series B Subordinate
Voting Preferred Shares the holder is at the time converting into Common Shares
or Series A Non-Voting Preferred Shares and the number of Common Shares or
Series A Non-Voting Preferred Shares issuable upon such aggregate conversion.
(10) If an event not specified in this Section 1.6 occurs that has
substantially the same economic effect on the Series B Subordinate Voting
Preferred Shares as those specifically enumerated above in this Section 1.6,
then this Section 1.6 shall be construed liberally, mutatis mutandis, in order
to give the holders of Series B Subordinate Voting Preferred Shares the intended
benefit of the protections provided under this Section 1.6. In such event, the
Company's Board of Directors shall make an appropriate adjustment in the
Conversion Ratio so as to protect the rights of the holders of Series B
Subordinate Voting Preferred Shares; provided that no such adjustment shall
increase or decrease the Conversion Ratio as otherwise determined pursuant to
this Section 1.6 or decrease the number of Class B Subordinate Voting Shares
issuable upon conversion of each Series B Subordinate Voting Preferred Share.
(11) The Company will not, by amendment of its Articles or through
any reorganization, transfer of assets, consolidation, merger, dissolution,
issue or sale of securities or any other voluntary action, avoid or seek to
avoid the observance or performance of any of the terms to be observed or
performed hereunder by the Company, and will at all times in good faith assist
in the carrying out of all the provisions of this Section 1.6 and in the taking
of all such action as may be necessary or appropriate in order to protect the
conversion rights of the holders of the Series B Subordinate Voting Preferred
Shares against impairment.
(12) All calculations under this Section 1.6 shall be made to (a)
the nearest cent or (b) the nearest one hundredth of a share or (c) the nearest
one percent, as the case may be.
<PAGE>
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1.7 NOTICE OF CERTAIN EVENTS
In case, at any time while any Series B Subordinate Voting
Preferred Shares are outstanding,
(1) the Company shall declare a dividend (or any other
distribution) on its Common Shares;
(2) the Company shall authorize the issuance to the holders of its
Common Shares, of Common Share Equivalents, or rights or warrants to subscribe
for or purchase Common Shares or of any other subscriptions rights or warrants;
(3) the Company shall authorize any reorganization,
reclassification or recapitalization of its Common Shares;
(4) the Company shall authorize the consolidation or merger of the
Company into or with any other person, the sale or transfer of all or
substantially all of its business or assets to another person, or any other
similar business combination or transaction; or
(5) the Company shall authorize the voluntary or involuntary
dissolution, liquidation or winding up on the Company;
then the Company shall promptly deliver to the transfer agent of the Series B
Subordinate Voting Preferred Shares, if any, and to each of the holders of
Series B Subordinate Voting Preferred Shares at their last addresses as they
shall appear on the register for the Series B Subordinate Voting Preferred
Shares, at least 15 days before the date hereafter specified (or the earlier of
the dates hereinafter specified, in the event that more than one date is
specified), a notice describing such event and stating (A) the date on which a
record is to be taken for the purpose of such dividend, distribution, rights or
warrants, or, if a record is not to be taken, the date as of which the holders
of Common Shares of record to be entitled to such dividend, distribution, rights
or warrants are to be determined, or (B) the date on which any such
reclassification, reorganization, recapitalization, consolidation, merger, sale,
transfer, dissolution, liquidation or winding up is expected to become
effective, and the date as of which it is expected that holders of Common Shares
of record shall be entitled to exchange their Common Shares for securities or
other property (including cash), if any, deliverable upon such reclassification,
consolidation, merger, sale, transfer, dissolution, liquidation or winding up.
1.8 REPORTS AS TO ADJUSTMENT
Upon any adjustment of the Conversion Ratio then in effect
pursuant to the provisions of Section 1.6 of this Article D then, and in each
such case, the Company shall promptly deliver to each of the holders of the
Series B Subordinate Voting Preferred Shares, a certificate signed by an officer
of the Company setting forth in reasonable detail the event requiring the
adjustment, the method by which such adjustment was calculated and the
Conversion Ratio then in effect following such Adjustment. Where appropriate,
such notice to holders of the Series B Subordinate Voting Preferred Shares may
be given in advance.
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1.9 MANDATORY REDEMPTION
On November 2, 2009 (the "Redemption Date"), the Company shall
redeem all the Series B Subordinate Voting Preferred Shares then outstanding and
not theretofore surrendered for conversion, as follows: Thirty days prior to the
Redemption Date, the Company shall give written notice to all holders of Series
B Subordinate Voting Preferred Shares which shall specify the Redemption Date.
For each Series B Subordinate Voting Preferred Share which is to be redeemed,
the Company shall be obligated on the Redemption Date to pay and deliver share
certificates to the holder thereof (upon surrender by such holder at the
Company's principal executive office of the certificate representing such share
or an Affidavit of Loss with respect thereto) (a) an amount in immediately
available funds equal to the Series B Subordinate Voting Liquidation Value, and
(b) such number of Class B Subordinate Voting Shares as have an aggregate Market
Price (as determined on the day immediately before the Redemption Date) equal to
the excess of the Market Price (as determined on the day immediately before the
Redemption Date) of the Series B Subordinate Voting Preferred Share over the
Series A Non-Voting Liquidation Value. All Class B Subordinate Voting Shares
shall, when issued as contemplated herein, be validly issued, fully paid and
non-assessable. If the funds of the Company legally available for redemption of
the Series B Subordinate Voting Preferred Shares on the Redemption Date are
insufficient to redeem the total number of such shares to be redeemed on such
date, then those funds which are legally available shall be used to redeem the
maximum possible number of such shares ratably among the holders thereof, based
upon the aggregate Series B Subordinate Voting Liquidation Value of such Series
B Subordinate Voting Preferred Shares held by each such holder. At any time
thereafter when additional funds of the Company are legally available for the
redemption of Series B Subordinate Voting Preferred Shares, such funds shall
immediately be used to redeem on a similar ratable basis the balance of such
shares. Notwithstanding the foregoing, each holder of Series B Subordinate
Voting Preferred Shares shall be entitled to convert all or any portion of such
holder's shares pursuant to Section 1.6 of this Article D prior to the
Redemption Date and thereafter until such Series B Subordinate Voting Preferred
Shares are redeemed.
1.10 RESERVATION OF SHARES ISSUABLE UPON CONVERSION
The Company shall at all times reserve and keep available out
of its authorized but unissued Class B Subordinate Voting Shares and out of its
authorized but unissued Preferred Shares solely for the purpose of effecting the
conversion of the issued or issuable Series B Subordinate Voting Preferred
Shares, such number of its Class B Subordinate Voting Shares and Series A
Non-Voting Preferred Shares, as the case may be, as shall from time to time be
sufficient to effect the conversion of all outstanding Series B Subordinate
Voting Preferred Shares, and if at any time the number of authorized but
unissued Class B Subordinate Voting Shares or Series A Non-Voting Preferred
Shares shall not be sufficient to effect the conversion of all then outstanding
Series B Subordinate Voting Preferred Shares, the Company will take all such
corporate action as may be necessary to increase its authorized but unissued
Class B Subordinate Voting Shares or Series A Non-Voting Preferred Shares to
such number of shares as shall be sufficient for such purpose. All Class B
Subordinate Voting Shares and Series A Non-Voting Preferred Shares shall, when
issued upon conversion as contemplated herein, be validly issued, fully paid and
non-assessable.
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1.11 LISTING ON SECURITIES EXCHANGES, ETC.
The Company will list on each national securities exchange on
which any Common Shares may at any time be listed, subject to official notice of
issuance upon the conversion of the Series B Subordinate Voting Preferred
Shares, all Class B Subordinate Voting Shares from time to time issuable upon
the conversion of Series B Subordinate Voting Preferred Shares and will maintain
such listing as long as any Class B Subordinate Voting Shares are listed.
1.12 CERTAIN COVENANTS
Any registered holder of Series B Subordinate Voting Preferred
Shares may proceed to protect and enforce its rights and the rights of any other
holders of Series B Subordinate Voting Preferred Shares with any and all
remedies available at law or in equity.
1.13 DEFINITIONS
In addition to any other terms defined herein for purposes of
this Article D, the following terms shall have the meaning indicated (references
to particular sections of the Purchase Agreement or Shareholders Agreement shall
include any amended, successor or substitute provisions in such agreements, as
they may be amended from time to time in accordance with their respective
terms):
"Additional Issuance Ratio" is defined in Section 1.4(b) of
the Purchase Agreement.
"Affidavit of Loss" an affidavit or agreement satisfactory to
the Company to indemnify the Company (without the need to post any bond or other
security for such obligation) from any loss incurred in connection with the loss
of any share certificate evidencing shares of the Company's Capital Securities.
"Business Day" means any day other than a Saturday, Sunday or
a day when commercial banks in New York City or Vancouver, British Columbia are
required to be closed.
"Capital Securities" means, as to any Person that is a
Company, the authorized shares of such Person's capital stock, including all
classes of common, preferred, voting and non voting capital stock, and, as to
any Person that is not a Company or an individual, the ownership interests in
such Person, including, without limitation, the right to share in profits and
losses, the right to receive distributions of cash and property, and the right
to receive allocations of items of income, gain, loss, deduction and credit and
similar items from such Person, whether or not such interests include voting or
similar rights entitling the holder thereof to exercise control over such
Person.
"Common Share Equivalent" shall mean securities convertible
into, or exchangeable or exercisable for Common Shares of any class.
"Common Shares" means the Class A Non-Voting Shares, Class B
Subordinate Voting Shares and Class C Multiple Voting Shares in the capital of
the Company.
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"Conversion Event" means (i) a Qualified IPO or (ii) (x) there
shall occur an underwritten public offering providing gross proceeds to the
Company and selling shareholders of at least U.S. $150,000,000 before deducting
underwriting discounts, commissions and offering expenses and (y) thereafter the
closing price for a period of 45 consecutive trading days per listed Common
Share is at least 300% of the 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 Company 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). For purposes of clause (ii) above,
the closing price of each day shall be the last sale price or, in case no such
sale takes place on such day, the average of the closing bid and asked prices in
either case as reported in the principal consolidated transaction reporting
system with respect to securities listed on the principal national securities
exchange on which the listed Common Shares are listed or the last quoted sale
price or, if not so quoted, the average of the high bid and low asked prices in
the over-the-counter market, as reported by the NASDAQ.
"Conversion Ratio" determined as of any date, shall equal the
number of Class B Subordinate Voting Shares (in the aggregate) into which one
share of Series B Subordinate Voting Preferred Shares is convertible pursuant to
Section 1.6 of this Article D.
The term "distribution" shall include the transfer of cash or
property to the holders of a class of shares of the Company, without
consideration, whether by way of dividend or otherwise (except a dividend in
shares of such class), or the purchase or redemption of shares of the Company,
for cash or property, including such transfer, purchase or redemption by a
subsidiary of the Company. The time of any distribution by way of dividends
shall be the date of declaration thereof, and the time of any distribution by
purchase or redemption of shares shall be the date on which cash or property is
transferred by the Company, whether or not pursuant to a contract of an earlier
date; PROVIDED, HOWEVER, that, where a debt security is issued in exchange for
shares, the time of the distribution is the date when a Company acquires the
shares for such exchange.
"Dollars" and the symbol "$" shall mean, unless otherwise
indicated, U.S. dollars, and the symbol "C$" shall refer to Canadian dollars.
"Employee Shares" is defined in Section 1.4(b) of the Purchase
Agreement.
"Event of Default" means (i) the Company shall default in the
performance of or compliance with the terms of Section 1.9 of this Article D or
(ii) Ledcor Inc. shall default in the performance of or compliance with Section
12.4 of the Shareholders Agreement.
"Initial Issue Date" means the date on which the first Series
A Non-Voting Preferred Shares were issued by the Company.
"Initial Purchase Price" means, U.S.$38.909 per Series A
Non-Voting Preferred Share, (as equitably adjusted to reflect any stock split,
stock dividend, combination, reorganization, recapitalization, reclassification
or other similar event involving Common Shares after the Initial Issue Date).
<PAGE>
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"Junior Shares" shall mean any of the Company's Common Shares
and all other Capital Securities of the Company (other than the Series B
Subordinate Voting Preferred Shares and the Series A Non-Voting Preferred
Shares, which shall rank equally with the Series B Subordinate Voting Preferred
Shares).
"Market Price" of any security with a Minimum Float means the
average of the closing prices of such security's sales on all securities
exchanges on which such security may at the time be listed, or, if there have
been no sales on any such exchange on any day, the average of the highest bid
and lowest asked prices on all such exchanges at the end of such day, or, if on
any day such security is not so listed, the average of the representative bid
and asked prices quoted in the NASDAQ System as of 4:00 P.M., New York time, or,
if on any day such security is not quoted in the NASDAQ System, the average of
the highest bid and lowest asked prices on such day in the domestic
over-the-counter market as reported by the National Quotation Bureau,
Incorporated, or any similar successor organization, in each such case averaged
over a period of 21 days consisting of the day as of which "Market Price" is
being determined and the 20 consecutive Business Days prior to such day. If
there is not a Minimum Float with respect to the Series B Subordinate Voting
Preferred Shares, then the Market Price of a Series B Subordinate Voting
Preferred Share shall be determined as equal to the Market Price of a Common
Share times the number of Common Shares into which the Series B Subordinate
Voting Preferred Share is convertible as of the date of determination of the
Market Price. If at any time such security does not have a Minimum Float or is
not listed on any securities exchange or quoted in the NASDAQ System or the
over-the-counter market, the "Market Price" shall be the fair value thereof
determined jointly by the Company and the holders of a majority of the Series B
Subordinate Voting Preferred Shares. If such parties are unable to reach
agreement within a reasonable period of time, such fair value shall be
determined by an independent appraiser experienced in valuing securities jointly
selected by the Company and the holders of a majority of the Series B
Subordinate Voting Preferred Shares. If the Company and the holders of a
majority of the Series B Subordinate Voting Preferred Shares are unable to agree
on the selection of an independent appraiser within 30 days of the date when the
holders of a majority of the Series B Subordinate Voting Preferred Shares have
first delivered notice in writing to the Company of the name of a proposed
independent appraiser, then the holders of a majority of the Series B
Subordinate Voting Preferred Shares may request the President of the American
Arbitration Association to appoint an independent appraiser and such appointment
shall be final and binding for purposes of determination of the Market Price in
question. The determination of such appraiser shall be final and binding upon
the parties, and the Company shall pay the fees and expenses of such appraiser.
"Minimum Float" is achieved if the product of (i) the closing
price of a security listed on any securities exchange or quoted in the NASDAQ
system or the over-the-counter market multiplied by (ii) the number of shares or
units of such security registered pursuant to the United States Securities Act
of 1933, as then in effect, and held by the public is at least U.S.
$150,000,000.
"Minority Roll-Up Factor" means the sum of (i) 1.00 plus (ii)
the Additional Issuance Ratio.
"Minority Roll-Up Transaction" is defined in Section 1.4(b) of
the Purchase Agreement.
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"Minority Roll-Up Shares" is defined in Section 1.4(b) of the
Purchase Agreement.
"Person" shall include an individual, partnership,
association, body corporate, trustee, executor, administrator or legal
representative.
"Public Sale" is defined in Section 1.27 of the Shareholders
Agreement.
"Purchase Agreement" means the Preferred Share Purchase
Agreement dated September 7, 1999 among the Company and the parties named as
"Investors" therein, as the same may be amended from time to time in accordance
with its terms.
"Qualified IPO" shall mean the Company's first BONA FIDE
underwritten public offering of Common Shares pursuant to a preliminary
prospectus and a prospectus if under Canadian federal and provincial securities
laws and pursuant to an effective registration statement under the United States
Securities Act of 1933, as amended, (i) resulting in at least U.S. $150,000,000
of gross aggregate proceeds to the Company and any selling stockholders 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
obtained by dividing U.S.$345,000,000 by the number of Series A Non-Voting
Preferred Shares, Common Shares or Common Share Equivalents issued by the
Company 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) and
(iii) upon the consummation of which the Class A Non-Voting Shares or Class B
Subordinate Voting Shares are listed on The Toronto Stock Exchange and on a U.S.
national securities exchange or quoted on Nasdaq National Market.
"Shareholders Agreement" means the Shareholders Agreement
dated as of September 9, 1999 among the Company and the parties named therein,
as the same may be amended from time to time in accordance with its terms.
E. SERIES C REDEEMABLE PREFERRED SHARES
1. SERIES RIGHTS
1.1 DESIGNATION AND NUMBER
The third series of Preferred Shares shall consist of
45,000,000 Preferred Shares, which shares shall be designated as Series C
Redeemable Preferred Shares (the "Series C Redeemable Preferred Shares") and
which, in addition to the rights privileges, restrictions and conditions
attached to the Preferred Shares as a class, shall have attached thereto the
rights, privileges, restrictions and conditions as set forth herein.
1.2 DIVIDENDS
The holders of the Series C Redeemable Preferred Shares shall
not be entitled to dividends.
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1.3 VOTING RIGHTS
Except as required by law, the holders of the Series C
Redeemable Preferred Shares shall not be entitled to receive notice of nor to
attend any meeting of the shareholders of the Company.
1.4 REDEMPTION BY HOLDER
1.4.1 NOTICE OF RETRACTION
Each holder of Series C Redeemable Preferred Shares may, at
any time after November 2, 2009, demand by notice in writing that the Company
redeem all or any of the Series C Redeemable Preferred Shares held by such
holder by payment to the holder the sum of US $1.00 per share (the "Series C
Redemption Amount")
1.4.2 PROCEDURE FOR REDEMPTION
(1) Such demand for redemption shall be made in writing and signed
by the holder demanding redemption and shall be delivered or mailed to the
registered office of the Company. Such demand for redemption shall be deemed to
have been received on the date of delivery if delivered and on the business day
following the date of mailing if mailed.
(2) Forthwith upon receipt of a demand for redemption the Company
shall deliver or mail a copy thereof to all other holders, if any, of Series C
Redeemable Preferred Shares. The rationale for this mailing shall be to allow
other holders of Series C Redeemable Preferred Shares to submit demands for
redemption.
(3) If there is only one holder of Series C Redeemable Preferred
Shares the Company shall redeem the Series C Redeemable Preferred Shares
referred to in the holder's notice forthwith upon receipt thereof; if there is
more than one such holder, thirty-one (31) days after deemed receipt of an
initial demand for redemption, the Company shall redeem all Series C Redeemable
Preferred Shares in respect of which it has received demands for redemption. If
the assets of the Company are not sufficient to redeem all Series C Redeemable
Preferred Shares in respect of which demands for redemption have been made,
redemption shall be made pro rata among the holders of Series C Redeemable
Preferred Shares in proportion to the number of Series C Redeemable Preferred
Shares specified in the notices given by the holders demanding redemption.
1.4.3 EFFECT OF PAYMENT
Upon payment of the Series C Redemption Amount of the Series C
Redeemable Preferred Shares so redeemed by the Company, the holders thereof
shall cease to exercise any rights of the holders in respect thereof.
1.5 LIQUIDATION, DISSOLUTION OR WINDING-UP
In the event of the liquidation, dissolution or winding-up of
the Company or any other distribution of assets of the Company among its
shareholders for the purpose of winding-up its affairs, the holders of the
Series C Redeemable Preferred Shares shall be entitled to receive,
<PAGE>
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before any payment or distribution shall be made on any shares ranking junior to
the Series C Redeemable Preferred Shares in respect of payment upon liquidation,
dissolution or winding-up of the Company, an amount equal to the amount of the
paid up capital thereof. After payment of such amounts the holders of the Series
C Redeemable Preferred Shares shall not be entitled to share in any further
distribution of the property or assets of the Company.
1.6 RETIRED SHARES
Any Series C Redeemable Preferred Shares converted, purchased
or otherwise acquired by the Company in any manner whatsoever shall be retired
and cancelled promptly after the acquisition thereof. None of such Series C
Redeemable Preferred Shares shall be reissued by the Company.
<PAGE>
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ATTACHMENT
TO ANNEX I
RESTRICTIONS ON THE ISSUE, TRANSFER AND OWNERSHIP OF VOTING
SHARES
For the purposes of this Attachment to Annex I and Appendix A
hereto, "Voting Share" means a share of any class or series of shares of the
Company carrying voting rights under all circumstances or by reason of an event
that has occurred and is continuing or by reason of a condition that has been
fulfilled, and includes:
(a) any security that is convertible into such a share at the
time a calculation of the percentage of shares owned and controlled by Canadians
is made; and
(b) any option or right to acquire such a share, or any
security referred to in paragraph (a), that is exercisable at the time the
calculation referred to in that paragraph is made.
The issue, transfer and ownership of Voting Shares are
restricted as follows:
(a) The Board of Directors of the Company may, in connection
with the issue, transfer or ownership of Voting Shares, take any action, or
refuse to take any action, as the case may be, as may be permitted by the
provisions of any of the TELECOMMUNICATIONS ACT (Canada) and the rules,
regulations, policies, decisions, directives and orders promulgated or issued
thereunder, as amended from time to time, (collectively hereinafter referred to
as the "TELECOM ACT"); and
(b) The issue and transfer of Voting Shares are restricted in
accordance with the constraints set out in Appendix A hereto.
In the event of any inconsistency among the provisions of the
TELECOM ACT, and Appendix A hereto, the provisions of the TELECOM ACT, shall
prevail over Appendix A hereto.
<PAGE>
APPENDIX A
ARTICLE 1
INTERPRETATION
1.1 DEFINITIONS - For the purposes of this Appendix A, the
following terms have the following meanings:
(a) "affiliate" and "associate" shall have their respective
meanings as defined in the CBCA and includes persons, firms and corporations
acting in concert with the person with respect to whom the term affiliate or
associate is relevant;
(b) "CBCA" means the CANADA BUSINESS CORPORATIONS ACT, as amended
from time to time;
(c) "Constrained Class" means: (i) any person or persons who are
not Canadians within the meaning of that Part of the Regulation dealing with
constrained share corporations, and (ii) any person or persons, where the issue
or transfer of shares to any such person or persons will affect the ability of
the Company or any of its affiliates or associates to qualify under any
applicable laws of Canada, including for greater certainty, the TELECOM ACT and
the regulations promulgated thereunder, or any applicable laws of a province
prescribed pursuant to paragraph 57(l)(a) of the Regulations (a "Prescribed
Law") in order to carry on any business that the Company is currently engaged in
or proposes to engage in and to obtain, maintain, amend or renew any licenses
which are necessary to carry on any such business;
(d) "Maximum Aggregate Holdings" means the total number of Voting
Shares that may be held by or on behalf of persons in the Constrained Class and
their affiliates and associates pursuant to any applicable Prescribed Law;
(e) "Maximum Individual Holding" means the total number of Voting
Shares that may be held by or on behalf of any one person in the Constrained
Class and their affiliates and associates pursuant to any applicable Prescribed
Law; and
(f) "Regulations" means those regulations made under the CBCA as
amended from time to time.
1.2 JOINT OWNERSHIP BY NON-CANADIANS - For the purposes of this
Appendix A, where a Voting Share is held, beneficially owned or controlled
jointly, and one or more of the joint holders, beneficial owners or persons
controlling the share is a member of the Constrained Class, the share is deemed
to be held, beneficially owned or controlled, as the case may be, by such member
of the Constrained Class.
1.3 PURPOSE OF CONSTRAINED SHARE PROVISIONS - The power of the
directors of the Company to issue Voting Shares, and the right of any holder of
Voting Shares to transfer or vote such Voting Shares, is restricted in the
manner hereinafter set out, for the purposes of:
<PAGE>
(a) ensuring that the Company, or any of its affiliates or associates,
is qualified under any applicable Prescribed Law to obtain or renew any license
to carry on any business and/or hold any licenses that are necessary to carry on
any such business; and
(b) ensuring that the Company, or any of its affiliates or associates,
is not in breach of any applicable Prescribed Law or the terms of any license
issued thereunder.
ARTICLE 2
CONSTRAINTS
2.1 RESTRICTION ON ISSUE OR TRANSFER OF VOTING SHARES - The
directors of the Company shall not issue a Voting Share (including the
conversion into a Voting Share of any share that is not a Voting Share) and
shall refuse to register a transfer of a Voting Share, if the issuance or
transfer, as the case may be, would, in the opinion of the directors of the
Company, jeopardize the purposes stated in section 1.3 of this Appendix A and,
without limiting the generality of the foregoing, the directors of the Company
shall not issue a Voting Share, and shall refuse to register a transfer of a
Voting Share, to a person who is a member of the Constrained Class, if:
(a) the total number of Voting Shares held by or on behalf of
persons in the Constrained Class exceeds the Maximum Aggregate Holdings and the
issuance or transfer, as the case may be, of such Voting Shares is to a person
in the Constrained Class;
(b) the total number of Voting Shares held by or on behalf of
persons in the Constrained Class does not exceed the Maximum Aggregate Holdings
and the issuance or transfer, as the case may be, of such Voting Shares would
cause the number of Voting Shares held by persons in the Constrained Class to
exceed the Maximum Aggregate Holdings;
(c) the total number of Voting Shares held by or on behalf of a
person in the Constrained Class exceeds the Maximum Individual Holdings and the
issuance or transfer, as the case may be, of such Voting Shares is to that
person; or
(d) the total number of Voting Shares held by or on behalf of a
person in the Constrained Class does not exceed the Maximum Individual Holdings
and the issuance or transfer, as the case may be, of such Voting Shares would
cause the number of such Voting Shares held by that person to exceed the Maximum
Individual Holdings.
2.2 FURTHER RESTRICTIONS ON THE ISSUE OR TRANSFER OF VOTING SHARES
- - The directors of the Company may refuse to issue a Voting Share or register a
transfer of a Voting Share, if the issue or transfer, as the case may be, is to
a person who may be a member of a Constrained Class and who, in respect of the
issue or registration of the transfer of such Voting Share, as the case may be,
has been requested by the Company to furnish it with information referred to in
subsection 56(l) of the Regulations, and has not furnished such information.
2.3 BY-LAWS - Subject to the CBCA, the Regulations and any
Prescribed Law, the directors of the Company may make, amend or repeal any
by-laws required to administer the constrained share provisions set out in this
Appendix A, including such by-laws as are contemplated in section 56 of the
Regulations.
<PAGE>
ARTICLE 3
POWERS AND DISCRETION OF DIRECTORS
3.1 OPINION OF THE DIRECTORS - Wherever in this Appendix A it is
necessary to determine the opinion of the directors of the Company, such opinion
shall be expressed and conclusively evidenced by a resolution of the directors
of the Company duly adopted, including a resolution in writing executed pursuant
to the provisions of the CBCA.
3.2 NO CLAIMS - Neither any shareholder of the Company nor any
other interested person shall have any claim or action against the Company or
against any director or officer of the Company nor shall the Company have any
claim or action against any director or officer of the Company arising out of
any act (including any omission to act) performed pursuant to or in intended
pursuance of the provisions of this Appendix A or any breach or alleged breach
by the Company of any of the provisions of this Appendix A, and, for greater
certainty, no such person shall be liable for any damages or losses related to
or as a consequence of any such act or any such breach of such provisions.
3.3 POWERS OF DIRECTORS - In the administration of this Appendix
A, the directors of the Company shall enjoy, in addition to the powers
explicitly set forth herein, all of the powers necessary or desirable, in their
opinion, to carry out the intent and purpose hereof, including but not limited
to all powers contemplated by the provisions relating to constrained share
corporations in the CBCA, the Regulations and any Prescribed Law.
ARTICLE 4
MISCELLANEOUS
4.1 SHARE PROVISIONS - The directors shall cause to be noted
conspicuously upon every certificate representing a Voting Share the general
nature of these constrained share provisions.
ARTICLE 5
MISCELLANEOUS
5.1 CONFLICT - In the event of any conflict between the provisions
of this Appendix A and of the provisions in the CBCA and the Regulations
relating to constrained share corporations, the provisions in the CBCA and the
Regulations shall prevail, and the provisions of this Appendix A shall be deemed
to be amended accordingly and shall be retroactive in effect, as so amended.
5.2 SEVERABILITY - The invalidity or unenforceability of any
provision, in whole or in part, of this Appendix A for any reason shall not
affect the validity or enforceability of any other provision hereof.
<PAGE>
SCHEDULE B
ARTICLES OF ASSOCIATION
OF
360NETWORKS INC.
1. Interpretation
In these Articles, unless there be something in the subject or context
inconsistent therewith:
(1) "Act" means the COMPANIES ACT (Nova Scotia);
(2) "Articles" means these Articles of Association of the Company
and all amendments hereto;
(3) "Company" means the company named above;
(4) "director" means a director of the Company;
(5) "investor designees" means, collectively, those members of the
board nominated by each of the following: DWF SRL, a Barbados
Company; GS Capital Partners III, L.P., a Delaware limited
partnership; Providence Equity Fiber, L.P., a Delaware limited
partnership; and Tyco Group S.A.R.L., a Luxembourg
corporation;
(6) "Memorandum" means the Memorandum of Association of the
Company and all amendments thereto;
(7) "month" means calendar month;
(8) "Office" means the registered office of the Company;
(9) "person" includes a body corporate;
(10) "proxyholder" includes an alternate proxyholder;
(11) "Register" means the register of members kept pursuant to the
Act, and where the context permits includes a branch register
of members;
(12) "Registrar" means the Registrar as defined in the Act;
(13) "resolution of shareholders" means a resolution passed by
those of the shareholders entitled to vote on the matters
dealt with in such resolution.
(14) "Secretary" includes any person appointed to perform the
duties of the Secretary temporarily;
<PAGE>
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(15) "shareholder" means member as that term is used in the Act in
connection with a company limited by shares;
(16) "special resolution" has the meaning assigned by the Act;
(17) "in writing" and "written" includes printing, lithography and
other modes of representing or reproducing words in visible
form;
(18) words importing number or gender include all numbers and
genders unless the context otherwise requires;
2. The regulations in Table A in the First Schedule to the Act shall not
apply to the Company.
3. The directors may enter into and carry into effect or adopt and carry
into effect any agreement made by the promoters of the Company on
behalf of the Company and may agree to any modification in the terms of
any such agreement, either before or after its execution.
4. The directors may, out of the funds of the Company, pay all expenses
incurred for the continuance and reorganization of the Company.
SHARES
5. The directors shall control the shares and, subject to the provisions
of these Articles, may allot or otherwise dispose of them to such
person at such times, on such terms and conditions and, if the shares
have a par value, either at a premium or at par, as they think fit.
6. The directors may pay on behalf of the Company a reasonable commission
to any person in consideration of subscribing or agreeing to subscribe
(whether absolutely or conditionally) for any shares in the Company, or
procuring or agreeing to procure subscriptions (whether absolute or
conditional) for any shares in the Company. Subject to the Act, the
commission may be paid or satisfied in shares of the Company.
7. If the whole or part of the allotment price of any shares is, by the
conditions of their allotment, payable in instalments, every such
instalment shall, when due, be payable to the Company by the person who
is at such time the registered holder of the shares.
8. Shares may be registered in the names of joint holders not exceeding
three in number.
9. On the death of one or more joint holders of shares the survivor or
survivors of them shall alone be recognized by the Company as the
registered holder or holders of the shares.
10. Save as herein otherwise provided, the Company may treat the registered
holder of any share as the absolute owner thereof and accordingly shall
not, except as ordered by a court of competent jurisdiction or required
by statute, be bound to recognize any equitable or other claim to or
interest in such share on the part of any other person.
<PAGE>
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CERTIFICATES
11. Certificates of title to shares shall comply with the Act and may
otherwise be in such form as the directors may from time to time
determine. Unless the directors otherwise determine, every certificate
of title to shares shall be signed manually by at least one of the
Chair, President, Secretary, Treasurer, a vice-president, an assistant
secretary, any other officer of the Company or any director of the
Company or by or on behalf of a share registrar transfer agent or
branch transfer agent appointed by the Company or by any other person
whom the directors may designate. When signatures of more than one
person appear on a certificate all but one may be printed or otherwise
mechanically reproduced. All such certificates when signed as provided
in this Article shall be valid and binding upon the Company. If a
certificate contains a printed or mechanically reproduced signature of
a person, the Company may issue the certificate, notwithstanding that
the person has ceased to be a director or an officer of the Company and
the certificate is as valid as if such person were a director or an
officer at the date of its issue. Any certificate representing shares
of a class publicly traded on any stock exchange shall be valid and
binding on the Company if it complies with the rules of such exchange
whether or not it otherwise complies with this Article.
12. Except as the directors may determine, each shareholder's shares may be
evidenced by any number of certificates so long as the aggregate of the
shares stipulated in such certificates equals the aggregate registered
in the name of the shareholder.
13. Where shares are registered in the names of two or more persons, the
Company shall not be bound to issue more than one certificate or set of
certificates, and such certificate or set of certificates shall be
delivered to the person first named on the Register.
14. Any certificate that has become worn, damaged or defaced may, upon its
surrender to the directors, be cancelled and replaced by a new
certificate. Any certificate that has become lost or destroyed may be
replaced by a new certificate upon proof of such loss or destruction to
the satisfaction of the directors and the furnishing to the Company of
such undertakings of indemnity as the directors deem adequate.
15. The sum of one dollar or such other sum as the directors from time to
time determine shall be paid to the Company for every certificate other
than the first certificate issued to any holder in respect of any share
or shares.
16. The directors may cause one or more branch Registers of shareholders to
be kept in any place or places, whether inside or outside of Nova
Scotia.
TRANSFER OF SHARES
17. The instrument of transfer of any share in the Company shall be signed
by the transferor. The transferor shall be deemed to remain the holder
of such share until the name of the transferee is entered in the
Register in respect thereof and shall be entitled to receive any
dividend declared thereon before the registration of the transfer.
<PAGE>
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18. The instrument of transfer of any share shall be in writing in the
following form or to the following effect or in such other form as the
directors may approve from time to time:
For value received, _____ hereby sell, assign, and transfer
unto ______, _____ shares in the capital of the Company
represented by the within certificate, and do hereby
irrevocably constitute and appoint _________ attorney to
transfer such shares on the books of the Company with full
power of substitution in the premises.
Dated the ____ day of ___________,
Witness:_____________________________
19. Every instrument of transfer shall be left for registration at the
Office of the Company, or at any office of its transfer agent where a
Register is maintained, together with the certificate of the shares to
be transferred and such other evidence as the Company may require to
prove title to or the right to transfer the shares.
20. The directors may require that a fee determined by them be paid before
or after registration of any transfer.
21. Every instrument of transfer shall, after its registration, remain in
the custody of the Company. Any instrument of transfer that the
directors decline to register shall, except in case of fraud, be
returned to the person who deposited it.
TRANSMISSION OF SHARES
22. The executors or administrators of a deceased shareholder (not being
one of several joint holders) shall be the only persons recognized by
the Company as having any title to the shares registered in the name of
such shareholder. When a share is registered in the names of two or
more joint holders, the survivor or survivors and the executors or
administrators of the deceased shareholder, shall be the only persons
recognized by the Company as having any title to, or interest in, such
share.
23. Notwithstanding anything in these Articles, if the Company has only one
shareholder (not being one of several joint holders) and that
shareholder dies, the executors or administrators of the deceased
shareholder shall be entitled to register themselves in the Register as
the holders of the shares registered in the name of the deceased
shareholder whereupon they shall have all the rights given by these
Articles and by law to shareholders.
24. Any person entitled to shares upon the death or bankruptcy of any
shareholder or in any way other than by allotment or transfer, upon
producing such evidence of entitlement as the directors require, may be
registered as a shareholder in respect of such shares, or may, without
being registered, transfer such shares subject to the provisions of
these Articles respecting the transfer of shares. The directors shall
have the same right to refuse registration as if the transferee were
named in an ordinary transfer presented for registration.
<PAGE>
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SURRENDER OF SHARES
25. The directors may accept the surrender of any share by way of
compromise of any question as to the holder being properly registered
in respect thereof. Any share so surrendered may be disposed of in the
same manner as a forfeited share.
SHARE WARRANT
26. The Company, with respect to any fully paid-up shares, may issue
warrants ("Share Warrants") stating that the bearer is entitled to the
shares therein specified, and may provide, by coupons or otherwise, for
the payment of future dividends on the shares included in the Share
Warrants.
27. The directors may determine and vary the conditions upon which Share
Warrants will be issued and, without limiting the generality of the
foregoing, may determine the conditions upon which
(1) a new Share Warrant or coupon will be issued in the place of
one worn out, defaced, lost or destroyed, or
(2) the bearer of a Share Warrant will be entitled to attend and
vote at general meetings, or
(3) a Share Warrant may be surrendered and the name of the bearer
entered in the Register in respect of the shares therein
specified.
Subject to such conditions and to these Articles the bearer of a Share
Warrant shall be a shareholder to the full extent. The bearer of a
Share Warrant shall be subject to the conditions for the time being in
force, whether made before or after the issue of the Share Warrant.
INCREASE AND REDUCTION OF CAPITAL
28. Subject to the Act, the Company may by resolution of its shareholders
increase its share capital by the creation of new shares of such amount
as it thinks expedient.\
29. Subject to the Act, the new shares may be issued upon such terms and
conditions and with such rights, privileges, limitations, restrictions
and conditions attached thereto as the Company by resolution of its
shareholders determines or, if no direction is given, as the directors
determine.
30. Except as otherwise provided by the conditions of issue, or by these
Articles, any capital raised by the creation of new shares shall be
considered part of the original capital and shall be subject to the
provisions herein contained with reference to transfer and
transmission, and otherwise.
31. The Company may, by special resolution where required, reduce its share
capital in any way and with and subject to any incident authorized and
consent required by law.
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ALTERATION OF CAPITAL
31. Subject to the Act, the Company may by resolution of its shareholders:
(1) consolidate and divide all or any of its share capital into
shares of larger amount than its existing shares;
(2) convert all or any of its paid-up shares into stock and
reconvert that stock into paid-up shares of any denomination;
(3) exchange shares of one denomination for another; or
(4) cancel shares which, at the date of the passing of the
resolution in that behalf, have not been taken or agreed to be
taken by any person, and diminish the amount of its share
capital by the amount of the shares so cancelled.
33. Subject to the Act, the Company may by special resolution:
(1) subdivide its shares, or any of them, into shares of smaller
amount than is fixed by the Memorandum, so, however, that in
the subdivision the proportion between the amount paid and the
amount, if any, unpaid on each reduced share shall be the same
as it was in the case of the share from which the reduced
share is derived and the special resolution whereby any share
is subdivided may determine that as between the holders of the
shares resulting from such subdivision, one or more of such
shares shall have some preference or special advantage as
regards dividend, capital, voting or otherwise, over, or as
compared with, the others or other;
(2) convert any part of its issued or unissued share capital into
preference shares redeemable or purchasable by the Company;
(3) provide for the issue of shares without any nominal or par
value provided that, upon any such issue, a declaration
executed by the Secretary must be filed with the Registrar
stating the number of shares issued and the amount received
therefor;
(4) convert all or any of its previously authorized, unissued or
issued, fully paid-up shares, other than preferred shares,
with nominal or par value into the same number of shares
without any nominal or par value, and reduce, maintain or
increase accordingly its liability on any of its shares so
converted; provided that the power to reduce its liability on
any of its shares so converted may, where it results in a
reduction of capital, only be exercised subject to
confirmation by the court as provided by the Act; or
(5) convert all or any of its previously authorized, unissued or
issued, fully paid-up shares without nominal or par value into
the same or a different number of shares with nominal or par
value, and for such purpose the shares issued without nominal
or par value and replaced by shares with a nominal or par
value shall be considered as fully paid, but their aggregate
par value shall not exceed the value of the net assets of the
Company as represented by the shares without par value issued
before the conversion.
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34. Subject to the Act and any provisions attached to such shares, the
Company may redeem, purchase or acquire any of its shares and the
directors may determine the manner and the terms for redeeming,
purchasing or acquiring such shares and may provide a sinking fund on
such terms as they think fit for the redemption, purchase or
acquisition of shares of any class or series.
INTEREST ON SHARE CAPITAL
35. The Company may pay interest at a rate not exceeding 6% per year on
share capital issued and paid-up for the purpose of raising funds to
defray the expenses of the construction of any works or buildings or
the provision of any plant which cannot be operated profitably for a
lengthy period of time. Such interest may be paid for such period and
may be charged to capital as part of the cost of construction of the
work or building or of the provision of the plant. The payment of the
interest shall not operate to reduce the amount paid-up on the shares
in respect of which it is paid. The accounts of the Company shall show
full particulars of the payment during the period to which the accounts
relate.
CLASSES AND SERIES OF SHARES
36. Subject to the Act and the Memorandum, and without prejudice to any
special rights previously conferred on the holders of existing shares,
any share may be issued with such preferred, deferred or other special
rights, or with such restrictions, whether in regard to dividends,
voting, return of share capital or otherwise, as the Company may from
time to time determine by special resolution.
MEETINGS AND VOTING BY CLASS OR SERIES
37. Where the holders of shares of a class or series have, under the Act,
the Memorandum, the terms or conditions attaching to such shares or
otherwise, the right to vote separately as a class in respect of any
matter then, except as provided in the Act, the Memorandum, these
Articles or such terms or conditions, all the provisions in these
Articles concerning general meetings (including, without limitation,
provisions respecting notice, quorum and procedure) shall, mutatis
mutandis, apply to every meeting of holders of such class or series of
shares convened for the purpose of such vote.
38. Unless the rights, privileges, terms or conditions attached to a class
or series of shares provided otherwise, such class or series of shares
shall not have the right to vote separately as a class or series upon
an amendment to the Memorandum or Articles to:
(1) increase or decrease any maximum number of authorized shares
of such class or series, or increase any maximum number of
authorized shares of a class or series having rights or
privileges equal or superior to the shares of such class or
series;
(2) effect an exchange, reclassification or cancellation of all or
part of the shares of such class or series; or
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(3) create a new class or series of shares equal or superior to
the shares of such class or series.
BORROWING POWERS
39. The directors on behalf of the Company may:
(1) raise or borrow money for the purposes of the Company or any
of them;
(2) secure, subject to the sanction of a special resolution where
required by the Act, the repayment of funds so raised or
borrowed in such manner and upon such terms and conditions in
all respects as they think fit, and in particular by the
execution and delivery of mortgages of the Company's real or
personal property, or by the issue of bonds, debentures or
other securities of the Company secured by mortgage or other
charge upon all or any part of the property of the Company,
both present and future;
(3) sign or endorse bills, notes, acceptances, cheques, contracts,
and other evidence of or securities for funds borrowed or to
be borrowed for the purposes aforesaid;
(4) pledge debentures as security for loans;
(5) guarantee obligations of any person.
40. Bonds, debentures and other securities may be made assignable, free
from any equities between the Company and the person to whom such
securities were issued.
41. Any bonds, debentures and other securities may be issued at a discount,
premium or otherwise and with special privileges as to redemption,
surrender, drawings, allotment of shares, attending and voting at
general meetings of the Company, appointment of directors and other
matters.
GENERAL MEETINGS
42. Ordinary general meetings of the Company shall be held at least once in
every calendar year at such time and place as may be determined by the
directors and not later than 15 months after the preceding ordinary
general meeting. All other meetings of the Company shall be called
special general meetings. Ordinary or special general meetings may be
held either within or without the Province of Nova Scotia.
43. The Chair, President, Chief Financial Officer or the directors may at
any time convene a special general meeting, and the directors, upon the
requisition of shareholders in accordance with the Act shall forthwith
proceed to convene such meeting or meetings to be held at such time and
place or times and places as the directors determine.
44. The requisition shall state the objects of the meeting requested, be
signed by the requisitionists and deposited at the Office of the
Company. It may consist of several documents in like form each signed
by one or more of the requisitionists.
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45. At least seven clear days' notice, or such longer period of notice as
may be required by the Act, of every general meeting, specifying the
place, day and hour of the meeting and, when special business is to be
considered, the general nature of such business, shall be given to the
shareholders entitled to be present at such meeting by notice given as
permitted by these Articles. With the consent in writing of all the
shareholders entitled to vote at such meeting, a meeting may be
convened by a shorter notice and in any manner they think fit, or
notice of the time, place and purpose of the meeting may be waived by
all of the shareholders.
46. When it is proposed to pass a special resolution, the two meetings may
be convened by the same notice, and it shall be no objection to such
notice that it only convenes the second meeting contingently upon the
resolution being passed by the requisite majority at the first meeting.
47. The accidental omission to give notice to a shareholder, or non-receipt
of notice by a shareholder, shall not invalidate any resolution passed
at any general meeting.
RECORD DATES
48. (1) The directors may fix in advance a date as the record date for
the determination of shareholders
(a) entitled to receive payment of a dividend or entitled to
receive any distribution;
(b) entitled to receive notice of a meeting; or
(c) for any other purpose.
(2) If no record date is fixed, the record date for the
determination of shareholders
(a) entitled to receive notice of a meeting shall be the day
immediately preceding the day on which the notice is given,
or, if no notice is given, the day on which the meeting is
held; and
(b) for any other purpose shall be the day on which the directors
pass the resolution relating to the particular purpose.
PROCEEDINGS AT GENERAL MEETINGS
49. The business of an ordinary general meeting shall be to receive and
consider the financial statements of the Company and the report of the
directors and the report, if any, of the auditors, to elect directors
in the place of those retiring, to appoint the auditors of the Company
for the ensuing fiscal year and to transact any other business which
under these Articles ought to be transacted at an ordinary general
meeting.
50. No business shall be transacted at any general meeting unless the
requisite quorum is present at the commencement of the business. A
corporate shareholder of the Company that has a duly authorized agent
or representative present at any such meeting shall for the purpose of
this Article be deemed to be personally present at such meeting.
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51. One person, being a shareholder, proxyholder or representative of a
corporate shareholder, present and entitled to vote shall constitute a
quorum for a general meeting, and may hold a meeting.
52. The Chair shall be entitled to take the chair at every general meeting
or, if there be no Chair, or if the Chair is not present within fifteen
15 minutes after the time appointed for holding the meeting, the
President or, failing the President, a vice-president shall be entitled
to take the chair. If the Chair, the President or a vice-president is
not present within 15 minutes after the time appointed for holding the
meeting or if all such persons present decline to take the chair, the
shareholders present entitled to vote at the meeting shall choose
another director as chair and if no director is present or if all the
directors present decline to take the chair, then such shareholders
shall choose one of their number to be chair.
53. If within half an hour from the time appointed for a general meeting a
quorum is not present, the meeting, if it was convened pursuant to a
requisition of shareholders, shall be dissolved. If it was convened in
any other way, it shall stand adjourned to the same day, in the next
week, at the same time and place. If at the adjourned meeting a quorum
is not present within half an hour from the time appointed for the
meeting, the shareholders present shall be a quorum and may hold the
meeting.
54. Subject to the Act, at any general meeting a resolution put to the
meeting shall be decided by a show of hands unless, either before or on
the declaration of the result of the show of hands, a poll is demanded
by the chair, a shareholder or a proxyholder; and unless a poll is so
demanded, a declaration by the chair that the resolution has been
carried, carried by a particular majority, lost or not carried by a
particular majority and an entry to that effect in the Company's book
of proceedings shall be conclusive evidence of the fact without proof
of the number or proportion of the votes recorded in favour or against
such resolution.
55. When a poll is demanded, it shall be taken in such manner and at such
time and place as the chair directs, and either at once or after an
interval or adjournment or otherwise. The result of the poll shall be
the resolution of the meeting at which the poll was demanded. The
demand of a poll may be withdrawn. When any dispute occurs over the
admission or rejection of a vote, it shall be resolved by the chair and
such determination made in good faith shall be final and conclusive.
56. The chair shall not have a casting vote in addition to any vote or
votes that the chair has as a shareholder.
57. The chair of a general meeting may with the consent of the meeting
adjourn the meeting from time to time and from place to place, but no
business shall be transacted at any adjourned meeting other than the
business left unfinished at the meeting that was adjourned.
58. Any poll demanded on the election of a chair or on a question of
adjournment shall be taken forthwith without adjournment.
59. The demand of a poll shall not prevent the continuance of a meeting for
the transaction of any business other than the question on which a poll
has been demanded.
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VOTES OF SHAREHOLDERS
60. Subject to the Act and to any provisions attached to any class or
series of shares concerning voting rights
(1) on a show of hands every shareholder present in person, every
duly authorized representative of a corporate shareholder,
and, if not prevented from voting by the Act, every
proxyholder, shall have one vote; and
(2) on a poll every shareholder present in person, every duly
authorized representative of a corporate shareholder, and
every proxyholder, shall have one vote for every share held;
whether or not such representative or proxyholder is a shareholder.
61. Any person entitled to transfer shares upon the death or bankruptcy of
any shareholder or in any way other than by allotment or transfer may
vote at any general meeting in respect thereof in the same manner as if
such person were the registered holder of such shares so long as the
directors are satisfied at least 48 hours before the time of holding
the meeting of such person's right to transfer such shares.
62. Where there are joint registered holders of any share, any of such
holders may vote such share at any meeting, either personally or by
proxy, as if solely entitled to it. If more than one joint holder is
present at any meeting, personally or by proxy, the one whose name
stands first on the Register in respect of such share shall alone be
entitled to vote it. Several executors or administrators of a deceased
shareholder in whose name any share stands shall for the purpose of
this Article be deemed joint holders thereof.
63. Votes may be cast either personally or by proxy or, in the case of a
corporate shareholder by a representative duly authorized under the
Act.
64. A proxy shall be in writing and executed in the manner provided in the
Act. A proxy or other authority of a corporate shareholder does not
require its seal. Holders of Share Warrants shall not be entitled to
vote by proxy in respect of the shares included in such warrants unless
otherwise expressed in such warrants.
65. A shareholder of unsound mind in respect of whom an order has been made
by any court of competent jurisdiction may vote by guardian or other
person in the nature of a guardian appointed by that court, and any
such guardian or other person may vote by proxy.
66. A proxy and the power of attorney or other authority, if any, under
which it is signed or a notarially certified copy of that power or
authority shall be deposited at the Office of the Company or at such
other place as the directors may direct. The directors may, by
resolution, fix a time not exceeding 72 hours excluding Saturdays and
holidays preceding any meeting or adjourned meeting before which time
proxies to be used at that meeting must be deposited with the Company
at its Office or with an agent of the Company. Notice of the
requirement for depositing proxies shall be given in the notice calling
the meeting. The chair of the meeting shall determine all questions as
to validity of proxies and other instruments of authority.
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67. A vote given in accordance with the terms of a proxy shall be valid
notwithstanding the previous death of the principal, the revocation of
the proxy, or the transfer of the share in respect of which the vote is
given, provided no intimation in writing of the death, revocation or
transfer is received at the Office of the Company before the meeting or
by the chair of the meeting before the vote is given.
68. Every form of proxy shall comply with the Act and its regulations and
subject thereto may be in the following form:
I, _________ of ____________ being a shareholder of _____
hereby appoint _______ of ________ (or failing him/her _____
of _____) as my proxyholder to attend and to vote for me and
on my behalf at the ordinary/special general meeting of the
Company, to be held on the ___ day of ____ and at any
adjournment thereof, or at any meeting of the Company which
may be held prior to [insert specified date or event].
[If the proxy is solicited by or behalf of the management of
the Company, insert a statement to that effect.]
Dated this ____ day of __________ ____.
Shareholder
69. Any resolution passed by the directors, notice of which has been given
to the shareholders in the manner in which notices are hereinafter
directed to be given and which is, within one month after it has been
passed, ratified and confirmed in writing by shareholders entitled on a
poll to three-fifths of the votes, shall be as valid and effectual as a
resolution of a general meeting. This Article shall not apply to a
resolution for winding up the Company or to a resolution dealing with
any matter that by statute or these Articles ought to be dealt with by
a special resolution or other method prescribed by statute.
70. A resolution, including a special resolution, in writing and signed by
every shareholder who would be entitled to vote on the resolution at a
meeting is as valid as if it were passed by such shareholders at a
meeting and satisfies all of the requirements of the Act respecting
meetings of shareholders.
DIRECTORS
71. Unless otherwise determined by resolution of shareholders, the number
of directors shall not be less than one or more than seventeen.
72. Notwithstanding anything herein contained the directors of the Company
on the date of its continuance shall continue to be the directors of
the Company until their successors are appointed or they otherwise
cease to be directors in accordance with these Articles.
73. Subject to applicable law, the directors may be paid out of the funds
or the capital of the Company as remuneration for their service such
sums, shares or options, if any, as
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the directors may determine, and such remuneration shall be divided
among them in such proportions and manner as the directors determine.
The directors may also be paid their reasonable travelling, hotel and
other expenses incurred in attending meetings of directors and
otherwise in the execution of their duties as directors.
74. The continuing directors may act notwithstanding any vacancy in their
body, but if their number falls below the minimum permitted, the
directors shall not, except in emergencies or for the purpose of
filling vacancies, act so long as their number is below the minimum.
75.
A director may, in conjunction with the office of director, and on such
terms as to remuneration and otherwise as the directors arrange or
determine, hold any other office or place of profit under the Company
or under any company in which the Company is a shareholder or is
otherwise interested.
76. The office of a director shall ipso facto be vacated, if the director:
(1) becomes bankrupt or makes an assignment for the benefit of
creditors;
(1) is, or is found by a court of competent jurisdiction to be, of
unsound mind;
(2) by notice in writing to the Secretary at the Company's Office,
resigns the office of director; or
(3) is removed in the manner provided by these Articles.
77. It shall be the duty of a director who is in any way, whether directly
or indirectly, interested in a contract or proposed contract with the
Company to declare the nature of such interest at a meeting of the
directors of the Company. In the case of a proposed contract the
declaration required to be made shall be made at a meeting of the
directors at which the question of entering into the contract is first
taken into consideration, or if the director was not at the date of
that meeting interested in the proposed contract, at the next meeting
of the directors held after the director became so interested, and in a
case where the director becomes interested in a contract after it is
made, the declaration shall be made at the first meeting of the
directors held after the director becomes so interested. A general
notice given to the directors of the Company by a director to the
effect that such director is a member of a specified company or firm
and is to be regarded as interested in any contract which may, after
the date of the notice, be made with that company or firm shall be
deemed to be a sufficient declaration of interest in relation to any
contract so made.
ELECTION OF DIRECTORS
78. At the dissolution of every ordinary general meeting at which their
successors are elected, all the directors shall retire from office and
be succeeded by the directors elected at such meeting. Retiring
directors shall be eligible for re-election.
79. If at any ordinary general meeting at which an election of directors
ought to take place no such election takes place, or if no ordinary
general meeting is held in any year or period of years, the retiring
directors shall continue in office until their successors are elected.
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80. The Company may by resolution of its shareholders elect any number of
directors permitted by these Articles and may determine or alter their
qualification.
81. The Company may, by special resolution or in any other manner permitted
by statute, remove any director before the expiration of such
director's period of office and may, if desired, appoint a replacement
to hold office during such time only as the director so removed would
have held office.
82. The directors may appoint any other person as a director so long as the
total number of directors does not at any time exceed the maximum
number permitted. No such appointment, except to fill a casual vacancy,
shall be effective unless two-thirds of the directors concur in it. Any
casual vacancy occurring among the directors may be filled by the
directors, but any person so chosen shall retain office only so long as
the vacating director would have retained it if the vacating director
had continued as director.
CHAIR OF THE BOARD
83. The directors may elect one of their number to be chair and may
determine the period during which the chair is to hold office. The
chair shall perform such duties and receive such special remuneration
as the directors may provide.
PRESIDENT, CHIEF EXECUTIVE OFFICER AND VICE-PRESIDENTS
84. The directors shall appoint the President and Chief Executive Officer
of the Company, who need not be a director, and may determine the
period for which the President and Chief Executive Officer is to hold
office. The President and Chief Executive Officer shall have general
supervision of the business of the Company and shall perform such
duties as may be assigned from time to time by the directors.
85. The directors may also appoint vice-presidents, who need not be
directors, and may determine the periods for which they are to hold
office. A vice-president shall, at the request of the President or the
directors and subject to the directions of the directors, perform the
duties of the President during the absence, illness or incapacity of
the President, and shall also perform such duties as may be assigned by
the President or the directors.
SECRETARY AND TREASURER
86. The directors shall appoint a Secretary of the Company to keep minutes
of shareholders' and directors' meetings and perform such other duties
as may be assigned by the directors. The directors may also appoint a
temporary substitute for the Secretary who shall, for the purposes of
these Articles, be deemed to be the Secretary.
87. The directors may appoint a treasurer of the Company to carry out such
duties as the directors may assign.
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OFFICERS
88. The directors may elect or appoint such other officers of the Company,
having such powers and duties, as they think fit.
89. If the directors so decide the same person may hold more than one of
the offices provided for in these Articles.
90. Notwithstanding anything herein contained the officers of the Company
on the date of its continuance shall continue to hold office until
their successors are appointed or they otherwise cease to hold office
in accordance with these Articles.
PROCEEDINGS OF DIRECTORS
91. The directors may meet together for the dispatch of business, adjourn
and otherwise regulate their meetings and proceedings, as they think
fit. Until otherwise determined, a quorum for meetings of the board
shall be the number of directors then in office, less three (3), of
which three (3) shall be investor designees.
92. 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 adjourned
meeting, the directors present at such meeting shall constitute a
quorum; provided however, that unless a full quorum is present as
provided in section 91, the directors present at such meeting may not
transact any business except as specifically set forth in the notice of
meeting.
93. A director may participate in a meeting of directors or of a committee
of directors by means of such telephone or other communications
facilities as permit all persons participating in the meeting to hear
each other, and a director participating in such a meeting by such
means is deemed to be present at that meeting for purposes of these
Articles.
94. Meetings of directors may be held either within or without the Province
of Nova Scotia and the directors may from time to time make
arrangements relating to the time and place of holding directors'
meetings, the notices to be given for such meetings and what meetings
may be held without notice. Unless otherwise provided by such
arrangements:
(1) A meeting of directors may be held at the close of every
ordinary general meeting of the Company without notice.
(2) Notice of every other directors' meeting may be given as
permitted by these Articles to each director at least 48 hours
before the time fixed for the meeting.
(3) A meeting of directors may be held without formal notice if
all the directors are present or if those absent have
signified their assent to such meeting or their consent to the
business transacted at such meeting.
95. The President or any director may at any time, and the Secretary, upon
the request of the President or any director, shall summon a meeting of
the directors to be held at the Office of
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the Company. The President, the Chair or a majority of the directors
may at any time, and the Secretary, upon the request of the President,
the Chair or a majority of the directors, shall summon a meeting to be
held elsewhere.
96. (1) Questions arising at any meeting of directors shall be decided
by a majority of votes. The chair of the meeting may vote as a
director but shall not have a second or casting vote.
(2) At any meeting of directors the chair shall receive and count
the vote of any director not present in person at such meeting
on any question or matter arising at such meeting whenever
such absent director has indicated by telegram, letter or
other writing lodged with the chair of such meeting the manner
in which the absent director desires to vote on such question
or matter and such question or matter has been specifically
mentioned in the notice calling the meeting as a question or
matter to be discussed or decided thereat.
97. If no Chair is elected, or if at any meeting of directors the Chair is
not present within five minutes after the time appointed for holding
the meeting, or declines to take the chair, the President, if a
director, shall preside. If the President is not a director, is not
present at such time or declines to take the chair, a vice-president
who is also a director shall preside. If no person described above is
present at such time and willing to take the chair, the directors
present shall choose some one of their number to be chair of the
meeting.
98. A meeting of the directors at which a quorum is present shall be
competent to exercise all or any of the authorities, powers and
discretions for the time being vested in or exercisable by the
directors generally.
99. The directors may delegate any of their powers to committees consisting
of such number of directors as they think fit. Any committee so formed
shall in the exercise of the powers so delegated conform to any
regulations that may be imposed on them by the directors.
100. The meetings and proceedings of any committee of directors shall be
governed by the provisions contained in these Articles for regulating
the meetings and proceedings of the directors insofar as they are
applicable and are not superseded by any regulations made by the
directors.
101. All acts done at any meeting of the directors or of a committee of
directors or by any person acting as a director shall, notwithstanding
that it is afterwards discovered that there was some defect in the
appointment of the director or person so acting, or that they or any of
them were disqualified, be as valid as if every such person had been
duly appointed and was qualified to be a director.
102. A resolution in writing and signed by every director who would be
entitled to vote on the resolution at a meeting is as valid as if it
were passed by such directors at a meeting.
103. If any one or more of the directors is called upon to perform extra
services or to make any special exertions in going or residing abroad
or otherwise for any of the purposes of the Company or the business
thereof, the Company may remunerate the director or directors so doing,
either by a fixed sum or by a percentage of profits or otherwise. Such
remuneration
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shall be determined by the directors and may be either in addition to
or in substitution for remuneration otherwise authorized by these
Articles.
REGISTERS
104. The directors shall cause to be kept at the Company's Office in
accordance with the provisions of the Act a Register of the
shareholders of the Company, a register of the holders of bonds,
debentures and other securities of the Company and a register of its
directors. Branch registers of the shareholders and of the holders of
bonds, debentures and other securities may be kept elsewhere, either
within or without the Province of Nova Scotia, in accordance with the
Act.
MINUTES
105. The directors shall cause minutes to be entered in books designated for
the purpose:
(1) of all appointments of officers;
(2) of the names of directors present at each meeting of directors
and of any committees of directors; and
(3) of all resolutions and proceedings of meetings of shareholders
and of directors.
Any such minutes of any meeting of directors or of any committee of
directors or of shareholders, if purporting to be signed by the chair
of such meeting or by the chair of the next succeeding meeting, shall
be receivable as prima facie evidence of the matters stated in such
minutes.
POWERS OF DIRECTORS
106. The management of the business of the Company is vested in the
directors who, in addition to the powers and authorities by these
Articles or otherwise expressly conferred upon them, may exercise all
such powers and do all such acts and things as may be exercised or done
by the Company and are not hereby or by statute expressly directed or
required to be exercised or done by the shareholders, but subject
nevertheless to the provisions of any statute, the Memorandum or these
Articles. No modification of the Memorandum or these Articles shall
invalidate any prior act of the directors that would have been valid if
such modification had not been made.
107. Without restricting the generality of the terms of any of these
Articles and without prejudice to the powers conferred thereby, the
directors may:
(1) take such steps as they think fit to carry out any agreement
or contract made by or on behalf of the Company;
(2) pay costs, charges and expenses preliminary and incidental to
the promotion, formation, establishment, and registration of
the Company;
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(3) purchase or otherwise acquire for the Company any property,
rights or privileges that the Company is authorized to
acquire, at such price and generally on such terms and
conditions as they think fit;
(4) pay for any property, rights or privileges acquired by, or
services rendered to the Company either wholly or partially in
cash or in shares (fully paid-up or otherwise), bonds,
debentures or other securities of the Company;
(5) subject to the Act, secure the fulfilment of any contracts or
engagements entered into by the Company by mortgaging or
charging all or any of the property of the Company and its
unpaid capital for the time being, or in such other manner as
they think fit;
(6) appoint, remove or suspend at their discretion such experts,
managers, secretaries, treasurers, officers, clerks, agents
and servants for permanent, temporary or special services, as
they from time to time think fit, and determine their powers
and duties and fix their salaries or emoluments and require
security in such instances and to such amounts as they think
fit;
(7) accept a surrender of shares from any shareholder insofar as
the law permits and on such terms and conditions as may be
agreed;
(8) appoint any person or persons to accept and hold in trust for
the Company any property belonging to the Company, or in which
it is interested, execute and do all such deeds and things as
may be required in relation to such trust, and provide for the
remuneration of such trustee or trustees;
(9) institute, conduct, defend, compound or abandon any legal
proceedings by and against the Company, its directors or its
officers or otherwise concerning the affairs of the Company,
and also compound and allow time for payment or satisfaction
of any debts due and of any claims or demands by or against
the Company;
(10) refer any claims or demands by or against the Company to
arbitration and observe and perform the awards;
(11) make and give receipts, releases and other discharges for
amounts payable to the Company and for claims and demands of
the Company;
(12) determine who may exercise the borrowing powers of the Company
and sign on the Company's behalf bonds, debentures or other
securities, bills, notes, receipts, acceptances, assignments,
transfers, hypothecations, pledges, endorsements, cheques,
drafts, releases, contracts, agreements and all other
instruments and documents;
(13) provide for the management of the affairs of the Company
abroad in such manner as they think fit, and in particular
appoint any person to be the attorney or agent of the Company
with such powers (including power to sub-delegate) and upon
such terms as may be thought fit;
(14) invest and deal with any funds of the Company in such
securities and in such manner as they think fit; and vary or
realize such investments;
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(15) subject to the Act, execute in the name and on behalf of the
Company in favour of any director or other person who may
incur or be about to incur any personal liability for the
benefit of the Company such mortgages of the Company's
property, present and future, as they think fit;
(16) give any officer or employee of the Company a commission on
the profits of any particular business or transaction or a
share in the general profits of the Company;
(17) set aside out of the profits of the Company before declaring
any dividend such amounts as they think proper as a reserve
fund to meet contingencies or provide for dividends,
depreciation, repairing, improving and maintaining any of the
property of the Company and such other purposes as the
directors may in their absolute discretion think in the
interests of the Company; and invest such amounts in such
investments as they think fit, and deal with and vary such
investments, and dispose of all or any part of them for the
benefit of the Company, and divide the reserve fund into such
special funds as they think fit, with full power to employ the
assets constituting the reserve fund in the business of the
Company without being bound to keep them separate from the
other assets;
(18) make, vary and repeal rules respecting the business of the
Company, its officers and employees, the shareholders of the
Company or any section or class of them; (47) enter into all
such negotiations and contracts, rescind and vary all such
contracts, and execute and do all such acts, deeds and things
in the name and on behalf of the Company as they consider
expedient for or in relation to any of the matters aforesaid
or otherwise for the purposes of the Company; (48) provide for
the management of the affairs of the Company in such manner as
they think fit.
SOLICITORS
108. The Company may employ or retain solicitors any of whom may, at the
request or on the instruction of the directors, the Chair, the
President or a managing director, attend meetings of the directors or
shareholders, whether or not the solicitor is a shareholder or a
director of the Company. A solicitor who is also a director may
nevertheless charge for services rendered to the Company as a
solicitor.
THE SEAL
109. The directors shall arrange for the safe custody of the common seal of
the Company (the "Seal"). The Seal may be affixed to any instrument in
the presence of and contemporaneously with the attesting signature of
(i) any director or officer acting within such person's authority or
(ii) any person under the authority of a resolution of the directors or
a committee thereof. For the purpose of certifying documents or
proceedings the Seal may be affixed by any director or the President, a
vice-president, the Secretary, an assistant secretary or any other
officer of the Company without the authorization of a resolution of the
directors.
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110. The Company may have facsimiles of the Seal which may be used
interchangeably with the Seal.
DIVIDENDS
111. The directors may from time to time declare such dividend as they deem
proper upon shares of the Company according to the rights and
restrictions attached to any class or series of shares, and may
determine the date upon which such dividend will be payable and that it
will be payable to the persons registered as the holders of the shares
on which it is declared at the close of business upon a record date. No
transfer of such shares registered after the record date shall pass any
right to the dividend so declared.
112. No dividends shall be payable except out of the profits, retained
earnings or contributed surplus of the Company and no interest shall be
payable on any dividend except insofar as the rights attached to any
class or series of shares provide otherwise.
113. The declaration of the directors as to the amount of the profits,
retained earnings or contributed surplus of the Company shall be
conclusive.
114. The directors may from time to time pay to the shareholders such
interim dividends as in their judgment the position of the Company
justifies.
115. Subject to the Memorandum, these Articles and the rights and
restrictions attached to any class or series of shares, dividends may
be declared and paid to the shareholders in proportion to the amount of
capital paid-up on the shares (not including any capital paid-up
bearing interest) held by them respectively.
116. The directors may deduct from the dividends payable to any shareholder
amounts due and payable by the shareholder to the Company and may apply
the same in or towards satisfaction of such amounts so due and payable.
117. The directors may retain the dividends payable upon shares to which a
person is entitled or entitled to transfer upon the death or bankruptcy
of a shareholder or in any way other than by allotment or transfer,
until such person has become registered as the holder of such shares or
has duly transferred such shares.
118. The directors may declare that a dividend be paid by the distribution
of cash, paid-up shares (at par or at a premium), debentures, bonds or
other securities of the Company or of any other company or any other
specific assets held or to be acquired by the Company or in any one or
more of such ways.
119. The directors may settle any difficulty that may arise in regard to the
distribution of a dividend as they think expedient, and in particular
without restricting the generality of the foregoing may issue
fractional certificates, may fix the value for distribution of any
specific assets, may determine that cash payments will be made to any
shareholders upon the footing of the value so fixed or that fractions
may be disregarded in order to adjust the rights of all parties, and
may vest cash or specific assets in trustees upon such trusts for the
persons entitled to the dividend as may seem expedient to the
directors.
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120. Any person registered as a joint holder of any share may give effectual
receipts for all dividends and payments on account of dividends in
respect of such share.
121. Unless otherwise determined by the directors, any dividend may be paid
by a cheque or warrant delivered to or sent through the post to the
registered address of the shareholder entitled, or, when there are
joint holders, to the registered address of that one whose name stands
first on the register for the shares jointly held. Every cheque or
warrant so delivered or sent shall be made payable to the order of the
person to whom it is delivered or sent. The mailing or other
transmission to a shareholder at the shareholder's registered address
(or, in the case of joint shareholders at the address of the holder
whose name stands first on the register) of a cheque payable to the
order of the person to whom it is addressed for the amount of any
dividend payable in cash after the deduction of any tax which the
Company has properly withheld, shall discharge the Company's liability
for the dividend unless the cheque is not paid on due presentation. If
any cheque for a dividend payable in cash is not received, the Company
shall issue to the shareholder a replacement cheque for the same amount
on such terms as to indemnity and evidence of non-receipt as the
directors may impose. No shareholder may recover by action or other
legal process against the Company any dividend represented by a cheque
that has not been duly presented to a banker of the Company for payment
or that otherwise remains unclaimed for 6 years from the date on which
it was payable.
ACCOUNTS
122. The directors shall cause proper books of account to be kept of the
amounts received and expended by the Company, the matters in respect of
which such receipts and expenditures take place, all sales and
purchases of goods by the Company, and the assets, credits and
liabilities of the Company.
123. The books of account shall be kept at the head office of the Company or
at such other place or places as the directors may direct.
124. The directors shall from time to time determine whether and to what
extent and at what times and places and under what conditions the
accounts and books of the Company or any of them shall be open to
inspection of the shareholders, and no shareholder shall have any right
to inspect any account or book or document of the Company except as
conferred by statute or authorized by the directors or a resolution of
the shareholders.
125. At the ordinary general meeting in every year the directors shall lay
before the Company such financial statements and reports in connection
therewith as may be required by the Act or other applicable statute or
regulation thereunder and shall distribute copies thereof at such times
and to such persons as may be required by statute or regulation.
AUDITORS AND AUDIT
126. Except in respect of a financial year for which the Company is exempt
from audit requirements in the Act, the Company shall at each ordinary
general meeting appoint an auditor or auditors to hold office until the
next ordinary general meeting. If at any general meeting at which the
appointment of an auditor or auditors is to take place and no such
<PAGE>
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appointment takes place, or if no ordinary general meeting is held in
any year or period of years, the directors shall appoint an auditor or
auditors to hold office until the next ordinary general meeting.
127. The first auditors of the Company may be appointed by the directors at
any time before the first ordinary general meeting and the auditors so
appointed shall hold office until such meeting unless previously
removed by a resolution of the shareholders, in which event the
shareholders may appoint auditors.
128. The directors may fill any casual vacancy in the office of the auditor
but while any such vacancy continues the surviving or continuing
auditor or auditors, if any, may act.
129. The Company may appoint as auditor any person, including a shareholder,
not disqualified by statute. 121. An auditor may be removed or replaced
in the circumstances and in the manner specified in the Act. 122. The
remuneration of the auditors shall be fixed by the shareholders, or by
the directors pursuant to authorization given by the shareholders,
except that the remuneration of an auditor appointed to fill a casual
vacancy may be fixed by the directors. 123. The auditors shall conduct
such audit as may be required by the Act and their report, if any,
shall be dealt with by the Company as required by the Act.
NOTICES
133. A notice (including any communication or document) shall be
sufficiently given, delivered or served by the Company upon a
shareholder, director, officer or auditor by personal delivery at such
person's registered address (or, in the case of a director, officer or
auditor, last known address) or by prepaid mail, telegraph, telex,
facsimile machine or other electronic means of communication addressed
to such person at such address.
134. Shareholders having no registered address shall not be entitled to
receive notice.
135. The holder of a share warrant shall not, unless otherwise expressed
therein, be entitled in respect thereof to notice of any general
meeting of the Company.
136. All notices with respect to registered shares to which persons are
jointly entitled may be sufficiently given to all joint holders thereof
by notice given to whichever of such persons is named first in the
Register for such shares.
137. Any notice sent by mail shall be deemed to be given, delivered or
served on the earlier of actual receipt and the third business day
following that upon which it is mailed, and in proving such service it
shall be sufficient to prove that the notice was properly addressed and
mailed with the postage prepaid thereon. Any notice given by electronic
means of communication shall be deemed to be given when entered into
the appropriate transmitting device for transmission. A certificate in
writing signed on behalf of the Company that the notice was so
addressed and mailed or transmitted shall be conclusive evidence
thereof.
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138. Every person who by operation of law, transfer or other means
whatsoever becomes entitled to any share shall be bound by every notice
in respect of such share that prior to such person's name and address
being entered on the Register was duly served in the manner
hereinbefore provided upon the person from whom such person derived
title to such share.
139. Any notice delivered, sent or transmitted to the registered address of
any shareholder pursuant to these Articles, shall, notwithstanding that
such shareholder is then deceased and that the Company has notice
thereof, be deemed to have been served in respect of any registered
shares, whether held by such deceased shareholder solely or jointly
with other persons, until some other person is registered as the holder
or joint holder thereof, and such service shall for all purposes of
these Articles be deemed a sufficient service of such notice on the
heirs, executors or administrators of the deceased shareholder and all
joint holders of such shares.
140. Any notice may bear the name or signature, manual or reproduced, of the
person giving the notice written or printed.
141. When a given number of days' notice or notice extending over any other
period is required to be given, the day of service and the day upon
which such notice expires shall not, unless it is otherwise provided,
be counted in such number of days or other period.
INDEMNITY
142. Every director or officer, former director or officer, or person who
acts or acted at the Company's request, as a director or officer of the
Company, a body corporate, partnership or other association of which
the Company is or was a shareholder, partner, member or creditor, and
the heirs and legal representatives of such person, in the absence of
any dishonesty on the part of such person, shall be indemnified by the
Company against, and it shall be the duty of the directors out of the
funds of the Company to pay, all costs, losses and expenses, including
an amount paid to settle an action or claim or satisfy a judgment, that
such director, officer or person may incur or become liable to pay in
respect of any claim made against such person or civil, criminal or
administrative action or proceeding to which such person is made a
party by reason of being or having been a director or officer of the
Company or such body corporate, partnership or other association,
whether the Company is a claimant or party to such action or proceeding
or otherwise; and the amount for which such indemnity is proved shall
immediately attach as a lien on the property of the Company and have
priority as against the shareholders over all other claims.
143. No director or officer, former director or officer, or person who acts
or acted at the Company's request, as a director or officer of the
Company, a body corporate, partnership or other association of which
the Company is or was a shareholder, partner, member or creditor, in
the absence of any dishonesty on such person's part, shall be liable
for the acts, receipts, neglects or defaults of any other director,
officer or such person, or for joining in any receipt or other act for
conformity, or for any loss, damage or expense happening to the Company
through the insufficiency or deficiency of title to any property
acquired for or on behalf of the Company, or through the insufficiency
or deficiency of any security in or upon which any of the funds of the
Company are invested, or for any loss or damage arising from the
bankruptcy, insolvency or tortious acts of any person with whom any
funds, securities or
<PAGE>
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effects are deposited, or for any loss occasioned by error of judgment
or oversight on the part of such person, or for any other loss, damage
or misfortune whatsoever which happens in the execution of the duties
of such person or in relation thereto.
REMINDERS
144. The directors shall comply with the following provisions of the Act or
the CORPORATIONS REGISTRATION ACT (Nova Scotia) where indicated:
(1) Keep a current register of shareholders (Section 42).
(2) Keep a current register of directors, officers and managers,
send to the Registrar a copy thereof and notice of all changes
therein (Section 98).
(3) Keep a current register of holders of bonds, debentures and
other securities (Section 111 and Third Schedule).
(4) Send notice to the Registrar of any redemption or purchase of
preference shares (Section 50).
(5) Send notice to the Registrar of any consolidation, division,
conversion or reconversion of the share capital or stock of
the Company (Section 53).
(6) Send notice to the Registrar of any increase of capital
(Section 55).
(7) Call a general meeting every year within the proper time
(Section 83). Meetings must be held not later than 15 months
after the preceding general meeting.
(8) Send to the Registrar copies of all special resolutions
(Section 88).
(9) Send to the Registrar notice of the address of the Company's
registered Office and of all changes in such address (Section
79).
(10) Keep proper minutes of all shareholders' meetings and
directors' meetings in the Company's minute book kept at the
Company's registered Office (Sections 89 and 90).
(11) Obtain a certificate under the CORPORATIONS REGISTRATION ACT
(Nova Scotia) as soon as business is commenced.
(12) Send notice of recognized agent to the Registrar under the
CORPORATIONS REGISTRATION ACT (Nova Scotia).
<PAGE>
Exhibit 3.5
ARTICLES OF ASSOCIATION
OF
360NETWORKS INC.
1. Interpretation
In these Articles, unless there be something in the subject or context
inconsistent therewith:
(1) "Act" means the COMPANIES ACT (Nova Scotia);
(2) "Articles" means these Articles of Association of the Company
and all amendments hereto;
(3) "Company" means the company named above;
(4) "director" means a director of the Company;
(5) "investor designees" means, collectively, those members of the
board nominated by each of the following: DWF SRL, a Barbados
Company; GS Capital Partners III, L.P., a Delaware limited
partnership; Providence Equity Fiber, L.P., a Delaware limited
partnership; and Tyco Group S.A.R.L., a Luxembourg
corporation;
(6) "Memorandum" means the Memorandum of Association of the
Company and all amendments thereto;
(7) "month" means calendar month;
(8) "Office" means the registered office of the Company;
(9) "person" includes a body corporate;
(10) "proxyholder" includes an alternate proxyholder;
(11) "Register" means the register of members kept pursuant to the
Act, and where the context permits includes a branch register
of members;
(12) "Registrar" means the Registrar as defined in the Act;
(13) "resolution of shareholders" means a resolution passed by
those of the shareholders entitled to vote on the matters
dealt with in such resolution.
(14) "Secretary" includes any person appointed to perform the
duties of the Secretary temporarily;
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(15) "shareholder" means member as that term is used in the Act in
connection with a company limited by shares;
(16) "special resolution" has the meaning assigned by the Act;
(17) "in writing" and "written" includes printing, lithography and
other modes of representing or reproducing words in visible
form;
(18) words importing number or gender include all numbers and
genders unless the context otherwise requires;
2. The regulations in Table A in the First Schedule to the Act shall not
apply to the Company.
3. The directors may enter into and carry into effect or adopt and carry
into effect any agreement made by the promoters of the Company on
behalf of the Company and may agree to any modification in the terms of
any such agreement, either before or after its execution.
4. The directors may, out of the funds of the Company, pay all expenses
incurred for the continuance and reorganization of the Company.
SHARES
5. The directors shall control the shares and, subject to the provisions
of these Articles, may allot or otherwise dispose of them to such
person at such times, on such terms and conditions and, if the shares
have a par value, either at a premium or at par, as they think fit.
6. The directors may pay on behalf of the Company a reasonable commission
to any person in consideration of subscribing or agreeing to subscribe
(whether absolutely or conditionally) for any shares in the Company, or
procuring or agreeing to procure subscriptions (whether absolute or
conditional) for any shares in the Company. Subject to the Act, the
commission may be paid or satisfied in shares of the Company.
7. If the whole or part of the allotment price of any shares is, by the
conditions of their allotment, payable in instalments, every such
instalment shall, when due, be payable to the Company by the person who
is at such time the registered holder of the shares.
8. Shares may be registered in the names of joint holders not exceeding
three in number.
9. On the death of one or more joint holders of shares the survivor or
survivors of them shall alone be recognized by the Company as the
registered holder or holders of the shares.
10. Save as herein otherwise provided, the Company may treat the registered
holder of any share as the absolute owner thereof and accordingly shall
not, except as ordered by a court of competent jurisdiction or required
by statute, be bound to recognize any equitable or other claim to or
interest in such share on the part of any other person.
<PAGE>
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CERTIFICATES
11. Certificates of title to shares shall comply with the Act and may
otherwise be in such form as the directors may from time to time
determine. Unless the directors otherwise determine, every certificate
of title to shares shall be signed manually by at least one of the
Chair, President, Secretary, Treasurer, a vice-president, an assistant
secretary, any other officer of the Company or any director of the
Company or by or on behalf of a share registrar transfer agent or
branch transfer agent appointed by the Company or by any other person
whom the directors may designate. When signatures of more than one
person appear on a certificate all but one may be printed or otherwise
mechanically reproduced. All such certificates when signed as provided
in this Article shall be valid and binding upon the Company. If a
certificate contains a printed or mechanically reproduced signature of
a person, the Company may issue the certificate, notwithstanding that
the person has ceased to be a director or an officer of the Company and
the certificate is as valid as if such person were a director or an
officer at the date of its issue. Any certificate representing shares
of a class publicly traded on any stock exchange shall be valid and
binding on the Company if it complies with the rules of such exchange
whether or not it otherwise complies with this Article.
12. Except as the directors may determine, each shareholder's shares may be
evidenced by any number of certificates so long as the aggregate of the
shares stipulated in such certificates equals the aggregate registered
in the name of the shareholder.
13. Where shares are registered in the names of two or more persons, the
Company shall not be bound to issue more than one certificate or set of
certificates, and such certificate or set of certificates shall be
delivered to the person first named on the Register.
14. Any certificate that has become worn, damaged or defaced may, upon its
surrender to the directors, be cancelled and replaced by a new
certificate. Any certificate that has become lost or destroyed may be
replaced by a new certificate upon proof of such loss or destruction to
the satisfaction of the directors and the furnishing to the Company of
such undertakings of indemnity as the directors deem adequate.
15. The sum of one dollar or such other sum as the directors from time to
time determine shall be paid to the Company for every certificate other
than the first certificate issued to any holder in respect of any share
or shares.
16. The directors may cause one or more branch Registers of shareholders to
be kept in any place or places, whether inside or outside of Nova
Scotia.
TRANSFER OF SHARES
17. The instrument of transfer of any share in the Company shall be signed
by the transferor. The transferor shall be deemed to remain the holder
of such share until the name of the transferee is entered in the
Register in respect thereof and shall be entitled to receive any
dividend declared thereon before the registration of the transfer.
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18. The instrument of transfer of any share shall be in writing in the
following form or to the following effect or in such other form as the
directors may approve from time to time:
For value received, _____ hereby sell, assign, and transfer
unto ______, _____ shares in the capital of the Company
represented by the within certificate, and do hereby
irrevocably constitute and appoint _________ attorney to
transfer such shares on the books of the Company with full
power of substitution in the premises.
Dated the ____ day of ___________,
Witness:_____________________________
19. Every instrument of transfer shall be left for registration at the
Office of the Company, or at any office of its transfer agent where a
Register is maintained, together with the certificate of the shares to
be transferred and such other evidence as the Company may require to
prove title to or the right to transfer the shares.
20. The directors may require that a fee determined by them be paid before
or after registration of any transfer.
21. Every instrument of transfer shall, after its registration, remain in
the custody of the Company. Any instrument of transfer that the
directors decline to register shall, except in case of fraud, be
returned to the person who deposited it.
TRANSMISSION OF SHARES
22. The executors or administrators of a deceased shareholder (not being
one of several joint holders) shall be the only persons recognized by
the Company as having any title to the shares registered in the name of
such shareholder. When a share is registered in the names of two or
more joint holders, the survivor or survivors and the executors or
administrators of the deceased shareholder, shall be the only persons
recognized by the Company as having any title to, or interest in, such
share.
23. Notwithstanding anything in these Articles, if the Company has only one
shareholder (not being one of several joint holders) and that
shareholder dies, the executors or administrators of the deceased
shareholder shall be entitled to register themselves in the Register as
the holders of the shares registered in the name of the deceased
shareholder whereupon they shall have all the rights given by these
Articles and by law to shareholders.
24. Any person entitled to shares upon the death or bankruptcy of any
shareholder or in any way other than by allotment or transfer, upon
producing such evidence of entitlement as the directors require, may be
registered as a shareholder in respect of such shares, or may, without
being registered, transfer such shares subject to the provisions of
these Articles respecting the transfer of shares. The directors shall
have the same right to refuse registration as if the transferee were
named in an ordinary transfer presented for registration.
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SURRENDER OF SHARES
25. The directors may accept the surrender of any share by way of
compromise of any question as to the holder being properly registered
in respect thereof. Any share so surrendered may be disposed of in the
same manner as a forfeited share.
SHARE WARRANT
26. The Company, with respect to any fully paid-up shares, may issue
warrants ("Share Warrants") stating that the bearer is entitled to the
shares therein specified, and may provide, by coupons or otherwise, for
the payment of future dividends on the shares included in the Share
Warrants.
27. The directors may determine and vary the conditions upon which Share
Warrants will be issued and, without limiting the generality of the
foregoing, may determine the conditions upon which
(1) a new Share Warrant or coupon will be issued in the place of
one worn out, defaced, lost or destroyed, or
(2) the bearer of a Share Warrant will be entitled to attend and
vote at general meetings, or
(3) a Share Warrant may be surrendered and the name of the bearer
entered in the Register in respect of the shares therein
specified.
Subject to such conditions and to these Articles the bearer of a Share
Warrant shall be a shareholder to the full extent. The bearer of a
Share Warrant shall be subject to the conditions for the time being in
force, whether made before or after the issue of the Share Warrant.
INCREASE AND REDUCTION OF CAPITAL
28. Subject to the Act, the Company may by resolution of its shareholders
increase its share capital by the creation of new shares of such amount
as it thinks expedient.\
29. Subject to the Act, the new shares may be issued upon such terms and
conditions and with such rights, privileges, limitations, restrictions
and conditions attached thereto as the Company by resolution of its
shareholders determines or, if no direction is given, as the directors
determine.
30. Except as otherwise provided by the conditions of issue, or by these
Articles, any capital raised by the creation of new shares shall be
considered part of the original capital and shall be subject to the
provisions herein contained with reference to transfer and
transmission, and otherwise.
31. The Company may, by special resolution where required, reduce its share
capital in any way and with and subject to any incident authorized and
consent required by law.
<PAGE>
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ALTERATION OF CAPITAL
31. Subject to the Act, the Company may by resolution of its shareholders:
(1) consolidate and divide all or any of its share capital into
shares of larger amount than its existing shares;
(2) convert all or any of its paid-up shares into stock and
reconvert that stock into paid-up shares of any denomination;
(3) exchange shares of one denomination for another; or
(4) cancel shares which, at the date of the passing of the
resolution in that behalf, have not been taken or agreed to be
taken by any person, and diminish the amount of its share
capital by the amount of the shares so cancelled.
33. Subject to the Act, the Company may by special resolution:
(1) subdivide its shares, or any of them, into shares of smaller
amount than is fixed by the Memorandum, so, however, that in
the subdivision the proportion between the amount paid and the
amount, if any, unpaid on each reduced share shall be the same
as it was in the case of the share from which the reduced
share is derived and the special resolution whereby any share
is subdivided may determine that as between the holders of the
shares resulting from such subdivision, one or more of such
shares shall have some preference or special advantage as
regards dividend, capital, voting or otherwise, over, or as
compared with, the others or other;
(2) convert any part of its issued or unissued share capital into
preference shares redeemable or purchasable by the Company;
(3) provide for the issue of shares without any nominal or par
value provided that, upon any such issue, a declaration
executed by the Secretary must be filed with the Registrar
stating the number of shares issued and the amount received
therefor;
(4) convert all or any of its previously authorized, unissued or
issued, fully paid-up shares, other than preferred shares,
with nominal or par value into the same number of shares
without any nominal or par value, and reduce, maintain or
increase accordingly its liability on any of its shares so
converted; provided that the power to reduce its liability on
any of its shares so converted may, where it results in a
reduction of capital, only be exercised subject to
confirmation by the court as provided by the Act; or
(5) convert all or any of its previously authorized, unissued or
issued, fully paid-up shares without nominal or par value into
the same or a different number of shares with nominal or par
value, and for such purpose the shares issued without nominal
or par value and replaced by shares with a nominal or par
value shall be considered as fully paid, but their aggregate
par value shall not exceed the value of the net assets of the
Company as represented by the shares without par value issued
before the conversion.
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34. Subject to the Act and any provisions attached to such shares, the
Company may redeem, purchase or acquire any of its shares and the
directors may determine the manner and the terms for redeeming,
purchasing or acquiring such shares and may provide a sinking fund on
such terms as they think fit for the redemption, purchase or
acquisition of shares of any class or series.
INTEREST ON SHARE CAPITAL
35. The Company may pay interest at a rate not exceeding 6% per year on
share capital issued and paid-up for the purpose of raising funds to
defray the expenses of the construction of any works or buildings or
the provision of any plant which cannot be operated profitably for a
lengthy period of time. Such interest may be paid for such period and
may be charged to capital as part of the cost of construction of the
work or building or of the provision of the plant. The payment of the
interest shall not operate to reduce the amount paid-up on the shares
in respect of which it is paid. The accounts of the Company shall show
full particulars of the payment during the period to which the accounts
relate.
CLASSES AND SERIES OF SHARES
36. Subject to the Act and the Memorandum, and without prejudice to any
special rights previously conferred on the holders of existing shares,
any share may be issued with such preferred, deferred or other special
rights, or with such restrictions, whether in regard to dividends,
voting, return of share capital or otherwise, as the Company may from
time to time determine by special resolution.
MEETINGS AND VOTING BY CLASS OR SERIES
37. Where the holders of shares of a class or series have, under the Act,
the Memorandum, the terms or conditions attaching to such shares or
otherwise, the right to vote separately as a class in respect of any
matter then, except as provided in the Act, the Memorandum, these
Articles or such terms or conditions, all the provisions in these
Articles concerning general meetings (including, without limitation,
provisions respecting notice, quorum and procedure) shall, mutatis
mutandis, apply to every meeting of holders of such class or series of
shares convened for the purpose of such vote.
38. Unless the rights, privileges, terms or conditions attached to a class
or series of shares provided otherwise, such class or series of shares
shall not have the right to vote separately as a class or series upon
an amendment to the Memorandum or Articles to:
(1) increase or decrease any maximum number of authorized shares
of such class or series, or increase any maximum number of
authorized shares of a class or series having rights or
privileges equal or superior to the shares of such class or
series;
(2) effect an exchange, reclassification or cancellation of all or
part of the shares of such class or series; or
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(3) create a new class or series of shares equal or superior to
the shares of such class or series.
BORROWING POWERS
39. The directors on behalf of the Company may:
(1) raise or borrow money for the purposes of the Company or any
of them;
(2) secure, subject to the sanction of a special resolution where
required by the Act, the repayment of funds so raised or
borrowed in such manner and upon such terms and conditions in
all respects as they think fit, and in particular by the
execution and delivery of mortgages of the Company's real or
personal property, or by the issue of bonds, debentures or
other securities of the Company secured by mortgage or other
charge upon all or any part of the property of the Company,
both present and future;
(3) sign or endorse bills, notes, acceptances, cheques, contracts,
and other evidence of or securities for funds borrowed or to
be borrowed for the purposes aforesaid;
(4) pledge debentures as security for loans;
(5) guarantee obligations of any person.
40. Bonds, debentures and other securities may be made assignable, free
from any equities between the Company and the person to whom such
securities were issued.
41. Any bonds, debentures and other securities may be issued at a discount,
premium or otherwise and with special privileges as to redemption,
surrender, drawings, allotment of shares, attending and voting at
general meetings of the Company, appointment of directors and other
matters.
GENERAL MEETINGS
42. Ordinary general meetings of the Company shall be held at least once in
every calendar year at such time and place as may be determined by the
directors and not later than 15 months after the preceding ordinary
general meeting. All other meetings of the Company shall be called
special general meetings. Ordinary or special general meetings may be
held either within or without the Province of Nova Scotia.
43. The Chair, President, Chief Financial Officer or the directors may at
any time convene a special general meeting, and the directors, upon the
requisition of shareholders in accordance with the Act shall forthwith
proceed to convene such meeting or meetings to be held at such time and
place or times and places as the directors determine.
44. The requisition shall state the objects of the meeting requested, be
signed by the requisitionists and deposited at the Office of the
Company. It may consist of several documents in like form each signed
by one or more of the requisitionists.
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45. At least seven clear days' notice, or such longer period of notice as
may be required by the Act, of every general meeting, specifying the
place, day and hour of the meeting and, when special business is to be
considered, the general nature of such business, shall be given to the
shareholders entitled to be present at such meeting by notice given as
permitted by these Articles. With the consent in writing of all the
shareholders entitled to vote at such meeting, a meeting may be
convened by a shorter notice and in any manner they think fit, or
notice of the time, place and purpose of the meeting may be waived by
all of the shareholders.
46. When it is proposed to pass a special resolution, the two meetings may
be convened by the same notice, and it shall be no objection to such
notice that it only convenes the second meeting contingently upon the
resolution being passed by the requisite majority at the first meeting.
47. The accidental omission to give notice to a shareholder, or non-receipt
of notice by a shareholder, shall not invalidate any resolution passed
at any general meeting.
RECORD DATES
48. (1) The directors may fix in advance a date as the record date for
the determination of shareholders
(a) entitled to receive payment of a dividend or entitled to
receive any distribution;
(b) entitled to receive notice of a meeting; or
(c) for any other purpose.
(2) If no record date is fixed, the record date for the
determination of shareholders
(a) entitled to receive notice of a meeting shall be the day
immediately preceding the day on which the notice is given,
or, if no notice is given, the day on which the meeting is
held; and
(b) for any other purpose shall be the day on which the directors
pass the resolution relating to the particular purpose.
PROCEEDINGS AT GENERAL MEETINGS
49. The business of an ordinary general meeting shall be to receive and
consider the financial statements of the Company and the report of the
directors and the report, if any, of the auditors, to elect directors
in the place of those retiring, to appoint the auditors of the Company
for the ensuing fiscal year and to transact any other business which
under these Articles ought to be transacted at an ordinary general
meeting.
50. No business shall be transacted at any general meeting unless the
requisite quorum is present at the commencement of the business. A
corporate shareholder of the Company that has a duly authorized agent
or representative present at any such meeting shall for the purpose of
this Article be deemed to be personally present at such meeting.
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51. One person, being a shareholder, proxyholder or representative of a
corporate shareholder, present and entitled to vote shall constitute a
quorum for a general meeting, and may hold a meeting.
52. The Chair shall be entitled to take the chair at every general meeting
or, if there be no Chair, or if the Chair is not present within fifteen
15 minutes after the time appointed for holding the meeting, the
President or, failing the President, a vice-president shall be entitled
to take the chair. If the Chair, the President or a vice-president is
not present within 15 minutes after the time appointed for holding the
meeting or if all such persons present decline to take the chair, the
shareholders present entitled to vote at the meeting shall choose
another director as chair and if no director is present or if all the
directors present decline to take the chair, then such shareholders
shall choose one of their number to be chair.
53. If within half an hour from the time appointed for a general meeting a
quorum is not present, the meeting, if it was convened pursuant to a
requisition of shareholders, shall be dissolved. If it was convened in
any other way, it shall stand adjourned to the same day, in the next
week, at the same time and place. If at the adjourned meeting a quorum
is not present within half an hour from the time appointed for the
meeting, the shareholders present shall be a quorum and may hold the
meeting.
54. Subject to the Act, at any general meeting a resolution put to the
meeting shall be decided by a show of hands unless, either before or on
the declaration of the result of the show of hands, a poll is demanded
by the chair, a shareholder or a proxyholder; and unless a poll is so
demanded, a declaration by the chair that the resolution has been
carried, carried by a particular majority, lost or not carried by a
particular majority and an entry to that effect in the Company's book
of proceedings shall be conclusive evidence of the fact without proof
of the number or proportion of the votes recorded in favour or against
such resolution.
55. When a poll is demanded, it shall be taken in such manner and at such
time and place as the chair directs, and either at once or after an
interval or adjournment or otherwise. The result of the poll shall be
the resolution of the meeting at which the poll was demanded. The
demand of a poll may be withdrawn. When any dispute occurs over the
admission or rejection of a vote, it shall be resolved by the chair and
such determination made in good faith shall be final and conclusive.
56. The chair shall not have a casting vote in addition to any vote or
votes that the chair has as a shareholder.
57. The chair of a general meeting may with the consent of the meeting
adjourn the meeting from time to time and from place to place, but no
business shall be transacted at any adjourned meeting other than the
business left unfinished at the meeting that was adjourned.
58. Any poll demanded on the election of a chair or on a question of
adjournment shall be taken forthwith without adjournment.
59. The demand of a poll shall not prevent the continuance of a meeting for
the transaction of any business other than the question on which a poll
has been demanded.
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VOTES OF SHAREHOLDERS
60. Subject to the Act and to any provisions attached to any class or
series of shares concerning voting rights
(1) on a show of hands every shareholder present in person, every
duly authorized representative of a corporate shareholder,
and, if not prevented from voting by the Act, every
proxyholder, shall have one vote; and
(2) on a poll every shareholder present in person, every duly
authorized representative of a corporate shareholder, and
every proxyholder, shall have one vote for every share held;
whether or not such representative or proxyholder is a shareholder.
61. Any person entitled to transfer shares upon the death or bankruptcy of
any shareholder or in any way other than by allotment or transfer may
vote at any general meeting in respect thereof in the same manner as if
such person were the registered holder of such shares so long as the
directors are satisfied at least 48 hours before the time of holding
the meeting of such person's right to transfer such shares.
62. Where there are joint registered holders of any share, any of such
holders may vote such share at any meeting, either personally or by
proxy, as if solely entitled to it. If more than one joint holder is
present at any meeting, personally or by proxy, the one whose name
stands first on the Register in respect of such share shall alone be
entitled to vote it. Several executors or administrators of a deceased
shareholder in whose name any share stands shall for the purpose of
this Article be deemed joint holders thereof.
63. Votes may be cast either personally or by proxy or, in the case of a
corporate shareholder by a representative duly authorized under the
Act.
64. A proxy shall be in writing and executed in the manner provided in the
Act. A proxy or other authority of a corporate shareholder does not
require its seal. Holders of Share Warrants shall not be entitled to
vote by proxy in respect of the shares included in such warrants unless
otherwise expressed in such warrants.
65. A shareholder of unsound mind in respect of whom an order has been made
by any court of competent jurisdiction may vote by guardian or other
person in the nature of a guardian appointed by that court, and any
such guardian or other person may vote by proxy.
66. A proxy and the power of attorney or other authority, if any, under
which it is signed or a notarially certified copy of that power or
authority shall be deposited at the Office of the Company or at such
other place as the directors may direct. The directors may, by
resolution, fix a time not exceeding 72 hours excluding Saturdays and
holidays preceding any meeting or adjourned meeting before which time
proxies to be used at that meeting must be deposited with the Company
at its Office or with an agent of the Company. Notice of the
requirement for depositing proxies shall be given in the notice calling
the meeting. The chair of the meeting shall determine all questions as
to validity of proxies and other instruments of authority.
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67. A vote given in accordance with the terms of a proxy shall be valid
notwithstanding the previous death of the principal, the revocation of
the proxy, or the transfer of the share in respect of which the vote is
given, provided no intimation in writing of the death, revocation or
transfer is received at the Office of the Company before the meeting or
by the chair of the meeting before the vote is given.
68. Every form of proxy shall comply with the Act and its regulations and
subject thereto may be in the following form:
I, _________ of ____________ being a shareholder of _____
hereby appoint _______ of ________ (or failing him/her _____
of _____) as my proxyholder to attend and to vote for me and
on my behalf at the ordinary/special general meeting of the
Company, to be held on the ___ day of ____ and at any
adjournment thereof, or at any meeting of the Company which
may be held prior to [insert specified date or event].
[If the proxy is solicited by or behalf of the management of
the Company, insert a statement to that effect.]
Dated this ____ day of __________ ____.
Shareholder
69. Any resolution passed by the directors, notice of which has been given
to the shareholders in the manner in which notices are hereinafter
directed to be given and which is, within one month after it has been
passed, ratified and confirmed in writing by shareholders entitled on a
poll to three-fifths of the votes, shall be as valid and effectual as a
resolution of a general meeting. This Article shall not apply to a
resolution for winding up the Company or to a resolution dealing with
any matter that by statute or these Articles ought to be dealt with by
a special resolution or other method prescribed by statute.
70. A resolution, including a special resolution, in writing and signed by
every shareholder who would be entitled to vote on the resolution at a
meeting is as valid as if it were passed by such shareholders at a
meeting and satisfies all of the requirements of the Act respecting
meetings of shareholders.
DIRECTORS
71. Unless otherwise determined by resolution of shareholders, the number
of directors shall not be less than one or more than seventeen.
72. Notwithstanding anything herein contained the directors of the Company
on the date of its continuance shall continue to be the directors of
the Company until their successors are appointed or they otherwise
cease to be directors in accordance with these Articles.
73. Subject to applicable law, the directors may be paid out of the funds
or the capital of the Company as remuneration for their service such
sums, shares or options, if any, as
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the directors may determine, and such remuneration shall be divided
among them in such proportions and manner as the directors determine.
The directors may also be paid their reasonable travelling, hotel and
other expenses incurred in attending meetings of directors and
otherwise in the execution of their duties as directors.
74. The continuing directors may act notwithstanding any vacancy in their
body, but if their number falls below the minimum permitted, the
directors shall not, except in emergencies or for the purpose of
filling vacancies, act so long as their number is below the minimum.
75.
A director may, in conjunction with the office of director, and on such
terms as to remuneration and otherwise as the directors arrange or
determine, hold any other office or place of profit under the Company
or under any company in which the Company is a shareholder or is
otherwise interested.
76. The office of a director shall ipso facto be vacated, if the director:
(1) becomes bankrupt or makes an assignment for the benefit of
creditors;
(1) is, or is found by a court of competent jurisdiction to be, of
unsound mind;
(2) by notice in writing to the Secretary at the Company's Office,
resigns the office of director; or
(3) is removed in the manner provided by these Articles.
77. It shall be the duty of a director who is in any way, whether directly
or indirectly, interested in a contract or proposed contract with the
Company to declare the nature of such interest at a meeting of the
directors of the Company. In the case of a proposed contract the
declaration required to be made shall be made at a meeting of the
directors at which the question of entering into the contract is first
taken into consideration, or if the director was not at the date of
that meeting interested in the proposed contract, at the next meeting
of the directors held after the director became so interested, and in a
case where the director becomes interested in a contract after it is
made, the declaration shall be made at the first meeting of the
directors held after the director becomes so interested. A general
notice given to the directors of the Company by a director to the
effect that such director is a member of a specified company or firm
and is to be regarded as interested in any contract which may, after
the date of the notice, be made with that company or firm shall be
deemed to be a sufficient declaration of interest in relation to any
contract so made.
ELECTION OF DIRECTORS
78. At the dissolution of every ordinary general meeting at which their
successors are elected, all the directors shall retire from office and
be succeeded by the directors elected at such meeting. Retiring
directors shall be eligible for re-election.
79. If at any ordinary general meeting at which an election of directors
ought to take place no such election takes place, or if no ordinary
general meeting is held in any year or period of years, the retiring
directors shall continue in office until their successors are elected.
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80. The Company may by resolution of its shareholders elect any number of
directors permitted by these Articles and may determine or alter their
qualification.
81. The Company may, by special resolution or in any other manner permitted
by statute, remove any director before the expiration of such
director's period of office and may, if desired, appoint a replacement
to hold office during such time only as the director so removed would
have held office.
82. The directors may appoint any other person as a director so long as the
total number of directors does not at any time exceed the maximum
number permitted. No such appointment, except to fill a casual vacancy,
shall be effective unless two-thirds of the directors concur in it. Any
casual vacancy occurring among the directors may be filled by the
directors, but any person so chosen shall retain office only so long as
the vacating director would have retained it if the vacating director
had continued as director.
CHAIR OF THE BOARD
83. The directors may elect one of their number to be chair and may
determine the period during which the chair is to hold office. The
chair shall perform such duties and receive such special remuneration
as the directors may provide.
PRESIDENT, CHIEF EXECUTIVE OFFICER AND VICE-PRESIDENTS
84. The directors shall appoint the President and Chief Executive Officer
of the Company, who need not be a director, and may determine the
period for which the President and Chief Executive Officer is to hold
office. The President and Chief Executive Officer shall have general
supervision of the business of the Company and shall perform such
duties as may be assigned from time to time by the directors.
85. The directors may also appoint vice-presidents, who need not be
directors, and may determine the periods for which they are to hold
office. A vice-president shall, at the request of the President or the
directors and subject to the directions of the directors, perform the
duties of the President during the absence, illness or incapacity of
the President, and shall also perform such duties as may be assigned by
the President or the directors.
SECRETARY AND TREASURER
86. The directors shall appoint a Secretary of the Company to keep minutes
of shareholders' and directors' meetings and perform such other duties
as may be assigned by the directors. The directors may also appoint a
temporary substitute for the Secretary who shall, for the purposes of
these Articles, be deemed to be the Secretary.
87. The directors may appoint a treasurer of the Company to carry out such
duties as the directors may assign.
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OFFICERS
88. The directors may elect or appoint such other officers of the Company,
having such powers and duties, as they think fit.
89. If the directors so decide the same person may hold more than one of
the offices provided for in these Articles.
90. Notwithstanding anything herein contained the officers of the Company
on the date of its continuance shall continue to hold office until
their successors are appointed or they otherwise cease to hold office
in accordance with these Articles.
PROCEEDINGS OF DIRECTORS
91. The directors may meet together for the dispatch of business, adjourn
and otherwise regulate their meetings and proceedings, as they think
fit. Until otherwise determined, a quorum for meetings of the board
shall be the number of directors then in office, less three (3), of
which three (3) shall be investor designees.
92. 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 adjourned
meeting, the directors present at such meeting shall constitute a
quorum; provided however, that unless a full quorum is present as
provided in section 91, the directors present at such meeting may not
transact any business except as specifically set forth in the notice of
meeting.
93. A director may participate in a meeting of directors or of a committee
of directors by means of such telephone or other communications
facilities as permit all persons participating in the meeting to hear
each other, and a director participating in such a meeting by such
means is deemed to be present at that meeting for purposes of these
Articles.
94. Meetings of directors may be held either within or without the Province
of Nova Scotia and the directors may from time to time make
arrangements relating to the time and place of holding directors'
meetings, the notices to be given for such meetings and what meetings
may be held without notice. Unless otherwise provided by such
arrangements:
(1) A meeting of directors may be held at the close of every
ordinary general meeting of the Company without notice.
(2) Notice of every other directors' meeting may be given as
permitted by these Articles to each director at least 48 hours
before the time fixed for the meeting.
(3) A meeting of directors may be held without formal notice if
all the directors are present or if those absent have
signified their assent to such meeting or their consent to the
business transacted at such meeting.
95. The President or any director may at any time, and the Secretary, upon
the request of the President or any director, shall summon a meeting of
the directors to be held at the Office of
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the Company. The President, the Chair or a majority of the directors
may at any time, and the Secretary, upon the request of the President,
the Chair or a majority of the directors, shall summon a meeting to be
held elsewhere.
96. (1) Questions arising at any meeting of directors shall be decided
by a majority of votes. The chair of the meeting may vote as a
director but shall not have a second or casting vote.
(2) At any meeting of directors the chair shall receive and count
the vote of any director not present in person at such meeting
on any question or matter arising at such meeting whenever
such absent director has indicated by telegram, letter or
other writing lodged with the chair of such meeting the manner
in which the absent director desires to vote on such question
or matter and such question or matter has been specifically
mentioned in the notice calling the meeting as a question or
matter to be discussed or decided thereat.
97. If no Chair is elected, or if at any meeting of directors the Chair is
not present within five minutes after the time appointed for holding
the meeting, or declines to take the chair, the President, if a
director, shall preside. If the President is not a director, is not
present at such time or declines to take the chair, a vice-president
who is also a director shall preside. If no person described above is
present at such time and willing to take the chair, the directors
present shall choose some one of their number to be chair of the
meeting.
98. A meeting of the directors at which a quorum is present shall be
competent to exercise all or any of the authorities, powers and
discretions for the time being vested in or exercisable by the
directors generally.
99. The directors may delegate any of their powers to committees consisting
of such number of directors as they think fit. Any committee so formed
shall in the exercise of the powers so delegated conform to any
regulations that may be imposed on them by the directors.
100. The meetings and proceedings of any committee of directors shall be
governed by the provisions contained in these Articles for regulating
the meetings and proceedings of the directors insofar as they are
applicable and are not superseded by any regulations made by the
directors.
101. All acts done at any meeting of the directors or of a committee of
directors or by any person acting as a director shall, notwithstanding
that it is afterwards discovered that there was some defect in the
appointment of the director or person so acting, or that they or any of
them were disqualified, be as valid as if every such person had been
duly appointed and was qualified to be a director.
102. A resolution in writing and signed by every director who would be
entitled to vote on the resolution at a meeting is as valid as if it
were passed by such directors at a meeting.
103. If any one or more of the directors is called upon to perform extra
services or to make any special exertions in going or residing abroad
or otherwise for any of the purposes of the Company or the business
thereof, the Company may remunerate the director or directors so doing,
either by a fixed sum or by a percentage of profits or otherwise. Such
remuneration
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shall be determined by the directors and may be either in addition to
or in substitution for remuneration otherwise authorized by these
Articles.
REGISTERS
104. The directors shall cause to be kept at the Company's Office in
accordance with the provisions of the Act a Register of the
shareholders of the Company, a register of the holders of bonds,
debentures and other securities of the Company and a register of its
directors. Branch registers of the shareholders and of the holders of
bonds, debentures and other securities may be kept elsewhere, either
within or without the Province of Nova Scotia, in accordance with the
Act.
MINUTES
105. The directors shall cause minutes to be entered in books designated for
the purpose:
(1) of all appointments of officers;
(2) of the names of directors present at each meeting of directors
and of any committees of directors; and
(3) of all resolutions and proceedings of meetings of shareholders
and of directors.
Any such minutes of any meeting of directors or of any committee of
directors or of shareholders, if purporting to be signed by the chair
of such meeting or by the chair of the next succeeding meeting, shall
be receivable as prima facie evidence of the matters stated in such
minutes.
POWERS OF DIRECTORS
106. The management of the business of the Company is vested in the
directors who, in addition to the powers and authorities by these
Articles or otherwise expressly conferred upon them, may exercise all
such powers and do all such acts and things as may be exercised or done
by the Company and are not hereby or by statute expressly directed or
required to be exercised or done by the shareholders, but subject
nevertheless to the provisions of any statute, the Memorandum or these
Articles. No modification of the Memorandum or these Articles shall
invalidate any prior act of the directors that would have been valid if
such modification had not been made.
107. Without restricting the generality of the terms of any of these
Articles and without prejudice to the powers conferred thereby, the
directors may:
(1) take such steps as they think fit to carry out any agreement
or contract made by or on behalf of the Company;
(2) pay costs, charges and expenses preliminary and incidental to
the promotion, formation, establishment, and registration of
the Company;
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(3) purchase or otherwise acquire for the Company any property,
rights or privileges that the Company is authorized to
acquire, at such price and generally on such terms and
conditions as they think fit;
(4) pay for any property, rights or privileges acquired by, or
services rendered to the Company either wholly or partially in
cash or in shares (fully paid-up or otherwise), bonds,
debentures or other securities of the Company;
(5) subject to the Act, secure the fulfilment of any contracts or
engagements entered into by the Company by mortgaging or
charging all or any of the property of the Company and its
unpaid capital for the time being, or in such other manner as
they think fit;
(6) appoint, remove or suspend at their discretion such experts,
managers, secretaries, treasurers, officers, clerks, agents
and servants for permanent, temporary or special services, as
they from time to time think fit, and determine their powers
and duties and fix their salaries or emoluments and require
security in such instances and to such amounts as they think
fit;
(7) accept a surrender of shares from any shareholder insofar as
the law permits and on such terms and conditions as may be
agreed;
(8) appoint any person or persons to accept and hold in trust for
the Company any property belonging to the Company, or in which
it is interested, execute and do all such deeds and things as
may be required in relation to such trust, and provide for the
remuneration of such trustee or trustees;
(9) institute, conduct, defend, compound or abandon any legal
proceedings by and against the Company, its directors or its
officers or otherwise concerning the affairs of the Company,
and also compound and allow time for payment or satisfaction
of any debts due and of any claims or demands by or against
the Company;
(10) refer any claims or demands by or against the Company to
arbitration and observe and perform the awards;
(11) make and give receipts, releases and other discharges for
amounts payable to the Company and for claims and demands of
the Company;
(12) determine who may exercise the borrowing powers of the Company
and sign on the Company's behalf bonds, debentures or other
securities, bills, notes, receipts, acceptances, assignments,
transfers, hypothecations, pledges, endorsements, cheques,
drafts, releases, contracts, agreements and all other
instruments and documents;
(13) provide for the management of the affairs of the Company
abroad in such manner as they think fit, and in particular
appoint any person to be the attorney or agent of the Company
with such powers (including power to sub-delegate) and upon
such terms as may be thought fit;
(14) invest and deal with any funds of the Company in such
securities and in such manner as they think fit; and vary or
realize such investments;
<PAGE>
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(15) subject to the Act, execute in the name and on behalf of the
Company in favour of any director or other person who may
incur or be about to incur any personal liability for the
benefit of the Company such mortgages of the Company's
property, present and future, as they think fit;
(16) give any officer or employee of the Company a commission on
the profits of any particular business or transaction or a
share in the general profits of the Company;
(17) set aside out of the profits of the Company before declaring
any dividend such amounts as they think proper as a reserve
fund to meet contingencies or provide for dividends,
depreciation, repairing, improving and maintaining any of the
property of the Company and such other purposes as the
directors may in their absolute discretion think in the
interests of the Company; and invest such amounts in such
investments as they think fit, and deal with and vary such
investments, and dispose of all or any part of them for the
benefit of the Company, and divide the reserve fund into such
special funds as they think fit, with full power to employ the
assets constituting the reserve fund in the business of the
Company without being bound to keep them separate from the
other assets;
(18) make, vary and repeal rules respecting the business of the
Company, its officers and employees, the shareholders of the
Company or any section or class of them; (47) enter into all
such negotiations and contracts, rescind and vary all such
contracts, and execute and do all such acts, deeds and things
in the name and on behalf of the Company as they consider
expedient for or in relation to any of the matters aforesaid
or otherwise for the purposes of the Company; (48) provide for
the management of the affairs of the Company in such manner as
they think fit.
SOLICITORS
108. The Company may employ or retain solicitors any of whom may, at the
request or on the instruction of the directors, the Chair, the
President or a managing director, attend meetings of the directors or
shareholders, whether or not the solicitor is a shareholder or a
director of the Company. A solicitor who is also a director may
nevertheless charge for services rendered to the Company as a
solicitor.
THE SEAL
109. The directors shall arrange for the safe custody of the common seal of
the Company (the "Seal"). The Seal may be affixed to any instrument in
the presence of and contemporaneously with the attesting signature of
(i) any director or officer acting within such person's authority or
(ii) any person under the authority of a resolution of the directors or
a committee thereof. For the purpose of certifying documents or
proceedings the Seal may be affixed by any director or the President, a
vice-president, the Secretary, an assistant secretary or any other
officer of the Company without the authorization of a resolution of the
directors.
<PAGE>
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110. The Company may have facsimiles of the Seal which may be used
interchangeably with the Seal.
DIVIDENDS
111. The directors may from time to time declare such dividend as they deem
proper upon shares of the Company according to the rights and
restrictions attached to any class or series of shares, and may
determine the date upon which such dividend will be payable and that it
will be payable to the persons registered as the holders of the shares
on which it is declared at the close of business upon a record date. No
transfer of such shares registered after the record date shall pass any
right to the dividend so declared.
112. No dividends shall be payable except out of the profits, retained
earnings or contributed surplus of the Company and no interest shall be
payable on any dividend except insofar as the rights attached to any
class or series of shares provide otherwise.
113. The declaration of the directors as to the amount of the profits,
retained earnings or contributed surplus of the Company shall be
conclusive.
114. The directors may from time to time pay to the shareholders such
interim dividends as in their judgment the position of the Company
justifies.
115. Subject to the Memorandum, these Articles and the rights and
restrictions attached to any class or series of shares, dividends may
be declared and paid to the shareholders in proportion to the amount of
capital paid-up on the shares (not including any capital paid-up
bearing interest) held by them respectively.
116. The directors may deduct from the dividends payable to any shareholder
amounts due and payable by the shareholder to the Company and may apply
the same in or towards satisfaction of such amounts so due and payable.
117. The directors may retain the dividends payable upon shares to which a
person is entitled or entitled to transfer upon the death or bankruptcy
of a shareholder or in any way other than by allotment or transfer,
until such person has become registered as the holder of such shares or
has duly transferred such shares.
118. The directors may declare that a dividend be paid by the distribution
of cash, paid-up shares (at par or at a premium), debentures, bonds or
other securities of the Company or of any other company or any other
specific assets held or to be acquired by the Company or in any one or
more of such ways.
119. The directors may settle any difficulty that may arise in regard to the
distribution of a dividend as they think expedient, and in particular
without restricting the generality of the foregoing may issue
fractional certificates, may fix the value for distribution of any
specific assets, may determine that cash payments will be made to any
shareholders upon the footing of the value so fixed or that fractions
may be disregarded in order to adjust the rights of all parties, and
may vest cash or specific assets in trustees upon such trusts for the
persons entitled to the dividend as may seem expedient to the
directors.
<PAGE>
- 21 -
120. Any person registered as a joint holder of any share may give effectual
receipts for all dividends and payments on account of dividends in
respect of such share.
121. Unless otherwise determined by the directors, any dividend may be paid
by a cheque or warrant delivered to or sent through the post to the
registered address of the shareholder entitled, or, when there are
joint holders, to the registered address of that one whose name stands
first on the register for the shares jointly held. Every cheque or
warrant so delivered or sent shall be made payable to the order of the
person to whom it is delivered or sent. The mailing or other
transmission to a shareholder at the shareholder's registered address
(or, in the case of joint shareholders at the address of the holder
whose name stands first on the register) of a cheque payable to the
order of the person to whom it is addressed for the amount of any
dividend payable in cash after the deduction of any tax which the
Company has properly withheld, shall discharge the Company's liability
for the dividend unless the cheque is not paid on due presentation. If
any cheque for a dividend payable in cash is not received, the Company
shall issue to the shareholder a replacement cheque for the same amount
on such terms as to indemnity and evidence of non-receipt as the
directors may impose. No shareholder may recover by action or other
legal process against the Company any dividend represented by a cheque
that has not been duly presented to a banker of the Company for payment
or that otherwise remains unclaimed for 6 years from the date on which
it was payable.
ACCOUNTS
122. The directors shall cause proper books of account to be kept of the
amounts received and expended by the Company, the matters in respect of
which such receipts and expenditures take place, all sales and
purchases of goods by the Company, and the assets, credits and
liabilities of the Company.
123. The books of account shall be kept at the head office of the Company or
at such other place or places as the directors may direct.
124. The directors shall from time to time determine whether and to what
extent and at what times and places and under what conditions the
accounts and books of the Company or any of them shall be open to
inspection of the shareholders, and no shareholder shall have any right
to inspect any account or book or document of the Company except as
conferred by statute or authorized by the directors or a resolution of
the shareholders.
125. At the ordinary general meeting in every year the directors shall lay
before the Company such financial statements and reports in connection
therewith as may be required by the Act or other applicable statute or
regulation thereunder and shall distribute copies thereof at such times
and to such persons as may be required by statute or regulation.
AUDITORS AND AUDIT
126. Except in respect of a financial year for which the Company is exempt
from audit requirements in the Act, the Company shall at each ordinary
general meeting appoint an auditor or auditors to hold office until the
next ordinary general meeting. If at any general meeting at which the
appointment of an auditor or auditors is to take place and no such
<PAGE>
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appointment takes place, or if no ordinary general meeting is held in
any year or period of years, the directors shall appoint an auditor or
auditors to hold office until the next ordinary general meeting.
127. The first auditors of the Company may be appointed by the directors at
any time before the first ordinary general meeting and the auditors so
appointed shall hold office until such meeting unless previously
removed by a resolution of the shareholders, in which event the
shareholders may appoint auditors.
128. The directors may fill any casual vacancy in the office of the auditor
but while any such vacancy continues the surviving or continuing
auditor or auditors, if any, may act.
129. The Company may appoint as auditor any person, including a shareholder,
not disqualified by statute. 121. An auditor may be removed or replaced
in the circumstances and in the manner specified in the Act. 122. The
remuneration of the auditors shall be fixed by the shareholders, or by
the directors pursuant to authorization given by the shareholders,
except that the remuneration of an auditor appointed to fill a casual
vacancy may be fixed by the directors. 123. The auditors shall conduct
such audit as may be required by the Act and their report, if any,
shall be dealt with by the Company as required by the Act.
NOTICES
133. A notice (including any communication or document) shall be
sufficiently given, delivered or served by the Company upon a
shareholder, director, officer or auditor by personal delivery at such
person's registered address (or, in the case of a director, officer or
auditor, last known address) or by prepaid mail, telegraph, telex,
facsimile machine or other electronic means of communication addressed
to such person at such address.
134. Shareholders having no registered address shall not be entitled to
receive notice.
135. The holder of a share warrant shall not, unless otherwise expressed
therein, be entitled in respect thereof to notice of any general
meeting of the Company.
136. All notices with respect to registered shares to which persons are
jointly entitled may be sufficiently given to all joint holders thereof
by notice given to whichever of such persons is named first in the
Register for such shares.
137. Any notice sent by mail shall be deemed to be given, delivered or
served on the earlier of actual receipt and the third business day
following that upon which it is mailed, and in proving such service it
shall be sufficient to prove that the notice was properly addressed and
mailed with the postage prepaid thereon. Any notice given by electronic
means of communication shall be deemed to be given when entered into
the appropriate transmitting device for transmission. A certificate in
writing signed on behalf of the Company that the notice was so
addressed and mailed or transmitted shall be conclusive evidence
thereof.
<PAGE>
- 23 -
138. Every person who by operation of law, transfer or other means
whatsoever becomes entitled to any share shall be bound by every notice
in respect of such share that prior to such person's name and address
being entered on the Register was duly served in the manner
hereinbefore provided upon the person from whom such person derived
title to such share.
139. Any notice delivered, sent or transmitted to the registered address of
any shareholder pursuant to these Articles, shall, notwithstanding that
such shareholder is then deceased and that the Company has notice
thereof, be deemed to have been served in respect of any registered
shares, whether held by such deceased shareholder solely or jointly
with other persons, until some other person is registered as the holder
or joint holder thereof, and such service shall for all purposes of
these Articles be deemed a sufficient service of such notice on the
heirs, executors or administrators of the deceased shareholder and all
joint holders of such shares.
140. Any notice may bear the name or signature, manual or reproduced, of the
person giving the notice written or printed.
141. When a given number of days' notice or notice extending over any other
period is required to be given, the day of service and the day upon
which such notice expires shall not, unless it is otherwise provided,
be counted in such number of days or other period.
INDEMNITY
142. Every director or officer, former director or officer, or person who
acts or acted at the Company's request, as a director or officer of the
Company, a body corporate, partnership or other association of which
the Company is or was a shareholder, partner, member or creditor, and
the heirs and legal representatives of such person, in the absence of
any dishonesty on the part of such person, shall be indemnified by the
Company against, and it shall be the duty of the directors out of the
funds of the Company to pay, all costs, losses and expenses, including
an amount paid to settle an action or claim or satisfy a judgment, that
such director, officer or person may incur or become liable to pay in
respect of any claim made against such person or civil, criminal or
administrative action or proceeding to which such person is made a
party by reason of being or having been a director or officer of the
Company or such body corporate, partnership or other association,
whether the Company is a claimant or party to such action or proceeding
or otherwise; and the amount for which such indemnity is proved shall
immediately attach as a lien on the property of the Company and have
priority as against the shareholders over all other claims.
143. No director or officer, former director or officer, or person who acts
or acted at the Company's request, as a director or officer of the
Company, a body corporate, partnership or other association of which
the Company is or was a shareholder, partner, member or creditor, in
the absence of any dishonesty on such person's part, shall be liable
for the acts, receipts, neglects or defaults of any other director,
officer or such person, or for joining in any receipt or other act for
conformity, or for any loss, damage or expense happening to the Company
through the insufficiency or deficiency of title to any property
acquired for or on behalf of the Company, or through the insufficiency
or deficiency of any security in or upon which any of the funds of the
Company are invested, or for any loss or damage arising from the
bankruptcy, insolvency or tortious acts of any person with whom any
funds, securities or
<PAGE>
- 24 -
effects are deposited, or for any loss occasioned by error of judgment
or oversight on the part of such person, or for any other loss, damage
or misfortune whatsoever which happens in the execution of the duties
of such person or in relation thereto.
REMINDERS
144. The directors shall comply with the following provisions of the Act or
the CORPORATIONS REGISTRATION ACT (Nova Scotia) where indicated:
(1) Keep a current register of shareholders (Section 42).
(2) Keep a current register of directors, officers and managers,
send to the Registrar a copy thereof and notice of all changes
therein (Section 98).
(3) Keep a current register of holders of bonds, debentures and
other securities (Section 111 and Third Schedule).
(4) Send notice to the Registrar of any redemption or purchase of
preference shares (Section 50).
(5) Send notice to the Registrar of any consolidation, division,
conversion or reconversion of the share capital or stock of
the Company (Section 53).
(6) Send notice to the Registrar of any increase of capital
(Section 55).
(7) Call a general meeting every year within the proper time
(Section 83). Meetings must be held not later than 15 months
after the preceding general meeting.
(8) Send to the Registrar copies of all special resolutions
(Section 88).
(9) Send to the Registrar notice of the address of the Company's
registered Office and of all changes in such address (Section
79).
(10) Keep proper minutes of all shareholders' meetings and
directors' meetings in the Company's minute book kept at the
Company's registered Office (Sections 89 and 90).
(11) Obtain a certificate under the CORPORATIONS REGISTRATION ACT
(Nova Scotia) as soon as business is commenced.
(12) Send notice of recognized agent to the Registrar under the
CORPORATIONS REGISTRATION ACT (Nova Scotia).
<PAGE>
Exhibit 3.6
MEMORANDUM OF ASSOCIATION
OF
360NETWORKS INC.
1. The name of the Company is 360NETWORKS INC.
2. There are no restrictions on the objects and powers of the Company and
the Company shall expressly have the following powers:
(a) To sell or dispose of its undertaking, or a substantial part
thereof;
(b) To distribute any of its property IN SPECIE among its members;
and
(c) To amalgamate with any company or other body of persons.
3. The liability of the members is limited.
4. The capital of the Company is 500,000,000,000 Subordinate Voting
Shares, 500,000,000,000 Multiple Voting Shares, and 500,000,000,000
Preferred Shares issuable in series, all without nominal or par value,
and all having the rights, restrictions, conditions and limitations set
out in Annex 1 hereto with power to divide the shares in the capital
for the time being into several classes and to attach thereto
respectively any preferred, deferred or qualified rights, privileges or
conditions, including restrictions on voting rights and including
redemption and purchase of such shares, subject, however, to the
provisions of the COMPANIES ACT of Nova Scotia.
<PAGE>
ANNEX I
The rights, privileges, restrictions and conditions attaching to each class of
shares and each existing series of shares of the Company are as follows:
A. SUBORDINATE VOTING SHARES AND MULTIPLE VOTING SHARES
The Subordinate Voting Shares and Multiple Voting Shares shall have attached
thereto the following rights, privileges, restrictions and conditions:
1. DIVIDENDS
1.1 Subject to any preference or priority as to the payment of dividends upon
shares of any class or series ranking in priority to the Subordinate Voting
Shares or Multiple Voting Shares in respect of the payment of dividends, the
holders of Subordinate Voting Shares and Multiple Voting Shares shall, except as
otherwise hereinafter provided, be entitled to participate equally with each
other, share for share, as to dividends and the Company shall pay dividends
thereon, as and when declared by the Board of Directors of the Company out of
moneys properly applicable to the payment of dividends, in equal amounts per
share and at the same time on each Subordinate Voting Share and Multiple Voting
Share outstanding as at the respective record dates for the payment of such
dividends.
2. DISSOLUTION
2.1 In the event of the liquidation, dissolution or winding-up of the Company or
other distribution of assets of the Company among shareholders for the purpose
of winding up its affairs, all of the property and assets of the Company which
remain, after payment of all amounts attributed and properly payable to the
holders of any shares ranking in priority to the Subordinate Voting Shares and
Multiple Voting Shares in respect of payment upon liquidation, dissolution or
winding-up of the Company or other distribution of assets of the Company among
shareholders for the purpose of winding up its affairs, shall be paid or
distributed equally, share for share, to the holders of the Subordinate Voting
Shares and Multiple Voting Shares, without preference or distinction
outstanding, as at the respective record dates for such payment.
3. SUBDIVISION OR CONSOLIDATION
3.1 Neither the Subordinate Voting Shares nor the Multiple Voting Shares shall
be subdivided, consolidated, reclassified or otherwise changed unless
contemporaneously therewith the shares of the other such class is subdivided,
consolidated, reclassified or otherwise changed equally, share for share, in the
same proportion and in the same manner.
4. VOTING RIGHTS
4.1 The holders of the Subordinate Voting Shares shall be entitled, as such, to
receive notice of and to attend (in person or by proxy) and be heard at all
meetings of the shareholders of the Company (other than separate meetings of the
holders of shares of any other class of shares of the Company or of shares of
any series of shares of any other class of shares of the Company) and to vote at
all such meetings and each holder of Subordinate Voting Shares shall be entitled
<PAGE>
3
at any such meeting to one vote per Subordinate Voting Share held by such holder
as at the record date for such meeting.
4.2 The Company shall not, without the authorization of the holders of
Subordinate Voting Shares given as specified in Section 4.3 of this Article A:
(a) increase or decrease the maximum number of authorized
Subordinate Voting Shares, or increase any maximum number of
authorized shares of any other class or series of a class
having rights or privileges equal or superior to the
Subordinate Voting Shares;
(b) effect an exchange, reclassification or cancellation of all or
part of the Subordinate Voting Shares; or
(c) create a new class of shares equal or superior to the
Subordinate Voting Shares.
4.3 The approval of the holders of the Subordinate Voting Shares with respect to
any and all matters hereinbefore referred to in this Article A may be given in
writing by the holders of not less than 2/3 of the Subordinate Voting Shares for
the time being outstanding or by resolution duly passed by not less than 2/3 of
the votes cast on a poll at a meeting of the holders of the Subordinate Voting
Shares duly called and held for the purpose of considering the subject matter of
such resolution and at which meeting the holders of at least five percent (5%)
of the outstanding Subordinate Voting Shares are present in person or
represented by proxy in accordance with the Articles of the Company; provided,
however, that, if at any such meeting, when originally held, the holders of at
least five percent (5%) of the outstanding Subordinate Voting Shares are not
present in person or so represented by proxy within 30 minutes after the time
fixed for the meeting, then the meeting shall be adjourned to such date, being
not less than 14 days later, and to such time and place as may be fixed by the
chairman of such meeting and not less than ten days' written notice shall be
given of such adjourned meeting, but it shall not be necessary in such notice to
specify the purpose for which the meeting was originally called. At such
adjourned meeting, the holders of Subordinate Voting Shares present in person or
so represented by proxy, whether or not they hold more or less than five percent
(5%) of all Subordinate Voting Shares then outstanding, may transact the
business for which the meeting was originally called, and a resolution duly
passed and carried thereat by not less than 2/3 of the votes cast on a poll at
such adjourned meeting shall constitute the approval of the holders of the
Subordinate Voting Shares hereinbefore mentioned. The formalities to be observed
with respect to the giving of notice of any such original meeting or adjourned
meeting and the conduct thereof shall be those from time to time prescribed in
the Articles of the Company with respect to meetings of shareholders or in the
COMPANIES ACT (Nova Scotia).
4.4 At any meeting of the holders of Subordinate Voting Shares as a class, each
holder of Subordinate Voting Shares shall be entitled to one vote in respect of
each Subordinate Voting Share held by such holder.
4.5 The holders of the Multiple Voting Shares shall be entitled, as such, to
receive notice of and attend (in person or by proxy) and be heard at all
meetings of the shareholders of the Company (other than separate meetings of the
holders of shares of any other class of shares of the Company or any series of
shares of such other class of shares of the Company) and to vote
<PAGE>
4
at all such meetings and each holder of Multiple Voting Shares shall be entitled
at any such meeting to ten votes per Multiple Voting Share held by such holder
as at the record date for such meeting.
5. CONVERSION OF MULTIPLE VOTING SHARES INTO SUBORDINATE VOTING SHARES
5.1 Subject to compliance with the provisions of Section 5.2 of this Article A,
each holder of Multiple Voting Shares shall be entitled at any time and from
time to time to have all or any part of the Multiple Voting Shares held by such
holder converted into fully paid and non-assessable Subordinate Voting Shares
upon the basis of one Subordinate Voting Share for each Multiple Voting Share
for which the conversion right provided for in this Section 5.1 is exercised, as
specified by the holder of the Multiple Voting Shares in the notice in writing
given to the Company or any transfer agent in exercise of such conversion right.
5.2 Before any holder of Multiple Voting Shares shall be entitled to convert the
same into Subordinate Voting Shares, such holder shall surrender the certificate
or certificates therefor, duly endorsed, at the office of the Company or of any
transfer agent for the Multiple Voting Shares, together with a written notice to
the Company stating therein: the name or names in which the certificate or
certificates for Subordinate Voting Shares are to be issued; the number of
Multiple Voting Shares to be converted; and notice of such holder's election to
convert such Multiple Voting Shares. After giving such notice in writing, the
election of the holder of Multiple Voting Shares shall be irrevocable. The
Company shall, within three (3) days of receipt of such written notice, issue
and deliver at such office to such holder of Multiple Voting Shares, or to the
nominee or nominees of such holder, a certificate or certificates for the number
of Subordinate Voting Shares, as the case may be, to which such holder shall be
entitled as aforesaid. Such conversion shall be deemed to have been made
immediately prior to the close of business on the date of such surrender of the
certificate or certificates for the Multiple Voting Shares to be converted, and
the person or persons entitled to receive the Subordinate Voting Shares issuable
upon such conversion shall be treated for all purposes as the record holder or
holders of such Subordinate Voting Shares, as of such date. The issuance of
certificates for Subordinate Voting Shares, upon conversion of the Multiple
Voting Shares, shall be made without charge to the holder but the holder shall
pay any stamp, documentary or similar tax imposed on or in respect of such
conversion. If less than all of the Multiple Voting Shares represented by any
certificate are to be converted, the holder shall be entitled to receive a new
certificate representing the number of Multiple Voting Shares represented by the
original certificate which are not to be converted.
5.3 The Company will at no time close its transfer books against the transfer of
any Multiple Voting Shares, or of any Subordinate Voting Shares issuable upon
the conversion of any Multiple Voting Shares, in any manner which interferes
with the timely conversion of such Multiple Voting Shares, except as may
otherwise be required to comply with applicable laws.
B. PREFERRED SHARES
The rights, privileges, restrictions and conditions attaching to the Preferred
Shares, as a class, are as follows:
<PAGE>
5
1. DIRECTORS' AUTHORITY TO ISSUE ONE OR MORE SERIES
1.1 The Board of Directors of the Company may issue the Preferred Shares at any
time and from time to time in one or more series. Before the first shares of a
particular series are issued, the Board of Directors of the Company, by
resolution, shall fix the number of shares in such series and shall determine,
subject to the limitations set out in the Articles, the designation, rights,
privileges, restrictions and conditions to attach to the shares of such series
including, without limiting the generality of the foregoing, the rate or rates,
amount or method or methods of calculation of preferential dividends, whether
cumulative or non-cumulative or partially cumulative, and whether such rate(s),
amount or method(s) of calculation shall be subject to change or adjustment in
the future, the currency or currencies of payment, the date or dates and place
or places of payment thereof and the date or dates from which such preferential
dividends shall accrue, the redemption price and terms and conditions of
redemption (if any), the rights of retraction (if any), and the prices and other
terms and conditions of any rights of retraction and whether any additional
rights of retraction may be vested in such holders in the future, voting rights
(if any) and conversion or exchange rights (if any) and any sinking fund,
purchase fund or other provisions attaching thereto. Such resolution shall be
the only authorization to fix such designation, rights, privileges, restrictions
and conditions and to authorize such issuance and no approval, sanction or
confirmation of such resolution by the shareholders of the Company or otherwise
shall be required. Before the issue of the first shares of a series, the Board
of Directors of the Company shall send to the Registrar (as defined in the
COMPANIES ACT (Nova Scotia)) any necessary documentation in the prescribed form
containing a description of such series including the designation, rights,
privileges, restrictions and conditions determined by the directors.
2. RANKING OF PREFERRED SHARES
2.1 No rights, privileges, restrictions or conditions attaching to a series of
Preferred Shares shall confer upon a series a priority in respect of dividends
or return of capital over any other series of Preferred Shares then outstanding.
The Preferred Shares of each series shall rank on a parity with the Preferred
Shares of every other series with respect to priority in the payment of
dividends and the return of capital and the distribution of assets of the
Company in the event of the liquidation, dissolution or winding-up of the
Company, whether voluntary or involuntary, or any other distribution of the
assets of the Company among its shareholders for the purpose of winding up its
affairs. When any dividends or amounts payable to the holders of Preferred
Shares on a return of capital are not paid in full, the Preferred Shares of all
series shall participate rateably in respect of such dividends, including
accumulations, if any, in accordance with the sums that would be payable on such
shares if all such dividends were declared and paid in full, and in respect of
any return of capital in accordance with the sums that would be payable on such
return of capital if all sums so payable were paid in full; provided, however,
that in the event of there being insufficient assets to satisfy in full all such
claims as aforesaid, the claims of the holders of such shares with respect to
the return of capital shall first be paid and satisfied and any assets remaining
thereafter shall be applied towards the payment and satisfaction of claims in
respect of dividends.
2.2 The Preferred Shares shall be entitled to priority over the Subordinate
Voting Shares and the Multiple Voting Shares and over any other shares of any
other class of the Company ranking junior to the Preferred Shares with respect
to priority in the payment of
<PAGE>
6
dividends and the return of capital and the distribution of assets in the event
of the liquidation, dissolution or winding-up of the Company, whether voluntary
or involuntary, or any other distribution of the assets of the Company among its
shareholders for the purpose of winding up its affairs.
2.3 The Preferred Shares of any series may also be given such other preferences,
not inconsistent with the provisions hereof, over the Subordinate Voting Shares
and the Multiple Voting Shares and over any other shares ranking junior to the
Preferred Shares as may be determined in the case of such series of Preferred
Shares.
3. VOTING RIGHTS
3.1 Except as otherwise provided by law or in accordance with any voting rights
which may from time to time be attached to any series of Preferred Shares, the
holders of the Preferred Shares as a class shall not be entitled as such to
receive notice of, to attend or to vote at any meeting of the shareholders of
the Company.
4. AMENDMENT OF RIGHTS
4.1 The provisions of Sections 1 to 3 , inclusive, in this Article B and of this
Section 4 may be deleted, varied, modified, amended or amplified in whole or in
part, but only with the prior approval of the holders of the Preferred Shares
given as hereinafter specified, provided that the holders of the Preferred
Shares are not entitled to vote separately as a class or, subject to the
COMPANIES ACT (Nova Scotia), as a series, and shall not be entitled to dissent,
upon a proposal to amend these Articles to:
(a) increase or decrease any maximum number of authorized
Preferred Shares, or increase any maximum number of authorized
shares of any other class or series of a class having rights
or privileges equal or superior to the Preferred Shares;
(b) effect an exchange, reclassification or cancellation of all or
part of the Preferred Shares; or
(c) create a new class or series of a class of series equal or
superior to the Preferred Shares.
4.2 The approval of the holders of the Preferred Shares with respect to any and
all matters hereinbefore referred to in this Article B may be given in writing
by the holders of not less than 2/3 of the Preferred Shares for the time being
outstanding or by resolution duly passed by not less than 2/3 of the votes cast
on a poll at a meeting of the holders of the Preferred Shares duly called and
held for the purpose of considering the subject matter of such resolution and at
which meeting the holders of at least five percent (5%) of the outstanding
Preferred Shares are present in person or represented by proxy in accordance
with the Articles of the Company; provided, however, that, if at any such
meeting, when originally held, the holders of at least five percent (5%) of the
outstanding Preferred Shares are not present in person or so represented by
proxy within 30 minutes after the time fixed for the meeting, then the meeting
shall be adjourned to such date, being not less than 14 days later, and to such
time and place as may be fixed by the chairman of such meeting and not less than
ten days' written notice shall be given of such adjourned meeting, but it shall
not be necessary in such notice to specify the purpose for which
<PAGE>
7
the meeting was originally called. At such adjourned meeting, the holders of
Preferred Shares present in person or so represented by proxy, whether or not
they hold more or less than five percent (5%) of all Preferred Shares then
outstanding, may transact the business for which the meeting was originally
called, and a resolution duly passed and carried thereat by not less than 2/3 of
the votes cast on a poll at such adjourned meeting shall constitute the approval
of the holders of the Preferred Shares hereinbefore mentioned. The formalities
to be observed with respect to the giving of notice of any such original meeting
or adjourned meeting and the conduct thereof shall be those from time to time
prescribed in the Articles of the Company with respect to meetings of
shareholders or in the COMPANIES ACT (Nova Scotia).
4.3 If the deletion, variation, modification, amendment or amplification of the
provisions hereinbefore contained especially affects the rights of the holders
of Preferred Shares of any series, in a manner different from that in or to
which the rights of the holders of Preferred Shares of any other series are
affected, then such deletion, variation, modification, amendment or
amplification shall, in addition to being approved by the holders of the
Preferred Shares as hereinabove set forth, be approved by the holders of the
Preferred Shares of such series so especially affected, which approval may be
given in writing by the holders of not less than 2/3 of the Preferred Shares of
such series or by resolution passed by not less than 2/3 of the votes cast on a
poll at the meeting of the holders of the Preferred Shares of such series, and
the provisions of this Section 4.3 shall apply, mutatis mutandis, with respect
to the holding of such meeting.
4.4 At any meeting of the holders of Preferred Shares as a class or as a series,
each holder of Preferred Shares shall be entitled to one vote in respect of each
Preferred Share held by such holder.
<PAGE>
Exhibit 3.7
ARTICLES OF ASSOCIATION
OF
360NETWORKS INC.
1. Interpretation
In these Articles, unless there be something in the subject or context
inconsistent therewith:
(1) "Act" means the COMPANIES ACT (Nova Scotia);
(2) "Articles" means these Articles of Association of the Company
and all amendments hereto;
(3) "Company" means the company named above;
(4) "director" means a director of the Company;
(5) "investor designees" means, collectively, those members of the
board nominated by each of the following: DWF SRL, a Barbados
Company; GS Capital Partners III, L.P., a Delaware limited
partnership; Providence Equity Fiber, L.P., a Delaware limited
partnership; and Tyco Group S.A.R.L., a Luxembourg
corporation;
(6) "Memorandum" means the Memorandum of Association of the
Company and all amendments thereto;
(7) "month" means calendar month;
(8) "Office" means the registered office of the Company;
(9) "person" includes a body corporate;
(10) "proxyholder" includes an alternate proxyholder;
(11) "Register" means the register of members kept pursuant to the
Act, and where the context permits includes a branch register
of members;
(12) "Registrar" means the Registrar as defined in the Act;
(13) "resolution of shareholders" means a resolution passed by
those of the shareholders entitled to vote on the matters
dealt with in such resolution.
(14) "Secretary" includes any person appointed to perform the
duties of the Secretary temporarily;
(15) "shareholder" means member as that term is used in the Act in
connection with a company limited by shares;
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(16) "special resolution" has the meaning assigned by the Act;
(17) "in writing" and "written" includes printing, lithography and
other modes of representing or reproducing words in visible
form;
(18) words importing number or gender include all numbers and
genders unless the context otherwise requires;
2. The regulations in Table A in the First Schedule to the Act shall not
apply to the Company.
3. The directors may enter into and carry into effect or adopt and carry
into effect any agreement made by the promoters of the Company on
behalf of the Company and may agree to any modification in the terms of
any such agreement, either before or after its execution.
4. The directors may, out of the funds of the Company, pay all expenses
incurred for the continuance and reorganization of the Company.
SHARES
5. The directors shall control the shares and, subject to the provisions
of these Articles, may allot or otherwise dispose of them to such
person at such times, on such terms and conditions and, if the shares
have a par value, either at a premium or at par, as they think fit.
6. The directors may pay on behalf of the Company a reasonable commission
to any person in consideration of subscribing or agreeing to subscribe
(whether absolutely or conditionally) for any shares in the Company, or
procuring or agreeing to procure subscriptions (whether absolute or
conditional) for any shares in the Company. Subject to the Act, the
commission may be paid or satisfied in shares of the Company.
7. If the whole or part of the allotment price of any shares is, by the
conditions of their allotment, payable in instalments, every such
instalment shall, when due, be payable to the Company by the person who
is at such time the registered holder of the shares.
8. Shares may be registered in the names of joint holders not exceeding
three in number.
9. On the death of one or more joint holders of shares the survivor or
survivors of them and the executors or administrators of the deceased
shareholder or shareholders, shall be the only persons recognized by
the Company as the registered holder or holders of the shares.
10. Save as herein otherwise provided, the Company may treat the registered
holder of any share as the absolute owner thereof and accordingly shall
not, except as ordered by a court of competent jurisdiction or required
by statute, be bound to recognize any equitable or other claim to or
interest in such share on the part of any other person.
CERTIFICATES
11. Certificates of title to shares shall comply with the Act and may
otherwise be in such form as the directors may from time to time
determine. Unless the directors otherwise determine,
<PAGE>
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every certificate of title to shares shall be signed manually by at
least one of the Chair, President, Secretary, Treasurer, a
vice-president, an assistant secretary, any other officer of the
Company or any director of the Company or by or on behalf of a share
registrar transfer agent or branch transfer agent appointed by the
Company or by any other person whom the directors may designate. When
signatures of more than one person appear on a certificate all but one
may be printed or otherwise mechanically reproduced. All such
certificates when signed as provided in this Article shall be valid and
binding upon the Company. If a certificate contains a printed or
mechanically reproduced signature of a person, the Company may issue
the certificate, notwithstanding that the person has ceased to be a
director or an officer of the Company and the certificate is as valid
as if such person were a director or an officer at the date of its
issue. Any certificate representing shares of a class publicly traded
on any stock exchange shall be valid and binding on the Company if it
complies with the rules of such exchange whether or not it otherwise
complies with this Article.
12. Except as the directors may determine, each shareholder's shares may be
evidenced by any number of certificates so long as the aggregate of the
shares stipulated in such certificates equals the aggregate registered
in the name of the shareholder.
13. Where shares are registered in the names of two or more persons, the
Company shall not be bound to issue more than one certificate or set of
certificates, and such certificate or set of certificates shall be
delivered to the person first named on the Register.
14. Any certificate that has become worn, damaged or defaced may, upon its
surrender to the directors, be cancelled and replaced by a new
certificate. Any certificate that has become lost or destroyed may be
replaced by a new certificate upon proof of such loss or destruction to
the satisfaction of the directors and the furnishing to the Company of
such undertakings of indemnity as the directors deem adequate.
15. The sum of one dollar or such other sum as the directors from time to
time determine shall be paid to the Company for every certificate other
than the first certificate issued to any holder in respect of any share
or shares.
16. The directors may cause one or more branch Registers of shareholders to
be kept in any place or places, whether inside or outside of Nova
Scotia.
TRANSFER OF SHARES
17. The instrument of transfer of any share in the Company shall be signed
by the transferor. The transferor shall be deemed to remain the holder
of such share until the name of the transferee is entered in the
Register in respect thereof and shall be entitled to receive any
dividend declared thereon before the registration of the transfer.
18. The instrument of transfer of any share shall be in writing in the
following form or to the following effect or in such other form as the
directors may approve from time to time:
For value received, __________ hereby sell, assign, and
transfer unto ________, shares in the capital of the Company
represented by the within certificate, and do hereby
irrevocably constitute and appoint
<PAGE>
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____________ attorney to transfer such shares on the books of
the Company with full power of substitution in the premises.
Dated the ___ day of _____________, _____
Witness: ________________________________
19. Every instrument of transfer shall be left for registration at the
Office of the Company, or at any office of its transfer agent where a
Register is maintained, together with the certificate of the shares to
be transferred and such other evidence as the Company may require to
prove title to or the right to transfer the shares.
20. The directors may require that a fee determined by them be paid before
or after registration of any transfer.
21. Every instrument of transfer shall, after its registration, remain in
the custody of the Company. Any instrument of transfer that the
directors decline to register shall, except in case of fraud, be
returned to the person who deposited it.
TRANSMISSION OF SHARES
22. The executors or administrators of a deceased shareholder (not being
one of several joint holders) shall be the only persons recognized by
the Company as having any title to the shares registered in the name of
such shareholder. When a share is registered in the names of two or
more joint holders, the survivor or survivors and the executors or
administrators of the deceased shareholder or shareholders, shall be
the only persons recognized by the Company as having any title to, or
interest in, such share.
23. Notwithstanding anything in these Articles, if the Company has only one
shareholder (not being one of several joint holders) and that
shareholder dies, the executors or administrators of the deceased
shareholder shall be entitled to register themselves in the Register as
the holders of the shares registered in the name of the deceased
shareholder whereupon they shall have all the rights given by these
Articles and by law to shareholders.
24. Any person entitled to shares upon the death or bankruptcy of any
shareholder or in any way other than by allotment or transfer, upon
producing such evidence of entitlement as the directors require, may be
registered as a shareholder in respect of such shares, or may, without
being registered, transfer such shares subject to the provisions of
these Articles respecting the transfer of shares. The directors shall
have the same right to refuse registration as if the transferee were
named in an ordinary transfer presented for registration.
SURRENDER OF SHARES
25. The directors may accept the surrender of any share by way of
compromise of any question as to the holder being properly registered
in respect thereof. Any share so surrendered may be disposed of in the
same manner as a forfeited share.
<PAGE>
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SHARE WARRANT
26. The Company, with respect to any fully paid-up shares, may issue
warrants ("Share Warrants") stating that the bearer is entitled to the
shares therein specified, and may provide, by coupons or otherwise, for
the payment of future dividends on the shares included in the Share
Warrants.
27. The directors may determine and vary the conditions upon which Share
Warrants will be issued and, without limiting the generality of the
foregoing, may determine the conditions upon which
(1) a new Share Warrant or coupon will be issued in the place of
one worn out, defaced, lost or destroyed, or
(2) the bearer of a Share Warrant will be entitled to attend and
vote at general meetings, or
(3) a Share Warrant may be surrendered and the name of the bearer
entered in the Register in respect of the shares therein
specified.
Subject to such conditions and to these Articles the bearer of a Share
Warrant shall be a shareholder to the full extent. The bearer of a
Share Warrant shall be subject to the conditions for the time being in
force, whether made before or after the issue of the Share Warrant.
INCREASE AND REDUCTION OF CAPITAL
28. Subject to the Act, the Company may by resolution of its shareholders
increase its share capital by the creation of new shares of such amount
as it thinks expedient.
29. Subject to the Act, the new shares may be issued upon such terms and
conditions and with such rights, privileges, limitations, restrictions
and conditions attached thereto as the Company by resolution of its
shareholders determines or, if no direction is given, as the directors
determine.
30. Except as otherwise provided by the conditions of issue, or by these
Articles, any capital raised by the creation of new shares shall be
considered part of the original capital and shall be subject to the
provisions herein contained with reference to transfer and
transmission, and otherwise.
31. The Company may, by special resolution where required, reduce its share
capital in any way and with and subject to any incident authorized and
consent required by law.
<PAGE>
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ALTERATION OF CAPITAL
32. Subject to the Act, the Company may by resolution of its shareholders:
(1) consolidate and divide all or any of its share capital into
shares of larger amount than its existing shares;
(2) convert all or any of its paid-up shares into stock and
reconvert that stock into paid-up shares of any denomination;
(3) exchange shares of one denomination for another; or
(4) cancel shares which, at the date of the passing of the
resolution in that behalf, have not been taken or agreed to be
taken by any person, and diminish the amount of its share
capital by the amount of the shares so cancelled.
33. Subject to the Act, the Company may by special resolution:
(1) subdivide its shares, or any of them, into shares of smaller
amount than is fixed by the Memorandum, so, however, that in
the subdivision the proportion between the amount paid and the
amount, if any, unpaid on each reduced share shall be the same
as it was in the case of the share from which the reduced
share is derived and the special resolution whereby any share
is subdivided may determine that as between the holders of the
shares resulting from such subdivision, one or more of such
shares shall have some preference or special advantage as
regards dividend, capital, voting or otherwise, over, or as
compared with, the others or other;
(2) convert any part of its issued or unissued share capital into
preference shares redeemable or purchasable by the Company;
(3) provide for the issue of shares without any nominal or par
value provided that, upon any such issue, a declaration
executed by the Secretary must be filed with the Registrar
stating the number of shares issued and the amount received
therefor;
(4) convert all or any of its previously authorized, unissued or
issued, fully paid-up shares, other than preferred shares,
with nominal or par value into the same number of shares
without any nominal or par value, and reduce, maintain or
increase accordingly its liability on any of its shares so
converted; provided that the power to reduce its liability on
any of its shares so converted may, where it results in a
reduction of capital, only be exercised subject to
confirmation by the court as provided by the Act; or
(5) convert all or any of its previously authorized, unissued or
issued, fully paid-up shares without nominal or par value into
the same or a different number of shares with nominal or par
value, and for such purpose the shares issued without nominal
or par value and replaced by shares with a nominal or par
value shall be considered as fully paid, but their aggregate
par value shall not exceed the value of the net assets of the
Company as represented by the shares without par value issued
before the conversion.
<PAGE>
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34. Subject to the Act and any provisions attached to such shares, the
Company may redeem, purchase or acquire any of its shares and the
directors may determine the manner and the terms for redeeming,
purchasing or acquiring such shares and may provide a sinking fund on
such terms as they think fit for the redemption, purchase or
acquisition of shares of any class or series.
INTEREST ON SHARE CAPITAL
35. The Company may pay interest at a rate not exceeding 6% per year on
share capital issued and paid-up for the purpose of raising funds to
defray the expenses of the construction of any works or buildings or
the provision of any plant which cannot be operated profitably for a
lengthy period of time. Such interest may be paid for such period and
may be charged to capital as part of the cost of construction of the
work or building or of the provision of the plant. The payment of the
interest shall not operate to reduce the amount paid-up on the shares
in respect of which it is paid. The accounts of the Company shall show
full particulars of the payment during the period to which the accounts
relate.
CLASSES AND SERIES OF SHARES
36. Subject to the Act and the Memorandum, and without prejudice to any
special rights previously conferred on the holders of existing shares,
any share may be issued with such preferred, deferred or other special
rights, or with such restrictions, whether in regard to dividends,
voting, return of share capital or otherwise, as the Company may from
time to time determine by special resolution.
MEETINGS AND VOTING BY CLASS OR SERIES
37. Where the holders of shares of a class or series have, under the Act,
the Memorandum, the terms or conditions attaching to such shares or
otherwise, the right to vote separately as a class in respect of any
matter then, except as provided in the Act, the Memorandum, these
Articles or such terms or conditions, all the provisions in these
Articles concerning general meetings (including, without limitation,
provisions respecting notice, quorum and procedure) shall, mutatis
mutandis, apply to every meeting of holders of such class or series of
shares convened for the purpose of such vote.
38. Unless the rights, privileges, terms or conditions attached to a class
or series of shares provide otherwise, such class or series of shares
shall not have the right to vote separately as a class or series upon
an amendment to the Memorandum or Articles to:
(1) increase or decrease any maximum number of authorized shares
of such class or series, or increase any maximum number of
authorized shares of a class or series having rights or
privileges equal or superior to the shares of such class or
series;
(2) effect an exchange, reclassification or cancellation of all or
part of the shares of such class or series; or
<PAGE>
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(3) create a new class or series of shares equal or superior to
the shares of such class or series.
BORROWING POWERS
39. The directors on behalf of the Company may:
(1) raise or borrow money for the purposes of the Company or any
of them;
(2) secure, subject to the sanction of a special resolution where
required by the Act, the repayment of funds so raised or
borrowed in such manner and upon such terms and conditions in
all respects as they think fit, and in particular by the
execution and delivery of mortgages of the Company's real or
personal property, or by the issue of bonds, debentures or
other securities of the Company secured by mortgage or other
charge upon all or any part of the property of the Company,
both present and future;
(3) sign or endorse bills, notes, acceptances, cheques, contracts,
and other evidence of or securities for funds borrowed or to
be borrowed for the purposes aforesaid;
(4) pledge debentures as security for loans;
(5) guarantee obligations of any person.
40. Bonds, debentures and other securities may be made assignable, free
from any equities between the Company and the person to whom such
securities were issued.
41. Any bonds, debentures and other securities may be issued at a discount,
premium or otherwise and with special privileges as to redemption,
surrender, drawings, allotment of shares, attending and voting at
general meetings of the Company, appointment of directors and other
matters.
GENERAL MEETINGS
42. Ordinary general meetings of the Company shall be held at least once in
every calendar year at such time and place as may be determined by the
directors and not later than 15 months after the preceding ordinary
general meeting. All other meetings of the Company shall be called
special general meetings. Ordinary or special general meetings may be
held either within or without the Province of Nova Scotia.
43. The Chair, President and Chief Executive Officer, Chief Financial
Officer or the directors may at any time convene a special general
meeting, and the directors, upon the requisition of shareholders in
accordance with the Act shall forthwith proceed to convene such meeting
or meetings to be held at such time and place or times and places as
the directors determine.
44. The requisition shall state the objects of the meeting requested, be
signed by the requisitionists and deposited at the Office of the
Company. It may consist of several documents in like form each signed
by one or more of the requisitionists.
<PAGE>
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45. At least seven clear days' notice, or such longer period of notice as
may be required by the Act, of every general meeting, specifying the
place, day and hour of the meeting and, when special business is to be
considered, the general nature of such business, shall be given to the
shareholders entitled to be present at such meeting by notice given as
permitted by these Articles. With the consent in writing of all the
shareholders entitled to vote at such meeting, a meeting may be
convened by a shorter notice and in any manner they think fit, or
notice of the time, place and purpose of the meeting may be waived by
all of the shareholders.
46. When it is proposed to pass a special resolution, the two meetings may
be convened by the same notice, and it shall be no objection to such
notice that it only convenes the second meeting contingently upon the
resolution being passed by the requisite majority at the first meeting.
47. The accidental omission to give notice to a shareholder, or non-receipt
of notice by a shareholder, shall not invalidate any resolution passed
at any general meeting.
RECORD DATES
48. (1) The directors may fix in advance a date as the record date for the
determination of shareholders
(a) entitled to receive payment of a dividend or entitled to
receive any distribution;
(b) entitled to receive notice of a meeting; or
(c) for any other purpose.
(2) If no record date is fixed, the record date for the
determination of shareholders
(a) entitled to receive notice of a meeting shall be the day
immediately preceding the day on which the notice is given,
or, if no notice is given, the day on which the meeting is
held; and
(b) for any other purpose shall be the day on which the directors
pass the resolution relating to the particular purpose.
PROCEEDINGS AT GENERAL MEETINGS
49. The business of an ordinary general meeting shall be to receive and
consider the financial statements of the Company and the report of the
directors and the report, if any, of the auditors, to elect directors
in the place of those retiring, to appoint the auditors of the Company
for the ensuing fiscal year and to transact any other business which
under these Articles ought to be transacted at an ordinary general
meeting.
50. No business shall be transacted at any general meeting unless the
requisite quorum is present at the commencement of the business. A
corporate shareholder of the Company that has a duly authorized agent
or representative present at any such meeting shall for the purpose of
this Article be deemed to be personally present at such meeting.
<PAGE>
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51. Subject to the Act, if the Company has 2 or more shareholders, a quorum
for the transaction of business at a general meeting shall be 2 persons
present in person, or by proxy and holding or representing by proxy,
not less than five percent (5%) of the shares entitled to vote at the
general meeting.
52. The Chair shall be entitled to take the chair at every general meeting
or, if there be no Chair, or if the Chair is not present within fifteen
15 minutes after the time appointed for holding the meeting, the
President and Chief Executive Officer or, failing the President and the
Chief Executive Officer, a vice-president shall be entitled to take the
chair. If the Chair, the President and Chief Executive Officer or a
vice-president is not present within 15 minutes after the time
appointed for holding the meeting or if all such persons present
decline to take the chair, the shareholders present entitled to vote at
the meeting shall choose another director as chair and if no director
is present or if all the directors present decline to take the chair,
then such shareholders shall choose one of their number to be chair.
53. If within half an hour from the time appointed for a general meeting a
quorum is not present, the meeting, if it was convened pursuant to a
requisition of shareholders, shall be dissolved. If it was convened in
any other way, it shall stand adjourned to the same day, in the next
week, at the same time and place. If at the adjourned meeting a quorum
is not present within half an hour from the time appointed for the
meeting, the shareholders present shall be a quorum and may hold the
meeting.
54. Subject to the Act, at any general meeting a resolution put to the
meeting shall be decided by a show of hands unless, either before or on
the declaration of the result of the show of hands, a poll is demanded
by the chair, a shareholder or a proxyholder; and unless a poll is so
demanded, a declaration by the chair that the resolution has been
carried, carried by a particular majority, lost or not carried by a
particular majority and an entry to that effect in the Company's book
of proceedings shall be conclusive evidence of the fact without proof
of the number or proportion of the votes recorded in favour or against
such resolution.
55. When a poll is demanded, it shall be taken in such manner and at such
time and place as the chair directs, and either at once or after an
interval or adjournment or otherwise. The result of the poll shall be
the resolution of the meeting at which the poll was demanded. The
demand of a poll may be withdrawn. When any dispute occurs over the
admission or rejection of a vote, it shall be resolved by the chair and
such determination made in good faith shall be final and conclusive.
56. The chair shall not have a casting vote in addition to any vote or
votes that the chair has as a shareholder.
57. The chair of a general meeting may with the consent of the meeting
adjourn the meeting from time to time and from place to place, but no
business shall be transacted at any adjourned meeting other than the
business left unfinished at the meeting that was adjourned.
58. Any poll demanded on the election of a chair or on a question of
adjournment shall be taken forthwith without adjournment.
59. The demand of a poll shall not prevent the continuance of a meeting for
the transaction of any business other than the question on which a poll
has been demanded.
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VOTES OF SHAREHOLDERS
60. Subject to the Act and to any provisions attached to any class or
series of shares concerning voting rights
(1) on a show of hands every shareholder present in person, every
duly authorized representative of a corporate shareholder,
and, if not prevented from voting by the Act, every
proxyholder, shall have one vote; and
(2) on a poll every shareholder present in person, every duly
authorized representative of a corporate shareholder, and
every proxyholder, shall have one vote for every share held;
whether or not such representative or proxyholder is a shareholder.
61. Any person entitled to transfer shares upon the death or bankruptcy of
any shareholder or in any way other than by allotment or transfer may
vote at any general meeting in respect thereof in the same manner as if
such person were the registered holder of such shares so long as the
directors are satisfied at least 48 hours before the time of holding
the meeting of such person's right to transfer such shares.
62. Where there are joint registered holders of any share, any of such
holders may vote such share at any meeting, either personally or by
proxy, as if solely entitled to it. If more than one joint holder is
present at any meeting, personally or by proxy, the one whose name
stands first on the Register in respect of such share shall alone be
entitled to vote it. Several executors or administrators of a deceased
shareholder in whose name any share stands shall for the purpose of
this Article be deemed joint holders thereof.
63. Votes may be cast either personally or by proxy or, in the case of a
corporate shareholder by a representative duly authorized under the
Act.
64. A proxy shall be in writing and executed in the manner provided in the
Act. A proxy or other authority of a corporate shareholder does not
require its seal. Holders of Share Warrants shall not be entitled to
vote by proxy in respect of the shares included in such warrants unless
otherwise expressed in such warrants.
65. A shareholder of unsound mind in respect of whom an order has been made
by any court of competent jurisdiction may vote by guardian or other
person in the nature of a guardian appointed by that court, and any
such guardian or other person may vote by proxy.
66. A proxy and the power of attorney or other authority, if any, under
which it is signed or a notarially certified copy of that power or
authority shall be deposited at the Office of the Company or with an
agent of the Company. The directors may, by resolution, fix a time not
exceeding 72 hours excluding Saturdays and holidays preceding any
meeting or adjourned meeting before which time proxies to be used at
that meeting must be deposited with the Company at its Office or with
an agent of the Company. Notice of the requirement for depositing
proxies shall be given in the notice calling the meeting. The chair of
the meeting shall determine all questions as to validity of proxies and
other instruments of authority.
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67. A vote given in accordance with the terms of a proxy shall be valid
notwithstanding the previous death of the principal, the revocation of
the proxy, or the transfer of the share in respect of which the vote is
given, provided no intimation in writing of the death, revocation or
transfer is received at the Office of the Company before the meeting or
by the chair of the meeting before the vote is given.
68. Every form of proxy shall comply with the Act and its regulations and
subject thereto may be in the following form:
I, __________ of __________ being a shareholder of _________
hereby appoint ___________ of _________ (or failing him/her
_________ of __________) as my proxyholder to attend and to
vote for me and on my behalf at the ordinary/special general
meeting of the Company, to be held on the __ day _________
____ of and at any adjournment thereof, or at any meeting of
the Company which may be held prior to [insert specified date
or event].
[If the proxy is solicited by or behalf of the management of
the Company, insert a statement to that effect.]
Dated this _________ day of _________ ____.
Shareholder
69. Any resolution passed by the directors, notice of which has been given
to the shareholders in the manner in which notices are hereinafter
directed to be given and which is, within one month after it has been
passed, ratified and confirmed in writing by shareholders entitled on a
poll to three-fifths of the votes, shall be as valid and effectual as a
resolution of a general meeting. This Article shall not apply to a
resolution for winding up the Company or to a resolution dealing with
any matter that by statute or these Articles ought to be dealt with by
a special resolution or other method prescribed by statute.
70. A resolution, including a special resolution, in writing and signed by
every shareholder who would be entitled to vote on the resolution at a
meeting is as valid as if it were passed by such shareholders at a
meeting and satisfies all of the requirements of the Act respecting
meetings of shareholders.
DIRECTORS
71. Unless otherwise determined by resolution of shareholders, the number
of directors shall not be less than one or more than seventeen.
72. Notwithstanding anything herein contained the directors of the Company
on the date of its continuance shall continue to be the directors of
the Company until their successors are appointed or they otherwise
cease to be directors in accordance with these Articles.
73. Subject to applicable law, the directors may be paid out of the funds
or the capital of the Company as remuneration for their service such
sums, shares or options, if any, as the
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directors may determine, and such remuneration shall be divided among
them in such proportions and manner as the directors determine. The
directors may also be paid their reasonable travelling, hotel and other
expenses incurred in attending meetings of directors and otherwise in
the execution of their duties as directors.
74. The continuing directors may act notwithstanding any vacancy in their
body, but if their number falls below the minimum permitted, the
directors shall not, except in emergencies or for the purpose of
filling vacancies, act so long as their number is below the minimum.
75 A director may, in conjunction with the office of director, and on
such terms as to remuneration and otherwise as the directors arrange or
determine, hold any other office or place of profit under the Company
or under any company in which the Company is a shareholder or is
otherwise interested.
76. The office of a director shall ipso facto be vacated, if the director:
(1) becomes bankrupt or makes an assignment for the benefit of
creditors;
(2) is, or is found by a court of competent jurisdiction to be, of
unsound mind;
(3) by notice in writing to the Secretary at the Company's Office,
resigns the office of director; or
(4) is removed in the manner provided by these Articles.
77. It shall be the duty of a director who is in any way, whether directly
or indirectly, interested in a contract or proposed contract with the
Company to declare the nature of such interest at a meeting of the
directors of the Company. In the case of a proposed contract the
declaration required to be made shall be made at a meeting of the
directors at which the question of entering into the contract is first
taken into consideration, or if the director was not at the date of
that meeting interested in the proposed contract, at the next meeting
of the directors held after the director became so interested, and in a
case where the director becomes interested in a contract after it is
made, the declaration shall be made at the first meeting of the
directors held after the director becomes so interested. A general
notice given to the directors of the Company by a director to the
effect that such director is a member of a specified company or firm
and is to be regarded as interested in any contract which may, after
the date of the notice, be made with that company or firm shall be
deemed to be a sufficient declaration of interest in relation to any
contract so made.
ELECTION OF DIRECTORS
78. At the dissolution of every ordinary general meeting at which their
successors are elected, all the directors shall retire from office and
be succeeded by the directors elected at such meeting. Retiring
directors shall be eligible for re-election.
79. If at any ordinary general meeting at which an election of directors
ought to take place no such election takes place, or if no ordinary
general meeting is held in any year or period of years, the retiring
directors shall continue in office until their successors are elected.
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80. The Company may by resolution of its shareholders elect any number of
directors permitted by these Articles and may determine or alter their
qualification.
81. The Company may, by special resolution or in any other manner permitted
by statute, remove any director before the expiration of such
director's period of office and may, if desired, appoint a replacement
to hold office during such time only as the director so removed would
have held office.
82. The directors may appoint any other person as a director so long as the
total number of directors does not at any time exceed the maximum
number permitted. No such appointment, except to fill a casual vacancy,
shall be effective unless two-thirds of the directors concur in it. Any
casual vacancy occurring among the directors may be filled by the
directors, but any person so chosen shall retain office only so long as
the vacating director would have retained it if the vacating director
had continued as director.
CHAIR OF THE BOARD
83. The directors may elect one of their number to be chair and may
determine the period during which the chair is to hold office. The
chair shall perform such duties and receive such special remuneration
as the directors may provide.
PRESIDENT AND CHIEF EXECUTIVE OFFICER AND VICE-PRESIDENTS
84. The directors shall appoint the President and Chief Executive Officer
of the Company, who need not be a director, and may determine the
period for which the President and Chief Executive Officer is to hold
office. The President and Chief Executive Officer shall have general
supervision of the business of the Company and shall perform such
duties as may be assigned from time to time by the directors.
85. The directors may also appoint vice-presidents, who need not be
directors, and may determine the periods for which they are to hold
office. A vice-president shall, at the request of the President and
Chief Executive Officer or the directors and subject to the directions
of the directors, perform the duties of the President and Chief
Executive Officer during the absence, illness or incapacity of the
President and Chief Executive Officer, and shall also perform such
duties as may be assigned by the President and Chief Executive Officer
or the directors.
SECRETARY AND TREASURER
86. The directors shall appoint a Secretary of the Company to keep minutes
of shareholders' and directors' meetings and perform such other duties
as may be assigned by the directors. The directors may also appoint a
temporary substitute for the Secretary who shall, for the purposes of
these Articles, be deemed to be the Secretary.
87. The directors may appoint a treasurer of the Company to carry out such
duties as the directors may assign.
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OFFICERS
88. The directors may elect or appoint such other officers of the Company,
having such powers and duties, as they think fit.
89. If the directors so decide the same person may hold more than one of
the offices provided for in these Articles.
90. Notwithstanding anything herein contained the officers of the Company
on the date of its continuance shall continue to hold office until
their successors are appointed or they otherwise cease to hold office
in accordance with these Articles.
PROCEEDINGS OF DIRECTORS
91. The directors may meet together for the dispatch of business, adjourn
and otherwise regulate their meetings and proceedings, as they think
fit. Until otherwise determined, a quorum for meetings of the board
shall be:
(1) in the case of notice of at least 48 hours before the time
fixed for a meeting, a majority of the directors then in
office; and
(2) in the case of notice of least 24 hours (but less than 48
hours) before the time fixed for a meeting, the number of
directors then in office, less three (3).
92. 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 adjourned
meeting, the directors present at such meeting shall constitute a
quorum; provided however, that unless a full quorum is present as
provided in section 91, the directors present at such meeting may not
transact any business except as specifically set forth in the notice of
meeting.
93. A director may participate in a meeting of directors or of a committee
of directors by means of such telephone or other communications
facilities as permit all persons participating in the meeting to hear
each other, and a director participating in such a meeting by such
means is deemed to be present at that meeting for purposes of these
Articles.
94. Meetings of directors may be held either within or without the Province
of Nova Scotia and the directors may from time to time make
arrangements relating to the time and place of holding directors'
meetings, the notices to be given for such meetings and what meetings
may be held without notice. Unless otherwise provided by such
arrangements:
(1) A meeting of directors may be held at the close of every
ordinary general meeting of the Company without notice.
(2) Notice of every other directors' meeting may be given as
permitted by these Articles to each director at least 24 hours
before the time fixed for the meeting.
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(3) A meeting of directors may be held without formal notice if
all the directors are present or if those absent have
signified their assent to such meeting or their consent to the
business transacted at such meeting.
95. The President and Chief Executive Officer or any director may at any
time, and the Secretary, upon the request of the President and Chief
Executive Officer or any director, shall summon a meeting of the
directors to be held at the Office of the Company. The President and
Chief Executive Officer, the Chair or a majority of the directors may
at any time, and the Secretary, upon the request of the President and
Chief Executive Officer, the Chair or a majority of the directors,
shall summon a meeting to be held elsewhere.
96. (1) Questions arising at any meeting of directors shall be decided
by a majority of votes. The chair of the meeting may vote as a
director but shall not have a second or casting vote.
(2) At any meeting of directors the chair shall receive and count
the vote of any director not present in person at such meeting
on any question or matter arising at such meeting whenever
such absent director has indicated by telegram, letter or
other writing lodged with the chair of such meeting the manner
in which the absent director desires to vote on such question
or matter and such question or matter has been specifically
mentioned in the notice calling the meeting as a question or
matter to be discussed or decided thereat.
97. If no Chair is elected, or if at any meeting of directors the Chair is
not present within five minutes after the time appointed for holding
the meeting, or declines to take the chair, the President and Chief
Executive Officer, if a director, shall preside. If the President and
Chief Executive Officer is not a director, is not present at such time
or declines to take the chair, a vice-president who is also a director
shall preside. If no person described above is present at such time and
willing to take the chair, the directors present shall choose some one
of their number to be chair of the meeting.
98. A meeting of the directors at which a quorum is present shall be
competent to exercise all or any of the authorities, powers and
discretions for the time being vested in or exercisable by the
directors generally.
99. The directors may delegate any of their powers to committees consisting
of such number of directors as they think fit. Any committee so formed
shall in the exercise of the powers so delegated conform to any
regulations that may be imposed on them by the directors.
100. The meetings and proceedings of any committee of directors shall be
governed by the provisions contained in these Articles for regulating
the meetings and proceedings of the directors insofar as they are
applicable and are not superseded by any regulations made by the
directors.
101. All acts done at any meeting of the directors or of a committee of
directors or by any person acting as a director shall, notwithstanding
that it is afterwards discovered that there was some defect in the
appointment of the director or person so acting, or that they or any of
them were disqualified, be as valid as if every such person had been
duly appointed and was qualified to be a director.
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102. A resolution in writing and signed by every director who would be
entitled to vote on the resolution at a meeting is as valid as if it
were passed by such directors at a meeting.
103. If any one or more of the directors is called upon to perform extra
services or to make any special exertions in going or residing abroad
or otherwise for any of the purposes of the Company or the business
thereof, the Company may remunerate the director or directors so doing,
either by a fixed sum or by a percentage of profits or otherwise. Such
remuneration shall be determined by the directors and may be either in
addition to or in substitution for remuneration otherwise authorized by
these Articles.
REGISTERS
104. The directors shall cause to be kept at the Company's Office in
accordance with the provisions of the Act a Register of the
shareholders of the Company, a register of the holders of bonds,
debentures and other securities of the Company and a register of its
directors. Branch registers of the shareholders and of the holders of
bonds, debentures and other securities may be kept elsewhere, either
within or without the Province of Nova Scotia, in accordance with the
Act.
MINUTES
105. The directors shall cause minutes to be entered in books designated for
the purpose:
(1) of all appointments of officers;
(2) of the names of directors present at each meeting of directors
and of any committees of directors; and
(3) of all resolutions and proceedings of meetings of shareholders
and of directors.
Any such minutes of any meeting of directors or of any committee of
directors or of shareholders, if purporting to be signed by the chair
of such meeting or by the chair of the next succeeding meeting, shall
be receivable as prima facie evidence of the matters stated in such
minutes.
POWERS OF DIRECTORS
106. The management of the business of the Company is vested in the
directors who, in addition to the powers and authorities by these
Articles or otherwise expressly conferred upon them, may exercise all
such powers and do all such acts and things as may be exercised or done
by the Company and are not hereby or by statute expressly directed or
required to be exercised or done by the shareholders, but subject
nevertheless to the provisions of any statute, the Memorandum or these
Articles. No modification of the Memorandum or these Articles shall
invalidate any prior act of the directors that would have been valid if
such modification had not been made.
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107. Without restricting the generality of the terms of any of these
Articles and without prejudice to the powers conferred thereby, the
directors may:
(1) take such steps as they think fit to carry out any agreement
or contract made by or on behalf of the Company;
(2) pay costs, charges and expenses preliminary and incidental to
the promotion, formation, establishment, and registration of
the Company;
(3) purchase or otherwise acquire for the Company any property,
rights or privileges that the Company is authorized to
acquire, at such price and generally on such terms and
conditions as they think fit;
(4) pay for any property, rights or privileges acquired by, or
services rendered to the Company either wholly or partially in
cash or in shares (fully paid-up or otherwise), bonds,
debentures or other securities of the Company;
(5) subject to the Act, secure the fulfilment of any contracts or
engagements entered into by the Company by mortgaging or
charging all or any of the property of the Company and its
unpaid capital for the time being, or in such other manner as
they think fit;
(6) appoint, remove or suspend at their discretion such experts,
managers, secretaries, treasurers, officers, clerks, agents
and servants for permanent, temporary or special services, as
they from time to time think fit, and determine their powers
and duties and fix their salaries or emoluments and require
security in such instances and to such amounts as they think
fit;
(7) accept a surrender of shares from any shareholder insofar as
the law permits and on such terms and conditions as may be
agreed;
(8) appoint any person or persons to accept and hold in trust for
the Company any property belonging to the Company, or in which
it is interested, execute and do all such deeds and things as
may be required in relation to such trust, and provide for the
remuneration of such trustee or trustees;
(9) institute, conduct, defend, compound or abandon any legal
proceedings by and against the Company, its directors or its
officers or otherwise concerning the affairs of the Company,
and also compound and allow time for payment or satisfaction
of any debts due and of any claims or demands by or against
the Company;
(10) refer any claims or demands by or against the Company to
arbitration and observe and perform the awards;
(11) make and give receipts, releases and other discharges for
amounts payable to the Company and for claims and demands of
the Company;
(12) determine who may exercise the borrowing powers of the Company
and sign on the Company's behalf bonds, debentures or other
securities, bills, notes, receipts,
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acceptances, assignments, transfers, hypothecations, pledges,
endorsements, cheques, drafts, releases, contracts, agreements
and all other instruments and documents;
(13) provide for the management of the affairs of the Company
abroad in such manner as they think fit, and in particular
appoint any person to be the attorney or agent of the Company
with such powers (including power to sub-delegate) and upon
such terms as may be thought fit;
(14) invest and deal with any funds of the Company in such
securities and in such manner as they think fit; and vary or
realize such investments;
(15) subject to the Act, execute in the name and on behalf of the
Company in favour of any director or other person who may
incur or be about to incur any personal liability for the
benefit of the Company such mortgages of the Company's
property, present and future, as they think fit;
(16) give any officer or employee of the Company a commission on
the profits of any particular business or transaction or a
share in the general profits of the Company;
(17) set aside out of the profits of the Company before declaring
any dividend such amounts as they think proper as a reserve
fund to meet contingencies or provide for dividends,
depreciation, repairing, improving and maintaining any of the
property of the Company and such other purposes as the
directors may in their absolute discretion think in the
interests of the Company; and invest such amounts in such
investments as they think fit, and deal with and vary such
investments, and dispose of all or any part of them for the
benefit of the Company, and divide the reserve fund into such
special funds as they think fit, with full power to employ the
assets constituting the reserve fund in the business of the
Company without being bound to keep them separate from the
other assets;
(18) make, vary and repeal rules respecting the business of the
Company, its officers and employees, the shareholders of the
Company or any section or class of them;
(19) enter into all such negotiations and contracts, rescind and
vary all such contracts, and execute and do all such acts,
deeds and things in the name and on behalf of the Company as
they consider expedient for or in relation to any of the
matters aforesaid or otherwise for the purposes of the
Company;
(20) provide for the management of the affairs of the Company in
such manner as they think fit.
SOLICITORS
108. The Company may employ or retain solicitors any of whom may, at the
request or on the instruction of the directors, the Chair, the
President or a managing director, attend meetings of the directors or
shareholders, whether or not the solicitor is a shareholder or a
director of the Company. A solicitor who is also a director may
nevertheless charge for services rendered to the Company as a
solicitor.
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THE SEAL
109. The directors shall arrange for the safe custody of the common seal of
the Company (the "Seal"). The Seal may be affixed to any instrument in
the presence of and contemporaneously with the attesting signature of
(i) any director or officer acting within such person's authority or
(ii) any person under the authority of a resolution of the directors or
a committee thereof. For the purpose of certifying documents or
proceedings the Seal may be affixed by any director or the President, a
vice-president, the Secretary, an assistant secretary or any other
officer of the Company without the authorization of a resolution of the
directors.
110. The Company may have facsimiles of the Seal which may be used
interchangeably with the Seal.
DIVIDENDS
111. The directors may from time to time declare such dividend as they deem
proper upon shares of the Company according to the rights and
restrictions attached to any class or series of shares, and may
determine the date upon which such dividend will be payable and that it
will be payable to the persons registered as the holders of the shares
on which it is declared at the close of business upon a record date. No
transfer of such shares registered after the record date shall pass any
right to the dividend so declared.
112. No dividends shall be payable except out of the profits, retained
earnings or contributed surplus of the Company and no interest shall be
payable on any dividend except insofar as the rights attached to any
class or series of shares provide otherwise.
113. The declaration of the directors as to the amount of the profits,
retained earnings or contributed surplus of the Company shall be
conclusive.
114. The directors may from time to time pay to the shareholders such
interim dividends as in their judgment the position of the Company
justifies.
115. Subject to the Memorandum, these Articles and the rights and
restrictions attached to any class or series of shares, dividends may
be declared and paid to the shareholders in proportion to the amount of
capital paid-up on the shares (not including any capital paid-up
bearing interest) held by them respectively.
116. The directors may deduct from the dividends payable to any shareholder
amounts due and payable by the shareholder to the Company and may apply
the same in or towards satisfaction of such amounts so due and payable.
117. The directors may retain the dividends payable upon shares to which a
person is entitled or entitled to transfer upon the death or bankruptcy
of a shareholder or in any way other than by allotment or transfer,
until such person has become registered as the holder of such shares or
has duly transferred such shares.
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118. The directors may declare that a dividend be paid by the distribution
of cash, paid-up shares (at par or at a premium), debentures, bonds or
other securities of the Company or of any other company or any other
specific assets held or to be acquired by the Company or in any one or
more of such ways.
119. The directors may settle any difficulty that may arise in regard to the
distribution of a dividend as they think expedient, and in particular
without restricting the generality of the foregoing may issue
fractional certificates, may fix the value for distribution of any
specific assets, may determine that cash payments will be made to any
shareholders upon the footing of the value so fixed or that fractions
may be disregarded in order to adjust the rights of all parties, and
may vest cash or specific assets in trustees upon such trusts for the
persons entitled to the dividend as may seem expedient to the
directors.
120. Any person registered as a joint holder of any share may give effectual
receipts for all dividends and payments on account of dividends in
respect of such share.
121. Unless otherwise determined by the directors, any dividend may be paid
by a cheque or warrant delivered to or sent through the post to the
registered address of the shareholder entitled, or, when there are
joint holders, to the registered address of that one whose name stands
first on the register for the shares jointly held. Every cheque or
warrant so delivered or sent shall be made payable to the order of the
person to whom it is delivered or sent. The mailing or other
transmission to a shareholder at the shareholder's registered address
(or, in the case of joint shareholders at the address of the holder
whose name stands first on the register) of a cheque payable to the
order of the person to whom it is addressed for the amount of any
dividend payable in cash after the deduction of any tax which the
Company has properly withheld, shall discharge the Company's liability
for the dividend unless the cheque is not paid on due presentation. If
any cheque for a dividend payable in cash is not received, the Company
shall issue to the shareholder a replacement cheque for the same amount
on such terms as to indemnity and evidence of non-receipt as the
directors may impose. No shareholder may recover by action or other
legal process against the Company any dividend represented by a cheque
that has not been duly presented to a banker of the Company for payment
or that otherwise remains unclaimed for 6 years from the date on which
it was payable.
ACCOUNTS
122. The directors shall cause proper books of account to be kept of the
amounts received and expended by the Company, the matters in respect of
which such receipts and expenditures take place, all sales and
purchases of goods by the Company, and the assets, credits and
liabilities of the Company.
123. The books of account shall be kept at the head office of the Company or
at such other place or places as the directors may direct.
124. The directors shall from time to time determine whether and to what
extent and at what times and places and under what conditions the
accounts and books of the Company or any of them shall be open to
inspection of the shareholders, and no shareholder shall have any
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right to inspect any account or book or document of the Company except
as conferred by statute or authorized by the directors or a resolution
of the shareholders.
125. At the ordinary general meeting in every year the directors shall lay
before the Company such financial statements and reports in connection
therewith as may be required by the Act or other applicable statute or
regulation thereunder and shall distribute copies thereof at such times
and to such persons as may be required by statute or regulation.
AUDITORS AND AUDIT
126. Except in respect of a financial year for which the Company is exempt
from audit requirements in the Act, the Company shall at each ordinary
general meeting appoint an auditor or auditors to hold office until the
next ordinary general meeting. If at any general meeting at which the
appointment of an auditor or auditors is to take place and no such
appointment takes place, or if no ordinary general meeting is held in
any year or period of years, the directors shall appoint an auditor or
auditors to hold office until the next ordinary general meeting.
127. The first auditors of the Company may be appointed by the directors at
any time before the first ordinary general meeting and the auditors so
appointed shall hold office until such meeting unless previously
removed by a resolution of the shareholders, in which event the
shareholders may appoint auditors.
128. The directors may fill any casual vacancy in the office of the auditor
but while any such vacancy continues the surviving or continuing
auditor or auditors, if any, may act.
129. The Company may appoint as auditor any person, including a shareholder,
not disqualified by statute.
130. An auditor may be removed or replaced in the circumstances and in the
manner specified in the Act.
131. The remuneration of the auditors shall be fixed by the shareholders, or
by the directors pursuant to authorization given by the shareholders,
except that the remuneration of an auditor appointed to fill a casual
vacancy may be fixed by the directors.
132. The auditors shall conduct such audit as may be required by the Act and
their report, if any, shall be dealt with by the Company as required by
the Act.
NOTICES
133. A notice (including any communication or document) shall be
sufficiently given, delivered or served by the Company upon a
shareholder, director, officer or auditor by personal delivery at such
person's registered address (or, in the case of a director, officer or
auditor, last known address) or by prepaid mail, telegraph, telex,
facsimile machine or other electronic means of communication addressed
to such person at such address.
134. Shareholders having no registered address shall not be entitled to
receive notice.
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135. The holder of a share warrant shall not, unless otherwise expressed
therein, be entitled in respect thereof to notice of any general
meeting of the Company.
136. All notices with respect to registered shares to which persons are
jointly entitled may be sufficiently given to all joint holders thereof
by notice given to whichever of such persons is named first in the
Register for such shares.
137. Any notice sent by mail shall be deemed to be given, delivered or
served on the earlier of actual receipt and the third business day
following that upon which it is mailed, and in proving such service it
shall be sufficient to prove that the notice was properly addressed and
mailed with the postage prepaid thereon. Any notice given by electronic
means of communication shall be deemed to be given when entered into
the appropriate transmitting device for transmission. A certificate in
writing signed on behalf of the Company that the notice was so
addressed and mailed or transmitted shall be conclusive evidence
thereof.
138. Every person who by operation of law, transfer or other means
whatsoever becomes entitled to any share shall be bound by every notice
in respect of such share that prior to such person's name and address
being entered on the Register was duly served in the manner
hereinbefore provided upon the person from whom such person derived
title to such share.
139. Any notice delivered, sent or transmitted to the registered address of
any shareholder pursuant to these Articles, shall, notwithstanding that
such shareholder is then deceased and that the Company has notice
thereof, be deemed to have been served in respect of any registered
shares, whether held by such deceased shareholder solely or jointly
with other persons, until some other person is registered as the holder
or joint holder thereof, and such service shall for all purposes of
these Articles be deemed a sufficient service of such notice on the
heirs, executors or administrators of the deceased shareholder and all
joint holders of such shares.
140. Any notice may bear the name or signature, manual or reproduced, of the
person giving the notice written or printed.
141. When a given number of days' notice or notice extending over any other
period is required to be given, the day of service and the day upon
which such notice expires shall not, unless it is otherwise provided,
be counted in such number of days or other period.
INDEMNITY
142. Every director or officer, former director or officer, or person who
acts or acted at the Company's request, as a director or officer of the
Company, a body corporate, partnership or other association of which
the Company is or was a shareholder, partner, member or creditor, and
the heirs and legal representatives of such person, in the absence of
any dishonesty on the part of such person, shall be indemnified by the
Company against, and it shall be the duty of the directors out of the
funds of the Company to pay, all costs, losses and expenses, including
an amount paid to settle an action or claim or satisfy a judgment, that
such director, officer or person may incur or become liable to pay in
respect of any claim made against such person or civil, criminal or
administrative action or proceeding to which such person is made a
party by reason of being or having been a director or officer of the
Company or such body corporate, partnership or other association,
whether the Company is
<PAGE>
-24-
a claimant or party to such action or proceeding or otherwise; and the
amount for which such indemnity is proved shall immediately attach as a
lien on the property of the Company and have priority as against the
shareholders over all other claims.
143. No director or officer, former director or officer, or person who acts
or acted at the Company's request, as a director or officer of the
Company, a body corporate, partnership or other association of which
the Company is or was a shareholder, partner, member or creditor, in
the absence of any dishonesty on such person's part, shall be liable
for the acts, receipts, neglects or defaults of any other director,
officer or such person, or for joining in any receipt or other act for
conformity, or for any loss, damage or expense happening to the Company
through the insufficiency or deficiency of title to any property
acquired for or on behalf of the Company, or through the insufficiency
or deficiency of any security in or upon which any of the funds of the
Company are invested, or for any loss or damage arising from the
bankruptcy, insolvency or tortious acts of any person with whom any
funds, securities or effects are deposited, or for any loss occasioned
by error of judgment or oversight on the part of such person, or for
any other loss, damage or misfortune whatsoever which happens in the
execution of the duties of such person or in relation thereto.
REMINDERS
144. The directors shall comply with the following provisions of the Act or
the CORPORATIONS REGISTRATION ACT (Nova Scotia) where indicated:
(1) Keep a current register of shareholders (Section 42).
(2) Keep a current register of directors, officers and managers,
send to the Registrar a copy thereof and notice of all changes
therein (Section 98).
(3) Keep a current register of holders of bonds, debentures and
other securities (Section 111 and Third Schedule).
(4) Send notice to the Registrar of any redemption or purchase of
preference shares (Section 50).
(5) Send notice to the Registrar of any consolidation, division,
conversion or reconversion of the share capital or stock of
the Company (Section 53).
(6) Send notice to the Registrar of any increase of c apital
(Section 55).
(7) Call a general meeting every year within the proper time
(Section 83). Meetings must be held not later than 15 months
after the preceding general meeting.
(8) Send to the Registrar copies of all special resolutions
(Section 88).
(9) Send to the Registrar notice of the address of the Company's
registered Office and of all changes in such address (Section
79).
<PAGE>
-25-
(10) Keep proper minutes of all shareholders' meetings and
directors' meetings in the Company's minute book kept at the
Company's registered Office (Sections 89 and 90).
(11) Obtain a certificate under the CORPORATIONS REGISTRATION ACT
(Nova Scotia) as soon as business is commenced.
(12) Send notice of recognized agent to the Registrar under the
CORPORATIONS REGISTRATION ACT (Nova Scotia). (1)
<PAGE>
Exhibit 5.1
[LETTERHEAD OF STEWART, MCKELVEY, STIRLING & SCALES]
File Reference: NS1030-183
April 18, 2000
360NETWORKS INC.
1510 - 1066 West Hastings Street
Vancouver, B.C. V6E 3X1
Dear Sirs/Mesdames:
RE: 360NETWORKS INC. - FORM F-1 REGISTRATION STATEMENT
We are Nova Scotia counsel for 360networks inc. (the "COMPANY"). In this regard,
we have been requested to provide an opinion in connection with the issue of the
Company's Subordinate Voting Shares (the "SHARES") pursuant to a Form F-1
Registration Statement (the "REGISTRATION STATEMENT"), filed with the United
States Securities and Exchange Commission.
For the purposes of our opinion, we have examined the following:
(a) an executed copy of the Registration Statement;
(b) the Memorandum and Articles of the Company as attached to a resolution
of the shareholders of the Company filed today with the Registrar of
Joint Stock Companies for the Province of Nova Scotia (the
"REGISTRAR");
(c) certificate of continuance of the Company issued by the Registrar dated
April 18, 2000;
(d) certified copy of resolutions of the directors of the Company providing
for, among other things, the allotment and issue of the Shares subject
to the actions of a Pricing Committee established thereby (the
"DIRECTORS' RESOLUTIONS").
For the purposes of this opinion, we have also examined originals, facsimiles or
copies certified or otherwise identified to our satisfaction, of documents 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
<PAGE>
360 networks inc.
April 18, 2000
Page 2
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.
For the purposes of this opinion we have also assumed that :
(a) the Memorandum and Articles of the Company in the form that we have
reviewed are genuine and complete and will continue to be the
Memorandum and Articles of the Company on the date of the issuance
subject only to the amendments referred to in paragraph (b) below;
(b) special resolutions effectively in the form reviewed by us amending the
Memorandum and Articles of the Company of the Company to, INTER ALIA,
create the Shares, will have been enacted by the shareholders of the
Company (including the passing of all class votes required) prior to
the issuance of the Shares and certified copies thereof will have been
filed with the Registrar; and
(c) the Pricing Committee takes all necessary action contemplated by, and
in accordance with, the Directors' Resolutions.
We are qualified to express opinions only with respect to the laws of the
Province of Nova Scotia and the laws of Canada applicable therein.
We are of the opinion that:
1. The Company is a corporation validly continued and existing under the
laws of Nova Scotia 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 Shares, when allotted, issued and paid for pursuant to and in
accordance with the transactions contemplated by the Registration
Statement, will be issued and outstanding as fully paid and
non-assessable shares in the capital of the Company, and such issuance
has been duly authorized by the necessary corporate action on the part
of the Company.
3. The Company has the corporate power and capacity to execute and deliver
the certificates representing the Shares.
Consent is hereby given to the use of our name under the captions "Legal
Matters" 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.
Yours truly,
STEWART, MCKELVEY, STIRLING & SCALES
<PAGE>
Exhibit 10.35
URBANLINK REORGANIZATION
DEFINITIVE AGREEMENT
THIS AGREEMENT Dated For Reference the _____ day of April, 2000
BETWEEN:
360NETWORKS INC.
("360")
AND:
WORLDWIDE FIBER HOLDINGS LTD.
("WFHL")
AND:
WFI URBANLINK LTD.
("Urbanlink")
AND:
WHEREAS:
A. 360 and WFHL desire to effect a reorganization, as described in this
Agreement, by which certain of the Canadian assets of 360 and its Subsidiaries
will be transferred to Urbanlink, and by which the shareholdings of Urbanlink
will be reorganized.
B. 360, WFHL and Urbanlink have entered into this Agreement to record their
respective rights and obligations with respect to the reorganization, and
certain incidental rights and obligations.
IN CONSIDERATION of the mutual agreements in this Agreement and subject to the
terms and conditions specified in this Agreement, the parties agree as follows:
ARTICLE 1
DEFINITIONS
1.1 DEFINITIONS
In this Agreement, including the recitals and the schedules, the following words
and expressions have the following meanings unless the context otherwise
requires:
"360-Holdco" means 360 Urbanlink Ltd., an Alberta corporation.
<PAGE>
"Affiliate" of any Person means any other Person that, directly or indirectly,
controls or is controlled by or is under common control with such Person, and
for the purposes of this definition "control" (including correlative meanings of
the terms "controlled by" and "under common control with") means the power to
direct or cause the direction of the management and policies of any Person,
whether through the ownership of shares or by contract or otherwise.
"Assumed Contracts" means those agreements that are assigned to, and assumed by,
Urbanlink as part of the Urbanlink Reorganization.
"Carrier Holdco" means Urbanlink Holdings Ltd., an Alberta corporation.
"Closing Date" means such date as 360 and WFHL may select, acting reasonably,
prior the closing of 360's initial public offering, or such other date as may be
agreed between 360 and WFHL.
"FOTS3" means Worldwide Fiber (F.O.T.S.) No. 3, Ltd., an Alberta corporation.
"Municipal Access Agreements" means Municipal Access Agreements entered into by
Urbanlink, or assigned to Urbanlink, prior to the effective date of the
Urbanlink Reorganization.
"NOC" means 360's Network Operating Center located on the 14th Floor, 1066 West
Hastings Street, Vancouver, British Columbia.
"Person" means an individual, partnership, corporation (including a business
trust), joint stock company, trust, unincorporated association, joint venture or
other entity or a foreign state or political subdivision thereof or any agency
of such state or subdivision.
"Services" means Worldwide Fiber Network Services Ltd., an Alberta corporation.
"Subsidiary" shall have the meaning provided in the BUSINESS CORPORATIONS ACT
(CANADA).
"TransferCos" shall have the meaning provided in Schedule 1.
"Transaction Documents" means this Agreement and all such other documents as may
be executed and delivered pursuant to this Agreement or pursuant to any other
Transaction Documents or that are incidental to the Urbanlink Reorganisation.
"Underlying Rights" shall have the meaning provided in Schedule 2.
"Urbanlink Assets" means the assets described in Schedule 2.
"Urbanlink Reorganization" means the reorganization described in Schedule 1.
"Urbanlink" means WFI Urbanlink Ltd., an Alberta corporation.
"WFNL" means Worldwide Fiber Networks Ltd., an Alberta corporation.
-2-
<PAGE>
1.2 SCHEDULES
The following schedules are attached to and form part of this Agreement:
Schedule Title
-------- -----
1 Urbanlink Reorganization
2 Urbanlink Assets
3 Sublease
ARTICLE 2
URBANLINK REORGANIZATION
2.1 URBANLINK REORGANIZATION
360 and WFHL shall effect the Urbanlink Reorganization, as described in
Schedule 1.
ARTICLE 3
INCIDENTAL OBLIGATIONS
3.1 POST CLOSING OBLIGATIONS
Without limiting the generality of Section 4.9, to the extent that Schedule 1 or
Schedule 2 contemplates the execution on the Closing Date of co-location
agreements, subleases, sublicences and other agreements incidental to the
Urbanlink Reorganization, and to the extent that consents from third parties are
required for any of the transfers, assignments, sublicences or other
transactions contemplated in Schedule 1 or Schedule 2, then to the extent that
any of the foregoing have not been entered into or obtained prior to the Closing
Date, 360 and WFHL shall use all reasonable commercial efforts, and 360 and WFHL
shall cause Urbanlink to use all reasonable commercial efforts, to enter into
the same or to obtain the same as soon as may be practicable after the Closing
Date.
3.2 SWAPS
Urbanlink and 360 acknowledge and agree that it may be necessary or desirable,
from time to time, for 360 (or the Subsidiaries of 360) and Urbanlink to swap
strands or other telecommunications assets. Each of 360 and Urbanlink will act
reasonably and in good faith in considering a request by the other to effect
such a swap. If 360 and Urbanlink agree to effect such a swap, then 360 and
Urbanlink shall act reasonably and in good faith in negotiating the definitive
agreements relating to such swap. If 360 and Urbanlink are unable to reach
agreement on the terms of such definitive agreements, either 360 or Urbanlink
may refer the matter to arbitration pursuant to Section 4.1 of this Agreement.
3.3 OTHER SERVICES
360 and Urbanlink acknowledge that it may be necessary or desirable for 360 or
Subsidiaries of 360 to provide other services to Urbanlink from time to time,
and that it may be necessary or desirable for Urbanlink to provide other
services to 360 or Subsidiaries of 360 from time to time.
-3-
<PAGE>
Each of 360 and Urbanlink agrees to act reasonably and in good faith in
considering a request by the other for the provision of such services. To the
extent that the terms for the provision of such services are not specifically
addressed in an agreement executed and delivered pursuant to this Agreement, or
otherwise specifically addressed in an agreement between Urbanlink and 360 or a
Subsidiary of 360, such services shall be provided:
(a) at a fee for such services equal to the cost of such services plus a
markup appropriate to the telecommunications industry, considering the
nature and extent of such services; and
(b) otherwise on terms agreed to between 360 and Urbanlink, acting
reasonably and in good faith.
If 360 and Urbanlink are unable to reach agreement on such fees and such terms,
either 360 or Urbanlink may refer the matter to arbitration pursuant to
Section 4.1 of this Agreement.
3.4 ADJUSTMENTS
Following the Closing Date, 360, the TransferCos, and Urbanlink shall make
adjustments between themselves as provided below:
(a) The parties confirm and declare that the purchase price for each
transfer to Urbanlink is to be the fair market value thereof, as
agreed between the parties pursuant to the various Transaction
Documents that effect the transfers (subject to adjustment as provided
therein if such fair market value is disputed by taxing authorities).
It is the intention of the parties that the transfer of the assets be
effected on reasonable economic terms, providing a reasonable return
to each party and to each TransferCo and not imposing an unreasonable
or disproportionate economic burden on any party or any TransferCo or
any other Subsidiary of 360.
(b) Accordingly, following the Closing Date, the parties shall adjust
between themselves (and 360 shall cause the TransferCos to adjust),
from time to time, with respect to the following matters:
(i) The parties shall, and 360 shall cause each of the
TransferCos to, adjust the terms of the Transaction
Documents as may be necessary, acting reasonably, to effect
the intent described in Subsection 3.5(a).
(ii) Without limiting the generality of the foregoing, all costs,
expenses and payments that relate to the cost of the builds
(including, without limitation, charges for Underlying
Rights, but only for the term expiring on the expiry of the
term of the applicable Underlying Rights), construction
costs, holdbacks, warranty claims and all costs of
performing any assumed obligations where Urbanlink is not
entitled to receive the associated revenue shall be paid by
360 or the applicable TransferCo. For greater certainty,
this obligation shall continue indefinitely, but 360 shall
remain
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<PAGE>
responsible for all payments for Underlying Rights relating
to or necessary for the sale of fiber strands to Urbanlink
only in respect of the initial term expiring on the expiry
of the term of the applicable Underlying Rights.
(iii) Except as expressly provided above, the parties shall adjust
(and 360 shall cause the TransferCos to adjust) any prepaid
or accrued amounts owing pursuant to the Assumed Contracts,
with the TransferCos to be responsible for all costs and
expenses and to receive all benefits attributable to the
period prior to the Closing Date and Urbanlink to be
responsible for all costs and expenses and, except as
otherwise expressly provided in a Transaction Document, to
receive all benefits attributable to the period as of and
from the Closing Date.
(iv) Except as expressly provided above, as of the Closing Date
the parties shall also adjust (and 360 shall cause the
TransferCos to adjust) utility rates and charges, other
income from the transferred assets (unless otherwise
expressly provided in a Transaction Documents), taxes,
insurance, other amounts received from purchasers, licensees
and tenants (unless otherwise expressly provided in a
Transaction Document) deposits and interest thereon, fuel,
prepaid expenses and all other items normally adjusted
between a vendor and purchaser in the sale of similar assets
so that Urbanlink shall pay all expenses and receive all
income relative to the transferred assets (unless otherwise
expressly provided in a Transaction Document) prior to the
Closing Date and Urbanlink shall bear and pay all expenses
and receive all income relative to the transferred assets
from and including the Closing Date.
(v) Urbanlink shall be responsible for payment of all taxes,
rates, duties, assessments and charges levied, rated,
charged or assessed in respect of the transferred assets
that are payable in respect of all periods of time from and
after the Closing Date, and the TransferCos shall be
responsible for payment of all taxes, rates, duties,
assessments and charges levied, rates, charged or assessed
in respect of the transferred assets that are payable in
respect of all periods of time before the Closing Date.
(vi) Without limiting the generality of the foregoing, 360, WFHL
and Urbanlink acknowledge and agree that certain of the
expenditures that Urbanlink might be required to make under
the Municipal Access Agreements relate to telecommunications
facilities installed, constructed and/or owned by persons
other than Urbanlink including, without limiting the
generality of the foregoing, Ledcor Industries Limited (an
affiliate of WFHL which was once an owner of certain strands
in respect of which some of the Municipal Access Agreements
were given) and Subsidiaries of 360. The parties shall
adjust between themselves, from time to time, any amounts
payable under the Municipal Access Agreements, to effect a
just and equitable allocation of such payments among the
persons
-5-
<PAGE>
receiving the economic benefit of the telecommunications
facilities to which the Municipal Access Agreements relate.
If the parties are unable to reach agreement on the terms of any adjustment, any
party may refer the matter to arbitration pursuant to Section 4.1 of this
Agreement.
ARTICLE 4
GENERAL
4.1 ARBITRATION
All disputes arising out of or in connection with this contract, or in respect
of any defined legal relationship associated therewith or derived therefrom,
shall be referred to and finally resolved by arbitration under the Rules of the
British Columbia International Commercial Arbitration Centre. The appointing
authorities shall be the British Columbia International Commercial Arbitration
Centre. The case shall be administered by the British Columbia International
Commercial Arbitration Centre in accordance with its "Procedures for Cases Under
the BCICAC Rules". The place of arbitration shall be Vancouver, British
Columbia, Canada.
4.2 GOVERNING LAW AND ATTORNMENT
This Agreement will be governed by and construed in accordance with the
substantive laws of British Columbia and the federal laws of Canada applicable
in British Columbia, without regard to the conflict of law rules of British
Columbia. Subject to Section 4.1, the parties irrevocably submit to and accept
generally and unconditionally the exclusive jurisdiction of the courts and
appellate courts of British Columbia with respect to any legal action or
proceeding which may be brought at any time relating in any way to this
Agreement. Each of the parties irrevocably waives any objection it may now or in
the future have to the venue of any such action or proceeding, and any claim it
may now or in the future have that any such action or proceeding has been
brought in an inconvenient forum.
4.3 TIME OF THE ESSENCE OF THE AGREEMENT
Unless otherwise specifically provided in this Agreement, time will be of the
essence of this Agreement and of the transactions contemplated by this
Agreement.
4.4 REMEDIES NOT EXCLUSIVE
The remedies provided to the parties under this Agreement are cumulative and not
exclusive to each other, and any such remedy will not be deemed or construed to
affect any right which any of the parties is entitled to seek at law, in equity
or by statute.
4.5 NOTICES
Any notice, direction, request or other communication required or contemplated
by any provision of this Agreement will be given in writing and will be given by
delivering or faxing or emailing the same to the parties as follows:
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<PAGE>
(a) To 360 at:
Suite 1510, 1066 West Hastings Street
Vancouver, B.C. V6E 3X1
Attention: Catherine McEachern
Fax No.: (604) 681-0994
Email: [email protected]
(b) To WFHL at:
Suite 1000, 1066 West Hastings Street
Vancouver, B.C. V6E 3X1
Attention: Bill Ramsey
Fax No.: (604) 681-5372
Email: [email protected]
(c) To Urbanlink at:
Suite 1000, 1066 West Hastings Street
Vancouver, B.C. V6E 3X1
Attention: Bill Ramsey
Fax No.: (604) 681-5372
Email: [email protected]
Any such notice, direction, request or other communication will be deemed to
have been given or made on the date on which it was delivered or, in the case of
fax or email, on the next business day after receipt of transmission. Any party
may change its fax number or address for service or email address from time to
time by written notice in accordance with this section.
4.6 ASSIGNMENT
This Agreement is not assignable by WFHL or 360 without the prior written
consent of the other, such consent not to be unreasonably withheld or delayed,
or by Urbanlink without the consent of 360 and WFHL. Any attempt by any party to
assign any of the rights or to delegate any of the duties or obligations of this
Agreement without such prior written consent is void.
4.7 FORCE MAJEURE
The failure or delay of any party to this Agreement to perform any obligation
under this Agreement solely by reason of acts of God, acts of civil or military
authority, civil disturbance, war, strikes or other labour disputes or
disturbances, fire, transportation contingencies, shortage of facilities, fuel,
energy, labour or materials, or laws, regulations, acts or orders of any
governmental agency or official, other catastrophes, or any other circumstance
beyond its reasonable control ("Force Majeure") will be deemed not to be a
breach of this Agreement so long as the party so prevented from complying with
this Agreement has not contributed to such
-7-
<PAGE>
Force Majeure, has used reasonable efforts to avoid such Force Majeure or to
ameliorate its effects, and continues to take all actions within its power to
comply as fully as possible with the terms of this Agreement. In the event of
any such Force Majeure, performance of the obligations will be deferred until
the Force Majeure ceases. This section will not apply to excuse a failure to
make any payment when due.
4.8 COUNTERPARTS
This Agreement may be executed in any number of counterparts with the same
effect as if all parties had signed the same document. All of these counterparts
will for all purposes constitute one agreement, binding on the parties,
notwithstanding that all parties are not signatories to the same counterpart. A
fax transcribed copy or photocopy of this Agreement executed by a party in
counterpart or otherwise will constitute a properly executed, delivered and
binding agreement or counterpart of the executing party.
4.9 WAIVER
No failure or delay on the part of any party in exercising any power or right
under this Agreement will operate as a waiver of such power or right. No single
or partial exercise of any right or power under this Agreement will preclude any
further or other exercise of such right or power. No modification or waiver of
any provision of this Agreement and no consent to any departure by any party
from any provision of this Agreement will be effective until the same is in
writing. Any such waiver or consent will be effective only in the specific
instance and for the specific purpose for which it was given. No notice to or
demand on any party in any circumstances will entitle such party to any other or
further notice or demand in similar or other circumstances.
4.10 FURTHER ASSURANCES
Each of the parties will promptly execute and deliver to the other at the cost
of the other such further documents and assurances and take such further actions
as the other may from time to time request in order to more effectively carry
out the intent and purpose of this Agreement and to establish and protect the
rights, interests and remedies intended to be created in favour of the other.
4.11 ENTIRE AGREEMENT
This Agreement and any documents and agreements to be delivered pursuant to this
Agreement supersede all previous invitations, proposals, letters,
correspondence, negotiations, promises, agreements, covenants, conditions,
representations and warranties with respect to the subject matter of this
Agreement. There is no representation, warranty, collateral term or condition or
collateral agreement affecting this Agreement, other than as expressed in
writing in this Agreement. No trade terms or trade usages are to be incorporated
by reference implicitly or otherwise into this Agreement, unless expressly
referred to in this Agreement.
-8-
<PAGE>
4.12 AMENDMENTS
No change or modification of this Agreement will be valid unless it is in
writing and signed by each party to
this Agreement.
4.13 INVALIDITY OF PARTICULAR PROVISION
If any provision of this Agreement or any part of any provision (in this section
called the "Offending Provision") is declared or becomes unenforceable, invalid
or illegal for any reason whatsoever including, without limiting the generality
of the foregoing, a decision by any competent courts, legislation, statutes,
bylaws or regulations or any other requirements having the force of law, then
the remainder of this Agreement will remain in full force and effect as if this
Agreement had been executed without the Offending Provision.
4.14 CURRENCY
Unless otherwise specified all sums of money expressed in this Agreement are in
the lawful money of Canada.
4.15 NUMBER AND GENDER
Unless the context of this Agreement otherwise requires, to the extent necessary
so that each clause will be given the most reasonable interpretation, the
singular number will include the plural and vice versa, the verb will be
construed as agreeing with the word so substituted, words importing the
masculine gender will include the feminine and neuter genders, words importing
persons will include firms and corporations and words importing firms and
corporations will include individuals.
4.16 HEADINGS AND CAPTIONS
The headings and captions of sections and paragraphs contained in this Agreement
are all inserted for convenience of reference only and are not to be considered
when interpreting this Agreement.
4.17 ACKNOWLEDGEMENT OF RECEIPT
Each of the parties acknowledges receiving an executed copy of this Agreement.
4.18 ENUREMENT
Subject to the restrictions on transfer contained in this Agreement, this
Agreement will enure to the benefit of and be binding on the parties and their
respective heirs, executors, administrators, successors and assigns.
[THE NEXT PAGE IS THE EXECUTION PAGE]
-9-
<PAGE>
IN WITNESS WHEREOF the parties have executed this Agreement as of the date
stated on the first page.
360NETWORKS INC. WORLDWIDE FIBER HOLDINGS LTD.
Per: Per:
- ----------------------------------- -----------------------------------
Signature Signature
WFI URBANLINK LTD.
Per::
- -----------------------------------
Signature
-10-
<PAGE>
SCHEDULE 1
URBANLINK REORGANIZATION
PART 1 - STEPS COMPLETED PRIOR TO THE REORGANIZATION
1.1 The authorized share capital of Urbanlink has been amended.
1.2 360 has incorporated 360-Holdco.
1.3 360 has incorporated Carrier Holdco.
1.4 360 has obtained the fairness opinion required under its High Yield Debt
Indentures.
PART 2 - TRANSFERS OF ASSETS
2.1 Each of the relevant 360 Subsidiaries (collectively "TransferCos") shall
transfer assets to Urbanlink in exchange for a series of Urbanlink
preferred shares with a redemption amount equal to the estimated fair value
of the transferred assets, reduced by the amount of any liabilities assumed
by Urbanlink. A separate series of Urbanlink preferred shares shall be
issued to each TransferCo. The assets to be transferred in exchange for
such shares shall be those assets described in Sections 1.1, 1.2, 1.3, 1.4,
3.1, 4.1, 4.3, 4.4, 5.1 and 6.1 on Schedule 2.
2.2 Urbanlink and FOTS3 shall enter into the IRU agreement for the two marine
strands in British Columbia waters, as described in Section 3.1 on
Schedule 1.
2.3 360 shall transfer to Urbanlink, and Urbanlink shall assume all employment
obligations in respect of, certain employees (approximately 15) to be
determined by agreement between Urbanlink and 360.
2.4 360, the relevant Subsidiaries of 360, and Urbanlink shall enter into a
Sublease having the terms described in Schedule 3.
PART 3 - TRANSFERS TO 360-HOLDCO
3.1 The TransferCos shall transfer their Urbanlink preferred shares and
Urbanlink common shares to 360-Holdco, in return for mirror image preferred
shares and common shares of 360-Holdco.
PART 4 - 360-HOLDCO TRANSFER TO CARRIER HOLDCO AND ISSUANCE OF SHARES TO
360-HOLDCO
4.1 360-Holdco shall subscribe for Carrier Holdco voting non-participating
shares representing 1/3 of the total number of such shares to be issued,
for nominal consideration.
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<PAGE>
4.2 360-Holdco shall transfer its Urbanlink preferred shares and Urbanlink
common shares to Carrier Holdco in return for Carrier Holdco non-voting
participating shares representing 51% of the total number of such shares to
be issued.
PART 5 - WFHL TRANSFER TO CARRIER HOLDCO AND WFHL ISSUANCE OF SHARES TO WFHL
5.1 WFHL shall subscribe for Carrier Holdco voting non-participating shares
representing 2/3 of the total number of such shares to be issued, for
nominal consideration.
5.2 WFHL shall transfer to Carrier Holdco Subordinate Voting Shares of 360
having a fair market value equal to 49/51 of the fair value of the
Urbanlink preferred shares and Urbanlink common shares transferred by
360-Holdco to Carrier Holdco determined using the price to the public of
the Subordinate Voting Shares in 360's initial public offering (the "IPO
Price"), and WFHL shall receive in return Carrier Holdco non-voting
participating shares representing 49% of the total number to be issued. As
the Closing Date shall occur before the IPO, the number of shares
transferred on the Closing Date shall be calculated on the assumption that
the IPO Price is US$17.00 and the number of transferred shares shall be
adjusted as soon as practicable after the Closing Date to equal the number
of shares determined using the IPO Price.
PART 6 - POST CLOSING TRANSFERS
6.1 From time to time after the completion of those segments of the builds that
are not complete on the Closing Date and the final allocation or
designation of the specific strands to be transferred, as more particularly
described in Sections 2.1 and 2.2 of Schedule 2, on a date or dates to be
determined by agreement between 360 and WFHL, acting reasonably, the
TransferCos shall transfer assets to 360-Holdco for a series of 360-Holdco
preferred shares having a redemption amount equal to the estimated fair
value of the transferred assets, reduced by the amount of any liabilities
assumed by 360-Holdco. A separate series of 360-Holdco preferred shares
shall be issued to each TransferCo. The assets to be transferred in
exchange for such shares shall be those assets described in Sections 2.1,
2.2, 2.3 and 2.4 on Schedule 2 (collectively, the "Post-Closing Assets").
6.2 360-Holdco shall transfer the Post-Closing Assets to Carrier Holdco for a
number of common shares to be determined by considering the estimated fair
value of the Post-Closing Assets (reduced by the amount of any liabilities
assumed by Carrier Holdco), the estimated fair value of the then issued
Carrier Holdco shares, and the estimated fair value of the subscription to
be made by WFHL under Section 6.3, in return for Carrier Holdco non-voting
participating shares representing 51% of the total number of shares to be
issued under Sections 6.2 and 6.3.
6.3 WFHL shall transfer to Carrier Holdco additional Subordinate Voting Shares
of 360 having a fair value equal to 49/51 of the estimated fair value of
the Post-Closing Assets (reduced by the amount of any liabilities assumed
by Carrier Holdco), determined using the then current market prices of the
Subordinate Voting Shares, and WFHL shall receive in return Carrier Holdco
non-voting participating shares representing 49% of the total number of
shares to be issued under Sections 6.2 and 6.3.
-12-
<PAGE>
6.4 Carrier Holdco shall transfer the Post-Closing Assets to Urbanlink in
return for Urbanlink preferred shares.
PART 7 - GENERAL
7.1 Except where expressly provided to the contrary in the Transaction
Documents, elections under Section 85 of the INCOME TAX ACT (Canada) shall
be filed by the transferor and the transferee in respect of each of the
transfers described in this Schedule, to the extent that such transfers are
eligible, and such elections shall elect that the transfers be effected at
the transferor's cost amount for the transferred assets, unless otherwise
agreed between 360 and WFHL.
7.2 For the transfers described in this Schedule appropriate adjustments shall
be made for deposits, prepaid amounts and receivables in respect of each of
the IRU agreements and other agreements that are transferred.
PART 8 - FINAL STRUCTURE
8.1 The TransferCos and WFNL shall together own 100% of the outstanding shares
of 360-Holdco.
8.2 360-Holdco shall own 51% of the Carrier Holdco non-voting participating
shares and 33.3% of the Carrier Holdco voting non-participating shares.
8.3 WFHL shall own 49% of the Carrier Holdco non-voting participating shares
and 66.67% of the Carrier Holdco voting non-participating shares.
8.4 Carrier Holdco shall own 100% of the outstanding shares of Urbanlink.
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<PAGE>
SCHEDULE 2
URBANLINK ASSETS
Urbanlink Assets means the assets to be transferred to Urbanlink as part of the
Urbanlink Reorganization, being the following assets:
PART 1 - STRANDS TO BE TRANSFERRED AT THE CLOSING
1.1 Two strands on each of the following routes shall be transferred by the
applicable 360 Subsidiaries to Urbanlink at the Closing:
See Exhibit 2(1.1)
1.2 The following strands on the following routes shall also be transferred at
the Closing by the applicable 360 Subsidiaries to Urbanlink, in each case
subject to the terms of the associated IRU agreement described below, which
IRU agreement shall be assumed and performed by Urbanlink:
See Exhibit 2(1.2)
1.3 Together with the above strands, the applicable 360 Subsidiaries shall
transfer to Urbanlink a proportionate interest in the support structures
(to the extent available for transfer). At the Closing, or as soon as
practicable thereafter, the applicable 360 Subsidiaries shall also grant to
Urbanlink, by sublicense, a non-exclusive right to use and enjoy, in common
with all others having rights with respect to other strands forming part of
the fiber optic cable containing the above strands, each license, easement,
right-of-way or similar right (the "Underlying Rights") owned, held,
acquired or hereafter acquired by such 360 Subsidiaries, on the same terms
and conditions upon which such rights are usually granted to third parties
by 360 and on and subject to the terms and conditions set out in the
agreements governing such Underlying Rights, with respect to lands or
buildings through which such fiber optic cable passes. If the applicable
Underlying Rights do not permit a transfer of strands to Urbanlink, the
applicable 360 Subsidiary and Urbanlink shall enter into an IRU agreement
for such strands.
1.4 At the Closing, or as soon as practicable thereafter, the relevant 360
Subsidiaries shall grant to Urbanlink a license to use:
(a) with reference to the strands referred to in Section 1.1, such
co-location facilities and/or communications shelters along the
applicable routes as would be granted by 360 to a third party
acquiring the number of strands described in Section 1.1, on and
subject to the terms and conditions that would apply to a similar
grant of rights to a third party purchaser of such strands; and
(b) with respect to the strands described in Section 1.2, such co-location
facilities and/or communications shelters along the applicable routes
as are necessary to
-14-
<PAGE>
allow Urbanlink to perform its obligations in respect of such
facilities and/or shelters as described in the IRU agreements assumed
under Section 1.2.
PART 2 - STRANDS TO BE TRANSFERRED UPON THE COMPLETION OF THE FIBER OPTIC
FACILITIES OF WHICH THE STRANDS ARE A PART
2.1 Two strands on each of the following routes shall be transferred by the
applicable 360 Subsidiaries to Urbanlink on the completion of the
applicable segment of the build and the final allocation or designation of
the specific strands to be transferred:
See Exhibit 2(2.1)
2.2 The following strands on the following routes shall be transferred by the
applicable 360 Subsidiary to Urbanlink on the completion of the applicable
segment of the build and the final allocation or designation of the
specific strands to be transferred, in each case subject to the terms of
the associated IRU agreement described below, which IRU agreement shall be
assumed and performed by Urbanlink:
See Exhibit 2(2.2)
2.3 Together with the above strands, the applicable 360 Subsidiaries shall
transfer to Urbanlink a proportionate interest in the support structures
(to the extent available for transfer). On the completion of the applicable
segment of the build, and the final allocation or designation of the
specific strands to be transferred the applicable 360 Subsidiaries shall
also grant to Urbanlink, by sublicense, a non-exclusive right to use and
enjoy, in common with all others having rights with respect to other
strands forming part of the fiber optic cable containing the strands, the
Underlying Rights owned, held, acquired or hereafter acquired by such 360
Subsidiaries, on the same terms and conditions upon which such rights are
usually granted to third parties by 360 and on and subject to the terms and
conditions set out in the agreements governing such Underlying Rights, with
respect to lands or buildings through which such fiber optic cable passes.
If the applicable Underlying Rights do not permit a transfer of strands to
Urbanlink, the applicable 360 Subsidiary and Urbanlink shall enter into an
IRU agreement for such strands.
2.4 On the completion of the applicable segment of the build and the final
allocation or designation of the specific strands to be transferred, the
relevant 360 Subsidiaries shall grant to Urbanlink a license to use:
(a) with reference to the strands referred to in Section 2.1, such
co-location facilities and/or communications shelters along the
applicable routes as would be granted by 360 to a third party
acquiring the number of strands described in Section 2.1, on and
subject to the terms and conditions that would apply to a similar
grant of rights to a third party purchaser of such strands; and
(b) with respect to the strands described in Section 2.2, such co-location
facilities and/or communications shelters along the applicable routes
as are necessary to
-15-
<PAGE>
allow Urbanlink to perform its obligations in respect of such
facilities and/or shelters as described in the IRU agreements assumed
under Section 2.2.
PART 3 - IRUS TO BE GRANTED TO URBANLINK
3.1 With reference to that portion of the Vancouver to Victoria to Seattle
build that is located in a submarine cable in Canadian waters, FOTS3 shall
grant to Urbanlink a sub-IRU of two strands.
PART 4 - TELECOMMUNICATIONS EQUIPMENT
4.1 The following telecommunications equipment, which has been acquired and
received by 360 Subsidiaries, shall be transferred by the applicable 360
Subsidiaries to Urbanlink at the Closing:
See Exhibit 2(4.1)
4.2 The purchase orders and purchase agreements for the acquisition of
additional telecommunications equipment shall be assigned by the applicable
360 Subsidiaries to Urbanlink at the Closing.
4.3 Together with the equipment transferred pursuant to Sections 4.1 and 4.2,
the relevant 360 Subsidiaries shall, to the extent permitted by the
underlying documents and agreements, transfer an applicable and appropriate
interest in the underlying warranties and maintenance agreements.
PART 5 - FACILITIES
5.1 At the Closing, or as soon as practicable thereafter, the relevant 360
Subsidiaries shall transfer to Urbanlink those lease and co-location
agreements that relate to facilities that will be used exclusively or
primarily by Urbanlink.
5.2 At the Closing, or as soon as practicable thereafter, the relevant 360
Subsidiary shall enter into a sublease with Urbanlink, by which the
relevant 360 Subsidiary shall sublease to Urbanlink premises at 5500
Explorer Driver, Mississauga, Ontario.
PART 6 - NOC
6.1 The relevant 360 Subsidiary shall transfer to Urbanlink the NOC assets,
being an element management system consisting of hardware and software that
monitor network operations.
PART 7 - CONTRACTS AND INCIDENTAL ASSETS
7.1 At the Closing, the relevant 360 Subsidiaries shall transfer and assign to
Urbanlink such additional equipment, furniture, agreements, license,
permits, documents and ancillary rights as 360 and WFHL may determine by
agreement between them.
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<PAGE>
SCHEDULE 3
SUBLEASE
The Sublease shall be on the following terms:
1. The parties to the Sublease shall be Urbanlink and the relevant 360
Subsidiary.
2. The sublease premises shall be at 5500 Explorer Drive, Mississauga,
Ontario. The precise location and area of the subleased premises shall be
determined by agreement between Urbanlink and 360, acting reasonably.
3. The rent charged for the Sublease shall be calculated based on the area of
the subleased premises and the rent per square foot charged under the
applicable head lease.
4. The Sublease shall otherwise be on the same terms as the head lease, and
Urbanlink shall pay to 360 or to the applicable 360 Subsidiary a
proportionate amount of all charges payable under the head lease including,
without limitation, taxes, common area expenses and utilities charges.
-17-
<PAGE>
EXHIBIT 2(1.1)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------
MILE DUCT TUBE STRAND STRAND
SEGMENTS POINTS ROW KILOMETER COLOUR COLOUR NUMBER TYPE
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
FROM CALGARY TO EMERSON CP 1,443 Orange Brown 41-42 SMF-28
FROM CP TRACKS AT CAMBIE ST. CP 1,032 Orange Brown 41-42 SMF-28
VANCOUVER TO CALGARY
FROM 301 INDUSTRIAL AVE. TO CP 3 Orange Brown 41-42 SMF-28
CP TRACKS AT CAMBIE ST.
OAK STREET BRIDGE TO 301 CN 11 Orange Brown 41-42 SMF-28
INDUSTRIAL, VANCOUVER
US BORDER TO VICTORIA TO OAK CN 84 Orange Brown 41-42 SMF-28
STREET BRIDGE
EDMONTON CN TRACKS TO CN 11 Orange Brown 41-42 SMF-28
EDMONTON BRETTVILLE JUNCTION
EDMONTON BRETVILLE JUNCTION CN 1,958 Orange Brown 41-42 SMF-28
TO THUNDER BAY
THUNDER BAY TO TORONTO CN 1,402 Orange Brown 41-42 SMF-28
TORONTO TO BROCKVILLE
Union Station to Parliament 333.8 to TTR 12 Orange Rose 121-122 Leaf
St.(Kingston) 332.8
Parliament St to Scarborough 332.8 to CN 23 Orange Rose 121-122 Leaf
(Kingston) 7.24
Scarborough to Pickering 325.56 to CN 299 Orange Rose 121-122 Leaf
Jct. (Kingston) 311.4
Pickering Jct. To Brockville 311.4 to CN Orange Rose 121-122 Leaf
(Kingston) 125.7
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
-18-
<PAGE>
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------
MILE DUCT TUBE STRAND STRAND
SEGMENTS POINTS ROW KILOMETER COLOUR COLOUR NUMBER TYPE
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
BROCKVILLE TO SMITH FALLS 27.8 to StL&H 45 Orange Rose 121-122 Leaf
0.0
SMITH FALLS TO OTTAWA (VIA)
STATION
Smith Falls to Alexander 34.5 to StL&H 0.2 Orange Rose 121-122 Leaf
St.(Smiths Falls) 34.38
Alexander St. to CN Radio 34.38 to CN 1 Orange Rose 121-122 Leaf
Site (Smiths Falls) 34.05
CN Radio Site to Richmond 34.05 to VIA 34 Orange Rose 121-122 Leaf
(Smiths Falls) 13.0
Richmond to Federal (Smiths 13.0 to 0.0 CN 21 Orange Rose 121-122 Leaf
Falls)
Federal to Union Station 6.0 to 0.9 CN 10 Orange Rose 121-122 Leaf
(Beachburg)
BORDER TO TORONTO
U.S. Border to Fort Erie 0.6 to 1.0 CN 1 Orange Rose 121-122 Leaf
(Stamford)
Fort Erie to Port Robinson 1.0 to CN 36 Orange Rose 121-122 Leaf
(Stamford) 23.14
Port Robinson to Merriton 1.27 to 7.9 CN 11 Orange Rose 121-122 Leaf
(Thorld Spur)
Merriton to Hamilton 9.5 to CN 55 Orange Rose 121-122 Leaf
(Grimsby) 43.66
Hamilton to Canpa (Oakville) 39.3 to 8.5 CN 50 Orange Rose 121-122 Leaf
Canpa to Windsor St. 8.5 to 0.5 CN 13 Orange Rose 121-122 Leaf
(Oakville)
OTTAWA TO QUEBEC BORDER
Union Station to Hawthorne 76.5 to CN 6 Temp Rose 121-122 Leaf
Diamond (Alexandria) 2.72
Hawthorne Diamond to 72.72 to CN 0.4 Rose 121-122 Leaf
Hawthorne (Alexandria) 72.5
Hawthorne to Quebec Border 72.5 to VIA 97 Rose 121-122 Leaf
(Alexandria) 12.5
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
-19-
<PAGE>
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------
MILE DUCT TUBE STRAND STRAND
SEGMENTS POINTS ROW KILOMETER COLOUR COLOUR NUMBER TYPE
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
QUEBEC BORDER TO TASCHEREAU
Quebec Border to Coteau 12.5 to 0.0 VIA 20.11 Orange Rose 121 - 122 Leaf
Jct.(Alexandria)
Coteau Jct. To Dorion 38.0 to CN 22.04 Orange Rose 121 - 122 Leaf
(Kingston) 24.3
Dorion to Dorval (Kingston) 24.3 to CN 22.53 Orange Rose 121 - 122 Leaf
10.3
Dorval to Taschereau Yard 11.6 to 9.0 CN 4.18 Orange Rose 121 - 122 Leaf
(Montreal)
MONTREAL CENTRAL TO QUEBEC 1.28 to 1.5 CN 259.79 Orange Rose 121-122 Leaf
CITY
US BORDER TO CAMBRIDGE
US Border to Collage Ave 226.30 to CN/StL&H 2 Orange Rose 121-122 Leaf
225.21
Collage Avenue to Hyde Park 111.8 to StL&H 174 Orange Rose 121-122 Leaf
Road 3.9
Hyde Park Road to London 3.9 to 0.0 StL&H 6 Orange Rose 121-122 Leaf
London to Airport Road 114.6 to StL&H 8 Orange Rose 121-122 Leaf
109.48
Airport Road to Cambridge 109.48 to StL&H 84 Orange Rose 121-122 Leaf
57.2
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
-20-
<PAGE>
EXHIBIT 2(1.2)
NONE
-21-
<PAGE>
EXHIBIT 2(2.1)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
MILE DUCT TUBE STRAND STRAND
SEGMENTS POINTS ROW KILOMETER COLOUR COLOUR NUMBER TYPE
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
CAMBRIDGE TO HALWEST
Cambridge South Junction 0.8 to 11.2 StL&H 17 Orange Rose 121-122 Leaf
(Waterloo)
South Junction to Kitchener 3.5 to 0 GEX 6 Orange Rose 121-122 Leaf
(Huron Park)
Kitchener to Silver (Guelph) 63.05 to 29.98 GEX 53 Orange Rose 121-122 Leaf
Silver to Halwest (Halton) 24.16 to 11.13 CN 21 Orange Rose 121-122 Leaf
TASCHEREAU TO MONTREAL
STATION
Taschereau Yard to Jct. W/ N/A CN 1.22 Orange Rose 121 - 122 SMF-28
St. Laurent Sub.
Taschereau Yard to Jonction 146.2 to 141.6 CN 7.40 Orange Rose 121 - 122 SMF-28
de L'Est (St. Laurent)
Jonction de L'Est to 6.0 to 0.8 CN 8.37 Orange Rose 121 - 122 SMF-28
Central Station
(Deux-Montagnes)
MONTREAL TO US BORDER 2 strands
QUEBEC CITY TO HALIFAX 2 strands
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
-22-
<PAGE>
EXHIBIT 2(2.2)
As may be agreed between the parties.
Definitive Agreement Executed Verstion
-23-
<PAGE>
Exhibit 10.36
ASSET PURCHASE AGREEMENT
(ROLL-OVER)
(BANDWIDTH)
THIS AGREEMENT is made effective as of the ____ day of April, 2000.
BETWEEN:
LEDCOR COMMUNICATIONS LTD.
(the "Vendor")
- and -
WFI URBANLINK LTD.
(the "Purchaser")
WHEREAS:
A. The Vendor is a subsidiary of 360.
B. 360 and the Purchaser are parties to the Definitive Agreement, pursuant to
which 360 has agreed to cause the Vendor to transfer the Assets to the
Purchaser.
C. The Vendor wishes to transfer the Assets to the Purchaser, and the
Purchaser wishes to acquire the Assets from the Vendor, all as at the Effective
Date for a total purchase price equal to the aggregate fair market value of the
Assets, on the terms and conditions and subject to the representations and
warranties set forth in this Agreement.
IN CONSIDERATION OF the foregoing premises and of the mutual covenants herein
contained the parties agree as follows:
ARTICLE 1
INCORPORATION OF RECITALS
AND SCHEDULES AND DEFINITIONS
1.1 The Recitals and all Schedules annexed to this Agreement are expressly
incorporated into, and form an integral part of, this Agreement.
ARTICLE 2
DEFINITIONS
2.1 In this Agreement:
(a) "360" means 360networks inc.
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<PAGE>
(b) "Act" means the Income Tax Act (Canada), as it read on the Effective
Date;
(c) "Adjusted Cost Base" means the aggregate cost amount of the Assets
determined by the Vendor in accordance with the provisions of the Act,
where "cost amount" is as defined in subsection 248(1) of the Act;
(d) "Adjusted Elected Amount" means the amount that, for tax purposes, is
to be the Vendor's "proceeds of disposition" and the Purchaser's "cost
of acquisition" of the Assets, determined in accordance with section
6.3 to be a greater or lesser amount than the Elected Amount;
(e) "Adjusted Fair Market Value" means the aggregate of the fair market
value of the Assets, determined in accordance with section 5.4 to be a
greater or lesser amount than the Elected Fair Market Value;
(f) "Articles" means the articles of incorporation of the Purchaser
together with all amendments thereto as registered with the Registrar
of Corporations for the Province of Alberta as at the Effective Date;
(g) "Assets" has that meaning as set forth in Schedule "A" hereto;
(h) "Closing Date" means the Effective Date;
(i) "Definitive Agreement" means the Urbanlink Reorganization Definitive
Agreement relating to the Urbanlink Reorganization dated the same date
as this Agreement and made between 360, Worldwide Fiber Holdings Ltd.,
the Purchaser and Urbanlink Equipment Ltd.;
(j) "Effective Date" means the date of this Agreement;
(k) "Elected Amount" means the amount agreed upon by the parties in
accordance with section 6.2 hereof which, for tax purposes, is to be
the Vendor's "proceeds of disposition" and the Purchaser's "cost of
acquisition" of the Assets;
(l) "Elected Fair Market Value" means the aggregate fair market value of
the Assets as determined by the parties and reflected in the Election;
(m) "Election" means the election made by the parties in prescribed form
and within the time prescribed by subsection 85(6) of the Act that the
rules set forth in subsection 85(1) of the Act shall apply to the
purchase and sale of the Assets;
(n) "Fair Market Value" means the fair market value of the Assets
determined as the Effective Date, which shall be equal to either the
Elected Fair Market Value or the Adjusted Fair Market Value, as
finally determined in accordance with either section 5.3 or section
5.4 hereof, as the case may be;
(o) "Redemption Amount" means the amount per share payable on the
redemption of the shares forming the Share Consideration, which amount
shall be equal to the
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<PAGE>
Fair Market Value divided by the number of shares forming the Share
Consideration;
(p) "Revised Adjusted Cost Base" means the adjusted cost base of the
Assets determined in accordance with section 6.3 to be greater or
lesser amounts than the Adjusted Cost Base;
(q) "Schedules" means any schedules which are attached to this Agreement;
(r) "Share Consideration" means the number and class of shares of the
capital of the Purchaser having attached thereto only those rights,
privileges, restrictions and limitations set forth in the Articles,
which shares are more particularly described in Schedule "B";
(s) "Stated Capital Addition" means the aggregate stated capital for the
shares constituting the Share Consideration that is to be added to the
stated capital account maintained for such shares, which shall be
equal to the Fair Market Value; and
(t) "Taxing Authority" means the Minister of National Revenue for Canada
or any other competent authority having jurisdiction that is
authorized by law to issue an assessment or reassessment in respect of
the transactions herein contemplated.
ARTICLE 3
PURCHASE AND SALE
3.1 Subject to the terms and conditions, and based upon the representations and
warranties, contained in this Agreement, the Vendor shall sell, transfer and
assign and the Purchaser shall purchase as of the Effective Date all of the
Vendor's interest in the Assets.
ARTICLE 4
EFFECTIVE DATE
4.1 It is acknowledged and agreed to by the parties that the purchase and sale
of the Assets is deemed to have occurred as of the Effective Date.
ARTICLE 5
PURCHASE PRICE
5.1 The total purchase price for the Assets is equal to the Fair Market Value
and shall be paid and satisfied by the Purchaser issuing to the Vendor the Share
Consideration.
5.2 The Purchaser shall add the Stated Capital Addition to the stated capital
account being maintained for the class of shares of which the Share
Consideration forms a part.
5.3 Subject to section 5.4, the parties have determined that the fair market
value of the Assets is equal to the Elected Fair Market Value, which
determination is final and binding upon the parties.
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<PAGE>
5.4 If:
(a) the Taxing Authority at any time proposes to issue, or does issue, any
assessment or reassessments that impose, or would impose, any
liability for tax of any nature or kind on either of the parties on
the basis that the aggregate of the fair market value of the Assets at
the Effective Date is a greater or lesser amount than the Elected Fair
Market Value; and
(b) the parties agree, or a Court or tribunal of competent jurisdiction
finally adjudges, that the aggregate of the fair market value of the
Assets as of the Effective Date is the Adjusted Fair Market Value;
then:
(c) the Fair Market Value shall be deemed to have always been, and the
Fair Market Value wherever referred to in this Agreement shall be read
as meaning, the Adjusted Fair Market Value.
5.5 If not all of the shares forming the Share Consideration have been redeemed
or purchased by the Purchaser on or prior to the date of determination of the
Adjusted Fair Market Value of the Assets, then the Redemption Amount for each of
the shares forming the Share Consideration which are still outstanding at that
time, shall be adjusted in accordance with section 5.7 hereof.
5.6 If the Purchaser has repurchased or redeemed all of the shares forming the
Share Consideration at or before the time that the Adjusted Fair Market Value is
determined, then:
(a) where the aggregate of the amounts previously paid by the Purchaser on
the repurchase of the Share Consideration exceeds the Adjusted Fair
Market Value, the excess shall be a debt payable to the Purchaser by
the Vendor, on demand, without interest except in the event of default
whereupon interest shall accrue on the principal amount in default at
the rate of 2% per annum above the prime lending rate established from
time to time by the Vancouver main branch of the Purchaser's bank,
calculated from the date of default until the date payment is made;
and
(b) where the aggregate of the amounts previously paid by the Purchaser on
the repurchase of the Share Consideration is less than the Adjusted
Fair Market Value, the loss shall be a debt payable to the Vendor by
the Purchaser, on demand, without interest except in the event of
default whereupon interest shall accrue on the principal amount in
default at the rate of 2% per annum above the prime lending rate
established from time to time by the Vancouver main branch of the
Vendor's bank, calculated from the date of default until the date
payment is made.
5.7 If, because of the operation of section 5.4, the Fair Market Value is
determined at the Effective Date to be equal to the Adjusted Fair Market Value,
then the Redemption Amount shall be adjusted NUNC PRO TUNC to reflect an amount
equal to the Adjusted Fair Market Value, and all necessary adjustments, payments
and repayments, if any, as may be required by virtue of such
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<PAGE>
adjustment, shall forthwith be made between the Purchaser and the Vendor in
accordance with the provisions of section 5.6, MUTATIS MUTANDIS.
ARTICLE 6
JOINT ELECTION AND ELECTED AMOUNTS
6.1 The Vendor and Purchaser shall jointly make the Election.
6.2 Subject to the provisions of this Agreement, for purposes of the Election
the parties agree that the Elected Amount shall be the Adjusted Cost Base of the
Assets, which determination is final and binding on the parties.
6.3 If:
(a) the Taxing Authority proposes to issue, or does issue, any assessment
or reassessments that impose, or would impose, any liability for tax
of any nature or kind on either of the parties on the basis that the
adjusted cost base of the Assets is the Revised Adjusted Cost Base;
(b) the parties agree, or a Court or tribunal of competent jurisdiction
finally adjudges, that the adjusted cost base of the Assets is the
Revised Adjusted Cost Base; and
(c) the Taxing Authority will accept as effective an amended Election of
the parties;
then:
(d) the Adjusted Cost Base shall be deemed to have always been, and the
Adjusted Cost Base wherever referred to in this Agreement, shall be
read as meaning the Revised Adjusted Cost Base;
(e) the Elected Amount shall be deemed to have always been, and the
Elected Amount wherever referred to in this Agreement shall be read as
meaning, an amount equal to the Adjusted Elected Amount; and
(f) the parties shall take all such steps and jointly execute all such
documents and elections as may be required and allowed so that the
aggregate of the amounts elected for purposes of subsection 85(1) of
the Act with respect to the purchase and sale of the Assets shall be
equal to the Adjusted Elected Amount.
ARTICLE 7
VENDOR'S REPRESENTATIONS AND WARRANTIES
7.1 The Vendor represents and warrants to the Purchaser that:
(a) on the Closing Date the Assets shall be beneficially owned by the
Vendor free and clear of all restrictions, options, liens, charges and
encumbrances, whatsoever;
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<PAGE>
(b) no person, firm or corporation has any written or verbal agreement,
option, understanding or commitment or any right or privilege capable
of becoming an agreement for the purchase of the Assets from the
Vendor other than as set out in this Agreement;
(c) on the Closing Date the Vendor shall not be a non-resident of Canada
within the meaning of the Act; and
(d) the distances shown on the Schedules are accurate.
7.2 The representations and warranties contained in section 7.1 shall survive
the completion of the purchase and sale of the Assets and shall continue in full
force and effect for the benefit of the Purchaser; provided always that no claim
with respect to the representations and warranties shall be made by the
Purchaser unless written notice shall have been given to the Vendor within two
years from the Closing Date.
ARTICLE 8
PURCHASER'S REPRESENTATIONS AND WARRANTIES
8.1 The Purchaser represents and warrants to the Vendor that:
(a) the Purchaser is a corporation duly incorporated, validly existing and
qualified to carry on business under the laws of the Province of
Alberta;
(b) the authorized capital of the Purchaser consists of an unlimited
number of:
(i) Class "A" Common Voting Shares
(ii) Class "I" Preferred Non-Voting Shares, authorized to be issued in
series, which series shares are designated as follows:
(A) Class "I" Series 1 Preferred Non-Voting Shares;
(B) Class "I" Series 2 Preferred Non-Voting Shares;
(C) Class "I" Series 3 Preferred Non-Voting Shares;
(D) Class "I" Series 4 Preferred Non-Voting Shares;
(E) Class "I" Series 5 Preferred Non-Voting Shares;
(F) Class "I" Series 6 Preferred Non-Voting Shares;
(G) Class "I" Series 7 Preferred Non-Voting Shares;
(H) Class "I" Series 8 Preferred Non-Voting Shares;
(I) Class "I" Series 9 Preferred Non-Voting Shares;
-6-
<PAGE>
(J) Class "I" Series 10 Preferred Non-Voting Shares;
(K) Class "I" Series 11 Preferred Non-Voting Shares;
(L) Class "I" Series 12 Preferred Non-Voting Shares;
(M) Class "I" Series 13 Preferred Non-Voting Shares;
(N) Class "I" Series 14 Preferred Non-Voting Shares;
(O) Class "I" Series 15 Preferred Non-Voting Shares;
having attached thereto only those rights, privileges, restrictions
and conditions set forth in the Articles;
(c) the issuance to the Vendor of the Share Consideration is valid and in
accordance with the laws of the Province of Alberta; and
(d) this Agreement constitutes a valid and binding obligation of the
Purchaser and the transactions contemplated by this Agreement are not
in violation of any terms and conditions of the Articles or any
agreement to which the Purchaser is a party or by which the Purchaser
is bound.
8.2 The representations and warranties contained in section 8.1 shall survive
the completion of the purchase and sale of the Assets and shall continue in full
force and effect for the benefit of the Vendor; provided always that no claim
with respect to the representations and warranties shall be made by the Vendor
unless written notice shall have been given to the Purchaser within two years
from the Closing Date.
ARTICLE 9
CLOSING, BENEFICIAL OWNERSHIP AND POSSESSION
9.1 Upon or prior to the Closing Date, or so soon thereafter as the parties
agree upon:
(a) the Vendor shall do all things necessary to transfer to the Purchaser
the Assets;
(b) the Purchaser shall:
(i) issue and deliver to the Vendor the Share Consideration; and
(ii) at the request of the Vendor, deliver to the Vendor a copy of the
resolution of the board of directors of the Purchaser adding the
Stated Capital Addition to the stated capital account maintained
for the shares forming the Share Consideration, certified by the
secretary of the Purchaser as a true and exact copy, where
required by the Vendor.
9.2 If the requisite conveyances necessary to transfer ownership of the Assets
in the name of the Purchaser or its nominee have not been completed on the
Closing Date the Vendor agrees that, until such time as the Assets shall be
transferred into the name of the Purchaser or its
-7-
<PAGE>
nominee, the Vendor shall stand as owner of the Assets as bare trustee for and
on behalf of the Purchaser as the beneficial owner, and in such capacity the
Vendor shall:
(a) receive on behalf of, account to and forthwith pay over to the
Purchaser, any and all amounts received by the Vendor as the owner of
the Assets; and
(b) transfer and deal with the Assets in such manner as the Purchaser may
direct.
The Purchaser shall at all times hereafter indemnify and keep indemnified the
Vendor against all liabilities that the Vendor may incur by reason of the Assets
being in the name of the Vendor.
ARTICLE 10
FURTHER ACTS AND ASSURANCES
10.1 Each of the parties shall, upon the reasonable request of the other party,
make, do, execute or cause to be made, done, or executed all such further and
other lawful acts, deeds, things, documents and assurances of whatsoever nature
and kind for the better performance of the terms and conditions of this
Agreement. Without limiting the generality of the foregoing, the Vendor shall
use all commercially reasonable efforts to make, do, execute or cause to be
made, done, or executed all such further and lawful acts, deeds, things,
documents and assurances as may be necessary to document the sublicence referred
to in the description of the Assets on Schedule "A", to obtain any required
consents from the grantors of rights-of-way and, where possible, to obtain
non-disturbance agreements from the grantors of rights-of-way.
ARTICLE 11
NOTICES
11.1 Any notice, direction or other instrument required or permitted to be given
under the provisions of this Agreement shall be in writing and either delivered
personally, sent by prepaid registered mail or sent by facsimile to the party to
be notified. The addresses of the parties for such purpose shall respectively
be:
(a) to the Vendor at its registered office address; and
(b) to the Purchaser at its registered office address;
or to such other address in Canada of which either party may from time to time
notify the other.
11.2 Any notice, direction or other instrument shall:
(a) if delivered, be deemed to have been given or received on the day on
which it was so delivered and if not on a business day then on the
business day next following the day of delivery;
(b) if sent by facsimile shall be deemed to have been given or received on
the same business day as it was sent, provided facsimile confirmation
of receipt is received by the sender;
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<PAGE>
(c) if mailed, shall be deemed to have been given or received on the third
day following the day on which it was mailed; and
(d) if mailed at a time when there is an interruption or an anticipated
interruption of mail service affecting the delivery of such mail,
shall be deemed to have been given or received on the fifth business
day after the date that normal postal service is restored.
ARTICLE 12
ENTIRE AGREEMENT
12.1 This Agreement, together with the Definitive Agreement and the documents
referred to in the Definitive Agreement constitutes and contains the entire
agreement between the parties respecting the subject matter of this Agreement
and supersedes any prior agreements whether written or verbal.
ARTICLE 13
ENUREMENT
13.1 This Agreement shall enure to the benefit of and be binding upon the
parties and their respective successors, personal representatives and assigns.
ARTICLE 14
COUNTERPARTS
14.1 This Agreement may be executed in counterparts with the same effect as if
all of the parties hereto had signed the same document. All counterparts shall
be construed together and shall constitute one and the same agreement. A
facsimile transmitted copy of this Agreement signed by a party, in counterpart
or otherwise, shall be deemed to be evidence of a properly executed, delivered
and binding agreement of the party so signing, notwithstanding any variation on
the actual dates of execution. The parties each agree to promptly return an
original duly executed counterpart of this Agreement following the transmission
of the facsimile transcribed copy thereof.
[THE NEXT PAGE IS THE EXECUTION PAGE.]
-9-
<PAGE>
IN WITNESS WHEREOF the parties have properly executed this Agreement, as of the
Effective Date.
LEDCOR COMMUNICATIONS LTD.
PER:
------------------------------
WFI URBANLINK LTD.
PER:
------------------------------
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<PAGE>
SCHEDULE "A"
------------
TO THAT CERTAIN ASSET PURCHASE AGREEMENT (ROLL-OVER)
MADE BETWEEN LEDCOR COMMUNICATIONS LTD.
(AS VENDOR) AND WFI URBANLINK LTD.
(AS PURCHASER)
----------------------------------------------------
ASSETS
------
1. ASSETS
"Assets" means the Strands located in Canada that are more particularly
described in Exhibit A-1, together with associated Communication Shelters and
Co-Location Facilities, Support Structures Interests and ROW Rights, as
described below.
2. DEFINITIONS
For the purposes of this Schedule "A", except as otherwise expressly defined
below, capitalized terms shall have the meanings provided for in the Agreement
to which this Schedule "A" is attached:
"Bundle" means a grouping of 12 continuously running Strands in the buffer tube
within which such Strands are enclosed, in the Fiber Optic Cable.
"Communications Shelters and Co-Location Facilities" means the communications
shelters and co-location facilities associated with the Strands described in
Exhibit A-1, and which are being purchased by Purchaser as part of the Assets,
and which are more particularly described in Exhibit A-2.
"Fiber Optic Cable" means one or more Bundles of Strands of which certain of the
Assets form a part.
"Initial Term" means, with respect to a particular segment described on Exhibit
A-1, the time period expiring on the expiry of the Underlying Rights for such
segment.
"Rights" means the ROW Rights and Shelter Licenses granted by the Vendor to
Purchaser under this Agreement.
"ROW Rights" means a non-exclusive right to use and enjoy the Underlying Rights,
in common with all others having such rights, with respect to Strands forming
part of the Assets and with respect to Communications Shelters located on the
Underlying Rights granted by way of a sublicense, an indefeasible right to use
or other subright (subject in all respects to the terms of the applicable
Underlying Rights).
"Shelter License" has the meaning ascribed thereto in Section 5 of this Schedule
"A".
-11-
<PAGE>
"Strand" or "strand" means a strand of optical fibre.
"Support Structures" means the infrastructure necessary to support the
operations of the Fiber Optic Cables including, without limitation, cable
sheathing (jacket, tubing, core wrap) and all associated conduit, troughing,
pedestals, slack containers, Utilities Shelters, connections between the
Utilities Shelters and Communications Shelters and between the Fiber Optic Cable
and the Communications Shelters and related equipment, but excluding the
Communications Shelters.
"Support Structures Agreement" means the agreement that will be entered into by
the Vendor and the Purchaser and all other owners of Strands (and, potentially,
those with other rights therein) in the Fiber Optic Cable.
"Support Structures Interests" has the meaning ascribed thereto in Section 4 of
this Schedule "A".
"Underlying Rights" means all easements, licenses of occupation, rights-of-way
or other similar rights held, owned or acquired or to be held, owned or
acquired, by the Vendor with respect to the land, structures, bridges, tunnels
or buildings through which the Fiber Optic Cable or any of them passes and upon
which certain of the Communications Shelters and Co-Location Facilities may be
located; and "Right-of-Way" means one of the Rights-of-Way.
"Utilities Shelters" means the utilities shelters that are part of the Support
Structures.
3. ASSETS INCLUDE ROW RIGHTS
(a) The Assets include the grant by the Vendor to the Purchaser with
respect to the ROW Rights required for the use, operation and
maintenance of the Assets and Support Structures during the Initial
Term of a sublicense of the ROW Rights to be granted pursuant to a
sublicense agreement to be executed and delivered as described in
Section 10.1 of the Agreement (the "Sublicense Agreement").
(b) The purchase price referred to in Article 5 of the Agreement shall be
inclusive of all consideration payable for applicable Underlying
Rights for the Initial Term. Notwithstanding anything to the contrary
contained herein, the terms of the sublicensing of ROW Rights shall be
subject to the terms of such Sublicense Agreement and any Rights
granted to Purchaser pursuant to the Sublicense Agreement in
accordance herewith shall be subject in all respects to the terms of
applicable laws and of the Underlying Rights including, without
limitation, any requirements for the consent of the grantor to such
grant and any limitations on the rights granted.
(c) The terms of the grant of ROW Rights shall be included in a separate
sublicense from the Vendor to the Purchaser to be executed and
delivered as described in Section 10.1 of the Agreement.
-12-
<PAGE>
4. INTEREST IN SUPPORT STRUCTURES
The Assets include the grant by the Vendor to the Purchaser, for no additional
consideration, of an undivided interest in all Support Structures related
thereto (including, for greater clarity, related Utilities Shelters) equal to
its proportionate share in the total Strands from time to time making up the
applicable segment of the Fiber Optic Cable(s) that will be shared with others
(such undivided interest shall be referred to as the "Support Structures
Interests"). The Purchaser acknowledges that the Support Structures will be
owned by all owners of Strands permitted by the Rights-of-Way and may be used by
such owners or others granted rights in the strands.
5. COMMUNICATIONS SHELTERS AND CO-LOCATION FACILITIES
The Assets include the Communications Shelters and Co-Location Facilities, but
not any interest in the land upon which such Communication Shelters and
Co-Location Facilities are located. Where Exhibit A-1 indicates that the Assets
include a communications shelter, then the Assets include all right, title and
interest of the Vendor in and to such communications shelter. Where Exhibit A-1
indicates that the Assets include co-location facilities, the Assets include the
grant by the Vendor to the Purchaser of non-exclusive licences of occupation in
respect of such co-location facilities, to be included in a co-location
agreement in a form acceptable to the Purchaser and the Vendor, acting
reasonably and in good faith.
The Assets include the grant by the Vendor to the Purchaser of non-exclusive
licenses of occupation in a form acceptable to the Purchaser and the Vendor,
acting reasonably and in good faith (a "Shelter License") in respect of each
Communications Shelter and Co-Location Facility that is not located on one of
the Underlying Rights, for the Initial Term, pursuant to Shelter License
agreements to be executed and delivered as described in this Section 5, and such
Shelter Licenses shall entitle Purchaser (at no cost to Purchaser during the
Initial Term) to keep such Communications Shelters at the location supplied and
(at Purchaser's cost) to maintain, repair and improve any equipment or materials
in such Communications Shelters and to have exclusive access to the interior of
the Communications Shelters.
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<PAGE>
SCHEDULE A-1
BANDWIDTH STRANDS
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
DUCT TUBE STRAND STRAND
SEGMENTS MILE POINTS ROW KILOMETER COLOUR COLOUR NUMBER TYPE
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
US BORDER TO CAMBRIDGE
US Border to Collage Ave 226.30 to CN/StL&H 2 Orange Rose 121-122 Leaf
225.21
Collage Avenue to Hyde Park Road 111.8 to 3.9 StL&H 174 Orange Rose 121-122 Leaf
Hyde Park Road to London 3.9 to 0.0 StL&H 6 Orange Rose 121-122 Leaf
London to Airport Road 114.6 to StL&H 8 Orange Rose 121-122 Leaf
109.48
Airport Road to Cambridge 109.48 to StL&H 84 Orange Rose 121-122 Leaf
57.2
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
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<PAGE>
SCHEDULE A-2
COMMUNICATIONS SHELTERS AND CO-LOCATION FACILITIES
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------
SITE ADDRESS ROW SHELTER TYPE
- --------------------------------------------------------------------------------------
<S> <C> <C> <C>
Chatham 245 Murray Street CP Line Amp
London 721 Quebec Street CP ADM
Cambridge 150 Samuelson Street CP Line Amp
- --------------------------------------------------------------------------------------
</TABLE>
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<PAGE>
SCHEDULE "B"
------------
TO THAT CERTAIN ASSET PURCHASE AGREEMENT (ROLL-OVER) MADE
BETWEEN LEDCOR COMMUNICATIONS LTD. (AS VENDOR) AND WFI
URBANLINK LTD. (AS PURCHASER)
---------------------------------------------------------
SHARE CONSIDERATION
-------------------
1000 Class "I" Series 1 Preferred Non-Voting Shares of the capital of the
Purchaser, represented by Share Certificate No 1-I(SER-1), having a redemption
price equal to the Fair Market Value of the Assets.
-16-
<PAGE>
Exhibit 10.37
ASSET PURCHASE AGREEMENT
(ROLL-OVER)
(BANDWIDTH)
THIS AGREEMENT is made effective as of the ____ day of April, 2000.
BETWEEN:
WFI-CN FIBRE INC.
(the "Vendor")
- and -
WFI URBANLINK LTD.
(the "Purchaser")
WHEREAS:
A. The Vendor is a subsidiary of 360.
B. 360 and the Purchaser are parties to the Definitive Agreement, pursuant to
which 360 has agreed to cause the Vendor to transfer the Assets to the
Purchaser.
C. The Vendor wishes to transfer the Assets to the Purchaser, and the
Purchaser wishes to acquire the Assets from the Vendor, all as at the Effective
Date for a total purchase price equal to the aggregate fair market value of the
Assets, on the terms and conditions and subject to the representations and
warranties set forth in this Agreement.
IN CONSIDERATION OF the foregoing premises and of the mutual covenants herein
contained the parties agree as follows:
ARTICLE 1
INCORPORATION OF RECITALS
AND SCHEDULES AND DEFINITIONS
1.1 The Recitals and all Schedules annexed to this Agreement are expressly
incorporated into, and form an integral part of, this Agreement.
ARTICLE 2
DEFINITIONS
2.1 In this Agreement:
(a) "360" means 360networks inc.
<PAGE>
(b) "Act" means the Income Tax Act (Canada), as it read on the Effective
Date;
(c) "Adjusted Cost Base" means the aggregate cost amount of the Assets
determined by the Vendor in accordance with the provisions of the Act,
where "cost amount" is as defined in subsection 248(1) of the Act;
(d) "Adjusted Elected Amount" means the amount that, for tax purposes, is
to be the Vendor's "proceeds of disposition" and the Purchaser's "cost
of acquisition" of the Assets, determined in accordance with section
6.3 to be a greater or lesser amount than the Elected Amount;
(e) "Adjusted Fair Market Value" means the aggregate of the fair market
value of the Assets, determined in accordance with section 5.4 to be a
greater or lesser amount than the Elected Fair Market Value;
(f) "Articles" means the articles of incorporation of the Purchaser
together with all amendments thereto as registered with the Registrar
of Corporations for the Province of Alberta as at the Effective Date;
(g) "Assets" has that meaning as set forth in Schedule "A" hereto;
(h) "Closing Date" means the Effective Date;
(i) "Definitive Agreement" means the Urbanlink Reorganization Definitive
Agreement relating to the Urbanlink Reorganization dated the same date
as this Agreement and made between 360, Worldwide Fiber Holdings Ltd.,
the Purchaser and Urbanlink Equipment Ltd.;
(j) "Effective Date" means the date of this Agreement;
(k) "Elected Amount" means the amount agreed upon by the parties in
accordance with section 6.2 hereof which, for tax purposes, is to be
the Vendor's "proceeds of disposition" and the Purchaser's "cost of
acquisition" of the Assets;
(l) "Elected Fair Market Value" means the aggregate fair market value of
the Assets as determined by the parties and reflected in the Election;
(m) "Election" means the election made by the parties in prescribed form
and within the time prescribed by subsection 85(6) of the Act that the
rules set forth in subsection 85(1) of the Act shall apply to the
purchase and sale of the Assets;
(n) "Fair Market Value" means the fair market value of the Assets
determined as the Effective Date, which shall be equal to either the
Elected Fair Market Value or the Adjusted Fair Market Value, as
finally determined in accordance with either section 5.3 or section
5.4 hereof, as the case may be;
(o) "Redemption Amount" means the amount per share payable on the
redemption of the shares forming the Share Consideration, which amount
shall be equal to the
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<PAGE>
Fair Market Value divided by the number of shares forming the Share
Consideration;
(p) "Revised Adjusted Cost Base" means the adjusted cost base of the
Assets determined in accordance with section 6.3 to be greater or
lesser amounts than the Adjusted Cost Base;
(q) "Schedules" means any schedules which are attached to this Agreement;
(r) "Share Consideration" means the number and class of shares of the
capital of the Purchaser having attached thereto only those rights,
privileges, restrictions and limitations set forth in the Articles,
which shares are more particularly described in Schedule "B";
(s) "Stated Capital Addition" means the aggregate stated capital for the
shares constituting the Share Consideration that is to be added to the
stated capital account maintained for such shares, which shall be
equal to the Fair Market Value; and
(t) "Taxing Authority" means the Minister of National Revenue for Canada
or any other competent authority having jurisdiction that is
authorized by law to issue an assessment or reassessment in respect of
the transactions herein contemplated.
ARTICLE 3
PURCHASE AND SALE
3.1 Subject to the terms and conditions, and based upon the representations and
warranties, contained in this Agreement, the Vendor shall sell, transfer and
assign and the Purchaser shall purchase as of the Effective Date all of the
Vendor's interest in the Assets.
ARTICLE 4
EFFECTIVE DATE
4.1 It is acknowledged and agreed to by the parties that the purchase and sale
of the Assets is deemed to have occurred as of the Effective Date.
ARTICLE 5
PURCHASE PRICE
5.1 The total purchase price for the Assets is equal to the Fair Market Value
and shall be paid and satisfied by the Purchaser issuing to the Vendor the Share
Consideration.
5.2 The Purchaser shall add the Stated Capital Addition to the stated capital
account being maintained for the class of shares of which the Share
Consideration forms a part.
5.3 Subject to section 5.4, the parties have determined that the fair market
value of the Assets is equal to the Elected Fair Market Value, which
determination is final and binding upon the parties.
-3-
<PAGE>
5.4 If:
(a) the Taxing Authority at any time proposes to issue, or does issue, any
assessment or reassessments that impose, or would impose, any
liability for tax of any nature or kind on either of the parties on
the basis that the aggregate of the fair market value of the Assets at
the Effective Date is a greater or lesser amount than the Elected Fair
Market Value; and
(b) the parties agree, or a Court or tribunal of competent jurisdiction
finally adjudges, that the aggregate of the fair market value of the
Assets as of the Effective Date is the Adjusted Fair Market Value;
then:
(c) the Fair Market Value shall be deemed to have always been, and the
Fair Market Value wherever referred to in this Agreement shall be read
as meaning, the Adjusted Fair Market Value.
5.5 If not all of the shares forming the Share Consideration have been redeemed
or purchased by the Purchaser on or prior to the date of determination of the
Adjusted Fair Market Value of the Assets, then the Redemption Amount for each of
the shares forming the Share Consideration which are still outstanding at that
time, shall be adjusted in accordance with section 5.7 hereof.
5.6 If the Purchaser has repurchased or redeemed all of the shares forming the
Share Consideration at or before the time that the Adjusted Fair Market Value is
determined, then:
(a) where the aggregate of the amounts previously paid by the Purchaser on
the repurchase of the Share Consideration exceeds the Adjusted Fair
Market Value, the excess shall be a debt payable to the Purchaser by
the Vendor, on demand, without interest except in the event of default
whereupon interest shall accrue on the principal amount in default at
the rate of 2% per annum above the prime lending rate established from
time to time by the Vancouver main branch of the Purchaser's bank,
calculated from the date of default until the date payment is made;
and
(b) where the aggregate of the amounts previously paid by the Purchaser on
the repurchase of the Share Consideration is less than the Adjusted
Fair Market Value, the loss shall be a debt payable to the Vendor by
the Purchaser, on demand, without interest except in the event of
default whereupon interest shall accrue on the principal amount in
default at the rate of 2% per annum above the prime lending rate
established from time to time by the Vancouver main branch of the
Vendor's bank, calculated from the date of default until the date
payment is made.
5.7 If, because of the operation of section 5.4, the Fair Market Value is
determined at the Effective Date to be equal to the Adjusted Fair Market Value,
then the Redemption Amount shall be adjusted NUNC PRO TUNC to reflect an amount
equal to the Adjusted Fair Market Value, and all necessary adjustments, payments
and repayments, if any, as may be required by virtue of such
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<PAGE>
adjustment, shall forthwith be made between the Purchaser and the Vendor in
accordance with the provisions of section 5.6, MUTATIS MUTANDIS.
ARTICLE 6
JOINT ELECTION AND ELECTED AMOUNTS
6.1 The Vendor and Purchaser shall jointly make the Election.
6.2 Subject to the provisions of this Agreement, for purposes of the Election
the parties agree that the Elected Amount shall be the Adjusted Cost Base of the
Assets, which determination is final and binding on the parties.
6.3 If:
(a) the Taxing Authority proposes to issue, or does issue, any assessment
or reassessments that impose, or would impose, any liability for tax
of any nature or kind on either of the parties on the basis that the
adjusted cost base of the Assets is the Revised Adjusted Cost Base;
(b) the parties agree, or a Court or tribunal of competent jurisdiction
finally adjudges, that the adjusted cost base of the Assets is the
Revised Adjusted Cost Base; and
(c) the Taxing Authority will accept as effective an amended Election of
the parties;
then:
(d) the Adjusted Cost Base shall be deemed to have always been, and the
Adjusted Cost Base wherever referred to in this Agreement, shall be
read as meaning the Revised Adjusted Cost Base;
(e) the Elected Amount shall be deemed to have always been, and the
Elected Amount wherever referred to in this Agreement shall be read as
meaning, an amount equal to the Adjusted Elected Amount; and
(f) the parties shall take all such steps and jointly execute all such
documents and elections as may be required and allowed so that the
aggregate of the amounts elected for purposes of subsection 85(1) of
the Act with respect to the purchase and sale of the Assets shall be
equal to the Adjusted Elected Amount.
ARTICLE 7
VENDOR'S REPRESENTATIONS AND WARRANTIES
7.1 The Vendor represents and warrants to the Purchaser that:
(a) on the Closing Date the Assets shall be beneficially owned by the
Vendor free and clear of all restrictions, options, liens, charges and
encumbrances, whatsoever;
-5-
<PAGE>
(b) no person, firm or corporation has any written or verbal agreement,
option, understanding or commitment or any right or privilege capable
of becoming an agreement for the purchase of the Assets from the
Vendor other than as set out in this Agreement;
(c) on the Closing Date the Vendor shall not be a non-resident of Canada
within the meaning of the Act; and
(d) the distances shown on the Schedules are accurate.
7.2 The representations and warranties contained in section 7.1 shall survive
the completion of the purchase and sale of the Assets and shall continue in full
force and effect for the benefit of the Purchaser; provided always that no claim
with respect to the representations and warranties shall be made by the
Purchaser unless written notice shall have been given to the Vendor within two
years from the Closing Date.
ARTICLE 8
PURCHASER'S REPRESENTATIONS AND WARRANTIES
8.1 The Purchaser represents and warrants to the Vendor that:
(a) the Purchaser is a corporation duly incorporated, validly existing and
qualified to carry on business under the laws of the Province of
Alberta;
(b) the authorized capital of the Purchaser consists of an unlimited
number of:
(i) Class "A" Common Voting Shares
(ii) Class "I" Preferred Non-Voting Shares, authorized to be issued in
series, which series shares are designated as follows:
(A) Class "I" Series 1 Preferred Non-Voting Shares;
(B) Class "I" Series 2 Preferred Non-Voting Shares;
(C) Class "I" Series 3 Preferred Non-Voting Shares;
(D) Class "I" Series 4 Preferred Non-Voting Shares;
(E) Class "I" Series 5 Preferred Non-Voting Shares;
(F) Class "I" Series 6 Preferred Non-Voting Shares;
(G) Class "I" Series 7 Preferred Non-Voting Shares;
(H) Class "I" Series 8 Preferred Non-Voting Shares;
(I) Class "I" Series 9 Preferred Non-Voting Shares;
-6-
<PAGE>
(J) Class "I" Series 10 Preferred Non-Voting Shares;
(K) Class "I" Series 11 Preferred Non-Voting Shares;
(L) Class "I" Series 12 Preferred Non-Voting Shares;
(M) Class "I" Series 13 Preferred Non-Voting Shares;
(N) Class "I" Series 14 Preferred Non-Voting Shares;
(O) Class "I" Series 15 Preferred Non-Voting Shares;
having attached thereto only those rights, privileges, restrictions
and conditions set forth in the Articles;
(c) the issuance to the Vendor of the Share Consideration is valid and in
accordance with the laws of the Province of Alberta; and
(d) this Agreement constitutes a valid and binding obligation of the
Purchaser and the transactions contemplated by this Agreement are not
in violation of any terms and conditions of the Articles or any
agreement to which the Purchaser is a party or by which the Purchaser
is bound.
8.2 The representations and warranties contained in section 8.1 shall survive
the completion of the purchase and sale of the Assets and shall continue in full
force and effect for the benefit of the Vendor; provided always that no claim
with respect to the representations and warranties shall be made by the Vendor
unless written notice shall have been given to the Purchaser within two years
from the Closing Date.
ARTICLE 9
CLOSING, BENEFICIAL OWNERSHIP AND POSSESSION
9.1 Upon or prior to the Closing Date, or so soon thereafter as the parties
agree upon:
(a) the Vendor shall do all things necessary to transfer to the Purchaser
the Assets;
(b) the Purchaser shall:
(i) issue and deliver to the Vendor the Share Consideration; and
(ii) at the request of the Vendor, deliver to the Vendor a copy of the
resolution of the board of directors of the Purchaser adding the
Stated Capital Addition to the stated capital account maintained
for the shares forming the Share Consideration, certified by the
secretary of the Purchaser as a true and exact copy, where
required by the Vendor.
9.2 If the requisite conveyances necessary to transfer ownership of the Assets
in the name of the Purchaser or its nominee have not been completed on the
Closing Date the Vendor agrees that, until such time as the Assets shall be
transferred into the name of the Purchaser or its
-7-
<PAGE>
nominee, the Vendor shall stand as owner of the Assets as bare trustee for and
on behalf of the Purchaser as the beneficial owner, and in such capacity the
Vendor shall:
(a) receive on behalf of, account to and forthwith pay over to the
Purchaser, any and all amounts received by the Vendor as the owner of
the Assets; and
(b) transfer and deal with the Assets in such manner as the Purchaser may
direct.
The Purchaser shall at all times hereafter indemnify and keep indemnified the
Vendor against all liabilities that the Vendor may incur by reason of the Assets
being in the name of the Vendor.
ARTICLE 10
FURTHER ACTS AND ASSURANCES
10.1 Each of the parties shall, upon the reasonable request of the other party,
make, do, execute or cause to be made, done, or executed all such further and
other lawful acts, deeds, things, documents and assurances of whatsoever nature
and kind for the better performance of the terms and conditions of this
Agreement. Without limiting the generality of the foregoing, the Vendor shall
use all commercially reasonable efforts to make, do, execute or cause to be
made, done, or executed all such further and lawful acts, deeds, things,
documents and assurances as may be necessary to document the sublicence referred
to in the description of the Assets on Schedule "A", to obtain any required
consents from the grantors of rights-of-way and, where possible, to obtain
non-disturbance agreements from the grantors of rights-of-way.
ARTICLE 11
NOTICES
11.1 Any notice, direction or other instrument required or permitted to be given
under the provisions of this Agreement shall be in writing and either delivered
personally, sent by prepaid registered mail or sent by facsimile to the party to
be notified. The addresses of the parties for such purpose shall respectively
be:
(a) to the Vendor at its registered office address; and
(b) to the Purchaser at its registered office address;
or to such other address in Canada of which either party may from time to time
notify the other.
11.2 Any notice, direction or other instrument shall:
(a) if delivered, be deemed to have been given or received on the day on
which it was so delivered and if not on a business day then on the
business day next following the day of delivery;
(b) if sent by facsimile shall be deemed to have been given or received on
the same business day as it was sent, provided facsimile confirmation
of receipt is received by the sender;
-8-
<PAGE>
(c) if mailed, shall be deemed to have been given or received on the third
day following the day on which it was mailed; and
(d) if mailed at a time when there is an interruption or an anticipated
interruption of mail service affecting the delivery of such mail,
shall be deemed to have been given or received on the fifth business
day after the date that normal postal service is restored.
ARTICLE 12
ENTIRE AGREEMENT
12.1 This Agreement, together with the Definitive Agreement and the documents
referred to in the Definitive Agreement constitutes and contains the entire
agreement between the parties respecting the subject matter of this Agreement
and supersedes any prior agreements whether written or verbal.
ARTICLE 13
ENUREMENT
13.1 This Agreement shall enure to the benefit of and be binding upon the
parties and their respective successors, personal representatives and assigns.
ARTICLE 14
COUNTERPARTS
14.1 This Agreement may be executed in counterparts with the same effect as if
all of the parties hereto had signed the same document. All counterparts shall
be construed together and shall constitute one and the same agreement. A
facsimile transmitted copy of this Agreement signed by a party, in counterpart
or otherwise, shall be deemed to be evidence of a properly executed, delivered
and binding agreement of the party so signing, notwithstanding any variation on
the actual dates of execution. The parties each agree to promptly return an
original duly executed counterpart of this Agreement following the transmission
of the facsimile transcribed copy thereof.
[THE NEXT PAGE IS THE EXECUTION PAGE.]
-9-
<PAGE>
IN WITNESS WHEREOF the parties have properly executed this Agreement, as of the
Effective Date.
WFI-CN FIBRE INC.
PER:
------------------------------
WFI URBANLINK LTD.
PER:
------------------------------
-10-
<PAGE>
SCHEDULE "A"
------------
TO THAT CERTAIN ASSET PURCHASE AGREEMENT (ROLL-OVER)
MADE BETWEEN WFI-CN FIBRE INC.
(AS VENDOR) AND WFI URBANLINK LTD.
(AS PURCHASER)
----------------------------------------------------
ASSETS
------
1. ASSETS
"Assets" means the Strands located in Canada that are more particularly
described in Exhibit A-1, together with associated Communication Shelters and
Co-Location Facilities, Support Structures Interests and ROW Rights, as
described below.
2. DEFINITIONS
For the purposes of this Schedule "A", except as otherwise expressly defined
below, capitalized terms shall have the meanings provided for in the Agreement
to which this Schedule "A" is attached:
"Bundle" means a grouping of 12 continuously running Strands in the buffer tube
within which such Strands are enclosed, in the Fiber Optic Cable.
"Communications Shelters and Co-Location Facilities" means the communications
shelters and co-location facilities associated with the Strands described in
Exhibit A-1 and which are being purchased by Purchaser as part of the Assets,
and which are more particularly described in Exhibit A-2.
"Fiber Optic Cable" means one or more Bundles of Strands of which certain of the
Assets form a part.
"Initial Term" means, with respect to a particular segment described on Exhibit
A-1, the time period expiring on the expiry of the Underlying Rights for such
segment.
"Rights" means the ROW Rights and Shelter Licenses granted by the Vendor to
Purchaser under this Agreement.
"ROW Rights" means a non-exclusive right to use and enjoy the Underlying Rights,
in common with all others having such rights, with respect to Strands forming
part of the Assets and with respect to Communications Shelters located on the
Underlying Rights granted by way of a sublicense, an indefeasible right to use
or other subright (subject in all respects to the terms of the applicable
Underlying Rights).
"Shelter License" has the meaning ascribed thereto in Section 5 of this
Schedule "A".
-11-
<PAGE>
"Strand" or "strand" means a strand of optical fibre.
"Support Structures" means the infrastructure necessary to support the
operations of the Fiber Optic Cables including, without limitation, cable
sheathing (jacket, tubing, core wrap) and all associated conduit, troughing,
pedestals, slack containers, Utilities Shelters, connections between the
Utilities Shelters and Communications Shelters and between the Fiber Optic Cable
and the Communications Shelters and related equipment, but excluding the
Communications Shelters.
"Support Structures Agreement" means the agreement that will be entered into by
the Vendor and the Purchaser and all other owners of Strands (and, potentially,
those with other rights therein) in the Fiber Optic Cable.
"Support Structures Interests" has the meaning ascribed thereto in Section 4 of
this Schedule "A".
"Underlying Rights" means all easements, licenses of occupation, rights-of-way
or other similar rights held, owned or acquired or to be held, owned or
acquired, by the Vendor with respect to the land, structures, bridges, tunnels
or buildings through which the Fiber Optic Cable or any of them passes and upon
which certain of the Communications Shelters and Co-Location Facilities may be
located; and "Right-of-Way" means one of the Rights-of-Way.
"Utilities Shelters" means the utilities shelters that are part of the Support
Structures.
3. ASSETS INCLUDE ROW RIGHTS
(a) The Assets include the grant by the Vendor to the Purchaser with
respect to the ROW Rights required for the use, operation and
maintenance of the Assets and Support Structures during the Initial
Term of a sublicense of the ROW Rights to be granted pursuant to a
sublicense agreement to be executed and delivered as described in
Section 10.1 of the Agreement (the "Sublicense Agreement").
(b) The purchase price referred to in Article 5 of the Agreement shall be
inclusive of all consideration payable for applicable Underlying
Rights for the Initial Term. Notwithstanding anything to the contrary
contained herein, the terms of the sublicensing of ROW Rights shall be
subject to the terms of such Sublicense Agreement and any Rights
granted to Purchaser pursuant to the Sublicense Agreement in
accordance herewith shall be subject in all respects to the terms of
applicable laws and of the Underlying Rights including, without
limitation, any requirements for the consent of the grantor to such
grant and any limitations on the rights granted.
(c) The terms of the grant of ROW Rights shall be included in a separate
sublicense from the Vendor to the Purchaser to be executed and
delivered as described in Section 10.1 of the Agreement.
-12-
<PAGE>
4. INTEREST IN SUPPORT STRUCTURES
The Assets include the grant by the Vendor to the Purchaser, for no additional
consideration, of an undivided interest in all Support Structures related
thereto (including, for greater clarity, related Utilities Shelters) equal to
its proportionate share in the total Strands from time to time making up the
applicable segment of the Fiber Optic Cable(s) that will be shared with others
(such undivided interest shall be referred to as the "Support Structures
Interests"). The Purchaser acknowledges that the Support Structures will be
owned by all owners of Strands permitted by the Rights-of-Way and may be used by
such owners or others granted rights in the strands.
5. COMMUNICATIONS SHELTERS AND CO-LOCATION FACILITIES
The Assets include the Communications Shelters and Co-Location Facilities, but
not any interest in the land upon which such Communication Shelters and
Co-Location Facilities are located. Where Exhibit A-1 indicates that the Assets
include a communications shelter, then the Assets include all right, title and
interest of the Vendor in and to such communications shelter. Where Exhibit A-1
indicates that the Assets include co-location facilities, the Assets include the
grant by the Vendor to the Purchaser of non-exclusive licences of occupation in
respect of such co-location facilities, to be included in a co-location
agreement in a form acceptable to the Purchaser and the Vendor, acting
reasonably and in good faith.
The Assets include the grant by the Vendor to the Purchaser of non-exclusive
licenses of occupation in a form acceptable to the Purchaser and the Vendor,
acting reasonably and in good faith (a "Shelter License") in respect of each
Communications Shelter and Co-Location Facility that is not located on one of
the Underlying Rights, for the Initial Term, pursuant to Shelter License
agreements to be executed and delivered as described in this Section 5, and such
Shelter Licenses shall entitle Purchaser (at no cost to Purchaser during the
Initial Term) to keep such Communications Shelters at the location supplied and
(at Purchaser's cost) to maintain, repair and improve any equipment or materials
in such Communications Shelters and to have exclusive access to the interior of
the Communications Shelters.
-13-
<PAGE>
SCHEDULE A-1
BANDWIDTH STRANDS
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
DUCT TUBE STRAND STRAND
SEGMENTS MILE POINTS ROW KILOMETER COLOUR COLOUR NUMBER TYPE
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
TORONTO TO BROCKVILLE
Union Station to Parliament 333.8 to TTR 12 Orange Rose 121-122 Leaf
St.(Kingston) 332.8
Parliament St to Scarborough 332.8 to 7.24 CN 23 Orange Rose 121-122 Leaf
(Kingston)
Scarborough to Pickering Jct. 325.56 to CN 299 Orange Rose 121-122 Leaf
(Kingston) 311.4
Pickering Jct. To Brockville 311.4 to CN Orange Rose 121-122 Leaf
(Kingston) 125.7
BROCKVILLE TO SMITH FALLS 27.8 to 0.0 StL&H 45 Orange Rose 121-122 Leaf
SMITH FALLS TO OTTAWA (VIA) STATION
Smith Falls to Alexander St.(Smiths 34.5 to 34.38 StL&H 0.2 Orange Rose 121-122 Leaf
Falls)
Alexander st. to CN Radio Site 34.38 to CN 1 Orange Rose 121-122 Leaf
(Smiths Falls) 34.05
CN Radio Site to Richmond (Smiths 34.05 to 13.0 VIA 34 Orange Rose 121-122 Leaf
Falls)
Richmond to Federal (Smiths Falls) 13.0 to 0.0 CN 21 Orange Rose 121-122 Leaf
Federal to Union Station (Beachburg) 6.0 to 0.9 CN 10 Orange Rose 121-122 Leaf
BORDER TO TORONTO
U.S. Border to Fort Erie (Stamford) 0.6 to 1.0 CN 1 Orange Rose 121-122 Leaf
Fort Erie to Port Robinson (Stamford) 1.0 to 23.14 CN 36 Orange Rose 121-122 Leaf
Port Robinson to Merriton (Thorld 1.27 to 7.9 CN 11 Orange Rose 121-122 Leaf
Spur)
Merriton to Hamilton (Grimsby) 9.5 to 43.66 CN 55 Orange Rose 121-122 Leaf
Hamilton to Canpa (Oakville) 39.3 to 8.5 CN 50 Orange Rose 121-122 Leaf
Canpa to Windsor St. (Oakville) 8.5 to 0.5 CN 13 Orange Rose 121-122 Leaf
OTTAWA TO QUEBEC BORDER
Union Station to Hawthorne Diamond 76.5 to 2.72 CN 6 Temp Rose 121-122 Leaf
(Alexandria)
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
-14-
<PAGE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
DUCT TUBE STRAND STRAND
SEGMENTS MILE POINTS ROW KILOMETER COLOUR COLOUR NUMBER TYPE
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Hawthorne Diamond to Hawthorne 72.72 to 72.5 CN 0.4 Rose 121-122 Leaf
(Alexandria)
Hawthorne to Quebec Border 72.5 to 12.5 VIA 97 Rose 121-122 Leaf
(Alexandria)
BORDER TO QUEBEC CITY
Coteau Jct. To Dorion (Kingston) 38.0 to 24.3 CN 22.04 Orange Rose 121-122 Leaf
Dorion to Dorval (Kingston) 24.3 to 10.3 CN 22.53 Orange Rose 121-122 Leaf
Dorval to Taschereau Yard (Montreal) 11.6 to 9.0 CN 4.18 Orange Rose 121-122 Leaf
MONTREAL TO QUEBEC CITY CN 259.79 Orange Rose 121-122 Leaf
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
-15-
<PAGE>
SCHEDULE A-2
COMMUNICATIONS SHELTERS AND CO-LOCATION FACILITIES
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------
SITE ADDRESS ROW RAIL MILE POINT SHELTER TYPE
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Cranberry 14 Concession, Lot 35, CN 205.1 Line Amp
Hwy #69
- ----------------------------------------------------------------------------------------------------
Parry Sound 80 Cascade St CN 150.17 Line Amp
- ----------------------------------------------------------------------------------------------------
Woodward Muskoka Rd #13, CN 104.19 Line Amp
- ----------------------------------------------------------------------------------------------------
Pefferlaw Pefferlaw Rd. CN 55.5 Line Amp
- ----------------------------------------------------------------------------------------------------
</TABLE>
-16-
<PAGE>
SCHEDULE "B"
------------
TO THAT CERTAIN ASSET PURCHASE AGREEMENT (ROLL-OVER) MADE
BETWEEN WFI-CN FIBRE INC. (AS VENDOR) AND WFI URBANLINK
LTD. (AS PURCHASER)
---------------------------------------------------------
SHARE CONSIDERATION
-------------------
1000 Class "I" Series 2 Preferred Non-Voting Shares of the capital of the
Purchaser, represented by Share Certificate No. 1-I(SER-2) having a redemption
price equal to the Fair Market Value of the Assets.
-17-
<PAGE>
Exhibit 10.38
ASSET PURCHASE AGREEMENT
(ROLL-OVER)
THIS AGREEMENT is made effective as of the ____ day of April, 2000.
BETWEEN:
WORLDWIDE FIBER (F.O.T.S.) NO. 3, LTD.
(the "Vendor")
- and -
WFI URBANLINK LTD.
(the "Purchaser")
WHEREAS:
A. The Vendor is a subsidiary of 360.
B. 360 and the Purchaser are parties to the Definitive Agreement, pursuant to
which 360 has agreed to cause the Vendor to transfer the Assets to the
Purchaser.
C. The Vendor wishes to transfer the Assets to the Purchaser, and the
Purchaser wishes to acquire the Assets from the Vendor, all as at the Effective
Date for a total purchase price equal to the aggregate fair market value of the
Assets, on the terms and conditions and subject to the representations and
warranties set forth in this Agreement.
IN CONSIDERATION OF the foregoing premises and of the mutual covenants herein
contained the parties agree as follows:
ARTICLE 1
INCORPORATION OF RECITALS
AND SCHEDULES AND DEFINITIONS
1.1 The Recitals and all Schedules annexed to this Agreement are expressly
incorporated into, and form an integral part of, this Agreement.
ARTICLE 2
DEFINITIONS
2.1 In this Agreement:
(a) "360" means 360networks inc.
<PAGE>
(b) "Act" means the Income Tax Act (Canada), as it read on the Effective
Date;
(c) "Adjusted Cost Base" means the aggregate cost amount of the Assets
determined by the Vendor in accordance with the provisions of the Act,
where "cost amount" is as defined in subsection 248(1) of the Act;
(d) "Adjusted Elected Amount" means the amount that, for tax purposes, is
to be the Vendor's "proceeds of disposition" and the Purchaser's "cost
of acquisition" of the Assets, determined in accordance with section
6.3 to be a greater or lesser amount than the Elected Amount;
(e) "Adjusted Fair Market Value" means the aggregate of the fair market
value of the Assets, determined in accordance with section 5.4 to be a
greater or lesser amount than the Elected Fair Market Value;
(f) "Articles" means the articles of incorporation of the Purchaser
together with all amendments thereto as registered with the Registrar
of Corporations for the Province of Alberta as at the Effective Date;
(g) "Assets" has that meaning as set forth in Schedule "A" hereto;
(h) "Closing Date" means the Effective Date;
(i) "Definitive Agreement" means the Urbanlink Reorganization Definitive
Agreement relating to the Urbanlink Reorganization dated the same date
as this Agreement and made between 360, Worldwide Fiber Holdings Ltd.,
the Purchaser and Urbanlink Equipment Ltd.;
(j) "Effective Date" means the date of this Agreement;
(k) "Elected Amount" means the amount agreed upon by the parties in
accordance with section 6.2 hereof which, for tax purposes, is to be
the Vendor's "proceeds of disposition" and the Purchaser's "cost of
acquisition" of the Assets;
(l) "Elected Fair Market Value" means the aggregate fair market value of
the Assets as determined by the parties and reflected in the Election;
(m) "Election" means the election made by the parties in prescribed form
and within the time prescribed by subsection 85(6) of the Act that the
rules set forth in subsection 85(1) of the Act shall apply to the
purchase and sale of the Assets;
(n) "Fair Market Value" means the fair market value of the Assets
determined as the Effective Date, which shall be equal to either the
Elected Fair Market Value or the Adjusted Fair Market Value, as
finally determined in accordance with either section 5.3 or section
5.4 hereof, as the case may be;
(o) "Redemption Amount" means the amount per share payable on the
redemption of the shares forming the Share Consideration, which amount
shall be equal to the
-2-
<PAGE>
Fair Market Value divided by the number of shares forming the Share
Consideration;
(p) "Revised Adjusted Cost Base" means the adjusted cost base of the
Assets determined in accordance with section 6.3 to be greater or
lesser amounts than the Adjusted Cost Base;
(q) "Schedules" means any schedules which are attached to this Agreement;
(r) "Share Consideration" means the number and class of shares of the
capital of the Purchaser having attached thereto only those rights,
privileges, restrictions and limitations set forth in the Articles,
which shares are more particularly described in Schedule "B";
(s) "Stated Capital Addition" means the aggregate stated capital for the
shares constituting the Share Consideration that is to be added to the
stated capital account maintained for such shares, which shall be
equal to the Fair Market Value; and
(t) "Taxing Authority" means the Minister of National Revenue for Canada
or any other competent authority having jurisdiction that is
authorized by law to issue an assessment or reassessment in respect of
the transactions herein contemplated.
ARTICLE 3
PURCHASE AND SALE
3.1 Subject to the terms and conditions, and based upon the representations and
warranties, contained in this Agreement, the Vendor shall sell, transfer and
assign and the Purchaser shall purchase as of the Effective Date all of the
Vendor's interest in the Assets.
ARTICLE 4
EFFECTIVE DATE
4.1 It is acknowledged and agreed to by the parties that the purchase and sale
of the Assets is deemed to have occurred as of the Effective Date.
ARTICLE 5
PURCHASE PRICE
5.1 The total purchase price for the Assets is equal to the Fair Market Value
and shall be paid and satisfied by the Purchaser issuing to the Vendor the Share
Consideration.
5.2 The Purchaser shall add the Stated Capital Addition to the stated capital
account being maintained for the class of shares of which the Share
Consideration forms a part.
5.3 Subject to section 5.4, the parties have determined that the fair market
value of the Assets is equal to the Elected Fair Market Value, which
determination is final and binding upon the parties.
-3-
<PAGE>
5.4 If:
(a) the Taxing Authority at any time proposes to issue, or does issue, any
assessment or reassessments that impose, or would impose, any
liability for tax of any nature or kind on either of the parties on
the basis that the aggregate of the fair market value of the Assets at
the Effective Date is a greater or lesser amount than the Elected Fair
Market Value; and
(b) the parties agree, or a Court or tribunal of competent jurisdiction
finally adjudges, that the aggregate of the fair market value of the
Assets as of the Effective Date is the Adjusted Fair Market Value;
then:
(c) the Fair Market Value shall be deemed to have always been, and the
Fair Market Value wherever referred to in this Agreement shall be read
as meaning, the Adjusted Fair Market Value.
5.5 If not all of the shares forming the Share Consideration have been redeemed
or purchased by the Purchaser on or prior to the date of determination of the
Adjusted Fair Market Value of the Assets, then the Redemption Amount for each of
the shares forming the Share Consideration which are still outstanding at that
time, shall be adjusted in accordance with section 5.7 hereof.
5.6 If the Purchaser has repurchased or redeemed all of the shares forming the
Share Consideration at or before the time that the Adjusted Fair Market Value is
determined, then:
(a) where the aggregate of the amounts previously paid by the Purchaser on
the repurchase of the Share Consideration exceeds the Adjusted Fair
Market Value, the excess shall be a debt payable to the Purchaser by
the Vendor, on demand, without interest except in the event of default
whereupon interest shall accrue on the principal amount in default at
the rate of 2% per annum above the prime lending rate established from
time to time by the Vancouver main branch of the Purchaser's bank,
calculated from the date of default until the date payment is made;
and
(b) where the aggregate of the amounts previously paid by the Purchaser on
the repurchase of the Share Consideration is less than the Adjusted
Fair Market Value, the loss shall be a debt payable to the Vendor by
the Purchaser, on demand, without interest except in the event of
default whereupon interest shall accrue on the principal amount in
default at the rate of 2% per annum above the prime lending rate
established from time to time by the Vancouver main branch of the
Vendor's bank, calculated from the date of default until the date
payment is made.
5.7 If, because of the operation of section 5.4, the Fair Market Value is
determined at the Effective Date to be equal to the Adjusted Fair Market Value,
then the Redemption Amount shall be adjusted NUNC PRO TUNC to reflect an amount
equal to the Adjusted Fair Market Value, and all necessary adjustments, payments
and repayments, if any, as may be required by virtue of such
-4-
<PAGE>
adjustment, shall forthwith be made between the Purchaser and the Vendor in
accordance with the provisions of section 5.6, MUTATIS MUTANDIS.
ARTICLE 6
JOINT ELECTION AND ELECTED AMOUNTS
6.1 The Vendor and Purchaser shall jointly make the Election.
6.2 Subject to the provisions of this Agreement, for purposes of the Election
the parties agree that the Elected Amount shall be the Adjusted Cost Base
of the Assets, which determination is final and binding on the parties.
6.3 If:
(a) the Taxing Authority proposes to issue, or does issue, any assessment
or reassessments that impose, or would impose, any liability for tax
of any nature or kind on either of the parties on the basis that the
adjusted cost base of the Assets is the Revised Adjusted Cost Base;
(b) the parties agree, or a Court or tribunal of competent jurisdiction
finally adjudges, that the adjusted cost base of the Assets is the
Revised Adjusted Cost Base; and
(c) the Taxing Authority will accept as effective an amended Election of
the parties;
then:
(d) the Adjusted Cost Base shall be deemed to have always been, and the
Adjusted Cost Base wherever referred to in this Agreement, shall be
read as meaning the Revised Adjusted Cost Base;
(e) the Elected Amount shall be deemed to have always been, and the
Elected Amount wherever referred to in this Agreement shall be read as
meaning, an amount equal to the Adjusted Elected Amount; and
(f) the parties shall take all such steps and jointly execute all such
documents and elections as may be required and allowed so that the
aggregate of the amounts elected for purposes of subsection 85(1) of
the Act with respect to the purchase and sale of the Assets shall be
equal to the Adjusted Elected Amount.
ARTICLE 7
VENDOR'S REPRESENTATIONS AND WARRANTIES
7.1 The Vendor represents and warrants to the Purchaser that:
(a) on the Closing Date the Assets shall be beneficially owned by the
Vendor free and clear of all restrictions, options, liens, charges and
encumbrances, whatsoever;
-5-
<PAGE>
(b) no person, firm or corporation has any written or verbal agreement,
option, understanding or commitment or any right or privilege capable
of becoming an agreement for the purchase of the Assets from the
Vendor other than as set out in this Agreement;
(c) on the Closing Date the Vendor shall not be a non-resident of Canada
within the meaning of the Act; and
(d) the distances shown on the Schedules are accurate.
7.2 The representations and warranties contained in section 7.1 shall survive
the completion of the purchase and sale of the Assets and shall continue in full
force and effect for the benefit of the Purchaser; provided always that no claim
with respect to the representations and warranties shall be made by the
Purchaser unless written notice shall have been given to the Vendor within two
years from the Closing Date.
ARTICLE 8
PURCHASER'S REPRESENTATIONS AND WARRANTIES
8.1 The Purchaser represents and warrants to the Vendor that:
(a) the Purchaser is a corporation duly incorporated, validly existing and
qualified to carry on business under the laws of the Province of
Alberta;
(b) the authorized capital of the Purchaser consists of an unlimited
number of:
(i) Class "A" Common Voting Shares
(ii) Class "I" Preferred Non-Voting Shares, authorized to be issued in
series, which series shares are designated as follows:
(A) Class "I" Series 1 Preferred Non-Voting Shares;
(B) Class "I" Series 2 Preferred Non-Voting Shares;
(C) Class "I" Series 3 Preferred Non-Voting Shares;
(D) Class "I" Series 4 Preferred Non-Voting Shares;
(E) Class "I" Series 5 Preferred Non-Voting Shares;
(F) Class "I" Series 6 Preferred Non-Voting Shares;
(G) Class "I" Series 7 Preferred Non-Voting Shares;
(H) Class "I" Series 8 Preferred Non-Voting Shares;
(I) Class "I" Series 9 Preferred Non-Voting Shares;
-6-
<PAGE>
(J) Class "I" Series 10 Preferred Non-Voting Shares;
(K) Class "I" Series 11 Preferred Non-Voting Shares;
(L) Class "I" Series 12 Preferred Non-Voting Shares;
(M) Class "I" Series 13 Preferred Non-Voting Shares;
(N) Class "I" Series 14 Preferred Non-Voting Shares;
(O) Class "I" Series 15 Preferred Non-Voting Shares;
having attached thereto only those rights, privileges, restrictions
and conditions set forth in the Articles;
(c) the issuance to the Vendor of the Share Consideration is valid and in
accordance with the laws of the Province of Alberta; and
(d) this Agreement constitutes a valid and binding obligation of the
Purchaser and the transactions contemplated by this Agreement are not
in violation of any terms and conditions of the Articles or any
agreement to which the Purchaser is a party or by which the Purchaser
is bound.
8.2 The representations and warranties contained in section 8.1 shall survive
the completion of the purchase and sale of the Assets and shall continue in full
force and effect for the benefit of the Vendor; provided always that no claim
with respect to the representations and warranties shall be made by the Vendor
unless written notice shall have been given to the Purchaser within two years
from the Closing Date.
ARTICLE 9
CLOSING, BENEFICIAL OWNERSHIP AND POSSESSION
9.1 Upon or prior to the Closing Date, or so soon thereafter as the parties
agree upon:
(a) the Vendor shall do all things necessary to transfer to the Purchaser
the Assets;
(b) the Purchaser shall:
(i) issue and deliver to the Vendor the Share Consideration; and
(ii) at the request of the Vendor, deliver to the Vendor a copy of the
resolution of the board of directors of the Purchaser adding the
Stated Capital Addition to the stated capital account maintained
for the shares forming the Share Consideration, certified by the
secretary of the Purchaser as a true and exact copy, where
required by the Vendor.
9.2 If the requisite conveyances necessary to transfer ownership of the Assets
in the name of the Purchaser or its nominee have not been completed on the
Closing Date the Vendor agrees that, until such time as the Assets shall be
transferred into the name of the Purchaser or its
-7-
<PAGE>
nominee, the Vendor shall stand as owner of the Assets as bare trustee for and
on behalf of the Purchaser as the beneficial owner, and in such capacity the
Vendor shall:
(a) receive on behalf of, account to and forthwith pay over to the
Purchaser, any and all amounts received by the Vendor as the owner of
the Assets; and
(b) transfer and deal with the Assets in such manner as the Purchaser may
direct.
The Purchaser shall at all times hereafter indemnify and keep indemnified the
Vendor against all liabilities that the Vendor may incur by reason of the Assets
being in the name of the Vendor.
ARTICLE 10
FURTHER ACTS AND ASSURANCES
10.1 Each of the parties shall, upon the reasonable request of the other party,
make, do, execute or cause to be made, done, or executed all such further and
other lawful acts, deeds, things, documents and assurances of whatsoever nature
and kind for the better performance of the terms and conditions of this
Agreement. Without limiting the generality of the foregoing, the Vendor shall
use all commercially reasonable efforts to make, do, execute or cause to be
made, done, or executed all such further and lawful acts, deeds, things,
documents and assurances as may be necessary to document the sublicence referred
to in the description of the Assets on Schedule "A", to obtain any required
consents from the grantors of rights-of-way and, where possible, to obtain
non-disturbance agreements from the grantors of rights-of-way.
ARTICLE 11
NOTICES
11.1 Any notice, direction or other instrument required or permitted to be given
under the provisions of this Agreement shall be in writing and either delivered
personally, sent by prepaid registered mail or sent by facsimile to the party to
be notified. The addresses of the parties for such purpose shall respectively
be:
(a) to the Vendor at its registered office address; and
(b) to the Purchaser at its registered office address;
or to such other address in Canada of which either party may from time to time
notify the other.
11.2 Any notice, direction or other instrument shall:
(a) if delivered, be deemed to have been given or received on the day on
which it was so delivered and if not on a business day then on the
business day next following the day of delivery;
(b) if sent by facsimile shall be deemed to have been given or received on
the same business day as it was sent, provided facsimile confirmation
of receipt is received by the sender;
-8-
<PAGE>
(c) if mailed, shall be deemed to have been given or received on the third
day following the day on which it was mailed; and
(d) if mailed at a time when there is an interruption or an anticipated
interruption of mail service affecting the delivery of such mail,
shall be deemed to have been given or received on the fifth business
day after the date that normal postal service is restored.
ARTICLE 12
ENTIRE AGREEMENT
12.1 This Agreement, together with the Definitive Agreement and the documents
referred to in the Definitive Agreement constitutes and contains the entire
agreement between the parties respecting the subject matter of this Agreement
and supersedes any prior agreements whether written or verbal.
ARTICLE 13
ENUREMENT
13.1 This Agreement shall enure to the benefit of and be binding upon the
parties and their respective successors, personal representatives and assigns.
ARTICLE 14
COUNTERPARTS
14.1 This Agreement may be executed in counterparts with the same effect as if
all of the parties hereto had signed the same document. All counterparts shall
be construed together and shall constitute one and the same agreement. A
facsimile transmitted copy of this Agreement signed by a party, in counterpart
or otherwise, shall be deemed to be evidence of a properly executed, delivered
and binding agreement of the party so signing, notwithstanding any variation on
the actual dates of execution. The parties each agree to promptly return an
original duly executed counterpart of this Agreement following the transmission
of the facsimile transcribed copy thereof.
[THE NEXT PAGE IS THE EXECUTION PAGE.]
-9-
<PAGE>
IN WITNESS WHEREOF the parties have properly executed this Agreement, as of the
Effective Date.
WORLDWIDE FIBER (F.O.T.S.) NO. 3, LTD.
PER:
------------------------------
WFI URBANLINK LTD.
PER:
------------------------------
-10-
<PAGE>
SCHEDULE "A"
------------
TO THAT CERTAIN ASSET PURCHASE AGREEMENT (ROLL-OVER)
MADE BETWEEN WORLDWIDE FIBER (F.O.T.S.) NO. 3, LTD.
(AS VENDOR) AND WFI URBANLINK LTD.
(AS PURCHASER)
----------------------------------------------------
ASSETS
------
1. ASSETS
"Assets" means the Strands located in Canada that are more particularly
described in Exhibit A-1, together with associated Communication Shelters and
Co-Location Facilities, Support Structures Interests and ROW Rights, as
described below.
2. DEFINITIONS
For the purposes of this Schedule "A", except as otherwise expressly defined
below, capitalized terms shall have the meanings provided for in the Agreement
to which this Schedule "A" is attached:
"Bundle" means a grouping of 12 continuously running Strands in the buffer tube
within which such Strands are enclosed, in the Fiber Optic Cable.
"Communications Shelters and Co-Location Facilities" means the communications
shelters and co-location facilities associated with the Strands described in
Exhibit A-1, and which are being purchased by Purchaser as part of the Assets,
and which are more particularly described in Exhibit A-2.
"Fiber Optic Cable" means one or more Bundles of Strands of which certain of the
Assets form a part.
"Initial Term" means, with respect to a particular segment described on Exhibit
A-1, the time period expiring on the expiry of the Underlying Rights for such
segment.
"Rights" means the ROW Rights and Shelter Licenses granted by the Vendor to
Purchaser under this Agreement.
"ROW Rights" means a non-exclusive right to use and enjoy the Underlying Rights,
in common with all others having such rights, with respect to Strands forming
part of the Assets and with respect to Communications Shelters located on the
Underlying Rights granted by way of a sublicense, an indefeasible right to use
or other subright (subject in all respects to the terms of the applicable
Underlying Rights).
"Shelter License" has the meaning ascribed thereto in Section 5 of this
Schedule "A".
-11-
<PAGE>
"Strand" or "strand" means a strand of optical fibre.
"Support Structures" means the infrastructure necessary to support the
operations of the Fiber Optic Cables including, without limitation, cable
sheathing (jacket, tubing, core wrap) and all associated conduit, troughing,
pedestals, slack containers, Utilities Shelters, connections between the
Utilities Shelters and Communications Shelters and between the Fiber Optic Cable
and the Communications Shelters and related equipment, but excluding the
Communications Shelters.
"Support Structures Agreement" means the agreement that will be entered into by
the Vendor and the Purchaser and all other owners of Strands (and, potentially,
those with other rights therein) in the Fiber Optic Cable.
"Support Structures Interests" has the meaning ascribed thereto in Section 4 of
this Schedule "A".
"Underlying Rights" means all easements, licenses of occupation, rights-of-way
or other similar rights held, owned or acquired or to be held, owned or
acquired, by the Vendor with respect to the land, structures, bridges, tunnels
or buildings through which the Fiber Optic Cable or any of them passes and upon
which certain of the Communications Shelters and Co-Location Facilities may be
located; and "Right-of-Way" means one of the Rights-of-Way.
"Utilities Shelters" means the utilities shelters that are part of the Support
Structures.
3. ASSETS INCLUDE ROW RIGHTS
(a) The Assets include the grant by the Vendor to the Purchaser with
respect to the ROW Rights required for the use, operation and
maintenance of the Assets and Support Structures during the Initial
Term of a sublicense of the ROW Rights to be granted pursuant to a
sublicense agreement to be executed and delivered as described in
Section 10.1 of the Agreement (the "Sublicense Agreement").
(b) The purchase price referred to in Article 5 of the Agreement shall be
inclusive of all consideration payable for applicable Underlying
Rights for the Initial Term. Notwithstanding anything to the contrary
contained herein, the terms of the sublicensing of ROW Rights shall be
subject to the terms of such Sublicense Agreement and any Rights
granted to Purchaser pursuant to the Sublicense Agreement in
accordance herewith shall be subject in all respects to the terms of
applicable laws and of the Underlying Rights including, without
limitation, any requirements for the consent of the grantor to such
grant and any limitations on the rights granted.
(c) The terms of the grant of ROW Rights shall be included in a separate
sublicense from the Vendor to the Purchaser to be executed and
delivered as described in Section 10.1 of the Agreement.
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<PAGE>
4. INTEREST IN SUPPORT STRUCTURES
The Assets include the grant by the Vendor to the Purchaser, for no additional
consideration, of an undivided interest in all Support Structures related
thereto (including, for greater clarity, related Utilities Shelters) equal to
its proportionate share in the total Strands from time to time making up the
applicable segment of the Fiber Optic Cable(s) that will be shared with others
(such undivided interest shall be referred to as the "Support Structures
Interests"). The Purchaser acknowledges that the Support Structures will be
owned by all owners of Strands permitted by the Rights-of-Way and may be used by
such owners or others granted rights in the strands.
5. COMMUNICATIONS SHELTERS AND CO-LOCATION FACILITIES
The Assets include the Communications Shelters and Co-Location Facilities, but
not any interest in the land upon which such Communication Shelters and
Co-Location Facilities are located. Where Exhibit A-1 indicates that the Assets
include a communications shelter, then the Assets include all right, title and
interest of the Vendor in and to such communications shelter. Where Exhibit A-1
indicates that the Assets include co-location facilities, the Assets include the
grant by the Vendor to the Purchaser of non-exclusive licences of occupation in
respect of such co-location facilities, to be included in a co-location
agreement in a form acceptable to the Purchaser and the Vendor, acting
reasonably and in good faith.
The Assets include the grant by the Vendor to the Purchaser of non-exclusive
licenses of occupation in a form acceptable to the Purchaser and the Vendor,
acting reasonably and in good faith (a "Shelter License") in respect of each
Communications Shelter and Co-Location Facility that is not located on one of
the Underlying Rights, for the Initial Term, pursuant to Shelter License
agreements to be executed and delivered as described in this Section 5, and such
Shelter Licenses shall entitle Purchaser (at no cost to Purchaser during the
Initial Term) to keep such Communications Shelters at the location supplied and
(at Purchaser's cost) to maintain, repair and improve any equipment or materials
in such Communications Shelters and to have exclusive access to the interior of
the Communications Shelters.
-13-
<PAGE>
SCHEDULE A-1
BANDWIDTH STRANDS
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------
TUBE STRAND STRAND
SEGMENTS ROW KILOMETER DUCT COLOUR COLOUR NUMBER TYPE
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
From Calgary to Emerson CP 1,443 Orange Brown 41-42 SMF-28
From CP Tracks at Cambie St. CP 1,032 Orange Brown 41-42 SMF-28
Vancouver to Calgary
From 301 Industrial Ave. to CP CP 3 Orange Brown 41-42 SMF-28
Tracks at Cambie St.
Oak Street Bridge to 301 CN 11 Orange Brown 41-42 SMF-28
Industrial, Vancouver
US Border to Victoria to Oak CN 84 Orange Brown 41-42 SMF-28
Street Bridge
Edmonton CN tracks to Edmonton CN 11 Orange Brown 41-42 SMF-28
Brettville Junction
Edmonton Bretville Junction to CN 1,958 Orange Brown 41-42 SMF-28
Thunder Bay
Thunder Bay to Toronto CN 1,402 Orange Brown 41-42 SMF-28
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
-14-
<PAGE>
SCHEDULE A-2
COMMUNICATIONS SHELTERS AND CO-LOCATION FACILITIES
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
RAIL MILE
SITE ADDRESS ROW POINT SHELTER TYPE
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Vancouver 175 West Cordova St. N/A N/A Co-location/ Terminal
Agassiz 1913 Heath Road CP 58.5 Regen Shelter
North Bend CP 0 Line Amp
Basque CP 56.01 Line Amp
Kamloops 95A 3rd Ave. (Lorne St) CP 0 Regen Shelter
Salmon Arm 391 Lakeshore Drive NE CP 63.17 Line Amp
Revelstoke Track St. East CP 125.6 Regen Shelter
Glacier CP 85.5 Line Amp
Golden Main St CP 34.8 Line Amp
Lake Louise NE 28-28-16 W5M CP 116.44 Regen Shelter
Exshaw Diamond Rd & Hwy 1A CP 57.23 Line Amp
Calgary 303 9th Ave SE N/A N/A Co-location/ Terminal
Gleichen 505 Crawfoot Ave CP 124.9 Line Amp
Brooks 4 Centre St. CP 66.66 Line Amp
Medicine Hat 540 North Railway St. E CP 147 ADM
Maple Creek Pacific Ave. Bwtn Maple & CP 84.49 Line Amp
Jasper
Carmichael Railway Ave. btwn Webb & CP 43.39 Line Amp
Lawrence
Swift Current 1300 North Railway St. W CP 0.83 Regen Shelter
Chaplin 4th Ave bwtn 4th & 6th St CP 53.79 Line Amp
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
-15-
<PAGE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
RAIL MILE
SITE ADDRESS ROW POINT SHELTER TYPE
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Moose Jaw 275 Manitoba Street West CP 0.31 Line Amp
Regina 1250 South Railway St CP 93 ADM
Wolseley 408 Poplar Street CP 30.8 Line Amp
Wapella S Railway St btwn 1st & 2nd CP 102.6 Line Amp
Ave
Virden 406 5th Ave CP 47.24 Regen Shelter
Douglas 108 Railway St. East CP 121.6 Line Amp
Portage la Prairie (South 301 10th St. NW CP 56.36 Line Amp
Route)
Winnipeg Lizzie (South 357 Higgins Ave CP 0.35 Shelter Site
Route)
Winnipeg 391 Main St. N/A N/A Co-location/ Terminal
Emerson Roseau St at 6th Ave CP/Illinois Central 63.51 Line Amp
Victoria Line Amp OACD
Holden 4740 54 St. CN 206.2 Line Amp
Wainwright 102 1st St. CN 140.1 Line Amp
Vera NW 1/4 24-41-24 W3M CN 68.53 Regen Shelter
Biggar 902 1St Ave. W. CN 0.68 Line Amp
Saskatoon 600 Ave. G South CN 190.67 ADM
Watrous 101 1St Ave. CN 129.1 Line Amp
Touchwood Range Rd 2161, NW 24-27-16 CN 65.74 Line Amp
W2M
Melville 101 1St Ave., East CN 280.2 Line Amp
St. Lazarre 202 Main St. CN 204.51 Regen Shelter
Brandon North Hwy #10, SW 7-12-18 CN 128.6 Line Amp
Portage la Prairie (North 249 Fisher Ave. East CN 55.19 Line Amp
Route)
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
-16-
<PAGE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
RAIL MILE
SITE ADDRESS ROW POINT SHELTER TYPE
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Winnipeg (North Route) 89 Main St CN 251.7 Shelter Site
Badger Main St. NW 6-3-12 CN 77.38 Line Amp
Rainy River 302 Atwood Ave. West CN 0.23 Line Amp
Rocky Inlet George Armstron Ave. CN 81.14 Regen Shelter
Elizabeth Perch Lake Rd CN 10.65 Line Amp
Kabaigon Kabaigon Bay Rd. CN 75.21 Line Amp
Thunder Bay 202 Waterloo St. CN 3.72 ADM
Red Rock Baker Rd. (Hwy #628) CN 132.2 Line Amp
Beardmore Rothwell St CN 70.28 Line Amp
Longlac 1 Picnic Point Rd. CN 100.35 Regen Shelter
Hillsport Hillsport Rd CN 42.42 Line Amp
Macduff CN 271.15 Line Amp
Peterbell CN 205.65 Regen Shelter
Foleyet Railway Ave. CN 148.35 Line Amp
Gogama Poupore St CN 86.7 Line Amp
Laforest CN 29.86 Line Amp
Sudbury Junction 2751 Lasalle Blvd CN 262.02 ADM
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
-17-
<PAGE>
SCHEDULE "B"
------------
TO THAT CERTAIN ASSET PURCHASE AGREEMENT (ROLL-OVER) MADE
BETWEEN WORLDWIDE FIBER (F.O.T.S.) NO. 3, LTD. (AS VENDOR)
AND WFI URBANLINK LTD. (AS PURCHASER)
----------------------------------------------------------
SHARE CONSIDERATION
-------------------
1000 Class "I" Series 3 Preferred Non-Voting Shares of the capital of the
Purchaser, represented by Share Certificate No.1-I (SER-3), having a redemption
price equal to the Fair Market Value of the Assets.
-18-
<PAGE>
Exhibit 10.39
ASSET PURCHASE AGREEMENT
(ROLL-OVER)
(EQUIPMENT)
THIS AGREEMENT is made effective as of the ____ day of April, 2000.
BETWEEN:
WORLDWIDE FIBER NETWORK SERVICES LTD.
(the "Vendor")
- and -
WFI URBANLINK LTD.
(the "Purchaser")
WHEREAS:
A. The Vendor is a subsidiary of 360.
B. 360 and the Purchaser are parties to the Definitive Agreement, pursuant to
which 360 has agreed to cause the Vendor to transfer the Assets to the
Purchaser.
C. The Vendor wishes to transfer the Assets to the Purchaser, and the
Purchaser wishes to acquire the Assets from the Vendor, all as at the Effective
Date for a total purchase price equal to the aggregate fair market value of the
Assets, on the terms and conditions and subject to the representations and
warranties set forth in this Agreement.
IN CONSIDERATION OF the foregoing premises and of the mutual covenants herein
contained the parties agree as follows:
ARTICLE 1
INCORPORATION OF RECITALS
AND SCHEDULES AND DEFINITIONS
1.1 The Recitals and all Schedules annexed to this Agreement are expressly
incorporated into, and form an integral part of, this Agreement.
ARTICLE 2
DEFINITIONS
2.1 In this Agreement:
(a) "360" means 360networks inc.
<PAGE>
(b) "Act" means the Income Tax Act (Canada), as it read on the Effective
Date;
(c) "Adjusted Cost Base" means the aggregate cost amount of the Assets
determined by the Vendor in accordance with the provisions of the Act,
where "cost amount" is as defined in subsection 248(1) of the Act;
(d) "Adjusted Elected Amount" means the amount that, for tax purposes, is
to be the Vendor's "proceeds of disposition" and the Purchaser's "cost
of acquisition" of the Assets, determined in accordance with section
6.3 to be a greater or lesser amount than the Elected Amount;
(e) "Adjusted Fair Market Value" means the aggregate of the fair market
value of the Assets, determined in accordance with section 5.4 to be a
greater or lesser amount than the Elected Fair Market Value;
(f) "Articles" means the articles of incorporation of the Purchaser
together with all amendments thereto as registered with the Registrar
of Corporations for the Province of Alberta as at the Effective Date;
(g) "Assets" has that meaning as set forth in Schedule "A" hereto;
(h) "Closing Date" means the Effective Date;
(i) "Definitive Agreement" means the Urbanlink Reorganization Definitive
Agreement relating to the Urbanlink Reorganization dated the same date
as this Agreement and made between 360, Worldwide Fiber Holdings Ltd.,
the Purchaser and Urbanlink Equipment Ltd.;
(j) "Effective Date" means the date of this Agreement;
(k) "Elected Amount" means the amount agreed upon by the parties in
accordance with section 6.2 hereof which, for tax purposes, is to be
the Vendor's "proceeds of disposition" and the Purchaser's "cost of
acquisition" of the Assets;
(l) "Elected Fair Market Value" means the aggregate fair market value of
the Assets as determined by the parties and reflected in the Election;
(m) "Election" means the election made by the parties in prescribed form
and within the time prescribed by subsection 85(6) of the Act that the
rules set forth in subsection 85(1) of the Act shall apply to the
purchase and sale of the Assets;
(n) "Fair Market Value" means the fair market value of the Assets
determined as the Effective Date, which shall be equal to either the
Elected Fair Market Value or the Adjusted Fair Market Value, as
finally determined in accordance with either section 5.3 or section
5.4 hereof, as the case may be;
(o) "Redemption Amount" means the amount per share payable on the
redemption of the shares forming the Share Consideration, which amount
shall be equal to the
-2-
<PAGE>
Fair Market Value divided by the number of shares forming the Share
Consideration;
(p) "Revised Adjusted Cost Base" means the adjusted cost base of the
Assets determined in accordance with section 6.3 to be greater or
lesser amounts than the Adjusted Cost Base;
(q) "Schedules" means any schedules which are attached to this Agreement;
(r) "Share Consideration" means the number and class of shares of the
capital of the Purchaser having attached thereto only those rights,
privileges, restrictions and limitations set forth in the Articles,
which shares are more particularly described in Schedule "B";
(s) "Stated Capital Addition" means the aggregate stated capital for the
shares constituting the Share Consideration that is to be added to the
stated capital account maintained for such shares, which shall be
equal to the Fair Market Value; and
(t) "Taxing Authority" means the Minister of National Revenue for Canada
or any other competent authority having jurisdiction that is
authorized by law to issue an assessment or reassessment in respect of
the transactions herein contemplated.
ARTICLE 3
PURCHASE AND SALE
3.1 Subject to the terms and conditions, and based upon the representations and
warranties, contained in this Agreement, the Vendor shall sell, transfer and
assign and the Purchaser shall purchase as of the Effective Date all of the
Vendor's interest in the Assets.
ARTICLE 4
EFFECTIVE DATE
4.1 It is acknowledged and agreed to by the parties that the purchase and sale
of the Assets is deemed to have occurred as of the Effective Date.
ARTICLE 5
PURCHASE PRICE
5.1 The total purchase price for the Assets is equal to the Fair Market Value
and shall be paid and satisfied by the Purchaser issuing to the Vendor the Share
Consideration.
5.2 The Purchaser shall add the Stated Capital Addition to the stated capital
account being maintained for the class of shares of which the Share
Consideration forms a part.
5.3 Subject to section 5.4, the parties have determined that the fair market
value of the Assets is equal to the Elected Fair Market Value, which
determination is final and binding upon the parties.
-3-
<PAGE>
5.4 If:
(a) the Taxing Authority at any time proposes to issue, or does issue, any
assessment or reassessments that impose, or would impose, any
liability for tax of any nature or kind on either of the parties on
the basis that the aggregate of the fair market value of the Assets at
the Effective Date is a greater or lesser amount than the Elected Fair
Market Value; and
(b) the parties agree, or a Court or tribunal of competent jurisdiction
finally adjudges, that the aggregate of the fair market value of the
Assets as of the Effective Date is the Adjusted Fair Market Value;
then:
(c) the Fair Market Value shall be deemed to have always been, and the
Fair Market Value wherever referred to in this Agreement shall be read
as meaning, the Adjusted Fair Market Value.
5.5 If not all of the shares forming the Share Consideration have been redeemed
or purchased by the Purchaser on or prior to the date of determination of the
Adjusted Fair Market Value of the Assets, then the Redemption Amount for each of
the shares forming the Share Consideration which are still outstanding at that
time, shall be adjusted in accordance with section 5.7 hereof.
5.6 If the Purchaser has repurchased or redeemed all of the shares forming the
Share Consideration at or before the time that the Adjusted Fair Market Value is
determined, then:
(a) where the aggregate of the amounts previously paid by the Purchaser on
the repurchase of the Share Consideration exceeds the Adjusted Fair
Market Value, the excess shall be a debt payable to the Purchaser by
the Vendor, on demand, without interest except in the event of default
whereupon interest shall accrue on the principal amount in default at
the rate of 2% per annum above the prime lending rate established from
time to time by the Vancouver main branch of the Purchaser's bank,
calculated from the date of default until the date payment is made;
and
(b) where the aggregate of the amounts previously paid by the Purchaser on
the repurchase of the Share Consideration is less than the Adjusted
Fair Market Value, the loss shall be a debt payable to the Vendor by
the Purchaser, on demand, without interest except in the event of
default whereupon interest shall accrue on the principal amount in
default at the rate of 2% per annum above the prime lending rate
established from time to time by the Vancouver main branch of the
Vendor's bank, calculated from the date of default until the date
payment is made.
5.7 If, because of the operation of section 5.4, the Fair Market Value is
determined at the Effective Date to be equal to the Adjusted Fair Market Value,
then the Redemption Amount shall be adjusted NUNC PRO TUNC to reflect an amount
equal to the Adjusted Fair Market Value, and all necessary adjustments, payments
and repayments, if any, as may be required by virtue of such
-4-
<PAGE>
adjustment, shall forthwith be made between the Purchaser and the Vendor in
accordance with the provisions of section 5.6, MUTATIS MUTANDIS.
ARTICLE 6
JOINT ELECTION AND ELECTED AMOUNTS
6.1 The Vendor and Purchaser shall jointly make the Election.
6.2 Subject to the provisions of this Agreement, for purposes of the Election
the parties agree that the Elected Amount shall be the Adjusted Cost Base of the
Assets, which determination is final and binding on the parties.
6.3 If:
(a) the Taxing Authority proposes to issue, or does issue, any assessment
or reassessments that impose, or would impose, any liability for tax
of any nature or kind on either of the parties on the basis that the
adjusted cost base of the Assets is the Revised Adjusted Cost Base;
(b) the parties agree, or a Court or tribunal of competent jurisdiction
finally adjudges, that the adjusted cost base of the Assets is the
Revised Adjusted Cost Base; and
(c) the Taxing Authority will accept as effective an amended Election of
the parties;
then:
(d) the Adjusted Cost Base shall be deemed to have always been, and the
Adjusted Cost Base wherever referred to in this Agreement, shall be
read as meaning the Revised Adjusted Cost Base;
(e) the Elected Amount shall be deemed to have always been, and the
Elected Amount wherever referred to in this Agreement shall be read as
meaning, an amount equal to the Adjusted Elected Amount; and
(f) the parties shall take all such steps and jointly execute all such
documents and elections as may be required and allowed so that the
aggregate of the amounts elected for purposes of subsection 85(1) of
the Act with respect to the purchase and sale of the Assets shall be
equal to the Adjusted Elected Amount.
ARTICLE 7
VENDOR'S REPRESENTATIONS AND WARRANTIES
7.1 The Vendor represents and warrants to the Purchaser that:
(a) on the Closing Date the Assets shall be beneficially owned by the
Vendor free and clear of all restrictions, options, liens, charges and
encumbrances, whatsoever;
-5-
<PAGE>
(b) no person, firm or corporation has any written or verbal agreement,
option, understanding or commitment or any right or privilege capable
of becoming an agreement for the purchase of the Assets from the
Vendor other than as set out in this Agreement; and
(c) on the Closing Date the Vendor shall not be a non-resident of Canada
within the meaning of the Act. 7.2 The representations and warranties
contained in section 7.1 shall survive the completion of the purchase
and sale of the Assets and shall continue in full force and effect for
the benefit of the Purchaser; provided always that no claim with
respect to the representations and warranties shall be made by the
Purchaser unless written notice shall have been given to the Vendor
within two years from the Closing Date.
ARTICLE 8
PURCHASER'S REPRESENTATIONS AND WARRANTIES
8.1 The Purchaser represents and warrants to the Vendor that:
(a) the Purchaser is a corporation duly incorporated, validly existing and
qualified to carry on business under the laws of the Province of
Alberta;
(b) the authorized capital of the Purchaser consists of an unlimited
number of:
(i) Class "A" Common Voting Shares
(ii) Class "I" Preferred Non-Voting Shares, authorized to be issued in
series, which series shares are designated as follows:
(A) Class "I" Series 1 Preferred Non-Voting Shares;
(B) Class "I" Series 2 Preferred Non-Voting Shares;
(C) Class "I" Series 3 Preferred Non-Voting Shares;
(D) Class "I" Series 4 Preferred Non-Voting Shares;
(E) Class "I" Series 5 Preferred Non-Voting Shares;
(F) Class "I" Series 6 Preferred Non-Voting Shares;
(G) Class "I" Series 7 Preferred Non-Voting Shares;
(H) Class "I" Series 8 Preferred Non-Voting Shares;
(I) Class "I" Series 9 Preferred Non-Voting Shares;
(J) Class "I" Series 10 Preferred Non-Voting Shares;
-6-
<PAGE>
(K) Class "I" Series 11 Preferred Non-Voting Shares;
(L) Class "I" Series 12 Preferred Non-Voting Shares;
(M) Class "I" Series 13 Preferred Non-Voting Shares;
(N) Class "I" Series 14 Preferred Non-Voting Shares;
(O) Class "I" Series 15 Preferred Non-Voting Shares;
having attached thereto only those rights, privileges, restrictions
and conditions set forth in the Articles;
(c) the issuance to the Vendor of the Share Consideration is valid and in
accordance with the laws of the Province of Alberta; and
(d) this Agreement constitutes a valid and binding obligation of the
Purchaser and the transactions contemplated by this Agreement are not
in violation of any terms and conditions of the Articles or any
agreement to which the Purchaser is a party or by which the Purchaser
is bound.
8.2 The representations and warranties contained in section 8.1 shall survive
the completion of the purchase and sale of the Assets and shall continue in full
force and effect for the benefit of the Vendor; provided always that no claim
with respect to the representations and warranties shall be made by the Vendor
unless written notice shall have been given to the Purchaser within two years
from the Closing Date.
ARTICLE 9
CLOSING, BENEFICIAL OWNERSHIP AND POSSESSION
9.1 Upon or prior to the Closing Date, or so soon thereafter as the parties
agree upon:
(a) the Vendor shall do all things necessary to transfer to the Purchaser
the Assets;
(b) the Purchaser shall:
(i) issue and deliver to the Vendor the Share Consideration; and
(ii) at the request of the Vendor, deliver to the Vendor a copy of the
resolution of the board of directors of the Purchaser adding the
Stated Capital Addition to the stated capital account maintained
for the shares forming the Share Consideration, certified by the
secretary of the Purchaser as a true and exact copy, where
required by the Vendor.
9.2 If the requisite conveyances necessary to transfer ownership of the Assets
in the name of the Purchaser or its nominee have not been completed on the
Closing Date the Vendor agrees that, until such time as the Assets shall be
transferred into the name of the Purchaser or its
-7-
<PAGE>
nominee, the Vendor shall stand as owner of the Assets as bare trustee for and
on behalf of the Purchaser as the beneficial owner, and in such capacity the
Vendor shall:
(a) receive on behalf of, account to and forthwith pay over to the
Purchaser, any and all amounts received by the Vendor as the owner of
the Assets; and
(b) transfer and deal with the Assets in such manner as the Purchaser may
direct.
The Purchaser shall at all times hereafter indemnify and keep indemnified the
Vendor against all liabilities that the Vendor may incur by reason of the Assets
being in the name of the Vendor.
ARTICLE 10
FURTHER ACTS AND ASSURANCES
10.1 Each of the parties shall, upon the reasonable request of the other party,
make, do, execute or cause to be made, done, or executed all such further and
other lawful acts, deeds, things, documents and assurances of whatsoever nature
and kind for the better performance of the terms and conditions of this
Agreement. Without limiting the generality of the foregoing, the Vendor shall
use all commercially reasonable efforts to make, do, execute or cause to be
made, done, or executed all such further and lawful acts, deeds, things,
documents and assurances as may be necessary to document the sublicence referred
to in the description of the Assets on Schedule "A", to obtain any required
consents from the grantors of rights-of-way and, where possible, to obtain
non-disturbance agreements from the grantors of rights-of-way.
ARTICLE 11
NOTICES
11.1 Any notice, direction or other instrument required or permitted to be given
under the provisions of this Agreement shall be in writing and either delivered
personally, sent by prepaid registered mail or sent by facsimile to the party to
be notified. The addresses of the parties for such purpose shall respectively
be:
(a) to the Vendor at its registered office address; and
(b) to the Purchaser at its registered office address;
or to such other address in Canada of which either party may from time to time
notify the other.
11.2 Any notice, direction or other instrument shall:
(a) if delivered, be deemed to have been given or received on the day on
which it was so delivered and if not on a business day then on the
business day next following the day of delivery;
(b) if sent by facsimile shall be deemed to have been given or received on
the same business day as it was sent, provided facsimile confirmation
of receipt is received by the sender;
-8-
<PAGE>
(c) if mailed, shall be deemed to have been given or received on the third
day following the day on which it was mailed; and
(d) if mailed at a time when there is an interruption or an anticipated
interruption of mail service affecting the delivery of such mail,
shall be deemed to have been given or received on the fifth business
day after the date that normal postal service is restored.
ARTICLE 12
ENTIRE AGREEMENT
12.1 This Agreement, together with the Definitive Agreement and the documents
referred to in the Definitive Agreement constitutes and contains the entire
agreement between the parties respecting the subject matter of this Agreement
and supersedes any prior agreements whether written or verbal.
ARTICLE 13
ENUREMENT
13.1 This Agreement shall enure to the benefit of and be binding upon the
parties and their respective successors, personal representatives and assigns.
ARTICLE 14
COUNTERPARTS
14.1 This Agreement may be executed in counterparts with the same effect as if
all of the parties hereto had signed the same document. All counterparts shall
be construed together and shall constitute one and the same agreement. A
facsimile transmitted copy of this Agreement signed by a party, in counterpart
or otherwise, shall be deemed to be evidence of a properly executed, delivered
and binding agreement of the party so signing, notwithstanding any variation on
the actual dates of execution. The parties each agree to promptly return an
original duly executed counterpart of this Agreement following the transmission
of the facsimile transcribed copy thereof.
[THE NEXT PAGE IS THE EXECUTION PAGE.]
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<PAGE>
IN WITNESS WHEREOF the parties have properly executed this Agreement, as of the
Effective Date.
WORLDWIDE FIBER NETWORK SERVICES LTD.
PER:
------------------------------
WFI URBANLINK LTD.
PER:
------------------------------
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<PAGE>
SCHEDULE "A"
------------
TO THAT CERTAIN ASSET PURCHASE AGREEMENT (ROLL-OVER)
MADE BETWEEN WORLDWIDE FIBER NETWORK SERVICES LTD.
(AS VENDOR) AND WFI URBANLINK LTD.
(AS PURCHASER)
----------------------------------------------------
ASSETS
------
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
NOC HARDWARE/SOFTWARE INFORMATION
- ---------------------------------------------------------------------------------------------------------------------
SERVER PLATFORM SERIAL NO. APPLICATIONS SOFTWARE LOADED SOFTWARE
RELEASE
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Newbridge (1) Sun Microsystems 930H229F 46020 MainstreetXpress Release 3.3/ SGA413-H1-00
Enterprise 250
- ---------------------------------------------------------------------------------------------------------------------
Newbridge (2) Sun Microsystems 931H24A3 46020 MainstreetXpress Release 3.3/ SGA413-H1-00
Enterprise 250
- ---------------------------------------------------------------------------------------------------------------------
Newbridge Sun Microsystems 931H24A5 Resolve Release 3.0
Enterprise 250
- ---------------------------------------------------------------------------------------------------------------------
CPSS (1) Sun Microsystems PW93050116 46020 MainstreetXpress Release 3.3/ SGA413-H1-00
Ultra 10
- ---------------------------------------------------------------------------------------------------------------------
CPSS (2) Sun Microsystems PW93050115 46020 MainstreetXpress Release 3.3/ SGA413-H1-00
Ultra 10
- ---------------------------------------------------------------------------------------------------------------------
Fore (1) Sun Microsystems FW93020066 ForeView 5.1 Release Version 5.1/ Build No.
Ultra 10 46395
- ---------------------------------------------------------------------------------------------------------------------
HPOV Windows NNM Release B.06.01
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
-11-
<PAGE>
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
NOC HARDWARE/SOFTWARE INFORMATION
- ---------------------------------------------------------------------------------------------------------------------
SERVER PLATFORM SERIAL NO. APPLICATIONS SOFTWARE LOADED SOFTWARE
RELEASE
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Fore (2) Sun Microsystems FW93020045 ForeView 5.1 Release Version 5.1/ Build No.
Ultra 10 46395
- ---------------------------------------------------------------------------------------------------------------------
HPOV Windows NNM Release B.06.01
- ---------------------------------------------------------------------------------------------------------------------
Sun Monitor n/a 9920KN4198 n/a n/a
- ---------------------------------------------------------------------------------------------------------------------
Sun Monitor n/a 9925KN3255 n/a n/a
- ---------------------------------------------------------------------------------------------------------------------
Sun Monitor n/a 9927KN1399 n/a n/a
- ---------------------------------------------------------------------------------------------------------------------
Sun Monitor n/a 9920KN0562 n/a n/a
- ---------------------------------------------------------------------------------------------------------------------
Sun Monitor n/a 9920KN0564 n/a n/a
- ---------------------------------------------------------------------------------------------------------------------
HP Monitor n/a TW92601516 n/a n/a
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
-12-
<PAGE>
SCHEDULE "B"
------------
TO THAT CERTAIN ASSET PURCHASE AGREEMENT (ROLL-OVER) MADE
BETWEEN WORLDWIDE FIBER NETWORK SERVICES LTD. (AS VENDOR)
AND WFI URBANLINK LTD. (AS PURCHASER)
---------------------------------------------------------
SHARE CONSIDERATION
-------------------
1000 Class "I" Series 4 Preferred Non-Voting Shares of the capital of the
Purchaser, represented by Share Certificate No. 1-I (SER-4) having a redemption
price equal to the Fair Market Value of the Assets.
-13-
<PAGE>
Exhibit 10.40
RESELLER AGREEMENT
THIS AGREEMENT Dated For Reference the _____ day of April, 2000
BETWEEN:
360NETWORKS INC.
("360")
AND:
WORLDWIDE FIBER NETWORKS SERVICES LTD.
("Services")
AND:
WFI URBANLINK LTD.
("Urbanlink")
WHEREAS:
A. Urbanlink has agreed to grant to Services, or to such other 360
Subsidiaries as 360 may specify from time to time, IRU capacity purchase
agreements to acquire four OC-192s or the equivalent on each of the Strands, as
hereinafter defined.
B. 360, Services and Urbanlink have entered into this Agreement to record
their respective rights and obligations with respect to the capacity purchase
agreements and certain related rights and obligations.
IN CONSIDERATION of the mutual agreements in this Agreement and subject to the
terms and conditions specified in this Agreement, the parties agree as follows:
ARTICLE 1
DEFINITIONS
1.1 DEFINITIONS
In this Agreement, including the recitals and the schedules, the following words
and expressions have the following meanings unless the context otherwise
requires:
"Affiliate" has the meaning ascribed thereto under the CANADA BUSINESS
CORPORATIONS ACT.
<PAGE>
"Capacity Purchase Agreement" shall mean a Capacity Purchase Agreement in the
form attached as Schedule "C", with such amendments as may be agreed between
Services and Urbanlink, acting reasonably and in good faith.
"Capacity Service" means the service of providing the capacity pursuant to the
Capacity Purchase Agreements that are in effect from time to time.
"Co-Development Strands" shall have the meaning ascribed thereto in the
recitals.
"First Renewal Term" shall have the meaning provided in Section 6.2.
"Initial Term" shall have the meaning provided in Section 6.1.
"Person" means an individual, partnership, corporation (including a business
trust), joint stock company, trust, unincorporated association, joint venture or
other entity or a foreign state or political subdivision thereof or any agency
of such state or subdivision.
"Phase I Strands" shall mean the Strands described in Schedule "A".
"Phase II Strands" shall mean the Strands described in Schedule "B" and any
strands acquired by Urbanlink pursuant to any co-development arrangements with
Services or its Affiliates.
"Renewal Terms" shall mean the First Renewal Term and the Second Renewal Term,
as applicable.
"Second Renewal Term" shall have the meaning provided in Section 6.2.
"Strands" shall mean the Phase I Strands and the Phase II Strands.
1.2 SCHEDULES
The following schedules are attached to and form part of this Agreement:
SCHEDULE TITLE
A Phase I Strands
B Phase II Strands
C Capacity Purchase Agreement
ARTICLE 2
CAPACITY PURCHASE AGREEMENTS
2.1 PHASE I STRANDS
On the execution of this document, Services and Urbanlink shall execute a
Capacity Purchase Agreement in the form attached as Schedule "C" or in such
other form as may be agreed between Services and Urbanlink, acting reasonably
and in good faith, in relation to the Phase I Strands.
-2-
<PAGE>
2.2 ADDITIONAL STRANDS
On the acquisition of any of the Phase II Strands by Urbanlink, Services (or
such other Subsidiary of 360 as 360 may designate from time to time by notice in
writing to Urbanlink) shall execute a Capacity Purchase Agreement in the form
attached as Schedule "C" or in such other form as may then be agreed between
Services (or such designated Subsidiary of 360) and Urbanlink, acting reasonably
and in good faith, in relation to such Phase II Strands.
2.3 CAPACITY
Unless otherwise agreed from time to time by 360 and Urbanlink, and except as
specifically provided below, for each of the Strands, the Capacity Purchase
Agreement shall be an IRU capacity agreement by which Services (or the
designated Subsidiary of 360) shall acquire from Urbanlink an IRU capacity
purchase agreement for four OC-192s or the equivalent on each such Strand, or
such greater capacity as may result from the replacement or upgrading of
telecommunications equipment, or the adding of telecommunications equipment, as
described in Section 3.3. For each of the Strands described in Schedule A as
being between Edmonton and Toronto, unless otherwise agreed from time to time by
360 and Urbanlink, the Capacity Purchase Agreement shall be an IRU capacity
agreement by which Services (or the designated Subsidiary of 360) shall acquire
from Urbanlink an IRU capacity agreement for eight OC-48s or the equivalent on
each such Strand, or such greater capacity as may result from the replacement or
upgrading of telecommunications equipment, or the adding of telecommunications
equipment, as described in Section 3.3.
2.4 ELECTION TO ACCEPT REDUCED CAPACITY
By notice in writing to Urbanlink, Services (or the designated Subsidiary of
360) may elect to acquire less capacity than specified above; provided however
that Services (or such designated Subsidiary) shall not elect to acquire units
of capacity smaller than OC-48; and provided further that if Services (or such
designated Subsidiary) so elects, Services (or such designated Subsidiary) may
subsequently elect to acquire the balance of the capacity specified in Section
2.3. To the extent that a Capacity Purchase Agreement is for less than four
OC-192s, the amount per Strand per route kilometer specified in Section 5.1
shall be prorated accordingly. For greater clarity, Urbanlink shall have the
right to lease or IRU any remaining capacity to other customers.
ARTICLE 3
PROVISIONING AND EQUIPMENT
3.1 URBANLINK EQUIPMENT
During the term of any Capacity Purchase Agreement, Urbanlink shall install the
terminal equipment and take such additional actions as may be necessary from
time to time to light these Strands to which the Capacity Purchase Agreement
relates. The selection of the equipment shall be subject to the prior written
approval of Services, acting reasonably, and in good faith. Without limiting the
generality of the foregoing, it shall not be unreasonable for Services to
consider the compatibility of such equipment with the other equipment owned or
used by Services or other Subsidiaries of 360 in Canadian and other
jurisdictions.
-3-
<PAGE>
3.2 PROVISIONING
During the term of any Capacity Purchase Agreement:
(a) Services and any designated Subsidiaries of 360 shall provide
provisioning schedules to Urbanlink from time to time.
(b) Services and any designated Subsidiaries of 360 shall provide notice
in writing to Urbanlink within four days of receipt of a customer's
request to provision the Capacity Service and shall provide not less
than 30 days prior written notice before the effective date of the
provisioning of such Capacity Service to a customer.
(c) For greater clarity, the personnel effecting the purchasing and
installation of terminal equipment shall be employees of Urbanlink
or its contractors.
During the term of any Capacity Purchase Agreement, from time to time at the
request of 360, Urbanlink shall provide Urbanlink personnel to effect
provisioning and moves, adjustments and changes ("MAC") for Services customers
and any designated Subsidiaries of 360. For such services, Services (or the
designated Subsidiary of 360) shall pay to Urbanlink an amount equal to
Urbanlink's direct costs of providing such services plus a margin agreed to
between the parties.
3.3 EQUIPMENT UPGRADES
During the term of any Capacity Purchase Agreement, Services (or the designated
Subsidiary of 360) shall have the option to elect from time to time to increase
the capacity of all or any part of the Strands on the following terms:
(a) If Services desires that Urbanlink replace or upgrade its
telecommunications equipment, or add additional telecommunications
equipment, in order to increase the capacity available to Services
or the designated Subsidiary of 360, then Services (or the
designated Subsidiary of 360) shall provide notice in writing to
Urbanlink specifying its request in reasonable detail.
(b) Within 15 days thereafter, representatives of 360 and Urbanlink
shall meet to discuss such request, and shall negotiate reasonably
and in good faith to reach mutual agreement on terms acceptable to
both 360 and Urbanlink, acting reasonably, for payments and cost
recovery, such terms to be consistent with the reasonable needs and
requirements of Services, the designated Subsidiary of 360,
Urbanlink, and the customers of Services and any designated
Subsidiary of 360.
3.4 360 EQUIPMENT
For greater clarity, Services and any designated Subsidiaries of 360 may install
their own combiners, multiplexing equipment, racks and any other equipment that
is "exempt transmission apparatus" within the meaning of the TELECOMMUNICATIONS
ACT (Canada).
-4-
<PAGE>
ARTICLE 4
CO-LOCATION FACILITIES AND INTERCONNECTIONS
4.1 CO-LOCATION FACILITIES FOR SERVICES
During the term of any Capacity Purchase Agreement, from time to time at the
request of Services, Urbanlink shall grant to Services (or the designated
Subsidiary of 360) the right to co-locate the telecommunications equipment of
360 or any of the Subsidiaries of 360 or the customers of any of them on
premises owned or leased by Urbanlink, pursuant to the terms of a Co-Location
Agreement having terms to be agreed between 360 and Urbanlink, acting reasonably
and in good faith. The fees to be charged for such co-location facility shall be
the fair market value of the provision of such co-location services, as
determined by agreement between 360 and Urbanlink, acting reasonably.
4.2 CO-LOCATION FACILITIES FOR URBANLINK
During the term of any Capacity Purchase Agreement, from time to time at the
request of Urbanlink, Services shall grant, or 360 shall cause the relevant 360
Subsidiary to grant to Urbanlink the right to co-locate Urbanlink's
telecommunications equipment on premises owned or leased by 360, pursuant to the
terms of a Co-Location Agreement having terms to be agreed between 360 and
Urbanlink, acting reasonably and in good faith. The fees to be charged for such
co-location facility shall be the fair market value of the provision of such
co-location services, as determined by agreement between 360 and Urbanlink,
acting reasonably.
ARTICLE 5
PAYMENT
5.1 CAPACITY PURCHASE PRICE
For each Capacity Purchase Agreement and subject to adjustment as provided in
Section 2.4, Services (or the designated Subsidiary of 360) shall pay to
Urbanlink an amount (the "Specified Amount") agreed to between the parties per
Strand per route kilometer multiplied by the number of strand route kilometers,
payable in five equal instalments (for greater clarity, each instalment being
20% of such amount), the first instalment payable on the commencement of the
provision of capacity under the Capacity Purchase Agreement, and the remaining
payments to be paid on the first, second, third and fourth anniversary of the
date of commencement of the provision of capacity under the Capacity Purchase
Agreement.
ARTICLE 6
TERM AND TERMINATION
6.1 TERM
The term of this Agreement will commence on the date of this Agreement and will
continue for 5 years (the "Initial Term").
-5-
<PAGE>
6.2 RENEWAL TERMS
360 shall have the right to renew this Reseller Agreement for two Renewal Terms
of five years each, on the following terms:
(a) By notice in writing to Urbanlink given on or before the expiry of
the Initial Term, 360 may elect to renew this Agreement for an
additional term of five years commencing on the expiry of the
Initial Term (the "First Renewal Term") on all the terms contained
in this Agreement except for the payment amount per Strand per route
kilometer specified in Section 5.1.
(b) By notice in writing to Urbanlink given on or before the expiry of
the First Renewal Term, 360 may elect to renew this Agreement for an
additional term of five years commencing on the expiry of the First
Renewal Term (the "Second Renewal Term") on all the terms contained
in this Agreement except for the payment amount per Strand per route
kilometer specified in Section 5.1.
(c) The payment amount per Strand per route kilometer during a Renewal
Term shall be the fair market value per Strand per route kilometer
for the rights granted under this Reseller Agreement on the date of
commencement of the Renewal Term, as determined by agreement between
360 and Services or, failing agreement within three months after the
commencement of the Renewal Term, as determined by arbitration
pursuant to Section 7.1 of this Agreement.
6.3 SURVIVAL OF TERMS
Sections 3.1 to 5.1, 6.3, 7.1 to 7.18, the Capacity Purchase Agreements that are
executed during the Initial Term or any Renewal Term, and such other provisions
as may reasonably be expected to remain in force will survive the expiration or
termination of this Agreement and will remain in full force and effect following
such expiration or termination. The expiration or termination of this Agreement
will not affect the rights of any party to make a claim for damages arising from
a breach of any provision of this Agreement which occurred prior to such
expiration or termination.
ARTICLE 7
GENERAL
7.1 ARBITRATION
All disputes arising out of or in connection with this contract, or in respect
of any defined legal relationship associated therewith or derived therefrom,
shall be referred to and finally resolved by arbitration under the Rules of the
British Columbia International Commercial Arbitration Centre. The appointing
authorities shall be the British Columbia International Commercial Arbitration
Centre. The case shall be administered by the British Columbia International
Commercial Arbitration Centre in accordance with its "Procedures for Cases Under
the BCICAC Rules". The place of arbitration shall be Vancouver, British
Columbia, Canada.
-6-
<PAGE>
7.2 GOVERNING LAW AND ATTORNMENT
This Agreement will be governed by and construed in accordance with the
substantive laws of British Columbia and the federal laws of Canada applicable
in British Columbia, without regard to the conflict of law rules of British
Columbia. Subject to Section 7.1, the parties irrevocably submit to and accept
generally and unconditionally the exclusive jurisdiction of the courts and
appellate courts of British Columbia with respect to any legal action or
proceeding which may be brought at any time relating in any way to this
Agreement. Each of the parties irrevocably waives any objection it may now or in
the future have to the venue of any such action or proceeding, and any claim it
may now or in the future have that any such action or proceeding has been
brought in an inconvenient forum.
7.3 TIME OF THE ESSENCE OF THE AGREEMENT
Unless otherwise specifically provided in this Agreement, time will be of the
essence of this Agreement and of the transactions contemplated by this
Agreement.
7.4 REMEDIES NOT EXCLUSIVE
The remedies provided to the parties under this Agreement are cumulative and not
exclusive to each other, and any such remedy will not be deemed or construed to
affect any right which any of the parties is entitled to seek at law, in equity
or by statute.
7.5 NOTICES
Any notice, direction, request or other communication required or contemplated
by any provision of this Agreement will be given in writing and will be given by
delivering or faxing or emailing the same to the parties as follows:
(a) To 360 or Services at:
Suite 1510, 1066 West Hastings Street
Vancouver, B.C. V6E 3X1
Attention: Catherine McEachern
Fax No.: (604) 681-099
Email: [email protected]
(b) To Urbanlink at:
Suite 1000, 1066 West Hastings Street
Vancouver, B.C. V6E 3X1
Attention: Bill Ramsey
Fax No.: (604) 681-5372
Email: [email protected]
-7-
<PAGE>
Any such notice, direction, request or other communication will be deemed to
have been given or made on the date on which it was delivered or, in the case of
fax or email, on the next business day after receipt of transmission. Any party
may change its fax number or address for service or email address from time to
time by written notice in accordance with this section.
7.6 ASSIGNMENT
(a) This Agreement is not assignable by Urbanlink in whole or in part
without the prior written consent of 360, such consent not to be
unreasonably delayed. This Agreement is not assignable by 360 or
Services without the prior written consent of Urbanlink, such
consent not to be unreasonably delayed. Any attempt by any party to
assign any of the rights or to delegate any of the duties or
obligations of this Agreement without such prior written consent is
void.
(b) Notwithstanding the foregoing, the interests of any party may be
assigned by such party to an Affiliate, provided that such Affiliate
delivers to the other parties a written undertaking to be bound by
the provisions of this Agreement in all respects and to the same
extent as the assignor is bound and provided further that the
assignor will continue to be bound by all the obligations hereunder
as if such assignment had not occurred and shall perform such
obligations to the extent that such Affiliate fails to do so.
(c) Notwithstanding the foregoing, the interests of a party under this
Agreement (including, without limitation, in the case of Urbanlink,
the right to receive any and all amounts payable to Urbanlink under
this Agreement) may be assigned by such party by way of collateral
security to a lender without the consent of the other parties,
provided however that any such lender agrees in writing that:
(i) the rights and interest of the lender are subject to the
rights and interests of the parties other than the assignor
under this Agreement;
(ii) prior to realizing on such collateral security it will provide
notice to the other parties giving them the opportunity to
cure the default; and
(iii) should such security be realized with the result that the
title or interest of the assignor, as the case may be, is
vested in an assignee, acquirer or other successor in title or
interest (including the lender if such is the case)
("Successor"), then the lender will cause such Successor to
enter into a written agreement with the other parties to be
bound by the provisions of this Agreement in all respects and
to the same extent as the assignor was bound and this from the
date the title or interest is transferred and provided further
that the assignor will continue to be bound by all the
obligations under this Agreement as if such transfer of title
or interest had not occurred and will perform such obligations
to the extent that the Successor fails to do so.
-8-
<PAGE>
7.7 FORCE MAJEURE
The failure or delay of any party to this Agreement to perform any obligation
under this Agreement solely by reason of acts of God, acts of civil or military
authority, civil disturbance, war, strikes or other labour disputes or
disturbances, fire, transportation contingencies, shortage of facilities, fuel,
energy, labour or materials, or laws, regulations, acts or orders of any
governmental agency or official, other catastrophes, or any other circumstance
beyond its reasonable control ("Force Majeure") will be deemed not to be a
breach of this Agreement so long as the party so prevented from complying with
this Agreement has not contributed to such Force Majeure, has used reasonable
efforts to avoid such Force Majeure or to ameliorate its effects, and continues
to take all actions within its power to comply as fully as possible with the
terms of this Agreement. In the event of any such Force Majeure, performance of
the obligations will be deferred until the Force Majeure ceases. This section
will not apply to excuse a failure to make any payment when due.
7.8 COUNTERPARTS
This Agreement may be executed in any number of counterparts with the same
effect as if all parties had signed the same document. All of these counterparts
will for all purposes constitute one agreement, binding on the parties,
notwithstanding that all parties are not signatories to the same counterpart. A
fax transcribed copy or photocopy of this Agreement executed by a party in
counterpart or otherwise will constitute a properly executed, delivered and
binding agreement or counterpart of the executing party.
7.9 WAIVER
No failure or delay on the part of any party in exercising any power or right
under this Agreement will operate as a waiver of such power or right. No single
or partial exercise of any right or power under this Agreement will preclude any
further or other exercise of such right or power. No modification or waiver of
any provision of this Agreement and no consent to any departure by any party
from any provision of this Agreement will be effective until the same is in
writing. Any such waiver or consent will be effective only in the specific
instance and for the specific purpose for which it was given. No notice to or
demand on any party in any circumstances will entitle such party to any other or
further notice or demand in similar or other circumstances.
7.10 FURTHER ASSURANCES
Each of the parties will promptly execute and deliver to the other at the cost
of the other such further documents and assurances and take such further actions
as the other may from time to time request in order to more effectively carry
out the intent and purpose of this Agreement and to establish and protect the
rights, interests and remedies intended to be created in favour of the other.
7.11 ENTIRE AGREEMENT
This Agreement and any other documents and agreements to be delivered pursuant
to this Agreement supersede all previous invitations, proposals, letters,
correspondence, negotiations,
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<PAGE>
promises, agreements, covenants, conditions, representations and warranties with
respect to the subject matter of this Agreement. There is no representation,
warranty, collateral term or condition or collateral agreement affecting this
Agreement, other than as expressed in writing in this Agreement. No trade terms
or trade usages are to be incorporated by reference implicitly or otherwise into
this Agreement, unless expressly referred to in this Agreement.
7.12 AMENDMENTS
No change or modification of this Agreement will be valid unless it is in
writing and signed by each party to
this Agreement.
7.13 INVALIDITY OF PARTICULAR PROVISION
If any provision of this Agreement or any part of any provision (in this section
called the "Offending Provision") is declared or becomes unenforceable, invalid
or illegal for any reason whatsoever including, without limiting the generality
of the foregoing, a decision by any competent courts, legislation, statutes,
bylaws or regulations or any other requirements having the force of law, then
the remainder of this Agreement will remain in full force and effect as if this
Agreement had been executed without the Offending Provision.
7.14 CURRENCY
Unless otherwise specified all sums of money expressed in this Agreement are in
the lawful money of Canada.
7.15 NUMBER AND GENDER
Unless the context of this Agreement otherwise requires, to the extent necessary
so that each clause will be given the most reasonable interpretation, the
singular number will include the plural and vice versa, the verb will be
construed as agreeing with the word so substituted, words importing the
masculine gender will include the feminine and neuter genders, words importing
persons will include firms and corporations and words importing firms and
corporations will include individuals.
7.16 HEADINGS AND CAPTIONS
The headings and captions of sections and paragraphs contained in this Agreement
are all inserted for convenience of reference only and are not to be considered
when interpreting this Agreement.
7.17 ACKNOWLEDGEMENT OF RECEIPT
Each of the parties acknowledges receiving an executed copy of this Agreement.
-10-
<PAGE>
7.18 ENUREMENT
Subject to the restrictions on transfer contained in this Agreement, this
Agreement will enure to the benefit of and be binding on the parties and their
respective heirs, executors, administrators, successors and assigns.
[THE NEXT PAGE IS THE EXECUTION PAGE.]
-11-
<PAGE>
IN WITNESS WHEREOF the parties have executed this Agreement as of the date
stated on the first page.
360NETWORKS INC. WORLDWIDE FIBER NETWORKS
SERVICES LTD.
Per: Per:
- ------------------------------------ ------------------------------------
Signature Signature
WFI URBANLINK LTD.
Per:
- ------------------------------------
Signature
-12-
<PAGE>
SCHEDULE "A"
PHASE I STRANDS
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------
MILE DUCT TUBE STRAND STRAND
SEGMENTS POINTS ROW KILOMETER COLOUR COLOUR NUMBER TYPE
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
FROM CALGARY TO EMERSON CP 1,443 Orange Brown 41-42 SMF-28
FROM CP TRACKS AT CAMBIE ST. CP 1,032 Orange Brown 41-42 SMF-28
VANCOUVER TO CALGARY
FROM 301 INDUSTRIAL AVE. TO CP 3 Orange Brown 41-42 SMF-28
CP TRACKS AT CAMBIE ST.
OAK STREET BRIDGE TO 301 CN 11 Orange Brown 41-42 SMF-28
INDUSTRIAL, VANCOUVER
US BORDER TO VICTORIA TO OAK CN 84 Orange Brown 41-42 SMF-28
STREET BRIDGE
EDMONTON CN TRACKS TO CN 11 Orange Brown 41-42 SMF-28
EDMONTON BRETTVILLE JUNCTION
EDMONTON BRETVILLE JUNCTION CN 1,958 Orange Brown 41-42 SMF-28
TO THUNDER BAY
THUNDER BAY TO TORONTO CN 1,402 Orange Brown 41-42 SMF-28
TORONTO TO BROCKVILLE
Union Station to Parliament 333.8 to TTR 12 Orange Rose 121-122 Leaf
St.(Kingston) 332.8
Parliament St to Scarborough 332.8 to CN 23 Orange Rose 121-122 Leaf
(Kingston) 7.24
Scarborough to Pickering 325.56 to CN 299 Orange Rose 121-122 Leaf
Jct. (Kingston) 311.4
Pickering Jct. To Brockville 311.4 to CN Orange Rose 121-122 Leaf
(Kingston) 125.7
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
-13-
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------
MILE DUCT TUBE STRAND STRAND
SEGMENTS POINTS ROW KILOMETER COLOUR COLOUR NUMBER TYPE
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
BROCKVILLE TO SMITH FALLS 27.8 to StL&H 45 Orange Rose 121-122 Leaf
0.0
SMITH FALLS TO OTTAWA (VIA)
STATION
Smith Falls to Alexander 34.5 to StL&H 0.2 Orange Rose 121-122 Leaf
St.(Smiths Falls) 34.38
Alexander St. to CN Radio 34.38 to CN 1 Orange Rose 121-122 Leaf
Site (Smiths Falls) 34.05
CN Radio Site to Richmond 34.05 to VIA 34 Orange Rose 121-122 Leaf
(Smiths Falls) 13.0
Richmond to Federal (Smiths 13.0 to 0.0 CN 21 Orange Rose 121-122 Leaf
Falls)
Federal to Union Station 6.0 to 0.9 CN 10 Orange Rose 121-122 Leaf
(Beachburg)
BORDER TO TORONTO
U.S. Border to Fort Erie 0.6 to 1.0 CN 1 Orange Rose 121-122 Leaf
(Stamford)
Fort Erie to Port Robinson 1.0 to CN 36 Orange Rose 121-122 Leaf
(Stamford) 23.14
Port Robinson to Merriton 1.27 to 7.9 CN 11 Orange Rose 121-122 Leaf
(Thorld Spur)
Merriton to Hamilton 9.5 to CN 55 Orange Rose 121-122 Leaf
(Grimsby) 43.66
Hamilton to Canpa (Oakville) 39.3 to 8.5 CN 50 Orange Rose 121-122 Leaf
Canpa to Windsor St. 8.5 to 0.5 CN 13 Orange Rose 121-122 Leaf
(Oakville)
OTTAWA TO QUEBEC BORDER
Union Station to Hawthorne 76.5 to CN 6 Temp Rose 121-122 Leaf
Diamond (Alexandria) 2.72
Hawthorne Diamond to 72.72 to CN 0.4 Rose 121-122 Leaf
Hawthorne (Alexandria) 72.5
Hawthorne to Quebec Border 72.5 to VIA 97 Rose 121-122 Leaf
(Alexandria) 12.5
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
-14-
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------
MILE DUCT TUBE STRAND STRAND
SEGMENTS POINTS ROW KILOMETER COLOUR COLOUR NUMBER TYPE
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
QUEBEC BORDER TO TASCHEREAU
Quebec Border to Coteau 12.5 to 0.0 VIA 20.11 Orange Rose 121 - 122 Leaf
Jct.(Alexandria)
Coteau Jct. To Dorion 38.0 to CN 22.04 Orange Rose 121 - 122 Leaf
(Kingston) 24.3
Dorion to Dorval (Kingston) 24.3 to CN 22.53 Orange Rose 121 - 122 Leaf
10.3
Dorval to Taschereau Yard 11.6 to 9.0 CN 4.18 Orange Rose 121 - 122 Leaf
(Montreal)
MONTREAL CENTRAL TO QUEBEC 1.28 to 1.5 CN 259.79 Orange Rose 121-122 Leaf
CITY
US BORDER TO CAMBRIDGE
US Border to Collage Ave 226.30 to CN/StL&H 2 Orange Rose 121-122 Leaf
225.21
Collage Avenue to Hyde Park 111.8 to StL&H 174 Orange Rose 121-122 Leaf
Road 3.9
Hyde Park Road to London 3.9 to 0.0 StL&H 6 Orange Rose 121-122 Leaf
London to Airport Road 114.6 to StL&H 8 Orange Rose 121-122 Leaf
109.48
Airport Road to Cambridge 109.48 to StL&H 84 Orange Rose 121-122 Leaf
57.2
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
-15-
<PAGE>
SCHEDULE "B"
PHASE II STRANDS
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------
MILE DUCT TUBE STRAND STRAND
SEGMENTS POINTS ROW KILOMETER COLOUR COLOUR NUMBER TYPE
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
CAMBRIDGE TO HALWEST
Cambridge South Junction 0.8 to 11.2 StL&H 17 Orange Rose 121-122 Leaf
(Waterloo)
South Junction to Kitchener 3.5 to 0 GEX 6 Orange Rose 121-122 Leaf
(Huron Park)
Kitchener to Silver (Guelph) 63.05 to 29.98 GEX 53 Orange Rose 121-122 Leaf
Silver to Halwest (Halton) 24.16 to 11.13 CN 21 Orange Rose 121-122 Leaf
TAXCHEREAU TO MONTREAL
STATION
Taschereau Yard to Jct. W/ N/A CN 1.22 Orange Rose 121-122 SMF-28
St. Laurent Sub.
Taschereau Yard to Jonction 146.2 to 141.6 CN 7.40 Orange Rose 121-122 SMF-28
de L'Est (St. Laurent)
Jonction de L'Est to Central 6.0 to 0.8 CN 8.37 Orange Rose 121-122 SMF-28
Station (Deux-Montagnes)
MONTREAL TO US BORDER 2 strands
QUEBEC CITY TO HALIFAX 2 strands
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
-16-
<PAGE>
SCHEDULE "C"
CAPACITY PURCHASE AGREEMENT
-17-
<PAGE>
SCHEDULE "C"
TO RESELLER AGREEMENT
CONFIDENTIAL AND PROPRIETARY
CAPACITY PURCHASE AGREEMENT
BY AND BETWEEN
WORLDWIDE FIBER NETWORK SERVICES LTD.
AND
WFI URBANLINK LTD.
DATED: -
<PAGE>
TABLE OF CONTENTS
Page
----
ARTICLE 1 EXHIBITS; DEFINITIONS................................................1
ARTICLE 2 IRU..................................................................3
ARTICLE 3 PAYMENT..............................................................3
ARTICLE 4 ACCEPTANCE TESTING AND DELIVERY......................................4
ARTICLE 5 TERM.................................................................5
ARTICLE 6 INTERCONNECTION......................................................5
ARTICLE 7 MAINTENANCE AND REPAIR...............................................6
ARTICLE 8 USE OF THE CAPACITY 6
ARTICLE 9 INDEMNIFICATION......................................................7
ARTICLE 10 LIMITATION OF LIABILITY.............................................8
ARTICLE 11 INSURANCE...........................................................8
ARTICLE 12 NOTICES............................................................10
ARTICLE 13 CONFIDENTIALITY....................................................10
ARTICLE 14 DEFAULT............................................................11
ARTICLE 15 TERMINATION........................................................12
ARTICLE 16 FORCE MAJEURE EVENTS...............................................12
ARTICLE 17 DISPUTE RESOLUTION.................................................13
ARTICLE 18 ASSIGNMENT AND TRANSFER RESTRICTIONS...............................13
ARTICLE 19 REPRESENTATIONS AND DISCLAIMER OF WARRANTIES.......................15
ARTICLE 20 GENERAL............................................................15
-i-
<PAGE>
CAPACITY PURCHASE AGREEMENT
THIS CAPACITY PURCHASE AGREEMENT (this "Agreement") is made and entered into as
of - (the "Effective Date"), by and between Worldwide Fiber Network Services,
Ltd., an Alberta corporation ("Customer"), and WFI Urbanlink Ltd., an Alberta
corporation ("Urbanlink").
RECITALS
A. Urbanlink, either directly or indirectly, is the holder of rights in, has
constructed or is constructing a fiber optic communications network, including
optronics and other facilities (the "Urbanlink System"), which connects the city
pairs identified in Exhibit A (the "Endpoints").
B. Customer desires to obtain from Urbanlink certain telecommunications
capacity in the Urbanlink System on the terms and conditions set forth below.
Accordingly, in consideration of the mutual promises set forth in this
Agreement, and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereby agree as
follows:
ARTICLE 1
EXHIBITS; DEFINITIONS
1.1 Exhibits. The following exhibits are attached hereto, incorporated herein
and made a part of this Agreement by this reference:
Exhibit A: Endpoints
Exhibit B: Service Level Agreement
1.2 Definitions. As used in this Agreement, the capitalized terms listed in
this Section 1.2 and derivatives thereof shall have the meanings
respectively ascribed to them in this Section 1.2.
(a) "Acceptance Date" shall have the meaning set forth in Section 4.2.
(b) "Affiliate" shall have the meaning ascribed to it in the CANADA
BUSINESS CORPORATION ACT, as amended.
(c) "Agreement" shall have the meaning set forth in the introductory
paragraph.
(d) "Capacity" means a [linear/protected] dedicated telecommunications
path with a bandwidth level of o between the Endpoints, provided by
Urbanlink under the terms of this Agreement, which bandwidth shall
be derived from a specific wavelength and specific fibers.
(e) "Completion Notice" shall have the meaning set forth in Section 4.1.
<PAGE>
(f) "Confidential Information" shall have the meaning set forth in
Section 13.1.
(g) "Costs" means actual, direct costs paid or payable in accordance
with the established accounting procedures generally used by
Urbanlink and which Urbanlink utilizes in billing third parties for
reimbursable projects, including without limitation the following:
(i) internal labor costs, including wages, salaries and benefits,
and overhead allocable to such labor costs equal to 15%, and (ii)
other direct costs and out-of-pocket expenses on a pass-through
basis (e.g., equipment, materials, supplies, contract services,
etc.).
(h) "Delivery Date" shall have the meaning set forth in Exhibit B.
(i) "Dollars" or "$"means U.S. Dollars.
(j) "Effective Date" shall have the meaning set forth in the
introductory paragraph to this Agreement.
(k) "Endpoints" shall have the meaning set forth in Recital A.
(l) "Force Majeure Events" shall have the meaning set forth in Article
16.
(m) "Impositions" means all taxes, good and services taxes, sales taxes,
fees, levies, imposts, duties, charges or withholdings of any nature
(including, without limitation, ad valorem, real property, gross
receipts, franchise, license and permit fees), together with any
penalties, fines or interest thereon arising out of the transactions
contemplated by this Agreement by any federal, provincial, state or
local government or other public taxing authority.
(n) "Interest Rate" means the lower of (i) the highest rate permitted by
law, or (ii) one and one-half percent (1.5%) per month (equivalent
to 19.56% per annum).
(o) "IRU" shall have the meaning set forth in Section 2.1.
(p) "IRU Effective Date" shall have the meaning set forth in Section
5.1.
(q) "O&M Fees" shall have the meaning set forth at Section 7.2.
(r) "Party" means each of Urbanlink and Customer and "Parties" shall
mean Urbanlink and Customer.
(s) "Permitted Assignee" shall have the meaning set forth in Section
18.2.
(t) "Person" means any individual, corporation, partnership, limited
liability company, joint venture, association, joint-stock company,
trust, unincorporated organization, government or any agency or
political subdivision thereof or any other entity.
(u) "Purchase Price" shall have the meaning set forth at Section 3.1.
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<PAGE>
(v) "Service Level Agreement" shall have the meaning set forth at
Section 4.1.
(w) "Term" shall have the meaning set forth at Section 5.1.
(x) "Urbanlink Account" means the following bank account of Urbanlink,
which may be modified or changed by Urbanlink in writing from time
to time:
Account Name:
Account Number:
Bank Name:
Reference:
(y) "Underlying Rights" means, with respect to particular end points,
all licenses, leases, easements, rights-of-way, deeds, franchises,
permits, authorizations, consents and approvals (including without
limitation, any necessary local, provincial federal or First Nations
authorizations and environmental permits) and other rights, titles,
or interests as are necessary for the construction, installation,
operation, maintenance or repair of the Urbanlink System between
such end points.
(z) "Urbanlink System" shall have the meaning set forth in Recital A.
ARTICLE 2
IRU
2.1 As of the IRU Effective Date, Urbanlink shall deliver and provide to
Customer and Customer shall receive from Urbanlink an exclusive and
indefeasible right of use of the Capacity on the terms and conditions set
forth in the Agreement (the "IRU").
2.2 Urbanlink represents and warrants that it possesses those certain rights
to the Capacity necessary for Urbanlink to deliver the Capacity to
Customer. Urbanlink shall keep the Capacity free from all claims, liens,
encumbrances, rights or claims of any third party attributable to
Urbanlink which have a material adverse effect on the right of Customer to
use the Capacity as contemplated by this Agreement.
ARTICLE 3
PAYMENT
3.1 In consideration of the grant of the IRU hereunder by Urbanlink to
Customer, Customer agrees to pay to Urbanlink a fee in the amount of $o
(the "Purchase Price"). 20% of the Purchase Price is due and payable on
each of (i) the date of the commencement of the provision of Capacity
under this Agreement, (ii) the first anniversary of the date of the
commencement of the provision of Capacity under this Agreement, (iii) the
second anniversary of the commencement of the provision of Capacity under
date of this Agreement, (iv) the third anniversary of the date of the
commencement of the provision of Capacity under this Agreement, and (v)
the fourth anniversary of the date of the commencement of the provision of
Capacity under this Agreement.
-3-
<PAGE>
3.2 All payments made by Customer hereunder in excess of $100,000 shall be
made by wire transfer of immediately available funds to the Urbanlink
Account. Payments of all other amounts by Customer hereunder may be made
by wire transfer or by company check of immediately available funds
payable to Urbanlink.
3.3 If Customer fails to make any payment under this Agreement when due, then,
in addition to such sum and to any other rights and remedies that
Urbanlink may have, Customer shall pay interest on such unpaid amount at
the Interest Rate until such sum is paid in full and such interest shall
accrue both before and after judgment. Notwithstanding the foregoing, no
interest shall accrue on any payment that is disputed in good faith by
Customer while such dispute is pending. If such dispute is later resolved
in favor of Urbanlink, such amount shall bear interest at the Interest
Rate from the date when due until paid.
3.4 In addition to the amounts payable under Section 3.1, Customer shall be
responsible to pay directly or reimburse Urbanlink, as requested by
Urbanlink, for all other sums, costs, fees and expenses that are required
to be paid under this Agreement. Urbanlink will invoice Customer for all
sums, costs, fees and expenses, owed by Customer to Urbanlink, and
Customer shall pay such invoices within 30 days of the invoice date,
except for the Purchase Price which shall be paid in accordance with
Section 3.1.
3.5 All payments made by Customer under this Agreement shall be made without
any deduction or withholding for or on account of any Imposition. If
Customer is required by law to make any deduction or withholding from any
payment due Urbanlink, then, notwithstanding anything to the contrary
contained in this Agreement, the gross amount payable by Customer to
Urbanlink shall be increased so that after any such deduction or
withholding for such Impositions or any additional deduction or
withholding on account of any Imposition caused by such additional
gross-up payment, the net amount received by Urbanlink will not be less
than what Urbanlink would have received had no deduction or withholding
been required.
ARTICLE 4
ACCEPTANCE TESTING AND DELIVERY
4.1 When Urbanlink has determined that the Capacity is operating substantially
in conformity with the applicable service levels set forth in Exhibit B
(the "Service Level Agreement"), Urbanlink shall promptly provide Customer
written notice of the same (a "Completion Notice"). Each Completion Notice
shall set forth the date upon which Urbanlink will commence delivery of
the Capacity to Customer provided that all payments due under this
Agreement have been paid in full.
4.2 Within ten (10) days of receipt of a Completion Notice, Customer shall
provide Urbanlink a written notice accepting or rejecting the Capacity,
specifying in reasonable detail, if rejected, the defect or failure in the
Capacity. If Customer fails to notify Urbanlink of its acceptance or
rejection of the Completion Notice within ten (10) days following
Customer's receipt of the same, Customer shall be deemed to have accepted
such Capacity. Any use of Capacity by Customer other than for testing
purposes shall be
-4-
<PAGE>
deemed to constitute acceptance of the Capacity. The date of such notice
of acceptance or deemed acceptance of the Capacity shall be the
"Acceptance Date". In the event of any good-faith rejection by Customer,
Urbanlink shall take such action as reasonably necessary, and as
expeditiously as practicable, to correct or cure such defect or failure.
Customer shall in no event be entitled to commence use of the Capacity
until after Urbanlink has received payment in full.
4.3 Provided Urbanlink first obtains Customer's written consent, which consent
may not be unreasonably withheld or delayed, Urbanlink may substitute,
change or reconfigure the telecommunications equipment and facilities used
in providing the Capacity as long as the quality and type of Capacity is
not impaired or changed. In such event, the Parties shall work together in
good faith to minimize any disruption of service in connection with such
substitution, change or reconfiguration.
ARTICLE 5
TERM
5.1 The IRU shall become effective on the first day when both the Acceptance
Date has occurred, and Urbanlink has received payment in full of the
Purchase Price (the "IRU Effective Date") and the IRU shall extend until
the expiry of the Underlying Rights in respect of that part of the
Urbanlink System that contains the specific fibres on which the Capacity
is being provided by Urbanlink under the terms of this Agreement (the
"Term"); provided that if the Underlying Rights for the routes described
on Exhibit A expire on different dates, the Term shall expire on the
expiry on the last of such Underlying Rights to expire; and provided
further that if the Underlying Rights expire for some routes described on
Exhibit "A" prior to the expiry of the Term, the IRU shall then expire and
terminate for such route and the rights of the Customer to use the
Capacity in respect of such route shall cease.
5.2 At the expiration or other termination of this Agreement, the IRU shall
immediately terminate, and all rights of Customer to use the Capacity
shall cease. The expiration or termination of this Agreement shall not
relieve Customer from any liabilities arising prior to such termination.
5.3 If at any time Customer, in its absolute discretion, determines not to
retain the IRU, Customer shall have the right to abandon the IRU by
written notice to Urbanlink. In the case of such abandonment, this
Agreement shall terminate and Customer shall not be entitled to a refund
of any of the consideration paid. Upon such termination, all fees, costs
and other expenses with respect to this Agreement shall be immediately due
and payable to Urbanlink by Customer.
ARTICLE 6
INTERCONNECTION
6.1 To the extent technically feasible, as determined by Urbanlink and the
Customer acting reasonably and in good faith, Urbanlink shall permit
Customer to interconnect its communications system with the Capacity
within Urbanlink's facilities or structures at
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<PAGE>
the Endpoints or at such other location as may be agreed from time to
time, acting reasonably. Urbanlink shall perform all work with respect to
such interconnection as it relates to the Urbanlink System or any other
facilities, equipment or structures of Urbanlink or its Affiliates.
Customer shall pay Urbanlink for its Costs to perform such work plus a
management fee equal to fifteen percent (15%) of such Costs within thirty
(30) days of receiving an invoice therefor. Nothing contained in this
Agreement shall obligate Customer to obtain or facilitate the provisioning
of local access with respect to the Capacity.
ARTICLE 7
MAINTENANCE AND REPAIR
7.1 From and after the IRU Effective Date, Urbanlink shall maintain the
Capacity in good working order and in accordance with industry standards.
7.2 In consideration of the maintenance services, Customer shall pay Urbanlink
the operations and maintenance fees (the "O&M Fees") with respect to the
city pairs listed below (subject to adjustment as provided in Section 7.3)
equal to a monthly amount determined by the Customer and Urbanlink, acting
reasonably, each year as being a reasonable allocation of the costs of
Urbanlink to operate, repair and maintain the Urbanlink System.
7.3 The O&M Fee shall be increased annually, beginning with the first
anniversary of the Effective Date, by the increase, if any, in the
Consumer Price Index - Canada - All Items ("CPI") published by Statistics
Canada for the twelve (12) month period ending three months prior to such
anniversary of the effective date. In the event that Statistics Canada no
longer publishes the CPI, Customer and Urbanlink shall together, acting
reasonably and in good faith, designate the statistical index they
consider most appropriate for adjustments to a fee and, from the date the
CPI ceased to be published, such index shall be used to make adjustments
in a fee under this provision.
7.4 Customer shall have no right to physically access in any manner the
Urbanlink System or any components thereof.
ARTICLE 8
USE OF THE CAPACITY
8.1 Customer represents, warrants and covenants that it will use the Capacity
in compliance with and subject to all applicable government codes,
ordinances, laws, rules and regulations and will require its customers
that purchase telecommunication services, circuits or capacity from the
Customer or its Affiliates do the same. Customer shall not use its systems
in a way that interferes in any way with or adversely affects the use of
the Urbanlink System or any other Person using the Urbanlink System or
Capacity thereon. The parties acknowledge that the Urbanlink System
includes or will include other customers and participants, including
without limitation other owners and users of telecommunication systems.
-6-
<PAGE>
8.2 Notwithstanding anything to the contrary contained herein, Customer shall
secure, prior to the IRU Effective Date, and maintain in full force and
effect during the Term, any and all necessary consents, franchises or
similar approvals from all governmental and other authorities which are
necessary or required to be obtained by Customer for Urbanlink to grant
the IRU to Customer and for the use and operation of the Capacity by
Customer.
8.3 Subject to Article 18, Urbanlink shall have no right to sell, lease,
transfer or use the Capacity or any portion thereof.
8.4 Customer and Urbanlink each agree to cooperate with and support the other
in complying with any requirements applicable to their respective rights
and obligations hereunder. Customer and Urbanlink shall promptly notify
each other of any matters pertaining to, or the occurrence (or impending
occurrence) of, any event which would be reasonably likely to give rise to
any damage or impending damage to or loss of the Urbanlink System or
Capacity that are known to such Party.
ARTICLE 9
INDEMNIFICATION
9.1 Subject to the provisions of Articles 10 and 19, Urbanlink hereby agrees
to indemnify, defend, protect and hold harmless Customer, its Affiliates
and their employees, officers and directors, from and against, and assumes
liability for:
(a) All suits, actions, damages or claims of any character (i) brought
against Customer or its Affiliates because of any injuries or damage
received or sustained by any persons or property which in whole or
in part arise on account of the acts or negligent omissions of
Urbanlink in the performance of construction or maintenance of the
Urbanlink System or the provision of the Capacity or the performance
of its obligations under this Agreement; and (ii) brought against
Customer or its Affiliates under the workers compensation laws,
except to the extent caused by the negligence or wilful misconduct
of the parties indemnified hereunder.
9.2 Subject to the provisions of Article 10, Customer hereby agrees to
indemnify, defend, protect and hold harmless Urbanlink, and its employees,
officers and directors, from and against, and assumes liability for:
(a) All suits, actions, damages or claims of any character (i) brought
against Urbanlink or its Affiliates because of any injuries or
damage received or sustained by any persons or property which in
whole or in part arise on account of the acts or negligent omissions
of Customer in the performance of its obligations under this
Agreement; (ii) brought against Urbanlink or its Affiliates under
workers compensation laws, except to the extent caused by the
negligence or wilful misconduct of the parties indemnified
hereunder; and (iii) brought against Urbanlink or its Affiliates
because of any damage arising out of or resulting from Customer's
use of the Capacity and conduct of its business, including the
content
-7-
<PAGE>
of any video, voice or data carried by Customer or its customers
through or using the Capacity.
9.3 Nothing contained herein shall operate as a limitation on the right of
either Party hereto to bring an action for damages against any third
party, including indirect, special or consequential damages, based on any
acts or negligent omissions of such third party as such acts or omissions
may affect the construction, operation or use of the Capacity or the
Urbanlink System; provided, however, that each Party hereto shall assign
such rights or claims, execute such documents and do whatever else may be
reasonably necessary to enable the other Party to pursue any such action
against such third party.
ARTICLE 10
LIMITATION OF LIABILITY
10.1 NOTWITHSTANDING ANY PROVISION OF THIS AGREEMENT TO THE CONTRARY, EXCEPT TO
THE EXTENT CAUSED BY ITS WILFUL MISCONDUCT, NEITHER PARTY SHALL BE LIABLE
TO THE OTHER PARTY FOR ANY SPECIAL, INCIDENTAL, INDIRECT, PUNITIVE OR
CONSEQUENTIAL COSTS, LIABILITIES OR DAMAGES, WHETHER FORESEEABLE OR NOT,
ARISING OUT OF, OR IN CONNECTION WITH, SUCH PARTY'S PERFORMANCE OF ITS
OBLIGATIONS UNDER THIS AGREEMENT OR OTHERWISE RELATED TO THIS AGREEMENT.
10.2 Notwithstanding anything contained in this Agreement to the contrary, the
Parties acknowledge and agree that on and after the Acceptance Date,
Customer's sole rights and remedies with respect to any defect in or
failure of the Capacity to perform in accordance with the Service Level
Agreement shall be limited to the remedies set forth in the Service Level
Agreement.
10.3 The Parties expressly agree that no claim for losses or damages whatsoever
in connection with this Agreement shall be made more than two years after
the date that the event giving rise to such claim is known or reasonably
should have been known to the Party making such claim.
ARTICLE 11
INSURANCE
11.1 Throughout the term of the IRU, each Party shall procure and maintain in
force, at its own expense:
(a) General Liability insurance with a minimum limit of $5,000,000,
including coverage for contractual liability, non-owned auto
liability, Owner's & Contractor's protective liability and products
and completed operations liability. Such policy shall be written on
an occurrence basis and shall contain a cross liability or
severability of interest clause;
(b) Workers' Compensation insurance covering all employees engaged in
the work in accordance with the statutory requirements of the
county, state, province or
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territory or other governmental body having jurisdiction over such
employees.
(c) Employers' Liability insurance with a minimum limit of $5,000,000,
covering all employees engaged in the work;
(d) Automobile liability insurance with a minimum limit of $5,000,000,
covering all motor vehicles owned, operated and/or licensed
(including owned, leased, or hired units);
(e) "All Risks" Property insurance on a replacement cost basis, for
damage to the system and associated property, with deductibles and
limits in such amounts as would from time to time be carried by a
prudent owner considering the property insured; and
(f) any other insurance coverages specifically required of such Party
pursuant to right-of-way agreements with railroads or other third
parties.
(g) Both parties shall require any contractors engaged in construction
or maintenance of the system to maintain insurance in accordance
with the provisions of this Article 11.1.
11.2 Both parties expressly acknowledge that a Party shall be deemed to be in
compliance with the provisions of this Article if it maintains a
self-insurance program providing for a retention of up to $1,000,000.
Unless otherwise agreed, Customer's and Urbanlink's insurance policies
shall be obtained and maintained with companies rated "A" or better by
BEST'S KEY RATING GUIDE and each Party shall provide the other with an
insurance certificate confirming compliance with this requirement for each
policy providing such required coverage.
11.3 If either Party fails to obtain the required insurance or fails to obtain
the required certificates from any contractor and a claim is made or
suffered, such Party shall indemnify and hold harmless the other Party
from any and all claims for which the required insurance would have
provided coverage. Further, in the event of any such failure which
continues after seven (7) days' written notice thereof by the other Party,
such other Party may, but shall not be obligated to, obtain such insurance
and will have the right to be reimbursed for the cost of such insurance by
the Party failing to obtain such insurance.
11.4 In the event coverage is denied or reimbursement of a properly presented
claim is disputed by the carrier for insurance provided above, the Party
carrying such coverage shall make good-faith efforts to pursue such claim
with its carrier.
11.5 Each party shall upon request from the other provide evidence of the
insurances which it is obligated to maintain under clause 11.1. All
insurance policies shall contain a provision that coverage cannot be
cancelled or materially reduced until the insurer has provided at least 30
days written notice to the non-insuring party.
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11.6 Each party shall require all policies related to this contract be amended
to include the other party as an additional named insured and shall
require insurers to amend all such policies to include a waiver of
subrogation in favor of the other party.
ARTICLE 12
NOTICES
12.1 All notices and other communications required or permitted under this
Agreement shall be in writing and shall be given by hand delivery
(including by means of a professional messenger service or overnight mail)
addressed as follows:
If to Customer:
Worldwide Fiber Network Services Ltd.
Suite 1510, 1066 West Hastings Street
Vancouver, B.C. V6E 3X1
Attention: Catherine McEachern
If to Urbanlink:
WFI Urbanlink Ltd.
Suite 1000, 1066 West Hastings Street
Vancouver, B.C. V6E 3X1
Attention: William Ramsey
Any such notice or other communication shall be deemed to be effective
when actually received or refused. Either Party may by similar notice
given change the address to which future notices or other communications
shall be sent.
ARTICLE 13
CONFIDENTIALITY
13.1 This Agreement and all materials, maps, and other documents which are
marked confidential and disclosed by one Party to the other in fulfilling
the provisions and intent of this Agreement, are and shall be confidential
(the "Confidential Information"). Neither Party shall divulge or otherwise
disclose the Confidential Information to any third party without the prior
written consent of the other Party, except that either Party may make
disclosure to those required for the implementation or performance of this
Agreement, auditors, attorneys, financial advisors, lenders and
prospective lenders, funding partners and prospective funding partners,
provided that in each case the permitted recipient agrees in writing to be
bound by the confidentiality provisions set forth in this section. In
addition, either Party may make disclosure as required by a court order or
as otherwise required by law or in any legal or arbitration proceeding
relating to this Agreement. If either Party is required by law or by
interrogatories, requests for information or documents, subpoena, civil
investigative demand or similar process to
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disclose the Confidential Information, it will provide the other Party
with prompt prior written notice of such request or requirement so that
such Party may seek an appropriate protective order and/or waive
compliance with this Section. The Party whose consent to disclose
information is requested shall respond to such request, in writing, within
five (5) working days of the request by either authorizing the disclosure
or advising of its election to seek a protective order, or if such Party
fails to respond within the prescribed period the disclosure shall be
deemed approved.
13.2 Nothing herein shall be construed as granting any right or license under
any copyrights, inventions, or patents now or hereafter owned or
controlled by Urbanlink.
13.3 Upon termination of this Agreement for any reason or upon request of
Urbanlink, Customer shall return all Confidential Information, together
with any copies of same, to Customer. The requirements of confidentiality
set forth herein shall survive the return of such Confidential
Information.
13.4 Customer shall not, without first obtaining the written consent of
Urbanlink, use any trademark or trade name of Urbanlink or refer to the
subject matter of this Agreement or Urbanlink in any promotional activity
or otherwise, nor disclose to others any specific information about the
subject matter of this Agreement. Neither Party shall issue any
publication or press release relating directly or indirectly to this
Agreement without the prior written consent of both Parties.
13.5 The provisions of this Article shall survive expiration or other
termination of this Agreement.
ARTICLE 14
DEFAULT
14.1 A default shall be deemed to have occurred under this Agreement if:
(a) in the case of a failure to pay any amount when due under this
Agreement, a Party fails to pay such amount within ten (10) days
after notice specifying such breach, or
(b) in the case of any other material breach of this Agreement, a Party
fails to cure such material breach within thirty (30) days after
notice specifying such breach, provided that if the breach is of a
nature that cannot be cured within thirty (30) days, a default shall
not have occurred so long as the breaching Party has commenced to
cure within said time period and thereafter diligently pursues such
cure to completion.
(c) either of the following occur (i) a Party makes a general assignment
for the benefit of its creditors, files a voluntary petition in
bankruptcy or any petition or answer seeking, consenting to, or
acquiescing in reorganization, arrangement, adjustment, composition,
liquidation, dissolution or similar relief; or (ii) an involuntary
petition in bankruptcy, other insolvency protection against either
Party is filed and not dismissed within one hundred twenty days
(120) days.
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14.2 If the default consists of a failure of Customer to pay to Urbanlink any
part of the Purchase Price, Urbanlink may terminate any and all of its
obligations under this Agreement, and apply any and all amounts previously
paid by Customer hereunder toward the payment of any other amounts then or
thereafter payable by Customer under this Agreement or suspend the
provisioning of the Capacity hereunder. In the event of any other default
under this Agreement the non-defaulting Party may avail itself of one or
more of the following remedies: (a) take such actions as it determines, in
its sole discretion, to correct the default; and (b) pursue any legal
remedies it may have under applicable law or principles of equity,
including specific performance.
14.3 A waiver by either Party at any time of any of its rights as to anything
herein contained shall not be deemed to be a waiver of any breach of
covenant or other matter subsequently occurring.
14.4 Notwithstanding anything contained in this Agreement to the contrary,
Customer's sole and exclusive remedy for any failure by Urbanlink to
deliver the Capacity in accordance with this Agreement shall be limited to
those contained in the Service Level Agreement.
ARTICLE 15
TERMINATION
15.1 This Agreement shall automatically terminate on the expiration or
termination of the Term, or earlier as provided in this Agreement. Upon
the expiration of the Term or other termination of this Agreement, the IRU
shall immediately terminate and all rights of Customer to use the Capacity
shall cease, all such rights shall revert to Urbanlink, and Urbanlink
shall owe Customer no further duties, obligations or consideration.
Termination of this Agreement shall not affect the rights or obligations
of either Party that have arisen before the date of termination or
expiration.
ARTICLE 16
FORCE MAJEURE EVENTS
16.1 Neither Party shall be in default under this Agreement if and to the
extent that any failure or delay in such Party's performance of one or
more of its obligations hereunder is caused by any of the following
conditions, and such Party's performance of such obligation or obligations
shall be excused and extended for and during the period of any such delay:
act of God; fire; flood; fiber, cable, equipment or other material or
component failures, shortages or unavailability or other delay in delivery
not resulting from the responsible Party's failure to timely place orders
therefor; lack of or delay in transportation; construction or permitting
delays; government codes, ordinances, laws, rules, regulations or
restrictions; war or civil disorder; strikes or other labor disputes;
failure of a third party to grant or recognize a required property, right
of way or license right; or any other cause beyond the reasonable control
of such Party (collectively, "Force Majeure Events"). The Party claiming
relief under this Article shall notify the other in writing of the
existence of the event relied on and the cessation or termination of said
event, and the Party claiming relief shall exercise reasonable commercial
efforts to minimize the time of any such delay.
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ARTICLE 17
DISPUTE RESOLUTION
17.1 Application. The Parties will attempt to resolve any dispute arising out
of this Agreement promptly through discussions at the operational level.
In the event a resolution is not achieved, the disputing Party shall
provide the other Party with written notice of the same and the Parties
shall attempt to resolve such dispute between senior executives who have
the authority to settle such dispute. If the Parties fail to resolve such
dispute within thirty (30) days of the non-disputing Party's receipt of
the written notice, either Party may seek arbitration as set forth below.
17.2 Arbitration. All disputes arising out of or in connection with this
Agreement, or in respect of any defined legal relationship associated
therewith or derived therefrom (including, without limitation, any claim,
controversy or dispute, whether sounding in contract, statute, tort,
fraud, misrepresentation or other legal theory, related directly or
indirectly to this Agreement, and whenever brought and whether between the
parties to this Agreement or between one of the parties to this Agreement
and the employees, agents or affiliated businesses of the other Party),
shall be referred to and finally resolved by arbitration under the Rules
of the British Columbia International Commercial Arbitration Centre. The
appointing authorities shall be the British Columbia International
Commercial Arbitration Centre. The case shall be administered by the
British Columbia International Commercial Arbitration Centre in accordance
with its "Procedures for Cases Under the BCICAC Rules". The place of
arbitration shall be Vancouver, British Columbia, Canada. The number of
arbitrators shall be one.
17.3 Discovery. There shall be no discovery other than the exchange of
information that is provided to the arbitrator by the parties. Each Party
shall bear its own costs and attorneys' fees, and the parties shall share
equally the fees and expenses of the arbitrator. The arbitrator's decision
and award shall be final and binding, and judgment on the award rendered
by the arbitrator may be entered in any court having jurisdiction thereof.
17.4 Enforcement. If any Party files a judicial or administrative action
asserting claims subject to arbitration as prescribed herein, and another
Party successfully stays such action or compels arbitration of said
claims, the Party filing said action shall pay the other Party's costs and
expenses incurred in seeking such stay or compelling arbitration,
including reasonable attorneys' fees.
ARTICLE 18
ASSIGNMENT AND TRANSFER RESTRICTIONS
18.1 Except as provided in Section 18.2, Customer may not transfer or assign
all or any part of its interest under this Agreement, or delegate any
duties, burdens, or obligations arising hereunder, without Urbanlink's
consent, which consent shall not be unreasonably withheld or delayed. A
transfer or assignment in violation of this Article 18 shall constitute a
material breach of this Agreement. If any such consent is given, Customer
nevertheless shall remain fully and primarily liable for all obligations
under this Agreement. Notwithstanding anything to the contrary contained
in this Article 18,
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Customer may sell or lease any telecommunications circuits, capacity or
other services comprising the Capacity to third parties.
18.2 Customer may assign this Agreement in whole, but not in part, to a
Permitted Assignee. As used in this Section 18.2, the term "Permitted
Assignee" shall mean (a) any Affiliate of Customer, (b) any Person that
purchases all or substantially all of the assets of Customer, or any other
Person formed by or surviving the merger or consolidation of Customer and
any other person or (c) any institutional lender to whom this Agreement is
assigned as collateral security for any indebtedness of Customer or any
Affiliate of Customer, provided that such collateral assignment is subject
to the terms of this Agreement. Upon any assignment to a Permitted
Assignee, the assignor shall remain responsible for performance under this
Agreement. Any Permitted Assignee pursuant to subparagraph (a) or (b)
above shall expressly assume all obligations and liabilities with respect
to the Agreement which arise after the effective date of assignment or
transfer, prior to or upon the effectiveness of such assignment and, in
the case of an assignment as provided in subparagraph (c) of this Section
18.2, in the event the institutional lender exercises its rights with
respect to this Agreement it shall expressly assume all obligations and
liabilities with respect to the Agreement which arise thereafter.
18.3 Except as provided in Section 18.4, Urbanlink may not transfer or assign
all or any part of its interest under this Agreement, or delegate any
duties, burdens, or obligations arising hereunder, without Customer's
consent, which consent shall not be unreasonably withheld or delayed. A
transfer or assignment in violation of this Article 18 shall constitute a
material breach of this Agreement. If any such consent is given, Urbanlink
nevertheless shall remain fully and primarily liable for all obligations
under this Agreement.
18.4 Urbanlink may assign this Agreement in whole, but not in part, to a
Permitted Assignee. As used in this Section 18.4, the term "Permitted
Assignee" shall mean (a) any Affiliate of Customer, (b) any Person that
purchases all or substantially all of the assets of Urbanlink, or any
other Person formed by or surviving the merger or consolidation of
Urbanlink and any other person or (c) any institutional lender to whom
this Agreement is assigned as collateral security for any indebtedness
Urbanlink or any Affiliate of Urbanlink, provided that such collateral
assignment is subject to the terms of this Agreement. Upon any assignment
to a Permitted Assignee, the assignor shall remain responsible for
performance under this Agreement. Any Permitted Assignee pursuant to
subparagraph (a) or (b) above shall expressly assume all obligations and
liabilities with respect to the Agreement which arise after the effective
date of assignment or transfer, prior to or upon the effectiveness of such
assignment and, in the case of an assignment as provided in subparagraph
(c) of this Section 18.4, in the event the institutional lender exercises
its rights with respect to this Agreement it shall expressly assume all
obligations and liabilities with respect to the Agreement which arise
thereafter.
18.5 This Agreement and each of the Parties' rights and obligations under this
Agreement shall be binding upon and shall inure to the benefit of the
Parties, hereto and each of their respective permitted successors and
assigns.
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ARTICLE 19
REPRESENTATIONS AND DISCLAIMER OF WARRANTIES
19.1 By execution of this Agreement, each Party represents and warrants to the
other:
(a) That the representing Party has full right and authority to enter
into and perform this Agreement in accordance with the terms hereof
and thereof, and that by entering into or performing this Agreement,
the representing Party is not in violation of its charter or bylaws,
or any law, regulation or agreement by which it is bound or to which
it is subject;
(b) That the execution, delivery and performance of this Agreement by
such Party has been duly authorized by all requisite corporate
action, that the signatories for such Party hereto are authorized to
sign this Agreement, and that the joinder or consent of any other
Party, including a court or trustee or referee, is not necessary to
make valid and effective the execution, delivery and performance of
this Agreement by such Party.
19.2 EXCEPT AS SET FORTH IN THE SERVICE LEVEL AGREEMENT, Urbanlink MAKES NO
WARRANTY, EXPRESS OR IMPLIED, WITH RESPECT TO THE CAPACITY, THE URBANLINK
SYSTEM, OR ANY WORK PERFORMED UNDER THIS AGREEMENT INCLUDING ANY AND ALL
WARRANTIES OF MERCHANTABILITY OR FITNESS FOR PARTICULAR PURPOSE OR USE,
AND ALL SUCH WARRANTIES ARE HEREBY EXPRESSLY DISCLAIMED. THE WARRANTIES
SET FORTH IN THIS AGREEMENT CONSTITUTE THE ONLY WARRANTIES MADE BY
URBANLINK TO CUSTOMER WITH RESPECT TO THIS AGREEMENT AND ARE MADE IN LIEU
OF ALL OTHER WARRANTIES, WRITTEN OR ORAL, STATUTORY, EXPRESS OR IMPLIED.
ARTICLE 20
GENERAL
20.1 Binding Effect. This Agreement and each of the Parties' respective rights
and obligations under this Agreement, shall be binding on and shall inure
to the benefit of the Parties hereto and each of their respective
permitted successors and assigns.
20.2 Waiver. The failure of either Party hereto to enforce any of the
provisions of this Agreement, or the waiver thereof in any instance, shall
not be construed as a general waiver or relinquishment on its part of any
such provision, but the same shall nevertheless be and remain in full
force and effect.
20.3 Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the Province of British Columbia and the
federal law of Canada applicable therein, without giving effect to its
principles of conflicts of laws. Subject to Article 17, any litigation
based hereon, or arising out of or in connection with a default by either
Party in the performance of its obligations hereunder, shall be brought
and maintained exclusively in the courts of the Province of British
Columbia, in Vancouver, British Columbia, and each Party hereby
irrevocably submits to the jurisdiction of such courts
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for the purpose of any such litigation and irrevocably agrees to be bound
by any judgment rendered thereby in connection with such litigation.
20.4 Rules of Construction. The captions or headings in this Agreement are
strictly for convenience and shall not be considered in interpreting this
Agreement or as amplifying or limiting any of its content. Words in this
Agreement which import the singular connotation shall be interpreted as
plural, and words which import the plural connotation shall be interpreted
as singular, as the identity of the parties or objects referred to may
require.
(a) Unless expressly defined herein, words having well known technical
or trade meanings shall be so construed. All listing of items shall
not be taken to be exclusive, but shall include other items, whether
similar or dissimilar to those listed, as the context reasonably
requires.
(b) Except as set forth to the contrary herein, any right or remedy of
Customer or Urbanlink shall be cumulative and without prejudice to
any other right or remedy, whether contained herein or not.
(c) Nothing in this Agreement is intended to provide any legal rights to
anyone not an executing party of this Agreement.
(d) This Agreement has been fully negotiated between and jointly drafted
by the Parties.
(e) All actions, activities, consents, approvals and other undertakings
of the Parties shall be performed in a reasonable and timely manner,
it being expressly acknowledged and understood that time is of the
essence in the performance of obligations required to be performed
by a date expressly specified herein. Except as specifically set
forth herein, for the purpose of this Agreement the standards and
practices of performance within the telecommunications industry in
the relevant market shall be the measure of a Party's performance.
20.5 Entire Agreement. This Agreement constitutes the entire and final
agreement and understanding between the Parties with respect to the
subject matter hereof and supersedes all prior agreements relating to the
subject matter hereof, which are of no further force or effect. The
Exhibits and Attachment referred to herein are integral parts hereof and
are hereby made a part of this Agreement. To the extent that any of the
provisions of any Exhibit hereto are inconsistent with the express terms
of this Agreement, the terms of this Agreement shall prevail. This
Agreement may only be modified or supplemented by an instrument in writing
executed by each Party and delivered to the Party relying on the writing.
20.6 No Personal Liability. Each action or claim against any Party arising
under or relating to this Agreement shall be made only against such Party
as a corporation, and any liability relating thereto shall be enforceable
only against the corporate assets of such Party. No Party shall seek to
pierce the corporate veil or otherwise seek to impose any liability
relating to, or arising from, this Agreement against any shareholder,
employee, officer or
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director of the other Party. Each of such persons is an intended
beneficiary of the mutual promises set forth in this Article and shall be
entitled to enforce the obligations of this Article.
20.7 Relationship of the Parties. The relationship between Customer and
Urbanlink shall not be that of partners, agents, or joint venturers for
one another, and nothing contained in this Agreement shall be deemed to
constitute a partnership or agency agreement between them for any
purposes, including, but not limited to federal income tax purposes.
Customer and Urbanlink, in performing any of their obligations hereunder,
shall be independent contractors or independent parties and shall
discharge their contractual obligations at their own risk subject,
however, to the terms and conditions hereof.
20.8 Severability. If any term, covenant or condition contained herein is, to
any extent, held invalid or unenforceable in any respect under the laws
governing this Agreement, the remainder of this Agreement shall not be
affected thereby, and each term, covenant or condition of this Agreement
shall be valid and enforceable to the fullest extent permitted by law.
20.9 Legal Fees. If either Party commences an action against the other Party
arising out of or related to this Agreement, the prevailing Party in such
litigation shall be entitled to reasonable legal fees and costs in
addition to such other relief as may be awarded.
20.10 Counterparts. This Agreement may be executed in one or more counterparts,
all of which taken together shall constitute one and the same instrument.
20.11 Title to Equipment; Infrastructure. This Agreement shall not in any way
convey title or any interest in the infrastructure, systems, equipment,
facilities or other property of Urbanlink (or its Affiliates) utilized in
connection with the provision of Capacity to Customer.
[THE NEXT PAGE IS THE EXECUTION PAGE.]
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In confirmation of their consent and agreement to the terms and conditions
contained in this Agreement and intending to be legally bound hereby, the
parties have executed this Agreement as of the date first above written.
WORLDWIDE FIBER NETWORK SERVICES LTD.
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
WFI URBANLINK LTD.
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
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EXHIBIT A
Capacity Endpoints
City Pairs/Endpoints Endpoint Addresses Agreed Upon Mileage Purchase Price
<PAGE>
EXHIBIT B
Service Level Agreement
As agreed to from time to time between Urbanlink and the Customer.
<PAGE>
Exhibit 10.41
CONFIDENTIAL AND PROPRIETARY
CAPACITY PURCHASE AGREEMENT
BY AND BETWEEN
WORLDWIDE FIBER NETWORK SERVICES LTD.
AND
WFI URBANLINK LTD.
DATED: April __, 2000
<PAGE>
TABLE OF CONTENTS
Page
----
ARTICLE 1 EXHIBITS; DEFINITIONS................................................1
ARTICLE 2 IRU..................................................................3
ARTICLE 3 PAYMENT..............................................................3
ARTICLE 4 ACCEPTANCE TESTING AND DELIVERY......................................4
ARTICLE 5 TERM.................................................................5
ARTICLE 6 INTERCONNECTION......................................................6
ARTICLE 7 MAINTENANCE AND REPAIR...............................................6
ARTICLE 8 USE OF THE CAPACITY..................................................6
ARTICLE 9 INDEMNIFICATION......................................................7
ARTICLE 10 LIMITATION OF LIABILITY.............................................8
ARTICLE 11 INSURANCE...........................................................8
ARTICLE 12 NOTICES............................................................10
ARTICLE 13 CONFIDENTIALITY....................................................10
ARTICLE 14 DEFAULT............................................................11
ARTICLE 15 TERMINATION........................................................12
ARTICLE 16 FORCE MAJEURE EVENTS...............................................12
ARTICLE 17 DISPUTE RESOLUTION.................................................13
ARTICLE 18 ASSIGNMENT AND TRANSFER RESTRICTIONS...............................13
ARTICLE 19 REPRESENTATIONS AND DISCLAIMER OF WARRANTIES.......................15
ARTICLE 20 GENERAL............................................................15
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CAPACITY PURCHASE AGREEMENT
THIS CAPACITY PURCHASE AGREEMENT (this "Agreement") is made and entered into as
of the ____ day of April 2000 (the "Effective Date"), by and between Worldwide
Fiber Network Services, Ltd., an Alberta corporation ("Customer"), and WFI
Urbanlink Ltd., an Alberta corporation ("Urbanlink").
RECITALS
A. Urbanlink, either directly or indirectly, is the holder of rights in, has
constructed or is constructing a fiber optic communications network, including
optronics and other facilities (the "Urbanlink System"), which connects the city
pairs identified in Exhibit A (the "Endpoints").
B. Customer desires to obtain from Urbanlink certain telecommunications
capacity in the Urbanlink System on the terms and conditions set forth below.
Accordingly, in consideration of the mutual promises set forth in this
Agreement, and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereby agree as
follows:
ARTICLE 1
EXHIBITS; DEFINITIONS
1.1 Exhibits. The following exhibits are attached hereto, incorporated herein
and made a part of this Agreement by this reference:
Exhibit A: Endpoints
Exhibit B: Service Level Agreement
1.2 Definitions. As used in this Agreement, the capitalized terms listed in
this Section 1.2 and derivatives thereof shall have the meanings
respectively ascribed to them in this Section 1.2.
(a) "Acceptance Date" shall have the meaning set forth in Section 4.2.
(b) "Affiliate" shall have the meaning ascribed to it in the CANADA
BUSINESS CORPORATION ACT, as amended.
(c) "Agreement" shall have the meaning set forth in the introductory
paragraph.
(d) "Capacity" means a linear dedicated telecommunications path with a
bandwidth level of four OC-192S or equivalent between the Endpoints,
except between Edmonton and Toronto, where the capacity shall be
eight OC-48s or the equivalent, provided by Urbanlink under the
terms of this Agreement, which bandwidth shall be derived from a
specific wavelength and specific fibers.
<PAGE>
(e) "Completion Notice" shall have the meaning set forth in Section 4.1.
(f) "Confidential Information" shall have the meaning set forth in
Section 13.1.
(g) "Costs" means actual, direct costs paid or payable in accordance
with the established accounting procedures generally used by
Urbanlink and which Urbanlink utilizes in billing third parties for
reimbursable projects, including without limitation the following:
(i) internal labor costs, including wages, salaries and benefits,
and overhead allocable to such labor costs equal to 15%, and (ii)
other direct costs and out-of-pocket expenses on a pass-through
basis (e.g., equipment, materials, supplies, contract services,
etc.).
(h) "Delivery Date" shall have the meaning set forth in Exhibit B.
(i) "Dollars" or "$"means U.S. Dollars.
(j) "Effective Date" shall have the meaning set forth in the
introductory paragraph to this Agreement.
(k) "Endpoints" shall have the meaning set forth in Recital A.
(l) "Force Majeure Events" shall have the meaning set forth in Article
16.
(m) "Impositions" means all taxes, good and services taxes, sales taxes,
fees, levies, imposts, duties, charges or withholdings of any nature
(including, without limitation, ad valorem, real property, gross
receipts, franchise, license and permit fees), together with any
penalties, fines or interest thereon arising out of the transactions
contemplated by this Agreement by any federal, provincial, state or
local government or other public taxing authority.
(n) "Interest Rate" means the lower of (i) the highest rate permitted by
law, or (ii) one and one-half percent (1.5%) per month (equivalent
to 19.56% per annum).
(o) "IRU" shall have the meaning set forth in Section 2.1.
(p) "IRU Effective Date" shall have the meaning set forth in Section
5.1.
(q) "O&M Fees" shall have the meaning set forth at Section 7.2.
(r) "Party" means each of Urbanlink and Customer and "Parties" shall
mean Urbanlink and Customer.
(s) "Permitted Assignee" shall have the meaning set forth in Section
18.2.
(t) "Person" means any individual, corporation, partnership, limited
liability company, joint venture, association, joint-stock company,
trust, unincorporated organization, government or any agency or
political subdivision thereof or any other entity.
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(u) "Purchase Price" shall have the meaning set forth at Section 3.1.
(v) "Service Level Agreement" shall have the meaning set forth at
Section 4.1.
(w) "Term" shall have the meaning set forth at Section 5.1.
(x) "Urbanlink Account" means the following bank account of Urbanlink,
which may be modified or changed by Urbanlink in writing from time
to time:
Account Name:
Account Number:
Bank Name:
Reference:
(y) "Underlying Rights" means, with respect to particular end points,
all licenses, leases, easements, rights-of-way, deeds, franchises,
permits, authorizations, consents and approvals (including without
limitation, any necessary local, provincial federal or First Nations
authorizations and environmental permits) and other rights, titles,
or interests as are necessary for the construction, installation,
operation, maintenance or repair of the Urbanlink System between
such end points.
(z) "Urbanlink System" shall have the meaning set forth in Recital A.
ARTICLE 2
IRU
2.1 As of the IRU Effective Date, Urbanlink shall deliver and provide to
Customer and Customer shall receive from Urbanlink an exclusive and
indefeasible right of use of the Capacity on the terms and conditions set
forth in the Agreement (the "IRU").
2.2 Urbanlink represents and warrants that it possesses those certain rights
to the Capacity necessary for Urbanlink to deliver the Capacity to
Customer. Urbanlink shall keep the Capacity free from all claims, liens,
encumbrances, rights or claims of any third party attributable to
Urbanlink which have a material adverse effect on the right of Customer to
use the Capacity as contemplated by this Agreement.
ARTICLE 3
PAYMENT
3.1 In consideration of the grant of the IRU hereunder by Urbanlink to
Customer, Customer agrees to pay to Urbanlink a fee in an amount (the
"Specified Amount") as agreed between the Customer and Urbanlink per
strand per route kilometer multiplied by the number of strand route
kilometers (the "Purchase Price") (reduced for the strand route kilometers
between Endpoints Edmonton and Toronto, by a fraction, the numerator of
which is the capacity to be provided on such routes, and the denominator
of which is the capacity to be provided on the other routes). 20% of the
Purchase Price is due and payable on each of (i) the date of the
commencement of the provision of Capacity under
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this Agreement, (ii) the first anniversary of the date of the commencement
of the provision of Capacity under this Agreement, (iii) the second
anniversary of the commencement of the provision of Capacity under date of
this Agreement, (iv) the third anniversary of the date of the commencement
of the provision of Capacity under this Agreement, and (v) the fourth
anniversary of the date of the commencement of the provision of Capacity
under this Agreement.
3.2 All payments made by Customer hereunder in excess of $100,000 shall be
made by wire transfer of immediately available funds to the Urbanlink
Account. Payments of all other amounts by Customer hereunder may be made
by wire transfer or by company check of immediately available funds
payable to Urbanlink.
3.3 If Customer fails to make any payment under this Agreement when due, then,
in addition to such sum and to any other rights and remedies that
Urbanlink may have, Customer shall pay interest on such unpaid amount at
the Interest Rate until such sum is paid in full and such interest shall
accrue both before and after judgment. Notwithstanding the foregoing, no
interest shall accrue on any payment that is disputed in good faith by
Customer while such dispute is pending. If such dispute is later resolved
in favor of Urbanlink, such amount shall bear interest at the Interest
Rate from the date when due until paid.
3.4 In addition to the amounts payable under Section 3.1, Customer shall be
responsible to pay directly or reimburse Urbanlink, as requested by
Urbanlink, for all other sums, costs, fees and expenses that are required
to be paid under this Agreement. Urbanlink will invoice Customer for all
sums, costs, fees and expenses, owed by Customer to Urbanlink, and
Customer shall pay such invoices within 30 days of the invoice date,
except for the Purchase Price which shall be paid in accordance with
Section 3.1.
3.5 All payments made by Customer under this Agreement shall be made without
any deduction or withholding for or on account of any Imposition. If
Customer is required by law to make any deduction or withholding from any
payment due Urbanlink, then, notwithstanding anything to the contrary
contained in this Agreement, the gross amount payable by Customer to
Urbanlink shall be increased so that after any such deduction or
withholding for such Impositions or any additional deduction or
withholding on account of any Imposition caused by such additional
gross-up payment, the net amount received by Urbanlink will not be less
than what Urbanlink would have received had no deduction or withholding
been required.
ARTICLE 4
ACCEPTANCE TESTING AND DELIVERY
4.1 When Urbanlink has determined that the Capacity is operating substantially
in conformity with the applicable service levels set forth in Exhibit B
(the "Service Level Agreement"), Urbanlink shall promptly provide Customer
written notice of the same (a "Completion Notice"). Each Completion Notice
shall set forth the date upon which Urbanlink will commence delivery of
the Capacity to Customer provided that all payments due under this
Agreement have been paid in full.
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4.2 Within ten (10) days of receipt of a Completion Notice, Customer shall
provide Urbanlink a written notice accepting or rejecting the Capacity,
specifying in reasonable detail, if rejected, the defect or failure in the
Capacity. If Customer fails to notify Urbanlink of its acceptance or
rejection of the Completion Notice within ten (10) days following
Customer's receipt of the same, Customer shall be deemed to have accepted
such Capacity. Any use of Capacity by Customer other than for testing
purposes shall be deemed to constitute acceptance of the Capacity. The
date of such notice of acceptance or deemed acceptance of the Capacity
shall be the "Acceptance Date". In the event of any good-faith rejection
by Customer, Urbanlink shall take such action as reasonably necessary, and
as expeditiously as practicable, to correct or cure such defect or
failure. Customer shall in no event be entitled to commence use of the
Capacity until after Urbanlink has received payment in full.
4.3 Provided Urbanlink first obtains Customer's written consent, which consent
may not be unreasonably withheld or delayed, Urbanlink may substitute,
change or reconfigure the telecommunications equipment and facilities used
in providing the Capacity as long as the quality and type of Capacity is
not impaired or changed. In such event, the Parties shall work together in
good faith to minimize any disruption of service in connection with such
substitution, change or reconfiguration.
ARTICLE 5
TERM
5.1 The IRU shall become effective on the first day when both the Acceptance
Date has occurred, and Urbanlink has received payment in full of the
Purchase Price (the "IRU Effective Date") and the IRU shall extend until
the expiry of the Underlying Rights in respect of that part of the
Urbanlink System that contains the specific fibres on which the Capacity
is being provided by Urbanlink under the terms of this Agreement (the
"Term"); provided that if the Underlying Rights for the routes described
on Exhibit A expire on different dates, the Term shall expire on the
expiry on the last of such Underlying Rights to expire; and provided
further that if the Underlying Rights expire for some routes described on
Exhibit "A" prior to the expiry of the Term, the IRU shall then expire and
terminate for such route and the rights of the Customer to use the
Capacity in respect of such route shall cease.
5.2 At the expiration or other termination of this Agreement, the IRU shall
immediately terminate, and all rights of Customer to use the Capacity
shall cease. The expiration or termination of this Agreement shall not
relieve Customer from any liabilities arising prior to such termination.
5.3 If at any time Customer, in its absolute discretion, determines not to
retain the IRU, Customer shall have the right to abandon the IRU by
written notice to Urbanlink. In the case of such abandonment, this
Agreement shall terminate and Customer shall not be entitled to a refund
of any of the consideration paid. Upon such termination, all fees, costs
and other expenses with respect to this Agreement shall be immediately due
and payable to Urbanlink by Customer.
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ARTICLE 6
INTERCONNECTION
6.1 To the extent technically feasible, as determined by Urbanlink and the
Customer acting reasonably and in good faith, Urbanlink shall permit
Customer to interconnect its communications system with the Capacity
within Urbanlink's facilities or structures at the Endpoints or at such
other location as may be agreed from time to time, acting reasonably.
Urbanlink shall perform all work with respect to such interconnection as
it relates to the Urbanlink System or any other facilities, equipment or
structures of Urbanlink or its Affiliates. Customer shall pay Urbanlink
for its Costs to perform such work plus a management fee equal to fifteen
percent (15%) of such Costs within thirty (30) days of receiving an
invoice therefor. Nothing contained in this Agreement shall obligate
Customer to obtain or facilitate the provisioning of local access with
respect to the Capacity.
ARTICLE 7
MAINTENANCE AND REPAIR
7.1 From and after the IRU Effective Date, Urbanlink shall maintain the
Capacity in good working order and in accordance with industry standards.
7.2 In consideration of the maintenance services, Customer shall pay Urbanlink
the operations and maintenance fees (the "O&M Fees") with respect to the
city pairs listed below (subject to adjustment as provided in Section 7.3)
equal to a monthly amount determined by the Customer and Urbanlink, acting
reasonably, each year as being a reasonable allocation of the costs of
Urbanlink to operate, repair and maintain the Urbanlink System.
7.3 The O&M Fee shall be increased annually, beginning with the first
anniversary of the Effective Date, by the increase, if any, in the
Consumer Price Index - Canada - All Items ("CPI") published by Statistics
Canada for the twelve (12) month period ending three months prior to such
anniversary of the effective date. In the event that Statistics Canada no
longer publishes the CPI, Customer and Urbanlink shall together, acting
reasonably and in good faith, designate the statistical index they
consider most appropriate for adjustments to a fee and, from the date the
CPI ceased to be published, such index shall be used to make adjustments
in a fee under this provision.
7.4 Customer shall have no right to physically access in any manner the
Urbanlink System or any components thereof.
ARTICLE 8
USE OF THE CAPACITY
8.1 Customer represents, warrants and covenants that it will use the Capacity
in compliance with and subject to all applicable government codes,
ordinances, laws, rules and regulations and will require its customers
that purchase telecommunication services, circuits or capacity from the
Customer or its Affiliates do the same. Customer shall not use its systems
in a way that interferes in any way with or adversely affects the use of
the
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Urbanlink System or any other Person using the Urbanlink System or
Capacity thereon. The parties acknowledge that the Urbanlink System
includes or will include other customers and participants, including
without limitation, other owners and users of telecommunication systems.
8.2 Notwithstanding anything to the contrary contained herein, Customer shall
secure, prior to the IRU Effective Date, and maintain in full force and
effect during the Term, any and all necessary consents, franchises or
similar approvals from all governmental and other authorities which are
necessary or required to be obtained by Customer for Urbanlink to grant
the IRU to Customer and for the use and operation of the Capacity by
Customer.
8.3 Subject to Article 18, Urbanlink shall have no right to sell, lease,
transfer or use the Capacity or any portion thereof.
8.4 Customer and Urbanlink each agree to cooperate with and support the other
in complying with any requirements applicable to their respective rights
and obligations hereunder. Customer and Urbanlink shall promptly notify
each other of any matters pertaining to, or the occurrence (or impending
occurrence) of, any event which would be reasonably likely to give rise to
any damage or impending damage to or loss of the Urbanlink System or
Capacity that are known to such Party.
ARTICLE 9
INDEMNIFICATION
9.1 Subject to the provisions of Articles 10 and 19, Urbanlink hereby agrees
to indemnify, defend, protect and hold harmless Customer, its Affiliates
and their employees, officers and directors, from and against, and assumes
liability for:
(a) All suits, actions, damages or claims of any character (i) brought
against Customer or its Affiliates because of any injuries or damage
received or sustained by any persons or property which in whole or
in part arise on account of the acts or negligent omissions of
Urbanlink in the performance of construction or maintenance of the
Urbanlink System or the provision of the Capacity or the performance
of its obligations under this Agreement; and (ii) brought against
Customer or its Affiliates under the workers compensation laws,
except to the extent caused by the negligence or wilful misconduct
of the parties indemnified hereunder.
9.2 Subject to the provisions of Article 10, Customer hereby agrees to
indemnify, defend, protect and hold harmless Urbanlink, and its employees,
officers and directors, from and against, and assumes liability for:
(a) All suits, actions, damages or claims of any character (i) brought
against Urbanlink or its Affiliates because of any injuries or
damage received or sustained by any persons or property which in
whole or in part arise on account of the acts or negligent omissions
of Customer in the performance of its obligations under this
Agreement; (ii) brought against Urbanlink or its Affiliates under
workers compensation laws, except to the extent caused by the
negligence or wilful
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misconduct of the parties indemnified hereunder; and (iii) brought
against Urbanlink or its Affiliates because of any damage arising
out of or resulting from Customer's use of the Capacity and conduct
of its business, including the content of any video, voice or data
carried by Customer or its customers through or using the Capacity.
9.3 Nothing contained herein shall operate as a limitation on the right of
either Party hereto to bring an action for damages against any third
party, including indirect, special or consequential damages, based on any
acts or negligent omissions of such third party as such acts or omissions
may affect the construction, operation or use of the Capacity or the
Urbanlink System; provided, however, that each Party hereto shall assign
such rights or claims, execute such documents and do whatever else may be
reasonably necessary to enable the other Party to pursue any such action
against such third party.
ARTICLE 10
LIMITATION OF LIABILITY
10.1 NOTWITHSTANDING ANY PROVISION OF THIS AGREEMENT TO THE CONTRARY, EXCEPT TO
THE EXTENT CAUSED BY ITS WILFUL MISCONDUCT, NEITHER PARTY SHALL BE LIABLE
TO THE OTHER PARTY FOR ANY SPECIAL, INCIDENTAL, INDIRECT, PUNITIVE OR
CONSEQUENTIAL COSTS, LIABILITIES OR DAMAGES, WHETHER FORESEEABLE OR NOT,
ARISING OUT OF, OR IN CONNECTION WITH, SUCH PARTY'S PERFORMANCE OF ITS
OBLIGATIONS UNDER THIS AGREEMENT OR OTHERWISE RELATED TO THIS AGREEMENT.
10.2 Notwithstanding anything contained in this Agreement to the contrary, the
Parties acknowledge and agree that on and after the Acceptance Date,
Customer's sole rights and remedies with respect to any defect in or
failure of the Capacity to perform in accordance with the Service Level
Agreement shall be limited to the remedies set forth in the Service Level
Agreement.
10.3 The Parties expressly agree that no claim for losses or damages whatsoever
in connection with this Agreement shall be made more than two years after
the date that the event giving rise to such claim is known or reasonably
should have been known to the Party making such claim.
ARTICLE 11
INSURANCE
11.1 Throughout the term of the IRU, each Party shall procure and maintain in
force, at its own expense:
(a) General Liability insurance with a minimum limit of $5,000,000,
including coverage for contractual liability, non-owned auto
liability, Owner's & Contractor's protective liability and products
and completed operations liability. Such policy shall be written on
an occurrence basis and shall contain a cross liability or
severability of interest clause;
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(b) Workers' Compensation insurance covering all employees engaged in
the work in accordance with the statutory requirements of the
county, state, province or territory or other governmental body
having jurisdiction over such employees.
(c) Employers' Liability insurance with a minimum limit of $5,000,000,
covering all employees engaged in the work;
(d) Automobile liability insurance with a minimum limit of $5,000,000,
covering all motor vehicles owned, operated and/or licensed
(including owned, leased, or hired units);
(e) "All Risks" Property insurance on a replacement cost basis, for
damage to the system and associated property, with deductibles and
limits in such amounts as would from time to time be carried by a
prudent owner considering the property insured; and
(f) any other insurance coverages specifically required of such Party
pursuant to right-of-way agreements with railroads or other third
parties.
(g) Both parties shall require any contractors engaged in construction
or maintenance of the system to maintain insurance in accordance
with the provisions of this Article 11.1.
11.2 Both parties expressly acknowledge that a Party shall be deemed to be in
compliance with the provisions of this Article if it maintains a
self-insurance program providing for a retention of up to $1,000,000.
Unless otherwise agreed, Customer's and Urbanlink's insurance policies
shall be obtained and maintained with companies rated "A" or better by
BEST'S KEY RATING GUIDE and each Party shall provide the other with an
insurance certificate confirming compliance with this requirement for each
policy providing such required coverage.
11.3 If either Party fails to obtain the required insurance or fails to obtain
the required certificates from any contractor and a claim is made or
suffered, such Party shall indemnify and hold harmless the other Party
from any and all claims for which the required insurance would have
provided coverage. Further, in the event of any such failure which
continues after seven (7) days' written notice thereof by the other Party,
such other Party may, but shall not be obligated to, obtain such insurance
and will have the right to be reimbursed for the cost of such insurance by
the Party failing to obtain such insurance.
11.4 In the event coverage is denied or reimbursement of a properly presented
claim is disputed by the carrier for insurance provided above, the Party
carrying such coverage shall make good-faith efforts to pursue such claim
with its carrier.
11.5 Each party shall upon request from the other provide evidence of the
insurances which it is obligated to maintain under clause 11.1. All
insurance policies shall contain a provision that coverage cannot be
cancelled or materially reduced until the insurer has provided at least 30
days written notice to the non-insuring party.
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11.6 Each party shall require all policies related to this contract be amended
to include the other party as an additional named insured and shall
require insurers to amend all such policies to include a waiver of
subrogation in favor of the other party.
ARTICLE 12
NOTICES
12.1 All notices and other communications required or permitted under this
Agreement shall be in writing and shall be given by hand delivery
(including by means of a professional messenger service or overnight mail)
addressed as follows:
If to Customer:
Worldwide Fiber Network Services Ltd.
Suite 1510, 1066 West Hastings Street
Vancouver, B.C. V6E 3X1
Attention: Catherine McEachern
If to Urbanlink:
WFI Urbanlink Ltd.
Suite 1000, 1066 West Hastings Street
Vancouver, B.C. V6E 3X1
Attention: William Ramsey
Any such notice or other communication shall be deemed to be effective
when actually received or refused. Either Party may by similar notice
given change the address to which future notices or other communications
shall be sent.
ARTICLE 13
CONFIDENTIALITY
13.1 This Agreement and all materials, maps, and other documents which are
marked confidential and disclosed by one Party to the other in fulfilling
the provisions and intent of this Agreement, are and shall be confidential
(the "Confidential Information"). Neither Party shall divulge or otherwise
disclose the Confidential Information to any third party without the prior
written consent of the other Party, except that either Party may make
disclosure to those required for the implementation or performance of this
Agreement, auditors, attorneys, financial advisors, lenders and
prospective lenders, funding partners and prospective funding partners,
provided that in each case the permitted recipient agrees in writing to be
bound by the confidentiality provisions set forth in this section. In
addition, either Party may make disclosure as required by a court order or
as otherwise required by law or in any legal or arbitration proceeding
relating to this Agreement. If either Party is required by law or by
interrogatories, requests for information or documents, subpoena, civil
investigative demand or similar process to
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disclose the Confidential Information, it will provide the other Party
with prompt prior written notice of such request or requirement so that
such Party may seek an appropriate protective order and/or waive
compliance with this Section. The Party whose consent to disclose
information is requested shall respond to such request, in writing, within
five (5) working days of the request by either authorizing the disclosure
or advising of its election to seek a protective order, or if such Party
fails to respond within the prescribed period the disclosure shall be
deemed approved.
13.2 Nothing herein shall be construed as granting any right or license under
any copyrights, inventions, or patents now or hereafter owned or
controlled by Urbanlink.
13.3 Upon termination of this Agreement for any reason or upon request of
Urbanlink, Customer shall return all Confidential Information, together
with any copies of same, to Customer. The requirements of confidentiality
set forth herein shall survive the return of such Confidential
Information.
13.4 Customer shall not, without first obtaining the written consent of
Urbanlink, use any trademark or trade name of Urbanlink or refer to the
subject matter of this Agreement or Urbanlink in any promotional activity
or otherwise, nor disclose to others any specific information about the
subject matter of this Agreement. Neither Party shall issue any
publication or press release relating directly or indirectly to this
Agreement without the prior written consent of both Parties.
13.5 The provisions of this Article shall survive expiration or other
termination of this Agreement.
ARTICLE 14
DEFAULT
14.1 A default shall be deemed to have occurred under this Agreement if:
(a) in the case of a failure to pay any amount when due under this
Agreement, a Party fails to pay such amount within ten (10) days
after notice specifying such breach, or
(b) in the case of any other material breach of this Agreement, a Party
fails to cure such material breach within thirty (30) days after
notice specifying such breach, provided that if the breach is of a
nature that cannot be cured within thirty (30) days, a default shall
not have occurred so long as the breaching Party has commenced to
cure within said time period and thereafter diligently pursues such
cure to completion.
(c) either of the following occur (i) a Party makes a general assignment
for the benefit of its creditors, files a voluntary petition in
bankruptcy or any petition or answer seeking, consenting to, or
acquiescing in reorganization, arrangement, adjustment, composition,
liquidation, dissolution or similar relief; or (ii) an involuntary
petition in bankruptcy, other insolvency protection against either
Party is filed and not dismissed within one hundred twenty days
(120) days.
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14.2 If the default consists of a failure of Customer to pay to Urbanlink any
part of the Purchase Price, Urbanlink may terminate any and all of its
obligations under this Agreement, and apply any and all amounts previously
paid by Customer hereunder toward the payment of any other amounts then or
thereafter payable by Customer under this Agreement or suspend the
provisioning of the Capacity hereunder. In the event of any other default
under this Agreement the non-defaulting Party may avail itself of one or
more of the following remedies:
(a) take such actions as it determines, in its sole discretion, to
correct the default; and
(b) pursue any legal remedies it may have under applicable law or
principles of equity, including specific performance.
14.3 A waiver by either Party at any time of any of its rights as to anything
herein contained shall not be deemed to be a waiver of any breach of
covenant or other matter subsequently occurring.
14.4 Notwithstanding anything contained in this Agreement to the contrary,
Customer's sole and exclusive remedy for any failure by Urbanlink to
deliver the Capacity in accordance with this Agreement shall be limited to
those contained in the Service Level Agreement.
ARTICLE 15
TERMINATION
15.1 This Agreement shall automatically terminate on the expiration or
termination of the Term, or earlier as provided in this Agreement. Upon
the expiration of the Term or other termination of this Agreement, the IRU
shall immediately terminate and all rights of Customer to use the Capacity
shall cease, all such rights shall revert to Urbanlink, and Urbanlink
shall owe Customer no further duties, obligations or consideration.
Termination of this Agreement shall not affect the rights or obligations
of either Party that have arisen before the date of termination or
expiration.
ARTICLE 16
FORCE MAJEURE EVENTS
16.1 Neither Party shall be in default under this Agreement if and to the
extent that any failure or delay in such Party's performance of one or
more of its obligations hereunder is caused by any of the following
conditions, and such Party's performance of such obligation or obligations
shall be excused and extended for and during the period of any such delay:
act of God; fire; flood; fiber, cable, equipment or other material or
component failures, shortages or unavailability or other delay in delivery
not resulting from the responsible Party's failure to timely place orders
therefor; lack of or delay in transportation; construction or permitting
delays; government codes, ordinances, laws, rules, regulations or
restrictions; war or civil disorder; strikes or other labor disputes;
failure of a third party to grant or recognize a required property, right
of way or license right; or any other cause beyond the reasonable control
of such Party (collectively, "Force Majeure Events"). The Party claiming
relief under this Article shall notify the other in writing of the
existence of the event relied on and the cessation or termination of said
event, and the Party claiming relief shall exercise reasonable commercial
efforts to minimize the time of any such delay.
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ARTICLE 17
DISPUTE RESOLUTION
17.1 Application. The Parties will attempt to resolve any dispute arising out
of this Agreement promptly through discussions at the operational level.
In the event a resolution is not achieved, the disputing Party shall
provide the other Party with written notice of the same and the Parties
shall attempt to resolve such dispute between senior executives who have
the authority to settle such dispute. If the Parties fail to resolve such
dispute within thirty (30) days of the non-disputing Party's receipt of
the written notice, either Party may seek arbitration as set forth below.
17.2 Arbitration. All disputes arising out of or in connection with this
Agreement, or in respect of any defined legal relationship associated
therewith or derived therefrom (including, without limitation, any claim,
controversy or dispute, whether sounding in contract, statute, tort,
fraud, misrepresentation or other legal theory, related directly or
indirectly to this Agreement, and whenever brought and whether between the
parties to this Agreement or between one of the parties to this Agreement
and the employees, agents or affiliated businesses of the other Party),
shall be referred to and finally resolved by arbitration under the Rules
of the British Columbia International Commercial Arbitration Centre. The
appointing authorities shall be the British Columbia International
Commercial Arbitration Centre. The case shall be administered by the
British Columbia International Commercial Arbitration Centre in accordance
with its "Procedures for Cases Under the BCICAC Rules". The place of
arbitration shall be Vancouver, British Columbia, Canada. The number of
arbitrators shall be one.
17.3 Discovery. There shall be no discovery other than the exchange of
information that is provided to the arbitrator by the parties. Each Party
shall bear its own costs and attorneys' fees, and the parties shall share
equally the fees and expenses of the arbitrator. The arbitrator's decision
and award shall be final and binding, and judgment on the award rendered
by the arbitrator may be entered in any court having jurisdiction thereof.
17.4 Enforcement. If any Party files a judicial or administrative action
asserting claims subject to arbitration as prescribed herein, and another
Party successfully stays such action or compels arbitration of said
claims, the Party filing said action shall pay the other Party's costs and
expenses incurred in seeking such stay or compelling arbitration,
including reasonable attorneys' fees.
ARTICLE 18
ASSIGNMENT AND TRANSFER RESTRICTIONS
18.1 Except as provided in Section 18.2, Customer may not transfer or assign
all or any part of its interest under this Agreement, or delegate any
duties, burdens, or obligations arising hereunder, without Urbanlink's
consent, which consent shall not be unreasonably withheld or delayed. A
transfer or assignment in violation of this Article 18 shall constitute a
material breach of this Agreement. If any such consent is given, Customer
nevertheless shall remain fully and primarily liable for all obligations
under this Agreement. Notwithstanding anything to the contrary contained
in this Article 18,
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Customer may sell or lease any telecommunications circuits, capacity or
other services comprising the Capacity to third parties.
18.2 Customer may assign this Agreement in whole, but not in part, to a
Permitted Assignee. As used in this Section 18.2, the term "Permitted
Assignee" shall mean (a) any Affiliate of Customer, (b) any Person that
purchases all or substantially all of the assets of Customer, or any other
Person formed by or surviving the merger or consolidation of Customer and
any other person or (c) any institutional lender to whom this Agreement is
assigned as collateral security for any indebtedness of Customer or any
Affiliate of Customer, provided that such collateral assignment is subject
to the terms of this Agreement. Upon any assignment to a Permitted
Assignee, the assignor shall remain responsible for performance under this
Agreement. Any Permitted Assignee pursuant to subparagraph (a) or (b)
above shall expressly assume all obligations and liabilities with respect
to the Agreement which arise after the effective date of assignment or
transfer, prior to or upon the effectiveness of such assignment and, in
the case of an assignment as provided in subparagraph (c) of this Section
18.2, in the event the institutional lender exercises its rights with
respect to this Agreement it shall expressly assume all obligations and
liabilities with respect to the Agreement which arise thereafter.
18.3 Except as provided in Section 18.4, Urbanlink may not transfer or assign
all or any part of its interest under this Agreement, or delegate any
duties, burdens, or obligations arising hereunder, without Customer's
consent, which consent shall not be unreasonably withheld or delayed. A
transfer or assignment in violation of this Article 18 shall constitute a
material breach of this Agreement. If any such consent is given, Urbanlink
nevertheless shall remain fully and primarily liable for all obligations
under this Agreement.
18.4 Urbanlink may assign this Agreement in whole, but not in part, to a
Permitted Assignee. As used in this Section 18.4, the term "Permitted
Assignee" shall mean (a) any Affiliate of Customer, (b) any Person that
purchases all or substantially all of the assets of Urbanlink, or any
other Person formed by or surviving the merger or consolidation of
Urbanlink and any other person or (c) any institutional lender to whom
this Agreement is assigned as collateral security for any indebtedness
Urbanlink or any Affiliate of Urbanlink, provided that such collateral
assignment is subject to the terms of this Agreement. Upon any assignment
to a Permitted Assignee, the assignor shall remain responsible for
performance under this Agreement. Any Permitted Assignee pursuant to
subparagraph (a) or (b) above shall expressly assume all obligations and
liabilities with respect to the Agreement which arise after the effective
date of assignment or transfer, prior to or upon the effectiveness of such
assignment and, in the case of an assignment as provided in subparagraph
(c) of this Section 18.4, in the event the institutional lender exercises
its rights with respect to this Agreement it shall expressly assume all
obligations and liabilities with respect to the Agreement which arise
thereafter.
18.5 This Agreement and each of the Parties' rights and obligations under this
Agreement shall be binding upon and shall inure to the benefit of the
Parties, hereto and each of their respective permitted successors and
assigns.
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ARTICLE 19
REPRESENTATIONS AND DISCLAIMER OF WARRANTIES
19.1 By execution of this Agreement, each Party represents and warrants to the
other:
(a) That the representing Party has full right and authority to enter
into and perform this Agreement in accordance with the terms hereof
and thereof, and that by entering into or performing this Agreement,
the representing Party is not in violation of its charter or bylaws,
or any law, regulation or agreement by which it is bound or to which
it is subject;
(b) That the execution, delivery and performance of this Agreement by
such Party has been duly authorized by all requisite corporate
action, that the signatories for such Party hereto are authorized to
sign this Agreement, and that the joinder or consent of any other
Party, including a court or trustee or referee, is not necessary to
make valid and effective the execution, delivery and performance of
this Agreement by such Party.
19.2 EXCEPT AS SET FORTH IN THE SERVICE LEVEL AGREEMENT, Urbanlink MAKES NO
WARRANTY, EXPRESS OR IMPLIED, WITH RESPECT TO THE CAPACITY, THE URBANLINK
SYSTEM, OR ANY WORK PERFORMED UNDER THIS AGREEMENT INCLUDING ANY AND ALL
WARRANTIES OF MERCHANTABILITY OR FITNESS FOR PARTICULAR PURPOSE OR USE,
AND ALL SUCH WARRANTIES ARE HEREBY EXPRESSLY DISCLAIMED. THE WARRANTIES
SET FORTH IN THIS AGREEMENT CONSTITUTE THE ONLY WARRANTIES MADE BY
URBANLINK TO CUSTOMER WITH RESPECT TO THIS AGREEMENT AND ARE MADE IN LIEU
OF ALL OTHER WARRANTIES, WRITTEN OR ORAL, STATUTORY, EXPRESS OR IMPLIED.
ARTICLE 20
GENERAL
20.1 Binding Effect. This Agreement and each of the Parties' respective rights
and obligations under this Agreement, shall be binding on and shall inure
to the benefit of the Parties hereto and each of their respective
permitted successors and assigns.
20.2 Waiver. The failure of either Party hereto to enforce any of the
provisions of this Agreement, or the waiver thereof in any instance, shall
not be construed as a general waiver or relinquishment on its part of any
such provision, but the same shall nevertheless be and remain in full
force and effect.
20.3 Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the Province of British Columbia and the
federal law of Canada applicable therein, without giving effect to its
principles of conflicts of laws. Subject to Article 17, any litigation
based hereon, or arising out of or in connection with a default by either
Party in the performance of its obligations hereunder, shall be brought
and maintained exclusively in the courts of the Province of British
Columbia, in Vancouver, British Columbia, and each Party hereby
irrevocably submits to the jurisdiction of such courts
-15-
<PAGE>
for the purpose of any such litigation and irrevocably agrees to be bound
by any judgment rendered thereby in connection with such litigation.
20.4 Rules of Construction. The captions or headings in this Agreement are
strictly for convenience and shall not be considered in interpreting this
Agreement or as amplifying or limiting any of its content. Words in this
Agreement which import the singular connotation shall be interpreted as
plural, and words which import the plural connotation shall be interpreted
as singular, as the identity of the parties or objects referred to may
require.
(a) Unless expressly defined herein, words having well known technical
or trade meanings shall be so construed. All listing of items shall
not be taken to be exclusive, but shall include other items, whether
similar or dissimilar to those listed, as the context reasonably
requires.
(b) Except as set forth to the contrary herein, any right or remedy of
Customer or Urbanlink shall be cumulative and without prejudice to
any other right or remedy, whether contained herein or not.
(c) Nothing in this Agreement is intended to provide any legal rights to
anyone not an executing party of this Agreement.
(d) This Agreement has been fully negotiated between and jointly drafted
by the Parties.
(e) All actions, activities, consents, approvals and other undertakings
of the Parties shall be performed in a reasonable and timely manner,
it being expressly acknowledged and understood that time is of the
essence in the performance of obligations required to be performed
by a date expressly specified herein. Except as specifically set
forth herein, for the purpose of this Agreement the standards and
practices of performance within the telecommunications industry in
the relevant market shall be the measure of a Party's performance.
20.5 Entire Agreement. This Agreement constitutes the entire and final
agreement and understanding between the Parties with respect to the
subject matter hereof and supersedes all prior agreements relating to the
subject matter hereof, which are of no further force or effect. The
Exhibits and Attachment referred to herein are integral parts hereof and
are hereby made a part of this Agreement. To the extent that any of the
provisions of any Exhibit hereto are inconsistent with the express terms
of this Agreement, the terms of this Agreement shall prevail. This
Agreement may only be modified or supplemented by an instrument in writing
executed by each Party and delivered to the Party relying on the writing.
20.6 No Personal Liability. Each action or claim against any Party arising
under or relating to this Agreement shall be made only against such Party
as a corporation, and any liability relating thereto shall be enforceable
only against the corporate assets of such Party. No Party shall seek to
pierce the corporate veil or otherwise seek to impose any liability
relating to, or arising from, this Agreement against any shareholder,
employee, officer or
-16-
<PAGE>
director of the other Party. Each of such persons is an intended
beneficiary of the mutual promises set forth in this Article and shall be
entitled to enforce the obligations of this Article.
20.7 Relationship of the Parties. The relationship between Customer and
Urbanlink shall not be that of partners, agents, or joint venturers for
one another, and nothing contained in this Agreement shall be deemed to
constitute a partnership or agency agreement between them for any
purposes, including, but not limited to federal income tax purposes.
Customer and Urbanlink, in performing any of their obligations hereunder,
shall be independent contractors or independent parties and shall
discharge their contractual obligations at their own risk subject,
however, to the terms and conditions hereof.
20.8 Severability. If any term, covenant or condition contained herein is, to
any extent, held invalid or unenforceable in any respect under the laws
governing this Agreement, the remainder of this Agreement shall not be
affected thereby, and each term, covenant or condition of this Agreement
shall be valid and enforceable to the fullest extent permitted by law.
20.9 Legal Fees. If either Party commences an action against the other Party
arising out of or related to this Agreement, the prevailing Party in such
litigation shall be entitled to reasonable legal fees and costs in
addition to such other relief as may be awarded.
20.10 Counterparts. This Agreement may be executed in one or more counterparts,
all of which taken together shall constitute one and the same instrument.
20.11 Title to Equipment; Infrastructure. This Agreement shall not in any way
convey title or any interest in the infrastructure, systems, equipment,
facilities or other property of Urbanlink (or its Affiliates) utilized in
connection with the provision of Capacity to Customer.
[THE NEXT PAGE IS THE EXECUTION PAGE.]
-17-
<PAGE>
In confirmation of their consent and agreement to the terms and conditions
contained in this Agreement and intending to be legally bound hereby, the
parties have executed this Agreement as of the date first above written.
WORLDWIDE FIBER NETWORK SERVICES LTD.
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
WFI URBANLINK LTD.
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
-18-
<PAGE>
EXHIBIT A
CAPACITY ENDPOINTS
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------
MILE DUCT TUBE STRAND STRAND
SEGMENTS POINTS ROW KILOMETER COLOUR COLOUR NUMBER TYPE
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
FROM CALGARY TO EMERSON CP 1,443 Orange Brown 41-42 SMF-28
FROM CP TRACKS AT CAMBIE ST. CP 1,032 Orange Brown 41-42 SMF-28
VANCOUVER TO CALGARY
FROM 301 INDUSTRIAL AVE. TO CP 3 Orange Brown 41-42 SMF-28
CP TRACKS AT CAMBIE ST.
OAK STREET BRIDGE TO 301 CN 11 Orange Brown 41-42 SMF-28
INDUSTRIAL, VANCOUVER
US BORDER TO VICTORIA TO OAK CN 84 Orange Brown 41-42 SMF-28
STREET BRIDGE
EDMONTON CN TRACKS TO CN 11 Orange Brown 41-42 SMF-28
EDMONTON BRETTVILLE JUNCTION
EDMONTON BRETVILLE JUNCTION CN 1,958 Orange Brown 41-42 SMF-28
TO THUNDER BAY
THUNDER BAY TO TORONTO CN 1,402 Orange Brown 41-42 SMF-28
TORONTO TO BROCKVILLE
Union Station to Parliament 333.8 to TTR 12 Orange Rose 121-122 Leaf
St.(Kingston) 332.8
Parliament St to Scarborough 332.8 to CN 23 Orange Rose 121-122 Leaf
(Kingston) 7.24
Scarborough to Pickering 325.56 to CN 299 Orange Rose 121-122 Leaf
Jct. (Kingston) 311.4
Pickering Jct. To Brockville 311.4 to CN Orange Rose 121-122 Leaf
(Kingston) 125.7
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
-19-
<PAGE>
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------
MILE DUCT TUBE STRAND STRAND
SEGMENTS POINTS ROW KILOMETER COLOUR COLOUR NUMBER TYPE
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
BROCKVILLE TO SMITH FALLS 27.8 to StL&H 45 Orange Rose 121-122 Leaf
0.00
SMITH FALLS TO OTTAWA (VIA)
STATION
Smith Falls to Alexander 34.5 to StL&H 0.2 Orange Rose 121-122 Leaf
St.(Smiths Falls) 34.38
Alexander St. to CN Radio 34.38 to CN 1 Orange Rose 121-122 Leaf
Site (Smiths Falls) 34.05
CN Radio Site to Richmond 34.05 to VIA 34 Orange Rose 121-122 Leaf
(Smiths Falls) 13.0
Richmond to Federal (Smiths 13.0 to 0.0 CN 21 Orange Rose 121-122 Leaf
Falls)
Federal to Union Station 6.0 to 0.9 CN 10 Orange Rose 121-122 Leaf
(Beachburg)
BORDER TO TORONTO
U.S. Border to Fort Erie 0.6 to 1.0 CN 1 Orange Rose 121-122 Leaf
(Stamford)
Fort Erie to Port Robinson 1.0 to CN 36 Orange Rose 121-122 Leaf
(Stamford) 23.14
Port Robinson to Merriton 1.27 to 7.9 CN 11 Orange Rose 121-122 Leaf
(Thorld Spur)
Merriton to Hamilton 9.5 to CN 55 Orange Rose 121-122 Leaf
(Grimsby) 43.66
Hamilton to Canpa (Oakville) 39.3 to 8.5 CN 50 Orange Rose 121-122 Leaf
Canpa to Windsor St. 8.5 to 0.5 CN 13 Orange Rose 121-122 Leaf
(Oakville)
OTTAWA TO QUEBEC BORDER
Union Station to Hawthorne 76.5 to CN 6 Temp Rose 121-122 Leaf
Diamond (Alexandria) 2.72
Hawthorne Diamond to 72.72 to CN 0.4 Rose 121-122 Leaf
Hawthorne (Alexandria) 72.5
Hawthorne to Quebec Border 72.5 to VIA 97 Rose 121-122 Leaf
(Alexandria) 12.5
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
-20-
<PAGE>
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------
MILE DUCT TUBE STRAND STRAND
SEGMENTS POINTS ROW KILOMETER COLOUR COLOUR NUMBER TYPE
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
QUEBEC BORDER TO TASCHEREAU
Quebec Border to Coteau 12.5 to 0.0 VIA 20.11 Orange Rose 121 - 122 Leaf
Jct.(Alexandria)
Coteau Jct. To Dorion 38.0 to CN 22.04 Orange Rose 121 - 122 Leaf
(Kingston) 24.3
Dorion to Dorval (Kingston) 24.3 to CN 22.53 Orange Rose 121 - 122 Leaf
10.3
Dorval to Taschereau Yard 11.6 to 9.0 CN 4.18 Orange Rose 121 - 122 Leaf
(Montreal)
MONTREAL CENTRAL TO QUEBEC 1.28 to 1.5 CN 259.79 Orange Rose 121-122 Leaf
CITY
US BORDER TO CAMBRIDGE
US Border to Collage Ave 226.30 to CN/StL&H 2 Orange Rose 121-122 Leaf
225.21
Collage Avenue to Hyde Park 111.8 to StL&H 174 Orange Rose 121-122 Leaf
Road 3.9
Hyde Park Road to London 3.9 to 0.0 StL&H 6 Orange Rose 121-122 Leaf
London to Airport Road 114.6 to StL&H 8 Orange Rose 121-122 Leaf
109.48
Airport Road to Cambridge 109.48 to StL&H 84 Orange Rose 121-122 Leaf
57.2
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
-21-
<PAGE>
EXHIBIT B
SERVICE LEVEL AGREEMENT
As agreed to from time to time between Urbanlink and the Customer.
-22-
<PAGE>
Exhibit 10.42
NETWORK OPERATING CENTER SERVICES AGREEMENT
THIS AGREEMENT Dated For Reference the _____ day of April, 2000
BETWEEN:
360NETWORKS INC.
("360")
AND:
WORLDWIDE FIBER NETWORKS SERVICES LTD.
("Services")
AND:
WFI URBANLINK LTD.
("Urbanlink")
WHEREAS:
A. Urbanlink has agreed to provide network operating center services to
Services on the terms and subject to the conditions specified in this Agreement.
IN CONSIDERATION of the mutual agreements in this Agreement and subject to the
terms and conditions specified in this Agreement, the parties agree as follows:
ARTICLE 1
DEFINITIONS
1.1 DEFINITIONS
In this Agreement, including the recitals and the schedules, the following words
and expressions have the following meanings unless the context otherwise
requires:
"Affiliate" of any Person means any other Person which, directly or indirectly,
controls or is controlled by or is under common control with such Person, and
for the purposes of this definition "control" (including correlative meanings of
the terms "controlled by" and "under common control with") means the power to
direct or cause the direction of the management and policies of any Person,
whether through the ownership of shares or by contract or otherwise.
"Person" means an individual, partnership, corporation (including a business
trust), joint stock company, trust, unincorporated association, joint venture or
other entity or a foreign state or political subdivision thereof or any agency
of such state or subdivision.
<PAGE>
"Services Confidential Information" has the meaning provided in Section 5.1.
"Subsidiary" has the meaning provided in the CANADA BUSINESS CORPORATIONS ACT in
effect on the date hereof.
"Urbanlink Confidential Information" has the meaning provided in Section 5.3.
"NOC Services" has the meaning provided in Section 2.1.
ARTICLE 2
SERVICES
2.1 THE SERVICES
Services hereby retains Urbanlink to provide network operating center services
including, without limitation, the monitoring, alarm and surveillance functions,
relating to all networks of Services and of 360 and its Subsidiaries in Canada
and relating to such other networks of 360 Subsidiaries as 360 may request from
time to time (the "NOC Services") by notice in writing to Urbanlink, Urbanlink
agrees to provide the NOC Services to Services. The NOC Services shall be
provided in accordance with the terms and conditions contained in this
Agreement.
2.2 STANDARDS
Urbanlink shall provide the NOC Services in accordance with telecommunications
industry standards for such services and in accordance with such policies and
procedures, and to such standards, as may be specified from time to time by
notice in writing from Services to Urbanlink. The NOC Services provided by
Urbanlink shall be coordinated with the similar functions performed by other
network operating centers operated by 360 Subsidiaries in other countries.
2.3 PROJECT DIRECTORS
Each of Urbanlink and Services will appoint a Project Director whose duties will
be to act as the liaison between Urbanlink and Services.
2.4 SERVICES' ASSISTANCE
Services will provide to Urbanlink full, good faith co-operation to assist
Urbanlink in providing the NOC Services. In particular, and without limiting the
generality of the foregoing, Services will:
(a) supply free of charge all pertinent data and information and give
such assistance as may reasonably be requested by Urbanlink to
provide the NOC Services and in particular to provide Urbanlink with
such specific and detailed information regarding Services' systems,
procedures and equipment as Urbanlink may reasonably request; and
(b) make available to Urbanlink such employees of Services as Urbanlink
may reasonably request.
-2-
<PAGE>
ARTICLE 3
COMPENSATION
3.1 FEES
In consideration of Urbanlink providing the NOC Services, Services will pay to
Urbanlink fees for the NOC Services in an amount equal to Urbanlink's operating
costs of providing such services, plus a margin as agreed to between Services
and Urbanlink.
3.2 INTEREST
Unless otherwise agreed between Urbanlink and Services, Urbanlink will invoice
Services for such fees and expenses monthly in arrears. All such invoices will
be payable by Services within 30 days of the date of each such invoice. If
payment is not made when due, Services will pay to Urbanlink interest on the
balance unpaid at a rate of 1.5% per month, compounded monthly (equivalent to
19.56% per annum) until paid.
3.3 TAXES
The amounts specified in this Agreement are exclusive of any federal or
provincial tariffs, duties, sales, use or goods and services taxes or duties,
all of which will be paid by Services.
ARTICLE 4
WARRANTIES AND LIMITATION OF LIABILITY
4.1 WARRANTY
Urbanlink will perform the NOC Services to the same reasonable standards of
professional skill and competence applicable to generally recognized providers
of similar services.
4.2 OTHER WARRANTIES EXCLUDED
THE FOREGOING WARRANTY IS IN LIEU OF ALL OTHER WARRANTIES OR CONDITIONS.
URBANLINK MAKES NO OTHER WARRANTY OR CONDITION, EXPRESS OR IMPLIED, AND THERE
ARE EXPRESSLY EXCLUDED ALL IMPLIED OR STATUTORY WARRANTIES OR CONDITIONS OF
MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR TITLE OR NONINFRINGEMENT
AND THOSE ARISING BY STATUTE OR OTHERWISE IN LAW OR FROM A COURSE OF DEALING OR
USAGE OF TRADE. THE STATED EXPRESS WARRANTY IS IN LIEU OF ALL LIABILITIES OR
OBLIGATIONS FOR DAMAGES ARISING OUT OF OR IN CONNECTION WITH THE PERFORMANCE OF
THE NOC SERVICES.
4.3 NO CONSEQUENTIAL DAMAGES
IN NO EVENT WHATSOEVER SHALL URBANLINK BE LIABLE FOR INDIRECT, CONSEQUENTIAL,
EXEMPLARY, INCIDENTAL, SPECIAL, INDIRECT OR OTHER SIMILAR DAMAGES INCLUDING BUT
NOT LIMITED TO LOST PROFITS, LOST BUSINESS REVENUE, FAILURE TO REALIZE EXPECTED
SAVINGS, OTHER
-3-
<PAGE>
COMMERCIAL OR ECONOMIC LOSS OF ANY KIND OR ANY CLAIM AGAINST SERVICES BY ANY
PARTY ARISING OUT OF OR IN CONNECTION WITH THE PERFORMANCE OF THE NOC SERVICES
EVEN IF URBANLINK HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGE.
LIMITATION OF LIABILITY BENEFITS EMPLOYEES
Every exemption from liability, limitation and condition contained in this
Agreement for the benefit of Urbanlink and every defence and immunity of
whatsoever nature applicable to Urbanlink or to which Urbanlink is entitled
under this Agreement will also be available and will extend to protect every
director, officer, employee, agent or independent contractor from time to time
of Urbanlink and, for the purpose of all such provisions and this section,
Urbanlink is and will be deemed to be acting as agent and trustee on behalf of
and for the benefit of all such subsidiaries, affiliates, employees, agents and
independent contractors.
ARTICLE 5
CONFIDENTIALITY
5.1 SERVICES CONFIDENTIAL INFORMATION
During the course of its relationship with Urbanlink, Services or its
subsidiaries or affiliates or their employees or agents may disclose certain
proprietary or confidential information to Urbanlink or its subsidiaries or
affiliates or their employees or agents. The proprietary or confidential
information may be oral or written, may be of a technical or commercial nature,
may take the form of plans, drawings, processes, formulae, schedules, reports,
projections, analyses, programs, prints, recordings, lists or other compilations
of information, and may relate to Services, its suppliers, employees,
stockholders or customers. All of such proprietary information and confidential
information is herein collectively called the "Services Confidential
Information".
5.2 CONFIDENTIALITY OF SERVICES CONFIDENTIAL INFORMATION
All Services Confidential Information obtained by Urbanlink will be considered
confidential and will not be disclosed by Urbanlink to any person without the
prior written consent of Services. Urbanlink will use the Services Confidential
Information only for the purposes contemplated by this Agreement. Urbanlink will
not obtain any interest in any Services Confidential Information by reason of
this Agreement or by reason of the disclosure of such Services Confidential
Information pursuant to this Agreement. Urbanlink will take the steps reasonably
necessary to protect the confidentiality of the Services Confidential
Information. Urbanlink will provide at least the same level of protection that
it provides for its own proprietary information. Any copies of the Services
Confidential Information which are made by Urbanlink will include all copyright
notices and any other propriety notices contained in such Services Confidential
Information, and will display such notices not less prominently than such
notices are displayed in such Services Confidential Information.
-4-
<PAGE>
5.3 URBANLINK CONFIDENTIAL INFORMATION
During the course of its relationship with Services, Urbanlink or its
subsidiaries or affiliates or their employees or agents may disclose certain
proprietary or confidential information to the Services or its subsidiaries or
affiliates or their employees or agents. The proprietary or confidential
information may be oral or written, may be of a technical or commercial nature,
may take the form of programs, design documentation, manuals, plans, drawings,
processes, formulae, schedules, reports, projections, analyses, programs,
prints, recordings, lists or other compilations of information, and may relate
to the Urbanlink, its suppliers, employees, stockholders or customers. All of
such proprietary information and confidential information is herein collectively
called the "Urbanlink Confidential Information".
5.4 CONFIDENTIALITY OF URBANLINK CONFIDENTIAL INFORMATION
All Urbanlink Confidential Information obtained by Services will be considered
confidential and will not be disclosed by Services to any person without the
prior written consent of Urbanlink. Services will use the Urbanlink Confidential
Information only for the purposes contemplated by this Agreement. Services will
not obtain any interest in any Urbanlink Confidential Information by reason of
this Agreement or by reason of the disclosure of such Urbanlink Confidential
Information pursuant to this Agreement. Services will take the steps reasonably
necessary to protect the confidentiality of the Urbanlink Confidential
Information. Services will provide at least the same level of protection that it
provides for its own propriety information. Any copies of the Urbanlink
Confidential Information which are made by Services will include all copyright
notices and any other propriety notices contained in such Urbanlink Confidential
Information, and will display such notices not less prominently than such
notices are displayed in such Urbanlink Confidential Information.
5.5 EXCEPTIONS
The foregoing restrictions do not apply to:
(a) information which at the time of disclosure was in the public domain
as evidenced by a printed publication or otherwise;
(b) information which after disclosure becomes part of the public domain
by publication or otherwise, other than by an action in breach of
this Agreement;
(c) information which was in the possession of a party at the time of
disclosure by the other party and was not acquired, directly or
indirectly, from the other party;
(d) information which the disclosing party rightfully receives from an
independent third party who did not receive such information,
directly or indirectly, from the other party with limitation or
restriction on its use;
(e) information which is independently developed by employees or agents
of a party who had not had access to the other party's confidential
information;
-5-
<PAGE>
(f) any information which is required to be disclosed pursuant to the
timely disclosure requirements imposed by law or by stock exchange
policies applicable to the receiving party and, in such cases, only
where the other party has been given a reasonable opportunity to
review such proposed disclosure and the other party has maintained
confidentiality to the greatest extent permissible under such laws
and policies; or
(g) such information as a party may be required to disclose by order of
a court, administrative agency or other governmental body with
jurisdiction over such party, provided that such party first
provides to the other party prompt notice of such required
disclosure and takes such steps as may be reasonable in the
circumstances to allow the other party to seek a protective order
with respect to the confidentiality of the information required to
be disclosed.
ARTICLE 6
TERM AND TERMINATION
6.1 TERM
The term of this Agreement will commence on the date hereof, and will continue
until April 30, 2005.
6.2 TERMINATION FOR DEFAULT
Without limiting the remedies otherwise available under this Agreement or at
law, either Services or Urbanlink (referred to in this section as the
"Terminating Party") may terminate this Agreement by notice in writing to the
other (the "Defaulting Party") on the occurrence of any one or more of the
following events:
(a) if the Defaulting Party is in breach of any material term of this
Agreement and such breach is not cured within 30 days of the
Defaulting Party receiving written notice from the Terminating Party
specifying the breach in reasonable detail, or within such longer
period of time as may be reasonably necessary to cure such breach
provided that the Defaulting Party is acting in good faith and with
all reasonable diligence to cure such breach;
(b) if the Defaulting Party makes an assignment for the benefit of its
creditors, is declared bankrupt, or otherwise takes advantage of
provisions for relief under the Bankruptcy and Insolvency Act, the
Companies Creditors Arrangement Act or similar legislation in any
jurisdiction, or makes an authorized assignment, or makes a proposal
under the Bankruptcy and Insolvency Act or initiates proceedings
under similar legislation in any jurisdiction;
(c) if a receiver, receiver and manager or receiver-manager of all or
any part of the assets of the Defaulting Party is appointed and such
receiver, receiver and manager or receiver-manager is not discharged
within 30 days of such appointment;
-6-
<PAGE>
(d) if an order is made or an effective resolution is passed for the
winding-up or liquidation of the Defaulting Party; or
(e) if the Defaulting Party ceases to carry on its business.
6.3 SURVIVAL OF TERMS
Articles 4 and 5 and such other provisions as may reasonably be expected to
remain in force will survive the expiration or termination of this Agreement and
will remain in full force and effect following such expiration or termination.
The expiration or termination of this Agreement will not affect the rights of
any party to make a claim for damages arising from a breach of any provision of
this Agreement which occurred prior to such expiration or termination.
ARTICLE 7
GENERAL
7.1 GOVERNING LAW AND ATTORNMENT
This Agreement will be governed by and construed in accordance with the
substantive laws of British Columbia and the federal laws of Canada applicable
in British Columbia, without regard to the conflict of law rules of British
Columbia. The parties irrevocably submit to and accept generally and
unconditionally the exclusive jurisdiction of the courts and appellate courts of
British Columbia with respect to any legal action or proceeding which may be
brought at any time relating in any way to this Agreement. Each of the parties
irrevocably waives any objection it may now or in the future have to the venue
of any such action or proceeding, and any claim it may now or in the future have
that any such action or proceeding has been brought in an inconvenient forum.
7.2 TIME OF THE ESSENCE OF THE AGREEMENT
Unless otherwise specifically provided in this Agreement, time will be of the
essence of this Agreement and of the transactions contemplated by this
Agreement.
7.3 REMEDIES NOT EXCLUSIVE
The remedies provided to the parties under this Agreement are cumulative and not
exclusive to each other, and any such remedy will not be deemed or construed to
affect any right which any of the parties is entitled to seek at law, in equity
or by statute.
7.4 NOTICES
Any notice, direction, request or other communication required or contemplated
by any provision of this Agreement will be given in writing and will be given by
delivering or faxing or emailing the same to the parties as follows:
-7-
<PAGE>
(a) To 360 at:
Suite 1510, 1066 West Hastings Street
Vancouver, B.C. V6E 3X1
Attention: Catherine McEachern
Fax No.: (604) 681-0994
Email: [email protected]
(b) To Services at:
Suite 1510, 1066 West Hastings Street
Vancouver, B.C. V6E 3X1
Attention: Catherine McEachern
Fax No.: (604) 681-0994
Email: [email protected]
(c) To Urbanlink at:
Suite 1000, 1066 West Hastings Street
Vancouver, B.C. V6E 3X1
Attention: Bill Ramsey
Fax No.: (604) 681-5372
Email: [email protected]
Any such notice, direction, request or other communication will be deemed to
have been given or made on the date on which it was delivered or, in the case of
fax or email, on the next business day after receipt of transmission. Any party
may change its fax number or address for service or email address from time to
time by written notice in accordance with this section.
7.5 ASSIGNMENT
(a) This Agreement is not assignable by Urbanlink in whole or in part
without the prior written consent of 360, such consent not to be
unreasonably delayed. This Agreement is not assignable by 360 or
Services without the prior written consent of Urbanlink, such
consent not to be unreasonably delayed. Any attempt by any party to
assign any of the rights or to delegate any of the duties or
obligations of this Agreement without such prior written consent is
void.
(b) Notwithstanding the foregoing, the interests of any party may be
assigned by such party to an Affiliate, provided that such Affiliate
delivers to the other parties a written undertaking to be bound by
the provisions of this Agreement in all respects and to the same
extent as the assignor is bound and provided further that the
assignor will continue to be bound by all the obligations hereunder
as if such assignment had not occurred and shall perform such
obligations to the extent that such Affiliate fails to do so.
-8-
<PAGE>
(c) Notwithstanding the foregoing, the interests of a party under this
Agreement (including, without limitation, in the case of Urbanlink,
the right to receive any and all amounts payable to Urbanlink under
this Agreement) may be assigned by such party by way of collateral
security to a lender without the consent of the other parties,
provided however that any such lender agrees in writing that:
(i) the rights and interest of the lender are subject to the
rights and interests of the parties other than the assignor
under this Agreement;
(ii) prior to realizing on such collateral security it will provide
notice to the other parties giving them the opportunity to
cure the default; and
(iii) should such security be realized with the result that the
title or interest of the assignor, as the case may be, is
vested in an assignee, acquirer or other successor in title or
interest (including the lender if such is the case)
("Successor"), then the lender will cause such Successor to
enter into a written agreement with the other parties to be
bound by the provisions of this Agreement in all respects and
to the same extent as the assignor was bound and this from the
date the title or interest is transferred and provided further
that the assignor will continue to be bound by all the
obligations under this Agreement as if such transfer of title
or interest had not occurred and will perform such obligations
to the extent that the Successor fails to do so.
7.6 FORCE MAJEURE
The failure or delay of any party to this Agreement to perform any obligation
under this Agreement solely by reason of acts of God, acts of civil or military
authority, civil disturbance, war, strikes or other labour disputes or
disturbances, fire, transportation contingencies, shortage of facilities, fuel,
energy, labour or materials, or laws, regulations, acts or orders of any
governmental agency or official, other catastrophes, or any other circumstance
beyond its reasonable control ("Force Majeure") will be deemed not to be a
breach of this Agreement so long as the party so prevented from complying with
this Agreement has not contributed to such Force Majeure, has used reasonable
efforts to avoid such Force Majeure or to ameliorate its effects, and continues
to take all actions within its power to comply as fully as possible with the
terms of this Agreement. In the event of any such Force Majeure, performance of
the obligations will be deferred until the Force Majeure ceases. This section
will not apply to excuse a failure to make any payment when due.
7.7 COUNTERPARTS
This Agreement may be executed in any number of counterparts with the same
effect as if all parties had signed the same document. All of these counterparts
will for all purposes constitute one agreement, binding on the parties,
notwithstanding that all parties are not signatories to the same counterpart. A
fax transcribed copy or photocopy of this Agreement executed by a party in
counterpart or otherwise will constitute a properly executed, delivered and
binding agreement or counterpart of the executing party.
-9-
<PAGE>
7.8 WAIVER
No failure or delay on the part of any party in exercising any power or right
under this Agreement will operate as a waiver of such power or right. No single
or partial exercise of any right or power under this Agreement will preclude any
further or other exercise of such right or power. No modification or waiver of
any provision of this Agreement and no consent to any departure by any party
from any provision of this Agreement will be effective until the same is in
writing. Any such waiver or consent will be effective only in the specific
instance and for the specific purpose for which it was given. No notice to or
demand on any party in any circumstances will entitle such party to any other or
further notice or demand in similar or other circumstances.
7.9 FURTHER ASSURANCES
Each of the parties will promptly execute and deliver to the other at the cost
of the other such further documents and assurances and take such further actions
as the other may from time to time request in order to more effectively carry
out the intent and purpose of this Agreement and to establish and protect the
rights, interests and remedies intended to be created in favour of the other.
7.10 ENTIRE AGREEMENT
This Agreement and any documents and agreements to be delivered pursuant to this
Agreement supersede all previous invitations, proposals, letters,
correspondence, negotiations, promises, agreements, covenants, conditions,
representations and warranties with respect to the subject matter of this
Agreement. There is no representation, warranty, collateral term or condition or
collateral agreement affecting this Agreement, other than as expressed in
writing in this Agreement. No trade terms or trade usages are to be incorporated
by reference implicitly or otherwise into this Agreement, unless expressly
referred to in this Agreement.
7.11 AMENDMENTS
No change or modification of this Agreement will be valid unless it is in
writing and signed by each party to
this Agreement.
7.12 INVALIDITY OF PARTICULAR PROVISION
If any provision of this Agreement or any part of any provision (in this section
called the "Offending Provision") is declared or becomes unenforceable, invalid
or illegal for any reason whatsoever including, without limiting the generality
of the foregoing, a decision by any competent courts, legislation, statutes,
bylaws or regulations or any other requirements having the force of law, then
the remainder of this Agreement will remain in full force and effect as if this
Agreement had been executed without the Offending Provision.
7.13 CURRENCY
Unless otherwise specified all sums of money expressed in this Agreement are in
the lawful money of Canada.
-10-
<PAGE>
7.14 NUMBER AND GENDER
Unless the context of this Agreement otherwise requires, to the extent necessary
so that each clause will be given the most reasonable interpretation, the
singular number will include the plural and vice versa, the verb will be
construed as agreeing with the word so substituted, words importing the
masculine gender will include the feminine and neuter genders, words importing
persons will include firms and corporations and words importing firms and
corporations will include individuals.
7.15 HEADINGS AND CAPTIONS
The headings and captions of sections and paragraphs contained in this Agreement
are all inserted for convenience of reference only and are not to be considered
when interpreting this Agreement.
7.16 ACKNOWLEDGEMENT OF RECEIPT
Each of the parties acknowledges receiving an executed copy of this Agreement.
7.17 ENUREMENT
Subject to the restrictions on transfer contained in this Agreement, this
Agreement will enure to the benefit of and be binding on the parties and their
respective heirs, executors, administrators, successors and assigns.
[THE NEXT PAGE IS THE EXECUTION PAGE.]
-11-
<PAGE>
IN WITNESS WHEREOF the parties have executed this Agreement as of the date
stated on the first page.
360NETWORKS INC. WORLDWIDE FIBER NETWORKS
SERVICES LTD.
Per: Per:
- ------------------------------------ ------------------------------------
Signature Signature
WFI URBANLINK LTD.
Per:
- ------------------------------------
Signature
-12-
<PAGE>
Exhibit 10.43
THIS AGREEMENT is made effective as of the ______ day of April, 2000.
BETWEEN:
WORLDWIDE FIBER HOLDINGS LTD.
(the "Vendor")
OF THE FIRST PART
- and -
URBANLINK HOLDINGS LTD.
(the "Purchaser")
OF THE SECOND PART
ROLL-OVER AGREEMENT
(SHARES)
A. The Vendor is the beneficial owner of the Shares.
B. The Vendor wishes to sell and the Purchaser wishes to purchase all of the
Vendor's interest in the Shares as at the Effective Date for a total purchase
price equal to the aggregate of the fair market values of the Shares all on the
terms and conditions and subject to the representations and warranties set forth
in this Agreement.
IN CONSIDERATION of the foregoing premises and of the mutual covenants
herein contained the parties agree as follows:
ARTICLE 1: INCORPORATION OF RECITALS
AND SCHEDULES AND DEFINITIONS
1.1 The Recitals and all Schedules annexed to this Agreement are expressly
incorporated into, and form an integral part of, this Agreement.
ARTICLE 2: DEFINITIONS
2.1 In this Agreement:
(a) "Act" means the Income Tax Act (Canada), as it read on the Effective
Date;
<PAGE>
(b) "Adjusted Cost Base" means the aggregate cost base of the Shares
determined by the Vendor in accordance with the Act, where "adjusted
cost base" is as defined in subsection 248(1) of the Act;
(c) "Adjusted Elected Amount" means the amount that, for tax purposes,
is to be the Vendor's "proceeds of disposition" and the Purchaser's
"cost of acquisition" of the Shares, determined in accordance with
section 6.3 to be a greater or lesser amount than the Elected
Amount;
(d) "Articles" means the articles of incorporation of the Purchaser
together with all amendments thereto as registered with the
Registrar of Corporations for the Province of Alberta as at the
Effective Date;
(e) "Closing Date" means the Effective Date;
(f) "Corporation" means 360networks inc.;
(g) "Effective Date" means the date of this Agreement;
(h) "Elected Amount" means the amount agreed upon by the parties in
accordance with section 6.2 hereof which, for tax purposes, is to be
the Vendor's "proceeds of disposition" and the Purchaser's "cost of
acquisition" of the Shares;
(i) "Election" means the election made by the parties in prescribed form
and within the time prescribed by subsection 85(6) of the Act that
the rules set forth in subsection 85(1) of the Act shall apply to
the purchase and sale of the Shares;
(j) "Fair Market Value" means the actual fair market value of the Shares
determined as of the Effective Date by agreement of the Vendor and
Purchaser;
(k) "Revised Adjusted Cost Base" means the adjusted cost base of the
Shares determined in accordance with section 6.3 to be greater or
lesser amounts than the Adjusted Cost Base;
(l) "Schedules" means any schedules which are attached to this
Agreement;
(m) "Share Consideration" means the number, series and class of shares
of the capital of the Purchaser having attached thereto only those
rights, privileges, restrictions and limitations set forth in the
Articles, which shares are more particularly described in Schedule
"B";
(n) "Shares" means those shares in the capital of the Corporation owned
by the Vendor, more particularly described in Schedule "A";
-2-
<PAGE>
(o) "Stated Capital Addition" means the aggregate stated capital for the
shares constituting the Share Consideration that is to be added to
the stated capital account maintained for such shares, which shall
be equal to the Elected Fair Market Value; and
(p) "Taxing Authority" means the Minister of National Revenue for Canada
or any other competent authority having jurisdiction that is
authorized by law to issue an assessment or reassessment in respect
of the transactions herein contemplated.
ARTICLE 3: PURCHASE AND SALE
3.1 Subject to the terms and conditions, and based upon the representations
and warranties, contained in this Agreement, the Vendor shall sell, transfer and
assign and the Purchaser shall purchase as of the Effective Date all of the
Vendor's interest in the Shares.
ARTICLE 4: EFFECTIVE DATE
4.1 It is acknowledged and agreed to by the parties that the purchase and sale
of the Shares is deemed to have occurred as of the Effective Date.
ARTICLE 5: PURCHASE PRICE
5.1 The total purchase price for the Shares is equal to the Fair Market Value
and shall be paid and satisfied by the Purchaser issuing to the Vendor the Share
Consideration.
5.2 The Purchaser shall add the Stated Capital Addition to the stated capital
account being maintained for the class of shares of which the Share
Consideration forms a part.
5.3 The parties' determination of the Fair Market Value is final and binding
upon the parties.
ARTICLE 6: JOINT ELECTION AND ELECTED AMOUNTS
6.1 The Vendor and Purchaser shall jointly make the Election.
6.2 Subject to the provisions of this Agreement, for purposes of the Election
the parties agree that the Elected Amount shall be the Adjusted Cost Base of the
Shares, which determination is final and binding on the parties.
6.3 If:
(a) the Taxing Authority proposes to issue, or does issue, any
assessment or reassessments that impose, or would impose, any
liability for tax of any
-3-
<PAGE>
nature or kind on either of the parties on the basis that the
adjusted cost base of the Shares is the Revised Adjusted Cost Base;
(b) the parties agree, or a Court or tribunal of competent jurisdiction
finally adjudges, that the adjusted cost base of the Shares is the
Revised Adjusted Cost Base; and
(c) the Taxing Authority will accept as effective, an amended Election
of the parties;
then:
(d) the Adjusted Cost Base shall be deemed to have always been, and the
Adjusted Cost Base wherever referred to in this Agreement, shall be
read as meaning the Revised Adjusted Cost Base;
(e) the Elected Amount shall be deemed to have always been, and the
Elected Amount wherever referred to in this Agreement shall be read
as meaning, an amount equal to the Adjusted Elected Amount; and
(f) the parties shall take all such steps and jointly execute all such
documents and elections as may be required and allowed so that the
aggregate of the amounts elected for purposes of subsection 85(1) of
the Act with respect to the purchase and sale of the Shares shall be
equal to the Adjusted Elected Amount.
ARTICLE 7: VENDOR'S REPRESENTATIONS AND WARRANTIES
7.1 The Vendor represents and warrants to the Purchaser that:
(a) on the Closing Date the Shares shall be beneficially owned by the
Vendor free and clear of all restrictions, options, liens, charges
and encumbrances, whatsoever, excepting those restrictions set forth
in the articles of continuance (as amended) of the Corporation, the
restrictions set forth in the Shareholders Agreement respecting the
issued and outstanding shares in the capital of the Corporation and
the restrictions set forth in the Amended and Restated Option
Agreement dated August 1, 1999, to which the Corporation and the
Vendor are parties;
(b) no person, firm or corporation has any written or verbal agreement,
option, understanding or commitment or any right or privilege
capable of becoming an agreement for the purchase of the Shares from
the Vendor other than as set out in this Agreement, in the articles
of continuance (as amended) of the Corporation, in the Shareholders
Agreement respecting the issued and outstanding shares in the
capital of the Corporation and in
-4-
<PAGE>
the Amended and Restated Option Agreement dated August 1, 1999 to
which the Corporation and the Vendor are parties;
(c) on the Closing Date the Vendor shall not be a non-resident of Canada
within the meaning of the Act; and
(d) all requisite approvals of the Corporation and its directors and
shareholders, as applicable, have been obtained so as to permit the
transfer of the shares from the Vendor to the Purchaser in
accordance with the terms hereof.
7.2 The representations and warranties contained in section 7.1 shall survive
the completion of the purchase and sale of the Shares and shall continue in full
force and effect for the benefit of the Purchaser; provided always that no claim
with respect to the representations and warranties shall be made by the
Purchaser unless written notice shall have been given to the Vendor within one
(1) year from the Closing Date.
ARTICLE 8: PURCHASER'S REPRESENTATIONS AND WARRANTIES
8.1 The Purchaser represents and warrants to the Vendor that:
(a) the Purchaser is a corporation duly incorporated, validly existing
and qualified to carry on business under the laws of the Province of
Alberta;
(b) the authorized capital of the Purchaser consists of an unlimited
number of:
(i) Class "A" Common Voting Non-Participating Shares
(ii) Class "B" Common Non-Voting Participating Shares
(iii) Class "C" Common Non-Voting Participating Shares,
having attached thereto only those rights, privileges, restrictions
and conditions set forth in the Articles;
(c) the issuance to the Vendor of the Share Consideration is valid and
in accordance with the laws of the Province of Alberta; and
(d) this Agreement constitutes a valid and binding obligation of the
Purchaser and the transactions contemplated by this Agreement are
not in violation of any terms and conditions of the Articles or any
agreement to which the Purchaser is a party or by which the
Purchaser is bound.
8.2 The representations and warranties contained in section 8.1 shall survive
the completion of the purchase and sale of the Shares and shall continue in full
force and effect for the benefit of the Vendor; provided always that no claim
with respect to the representations and
-5-
<PAGE>
warranties shall be made by the Vendor unless written notice shall have been
given to the Purchaser within one (1) year from the Closing Date.
ARTICLE 9: CLOSING, BENEFICIAL OWNERSHIP AND POSSESSION
9.1 Upon or prior to the Closing Date, or so soon thereafter as the parties
agree upon:
(a) the Vendor shall deliver to the Purchaser, share certificates
representing the Shares, duly endorsed in blank for transfer and
shall cause transfers of such Shares to be duly recorded in the
books of the Corporation in the name of the Purchaser or its
nominee;
(b) the Purchaser shall:
(i) issue and deliver to the Vendor the Share Consideration; and
(ii) at the request of the Vendor, deliver to the Vendor a copy of
the resolution of the board of directors of the Purchaser
adding the Stated Capital Addition to the stated capital
account maintained for the shares forming the Share
Consideration, certified by the secretary of the Purchaser as
a true and exact copy, where required by the Vendor.
9.2 If the corporate proceedings required to duly and validly record the
Shares in the name of the Purchaser or its nominee have not been completed on
the Closing Date, the Vendor agrees that, until such time as the Shares shall be
recorded in the name of the Purchaser or its nominee, the Vendor shall stand as
owner of the Shares as bare trustee for and on behalf of the Purchaser as the
beneficial owner, and in such capacity the Vendor shall:
(a) receive on behalf of, account to and forthwith pay over to the
Purchaser, any and all dividends and other amounts received by the
Vendor as the recorded owner of the Shares; and
(b) transfer and deal with the Shares in such manner as the Purchaser
may direct.
The Purchaser shall at all times hereafter indemnify and keep indemnified the
Vendor against all liabilities which the Vendor may incur by reason of the
Shares being held in trust in the name of the Vendor for the benefit of the
Purchaser.
ARTICLE 10: FURTHER ACTS AND ASSURANCES
10.1 Each of the parties shall, upon the reasonable request of the other party,
make, do, execute or cause to be made, done, or executed all such further and
other lawful acts, deeds,
-6-
<PAGE>
things, documents and assurances of whatsoever nature and kind for the better
performance of the terms and conditions of this Agreement.
ARTICLE 11: NOTICES
11.1 Any notice, direction or other instrument required or permitted to be
given under the provisions of this Agreement shall be in writing and either
delivered personally, sent by prepaid registered mail or sent by facsimile to
the party to be notified. The addresses of the parties for such purpose shall
respectively be:
(a) to the Vendor at its registered office address; and
(b) to the Purchaser at its registered office address;
or to such other address in Canada of which either party may from time to time
notify the other.
11.2 Any notice, direction or other instrument shall:
(a) if delivered, be deemed to have been given or received on the day on
which it was so delivered and if not on a business day then on the
business day next following the day of delivery;
(b) if sent by facsimile shall be deemed to have been given or received
on the same business day as it was sent, provided facsimile
confirmation of receipt is received by the sender;
(c) if mailed, shall be deemed to have been given or received on the
third day following the day on which it was mailed; and
(d) if mailed at a time when there is an interruption or an anticipated
interruption of mail service affecting the delivery of such mail,
shall be deemed to have been given or received on the fifth business
day after the date that normal postal service is restored.
ARTICLE 12: ENTIRE AGREEMENT
12.1 This Agreement constitutes and contains the entire agreement between the
parties respecting the subject matter of this Agreement and supersedes any prior
agreements whether written or verbal.
-7-
<PAGE>
ARTICLE 13: ENUREMENT
13.1 This Agreement shall enure to the benefit of and be binding upon the
parties and their respective successors, personal representatives and assigns.
ARTICLE 14: COUNTERPART
14.1 This Agreement may be executed in counterparts with the same effect as if
all of the parties hereto had signed the same document. All counterparts shall
be construed together and shall constitute one and the same agreement. A
facsimile transmitted copy of this Agreement signed by a party, in counterpart
or otherwise, shall be deemed to be evidence of a properly executed, delivered
and binding agreement of the party so signing, notwithstanding any variation in
the actual dates of execution. The parties each agree to promptly return an
original duly executed counterpart of this Agreement following the transmission
of the facsimile transcribed copy thereof.
IN WITNESS WHEREOF the parties have properly executed this Agreement, as
of the Effective Date.
WORLDWIDE FIBER HOLDINGS LTD.
PER:
--------------------------------
URBANLINK HOLDINGS LTD.
PER:
--------------------------------
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<PAGE>
SCHEDULE "A"
------------
TO THAT CERTAIN ROLL-OVER AGREEMENT MADE BETWEEN WORLDWIDE
FIBER HOLDINGS LTD. (AS VENDOR) AND URBANLINK HOLDINGS LTD.
(AS PURCHASER)
-----------------------------------------------------------
SHARES
------
Share Certificate # _____ representing ___________________________ Subordinate
Voting Shares of 360networks inc.
<PAGE>
SCHEDULE "B"
------------
TO THAT CERTAIN ROLL-OVER AGREEMENT MADE BETWEEN WORLDWIDE
FIBER HOLDINGS LTD. (AS VENDOR) AND URBANLINK HOLDINGS LTD.
(AS PURCHASER)
-----------------------------------------------------------
SHARE CONSIDERATION
-------------------
Share Certificate # 1C representing 490,000 Class "C" Common Non-Voting
Participating Shares in the capital of URBANLINK HOLDINGS Ltd.
<PAGE>
Exhibit 10.44
THIS AGREEMENT is made effective as of the ______ day of April, 2000.
BETWEEN:
360 URBANLINK LTD.
(the "Vendor")
OF THE FIRST PART
- and -
URBANLINK HOLDINGS LTD.
(the "Purchaser")
OF THE SECOND PART
ROLL-OVER AGREEMENT
(SHARES)
A. The Vendor is the beneficial owner of the Shares.
B. The Vendor wishes to sell and the Purchaser wishes to purchase all of the
Vendor's interest in the Shares as at the Effective Date for a total
purchase price equal to the aggregate of the fair market values of the
Shares all on the terms and conditions and subject to the representations
and warranties set forth in this Agreement.
IN CONSIDERATION of the foregoing premises and of the mutual covenants
herein contained the parties agree as follows:
ARTICLE 1: INCORPORATION OF RECITALS
AND SCHEDULES AND DEFINITIONS
1.1 The Recitals and all Schedules annexed to this Agreement are expressly
incorporated into, and form an integral part of, this Agreement.
ARTICLE 2: DEFINITIONS
2.1 In this Agreement:
(a) "Act" means the Income Tax Act (Canada), as it read on the Effective
Date;
<PAGE>
(b) "Adjusted Cost Base" means the aggregate cost base of the Shares
determined by the Vendor in accordance with the Act, where "adjusted
cost base" is as defined in subsection 248(1) of the Act;
(c) "Adjusted Elected Amount" means the amount that, for tax purposes,
is to be the Vendor's "proceeds of disposition" and the Purchaser's
"cost of acquisition" of the Shares, determined in accordance with
section 6.3 to be a greater or lesser amount than the Elected
Amount;
(d) "Articles" means the articles of incorporation of the Purchaser
together with all amendments thereto as registered with the
Registrar of Corporations for the Province of Alberta as at the
Effective Date;
(e) "Closing Date" means the Effective Date;
(f) "Corporation" means WFI Urbanlink Ltd.;
(g) "Effective Date" means the date of this Agreement;
(h) "Elected Amount" means the amount agreed upon by the parties in
accordance with section 6.2 hereof which, for tax purposes, is to be
the Vendor's "proceeds of disposition" and the Purchaser's "cost of
acquisition" of the Shares;
(i) "Election" means the election made by the parties in prescribed form
and within the time prescribed by subsection 85(6) of the Act that
the rules set forth in subsection 85(1) of the Act shall apply to
the purchase and sale of the Shares;
(j) "Fair Market Value" means the actual fair market value of the Shares
determined as of the Effective Date by agreement of the Vendor and
Purchaser;
(k) "Revised Adjusted Cost Base" means the adjusted cost base of the
Shares determined in accordance with section 6.3 to be greater or
lesser amounts than the Adjusted Cost Base;
(l) "Schedules" means any schedules which are attached to this
Agreement;
(m) "Share Consideration" means the number, series and class of shares
of the capital of the Purchaser having attached thereto only those
rights, privileges, restrictions and limitations set forth in the
Articles, which shares are more particularly described in Schedule
"B";
(n) "Shares" means those shares in the capital of the Corporation owned
by the Vendor, more particularly described in Schedule "A";
-2-
<PAGE>
(o) "Stated Capital Addition" means the aggregate stated capital for the
shares constituting the Share Consideration that is to be added to
the stated capital account maintained for such shares, which shall
be equal to the Elected Fair Market Value; and
(p) "Taxing Authority" means the Minister of National Revenue for Canada
or any other competent authority having jurisdiction that is
authorized by law to issue an assessment or reassessment in respect
of the transactions herein contemplated.
ARTICLE 3: PURCHASE AND SALE
3.1 Subject to the terms and conditions, and based upon the representations
and warranties, contained in this Agreement, the Vendor shall sell, transfer and
assign and the Purchaser shall purchase as of the Effective Date all of the
Vendor's interest in the Shares.
ARTICLE 4: EFFECTIVE DATE
4.1 It is acknowledged and agreed to by the parties that the purchase and sale
of the Shares is deemed to have occurred as of the Effective Date.
ARTICLE 5: PURCHASE PRICE
5.1 The total purchase price for the Shares is equal to the Fair Market Value
and shall be paid and satisfied by the Purchaser issuing to the Vendor the Share
Consideration.
5.2 The Purchaser shall add the Stated Capital Addition to the stated capital
account being maintained for the class of shares of which the Share
Consideration forms a part.
5.3 The parties' determination of the Fair Market Value is final and binding
upon the parties.
ARTICLE 6: JOINT ELECTION AND ELECTED AMOUNTS
6.1 The Vendor and Purchaser shall jointly make the Election.
6.2 Subject to the provisions of this Agreement, for purposes of the Election
the parties agree that the Elected Amount shall be the Adjusted Cost Base of the
Shares, which determination is final and binding on the parties.
6.3 If:
(a) the Taxing Authority proposes to issue, or does issue, any
assessment or reassessments that impose, or would impose, any
liability for tax of any
-3-
<PAGE>
nature or kind on either of the parties on the basis that the
adjusted cost base of the Shares is the Revised Adjusted Cost Base;
(b) the parties agree, or a Court or tribunal of competent jurisdiction
finally adjudges, that the adjusted cost base of the Shares is the
Revised Adjusted Cost Base; and
(c) the Taxing Authority will accept as effective, an amended Election
of the parties;
then:
(d) the Adjusted Cost Base shall be deemed to have always been, and the
Adjusted Cost Base wherever referred to in this Agreement, shall be
read as meaning the Revised Adjusted Cost Base;
(e) the Elected Amount shall be deemed to have always been, and the
Elected Amount wherever referred to in this Agreement shall be read
as meaning, an amount equal to the Adjusted Elected Amount; and
(f) the parties shall take all such steps and jointly execute all such
documents and elections as may be required and allowed so that the
aggregate of the amounts elected for purposes of subsection 85(1) of
the Act with respect to the purchase and sale of the Shares shall be
equal to the Adjusted Elected Amount.
ARTICLE 7: VENDOR'S REPRESENTATIONS AND WARRANTIES
7.1 The Vendor represents and warrants to the Purchaser that:
(a) on the Closing Date the Shares shall be beneficially owned by the
Vendor free and clear of all restrictions, options, liens, charges
and encumbrances, whatsoever, excepting only those restrictions set
forth in the articles of incorporation (as amended) of the
Corporation;
(b) except as is set out in the articles of incorporation (as amended)
of the Corporation, no person, firm or corporation has any written
or verbal agreement, option, understanding or commitment or any
right or privilege capable of becoming an agreement for the purchase
of the Shares from the Vendor other than as set out in this
Agreement;
(c) on the Closing Date the Vendor shall not be a non-resident of Canada
within the meaning of the Act; and
(d) all requisite approvals of the Corporation and its directors and
shareholders, as applicable, have been obtained so as to permit the
transfer
-4-
<PAGE>
of the shares from the Vendor to the Purchaser in accordance with
the terms hereof.
7.2 The representations and warranties contained in section 7.1 shall survive
the completion of the purchase and sale of the Shares and shall continue
in full force and effect for the benefit of the Purchaser; provided always
that no claim with respect to the representations and warranties shall be
made by the Purchaser unless written notice shall have been given to the
Vendor within one (1) year from the Closing Date.
ARTICLE 8: PURCHASER'S REPRESENTATIONS AND WARRANTIES
8.1 The Purchaser represents and warrants to the Vendor that:
(a) the Purchaser is a corporation duly incorporated, validly existing
and qualified to carry on business under the laws of the Province of
Alberta;
(b) the authorized capital of the Purchaser consists of an unlimited
number of:
(i) Class "A" Common Voting Non-Participating Shares
(ii) Class "B" Common Non-Voting Participating Shares
(iii) Class "C" Common Non-Voting Participating Shares,
having attached thereto only those rights, privileges, restrictions
and conditions set forth in the Articles;
(c) the issuance to the Vendor of the Share Consideration is valid and
in accordance with the laws of the Province of Alberta; and
(d) this Agreement constitutes a valid and binding obligation of the
Purchaser and the transactions contemplated by this Agreement are
not in violation of any terms and conditions of the Articles or any
agreement to which the Purchaser is a party or by which the
Purchaser is bound.
8.2 The representations and warranties contained in section 8.1 shall survive
the completion of the purchase and sale of the Shares and shall continue in full
force and effect for the benefit of the Vendor; provided always that no claim
with respect to the representations and warranties shall be made by the Vendor
unless written notice shall have been given to the Purchaser within one (1) year
from the Closing Date.
-5-
<PAGE>
ARTICLE 9: CLOSING, BENEFICIAL OWNERSHIP AND POSSESSION
9.1 Upon or prior to the Closing Date, or so soon thereafter as the parties
agree upon:
(a) the Vendor shall deliver to the Purchaser, share certificates
representing the Shares, duly endorsed in blank for transfer and
shall cause transfers of such Shares to be duly recorded in the
books of the Corporation in the name of the Purchaser or its
nominee;
(b) the Purchaser shall:
(i) issue and deliver to the Vendor the Share Consideration; and
(ii) at the request of the Vendor, deliver to the Vendor a copy of
the resolution of the board of directors of the Purchaser
adding the Stated Capital Addition to the stated capital
account maintained for the shares forming the Share
Consideration, certified by the secretary of the Purchaser as
a true and exact copy, where required by the Vendor.
9.2 If the corporate proceedings required to duly and validly record the
Shares in the name of the Purchaser or its nominee have not been completed on
the Closing Date, the Vendor agrees that, until such time as the Shares shall be
recorded in the name of the Purchaser or its nominee, the Vendor shall stand as
owner of the Shares as bare trustee for and on behalf of the Purchaser as the
beneficial owner, and in such capacity the Vendor shall:
(a) receive on behalf of, account to and forthwith pay over to the
Purchaser, any and all dividends and other amounts received by the
Vendor as the recorded owner of the Shares; and
(b) transfer and deal with the Shares in such manner as the Purchaser
may direct.
The Purchaser shall at all times hereafter indemnify and keep indemnified the
Vendor against all liabilities which the Vendor may incur by reason of the
Shares being held in trust in the name of the Vendor for the benefit of the
Purchaser.
ARTICLE 10: FURTHER ACTS AND ASSURANCES
10.1 Each of the parties shall, upon the reasonable request of the other party,
make, do, execute or cause to be made, done, or executed all such further and
other lawful acts, deeds, things, documents and assurances of whatsoever nature
and kind for the better performance of the terms and conditions of this
Agreement.
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<PAGE>
ARTICLE 11: NOTICES
11.1 Any notice, direction or other instrument required or permitted to be
given under the provisions of this Agreement shall be in writing and either
delivered personally, sent by prepaid registered mail or sent by facsimile to
the party to be notified. The addresses of the parties for such purpose shall
respectively be:
(a) to the Vendor at its registered office address; and
(b) to the Purchaser at its registered office address;
or to such other address in Canada of which either party may from time to time
notify the other.
11.2 Any notice, direction or other instrument shall:
(a) if delivered, be deemed to have been given or received on the day on
which it was so delivered and if not on a business day then on the
business day next following the day of delivery;
(b) if sent by facsimile shall be deemed to have been given or received
on the same business day as it was sent, provided facsimile
confirmation of receipt is received by the sender;
(c) if mailed, shall be deemed to have been given or received on the
third day following the day on which it was mailed; and
(d) if mailed at a time when there is an interruption or an anticipated
interruption of mail service affecting the delivery of such mail,
shall be deemed to have been given or received on the fifth business
day after the date that normal postal service is restored.
ARTICLE 12: ENTIRE AGREEMENT
12.1 This Agreement constitutes and contains the entire agreement between the
parties respecting the subject matter of this Agreement and supersedes any prior
agreements whether written or verbal.
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<PAGE>
ARTICLE 13: ENUREMENT
13.1 This Agreement shall enure to the benefit of and be binding upon the
parties and their respective successors, personal representatives and assigns.
ARTICLE 14: COUNTERPART
14.1 This Agreement may be executed in counterparts with the same effect as if
all of the parties hereto had signed the same document. All counterparts shall
be construed together and shall constitute one and the same agreement. A
facsimile transmitted copy of this Agreement signed by a party, in counterpart
or otherwise, shall be deemed to be evidence of a properly executed, delivered
and binding agreement of the party so signing, notwithstanding any variation in
the actual dates of execution. The parties each agree to promptly return an
original duly executed counterpart of this Agreement following the transmission
of the facsimile transcribed copy thereof.
IN WITNESS WHEREOF the parties have properly executed this Agreement, as
of the Effective Date.
360 URBANLINK LTD.
PER:
--------------------------------
URBANLINK HOLDINGS LTD.
PER:
--------------------------------
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<PAGE>
SCHEDULE "A"
------------
TO THAT CERTAIN ROLL-OVER AGREEMENT MADE BETWEEN 360
URBANLINK LTD. (AS VENDOR) AND URBANLINK HOLDINGS LTD. (AS
PURCHASER)
----------------------------------------------------------
SHARES
------
Share Certificate #2-I (SER-1) representing 1000 shares of Series 1, being a
series of Class "I" Preferred Shares of WFI Urbanlink Ltd.
Share Certificate #2-I (SER-2) representing 1000 shares of Series 2, being a
series of Class "I" Preferred Shares of WFI Urbanlink Ltd.
Share Certificate #2-I (SER-3) representing 1000 shares of Series 3, being a
series of Class "I" Preferred Shares of WFI Urbanlink Ltd.
Share Certificate #2-I (SER-4) representing 1000 shares of Series 4, being a
series of Class "I" Preferred Shares of WFI Urbanlink Ltd.
Share Certificate #2A representing 100 Class "A" Common Voting Shares of WFI
Urbanlink Ltd.
<PAGE>
SCHEDULE "B"
------------
TO THAT CERTAIN ROLL-OVER AGREEMENT MADE BETWEEN 360
URBANLINK LTD. (AS VENDOR) AND URBANLINK HOLDINGS LTD. (AS
PURCHASER)
----------------------------------------------------------
SHARE CONSIDERATION
-------------------
Share Certificate #1B representing 510,000 Class "B" Common Non-Voting
Participating Shares in the capital of URBANLINK HOLDINGS Ltd.
<PAGE>
Exhibit 10.45
UNANIMOUS SHAREHOLDERS AGREEMENT
THIS AGREEMENT Dated For Reference the _____ day of April, 2000
BETWEEN:
360NETWORKS INC.
("360")
AND:
360 URBANLINK LTD.
("360-Holdco")
AND:
WORLDWIDE FIBER HOLDINGS LTD.
("WFHL")
AND:
URBANLINK HOLDINGS LTD.
(the "Corporation")
AND:
WFI URBANLINK LTD.
("Urbanlink")
WHEREAS:
A. The Corporation owns all of the issued and outstanding shares of
Urbanlink.
B. Urbanlink carries on business in Canada as a telecommunications common
carrier.
C. 360-Holdco and WFHL are the registered and beneficial holders of the
numbers of issued and outstanding shares in the capital of the Corporation set
out in Schedule C, which shares represent the only issued and outstanding shares
of the Corporation.
D. 360-Holdco is a wholly-owned indirect subsidiary of 360.
<PAGE>
E. 360-Holdco, WFHL and 360 wish to establish their respective rights and
obligations in respect of their shares in the Corporation and record their
agreement in respect of the other matters set out in this Agreement.
SECTION 1
TERMS OF AGREEMENT
In consideration of the premises and the mutual covenants contained in this
Agreement, the parties to this Agreement covenant and agree each with the others
as follows:
1.1 INTERPRETATION
DEFINITIONS. For the purposes of this Agreement (including the recitals), the
terms in Schedule A shall have the meanings given to them in that Schedule.
MEANING OF CONTROL. For the purposes of this Agreement, "control" where used in
connection with a corporation means:
(a) the right to exercise a majority of the votes which may be voted
at a general meeting of such corporation; or
(b) the right to elect or appoint directly or indirectly a majority
of the directors of such corporation or other persons who have
the right to manage or supervise the management of the affairs
and business of the corporation.
ACCOUNTING TERMINOLOGY. All accounting terms not expressly defined in this
Agreement shall have the respective meanings usually ascribed to them in
accordance with generally accepted accounting principles in Canada.
MEANING OF PRO RATA. Unless the context otherwise requires, all rights,
obligations or other matters which are, under the terms of this Agreement, to be
determined on a proportionate or pro rata basis shall be determined on a basis
which is pro rata or proportionate to the total number of shares of the
Corporation issued and outstanding as of the date of such determination.
HEADINGS. The headings used in the Agreement are for convenience and reference
only and shall not affect the construction or interpretation of this Agreement.
SCHEDULES. The Schedules to this Agreement which are incorporated and form part
of this Agreement are as follows:
A--Definitions
B--Matters Requiring Unanimous Consent of Directors
C--Capital Contributions
UNANIMOUS SHAREHOLDERS AGREEMENT. The Shareholders agree that this is a
Unanimous Shareholders Agreement for the purposes of the BUSINESS CORPORATIONS
ACT and will conduct
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<PAGE>
themselves and will cause the affairs of the Corporation to be conducted in
accordance with the terms of this Agreement.
SECTION 2
REPRESENTATIONS AND WARRANTIES
2.1 REPRESENTATIONS OF 360-HOLDCO.
360-Holdco represents and warrants to each of the other parties that:
(a) 360-Holdco is a corporation duly incorporated under the laws of
the Province of Alberta, and is validly existing, subsisting and
in good standing with respect to the filing of annual reports.
(b) 360-Holdco has the corporate power to enter into this Agreement
and to perform and observe its obligations and agreements set
out in this Agreement.
(c) This Agreement has been duly executed and delivered by
360-Holdco and is a valid and binding obligation of 360-Holdco
enforceable in accordance with its terms.
2.2 REPRESENTATIONS OF WFHL.
WFHL represents and warrants to each of the other parties that:
(a) WFHL is a corporation duly incorporated under the laws of the
Province of Alberta, and is validly existing, subsisting and in
good standing with respect to the filing of annual reports.
(b) WFHL has the corporate power to enter into this Agreement and to
perform and observe its obligations and agreements set out in
this Agreement.
(c) This Agreement has been duly executed and delivered by WFHL and
is a valid and binding obligation of WFHL enforceable in
accordance with its terms.
2.3 REPRESENTATIONS OF 360.
360 represents and warrants to each of the other parties that:
(a) 360 is a corporation duly continued under the laws of the
Province of Nova Scotia, and is valid, subsisting and in good
standing with respect to the filing of annual reports.
(b) 360 has the corporate power to enter into this Agreement and to
perform and observe its obligations and agreements set out in
this Agreement;
(c) This Agreement has been duly executed and delivered by 360 and
is a valid and binding obligation of 360 enforceable in
accordance with its terms.
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<PAGE>
SECTION 3
AGREEMENT ON CORPORATE MATTERS
3.1 CORPORATE MATTERS.
The Shareholders and the Corporation agree that, notwithstanding any provisions
to the contrary contained in the Articles of the Corporation or the Bylaws of
the Corporation, the corporate matters referred to in this Section 3 shall be
governed by the applicable provisions of this Section 3, and that in the case of
any inconsistency or conflict between the Articles of Corporation or the Bylaws
of the Corporation and the provisions of this Section 3, the provisions of this
Section 3 shall govern.
3.2 DIRECTORS.
Unless otherwise agreed in writing from time to time by 360-Holdco, the
Shareholders shall vote their Shares so that the Board of the Corporation, the
Board of Urbanlink and the Board of any other Subsidiary of the Corporation each
comprise a maximum of five directors, and that each such Board shall include one
nominee of 360-Holdco. Subject to the foregoing, if the position on any such
Board held by the nominee of 360 becomes vacant, 360 shall be entitled to
nominate a new director to fill the vacancy.
3.3 PRESIDENT
The President and Chief Executive Officer of the Corporation shall be an
individual selected by the Board. The President and Chief Executive Officer of
the Corporation shall also be the President and Chief Executive Officer of
Urbanlink and, unless otherwise approved by 360-Holdco, acting reasonably and in
good faith, the President and Chief Executive Officer of every other Subsidiary
of the Corporation. The President and Chief Executive Officer shall be a
Canadian, shall be a full-time employee, and shall not be a director, officer or
employee of 360 or any Subsidiary of 360.
3.4 FAILURE TO VOTE.
In the event that a director shall fail to vote and act as a director to carry
out the provisions of this Agreement, the Shareholders shall exercise their
rights as shareholders of the Corporation to remove such director from the Board
and, subject to Subsection 3.2, to elect in his or her place an individual who
will use his or her best efforts to carry out the provisions of this Agreement.
3.5 MATTERS REQUIRING UNANIMOUS APPROVAL OF DIRECTORS.
The matters set out in Schedule B shall only be undertaken with (in addition to
the consents or approvals, if any, required under the BUSINESS CORPORATIONS ACT,
the Articles of the Corporation or the Bylaws of the Corporation) the consent in
writing of the 360-Holdco nominee to the Board of the Corporation.
3.6 EXISTING SHAREHOLDER CAPITAL.
As at the date hereof, the Shares of each of the Shareholders are as set out in
Schedule C.
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<PAGE>
SECTION 4
THE BUSINESS OF THE CORPORATION
4.1 THE BUSINESS
The parties acknowledge that the businesses that they intend the Corporation and
Urbanlink to carry on are the following:
(a) Unless otherwise agreed between 360 and WFHL, the Corporation
shall hold of the issued and outstanding shares of Urbanlink.
(b) Urbanlink shall carry on business in Canada (and not elsewhere)
as a telecommunications common carrier as defined in the
TELECOMMUNICATIONS ACT.
Unless 360 and WFHL otherwise agree in writing, the Corporation and Urbanlink
shall not, either directly or indirectly, carry on any business other than a
business described above or a business that is incidental to or develops out of
the conduct of any business that the Corporation or Urbanlink may carry on in
accordance with this Section 4.1.
4.2 TELECOMMUNICATIONS ACT
The Corporation and Urbanlink and any other Subsidiaries of the Corporation
shall at all times comply with all of the requirements of the TELECOMMUNICATIONS
ACT including, without limiting the generality of the foregoing, those
provisions relating to the ownership and control of telecommunications common
carriers, as defined in the TELECOMMUNICATIONS ACT. Without limiting the
generality of the foregoing, 360, 360-Holdco and WFHL shall promptly take such
action as may from time to time be required in order to cause the Corporation,
Urbanlink and any other Subsidiaries of the Corporation to comply with all of
the requirements of the TELECOMMUNICATIONS ACT including, without limiting the
generality of the foregoing, those provisions relating to the ownership and
control of telecommunications common carriers as defined in the
TELECOMMUNICATIONS ACT.
4.3 HIGH YIELD DEBT INDENTURES
The Corporation, Urbanlink and WFHL covenant and agree with 360 and 360-Holdco
that, without the prior written consent of 360, the Corporation, Urbanlink, any
other Subsidiary of the Corporation and WFHL shall not take any action, or fail
to take any action or fail, if such action, or failure to act:
(a) would be, or with the passage of time, would be or result in, an
Event of Default as defined in any of the High Yield Debt
Indentures; or
(b) would be permitted under one or more of the High Yield Debt
Indentures only in reliance on one of the "basket" clauses in
the High Yield Debt Indentures, being one of those clauses where
specifically described events are permitted to a specified
limit, whether such limit is an amount fixed in the High Yield
Indentures or is an amount determined by reference to a formula
or other determination process or conditions.
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<PAGE>
SECTION 5
RESTRICTIONS ON TRANSFER
5.1 RESTRICTION ON TRANSFER.
No Shareholder shall Transfer all or any part of its Interest to any person,
whether a Shareholder or not, except as otherwise expressly provided in this
Agreement.
5.2 RIGHT OF FIRST REFUSAL.
(a) A Shareholder (the "Offeror") desiring to transfer any or all of
its Shares shall give written notice to the Corporation (the
"Transfer Notice") specifying the number of its Shares that it
desires to transfer (the "Offered Shares"), the price, in lawful
money of Canada, for the Offered Shares, and the terms of
payment upon which the Offeror is prepared to transfer the
Offered Shares. The Transfer Notice shall constitute the
Corporation as the agent of the Offeror for the sale of the
Offered Shares to any other Shareholder or Shareholders at the
price and upon the terms of payment specified in the Transfer
Notice. The Transfer Notice shall also state whether the Offeror
has received an offer to purchase (the "Third Party Offer") the
Offered Shares, or any of them, from, or proposes to sell the
Offered Shares, or any of them, to, any particular person or
persons who are not Shareholders and, if so, the names and
addresses of those persons and the price and terms in the Third
Party Offer shall be specified in the Transfer Notice. The
Transfer Notice shall constitute an offer by the Offeror to the
other Shareholders to sell the Offered Shares to the other
Shareholders and shall not be revocable.
(b) The Corporation shall forthwith upon receipt of the Transfer
Notice transmit a copy of it to each Shareholder other than the
Offeror and shall request that each such Shareholder state in
writing, within 30 days from the date of the Transfer Notice,
whether it is willing to purchase any of the Offered Shares and,
if so, the maximum number it is willing to purchase.
(c) Upon the expiration of the 30-day notice period provided for in
paragraph (b) above, if the Corporation has received from the
Shareholders entitled to receive the Transfer Notice sufficient
acceptances to purchase all the Offered Shares the Corporation
shall thereupon apportion the Offered Shares among the
Shareholders so accepting pro rata in proportion to the number
of Shares held by each of them respectively up to the number of
Offered Shares accepted by each of them respectively. If the
Corporation did not receive sufficient acceptances to purchase
all of the Offered Shares, the Corporation may, but only with
the consent of the Offeror, who shall not be obliged to sell in
the aggregate less than all the Offered Shares, apportion the
Offered Shares among the Shareholders accepting pro rata in
proportion to the number of Shares held by each of them
respectively up to the number of the Offered Shares accepted by
each of them respectively.
(d) Upon the Corporation's receipt of an acceptance to purchase all
or any part of the Offered Shares and after an apportionment has
been made pursuant to
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<PAGE>
paragraph (c) above, if necessary, a binding contract of
purchase and sale between the Offeror and the Shareholder who
transmitted such acceptance shall be deemed to come into
existence on the terms set out in this Agreement and the
Transfer Notice, which contract will be completed in the manner
provided in Section 8.
(e) After an apportionment has been made pursuant to paragraph (c)
above and upon payment of the price for the Offered Shares
apportioned, the Offeror shall be bound to transfer those shares
in accordance with that apportionment and if the Offeror fails
to do so the Corporation shall cause the names of the purchasing
Shareholders to be entered in the register of members of the
Corporation as the holders of those shares and shall cancel the
share certificates previously issued to the Offeror representing
those shares whether they have been produced to the Corporation
or not. Payment to the Corporation, as agent for the Offeror, of
the Purchase Price shall be sufficient payment by the purchasing
Shareholders and entry of the transfers in the register of
members of the Corporation shall be conclusive evidence of the
validity of the transfers. Upon completion of the transfers, and
delivery of the share certificates duly endorsed in blank for
transfer, the Corporation shall pay the Purchase Price to the
Offeror.
(f) The Offeror may, for a period of 60 days after the expiration of
the 30-day period provided for in paragraph (b) above, transfer
to any person the Offered Shares not purchased by other
Shareholders pursuant to paragraphs (b), (c), (d) and (e) above,
provided that:
(i) if the other Shareholders did not purchase any of the
Offered Shares, the Offeror may not sell less than all
the Offered Shares;
(ii) the Offeror shall sell the Offered Shares for cash at
Closing, free and clear of encumbrances, and on terms
that are otherwise identical to those specified in the
Transfer Notice;
(iii) the Offeror shall not sell any of the Offered Shares to
any person, unless at the time of the sale that person
complies with Subsection 5.5; and
(iv) if the Offeror has not transferred the Offered Shares or
any of them within the 60-day period, then the
provisions of this Subsection 5.2 shall again become
applicable to all of the Offered Shares not disposed of
within the 60-day period.
(g) The provisions as to transfers of Shares contained in paragraphs
(a), (b), (c), (d), (e) and (f) of this Subsection 5.2 shall not
apply:
(i) if, before the proposed transfer of Shares is made, the
other Shareholders waive their rights to receive the
Transfer Notice; or
(ii) to any transfer of Shares pursuant to the provisions of
Section 6 or 7 of this Agreement.
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<PAGE>
(h) The Offeror may include all or any part of its Shareholder's
Loan (if any) in the Transfer Notice, in which case the
Shareholder's Loan (or part thereof) shall be included in the
price of the Offered Shares, and all references to Offered
Shares in Subsection 5.2 shall include the portion of the
Shareholder's Loan included therein. If the Offeror does not
include its Shareholder's Loan in the Transfer Notice, the
Offeror shall retain its Shareholder's Loan, which shall be
repaid as the Corporation's finances permit, as determined by
the directors.
5.3 TRANSFER TO AFFILIATES.
Notwithstanding Subsections 5.1 and 5.2, any Shareholder may sell, transfer or
otherwise dispose of all, but not less than all, of its Interest to an Affiliate
controlled by such Shareholder provided that, prior to any such transfer, the
Shareholder and the Affiliate enter into an agreement with the other parties to
this Agreement, in form and content acceptable to such parties, which provides
that:
(a) one hundred percent (100%) of the Shareholder's Interest will be
transferred to the Affiliate;
(b) the Affiliate will remain an Affiliate controlled by the
Shareholder for so long as the Affiliate holds the Interest;
(c) prior to the Affiliate ceasing to be an Affiliate controlled by
the Shareholder, the Affiliate will transfer its Interest to the
Shareholder or to another Affiliate controlled by the
Shareholder, and that such other Affiliate will enter into an
agreement similar to this Agreement with the other Shareholders
and the Corporation;
(d) the Affiliate will otherwise be bound by and have the benefit of
the provisions of this Agreement; and
(e) the obligations of the original Shareholder hereunder shall not
in any way be released and shall continue in full force and
effect.
5.4 NO TRANSFER BY DEFAULTING SHAREHOLDER.
Notwithstanding any other provision of this Agreement, except as required by the
terms of this Agreement, no Shareholder shall be entitled to sell, transfer,
assign or otherwise dispose of its Interest, or any part thereof, without the
prior written consent of the other Shareholders, if it is at that time a
Defaulting Shareholder, unless prior to or concurrently with that sale, transfer
or other disposition it ceases to be a Defaulting Shareholder.
5.5 FURTHER RESTRICTION OF TRANSFER.
No Shareholder shall transfer all or any part of its Interest to any person,
whether a Shareholder or not, who is not a party to or has not agreed to be
bound by this Agreement until such person subscribes to or agrees to be bound by
this Agreement. The Shareholders and the Corporation will not recognize or treat
as a shareholder of the Corporation any person who acquires any
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<PAGE>
interest or control over any Shares or afford any such person the rights
afforded by this Agreement or any of the incidents connected with being a
shareholder of the Corporation until such person subscribes to or agrees to be
bound by this Agreement, and the Shareholders need only deal with as a member of
the Corporation persons who have subscribed to or agreed to be bound by this
Agreement.
SECTION 6
DEFAULT
6.1 EVENTS OF DEFAULT.
An event of default (a "Default") arises if a Shareholder (a "Defaulting
Shareholder"):
(a) fails to observe, perform or carry out any of its obligations
under this Agreement and such failure continues for 30 days
after any Shareholder not in default (the "Non-defaulting
Shareholder" individually and the "Non-defaulting Shareholders"
collectively) gives a written notice of such default to the
Defaulting Shareholder and the Corporation, which notice shall
set out particulars of the Default and demand that the Default
be cured;
(b) fails to take reasonable actions to prevent or defend
assiduously any action, proceeding, seizure, execution, or
attachment which claims possession, sale, foreclosure, the
appointment of a receiver or receiver manager of the
Shareholder's assets, or forfeiture or termination of or
against, any of the Interest of the Defaulting Shareholder, and
such failure continues for 30 days after a Non-defaulting
Shareholder has in writing demanded that such actions be taken
or the Defaulting Shareholder fails to defend successfully any
such action, proceeding, seizure, execution or attachment; or
(c) commits or is the subject of an Insolvency Event.
6.2 REMEDIES.
If a Default occurs under Subsection 6.1, any one or more of the Non-defaulting
Shareholders may:
(a) pursue any remedy available in law or in equity, each
Shareholder acknowledging that specific performance, injunctive
relief (mandatory or otherwise) or other equitable relief may be
the only adequate remedy for a Default;
(b) take all actions in their own name or in the name of the
Defaulting Shareholder, the Shareholders or the Corporation as
may reasonably be required to cure the Default, and all
payments, costs and expenses incurred by the Non-defaulting
Shareholder(s) shall be payable by the Defaulting Shareholder to
the Non-defaulting Shareholder(s) on demand with interest at the
Prime Rate plus 2% per annum;
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<PAGE>
(c) implement the buy-sell procedure set out in Subsection 6.3 by
notifying the Corporation of the Default, the name of the
Defaulting Shareholder and the Non-defaulting Shareholder's
election to implement such procedure (the "Notice of Default");
and
(d) waive the Default, provided that any waiver of a particular
Default shall only be effective if it is in writing, signed by
the Non-defaulting Shareholder, shall not operate as a waiver of
any subsequent or continuing Default, and shall not be binding
upon, or limit the remedies available to, any Non-defaulting
Shareholder who has not signed such waiver.
6.3 BUY-SELL PROCEDURE ON DEFAULT.
In the event the buy-sell procedure in this Subsection 6.3 is implemented
pursuant to paragraph 6.2(c), the Defaulting Shareholder shall be deemed to
offer to sell (the "Offer") to the Corporation and the Non-Defaulting
Shareholder(s) all, but not less than all, of its Interest on the following
terms and conditions:
(a) the Purchase Price payable shall be equal to 85% of the fair
market value of the Defaulting Shareholder's Interest determined
as of the date of the Notice of Default in accordance with
Subsection 9.2;
(b) upon receipt of the Notice of Default, the President of the
Corporation shall forthwith:
(i) transmit the Notice of Default to each director of the
Corporation;
(ii) transmit the Notice of Default to each of the
Non-defaulting Shareholder(s); and
(iii) call a meeting of the Board to consider the Offer;
(c) the Corporation shall have the first right to accept the Offer,
in whole or in part, and to the extent that it is accepted, the
Non-defaulting Shareholder(s) agree to refuse any pro rata offer
by the Corporation to purchase the Interest which is required to
be made by the Corporation under the BUSINESS CORPORATIONS ACT,
the Articles of the Corporation, the Bylaws of the Corporation
or this Agreement;
(d) if the Offer is not wholly accepted by the Corporation within 30
days after the date of the Notice of Default:
(i) the Secretary of the Corporation shall advise the
Non-defaulting Shareholder(s) of the extent to which the
Offer is still open, forthwith upon the expiration of
the aforesaid 30-day period;
(ii) that portion of the Offer not accepted by the
Corporation shall be open for acceptance within the next
30 days by the Non-defaulting Shareholder(s)
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<PAGE>
pro rata in accordance with their respective
shareholdings in the Corporation;
(iii) acceptance by the Non-defaulting Shareholder(s) of the
Offer shall be by notice to the Secretary of the
Corporation and by such acceptance a Non-defaulting
Shareholder may specify any additional portion of the
Interest offered for sale that such Non-defaulting
Shareholder is prepared to purchase in the event that
any of the other Non-defaulting Shareholder(s) fails to
accept such Offer, and if any of the other
Non-defaulting Shareholder(s) fails to accept such
Offer, such Non-defaulting Shareholder (pro rata if more
than one) shall be entitled to purchase such additional
portion of the Interest as shall be so available;
(iv) the Secretary of the Corporation shall advise each of
the directors of the Corporation of the extent to which
the Offer is still open forthwith upon the expiration of
the aforesaid 30-day period;
(e) after compliance with paragraph 6.3(d), to the extent the Offer
has not been accepted, the Corporation shall be deemed to accept
the Offer with respect to such portion of the Interest as shall
then be available; and
(f) upon the acceptance of the Offer, a binding contract of purchase
and sale for the Interest of the Defaulting Shareholder shall be
deemed to be formed between the Defaulting Shareholder and the
Corporation and/or the Non-defaulting Shareholder(s), as the
case may be, on the terms and conditions set out in the Offer
and this Agreement, which contract shall be completed in the
manner provided in Section 8.
6.4 MONIES HELD.
If and so long as a Shareholder is a Defaulting Shareholder, all monies payable
to that Defaulting Shareholder by the Corporation by way of dividends, repayment
of loans or other distributions shall be held by the Corporation until such time
as the Shareholder is no longer a Defaulting Shareholder.
SECTION 7
BUY SELL ON CHANGE OF TELECOMMUNICATIONS
ACT OWNERSHIP REQUIREMENTS
7.1 COMPULSORY BUY SELL
On the determination of 360, acting reasonably and in good faith, that the
TELECOMMUNICATIONS ACT has been amended to eliminate the requirement for the
Canadian ownership and control of telecommunications common carriers, as defined
in the TELECOMMUNICATIONS ACT, or has otherwise been amended sufficiently to
permit the transactions contemplated by this Section, then 360 shall send a
notice in writing to WFHL of such determination (the "Section 7 Notice") and, on
the occurrence of such event, WFHL shall be deemed to offer to sell to
360-Holdco all of its Interest on the following terms and conditions:
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(a) the purchase price payable shall be the fair market value of
WFHL's Interest determined as of the date of the Section 7
Notice in accordance with Subsection 9.2;
(b) upon the giving of the Section 7 Notice, a binding contract of
purchase and sale for the purchase by 360-Holdco and the sale by
WFHL of the Interests of WFHL shall be deemed to be formed
between 360-Holdco and WFHL on the terms and conditions set out
in this Agreement, which contract shall be completed in the
manner provided in Section 8.
SECTION 8
COMPLETION OF TRANSFERS
8.1 TIME AND PLACE OF CLOSING.
Except as otherwise expressly provided in this Agreement, or unless the
Purchaser and the Vendor otherwise agree in writing, each contract of purchase
and sale arising out of Sections 5, 6 or 7 shall be completed at a Closing to be
held at 11:00 a.m., Vancouver time, at the office of the Corporation in
Vancouver or at such other place as the parties to such contract may agree, on
the day (the "Closing Date") which is the later of:
(a) 60 days following the date on which such contract is formed; and
(b) 30 days following the final determination of the Purchase Price
thereunder;
or, if such day is not a Business Day, on the next Business Day.
8.2 PARTIES TO THE CONTRACT.
In this Section 8, a contract referred to in Subsection 8.1 is called a
"Contract", and the Shares or Interest to be sold and purchased pursuant to a
Contract are called the "Transfer Interest".
8.3 PAYMENT FOR TRANSFER INTEREST.
Except as otherwise expressly provided in this Agreement, or unless the
Purchaser and the Vendor otherwise agree in writing, the Purchase Price for the
Transfer Interest shall be paid in full on the Closing Date.
8.4 CLOSING DOCUMENTS AND ESCROW BY CORPORATION.
(a) In addition to any other documents required by this Agreement or
the terms of the Contract, the Vendor shall deliver to the
Corporation at the Closing, duly executed where appropriate:
(i) an instrument of transfer, share certificates
representing the shares being transferred, duly endorsed
for transfer, and such other documents as may be
necessary to assign and transfer the Transfer Interest
to the Purchaser;
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(ii) the resignation of the Vendor and any persons nominated
by the Vendor as directors or officers of the
Corporation from all offices and directorships in the
Corporation and its Subsidiaries, effective on the
Closing Date;
(iii) if the Vendor is indebted to the Corporation, a
certified cheque of the Vendor payable to the
Corporation for the amount of such indebtedness; and
(iv) all such other documents and assurances as may be
required to comply with and to fulfil the intent of this
Agreement and the terms of the Contract.
(b) In addition to any other documents and things required by this
Agreement or the terms of the Contract, the Purchaser shall
deliver to the Vendor at the Closing, duly executed where
appropriate, against delivery by the Vendor to the Purchaser of
the documents referred to in paragraph 8.4(a):
(i) the Purchase Price for the Transfer Interest payable at
the Closing in cash or by certified cheque drawn on a
Canadian chartered bank; and
(ii) all such other documents and assurances as may be
required to comply with and to fulfil the intent of this
Agreement and the terms of the Contract.
(c) All documents delivered by the Vendor to the Corporation at or
before the Closing shall be held by the Corporation until the
Purchaser has delivered all documents and paid all money
required to be delivered or paid to the Vendor by the Purchaser
at the Closing, at which time the Corporation shall deliver to
the Purchaser the documents delivered by the Vendor pursuant to
paragraph 8.4(a) and the transfer of the Transfer Interest to
the Purchaser shall be completed by the Corporation and new
certificates issued for the Shares included in the Transfer
Interest.
8.5 TIME TO BE OF THE ESSENCE.
Time shall be of the essence of each Contract and each Contract shall be binding
upon the parties thereto and upon their respective heirs, executors,
administrators, successors, legal representatives and assigns.
8.6 FAILURE TO COMPLETE.
(a) If the Vendor fails to attend the Closing or is present but
fails for any reason whatsoever to complete the sale of the
Transfer Interest when the Purchaser is ready, willing and able
to do so, the Purchaser may deposit the Purchase Price for the
Transfer Interest into a special account at any branch in
Vancouver, British Columbia of any Canadian chartered bank in
trust for the Vendor and such deposit shall constitute valid and
effective payment to the Vendor at the Closing even though the
Vendor may have voluntarily encumbered or disposed of any of
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the Transfer Interest and notwithstanding the fact that a
certificate or certificates representing any of the Transfer
Interest may have been delivered to any pledgee, transferee or
other person.
(b) If the Purchaser deposits the Purchase Price for the Transfer
Interest into a special account pursuant to paragraph 8.6(a),
then from and after the date of such deposit (even if any
certificate representing any of the Transfer Interest has not
been delivered to the Purchaser or the Corporation) the sale and
purchase of the Transfer Interest shall be deemed to have been
completed and all right, title, benefit and interest, both at
law and in equity, in and to the Transfer Interest shall be
conclusively deemed to have been transferred and assigned to and
become vested in the Purchaser and all right, title, benefit and
interest, both at law and in equity, of the Vendor, and of any
other assignee, transferee or other person having any interest,
legal or equitable, in or to the Transfer Interest, whether as a
shareholder or creditor of the Corporation or the Vendor, or
otherwise, shall cease and determine, but the Vendor shall be
entitled to receive the Purchase Price for the Transfer
Interest, without interest, upon completion of all acts and
deeds as were required of the Vendor to complete the sale of the
Transfer Interest.
(c) For the purposes of this Subsection 8.6, each Shareholder hereby
irrevocably constitutes and appoints each other Shareholder as
its true and lawful attorney in fact and agent for, in the name
of and on behalf of such first Shareholder to execute and
deliver, and to receive delivery of, all such assignments,
transfers, deeds, assurances and instruments as may be necessary
to effectively complete the sale of any Interest pursuant to
Sections 5, 6 or 7 on the records of the Corporation, and such
appointment and power of attorney shall not be revoked by the
bankruptcy, insolvency, winding-up, liquidation, dissolution,
incapacity or death of such first Shareholder and such first
Shareholder hereby ratifies and confirms and agrees to ratify
and confirm all that any other Shareholder, as attorney in fact
and agent for, in the name of and on behalf of such first
Shareholder, may lawfully do or cause to be done by virtue of
this paragraph 8.6(c).
(d) If the Purchaser defaults at the Closing in paying the Purchase
Price for the Transfer Interest, then the Vendor may, by
delivering written notice to the Purchaser and the Corporation
that the Vendor is terminating the Contract, terminate the
Contract and retake possession of the Transfer Interest as the
absolute owner thereof, in which event the rights of the
Purchaser in respect of the Transfer Interest shall revert to
the Vendor and the Vendor shall be entitled, upon delivering to
the Corporation and each Shareholder its duly executed
subscription to this Agreement to the return from the
Corporation of the documents delivered by the Vendor to the
Corporation in escrow in connection with the Contract.
(e) If either the Vendor or the Purchaser fails to complete the
Contract as required herein, the Contract is specifically
enforceable and nothing in this Agreement shall be construed to
mitigate the availability of the remedy of specific performance
in respect of the Contract in a court of law.
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8.7 WAIVER AND CONSENTS.
Each of the Shareholders hereby expressly consents to the transfer of any Shares
or Interests transferred in accordance with this Agreement, agrees to execute
promptly on demand specific waivers and consents if requested by another party,
covenants and agrees to waive any restriction on transfer contained in the
Articles of the Corporation or the Bylaws of the Corporation in order to give
effect to such transfers and agrees to vote in favour of or consent in writing
to resolutions of the members (if applicable) of the Corporation approving the
transfer of any Shares or Interests which is not prohibited by this Agreement.
In the case of any transfer of Shares in accordance with this Agreement where
the Corporation is the Purchaser of such Shares, the Shareholders other than the
Vendor in respect of such Contract hereby waive their rights to require the
Corporation to purchase their Shares, except as expressly set forth in this
Agreement and covenant to reject any pro rata offer to purchase Shares which the
Corporation may be obliged to make pursuant to the provisions of the BUSINESS
CORPORATIONS ACT.
SECTION 9
GENERAL PROVISIONS ON TRANSFER
9.1 TRANSFER OF SHARES.
The transfer of the Shares or Interest of any Shareholder pursuant to any of the
terms of this Agreement shall be subject to the general provisions set out in
this Section 9. In the event of any inconsistency between any of the provisions
of Sections 5, 6 or 7 and any of the provisions of this Section 9, the
provisions of this Section 9 shall govern.
9.2 DETERMINATION OF FAIR MARKET VALUE.
(a) Where pursuant to the provisions of Sections 6 or 7 of this
Agreement a determination of the fair market value of an
Interest is required to be made (in this Subsection 9.2 referred
to as the "Subject Interest"), a Shareholder may give written
notice to the other Shareholders requesting that the
Shareholders forthwith meet and attempt in good faith to agree
upon the fair market value of the Subject Interest. In the event
that all of the Shareholders are able to reach agreement on the
fair market value of the Subject Interest, such agreed value
shall be deemed to be the fair market value of the Subject
Interest for the purposes of this Agreement.
(b) In the event that the Shareholders are for any reason unable to
reach agreement on the fair market value of the Subject Interest
within 14 days of the delivery of the notice referred to in
paragraph 9.2(a), then the Shareholders shall forthwith meet for
the purposes of identifying and retaining a valuator (the "First
Valuator") for the purpose of determining the fair market value
of the Subject Interest. Unless otherwise unanimously agreed by
the Shareholders, the First Valuator shall be an accountant
practising with the Auditors who has at least five years'
experience in valuating businesses and is accredited as a
chartered business valuator. In the event that the Shareholders
do not agree upon a First Valuator within 30 days of the
delivery of the notice referred to in paragraph 9.2(a), then any
Shareholder
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may refer the determination of the First Valuator to arbitration
pursuant to Section 11.
(c) The First Valuator shall prepare and deliver to each of the
Shareholders a written report (the "First Valuation Report")
setting out its Valuation of the Subject Interest as soon as
possible, and in any event within 45 days after being retained.
(d) Any Shareholder may within 30 days of its receipt of the First
Valuation Report provide written notice to the other
Shareholders advising that it wishes to have a second Valuation
of the Subject Interest undertaken. If no such notice is given,
the First Valuation Report shall be final and binding on the
parties. If such notice is given the Shareholders shall
forthwith meet for the purposes of identifying and retaining a
second valuator (the "Second Valuator") for the purpose of
preparing a second Valuation of the Subject Interest. The Second
Valuator shall be an accountant practising with a national
accounting firm other than the Auditors and who has the
experience and credentials referred to in paragraph 9.2(b). In
the event that the Shareholders do not agree upon a Second
Valuator within 14 days of the delivery of the notice referred
to in this paragraph, then any Shareholder may refer the
determination of the Second Valuator to arbitration pursuant to
Section 11.
(e) The Second Valuator shall prepare and deliver to each of the
Shareholders a written report (the "Second Valuation Report")
setting out its Valuation of the Subject Interest as soon as
possible, and in any event within 45 days after being retained.
Where a Second Valuation Report has been prepared, the fair
market value of the Subject Interest for the purposes of
Sections 6 and 7 of this Agreement shall be equal to the average
of the fair market values of the Subject Interest as set out in
the First Valuation Report and the Second Valuation Report.
(f) The Corporation and each of the Shareholders shall make
available to the First Valuator and the Second Valuator all
books, records and other data and information in their
possession or control as the First Valuator or Second Valuator
may reasonably require for the purposes of its valuation.
(g) In determining the fair market value of the Subject Interest
under this Subsection 9.2, the First Valuator and the Second
Valuator may apply such principles of valuation as each
considers appropriate in the circumstances provided that:
(i) there shall be no premium for a control position or
discount for a minority position;
(ii) the fair market value of any Shareholder Loans shall not
be discounted by reason only of the fact that such Loans
are not demand loans and may not bear interest; and
(iii) the Corporation shall be valued on a going concern
basis.
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(h) The Corporation shall pay all fees and expenses charged by the
First Valuator for preparing the First Valuation Report. The
Shareholder(s) who request the Second Valuation shall pay all
fees and expenses charged by the Second Valuator for preparing
the Second Valuation Report.
(i) The First Valuator and the Second Valuator shall be entitled to
retain such qualified independent appraisers as each may deem
appropriate to assist with its valuation.
9.3 PAYMENT OF LIENS ON SHARES.
Notwithstanding anything in this Agreement to the contrary, if by reason of any
lien, charge or encumbrance on the Interest of the Vendor, the Vendor is unable
to make delivery of the Vendor's Interest free and clear of all charges, liens
or encumbrances to the Purchaser within the time limited therefor, the Purchaser
shall be at liberty to make payment to the holder of the lien or charge or the
governmental authority imposing the duty, tax, levy or lien, which payment shall
be deemed to be payment to the Vendor and shall be applied in reduction of the
unpaid balance of the Purchase Price and interest accrued thereon.
SECTION 10
TERMINATION OF AGREEMENT
10.1 METHOD OF TERMINATION.
This Agreement shall cease and determine on the execution of an agreement of
termination of this Agreement in writing by all of the Shareholders.
SECTION 11
ARBITRATION
11.1 ARBITRATION.
Except for any determination of the value of an Interest made in accordance with
Subsection 9.2, which determination shall be final and binding on the parties,
all disputes arising out of or in connection with this contract, or in respect
of any defined legal relationship associated therewith or derived therefrom,
shall be referred to and finally resolved by arbitration under the Rules of the
British Columbia International Commercial Arbitration Centre. The appointing
authorities shall be the British Columbia International Commercial Arbitration
Centre. The case shall be administered by the British Columbia International
Commercial Arbitration Centre in accordance with its "Procedures for Cases Under
the BCICAC Rules". There shall be a single arbitrator (the "Arbitrator"). The
place of arbitration shall be Vancouver, British Columbia, Canada.
11.2 FINAL AND BINDING.
The decision of the Arbitrator on all issues or matters submitted to the
Arbitrator for resolution shall be conclusive, final and binding on all of the
parties.
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11.3 COSTS.
The Arbitrator shall determine who shall bear the costs of arbitration pursuant
to this Section 11.
SECTION 12
GENERAL
12.1 LEGEND ON SHARE CERTIFICATES.
All share certificates issued by the Corporation (including existing
certificates) shall have typed or otherwise written thereon the following
legend:
"The shares represented by this certificate are subject to the
provisions of a Unanimous Shareholders Agreement dated as of April ___,
2000 among 360networks inc., 360 Urbanlink Ltd., Worldwide Fiber
Holdings Ltd., the Corporation and WFI Urbanlink Ltd., which agreement
contains restrictions on the right of the holder hereof to sell,
exchange, transfer, assign, gift, pledge, encumber, hypothecate or
otherwise alienate the shares represented hereby and notice of those
restrictions is hereby given."
12.2 GOVERNING LAW AND ATTORNMENT
This Agreement will be governed by and construed in accordance with the
substantive laws of Alberta and the federal laws of Canada applicable in
Alberta, without regard to the conflict of law rules of Alberta. The parties
irrevocably submit to and accept generally and unconditionally the exclusive
jurisdiction of the courts and appellate courts of Alberta with respect to any
legal action or proceeding which may be brought at any time relating in any way
to this Agreement. Each of the parties irrevocably waives any objection it may
now or in the future have to the venue of any such action or proceeding, and any
claim it may now or in the future have that any such action or proceeding has
been brought in an inconvenient forum.
12.3 TIME OF THE ESSENCE OF THE AGREEMENT
Unless otherwise specifically provided in this Agreement, time will be of the
essence of this Agreement and of the transactions contemplated by this
Agreement.
12.4 REMEDIES NOT EXCLUSIVE
The remedies provided to the parties under this Agreement are cumulative and not
exclusive to each other, and any such remedy will not be deemed or construed to
affect any right which any of the parties is entitled to seek at law, in equity
or by statute.
12.5 NOTICES
Any notice, direction, request or other communication required or contemplated
by any provision of this Agreement will be given in writing and will be given by
delivering or faxing or emailing the same to the parties as follows:
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(a) To 360 or 360-Holdco at:
Suite 1510, 1066 West Hastings Street
Vancouver, B.C. V6E 3X1
Attention: Catherine McEachern
Fax No.: (604) 681-0994
Email: [email protected]
(b) To WFHL, the Corporation or Urbanlink at:
Suite 1000, 1066 West Hastings Street
Vancouver, B.C. V6E 3X1
Attention: Bill Ramsey
Fax No.: (604) 681-5372
Email: [email protected]
Any such notice, direction, request or other communication will be deemed to
have been given or made on the date on which it was delivered or, in the case of
fax or email, on the next business day after receipt of transmission. Any party
may change its fax number or address for service or email address from time to
time by written notice in accordance with this Section.
12.6 COUNTERPARTS
This Agreement may be executed in any number of counterparts with the same
effect as if all parties had signed the same document. All of these counterparts
will for all purposes constitute one agreement, binding on the parties,
notwithstanding that all parties are not signatories to the same counterpart. A
fax transcribed copy or photocopy of this Agreement executed by a party in
counterpart or otherwise will constitute a properly executed, delivered and
binding agreement or counterpart of the executing party.
12.7 WAIVER
No failure or delay on the part of any party in exercising any power or right
under this Agreement will operate as a waiver of such power or right. No single
or partial exercise of any right or power under this Agreement will preclude any
further or other exercise of such right or power. No modification or waiver of
any provision of this Agreement and no consent to any departure by any party
from any provision of this Agreement will be effective until the same is in
writing. Any such waiver or consent will be effective only in the specific
instance and for the specific purpose for which it was given. No notice to or
demand on any party in any circumstances will entitle such party to any other or
further notice or demand in similar or other circumstances.
12.8 SHAREHOLDERS TO TAKE FURTHER STEPS
Each Shareholder shall take all necessary actions (including amending the
articles of the Corporation) and shall exercise that Shareholder's rights as a
Shareholder of the Corporation to
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cause the Corporation to pass all necessary resolutions and effect all necessary
corporate acts to comply with the intent and provisions of this Agreement,
including the convening and attending at meetings, voting approval of necessary
resolutions, or otherwise as may be necessary for the purpose of this Agreement.
12.9 CORPORATION TO BE BOUND
The Corporation, so far as its powers apply, shall be bound by the terms of this
Agreement and shall do and perform all such acts and things and execute all such
documents and assurances as it has power to do and as is necessary to fully and
effectually carry out the terms of this Agreement.
12.10 ENTIRE AGREEMENT
This Agreement and any documents and agreements to be delivered pursuant to this
Agreement supersede all previous invitations, proposals, letters,
correspondence, negotiations, promises, agreements, covenants, conditions,
representations and warranties with respect to the subject matter of this
Agreement. There is no representation, warranty, collateral term or condition or
collateral agreement affecting this Agreement, other than as expressed in
writing in this Agreement. No trade terms or trade usages are to be incorporated
by reference implicitly or otherwise into this Agreement, unless expressly
referred to in this Agreement.
12.11 AMENDMENTS
No change or modification of this Agreement will be valid unless it is in
writing and signed by each party to
this Agreement.
12.12 INVALIDITY OF PARTICULAR PROVISION
If any provision of this Agreement or any part of any provision (in this Section
called the "Offending Provision") is declared or becomes unenforceable, invalid
or illegal for any reason whatsoever including, without limiting the generality
of the foregoing, a decision by any competent courts, legislation, statutes,
bylaws or regulations or any other requirements having the force of law, then
the remainder of this Agreement will remain in full force and effect as if this
Agreement had been executed without the Offending Provision.
12.13 CURRENCY
Unless otherwise specified all sums of money expressed in this Agreement are in
the lawful money of Canada.
12.14 NUMBER AND GENDER
Unless the context of this Agreement otherwise requires, to the extent necessary
so that each clause will be given the most reasonable interpretation, the
singular number will include the plural and vice versa, the verb will be
construed as agreeing with the word so substituted, words importing the
masculine gender will include the feminine and neuter genders, words importing
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persons will include firms and corporations and words importing firms and
corporations will include individuals.
12.15 ACKNOWLEDGEMENT OF RECEIPT
Each of the parties acknowledges receiving an executed copy of this Agreement.
12.16 ENUREMENT
Subject to the restrictions on transfer contained in this Agreement, this
Agreement will enure to the benefit of and be binding on the parties and their
respective heirs, executors, administrators, successors and assigns.
[THE NEXT PAGE IS THE EXECUTION PAGE.]
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IN WITNESS WHEREOF the parties have executed this Agreement as of the date
stated on the first page.
360NETWORKS INC. 360 URBANLINK LTD.
Per: Per:
- ----------------------------------- -----------------------------------
Signature Signature
Name Name
------------------------------- -------------------------------
Title Title
------------------------------ ------------------------------
WORLDWIDE FIBER HOLDINGS WFI URBANLINK LTD.
LTD.
Per: Per:
- ----------------------------------- -----------------------------------
Signature Signature
Name Name
------------------------------- -------------------------------
Title Title
------------------------------ ------------------------------
URBANLINK HOLDINGS LTD.
Per:
- -----------------------------------
Signature
Name
-------------------------------
Title
------------------------------
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SCHEDULE A
DEFINITIONS
The following words shall whenever used in this Agreement have the following
meanings:
"AFFILIATE" has the meaning given to that term in the BUSINESS CORPORATIONS ACT
in effect on the date hereof;
"ARBITRATOR" has the meaning given to that term in Subsection 11.1;
"AUDITORS" means:
(a) if the Corporation has appointed an auditor, the auditor of the
Corporation most recently appointed; or
(b) if the Corporation has not so appointed an auditor, the firm of
chartered accountants most recently engaged by the Corporation
to advise upon, or assist in the preparation of, review, or
report on, its financial statements.
"BANK" means The Toronto-Dominion Bank or such other bank or financial
institution as the Board may from time to time determine;
"BOARD" means, with respect to any corporation, the board of directors of such
Corporation;
"BUSINESS CORPORATIONS ACT" means the BUSINESS CORPORATIONS ACT (Alberta), as
amended;
"BUSINESS DAY" means any day except Saturdays, Sundays or statutory holidays in
British Columbia;
"CLOSING" means any closing of the purchase and sale of an Interest of a
Shareholder as provided in this Agreement;
"CLOSING DATE" has the meaning given to that term in Subsection 8.1;
"CONTRACT" has the meaning given to that term in Subsection 8.2;
"DEFAULT" has the meaning given to that term in Subsection 6.1;
"DEFAULTING SHAREHOLDER" has the meaning given to that term in Subsection 6.1;
"FIRST VALUATION REPORT" has the meaning given to that term in paragraph 9.2(c);
"FIRST VALUATOR" has the meaning given to that term in paragraph 9.2(b);
"HIGH YIELD DEBT INDENTURES" means (i) the Indenture dated as of December 23,
1998 between 360 (then called Worldwide Fiber Inc.) and HSBC Bank USA (then
called Marine Midland Bank), as amended from time to time, (ii) the Indenture
dated as of July 28, 1999 between 360 (then called Worldwide Fiber Inc.) and
HSBC Bank USA, as amended from time to time, (iii)
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any similar Indentures that may be entered into by 360 from time to time, as
amended from time to time, and (iv) any other credit arrangements entered into
by 360, as amended from time to time.
"INSOLVENCY EVENT" means the winding-up or liquidation of a corporation, the
institution of proceedings to be adjudicated a bankrupt or insolvent under the
BANKRUPTCY AND INSOLVENCY ACT (Canada) or any analogous laws, the consenting to
the institution of such proceedings, the consenting to the filing of any
petition under the BANKRUPTCY AND INSOLVENCY ACT (Canada) or to the appointment
of a receiver or receiver manager, the making of a general assignment for the
benefit of creditors, the filing of a proposal to settle payment of creditors'
liabilities under the COMPANIES' CREDITORS ARRANGEMENT ACT, the admission in
writing of insolvency, the taking of any action in furtherance of any of the
above, the passing of a resolution by a corporation for its winding-up or
dissolution pursuant to the BUSINESS CORPORATIONS ACT;
"INTEREST" means, in respect of each Shareholder, all of that Shareholder's
Shares and Shareholder's Loans and any other right or claim that the Shareholder
may have against the Corporation and the other Shareholders in that
Shareholder's capacity as a member of the Corporation;
"NON-DEFAULTING SHAREHOLDER" has the meaning given to that term in paragraph
6.1(a);
"NOTICE OF DEFAULT" has the meaning given to that term in paragraph 6.2(c);
"OFFER" has the meaning given to that term in Subsection 6.3;
"OFFERED SHARES" has the meaning given to that term in paragraph 5.2(a);
"OFFEROR" has the meaning given to that term in paragraph 5.2(a);
"PRIME RATE" means the annual rate of interest designated from time to time by
the Bank as its prime rate for Canadian dollar loans made in Canada;
"PURCHASE PRICE" means, with respect to any sale and purchase of an Interest of
a Shareholder, the amount payable to purchase such Interest as determined in
accordance with the provisions of this Agreement applicable to that sale and
purchase;
"PURCHASER" means a Shareholder who is the purchaser of Shares or of an Interest
pursuant to any of the provisions of this Agreement;
"RESELLER AGREEMENT" means the Reseller Agreement dated as of the date of this
Agreement and made between 360, Worldwide Fiber Network Services Ltd. and
Urbanlink, as amended from time to time;
"SECOND VALUATION REPORT" has the meaning given to that term in paragraph
9.2(e);
"SECOND VALUATOR" has the meaning given to that term in paragraph 9.2(d);
"SECTION 7 NOTICE" has the meaning given to that term in Subsection 7.1;
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"SHAREHOLDER" means at any time a person that is (x) a party to this Agreement
that is bound by this Agreement at the time and holds one or more Shares at the
time or (y) a person that becomes bound by this Agreement at any time and is
bound by this Agreement at the time and holds one or more Shares at the time,
and "SHAREHOLDERS" means all of them;
"SHAREHOLDER'S OR SHAREHOLDERS' LOANS" means, in respect of each Shareholder,
the aggregate amount of money advanced from time to time as a loan by that
Shareholder to the Corporation and not repaid, together with accrued and unpaid
interest, if any;
"SHARES" means, in respect of each Shareholder, all of the shares in the capital
of the Corporation directly or indirectly owned by that Shareholder or in
respect of which that Shareholder has any right to purchase (except under this
Agreement);
"SUBSIDIARY" has the meaning given to that term in the BUSINESS CORPORATIONS ACT
in effect on the date hereof;
"TELECOMMUNICATIONS ACT " means the TELECOMMUNICATIONS ACT (Canada) and the
Regulations issued pursuant to such Act (including, without limiting the
generality of the foregoing, the Regulations Respecting the Ownership and
Control of Canadian Telecommunications Common Carriers) as amended from time to
time;
"THIRD PARTY OFFER" has the meaning given to that term in paragraph 5.2(a);
"TRANSFER" of an Interest includes any sale, exchange, transfer, assignment,
gift, pledge, encumbrance, hypothecation, alienation or other transaction,
whether voluntary, involuntary or by operation of law, whether in whole or in
part, by which the legal or beneficial ownership of, or any security interest or
other interest in an Interest, passes from one person to another, or to the same
person in a different capacity, whether or not for value, and "to transfer",
"transferred" and similar expressions have corresponding meanings;
"TRANSFER INTEREST" has the meaning given to that term in Subsection 8.2;
"TRANSFER NOTICE" has the meaning given to that term in paragraph 5.2(a);
"VALUATION" means a valuation prepared pursuant to Subsection 9.2 and which
expresses the value per Share and per dollar amount of any Shareholder's Loan;
and
"VENDOR" means a Shareholder who is the seller of an Interest or Interests
pursuant to any of the provisions of this Agreement.
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SCHEDULE B
MATTERS REQUIRING UNANIMOUS CONSENT OF DIRECTORS
Pursuant to Subsection 3.5 of the Agreement, the following matters shall require
the written consent of the 360 nominee to the Board of the Corporation:
(a) except for any expenditures contemplated by an approved capital
expenditure or operating budget, any single expenditure of the
Corporation and its Subsidiaries, in excess of $20 million per
year, or any series of related expenditures which exceed, in the
aggregate, the sum of $20 million per year, other than
expenditures that the Corporation and its Subsidiaries can
recover under the Reseller Agreement;
(b) the entering into, execution, acknowledgement, amendment,
supplement, cancellation or termination of any Material Contract
on behalf of the Corporation or any Subsidiary of the
Corporation and, for this purpose, "Material Contract" means any
of the following:
(i) any contract, agreement or other instrument to be
entered into by the Corporation or any Subsidiary of the
Corporation with any Shareholder or an Affiliate of a
Shareholder; and
(ii) any contract, agreement or other instrument to be
entered into by the Corporation or any Subsidiary of the
Corporation which may in the aggregate over the term of
the contract, agreement or instrument involve an
obligation of the Corporation or any Subsidiary of the
Corporation, to pay in excess of $20 million other than
expenditures that the Corporation and its Subsidiaries
can recover under the Reseller Agreement.
(c) the guarantee by the Corporation or any Subsidiary of the
Corporation of the debts of any person other than the
Corporation, or a wholly-owned Subsidiary of the Corporation;
(d) any loans by the Corporation or any Subsidiary of the
Corporation to any person other than the Corporation or a
wholly-owned Subsidiary of the Corporation;
(e) the sale of any shares of any Subsidiary of the Corporation;
(f) the sale, lease, transfer, mortgage, pledge or other disposition
of all or substantially all of the undertaking of the
Corporation or any Subsidiary of the Corporation;
(g) any amendment to the Articles or other constating documents of
the Corporation or any Subsidiary of the Corporation;
(h) the consolidation, merger or amalgamation of the Corporation or
any Subsidiary of the Corporation with any other corporation,
association, partnership or other legal entity;
(i) the creation, allotment or issuance of, or agreement to create,
allot or issue, any shares or other securities of the
Corporation or any Subsidiary of the Corporation, or the
granting
-26-
<PAGE>
of any option or right capable of becoming an option to purchase
any shares or other securities of the Corporation or any
Subsidiary of the Corporation;
(j) the winding-up or liquidation of the Corporation or any
Subsidiary of the Corporation, the institution of proceedings to
be adjudicated a bankrupt or insolvent under the BANKRUPTCY AND
INSOLVENCY ACT (Canada), the consenting to the institution of
such proceedings against the Corporation or any Subsidiary of
the Corporation, the consenting to the institution of bankruptcy
or insolvency proceedings against the Corporation or any
Subsidiary of the Corporation under the BANKRUPTCY AND
INSOLVENCY ACT (Canada) or any other analogous laws, the
consenting to the filing of any such petition or to the
appointment of a receiver or receiver manager of the property of
the Corporation or any Subsidiary of the Corporation, the making
of a general assignment for the benefit of creditors, the filing
of a proposal to settle payments of creditors' liabilities under
the COMPANIES' CREDITORS ARRANGEMENT ACT, the admission in
writing of the insolvency of the Corporation or any Subsidiary
of the Corporation, or the taking of any corporate action in
furtherance of any of the aforesaid purposes;
(k) the redemption, repurchase or retirement for value of any shares
or other securities of the Corporation, except under the
provisions of this Agreement.
-27-
<PAGE>
SCHEDULE C
CAPITAL CONTRIBUTIONS
The registered and beneficial holders of all the issued and outstanding shares
in the capital of the Corporation are as follows:
--------------------------------------------------------------
SHAREHOLDER NUMBER AND CLASS OF SHARES
--------------------------------------------------------------
360-Holdco 333 Class "A" Common Voting
Non-Participating Shares
510,000 Class "B" Common
Non-Voting Participating Shares
--------------------------------------------------------------
WFHL 667 Class "A" Common Voting
Non-Participating Shares
490,000 Class "C" Common
Non-Voting Participating Shares
--------------------------------------------------------------
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<PAGE>
Exhibit 23.1
[LETTERHEAD]
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Prospectus constituting part of this
Registration Statement on Form F-1 of our report dated February 25, 2000, except
as to the subsequent events described in note 15 which are as of March 18, 2000
relating to the consolidated financial statements of 360networks 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-1 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
March 21, 2000
<PAGE>
EXHIBIT 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in this Amendment No. 1 to Registration
Statement No. 333-95621 of our report dated November 30, 1998, related to the
divisional balance sheet of Ledcor Industries Limited--Telecommunications
Division as at May 31, 1998 and the divisional statements of operations and
retained earnings and cash flows for the nine months ended May 31, 1998 and the
year ended August 31, 1997, which is part of this Registration Statement.
We also consent to the references to us under the headings "Experts" and
"Selected Financial Data" in such Prospectus.
/s/ DELOITTE & TOUCHE LLP
Edmonton, Canada
April 18, 2000
<PAGE>
Exhibit 23.3
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Prospectus constituting part of this
Registration Statement on Form F-1 of our report dated February 16, 2000
relating to the consolidated financial statements of GlobeNet Communications
Group Limited, which appear in such Prospectus.
We also consent to the references to us under the heading "Experts" in such
Prospectus.
/s/ PricewaterhouseCoopers LLP
Toronto, Canada
March 21, 2000
<PAGE>
EXHIBIT 23.4
CONSENT OF PERSON ABOUT TO BECOME DIRECTOR
Pursuant to Rule 438 of the Securities Act of 1933 (the "Securities Act"), I
hereby consent to being named in the Form F-1 registration statement (or any
registration statement for this offering that is to be effective upon the filing
pursuant to rule 462(b) under the Securities Act) of 360NETWORKS INC. (the
"Company"), relating to an initial public offering of stock by the Company (the
"Registration Statement"), as a person who is about to become a director of the
Company. In addition, I consent to the inclusion of other information about me
included in the Registration Statement. I further consent to the filing of this
consent as an exhibit to the Registration Statement.
<TABLE>
<S> <C>
Date: April 11, 2000 /s/ KEVIN COMPTON
--------------------------------------------
Kevin Compton
</TABLE>
<PAGE>
EXHIBIT 23.5
CONSENT OF PERSON ABOUT TO BECOME DIRECTOR
Pursuant to Rule 438 of the Securities Act of 1933 (the "Securities Act"), I
hereby consent to being named in the Form F-1 registration statement (or any
registration statement for this offering that is to be effective upon the filing
pursuant to rule 462(b) under the Securities Act) of 360NETWORKS INC. (the
"Company"), relating to an initial public offering of stock by the Company (the
"Registration Statement"), as a person who is about to become a director of the
Company. In addition, I consent to the inclusion of other information about me
included in the Registration Statement. I further consent to the filing of this
consent as an exhibit to the Registration Statement.
<TABLE>
<S> <C>
Date: April 17, 2000 /s/ JOHN MALONE
--------------------------------------------
John Malone
</TABLE>
<PAGE>
EXHIBIT 23.6
CONSENT OF PERSON ABOUT TO BECOME DIRECTOR
Pursuant to Rule 438 of the Securities Act of 1933 (the "Securities Act"), I
hereby consent to being named in the Form F-1 registration statement (or any
registration statement for this offering that is to be effective upon the filing
pursuant to rule 462(b) under the Securities Act) of 360NETWORKS INC. (the
"Company"), relating to an initial public offering of stock by the Company (the
"Registration Statement"), as a person who is about to become a director of the
Company. In addition, I consent to the inclusion of other information about me
included in the Registration Statement. I further consent to the filing of this
consent as an exhibit to the Registration Statement.
<TABLE>
<S> <C>
Date: April 17, 2000 /s/ JOHN STANTON
--------------------------------------------
John Stanton
</TABLE>
<PAGE>
CONSENT OF FARRIS, VAUGHAN, WILLS & MURPHY
EXHIBIT 23.7
360NETWORKS INC.
1500 - 1066 West Hastings Street
Vancouver, B.C.
V6E 3X1
Dear Sirs/Mesdames:
re: 360NETWORKS INC.
Form F-1 Registration Statement
Consent is hereby given to the use of our name under the captions "Legal
Matters" and "Enforceability of Civil Liabilities Against Foreign Persons" in
the Prospectus included in the Registration Statement on Form F-1 (the
"Registration Statement") filed with the Securities and Exchange Commission, 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 requried under Section 7 of the United States Securities Act of
1933.
Yours truly,
/s/ Farris, Vaughan, Wills & Murphy
FARRIS, VAUGHAN, WILLS & MURPHY
