<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 22, 2000
REGISTRATION NO. 333-95621
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------------
AMENDMENT NO. 1
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>
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................................... $952,200,000 $251,381
</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) $227,700 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>
THE INFORMATION IN THIS PRELIMINARY PROSPECTUS IS NOT COMPLETE AND MAY BE
CHANGED. THESE SECURITIES MAY NOT BE SOLD UNTIL THE REGISTRATION STATEMENT FILED
WITH THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PRELIMINARY
PROSPECTUS IS NOT AN OFFER TO SELL NOR DOES IT SEEK AN OFFER TO BUY THESE
SECURITIES IN ANY JURISDICTION WHERE THE OFFER OR SALE IS NOT PERMITTED.
<PAGE>
SUBJECT TO COMPLETION. DATED MARCH 22, 2000.
46,000,000
[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 1,375,000 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 $16.00 and $18.00 per share. Application has been made to
approve the Subordinate Voting Shares for quotation on the Nasdaq National
Market under the symbol "TSIX" and for listing on The Toronto Stock Exchange
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 46,000,000 Subordinate
Voting Shares, the underwriters have the option to purchase up to an additional
6,900,000 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
in 13 cities in North America and Europe comprising approximately 3.9 million
square feet.
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.
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 we will be
able to provide additional network services such as Internet data centers,
applications hosting, electronic commerce support and web hosting. We 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 6 major population centers in Brazil,
Venezuela, Bermuda and Argentina 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.
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 in two North American cities, site rights in seven
other North American cities and colocation facilities in four European
cities, one of which is operational and three of which are under
construction. The aggregate purchase price for these acquisitions is
$439 million, payable in a combination of cash and Subordinate Voting
Shares, of which $113 million is contingent upon the achievement of
milestones.
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
3
<PAGE>
Edmonton and Toronto and either purchase dark fiber or acquire
indefeasible rights of use on other network segments for $153 million.
- 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 agreed to grant to
affiliates of PSINet an indefeasible right of use for bandwidth capacity
between Vancouver and Chicago, which we will deliver by the end of March
2000.
MANAGEMENT, BOARD OF DIRECTORS AND TECHNOLOGY ADVISORY BOARD
- 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 TECHNOLOGY ADVISORY BOARD. We recently formed a Technology
Advisory Board 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 board:
- Michael Dell, Chairman and Chief Executive Officer of Dell Computer
Corporation;
- Terence Matthews, Chairman and Chief Executive Officer of Newbridge
Networks 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
Since September 1999 investors have purchased or agreed to purchase
approximately $1 billion of our equity in private transactions from Ledcor and
us. Approximately $593 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;
- Liberty Media Corporation; and
- Shaw Communications Inc.,
4
<PAGE>
each of which has agreed to invest approximately $120 million. Other purchasers
include affiliates of Oak Investment Partners, Denis O'Brien, Jr., Kleiner
Perkins Caufield & Byers and Dr. Nathan Myhrvold.
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
$74.3 million of shares.
A prior private investment, aggregating $345 million, was made in September
1999 by affiliates of:
- Donaldson Lufkin & Jenrette Securities Corporation;
- Goldman, Sachs & Co.;
- Providence Equity Partners Inc.; and
- Tyco International Ltd.
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................. 1,375,000
Shares to be outstanding following the
offering (a):
Subordinate Voting Shares.................. 712,150,465
Multiple Voting Shares..................... 81,840,000
Total...................................... 793,990,465
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 $1 billion, such notes
to be denominated in both dollars and euros.
The closing of this offering is not
conditioned on the closing of the debt
offerings, and the closing of the debt
offerings is not conditioned on the closing
of 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) 6,900,000 Subordinate Voting Shares that will be sold
by us if the underwriters' overallotment option is exercised in full and
(ii) 46,615,480 Subordinate Voting Shares reserved for issuance pursuant to
our stock option plan.
* * *
Except where otherwise indicated, this prospectus gives effect to: our
planned continuance as a corporation under the laws of Nova Scotia, Canada, a 2
for 1 stock split of our shares and the Canadian telecommunications arrangement
described under "Relationships and Related Party Transactions--Transactions with
Ledcor," each of which we expect to complete before the consummation of this
offering, and a price of $17 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 $1 billion of senior notes to be issued 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 $718 million;
- our acquisition of all outstanding stock of GlobeNet;
- the issuance of $1 billion of senior notes 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
$100 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, amortization of goodwill and income
attributable to minority interest. EBITDA is presented because
7
<PAGE>
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 $171 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
------------ ------------- -------------
<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 41,920
Stock-based compensation............................. -- 7,116 11,323
Depreciation......................................... 464 2,998 4,852
Amortization of goodwill............................. -- -- 39,235
----------- ------------ ------------
Total operating expenses............................... 150,359 282,572 358,931
----------- ------------ ------------
Operating income....................................... 13,960 77,174 27,163
Interest expense, net.................................. 225 15,786 181,824
----------- ------------ ------------
Income (loss) before income taxes, minority interest
and equity accounted for investment.................. 13,735 61,388 (154,661)
Provision for income taxes............................. 5,643 30,314 (40,615)
----------- ------------ ------------
8,092 31,074 (114,046)
Income attributable to minority interest and equity
accounted for investment............................. 928 (7,434) (773)
----------- ------------ ------------
Net income (loss)...................................... $ 9,020 $ 23,640 $ (114,819)
=========== ============ ============
Basic and fully diluted earnings (loss) per share...... $ 0.43 $ (0.03)(1) $ (0.20)
Shares used to calculate basic and fully diluted
earnings (loss) per share:........................... 20,964,178 327,313,808 600,573,831
OTHER FINANCIAL DATA:
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
---------- ------------
<S> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents................................... $ 521,362 $2,213,056
Property and equipment--net................................. 77,009 119,713
Assets under construction................................... 300,403 398,465
Total assets................................................ 1,310,989 4,690,141
Total debt.................................................. 675,000 2,175,000
Redeemable convertible preferred shares..................... 349,827 --
Shareholders' equity........................................ 29,861 2,303,965
</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:
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;
- 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;
- unforeseen engineering, environmental or geological problems; and
11
<PAGE>
- 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
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
12
<PAGE>
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 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
13
<PAGE>
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
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<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)
-------- ------------ ---------------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C>
Total indebtedness................................... $675 $675 $2,175
Shareholders' equity................................. $ 30 $380 $2,304
Debt to equity ratio................................. 22.5x 1.8x 0.9x
</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 $718 million;
- our acquisition of all outstanding stock of GlobeNet;
- the issuance of $1 billion of senior notes 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
$100 million has been drawn.
The initial annual interest expense on the $1 billion of senior notes to be
issued in concurrent debt offerings is $124 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 $171 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;
- conditions in the telecommunications industry;
19
<PAGE>
- 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 are funding a portion of our anticipated investment in 360ATLANTIC from
our recently completed private sale of our equity securities. We also expect the
indebtedness to finance that project to be incurred by our subsidiary without
recourse to 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 with our covenants, a default under our debt
agreements would result. To avoid a default, we might need waivers from third
parties, which might not be granted.
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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, are estimated to be approximately $1.7 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 an application will be 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
712,000,000 Subordinate Voting Shares outstanding, or approximately 719,000,000
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 articles of incorporation include 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) to elect the members of our board of
directors 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."
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USE OF PROCEEDS
The estimated net proceeds from the sale of our Subordinate Voting Shares
are expected to be $718 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 $974 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.
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 712,150,465 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 March 17, 2000, the noon buying rate in New York City
for cable transfers in Canadian dollars was U.S.$1.00 = Cdn.$1.4725.
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 $1,251,494,000 or $1.58 per share. This represents an immediate
increase in consolidated net tangible book value of approximately $1.05 per
share to the existing shareholders and an immediate dilution of $15.42 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............ $17.00
Consolidated net tangible book value per share before the
equity offering.......................................... $ 0.53
Consolidated increase per share attributable to new
investors................................................ $ 1.05
Adjusted consolidated net tangible book value per share
after the equity offering and other material
transactions............................................. $ 1.58
------
Consolidated net tangible book value dilution per share to
new investors............................................ $15.42
======
</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 $718 million;
- our acquisition of all outstanding stock of GlobeNet;
- the issuance of $1 billion of senior notes 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
$100 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
ACTUAL AS ADJUSTED
---------- ------------
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<S> <C> <C>
Cash and cash equivalents................................... $ 521,362 $2,213,056
========== ==========
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............................... -- 100,000
GlobeNet 360AMERICAS secured credit facility.............. -- 100,000
GlobeNet 13% senior notes due 2007........................ -- 300,000
New notes................................................. -- 1,000,000
---------- ----------
Total debt................................................ 675,000 2,175,000
---------- ----------
Redeemable convertible preferred shares..................... $ 349,827 $ --
Shareholders' equity
Subordinate Voting Shares(1).............................. -- 2,520,995
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) (201,765)
Deficit................................................... (40,875) (60,497)
---------- ----------
29,861 2,303,965
---------- ----------
Total capitalization........................................ $1,054,688 $4,478,965
========== ==========
</TABLE>
- ------------------------
(1) Does not give effect to 50,448,100 Subordinate Voting Shares reserved for
issuance upon exercise of options under our stock option plan.
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 $1 billion of senior notes to be issued 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 $718 million;
- our acquisition of all outstanding stock of GlobeNet for approximately
$735 million of our Subordinate Voting Shares;
- the issuance of $1 billion of senior notes 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
$100 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,
34
<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 $171 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
-------------- -------------- --------------
<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 41,920
Stock-based compensation.................................. -- 7,116 11,323
Depreciation.............................................. 464 2,998 4,852
Amortization of goodwill.................................. -- -- 39,235
----------- ------------ ------------
Total operating expenses.................................... 150,359 282,572 358,931
----------- ------------ ------------
Operating income............................................ 13,960 77,174 27,163
Interest expense, net....................................... 225 15,786 181,824
----------- ------------ ------------
Income (loss) before income taxes, minority interest and
equity accounted for investment........................... 13,735 61,388 (154,661)
Provision for income taxes.................................. 5,643 30,314 (40,615)
----------- ------------ ------------
8,092 31,074 (114,046)
Income attributable to minority interest and equity
accounted for investment.................................. 928 (7,434) (773)
----------- ------------ ------------
Net income (loss)........................................... $ 9,020 $ 23,640 $ (114,819)
=========== ============ ============
Basic and fully diluted earnings (loss) per share........... $ 0.43 $ (0.03)(1) $ (0.20)
Shares used to calculate basic and fully diluted earnings
(loss) per share.......................................... 20,964,178 327,313,808 600,573,831
OTHER FINANCIAL DATA:
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
------------------- ---------- ------------
<S> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents................................... $156,366 $ 521,362 $2,213,056
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 4,690,141
Total debt.................................................. 175,000 675,000 2,175,000
Redeemable convertible preferred shares..................... -- 349,827 --
Shareholders' equity........................................ 18,261 29,861 2,303,965
</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:
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 entered into a
series of agreements to transfer to Urbanlink 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 Holdings Inc. ("IC Holdings") in a
cash and share exchange transaction, as a result of which CN will acquire
approximately 9,411,765 Subordinate Voting Shares. In addition, we have acquired
the remaining 25% minority interest in Worldwide Fiber (USA) Inc. ("360-USA")
from Mi-Tech Communications, LLC ("Michels") in exchange for approximately
18,352,941 Subordinate Voting Shares.
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
39
<PAGE>
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 Holdings.
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-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
40
<PAGE>
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. 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 total cost to complete and light our network of
10,600 route miles in Europe will be $360 million.
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- 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 that 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 that 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 $100 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 and Europe
that we have agreed, subject to execution of definitive agreements, to
acquire, we plan to issue equity and use up to $250 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 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.
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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 $1.0 billion 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.
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 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
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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>
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 in 13 cities in North America and Europe comprising approximately
3.9 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, 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 Argentina 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.
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 needs. We
believe that these customers have a limited choice of independent service
providers
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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 we will be
able to provide additional network services such as Internet data centers,
applications hosting, electronic commerce support and web hosting. We 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.
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 Telewest in the United Kingdom.
Further, we intend to continue to explore strategic opportunities
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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, 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 Technology Advisory Board, 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, is an example 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, 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 780 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 Argentina 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
$74.3 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: 3,616 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: 4,330 408 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 and
AT&T Canada
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 and Qwest
CENTRAL BUILD: Enron
MID-AMERICA BUILD: Pathnet, Telia and Enron
CITY RINGS: GST, Level 3, Metromedia,
Qwest and NEXTLINK
TOTAL ROUTE MILES
</TABLE>
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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: 796 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 Fourth Quarter Amsterdam, Paris, Marseilles Telia and KPNQwest
2001 and Lyon
SCANDINAVIA: 1,628 Fourth Quarter Copenhagen, Stockholm and Oslo Telia
2000
SWITZERLAND: 708 First Quarter Zurich, Geneva and Basel KPNQwest
2001
SPAIN: 1,368 Fourth Quarter Barcelona, Valencia, KPNQwest
2001 Madrid and Bilbao
ITALY: 344 First Quarter Milano and Torino KPNQwest
2001
---------------
TOTAL ROUTE MILES 10,650
===============
</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, Bermuda and
Argentina
---------------
TOTAL ROUTE MILES 21,600
===============
</TABLE>
COLOCATION FACILITIES
NORTH AMERICA
We have agreed, subject to execution of definitive agreements, to acquire
existing colocation facilities in two cities and site rights in seven other
cities totalling approximately 2.8 million square feet. These facilities are
expected to be completed by the end of 2001. In addition to the initial purchase
price of $156 million, of which $44 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 have agreed, subject to execution of definitive agreements, to acquire
colocation facilities in four European cities, one of which is operational and
three of which are under construction. There can be no assurance that we will be
successful in negotiating definitive agreements.
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 equipment edge.
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 agreed to grant affiliates of PSINet an indefeasible right of use for
bandwidth capacity between Vancouver and Chicago, which we will deliver by the
end of March 2000, and 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.
55
<PAGE>
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 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
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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 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 designing 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.
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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 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.
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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 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
FOTS 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.
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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 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
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bargaining agreement with the Christian Labor Association of Contractors, which
expires on February 28, 2001 and is automatically renewable unless either party
gives prior notice. We believe that our work force is highly capable and
motivated and that our relations with our employees are good. In connection with
the construction and maintenance of our fiber optic networks, we may use
third-party contractors to meet excess demand and harness local construction
knowledge, some of whose employees may be represented by other unions or covered
by collective bargaining agreements.
PROPERTIES
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 have a NOC located in Dublin,
Ireland.
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.......................... 48 Vice Chairman and Director
Stephen Stow........................... 45 Executive Vice President; Managing Director, Asia
Lionel Desmarais....................... 47 Senior Vice President, Network Construction
David Love............................. 51 Senior Vice President, Network Operations
William Sumner......................... 43 Senior Vice President, Carrier Services
Jerry Tharpe........................... 65 President, 360-USA
Joel Allen............................. 50 Vice President, Marine Capacity Sales
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
Bruce Tinney........................... 47 Vice President, Infrastructure Sales
William Walls.......................... 34 Vice President, Finance
Vanessa Wittman........................ 32 Vice President, Corporate Development
DIRECTORS
David Lede............................. 52 Chairman of the Board
Clifford Lede.......................... 44 Vice Chairman and Director
Glenn Creamer (1)...................... 37 Director
Claude Mongeau (1)..................... 38 Director
Andrew Rush (1)........................ 42 Director
Gene Sykes (2)......................... 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. He has previously served on boards of telecommunications related
companies including ServiceCo LLC (Road Runner), United Global Communications
(UGC), SkyTel Corp., Asia Global Crossing and Optical Networks, Inc.
LARRY OLSEN has served as Vice Chairman, Chief Financial Officer and a
Director since our inception. Mr. Olsen is also a member of the Board and
Executive Committee of First Heritage Savings, a Canadian financial institution.
Mr. Olsen was previously involved in several international
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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 Senior Vice President of Operations for Ledcor
Industries' telecommunications and civil divisions and was responsible for
construction and project development.
STEPHEN STOW has served as Executive Vice President; Managing Director, Asia
since March 2000 and was previously our Executive Vice President, Corporate
Develoment and a Director of ours. 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.
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.
JERRY THARPE has overseen our U.S. operations as President of 360-USA since
our inception. Mr. Tharpe's involvement in the telecommunications industry spans
over 40 years. Before joining us, Mr. Tharpe was the Director of Business
Development for Mi-Tech from 1996 to 1997 and the Vice President, Construction
and Engineering for Qwest Communications International Inc. from 1994 to 1996.
From 1987 to 1994, Mr. Tharpe 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.
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.
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,
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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.
BRUCE TINNEY has been our 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.
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.
TECHNOLOGY ADVISORY BOARD
Our Technology Advisory Board 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 Technology Advisory Board:
<TABLE>
<S> <C> <C>
Michael Dell
Terence Matthews
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.
TERENCE MATTHEWS founded Newbridge Networks Corporation in June 1986 and has
served as Chairman and Chief Executive Officer since that time.
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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 all shareholders holding
our shares immediately prior to the completion of the offering, we agreed to set
the maximum number of our board of directors at eighteen 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. and GS Capital Partners III, L.P., 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 also agreed
to vote for the foregoing nominees 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 182,086 350,000 7,619 -- 1,600,000 -- --
President 1998 78,045 54,618 13,722 -- -- -- --
Larry Olsen(3)....... 1999 136,054 350,000 -- -- 1,600,000 -- -- --
Vice Chairman & 1998 78,045 54,618 4,685 -- -- --
Chief Financial
Officer
Stephen Stow(4)...... 1999 136,054 235,000 -- -- 1,600,000 -- --
Executive Vice- 1998 78,045 54,618 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 1,026,712 1,455,715 36,970 -- 10,880,000 -- --
Officers (as a 1998 421,553 239,357 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. 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 that are awarded by our compensation
committees will comply in all respects with Section 422 of the U.S. Internal
Revenue Code.
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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, 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
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 March 17, 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)........ 2,240,000 $ 0.625 January 5, 2009 to
June 21, 2009
Employees (437 persons in total)......... 18,313,600 $ 0.625 January 5, 2009 to
August 23, 2009
8,038,400 $ 1.25 June 17, 2009 to
December 15, 2009
4,738,500 $ 5.00 January 24, 2009 to
March 17, 2010
870,000 initial public April 30, 2010
offering price
Employees of affiliates other than
subsidiaries (61 persons in total)..... 1,560,000 $ 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 as of February 25, 2000 pro forma for the 2 for 1 split
of our shares by (i) each person or company known by us to own more than 10% of
our Class C Multiple Voting Shares, and (ii) all of our directors and officers
as a group. As of February 25, 2000, there were 81,840,000 Class C Multiple
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
--------------------------- ---------------------------
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....... 72,000,000 88% 79,302,000 96%
All directors and officers as a
group................................ 9,840,000 12% 3,326,400 4%
</TABLE>
- ------------------------
(1) Concurrent with the closing of this offering, we will reorganize our share
capital. Pursuant to this reorganization, the Class C Multiple Voting Shares
will be redesignated as Multiple Voting Shares. See "Description of Capital
Stock and Share Capital Reorganization."
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 caused to be formed by
Stephen Stow, our Executive Vice President; Managing Director, Asia ("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. Mr. Stow disclaims beneficial ownership of the shares owned by the
corporation caused to be formed by him.
SELLING SHAREHOLDER
The following table describes the ownership of our Class A Non-Voting Shares
by our selling shareholder as of February 25, 2000 and as adjusted to reflect
(i) the sale of Class A Non-Voting Shares by such selling shareholder in the
offering and (ii) the 2 for 1 split of our shares. As of
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<PAGE>
February 25, 2000 there were 353,426,400 Class A Non-Voting Shares outstanding
and 150,951,312 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 OFFERING(3) THIS OFFERING OFFERING OFFERING
- --------------------- --------------- ------------ ------------- ---------------- ----------------
<S> <C> <C> <C> <C> <C>
Ledcor Limited
Partnership(2)..... 301,266,400 40% 1,375,000 252,832,576 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) The general partner of Ledcor Limited Partnership is Ledcor Industries
Limited, a wholly owned subsidiary of Ledcor.
(3) Excluding issuance of shares concurrent with the offering.
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<PAGE>
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 February 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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<PAGE>
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 18,352,941 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
36,000,000 of our Class C Multiple Voting Shares. In addition, we assumed
defined rights and obligations of the affiliates under their 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.
CANADIAN TELECOMMUNICATIONS ARRANGEMENT
Concurrent with the completion of the offering, we will conclude a series of
transactions to transfer our Canadian telecommunication transmission facilities
and certain related facilities to Urbanlink. 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 will own 66 2/3% of the voting
non-participating shares and 49% of the non-voting participating shares of the
holding company which will wholly own Urbanlink, and we will own 33 1/3% of the
voting non-participating shares and 51% of the non-voting participating shares
of that company. To acquire its non-voting participating shares, Worldwide Fiber
Holdings Ltd., ("WFHL") will contribute Subordinate Voting Shares of
360NETWORKS. Concurrent with the closing of the arrangement we will enter 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) that eliminates the requirement that Canadian telecommunications
carriers be owned and controlled by Canadians. We will contribute certain
telecommunications assets under construction to Urbanlink in the future and WFHL
will contribute additional Subordinate Voting Shares.
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<PAGE>
LEASES
Ledcor leases our facilities in Toronto to us for approximately $825,000 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
Holdings, as a result of which we issued to CN 9,411,765 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. 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 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.
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<PAGE>
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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<PAGE>
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, directly or indirectly by them or their
affiliates, and which are subject to the Transfer Restriction Agreement, to any
person under circumstances in which (i) the offer or acceptance constitutes a
take-over bid under the Securities Act (Ontario) or the Securities Act (Quebec);
and (ii) securities legislation would have required the same offer to be made to
all holders of Subordinate Voting Shares if the offer had been for Subordinate
Voting Shares rather than Multiple Voting Shares.
One circumstance where the Securities Act (Ontario) 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 Articles of Continuance currently authorize us to issue an unlimited
number of Class A Non-Voting Shares, an unlimited number of Class B Subordinate
Voting Shares, an unlimited number of Class C Multiple Voting Shares,
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:
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- the holders of our 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 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 the terms 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 amended to provide the
holders with ten votes per share and the Class C Multiple Voting Shares
will be redesignated as Multiple Voting Shares, and
- a class consisting of 500 billion Preferred Shares, issuable in series,
will be created.
STRATEGIC INVESTORS
Affiliates of Comcast Corporation, MSD Capital L.P., the private investment
fund for Michael Dell, Liberty Media Corporation, Shaw Communications Inc. and
Oak Investment Partners, Denis O'Brien, Jr., Kleiner Perkins Caufield & Byers,
Dr. Nathan Myhrvold 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 Limited
Partnership in private transactions an aggregate of 46,956,255 Subordinate
Voting Shares for total cash consideration of approximately $646 million. The
average price per share paid by each of these affiliates was 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.
REGISTRATION RIGHTS
All of our shareholders, with the exception of Worldwide Fiber Holdings
Ltd., Ledcor Limited Partnership and MacKenzie Partners LLC, have 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, all of our shareholders have agreed to waive these
registration rights for at least 12 months. See "Shares Eligible for Future
Sale."
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<PAGE>
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 712,150,465 Subordinate Voting
Shares outstanding and outstanding options to purchase 50,448,100 Subordinate
Voting Shares, assuming no additional option or warrant grants or exercises
after March 17, 2000. None of the 46,000,000 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 666,150,465 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, Worldwide Fiber Holdings Ltd., Madison Square and Mr. Olsen in
connection with the IRTB shares--18 months;
- our strategic investors, certain shareholders of GlobeNet (in connection
with their strategic investment), Mr. Maffei, Mr. Stow, 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 7,121,505 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 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 intend to apply to applicable Canadian securities regulatory
authorities to permit sales of such shares 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 to be issued in our concurrent debt
offerings to be similar to the terms of our 1999 Notes as described below.
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;
- use assets as security in other transactions; and
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- 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 purchase price in cash equal to 101% of their
principal amount, plus accrued and unpaid interest to the date of purchase.
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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 $100 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 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
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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.
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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, 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, 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 is reduced to 5%.
Canada does not currently impose any 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................................................. 46,000,000
==========
</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. The public
offering price and underwriting commission per Subordinate Voting Share for
shares offered in the United States, Canada and outside of the United States and
Canada will be approximately equivalent, based on the noon buying rate in effect
on the date hereof.
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
6,900,000 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, in the U.S. the Underwriters may purchase
Subordinate Voting Shares in the open market. 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 exist in the open market. If these
activities are commenced, they may be discontinued by the
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Underwriters at any time. These transactions may be effected on the Nasdaq
National Market ("Nasdaq"), in the over-the-counter market or otherwise.
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.
Application will be made to approve the Subordinate Voting Shares for
quotation on Nasdaq under the symbol "TSIX " and for listing on The Toronto
Stock Exchange under the symbol "TSX".
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 $ .
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, 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."
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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.
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) and Farris, Vaughan, Wills &
Murphy, Vancouver, British Columbia (concerning matters of Canadian 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.
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.
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ENFORCEABILITY OF CIVIL LIABILITIES AGAINST FOREIGN PERSONS
We are a corporation organized under the laws of Canada. We intend to
continue under the laws of Nova Scotia, Canada prior to the closing of this
offering. 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 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 at their public reference rooms. These filings are also
electronically available from the Canadian System for Electronic Document
Analysis and Retrieval
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(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.
109
<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 -- -- 521,362 717,694 4(i)
-- 974,000 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 1,691,694
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 26,000 4(iii)
OTHER........................... -- 1,104 -- 1,104 --
EQUITY ACCOUNTED FOR
INVESTMENT...................... -- -- -- -- 6,444 4(iv)
GOODWILL........................ -- -- 517,745 4(ii) 980,869 --
306,924 4(v)
156,200 4(vi)
--------- -------- -------- --------- ----------
1,310,989 705,332 956,126 2,972,447 1,717,694
========= ======== ======== ========= ==========
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 1,000,000 4(iii)
--------- -------- -------- --------- ----------
922,425 463,751 -- 1,386,176 1,000,000
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 -- 734,583 4(ii) 1,443,019 (1,443,019)4(ix)
312,000 4(v)
160,000 4(vi)
Subordinate Voting Shares....... -- -- -- -- 717,694 4(i)
349,827 4(viii)
1,453,474 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) 19,622 4(vii)
GlobeNet share capital.......... -- 272,434 (272,434)4(ii) -- --
Deficit......................... (40,875) (30,853) 30,853 4(ii) (40,875) (19,622)4(vii)
--------- -------- -------- --------- ----------
29,861 241,581 965,002 1,236,444 1,067,521
--------- -------- -------- --------- ----------
1,310,989 705,332 956,126 2,972,447 1,717,694
========= ======== ======== ========= ==========
<CAPTION>
PRO FORMA
CONSOLIDATED BALANCE
SHEET
$
---------------------
<S> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents....... 2,213,056
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
---------
2,674,908
RESTRICTED CASH................. 448,399
PROPERTY AND EQUIPMENT--NET..... 119,713
ASSETS UNDER CONSTRUCTION....... 398,465
DEFERRED TAX ASSET.............. 12,040
DEFERRED FINANCING COSTS--NET... 48,199
OTHER........................... 1,104
EQUITY ACCOUNTED FOR
INVESTMENT...................... 6,444
GOODWILL........................ 980,869
---------
4,690,141
=========
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.......................... 2,075,000
---------
2,386,176
MINORITY INTEREST............... --
REDEEMABLE CONVERTIBLE PREFERRED
STOCK......................... --
SHAREHOLDERS' EQUITY
Class A Non Voting Shares....... --
Subordinate Voting Shares....... 2,520,995
Multiple Voting Shares.......... 45,232
Class B Subordinate Voting
Shares........................ --
Class C Multiple Voting
Shares........................ --
Other capital accounts.......... (201,765)
GlobeNet share capital.......... --
Deficit......................... (60,497)
---------
2,303,965
---------
4,690,141
=========
</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 AQUISITION 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 4,970 5(v)
Stock-based compensation...... 7,116 4,207 -- 11,323 --
Depreciation.................. 2,998 1,854 -- 4,852 --
20,710 5(i)
Amortization of goodwill...... -- -- 18,525 5(ii) 39,235 --
------------ ------- ------- ------- -----------
31,960 21,165 39,235 92,360 4,970
------------ ------- ------- ------- -----------
77,174 (5,806) (39,235) 32,133 (4,970)
Interest expense.............. 33,908 20,965 (1,310)5(i) 53,563 158,971 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) (37,925) 9,280 (163,941)
(74,800)5(iv)
Provision for income taxes.... 30,314 141 -- 30,455 3,730 5(v)
------------ ------- ------- ------- -----------
Income (loss) before minority
interest and equity
accounted for investment.... 31,074 (14,324) (37,925) (21,175) (92,871)
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) (30,491) (21,948) (92,871)
============ ======= ======= ======= ===========
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.... 41,920
Stock-based compensation...... 11,323
Depreciation.................. 4,852
Amortization of goodwill...... 39,235
------------
97,330
------------
27,163
Interest expense.............. 212,534
Interest income............... 30,710
------------
Income (loss) before income
taxes, minority interest and
equity accounted for
investment.................. (154,661)
Provision for income taxes.... (40,615)
------------
Income (loss) before minority
interest and equity
accounted for investment.... (114,046)
Income attributable to
minority interest and equity
accounted for investment.... (773)
------------
Net income (loss) for the
year........................ (114,819)
============
Basic and fully diluted loss
per share................... $ (0.20)
Weighted average number of
shares used to compute basic
and fully diluted loss per
share....................... 600,573,831
</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 $758,625,000, net of commissions of $37,931,250 and offering expenses of
$3,000,000; (ii) the Company's acquisition of GlobeNet Communications Group
Limited ("GlobeNet"); (iii) the issuance of $1,000,000,000 12% 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 $758,625,000. This adjustment is
recorded net of commissions of $37,931,250 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 43,210,786 Subordinate Voting Shares assuming a
purchase price of $734,583,000.
- 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.............................................. $ 734,583
Less: book value of net assets acquired..................... 241,581
------------
Excess of cost over book value of net assets acquired....... $ 493,002
============
Allocation of excess of cost over book value of net assets
acquired:
Deferred financing costs.................................. $ (24,743)
Goodwill.................................................. 517,745
============
$ 493,002
============
</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 $1,000,000,000 12% NOTES
This adjustment records the issuance of $1,000,000,000 12% notes due 2010
(the "Notes") assuming the Notes were issued on December 31, 1999. Commissions
of $25,000,000 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 18,352,941 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 $17 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 9,411,765 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 $17 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 8,074,890 Series A Non-Voting
Preferred Shares to the holders of the Series A Non-Voting Preferred Shares in
accordance with the purchase price
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)
adjustment provisions in the subscription agreements. This issuance is made in
connection with the issuance of Subordinate Voting Shares to CN, IC and Michels.
(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 $20,710,000.
- 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 an extraordinary loss net of taxes of
$1,632,000 would have been recorded as a result of the premium paid on
redemption of GlobeNet's notes.
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)
(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 $158,971,000 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
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 $40,615,000 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
$4,970,000 for 1999 and Federal Large Corporation taxes of $3,730,000 for 1999
resulting from the proforma adjustments in notes 4 and 5.
PF-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)
(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........................................ 43,210,786
Purchase of Michels minority equity interest................ 18,352,941
Purchase of CN/IC minority equity interests................. 9,411,765
Issuance and conversion or exchange of Series A Non-Voting
Preferred Shares.......................................... 159,026,202
Reciprocal shareholdings adjustment from the Canadian
telecommunications arrangement transaction................ (1,366,671)
-----------
600,573,831
===========
</TABLE>
Pro forma loss available to common stockholders is computed as follows:
<TABLE>
<S> <C>
Pro forma net loss........................................ $ (114,819)
Stock dividend............................................ (5,000)
------------
Pro forma net loss available to common stockholders....... $ (119,819)
============
</TABLE>
PF-10
<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 for 43,210,786 newly
created Subordinate Voting Shares. The number of Subordinate Voting Shares will
be adjusted 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 9,411,765 Class A Non-Voting Shares of the Company.
The number of Class A Non-Voting Shares issued by the Company may be adjusted on
an initial public offering in accordance with a formula specified in the
agreement. 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 and European cities.
The aggregate purchase price for these acquisitions is $439 million payable in a
combination of cash and newly created Subordinate Voting Shares, of which $113
million is contingent upon the achievement of certain milestones.
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)
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 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............................. 45
Management........................... 62
Principal and Selling Shareholder.... 71
Relationships and Related Party
Transactions....................... 73
Description of Capital Stock and
Share Capital Reorganization....... 76
Shares Eligible for Future Sale...... 79
Regulation........................... 81
Description of Indebtedness.......... 96
Material United States and Canadian
Income Tax Considerations.......... 100
Underwriting......................... 104
Legal Matters........................ 107
Experts.............................. 107
Enforceability of Civil Liabilities
Against Foreign Persons............ 108
Where You Can Find More Information.. 108
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.
46,000,000 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 IS A PRELIMINARY PROSPECTUS RELATING TO THESE SECURITIES, A COPY OF WHICH
HAS BEEN FILED WITH THE APPROPRIATE SECURITIES COMMISSION OR SIMILAR REGULATORY
AUTHORITY OF EACH OF THE PROVINCES OF CANADA, BUT WHICH HAS NOT YET BECOME FINAL
FOR THE PURPOSE OF A DISTRIBUTION TO THE PUBLIC. INFORMATION CONTAINED HEREIN IS
SUBJECT TO COMPLETION OR AMENDMENT. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED FROM RESIDENTS OF SUCH PROVINCE PRIOR TO THE TIME A
RECEIPT FOR THE FINAL PROSPECTUS IS OBTAINED FROM THE APPROPRIATE SECURITIES
COMMISSION OR OTHER REGULATORY AUTHORITY.
<PAGE>
AMENDED PRELIMINARY PROSPECTUS DATED MARCH 22, 2000
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
360NETWORKS INC.
[LOGO]
(FORMERLY KNOWN AS WORLDWIDE FIBER INC.)
U.S. $ -
46,000,000 SUBORDINATE VOTING SHARES
This offering of 46,000,000 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 1,375,000 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 offering price of each Subordinate Voting Share, after giving
effect to this offering, but before exercise of the Underwriters' over-allotment
option, exceeds the Company's consolidated net tangible book value as of - ,
2000 by U.S.$ - , resulting in a dilution of - %. 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 6,900,000 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 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 intends to continue
as a corporation under the Companies Act (Nova Scotia) prior to the closing of
the offering. Immediately prior to the closing of the offering, the articles 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
February 29, 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 $718 million;
- the acquisition of all outstanding stock of GlobeNet;
- the issuance of $1 billion 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
$100 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 FEBRUARY 29, 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).................. -- 100,000 100,000
Globenet 360AMERICAS secured
credit facility.............. -- -- 100,000
Globenet 13% senior notes due
2007......................... -- -- 300,000
Debt component of redeemable
convertible preferred
shares(3).................... 270,049 273,131 --
New notes(2)................... -- -- 1,000,000
---------- ---------- ----------
Total debt..................... $ 945,049 $1,048,131 $2,175,000
========== ========== ==========
Shareholders' equity
Subordinate Voting Shares(4)... -- -- 2,377,324
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 2,303,706
---------- ---------- ----------
TOTAL CAPITALIZATION........... $1,054,429 $1,157,511 $4,478,706
========== ========== ==========
</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 50,448,100 Subordinate Voting Shares issuable upon exercise
of options under the Company's 1998 Long Term Incentive and Share Award Plan
(as amended). See "Management--Stock Option Plan" and "--Outstanding Options
to Purchase Securities" in the U.S. Prospectus.
(5) February 29, 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 the date of this prospectus, 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
</TABLE>
During the 12 months prior to the date of this prospectus, the selling
shareholder has agreed to sell the Class A Non-Voting Shares indicated below for
the consideration indicated.
<TABLE>
<CAPTION>
CONSIDERATION
NUMBER OF PER CLASS A
CLASS A NON-VOTING NON-VOTING
DATE OF AGREEMENT TO SELL SHARES TO BE SOLD SHARE
- ------------------------- ------------------------- -----------------
<S> <C> <C>
March 14, 2000 2,227,172 $5.00
March 19, 2000 7,461,028 $5.00
March 20, 2000 779,512 $5.00
</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.
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 dated - , 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 - , 2000 described under the
heading "Share Capital Reorganization and Description of Capital
Stock--Take-over Bid Protection" in the U.S. Prospectus.
3. Indenture dated as of - , 2000 between the Company and HSBC Bank USA
relating to the Company's $ - million - % Senior Notes due 2010 and
$ - million - % Senior Notes due 2008.
C-4
<PAGE>
4. Indenture dated as of - , 2000 between the Company and HSBC Bank USA
relating to the Company's [EURO] - % Senior Notes due 2010 and
[EURO] - % Senior Notes due 2008.
5. Shareholders' Agreement dated September 9, 1999 between the Company and
certain institutional investors, as amended by an amendment and waiver
dated December 22, 1999.
6. 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.
7. 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
C-5
<PAGE>
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)
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 other than
guarantee fund corporations)
SUPPLEMENTAL PENSION PLANS ACT (Quebec)
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 authorities of such jurisdictions, the Company is generally exempt
from certain of the requirements of the laws of such jurisdictions relating to
continuous disclosure. 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 such Canadian
jurisdictions, provided that the relevant documents are filed with the
securities regulatory authorities in the relevant Canadian jurisdictions.
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
- , 2000 relating to the sale and issue of - 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.
- , 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 -- -- 521,362 717,694 4(i) 2,213,056
974,000 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 1,691,694 2,674,908
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 26,000 4(iii) 48,199
OTHER........................ -- 1,104 -- 1,104 -- 1,104
EQUITY ACCOUNTED FOR
INVESTMENT................. -- -- -- -- 6,444 4(iv) 6,444
GOODWILL..................... -- -- 517,745 4(ii) 980,869 -- 980,869
306,924 4(v)
156,200 4(vi)
--------- ------- -------- --------- ---------- ---------
1,310,989 705,332 956,126 2,972,447 1,717,694 4,690,141
========= ======= ======== ========= ========== =========
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 1,000,000 4(iii) 2,075,000
DEBT COMPONENT OF REDEEMABLE
CONVERTIBLE PREFERRED
SHARES..................... 270,049 -- -- 270,049 (270,049)4(vii) --
--------- ------- -------- --------- ---------- ---------
1,192,733 463,751 -- 1,656,484 729,951 2,386,435
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 -- 734,583 4(v) 1,299,579 (1,299,579)4(ix) --
312,000 4(v)
160,000 4(vi)
Subordinate Voting Shares.... -- -- -- -- 717,694 4(i) 2,377,324
352,428 4(vii)
1,307,202 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)
--------- ------- -------- --------- ---------- ---------
109,380 241,581 965,002 1,315,963 987,743 2,303,706
--------- ------- -------- --------- ---------- ---------
1,310,989 705,332 956,126 2,972,447 1,717,694 4,690,141
========= ======= ======== ========= ========== =========
</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 4,970 5(v) 41,920
Stock-based compensation....... -- 4,207 (4,207) 5(i) -- -- --
Depreciation................... 2,998 1,854 -- 4,852 -- 4,852
Amortization of goodwill....... -- -- 20,710 5(i) 39,235 -- 39,235
18,525 5(ii)
----------- ------- ------- ------- ----------- -----------
24,844 21,165 35,028 81,037 4,970 86,007
----------- ------- ------- ------- ----------- -----------
84,290 (5,806) (35,028) 43,456 (4,970) 38,486
INTEREST EXPENSE............... 59,885 20,965 (1,310) 5(iii) 79,540 158,971 5(iii) 212,793
(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) (32,909) (5,734) (138,223) (143,597)
PROVISION FOR (RECOVERY OF)
INCOME TAXES................. 30,314 141 -- 30,455 3,730 5(v) (29,455)
(63,640)5(iv)
----------- ------- ------- ------- ----------- -----------
INCOME (LOSS) BEFORE MINORITY
INTEREST AND EQUITY ACCOUNTED
FOR INVESTMENT............... 12,213 (15,133) (32,909) (35,829) (78,313) (114,142)
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) (25,475) (36,602) (78,313) (114,915)
=========== ======= ======= ======= =========== ===========
BASIC AND FULLY DILUTED LOSS
PER SHARE.................... $ (0.02) $ (0.20)
WEIGHTED AVERAGE NUMBER OF
SHARES USED TO COMPUTE BASIC
AND FULLY DILUTED LOSS PER
SHARE........................ 327,313,808 5(vii) 600,573,831
</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 $758,625,000 net of commissions of $37,931,250 and offering expenses of
$3,000,000; (ii) the Company's acquisition of GlobeNet Communications Group
Limited ("GlobeNet"); (iii) the issuance of $1,000,000,000 12% 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 $758,625,000. This adjustment is
recorded net of commisions of $37,931,250 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 43,210,786 Subordinate Voting Shares assuming a purchase
price of $734,583,000.
- 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.............................................. $734,583
Less: book value of net assets acquired..................... 241,581
--------
Excess of cost over book value of net assets acquired....... $493,002
========
Allocation of excess of cost over book value of net assets
acquired:
Deferred financing costs.................................. $(24,743)
Goodwill.................................................. 517,745
--------
$493,002
========
</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 $1,000,000,000 12% NOTES
This adjustment records the issuance of $1,000,000,000 12% notes due 2010
(the "Notes") assuming the Notes were issued on December 31, 1999. Commissions
of $25,000,000 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 18,352,941 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 $17 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 9,411,765 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 $17 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 $20,710,000.
- 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.
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 $158,971,000 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 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.
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)
IV) INCOME TAXES
This adjustment records an income tax recovery of $29,455,000 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 $4,970,000 for 1999 and Federal Large Corporation taxes of $3,730,000 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).
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........................................ 43,210,786
Purchase of Michels minority equity interest................ 18,352,941
Purchase of CN/IC minority equity interests................. 9,411,765
Issuance and conversion or exchange of Series A Non-Voting
Preferred Shares.......................................... 159,026,202
Reciprocal shareholdings adjustment from the Canadian
telecommunications arrangement transaction................ (1,366,671)
-----------
600,573,831
===========
Pro forma loss available to common stockholders is computed
as follows:
Pro forma net loss.......................................... (114,915)
Stock dividend.............................................. (5,000)
-----------
Pro forma net loss available to common stockholders......... (119,915)
===========
</TABLE>
CPF-10
<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.
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.
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 revenues for the period
ended December 31, 1998 was earned from construction services provided to
Ledcor.
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)
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 for 43,210,786 newly
created Subordinate Voting Shares. The number of Subordinate Voting Shares 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 9,411,765 Class A Non-Voting Shares of the Company. The
number of Class A Non-Voting Shares issued by the Company may be adjusted on an
initial public offering in accordance with a formula specified in the agreement.
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 and European cities.
The aggregate purchase price for these acquisitions is $439 million payable in a
combination of cash and newly created Subordinated Voting Shares, of which
$113 million is contingent upon the achievement of certain milestones.
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 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.
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.
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: March 22, 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>
GREGORY B. MAFFEI LARRY OLSEN
Chief Executive Officer Chief Financial Officer
On behalf of the Board of Directors
DAVID LEDE CLIFFORD LEDE
Chairman Vice-Chairman
PROMOTER
Ledcor Industries Limited
BY: DAVID LEDE
Chairman
</TABLE>
CC-1
<PAGE>
CERTIFICATE OF THE CANADIAN UNDERWRITERS
Dated: March 22, 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.: an indirect 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........................................ $251,381
NASD Filing Fee............................................. 30,500
Transfer Agent Fee..........................................
Nasdaq National Market Listing Fee..........................
The Toronto Stock Exchange Listing Fee......................
Blue Sky Qualification Fees and Expenses.................... 7,500
Accounting Fees and Expenses................................
Legal Fees and Expenses.....................................
Printing Expenses...........................................
Stamp Duty Tax..............................................
Miscellaneous...............................................
--------
Total..................................................... $
</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 Subordinate
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 Subordinate 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.
(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 and 12 where 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.
ITEM 16. EXHIBITS.
The following exhibits are filed as part of this Registration Statement:
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ----------- -----------
<S> <C>
1** 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.
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ----------- -----------
<S> <C>
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 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 Farris, Vaughan, Wills & Murphy 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.
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.
</TABLE>
II-4
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ----------- -----------
<S> <C>
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.
10.31 Agreement and Plan of Arrangement between Worldwide Fiber
Inc. and GlobeNet Communications Group Limited dated as of
March 11, 2000.
</TABLE>
II-5
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ----------- -----------
<S> <C>
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.
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 (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.
** To be filed by amendment.
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-6
<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. 1 to the Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in Vancouver, BC, Canada on March 22,
2000.
<TABLE>
<S> <C> <C>
360NETWORKS INC.
By: /s/ GREGORY MAFFEI
-----------------------------------------
Name: Gregory Maffei
Title: Chief Executive Officer
</TABLE>
II-7
<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. 1 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>
/s/ DAVID LEDE
------------------------------------------- Chairman of the Board March 22, 2000
David Lede
/s/ GREGORY MAFFEI
------------------------------------------- Director (Principal March 22, 2000
Gregory Maffei Executive Officer)
/s/ CLIFFORD LEDE
------------------------------------------- Vice Chairman March 22, 2000
Clifford Lede
/s/ LARRY OLSEN Vice Chairman (Principal
------------------------------------------- Financial and Accounting March 22, 2000
Larry Olsen Officer)
/s/ RON STEVENSON
------------------------------------------- Director March 22, 2000
Ron Stevenson
/s/ STEPHEN STOW
------------------------------------------- Director March 22, 2000
Stephen Stow
------------------------------------------- Director March 22, 2000
Claude Mongeau
------------------------------------------- Director March 22, 2000
James F. Voelker
/s/ ANDREW RUSH
------------------------------------------- Director March 22, 2000
Andrew Rush
</TABLE>
II-8
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
------------------------------------------- Director March 22, 2000
Gene Sykes
/s/ GLENN CREAMER
------------------------------------------- Director March 22, 2000
Glenn Creamer
WFI Fiber Inc.
WFI Fiber Inc. (Authorized U.S. March 22, 2000
Representative)
</TABLE>
<TABLE>
<S> <C>
By: /s/ LARRY
OLSEN
---
Larry
Olsen,
Authorized
Signatory
</TABLE>
II-9
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ----------- -----------
<C> <S>
1 ** 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.
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 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 Farris, Vaughan, Wills & Murphy 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.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ----------- -----------
<C> <S>
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.
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 (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.
** To be filed by amendment.
<PAGE>
Exhibit 4.9
VOTING AGREEMENT
THIS VOTING AGREEMENT (the "AGREEMENT") is entered into as of March 11,
2000, between the undersigned shareholders (the "SHAREHOLDERS") of GlobeNet
Communications Group Limited, a Bermuda company (the "COMPANY"), and Worldwide
Fiber Inc., a Canadian corporation ("WFI").
WHEREAS, concurrently with the execution and delivery of this Agreement,
WFI and the Company have entered into an Agreement and Plan of Arrangement dated
as of March 10, 2000 (the "ARRANGEMENT AGREEMENT"), providing for the exchange
of shares of the Company and WFI (the "ARRANGEMENT") pursuant to the terms and
conditions of the Arrangement Agreement, and setting forth certain
representations, warranties, covenants and agreements of the parties thereto in
connection with the Arrangement; and
WHEREAS, as an inducement and a condition to WFI entering into the
Arrangement Agreement, pursuant to which each Shareholder will receive Class A
Voting Shares, of WFI as specified in the Arrangement Agreement (the "WFI Class
A Stock") in exchange for each common share, par value $1.50 per share, of the
Company ("COMMON SHARES") and each share of Class B restricted voting shares,
par value $1.50 per share, of the Company ("CLASS B SHARES" and with the Common
Shares, collectively, "COMPANY COMMON STOCK") owned by such Shareholder, the
Shareholders each have agreed to enter into this Agreement;
NOW, THEREFORE, for good and valuable consideration, the receipt,
sufficiency and adequacy of which is hereby acknowledged, the parties hereto
agree as follows:
1. REPRESENTATIONS OF SHAREHOLDERS. Each of the Shareholders severally
represents as to himself or herself that such Shareholder:
(a) is the holder in the capacity set forth on Exhibit A hereto of
that number of shares of Company Common Stock set forth opposite such
Shareholder's name on Exhibit A (such Shareholder's "SHARES");
(b) does not beneficially own (as such term is defined in the
Securities Exchange Act of 1934, as amended (the "1934 ACT")) any shares of
Company Common Stock other than his or her Shares;
(c) has the right, power and authority to execute and deliver this
Agreement and to perform his obligations under this Agreement, and this
Agreement has been duly executed and delivered by such Shareholder and
constitutes a valid and legally binding agreement of such Shareholder,
enforceable in accordance with its terms, subject to bankruptcy,
insolvency, fraudulent transfer, reorganization, moratorium and similar
laws of general applicability relating to or affecting creditors' rights
and to general equity
<PAGE>
principles; and such execution, delivery and performance by Shareholder of
this Agreement will not (i) conflict with, require a consent, waiver or
approval under, or result in a breach of or default under, any of the terms
of any contract, commitment or other obligation (written or oral) to which
such Shareholder is a party or by which such Shareholder is bound; (ii)
violate any order, writ, injunction decree or statute, or any rule or
regulation, applicable to Shareholder or any of the properties or assets of
Shareholder; or (iii) result in the creation of, or impose any obligation
on such Shareholder to create, any lien, charge or other encumbrance of any
nature whatsoever upon the Shares;
(d) There is no private or governmental action, suit, proceeding,
claim, arbitration or investigation pending before any agency, court or
tribunal, foreign or domestic, or, to the knowledge of such Shareholder or
any of his affiliates, threatened against such Shareholder or any of his
affiliates or any of their respective properties or any of their respective
officers or directors, in the case of a corporate entity (in their
capacities as such) that, individually or in the aggregate, could
reasonably be expected to have a material adverse effect on his ability to
consummate the transactions contemplated by this Agreement and the
Arrangement Agreement. There is no judgment, decree or order against such
Shareholder or any of his affiliates or, to the knowledge of such
Shareholder or any of his affiliates, any of their respective directors or
officers, in the case of a corporate entity (in their capacities as such)
that could prevent, enjoin, alter or materially delay any of the
transactions contemplated by this Agreement and the Arrangement Agreement,
or that could reasonably be expected to have a material adverse effect on
such Shareholder's ability to consummate the transactions contemplated by
this Agreement and the Arrangement Agreement.
(e) the Shares are now and will at all times during the term of this
Agreement be held by such Shareholder, or by a nominee or custodian for the
account of such Shareholder, free and clear of all pledges, liens, proxies,
claims, charges, security interests, preemptive rights and any other
encumbrances whatsoever with respect to the ownership, transfer or voting
of such Shares; and except for the Amended and Restated Securityholders'
Agreement, dated July 14, 1999 among the Company and 22 shareholders of the
Company, there are no outstanding options, warrants or rights to purchase
or acquire, or other agreements relating to, such Shares other than this
Agreement.
The representations and warranties contained herein shall be made as of the date
hereof and on the date that the Arrangement is consummated.
2. AGREEMENT TO VOTE SHARES. Each of the Shareholders severally agrees to
vote his or her Shares and any New Shares (as defined in Section 7 hereof), and
shall cause any holder of record of his or her Shares or New Shares to vote, (a)
in favor of adoption and approval of the Arrangement Agreement and the
Arrangement (and each other action and transaction contemplated by the
Arrangement Agreement and this Agreement) at every meeting of the shareholders
of the Company at which such matters are considered and at every adjournment
thereof and (b) against any action or proposal
2
<PAGE>
that would compete with or could serve to materially interfere with, delay,
discourage, adversely affect or inhibit the timely consummation of the
Arrangement. Any such vote shall be cast or consent shall be given in accordance
with such procedures relating thereto as shall ensure that it is duly counted
for purposes of determining that a quorum is present and for purposes of
recording the results of such vote or consent. Each Shareholder severally agrees
to deliver to WFI upon request a proxy substantially in the form attached hereto
as Exhibit B, which proxy shall be coupled with an interest and irrevocable to
the extent permitted under Bermuda law, with the total number of such
Shareholder's Shares and any New Shares correctly indicated thereon. Each
Shareholder also agrees to use his reasonable efforts to take, or cause to be
taken, all action, and do, or cause to be done, all things necessary or
advisable in order to consummate and make effective the transactions
contemplated by this Agreement.
3. NO VOTING TRUSTS. After the date hereof, the Shareholders severally
agree that they will not, nor will they permit any entity under their control
to, deposit any of their Shares in a voting trust or subject any of their Shares
to any arrangement with respect to the voting of such Shares other than
agreements entered into with WFI.
4. NO PROXY SOLICITATIONS. Each of the Shareholders severally agrees that
such Shareholder will not, nor will such Shareholder permit any entity under
their control to, (a) solicit proxies or become a "participant" in a
"solicitation" (as such terms are defined in Regulation 14A under the 1934 Act)
in opposition to or competition with the consummation of the Arrangement or
otherwise encourage or assist any party in taking or planning any action which
would compete with or otherwise could serve to materially interfere with, delay,
discourage, adversely affect or inhibit the timely consummation of the
Arrangement in accordance with the terms of the Arrangement Agreement, (b)
directly or indirectly encourage, initiate or cooperate in a shareholders' vote
or action by consent of the Company's shareholders in opposition to or in
competition with the consummation of the Arrangement, or (c) become a member of
a "group" (as such term is used in Section 13(d) of the 1934 Act) with respect
to any voting securities of the Company for the purpose of opposing or competing
with the consummation of the Arrangement; provided, that the foregoing shall not
restrict any director of the Company from taking any action such director
believes is necessary to satisfy such director's fiduciary duty to shareholders
of the Company.
5. TRANSFER AND ENCUMBRANCE. On or after the date hereof, each of the
Shareholders severally agrees not to voluntarily transfer, sell, offer, pledge
or otherwise dispose of or encumber ("TRANSFER") any of his or her Shares or New
Shares prior to the earlier of (a) the effective date of the Arrangement or (b)
the date this Agreement shall be terminated in accordance with its terms, except
that each of the Shareholders will be permitted to Transfer any of his or her
Shares or New Shares to an Affiliate (as defined in the Arrangement Agreement)
of such Shareholder provided, that such Affiliate agrees in writing to be bound
by the terms of this Agreement with respect to such Shares and New Shares.
6. LEGEND. As soon as practicable after the execution of this Agreement,
each Shareholder shall surrender to the Company the certificates representing
the Shares
3
<PAGE>
in his or her possession (and within 30 days the Shares not in his or her
possession), shall cause the following legend to be placed on the certificates
representing such Shares (in addition to any existing legend) and shall request
that such legend remain thereon until the earlier of (i) expiration or
termination of this Agreement or (ii) the consummation of the Arrangement:
"The shares of capital stock represented by this certificate are
subject to a Voting Agreement, dated as of March 10, 2000, among the
Shareholders named therein and WFI, which, among other things, (a)
restricts the sale or transfer of such shares except in accordance
therewith, and (b) restricts the voting of such shares except in
accordance therewith."
In the event that WFI requests that a proxy be executed and delivered by a
Shareholder to it pursuant to Section 2 hereof, such Shareholder shall promptly
surrender to the Company the certificates representing the Shares covered by
such proxy and cause the foregoing legend to be revised to add to the end of
such legend the following words:
", and such shares are also subject to an irrevocable proxy."
Each Shareholder shall provide WFI with reasonably satisfactory evidence of its
compliance with this Section 6 on or prior to the date five business days after
the execution hereof with respect to Shares in his possession (or within 30 days
with respect to Shares not in his possession) or of the request relating to such
Shareholder's proxy, as the case may be.
7. ADDITIONAL PURCHASES. Each of the Shareholders severally agrees that in
the event (i) any stock dividend, stock split, recapitalization,
reclassification, combination or exchange of shares of capital stock of the
Company on, of or affecting the Shares of a Shareholder, (ii) such Shareholder
purchases or otherwise acquires beneficial ownership of any shares of Company
Common Stock after the execution of this Agreement, or (iii) such Shareholder
voluntarily acquires the right to vote or share in the voting of any shares of
Company Common Stock other than the Shares (collectively, "NEW SHARES"), such
Shareholder agrees to deliver promptly to WFI upon request of WFI an irrevocable
proxy substantially in the form attached hereto as Exhibit B with respect to
such New Shares. Each of the Shareholders also severally agrees that any New
Shares acquired or purchased by him or her shall be subject to the terms of this
Agreement to the same extent as if they constituted Shares.
8. WFI CLASS A STOCK. Each of the Shareholders severally agree, that for a
period of 12 months commencing on the date of the Initial Public Offering (as
defined in the Arrangement Agreement), not to voluntarily Transfer any of the
WFI Class A Stock which it receives pursuant to the Arrangement Agreement,
except that each of the Shareholders will be permitted to Transfer any of the
WFI Class A Stock which it receives pursuant to the Merger Agreement to an
Affiliate of such Shareholder or a limited partner of such Shareholder,
provided, that such Transfer is exempt from registration under the Securities
Act of 1933, as amended and provided, further, that such
4
<PAGE>
Affiliate or limited partner agrees in writing to be bound by the terms of this
Agreement with respect to such shares of WFI Class A Stock.
9. SPECIFIC PERFORMANCE. Each party hereto severally acknowledges that it
will be impossible to measure in money the damage to the other parties if a
party hereto fails to comply with any of the obligations imposed by this
Agreement, and that, in the event of any such failure, the other parties will
not have an adequate remedy at law or damages. Accordingly, each party hereto
severally agrees that injunctive relief or other equitable remedy, in addition
to remedies at law or damages, is the appropriate remedy for any such failure.
Each party hereto severally agrees that it will not seek, and agrees to waive
any requirement for, the securing or posting of a bond in connection with any
other party's seeking or obtaining such equitable relief.
10. SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon and inure
to the benefit of the parties hereto and their respective successors and assigns
and shall not be assignable without the written consent of all other parties
hereto.
11. ENTIRE AGREEMENT. This Agreement supersedes all prior agreements,
written or oral, among the parties hereto with respect to the subject matter
hereof and contains the entire agreement among the parties with respect to the
subject matter hereof. This Agreement may not be amended, supplemented or
modified, and no provisions hereof may be modified or waived, except by an
instrument in writing signed by all the parties hereto. No waiver of any
provisions hereof by any party shall be deemed a waiver of any other provisions
hereof by any such party, nor shall any such waiver be deemed a continuing
waiver of any provision hereof by such party.
12. MISCELLANEOUS.
(a) This Agreement shall be deemed a contract made under, and for all
purposes shall be construed in accordance with, the laws of the State of
New York without regard to principles of conflict of laws.
(b) If any provision of this Agreement or the application of such
provision to any person or circumstances shall be held invalid by a court
of competent jurisdiction, the remainder of the provision held invalid and
the application of such provision to persons or circumstances, other than
the party as to which it is held invalid, shall not be affected.
(c) This Agreement may be executed in one or more counterparts, each
of which shall be deemed to be an original but all of which together shall
constitute one and the same instrument.
(d) This Agreement shall terminate upon the earliest to occur of (i)
the Effective Time (as defined in the Arrangement Agreement) or (ii)
termination of the Arrangement Agreement.
5
<PAGE>
(e) All Section headings herein are for convenience of reference only
and are not part of this Agreement, and no construction or reference shall
be derived therefrom.
(f) The obligations of the Shareholders set forth in this Agreement
shall not be effective or binding upon any Shareholder until after such
time as the Arrangement Agreement is executed and delivered by the Company
and WFI, and the parties agree that there is not and has not been any other
agreement, arrangement or understanding between the parties hereto with
respect to the matters set forth herein.
6
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Agreement as of the date first written above.
WORLDWIDE FIBER INC.
By: ____________________________________
Name:
Title:
THE STOCKHOLDERS:
BOSTON VENTURES LIMITED PARTNERSHIP V
By: Boston Ventures Company V, LLC,
its general partner
By: ___________________________________
Name: _________________________________
Title: ________________________________
Address: One Federal Street, 23rd Floor
Boston, Massachusetts 02110-2003
Facsimile: (617) 350-1574
KELSO INVESTMENT ASSOCIATES VI, L.P.
By: Kelso GP VI, LLC, its general partner
By: ___________________________________
Name: _________________________________
Title: ________________________________
Address: 320 Park Avenue
24th Floor
New York, New York 10022
Facsimile: (212) 223-2379
<PAGE>
KEP VI, L.L.C.
By: ___________________________________
Name: _________________________________
Title: ________________________________
Address: 320 Park Avenue
24th Floor
New York, New York 10022
Facsimile: (212) 223-2379
PROVIDENCE EQUITY PARTNERS III L.P.
By: Providence Equity Partners III L.L.C.,
its general partner
By: ___________________________________
Name: _________________________________
Title: ________________________________
Address: Fleet Center, 9th Floor
50 Kennedy Plaza
Providence, Rhode Island 02903
Facsimile: (401) 751-1790
PROVIDENCE EQUITY OPERATING
PARTNERS III L.P.
By: Providence Equity Partners III L.L.C.,
its general partner
By: ___________________________________
Name: _________________________________
Title: ________________________________
Address: Fleet Center, 9th Floor
50 Kennedy Plaza
Providence, Rhode Island 02903
Facsimile: (401) 751-1790
<PAGE>
SPECTRUM EQUITY INVESTORS III, L.P.
By: Spectrum Equity Associates III, L.P.,
its General Partner
By: ___________________________________
Name: _________________________________
Title: ________________________________
Address: One International Place
29th Floor
Boston, Massachusetts 02110
Facsimile: (617) 464-4601
SPECTRUM III ENTREPRENEURS' FUND, L.P.
By: SEI III Enterpreneurs' LLC,
its General Partner
By: ___________________________________
Name: _________________________________
Title: ________________________________
Address: One International Place
29th Floor
Boston, Massachusetts 02110
Facsimile: (617) 464-4601
SPECTRUM III INVESTMENT MANAGERS' FUND, L.P.
By: ___________________________________
Name: _________________________________
Title: ________________________________
Address: One International Place
29th Floor
Boston, Massachusetts 02110
Facsimile: (617) 464-4601
<PAGE>
SANDLER CAPITAL PARTNERS IV, L.P.
By: Sandler Investment Partners, L.P.,
its general partner
By: Sandler Capital Management,
its general partner
By: MJDM Corp., a general partner
By: __________________________
Name: ________________________
Title: _______________________
Address: 767 Fifth Avenue
45th Floor
New York, New York 10153
Facsimile: (212) 826-0269
SANDLER CAPITAL PARTNERS IV FTE, L.P.
By: Sandler Investment Partners, L.P.,
its general partner
By: Sandler Capital Management,
its general partner
By: _______________________________
Name: _____________________________
Title: ____________________________
Address: 767 Fifth Avenue
45th Floor
New York, New York 10153
Facsimile: (212) 826-0269
<PAGE>
CAPITAL COMMUNICATIONS CDPQ, INC.
By: ___________________________________
Name: _________________________________
Title: ________________________________
By: ___________________________________
Name: _________________________________
Title: ________________________________
Address: 1981 McGill College Avenue
Suite 725
Montreal, Quebec
H3A 3C7
Facsimile: (514) 847-5980
TD CAPITAL GROUP LIMITED
By: ___________________________________
Name: _________________________________
Title: ________________________________
Address: 55 King Street West
TD Bank Tower
TD Centre
Toronto, Ontario
M5K 1A2
Facsimile: (416)
<PAGE>
ONTARIO MUNICIPAL EMPLOYEES
RETIREMENT BOARD
By: ___________________________________
Name: _________________________________
Title: ________________________________
By: ___________________________________
Name: _________________________________
Title: ________________________________
Address: One University Avenue, Suite 1100
Toronto, Ontario
M5J2PI
Facsimile: (416) 369-0675
NAUTILUS EQUITY INVESTORS LLC
By: ___________________________________
By: ___________________________________
Address: Eleven Madison Avenue
New York, New York 10010-3622
IHI HYDRO, INC.
By: ___________________________________
Name: _________________________________
Title: ________________________________
Address: The Toronto Dominion Center
55 King Street West at Bay Street
TD Bank Tower, 8th Floor
Toronto, Ontario M5K1A2
<PAGE>
(Exhibit A)
STOCKHOLDERS
<TABLE>
<CAPTION>
Beneficially Name of Beneficial Total Number of Shares
Title of Class Owner Beneficially Owned
<S> <C> <C>
Common / Class B Boston Ventures Limited Partnership V 2,941,176 / 199
One Federal Street,
23rd Floor
Boston, MA 02110-2003
Common / Class B TD Capital Group Limited 1,283,254 / 87
55 King Street
Toronto Dominion Bank
Tower, 8th Floor P.O. Box 1
Toronto Dominion Centre
Toronto, Ontario M5K
1A2 Canada
Common / Class B Kelso Investment Associates VI, L.P. 2,500,000 / 169
320 Park Avenue, 24th Floor
New York, NY 10022
Common / Class B KEP VI, L.L.C. 441,176 / 30
320 Park Avenue
24th Floor
New York, NY 10022
Common / Class B Providence Equity Partners III, L.P. 1,508,378 / 99
Fleet Center, 9th Floor
50 Kennedy Plaza
Providence, RI 02903
Common / Class B Providence Equity Operating Partners 11,230 / 0
III L.P.
Fleet Center, 9th Floor
50 Kennedy Plaza
Providence, RI 02903
Common / Class B Capital Communications 1,470,588 / 100
CDPQ, Inc.
1981 McGill College Avenue
Montreal, Quebec H3A
3C7 Canada
A-1
<PAGE>
<S> <C> <C>
Common / Class B Spectrum Equity Investors III, L.P. 1,458,824 / 99
One International Place, 29th Floor
Boston, MA 02110
Common / Class B Spectrum Entrepreneurs' Fund, L.P. 45,588 / 0
One International Place
29th Floor
Boston, MA 02110
Common / Class B Spectrum III Investment 15,196 / 0
Managers' Fund, L.P.
One International Place
29th Floor
Boston, MA 02110
Common / Class B Sandler Capital Partners IV, L.P. 521,176 / 35
767 5th Avenue
45th Floor
New York, NY 10153
Common / Class B Sandler Capital Partners IV FTE, L.P. 214,118 / 14
767 5th Avenue
45th Floor
New York, NY 10153
Common / Class B Ontario Municipal Employees 558,824 / 38
Retirement Board
One University Avenue
Suite 110
Toronto, Ontario
M5J2P1
Common / Class B Nautilus Equity Investors, LLC 294,118 / 20
Eleven Madison Avenue
New York, NY 10010-3622
Common / Class B IHI Hydro, Inc. 1,635,286 / 110
The Toronto Dominion Centre
55 King Street W at Bay Street
TD Bank Tower
8th Floor
Toronto, Ontario M5K1A2
</TABLE>
A-2
<PAGE>
(Exhibit B)
FORM OF PROXY
The undersigned, for consideration received, hereby appoints ? or ? and
each of them my proxies, with power of substitution, to vote all (i) common
shares, par value $1.50 per share, of GlobeNet Communications Group Limited, a
Bermuda company (the "Company") and (ii) Class B restricted voting shares, par
value $1.50 per share, of the Company, owned by the undersigned at the Special
Meeting of Shareholders of the Company to be held [insert date, time and place]
and at any adjournment thereof FOR approval and adoption of the Agreement and
Plan of Arrangement, dated as of March 10, 2000, by and among the Company and
Worldwide Fiber Inc., a Canadian corporation ("WFI"), providing for the exchange
of shares (the "Arrangement") of the Company and WFI, and the Arrangement, and
AGAINST any action or proposal that would compete with or could serve to
materially interfere with, delay, discourage, adversely affect or inhibit the
timely consummation of the Arrangement. This proxy is coupled with an interest
and is irrevocable until such time as the Voting Agreement, dated as March 10,
2000, among certain shareholders of the Company, including the undersigned, and
WFI terminates in accordance with its terms.
Dated ___________________, 2000
_________________________________
(Signature of Shareholder)
B-1
<PAGE>
Exhibit 4.10
TRUST AGREEMENT
THIS AGREEMENT made as of the ____ day of ____________, 2000.
AMONG:
WORLDWIDE FIBER HOLDINGS LTD., of --
GREGORY B. MAFFEI, of --
MADISON SQUARE INC., of --
LARRY R. OLSEN, of --
(herein called the "Shareholders")
-and-
WORLDWIDE FIBER INC., of 1500 - 1066 West Hastings Street,
Vancouver, British Columbia, V6E 3X1
(herein called the "Company")
-and -
-- TRUST COMPANY, of --
(herein called the "Trustee")
WHEREAS there are -- Class C Multiple Voting Shares of the Company (the
"Multiple Voting Shares") issued and outstanding, all of which are owned by the
Shareholders;
AND WHEREAS the Shareholders and the Company are desirous of entering into
this Agreement to secure the listing of the Class A Non-Voting Shares of the
Company (the "Non-Voting Shares") on The Toronto Stock Exchange and to derive
the benefits of such listing, and for the purpose of ensuring that the holders
from time to time of the Non-Voting Shares will not be deprived of any rights
under applicable take-over bid legislation to which they would have been
entitled in the event of a take-over bid if the Multiple Voting Shares and the
Non-Voting Shares were of a single class of shares, the Shareholders have agreed
that an aggregate of -- Multiple Voting Shares (the "Subject Multiple Voting
shares") as set out in Schedule A attached hereto, representing 80% of the
issued and outstanding Multiple Voting shares, will be subject to the terms of
this Agreement;
AND WHEREAS the Shareholders and the Company desire to constitute the
Trustee as a trustee for the holders from time to time of the Non-Voting Shares
to the intent that
<PAGE>
-2-
such holders, through the Trustee, will receive the benefits of the covenants of
the Shareholders and the Company contained in this Agreement;
NOW THEREFORE THIS AGREEMENT WITNESSETH that in consideration of the
premises and agreements herein contained and for other good and valuable
consideration, the receipt of which is hereby acknowledged, the parties hereto
agree as follows:
1. Subject to Section 2, the Shareholders shall not sell any Subject Multiple
Voting Shares, 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 a follow-up offer to be made
to holders of Non-Voting Shares if the sale had been of Non-Voting Shares rather
than Multiple Voting Shares, but otherwise on the same terms. For this purpose,
it shall be assumed that the offer that would have resulted in such sale of
Non-Voting Shares would have constituted a take-over bid under applicable
securities legislation, regardless of whether this actually would have been the
cause.
2. Section 1 shall not apply to prevent a sale of Subject Multiple Voting
Shares by a Shareholder pursuant to a take-over bid if:
(a) such sale is made pursuant to an offer to purchase Multiple Voting
Shares made to all holders of Multiple Voting Shares, and an identical
offer (in terms of price per share, percentage of outstanding shares
to be taken up exclusive of shares owned immediately prior to the
offer by the offeror, or associates or affiliates of the offeror, and
in all other material respects) concurrently is made to purchase
Non-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;
or
(b) there is a concurrent unconditional offer to purchase all of the
Non-Voting Shares at a price per share at least as high as the highest
price per share paid pursuant to the take-over bid for the Multiple
Voting Shares, and for the purposes of this Section 2 the varying of
any term of an offer shall be deemed to constitute the making of a new
offer.
3. If the conditions attaching to the shares of the Company include a
provision that would have the effect of changing the voting rights attaching to
shares of the Company under certain circumstances, through an automatic
conversion of shares of one class into shares of another class or otherwise, and
if there is an offer that would have been a take-over bid if not for the
existence of such provision, such offer shall be deemed to be a "take-over bid"
for the purposes of this Agreement.
4. For greater certainty, any sale which would result in a direct or indirect
acquisition of Subject Multiple Voting Shares or Non-Voting Shares, or in a
direct or indirect acquisition of control or direction over such shares, be
construed to be a sale of such Subject Multiple Voting Shares or Non-Voting
Shares, as the case may be, for the purposes of Section 1.
<PAGE>
-3-
5. Each Shareholder shall use its best efforts to prevent any person or
company it controls from carrying out a sale (including an indirect sale)
described in Section 1 in respect of any Subject Multiple Voting Shares owned
from time to time by such Shareholder, regardless of whether such person or
company is a party to this Agreement, unless Subsection 2(a) or 2(b) applies in
respect of such sale.
6. If a Shareholder, or any person or company it controls, carries out a sale
(including an indirect sale) described in Section 1 in respect of any Subject
Multiple Voting Shares owned from time to time by such Shareholder, and if
neither Subsection 2(a) or 2(b) applies in respect of such sale, the Shareholder
shall not at the time such sale becomes effective or thereafter do any of the
following with respect to any of the Subject Multiple Voting Shares so sold: (a)
dispose of them without the prior written consent of the Trustee; (b) convert
them into Non-Voting Shares without the prior written consent of the Trustee; or
(c) exercise any voting rights attaching to them except in accordance with the
written instructions of the Trustee, and the Shareholder shall comply with such
instructions. The Trustee may attach conditions to any consent the Trustee gives
in exercising its rights hereunder. The Trustee shall exercise such rights in a
manner that the Trustee considers to be: (i) in the best interests of the
holders of the Non-Voting Shares, other than the Shareholders and other holders
thereof who, in the opinion of the Trustee, participated directly or indirectly
in the transaction that triggered the operation of this Section 6; and (ii)
consistent with the intentions of the Shareholders and the Company in entering
into this Agreement as such intentions are set out in the preamble to this
Agreement.
7. No Shareholder shall dispose of any Subject Multiple Voting Shares,
directly or indirectly, unless the disposition is conditional upon the person or
company acquiring the shares entering into an agreement in the form of this
Agreement and under which such person or company shall have the same rights and
obligations as the Shareholder hereunder. If the conditions attaching to the
shares of the Company include a right of conversion of Multiple Voting Shares
into Non-Voting Shares, neither the exercise of such right nor the subsequent
sale of the Non-Voting shares resulting from the conversion shall constitute a
disposition of Subject Multiple Voting Shares for the purposes of this Section
7.
8. If and whenever the Trustee has reasonable cause to believe that a
Shareholder or the Company may have breached, or may intend to breach, any
provision of this Agreement, the Trustee shall make reasonable enquiry to
determine whether such a breach has occurred or is intended, and if the Trustee
thereupon determines that such is the case the Trustee shall forthwith deliver
to the Company a certificate stating that the Trustee has made such
determination. The Trustee shall thereupon be entitled to take and, subject to
Section 10, shall take such action as the Trustee considers necessary to enforce
its rights under this Agreement on behalf of the holders of the Non-Voting
Shares.
9. Subject to Section 10, if and whenever holders of not less than 10% of the
then outstanding Non-Voting Shares determine that a Shareholder or the Company
has breached, or intends to breach, any provision of this Agreement, such
holders may require the Trustee to take action in connection therewith by
delivering to the Trustee a requisition in writing signed in one or more
counterparts by such holders and setting forth the action to be taken by the
Trustee, and upon receipt by the Trustee of such a requisition the Trustee shall
forthwith take such action as is
<PAGE>
-4-
specified in the requisition and any other action that the Trustee considers
necessary to enforce its rights under this Agreement on behalf of the holders of
the Non-Voting Shares.
10. The obligation of the Trustee to take any action on behalf of the holders
of the Non-Voting Shares shall be conditional upon the Trustee receiving from
the Company or from one or more holders of Non-Voting Shares such funds and
indemnity as the Trustee may reasonably require in respect of any costs or
expenses which it my incur in connection with any such action. The Company shall
provide such funds and indemnity to the Trustee if the Trustee has delivered to
the Company the certificate referred to in Section 8.
11. No holder of Non-Voting Shares shall have the right, other than through the
Trustee, to institute any action or proceeding or to exercise any other remedy
for the purpose of enforcing any rights arising from this Agreement unless
holders of Non-Voting Shares shall have requested in the manner specified in
Section 9 that the Trustee act and shall have provided reasonable funds and
indemnity to the Trustee and the Trustee shall have failed to so act within 30
days after the provision of such funds and indemnity. In such case any holder of
Non-Voting Shares acting on behalf of such holder and all other holders of
Non-Voting Shares shall be entitled to take proceedings in any court of
competent jurisdiction such as the Trustee might have taken.
12. The Company shall do all things reasonably necessary to facilitate the due
performance of this Agreement, including the fulfilment by the Shareholders of
their obligations hereunder.
13. The Trustee may resign and be discharged from all further duties and
liabilities hereunder, subject to this Section 13, after giving three months'
written notice to the Company, or such shorter notice as the Company may accept
as sufficient. In the event that the office of trustee becomes vacant, the
Company shall forthwith appoint a new trustee which shall be a corporation
authorized to carry on the business of a trust company in British Columbia;
failing such appointment, the Shareholders, the Trustee or any holder of
Non-Voting Shares may apply to a judge of the Supreme Court of British Columbia
for the appointment of a new trustee. Upon any new appointment the new trustee
shall be vested with the same powers, rights, duties and responsibilities as if
it had been originally named herein as the trustee, but there shall be
immediately executed, at the expense of the Company, all such instruments as may
be, in the opinion of counsel to the Company, necessary or desirable to assure
such vesting. Any resignation of the Trustee shall not become effective until
the successor party shall have executed an appropriate instrument accepting the
appointment as the new trustee.
14. The Shareholders and the Company agree to indemnify and save harmless the
Trustee from and against all claims made against it by reason of the Trustee's
compliance in good faith with the terms hereof.
15. The Company shall pay the reasonable fees and expenses of the Trustee in
connection with the performance of the Trustee's obligations hereunder,
including the reasonable fees and disbursements of counsel, but this Section 15
shall not require the Company to pay any fees or expenses in connection with any
action taken by the Trustee pursuant to Section 9
<PAGE>
-5-
if the Trustee has not delivered to the Company the certificate referred to in
Section 8 in respect of such action.
16. The Trustee hereby accepts the appointment as trustee for the holders from
time to time of the Non-Voting Shares upon the terms and conditions herein set
forth.
17. This Agreement shall not be amended, and no provision thereof shall be
waived, except with the approval of at least two-thirds of the votes cast by the
holders of Non-Voting Shares present or represented at a meeting duly called for
the purpose of considering such amendment or waiver.
18. Notwithstanding Section 17, the Company and the Trustee may, without
reference to the holders of the Non-Voting Shares, amend this Agreement if
such amendment is, in the opinion of the Trustee:
(a) beneficial to the holders of the Non-Voting Shares;
(b) for the purpose of complying with the legislation, rules or policies
of any applicable regulatory authority; or
(c) necessary or desirable to overcome administrative difficulties arising
in connection with administration of this Agreement;
and such amendment does not, in the opinion of the Trustee, adversely affect the
holders of the Non-Voting Shares.
19. Any notice or other communication required or contemplated under this
Agreement shall be sufficiently given if it is in writing and delivered,
telecopied or sent by prepaid registered mail to the following:
if to the Shareholders:
at the address indicated on the first page hereof
if to the Company:
Worldwide Fiber Inc.
1500 - 1066 West Hastings Street
Vancouver, British Columbia
V6E 3X1
Facsimile No.: (604) 681-6822
Attention: --
if to the Trustee:
-- Trust Company
--
<PAGE>
-6-
--
Facsimile No.: --
Attention: Corporate Trust Department
Any notice which is delivered or telecopied shall be deemed to have been given
and received on the business day next following the date of delivery or
telecopying, as the case may be. Any notice mailed as aforesaid shall be deemed
to have been given and received on the third business day following the date it
is posted, provided that if between the time of mailing and actual receipt of
the notice there shall be a mail strike, slow-down or other labour dispute which
might affect delivery of the notice by mail, then the notice shall be effective
when actually delivered. A person may change its address for service by
providing notice of such in accordance with the terms of this Section 19.
20. This Agreement shall be governed by and construed in accordance with the
laws of the Province of British Columbia.
21. Each of the Parties hereto agrees to execute such further and other deeds,
documents and assurances and do such further and other acts as may be reasonably
necessary to carry out and implement the true intent and meaning of this
Agreement fully and effectually.
22. This agreement shall enure to the benefit of and be binding upon the
parties hereto and their respective heirs, legal representatives, successors and
assigns, as applicable.
WORLDWIDE FIBER HOLDINGS LTD.
Per:
----------------------------------
Authorized Signatory
SIGNED, SIGNED AND DELIVERED
by GREGORY B. MAFFEI in the )
presence of: )
)
)
- ------------------------------------- )
Name ) --------------------------------
) GREGORY B. MAFFEI
- ------------------------------------- )
Address )
)
- -------------------------------------
)
- ------------------------------------- )
Occupation )
<PAGE>
-7-
MADISON SQUARE INC.
Per:
Authorized Signatory
SIGNED, SIGNED AND DELIVERED
by LARRY R. OLSEN in the )
presence of: )
)
)
- ------------------------------------- )
Name ) --------------------------------
) LARRY R. OLSEN
- ------------------------------------- )
Address )
)
- -------------------------------------
)
- ------------------------------------- )
Occupation )
WORLDWIDE FIBER INC.
Per:
----------------------------------
Authorized Signatory
THE CORPORATE SEAL of -- TRUST
COMPANY was hereunto affixed in the )
presence of: )
)
)
Per: ) C/S
--------------------------------- )
Authorized Signatory )
)
<PAGE>
SCHEDULE A
SHAREHOLDER NO. OF SUBJECT MULTIPLE
VOTING SHARES
Worldwide Fiber Holdings Ltd. 32,400,000
Gregory B. Maffei 4,920,000
Madison Square Inc. 1,800,000
Larry R. Olsen 1,800,000
<PAGE>
EXHIBIT 10.31
AGREEMENT AND PLAN OF ARRANGEMENT
Between
WORLDWIDE FIBER INC.
and
GLOBENET COMMUNICATIONS GROUP LIMITED
Dated as of March 11, 2000
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE I.
The Arrangement; Closing; Effective Time
1.1. The Arrangement...................................................................................1
1.2. Closing...........................................................................................1
1.3. Effective Time....................................................................................2
ARTICLE II.
Memorandum of Association and Bye-Laws of the Company
2.1. Memorandum of Association.........................................................................2
2.2. The Bye-Laws......................................................................................2
ARTICLE III.
Officers and Directors of the Company
3.1. Directors.........................................................................................3
3.2. Officers..........................................................................................3
ARTICLE IV.
Effect of the Arrangement on Capital Stock; Exchange of Certificates
4.1. Effect on Capital Stock...........................................................................3
4.2. Exchange of Certificates for Shares...............................................................4
4.3. Adjustments to Prevent Dilution...................................................................6
ARTICLE V.
Representations and Warranties
5.1. Representations and Warranties of the Company.....................................................7
5.2. Representations and Warranties of Parent.........................................................19
i
<PAGE>
ARTICLE VI.
Covenants
6.1. Interim Operations...............................................................................23
6.2. Acquisition Proposals............................................................................25
6.3. Information Supplied.............................................................................26
6.4. Implementation Steps.............................................................................26
6.5. Filings; Other Actions; Notification.............................................................27
6.6. Taxation.........................................................................................28
6.7. Access...........................................................................................29
6.8. Affiliates.......................................................................................29
6.9. Stock Exchange Listing and Delisting.............................................................30
6.10. Publicity.......................................................................................30
6.11. Benefits........................................................................................30
6.12. Expenses........................................................................................31
6.13. Indemnification.................................................................................31
6.14. Takeover Statute................................................................................32
6.15. Parent Capital Reorganization...................................................................32
6.16. Covenants Relating to Tax Free Status of the Arrangement........................................33
6.17. PFIC and GRA Covenants..........................................................................33
6.18. System Expansion Requirements...................................................................34
ARTICLE VII.
Conditions
7.1. Conditions to Each Party's Obligation to Effect the Arrangement..................................35
7.2. Conditions to Obligations of Parent..............................................................36
7.3. Conditions to Obligation of the Company..........................................................37
ARTICLE VIII.
Termination
8.1. Termination by Mutual Consent....................................................................38
8.2. Termination by Either Parent or the Company......................................................38
8.3. Termination by the Company.......................................................................38
8.4. Termination by Parent............................................................................39
8.5. Effect of Termination and Abandonment............................................................39
ii
<PAGE>
ARTICLE IX.
Miscellaneous and General
9.1. Survival.........................................................................................39
9.2. Modification or Amendment........................................................................40
9.3. Waiver of Conditions.............................................................................40
9.4. Counterparts.....................................................................................40
9.5. GOVERNING LAW AND VENUE; WAIVER OF JURY TRIAL....................................................40
9.6. Notices..........................................................................................41
9.7. Entire Agreement.................................................................................42
9.8. No Third Party Beneficiaries.....................................................................42
9.9. Obligations of Parent and of the Company.........................................................42
9.10. Severability....................................................................................43
9.11. Interpretation..................................................................................43
9.12. Assignment......................................................................................43
</TABLE>
<TABLE>
<CAPTION>
Exhibits
- --------
<S> <C>
Form of Company Affiliates Letter..................................................................Exhibit A
Summary of New Parent Capital Stock................................................................Exhibit B
Registration Rights Terms..........................................................................Exhibit C
Company Business Plans.............................................................................Exhibit D
Parent Tax Representation Letter...................................................................Exhibit E
Company Tax Representation Letter..................................................................Exhibit F
Backhaul Requirements..............................................................................Exhibit G
</TABLE>
iii
<PAGE>
Index of Defined Terms
<TABLE>
<CAPTION>
Term Section
- ---- -------
<S> <C>
Acquisition Proposal...................................................................................6.2
Affiliates Letter......................................................................................6.8
Arrangement............................................................................................1.3
Arrangement Consideration...........................................................................4.1(a)
Audit Date..........................................................................................5.1(e)
Backhaul Requirements..............................................................................6.18(a)
Bankruptcy and Equity Exception.....................................................................5.1(c)
Bermuda Act............................................................................................1.1
Bermuda Court..........................................................................................1.3
Final Order............................................................................................1.3
Interim Order..........................................................................................6.4
Bermuda Registrar......................................................................................1.3
Bye-Laws...............................................................................................2.2
Canadian ITA...........................................................................................6.6
Capital Reorganization................................................................................6.15
Certificate.........................................................................................4.1(a)
Class A Share.......................................................................................5.1(b)
Class B Share.......................................................................................4.1(a)
Closing................................................................................................1.2
Closing Date...........................................................................................1.2
Code..............................................................................................Recitals
Common Share........................................................................................4.1(a)
Communications Act..................................................................................5.1(i)
Company...........................................................................................Preamble
Company Disclosure Letter..............................................................................5.1
Company FCC Licenses................................................................................5.1(i)
Company Intellectual Property Rights................................................................5.1(p)
Company Labor Agreements............................................................................5.1(m)
Company Option......................................................................................5.1(b)
Company Proxy Statement................................................................................6.3
Company Reports.....................................................................................5.1(e)
Company Requisite Vote..............................................................................5.1(c)
Company Shareholders Meeting...........................................................................6.4
Compensation and Benefit Plans......................................................................5.1(h)
Confidentiality Agreement..............................................................................9.7
Contracts...........................................................................................5.1(d)
Costs..............................................................................................6.13(a)
Credit Agreement....................................................................................5.1(b)
Effective Time.........................................................................................1.3
Environmental Law...................................................................................5.1(k)
iv
<PAGE>
ERISA...............................................................................................5.1(h)
Exchange Act........................................................................................5.1(c)
Exchange Agent......................................................................................4.2(a)
Exchange Fund.......................................................................................4.2(a)
Existing Parent Capital Stock.......................................................................5.2(a)
Excluded Share......................................................................................4.1(a)
FCC.................................................................................................5.1(i)
FCC Applications....................................................................................6.5(d)
Form F-1............................................................................................5.2(e)
Funded Benefit Plan.................................................................................5.1(h)
GAAP................................................................................................5.1(e)
Governmental Consents...............................................................................7.1(b)
Governmental Entity.................................................................................5.1(d)
Hazardous Substance.................................................................................5.1(k)
HSR Act................................................................................................7.1
Indemnified Parties................................................................................6.13(a)
Initial Public Offering Price.......................................................................4.1(a)
Laws................................................................................................5.1(i)
Liens...............................................................................................5.1(b)
Material Adverse Effect.............................................................................5.1(a)
Memorandum of Association..............................................................................2.1
New Parent Capital Stock............................................................................5.2(a)
Order...............................................................................................7.1(c)
Parent............................................................................................Preamble
Parent Audit Date...................................................................................5.2(e)
Parent Class A Stock................................................................................4.1(a)
Parent Companies....................................................................................4.1(a)
Parent Disclosure Letter...............................................................................5.2
Parent Material Adverse Effect......................................................................5.2(f)
Parent Reports......................................................................................5.1(e)
Parent Stock Plan...................................................................................5.1(a)
Person..............................................................................................4.2(b)
Representatives........................................................................................6.7
Scheme of Arrangement..................................................................................1.3
SEC.................................................................................................5.1(e)
Securities Act......................................................................................4.1(a)
Security Document...................................................................................5.1(b)
Shares..............................................................................................4.1(a)
Stock Plan..........................................................................................5.1(b)
Subsidiary..........................................................................................5.1(a)
Takeover Statute....................................................................................5.1(j)
Tax.................................................................................................5.1(l)
Tax Return..........................................................................................5.1(l)
Termination Date.......................................................................................8.2
v
<PAGE>
Third Party Intellectual Property Rights............................................................5.1(p)
Valuation...........................................................................................5.1(h)
Voting Agreement..................................................................................Recitals
Voting Debt.........................................................................................5.1(b)
</TABLE>
vi
<PAGE>
AGREEMENT AND PLAN OF ARRANGEMENT
AGREEMENT AND PLAN OF ARRANGEMENT (hereinafter called this
"Agreement"), dated as of March 11, 2000, between GlobeNet Communications Group
Limited, a Bermuda company (the "COMPANY"), and Worldwide Fiber Inc., a Canadian
corporation ("PARENT").
RECITALS
WHEREAS, the respective boards of directors of each of Parent
and the Company have approved the Arrangement (as defined herein) and the other
transactions contemplated by this Agreement upon the terms and subject to the
conditions set forth in this Agreement;
WHEREAS, concurrently with the execution and delivery of this
Agreement and as a condition and inducement to Parent's willingness to enter
into this Agreement, Parent and certain shareholders of the Company have entered
into a Voting Agreement dated as of the date of this Agreement (the "VOTING
AGREEMENT"), pursuant to which such shareholders have agreed, among other
things, to vote their common shares and class B restricted voting shares of the
Company in favor of the Arrangement;
WHEREAS, the Company and Parent intend that the Arrangement
qualify as a tax-free reorganization within the meaning of Section 368(a) of the
Internal Revenue Code of 1986, as amended (the "CODE"); and
WHEREAS, the Company and Parent desire to make certain
representations, warranties, covenants and agreements in connection with this
Agreement.
ARTICLE I.
The Arrangement; Closing; Effective Time
1.1. THE ARRANGEMENT. Upon the terms and subject to the conditions set
forth in this Agreement, at the Effective Time (as defined in Section 1.3)
Parent and the Company shall effect the Arrangement, pursuant to which shares of
the Company shall be exchanged for shares of Parent as more fully described
herein. The Arrangement shall have the effects specified under Section 99 of the
Bermuda Companies Act 1981 ("BERMUDA ACT").
1.2. CLOSING. The closing of the Arrangement (the "CLOSING") shall take
place (i) at the offices of Sullivan & Cromwell, 125 Broad Street, New York, New
York at 9:00 A.M. on the first business day on which the last to be fulfilled or
waived of the conditions set forth in Article VII (other than those conditions
that by their nature are to be satisfied at the Closing, but subject to the
fulfillment or waiver of those conditions) shall be satisfied or waived in
accordance with this Agreement or (ii) at such other place and
<PAGE>
time and/or on such other date as the Company and Parent may agree in writing
(the "CLOSING DATE").
1.3. EFFECTIVE TIME. As soon as practicable following the Final Order
(as such term is defined in the Scheme of Arrangement (as defined below)), the
Company and Parent will cause the Final Order to be delivered to the Registrar
of Companies in Bermuda (the "BERMUDA REGISTRAR") under Section 99(3) of the
Bermuda Act. The Arrangement shall become effective on the Closing Date when the
Bermuda Final Order is delivered to the Bermuda Registrar for registration (the
"EFFECTIVE TIME").
As used herein the terms (i) "ARRANGEMENT" means an arrangement under
Section 99 of the Bermuda Act on the terms and subject to the conditions set
forth in the Scheme of Arrangement, as the same may be amended (A) in accordance
with this Agreement or the Scheme of Arrangement or (B) at the direction of the
Bermuda Court (as defined in the Scheme of Arrangement) in the Final Order or
(ii) "SCHEME OF ARRANGEMENT" means the scheme of arrangement in form and
substance consistent with this Agreement to be agreed upon by Parent and the
Company as the same may be amended at the direction of the Bermuda Court in the
Final Order.
ARTICLE II.
Memorandum of Association and Bye-Laws
of the Company
2.1. MEMORANDUM OF ASSOCIATION. The memorandum of association of the
Company as in effect immediately prior to the Effective Time shall be the
memorandum of association of the Company (the "MEMORANDUM OF ASSOCIATION"),
until thereafter amended as provided therein or by applicable law.
2.2. THE BYE-LAWS. The bye-laws of the Company in effect at the
Effective Time shall be the bye-laws of the Company (the "BYE-LAWS"), until
thereafter amended as provided therein or by applicable law.
ARTICLE III.
Officers and Directors
of the Company
3.1. DIRECTORS. The directors of the Company immediately after the
Effective Time shall be directors appointed by the chief executive officer of
Parent, until their successors have been duly elected or appointed and qualified
or until their earlier death, resignation or removal in accordance with the
Memorandum of Association and the Bye-Laws.
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3.2. OFFICERS. The officers of the Company immediately after the
Effective Time shall be officers appointed by the chief executive officer of
Parent, until their successors have been duly elected or appointed and qualified
or until their earlier death, resignation or removal in accordance with the
Memorandum of Association and the Bye-Laws.
ARTICLE IV.
Effect of the Arrangement on Capital Stock;
Exchange of Certificates
4.1. EFFECT ON CAPITAL STOCK. At the Effective Time, as a result of the
Arrangement and without any action on the part of the holder of any shares of
the Company:
(a) ARRANGEMENT CONSIDERATION. (i) Each common share, par value $1.50
per share, of the Company (a "COMMON SHARE") issued and outstanding immediately
prior to the Effective Time (other than Common Shares owned by Parent or any
direct or indirect subsidiary of Parent (collectively, the "PARENT COMPANIES")
or Common Shares that are owned by any direct or indirect subsidiary of the
Company and in each case not held on behalf of third parties (each, an "EXCLUDED
SHARE" and collectively, "EXCLUDED SHARES")) shall be exchanged for that number
of Class A Subordinate Voting Shares of Parent ("PARENT CLASS A STOCK") equal to
(i) (x) 323,141,801 (300 million PLUS the Aggregate Strike Price (as defined
below)) DIVIDED BY 18,952,099 (the number of Common Shares outstanding, on a
fully diluted basis, as of the date of this Agreement) DIVIDED BY (y)) the
lesser of (A) 10 billion DIVIDED BY that number of shares of New Parent Capital
Stock (other than the Parent Class B Subordinate Voting Shares) to be
outstanding immediately following the Initial Public Offering (as defined below)
and (B) the Initial Public Offering Price PLUS (ii) (x) 323,141,801 (300 million
PLUS the Aggregate Strike Price DIVIDED BY 18,952,099 (the number of Common
Shares outstanding, on a fully diluted basis, as of the date of this Agreement))
DIVIDED BY (y) the Initial Public Offering Price (as defined below), stated as a
number ((i) and (ii) together the "ARRANGEMENT CONSIDERATION"). The "INITIAL
PUBLIC OFFERING PRICE" shall be the price of the first closed sale under a firm
commitment underwritten public offering of Parent Class A Stock pursuant to a
registration statement on Form F-1 (the "Initial Public Offering") under the
Securities Act of 1933, as amended (the "SECURITIES ACT"). The "AGGREGATE STRIKE
PRICE" shall be the aggregate exercise price for all Company Options (as defined
herein) outstanding as of the date of this Agreement. At the Effective Time, all
Common Shares (other than Excluded Shares) shall be transferred to, and
registered in the name of, Parent and a certificate for all such Common Shares
shall be issued and registered in the name of Parent, and each certificate (a
"CERTIFICATE") formerly representing any of such Common Shares shall thereafter
represent the right of the holders such Common Shares to receive the Parent
Class A Stock to which they are entitled pursuant to this Section 4.1.
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(ii) In consideration for the Parent Class A Stock issued pursuant to
Section 4.1(a)(i) (and for no further consideration) each class B restricted
voting share, par value $1.50 per share, of the Company (a "CLASS B SHARE" and
together 9with the Common Shares, the "SHARES") issued and outstanding
immediately prior to the Effective Time shall be transferred to, and registered
in the name of, Parent.
(b) EXCLUDED SHARES. Each Excluded Share shall, by virtue of the
Arrangement and without any action on the part of the holder thereof, be
transferred to, and registered in the name of, Parent for no consideration.
(c) FRACTIONAL SHARES. Notwithstanding any other provision of this
Agreement, no fractional shares of Parent Class A Stock will be issued. Parent
shall round to the nearest whole share, with .50 being rounded downward, the
number of shares of Parent Class A Stock that any holder of Shares would be
entitled to receive as Arrangement Consideration but for this Section 4.1(c).
4.2. EXCHANGE OF CERTIFICATES FOR SHARES. (a) EXCHANGE AGENT. As of the
Effective Time, Parent shall deposit, or shall cause to be deposited, with an
exchange agent selected by Parent with the Company's prior approval, which shall
not be unreasonably withheld (the "EXCHANGE AGENT"), for the benefit of the
holders of Shares (other than holders of Excluded Shares), certificates
representing the shares of Parent Class A Stock to be issued pursuant to the
last sentence of Section 4.1(a) in exchange for Shares outstanding immediately
prior to the Effective Time upon due surrender of the Certificates (or
affidavits of loss or indemnities in lieu thereof) pursuant to the provisions of
this Article IV (such certificates for shares of Parent Class A Stock being
hereinafter referred to as the "EXCHANGE FUND").
(b) EXCHANGE PROCEDURES. Promptly after the Effective Time, Parent
shall cause the Exchange Agent to mail to each holder of record of Shares (other
than holders of Excluded Shares) (i) a letter of transmittal specifying that
delivery shall be effected, and risk of loss to the Certificates shall be
issued, only upon delivery of the Certificates (or affidavits of loss or
indemnities in lieu thereof) to the Exchange Agent, such letter of transmittal
to be in such form and have such other provisions as Parent and the Company may
reasonably agree, and (ii) instructions for use in effecting the surrender of
the Certificates in exchange for certificates representing shares of Parent
Class A Stock. Subject to Section 4.2(g), upon surrender of a Certificate to the
Exchange Agent together with such letter of transmittal, duly executed, the
holder of such Certificate shall be entitled to receive in exchange therefor a
certificate representing that number of whole shares of Parent Class A Stock
that such holder is entitled to receive pursuant to this Article IV.
Certificates surrendered to the Exchange Agent shall be held by the Exchange
Agent for delivery to Parent in a manner to be agreed upon by Parent and the
Exchange Agent. In the event of a transfer of ownership of Shares that is not
registered in the transfer records of the Company, a certificate representing
the proper number of shares of Parent Class A Stock may be issued to such a
transferee if the Certificate formerly representing such Shares is presented to
the Exchange Agent, accompanied by all documents required to
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evidence and effect such transfer. If any certificate for shares of Parent Class
A Stock is to be issued in a name other than that in which the Certificate
surrendered in exchange therefor is registered, it shall be a condition of such
exchange that the Person (as defined below) requesting such exchange shall
provide evidence satisfactory to Parent with respect thereto.
For the purposes of this Agreement, the term "PERSON" shall mean any
individual, corporation (including not-for-profit), general or limited
partnership, limited liability company, joint venture, estate, trust,
association, organization, Governmental Entity (as defined in Section 5.1(d)) or
other entity of any kind or nature.
(c) DISTRIBUTIONS WITH RESPECT TO UNEXCHANGED SHARES; VOTING. (i) All
shares of Parent Class A Stock to be issued pursuant to the Arrangement shall be
deemed issued and outstanding as of the Effective Time and whenever a dividend
or other distribution is declared by Parent in respect of the Parent Class A
Stock, the record date for which is at or after the Effective Time, that
declaration shall include dividends or other distributions in respect of all
shares issuable pursuant to this Agreement. No dividends or other distributions
in respect of the Parent Class A Stock shall be paid to any holder of any
unsurrendered Certificate until such Certificate is surrendered for exchange in
accordance with this Article IV. Subject to the effect of applicable laws,
following surrender of any such Certificate, there shall be issued to the holder
of the certificates representing whole shares of Parent Class A Stock issued in
exchange therefor, without interest, (A) at the time of such surrender, the
dividends or other distributions with a record date after the Effective Time
theretofore payable with respect to such whole shares of Parent Class A Stock
and not paid and (B) at the appropriate payment date, the dividends or other
distributions payable with respect to such whole shares of Parent Class A Stock
with a record date after the Effective Time but with a payment date subsequent
to surrender.
(ii) Holders of unsurrendered Certificates shall be entitled to vote
after the Effective Time at any meeting of Parent shareholders the number of
whole shares of Parent Class A Stock represented by such Certificates,
regardless of whether such holders have exchanged their Certificates.
(d) TRANSFERS. After the Effective Time, there shall be no transfers on
the stock transfer books of the Company of the Shares that were outstanding
immediately prior to the Effective Time other than to Parent.
(e) TERMINATION OF EXCHANGE FUND. Any portion of the Exchange Fund that
remains unclaimed by the shareholders of the Company for 180 days after the
Effective Time shall be returned to Parent. Any shareholders of the Company who
have not theretofore complied with this Article IV shall thereafter look only to
Parent for issuance of the Certificates for their shares of Parent Class A Stock
upon due surrender of their Certificates (or affidavits of loss or indemnity in
lieu thereof), without any interest thereon. Notwithstanding the foregoing, none
of Parent, the Exchange Agent or any other
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Person shall be liable to any former holder of Shares for any amount properly
delivered to a public official pursuant to applicable abandoned property,
escheat or similar laws.
(f) LOST, STOLEN OR DESTROYED CERTIFICATES. In the event any
Certificate shall have been lost, stolen or destroyed, upon the making of an
affidavit of that fact by the Person claiming such Certificate to be lost,
stolen or destroyed or the posting by such Person of a bond in customary amount
as indemnity against any claim that may be made against it with respect to such
Certificate, as determined by Parent, the Exchange Agent will issue and deliver
in exchange for such lost, stolen or destroyed Certificate the shares of Parent
Class A Stock and any unpaid dividends or other distributions in respect thereof
pursuant to Section 4.2(c).
(g) AFFILIATES. Notwithstanding anything herein to the contrary,
Certificates surrendered for exchange by any Affiliate (as determined pursuant
to Section 6.8) of the Company shall not be exchanged until Parent has received
a written agreement from such Person as provided in Section 6.8 hereof.
4.3. ADJUSTMENTS TO PREVENT DILUTION. In the event that the Company
changes the number of Shares or securities convertible or exchangeable into or
exercisable for Shares, or Parent changes the number of shares of Parent Class A
Stock or securities convertible or exchangeable into or exercisable for shares
of Parent Class A Stock, issued and outstanding prior to the Effective Time as a
result of a reclassification, stock split (including a reverse split), stock
dividend or distribution, recapitalization, Arrangement, subdivision, issuer
tender or exchange offer, or other similar transaction, the Arrangement
Consideration shall be equitably adjusted, PROVIDED, HOWEVER, that all
Arrangement Consideration shall be in the form of shares of Parent Class A
Stock.
ARTICLE V.
Representations and Warranties
5.1. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. Except as set forth
in the corresponding sections or subsections of the disclosure letter delivered
to Parent by the Company on or prior to entering into this Agreement (the
"COMPANY DISCLOSURE LETTER"), the Company hereby represents and warrants to
Parent that as of the date hereof and as of the Closing Date (except to the
extent such representations and warranties expressly speak as of an earlier
date):
(a) ORGANIZATION, GOOD STANDING AND QUALIFICATION. Each of the Company
and its Subsidiaries is a corporation or other entity duly organized, validly
existing and in good standing under the laws of its respective jurisdiction of
organization and has all requisite corporate or similar power and authority to
own and operate its properties and assets and to carry on its business as
presently conducted and is qualified to do business and is in good standing as a
foreign corporation or other entity in each jurisdiction where the ownership or
operation of its assets or properties or conduct of its
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business requires such qualification, except where the failure to be so
organized, qualified or in good standing, or to have such power or authority
when taken together with all other such failures, is not reasonably likely to
have a Material Adverse Effect (as defined below). The Company has made
available to Parent a complete and correct copy of the Company's and its
Subsidiaries' certificates of incorporation, memorandum of association and
bye-laws (or other constitutional documents), each as amended to date. The
Company's and its Subsidiaries' certificates of incorporation, memorandum of
association and bye-laws (or other constitutional documents) so delivered are in
full force and effect. The Company has made available to Parent the books and
records of the Company and its Subsidiaries. The books and records of the
Company and its Subsidiaries accurately reflect in all material respects any
transactions entered into by the Company or its Subsidiaries. Section 5.1(a) of
the Company Disclosure Letter contains a correct and complete list of each
jurisdiction where the Company and each of its Subsidiaries is organized and
qualified to do business.
As used in this Agreement, the term (i) "SUBSIDIARY" means, with
respect to the Company or Parent, as the case may be, any entity, whether
incorporated or unincorporated, of which at least a majority of the securities
or ownership interests having by their terms ordinary voting power to elect a
majority of the board of directors or other persons performing similar functions
is directly or indirectly owned or controlled by such party or by one or more of
its respective Subsidiaries or by such party and any one or more of its
respective Subsidiaries and (ii) "MATERIAL ADVERSE EFFECT" means a material
adverse effect on the financial condition, properties, prospects, business or
results of operations of the Company and its Subsidiaries taken as a whole.
(b) CAPITAL STRUCTURE. The authorized shares of the Company consists of
24,000,000 Common Shares, of which 17,043,900 shares were outstanding as of the
close of business on March 6, 2000, 100 Class A Restricted Voting Shares, par
value $1.50 per share ("CLASS A SHARES"), of which no shares were outstanding as
of the close of business on March 6, 2000, and 2,000 Class B Shares, of which
1,000 shares were outstanding as of the close of business on March 6, 2000. All
of the outstanding Shares have been duly authorized and are validly issued,
fully paid and nonassessable. The Company has no Shares or Class A Shares
reserved for issuance, except that, as of March 6, 2000, there were 1,908,199
Common Shares reserved for issuance pursuant to the Company's 1998 Share Option
and Incentive Plan and the 1997 TeleBermuda International Limited Directors,
Executives, Senior Management and Senior Staff Stock Option Plan (the "STOCK
PLANS") or otherwise. The Company Disclosure Letter contains a correct and
complete list of each outstanding option to purchase Common Shares (each a
"COMPANY OPTION"), including the holder, date of grant, exercise price and
number of Common Shares subject thereto. Each of the outstanding shares of
capital stock or other securities of each of the Company's Subsidiaries is duly
authorized, validly issued, fully paid and nonassessable and, except for
directors' qualifying shares, owned by a direct or indirect wholly-owned
Subsidiary of the Company, free and clear of any lien, pledge, security
interest, claim or other encumbrance ("LIENS"), except for those liens created
pursuant to the Credit Agreement or any Security Document (as such terms are
defined below). Except as set
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forth in Section 5.1(b) of the Company Disclosure Letter, there are no
preemptive or other outstanding rights, options, warrants, conversion rights,
stock appreciation rights, redemption rights, repurchase rights, agreements,
arrangements, calls, commitments or rights of any kind that obligate the Company
or any of its Subsidiaries to issue or sell any shares of capital stock or other
securities of the Company or any of its Subsidiaries or any securities or
obligations convertible or exchangeable into or exercisable for, or giving any
Person a right to subscribe for or acquire, any securities of the Company or any
of its Subsidiaries, and no securities or obligations evidencing such rights are
authorized, issued or outstanding. The Company does not have outstanding any
bonds, debentures, notes or other obligations the holders of which have the
right to vote (or convertible into or exercisable for securities having the
right to vote) with the shareholders of the Company on any matter ("VOTING
DEBT"). For purposes of this Agreement, (i) "CREDIT AGREEMENT" means that
certain Credit Agreement dated as of July 14, 1999, among GlobeNet
Communications Holdings Ltd., Toronto Dominion (Texas) Inc., as administrative
agent, and certain other parties, as amended; and (ii) "SECURITY DOCUMENT" has
the meaning provided in the Credit Agreement.
(c) CORPORATE AUTHORITY; APPROVAL AND FAIRNESS. (i) The Company has all
requisite corporate power and authority and has taken all corporate action
necessary in order to execute, deliver and perform its obligations under this
Agreement and to consummate, subject only to approval of the Arrangement by a
majority in number representing 75% in value of the holders of the outstanding
Common Shares and approval of the Scheme of Arrangement by a majority in number
representing 75% in value of the holders of the outstanding Class B Shares (the
"COMPANY REQUISITE VOTE"), the Arrangement. This Agreement is a valid and
binding agreement of the Company enforceable against the Company in accordance
with its terms, subject to bankruptcy, insolvency, fraudulent transfer,
reorganization, moratorium and similar laws of general applicability relating to
or affecting creditors' rights and to general equity principles (the "BANKRUPTCY
AND EQUITY EXCEPTION").
(ii) The board of directors of the Company has unanimously approved the
Arrangement and the other transactions contemplated hereby, other than Mark
Pelson who abstained from voting on such matters. It is agreed and understood
that such opinion is for the benefit of the Company's Board of Directors and may
not be relied on by Parent.
(d) GOVERNMENTAL FILINGS; NO VIOLATIONS. (i) Except as set forth in
Section 5.1(d) of the Company Disclosure Letter, no notices, reports or other
filings are required to be made by the Company with, nor are any consents,
registrations, approvals, permits or authorizations required to be obtained by
the Company from, any domestic or foreign governmental or regulatory authority,
agency, commission, body or other governmental entity ("GOVERNMENTAL ENTITY"),
in connection with the execution and delivery of this Agreement by the Company
and the consummation by the Company of the Arrangement and the other
transactions contemplated hereby and thereby.
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(ii) Except as provided in Section 5.1(d)(ii) of the Company Disclosure
Letter, the execution, delivery and performance of this Agreement by the Company
does not, and the consummation by the Company of the Arrangement and the other
transactions contemplated hereby will not, constitute or result in (A) a breach
or violation of, or a default under, the memorandum of association or bye-laws
of the Company or the comparable governing instruments of any of its
Subsidiaries, (B) a breach or violation of, or a default under, the acceleration
of any obligations or the creation of a Lien on the assets of the Company or any
of its Subsidiaries (with or without notice, lapse of time or both) pursuant to,
any agreement, lease, license, contract, note, mortgage, indenture, arrangement
or other obligation with a term of six or more months after the date hereof or
involving payments of $50,000 or more after the date hereof ("CONTRACTS")
binding upon the Company or any of its Subsidiaries or any Law (as defined in
Section 5.1(i)) or governmental or non-governmental permit or license to which
the Company or any of its Subsidiaries is subject or (C) any change in the
rights or obligations of any party under any of the Contracts. Section 5.1(d) of
the Company Disclosure Letter sets forth, among other things, a correct and
complete list of Contracts of the Company and its Subsidiaries pursuant to which
consents or waivers are or may be required prior to consummation of the
transactions contemplated by this Agreement.
(e) COMPANY REPORTS; FINANCIAL STATEMENTS. The Company has delivered to
Parent each registration statement, report, proxy statement or information
statement prepared by it since December 31, 1999 (the "AUDIT DATE"), each in the
form (including exhibits, annexes and any amendments thereto) filed with the
Securities and Exchange Commission (the "SEC") (collectively, including any such
reports filed subsequent to the date hereof and as amended, the "COMPANY
REPORTS"). As of their respective dates (or, if amended, as of the date of such
amendment), the Company Reports did not, and any Company Reports filed with the
SEC subsequent to the date hereof will not, contain any untrue statement of a
material fact or omit to state a material fact required to be stated therein or
necessary to make the statements made therein, in light of the circumstances in
which they were made, not misleading. Each of the consolidated balance sheets
included in or incorporated by reference into the Company Reports (including the
related notes and schedules) fairly presents, or will fairly present, the
consolidated financial position of the Company and its Subsidiaries as of its
date and each of the consolidated statements of shareholders' equity, of
operations and of cash flows included in or incorporated by reference into the
Company Reports (including any related notes and schedules) fairly presents, or
will fairly present, the results of operations, cash flows and shareholders'
equity, as the case may be, of the Company and its Subsidiaries for the periods
set forth therein (subject, in the case of unaudited statements, to notes and
normal year-end audit adjustments that will not be material in amount or
effect), in each case in accordance with generally accepted accounting
principles ("GAAP") consistently applied during the periods involved, except as
may be noted therein.
(f) ABSENCE OF CERTAIN CHANGES. Except as provided in Section 5.1(f) of
the Company Disclosure Letter, since the Audit Date the Company and its
Subsidiaries
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have conducted their respective businesses in all material respects, and have
not engaged in any material transaction other than according to, the ordinary
and usual course of such businesses and there has not been (i) any change in the
financial condition, properties, prospects, business or results of operations of
the Company and its Subsidiaries or any development or combination of
developments of which management of the Company has knowledge that, individually
or in the aggregate, has had or is reasonably likely to have a Material Adverse
Effect other than any change, development or combination of developments which
apply generally to the fiber-optic submarine cable business; (ii) any material
damage, destruction or other casualty loss with respect to any material asset or
property owned, leased or otherwise used by the Company or any of its
Subsidiaries, whether or not covered by insurance; (iii) any declaration,
setting aside or payment of any dividend or other distribution in cash, stock or
property in respect of the capital stock of the Company, except for dividends or
other distributions on its capital stock publicly announced prior to the date
hereof and except as expressly permitted hereby; (iv) any change by the Company
in accounting principles, practices or methods; (v) issued or sold any shares of
any class of its capital stock, or any securities convertible into or
exchangeable for any such shares, or issued, sold, granted or entered into any
subscriptions, options, warrants, conversion or other rights, agreements,
commitments, arrangements or understandings of any kind, contingently or
otherwise, to purchase or otherwise acquire any such shares or any securities
convertible into or exchangeable for any such shares; (vi) incurred any
indebtedness for borrowed money, issued or sold any debt securities or prepaid
any debt except for borrowings and repayments in the ordinary course of
business; (vii) assigned, mortgaged, pledged or otherwise subjected to any lien,
any of its assets, except assignments to any Subsidiary or in the ordinary
course of business; (viii) forgiven, canceled, compromised, waived or released
any debts, claims or rights, except for debts, claims and rights forgiven,
canceled, compromised, waived or released which are immaterial or in the
ordinary course of business consistent with past practice; (ix) except in the
ordinary course of business, paid any bonus to any director, officer, manager or
employee or granted to any director, officer, manager or employee, any other
increase in compensation in any form; (x) entered into, adopted or amended any
employment, consulting, retention, change-in-control, collective bargaining,
bonus or other incentive compensation, profit-sharing, health or other welfare,
stock option or other equity, pension, retirement, vacation, severance, deferred
compensation or other employment, compensation or benefit plan, policy,
agreement, trust, fund or arrangement for the benefit of any officer, director
or employee; (xi) amended its memorandum of association or bye-laws; (xii)
incurred, assumed, guaranteed or otherwise became, directly or indirectly liable
with respect to any liability or obligation (whether absolute, accrued,
contingent or otherwise and whether direct or indirect, or as guarantor or
otherwise with respect to any liability or obligation of any other Person) in
excess of (A) $100,000 in each case, other than purchase orders and payroll
obligations in the ordinary course of business, or (B) except in the ordinary
course of business $250,000 in the aggregate at any one time outstanding; (xiii)
sold any assets with a value in excess of $100,000 in each case or $250,000 in
the aggregate, other than in the ordinary course of business consistent with
past practice; or (xiv) instituted, settled or agreed to settle any litigation,
action or
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proceeding before any court or government body, other than in the ordinary
course of business consistent with past practice. Since the Audit Date, there
has not been any increase in the compensation payable or that could become
payable by the Company or any of its Subsidiaries to officers or key employees
or any amendment of any of the Compensation and Benefit Plans (as defined in
Section 5.1(h)(i)) other than as provided in Section 5.1(f) of the Company
Disclosure Letter or increases or amendments in the ordinary course.
(g) LITIGATION AND LIABILITIES. (i) Except as disclosed in Section
5.1(g) of the Company Disclosure Letter, as of the date of this Agreement there
are no civil, criminal or administrative actions, suits, claims, hearings,
investigations or proceedings ("ACTIONS") pending or, to the knowledge of the
officers of the Company, threatened against the Company or any of its Affiliates
and as of the Effective Time there will not be any civil, criminal or
administrative Actions pending or, to the knowledge of the officers of the
Company, threatened against the Company or any of its Affiliates that are
material to the Company. Neither the Company nor any of its Subsidiaries is
subject to any settlement or similar agreement with any Governmental Entity, or
to any order, judgment, decree, injunction or award of any Governmental Entity
that, individually or in the aggregate, could reasonably be expected to have or
result in a Material Adverse Effect.
(ii) Neither the Company nor any of its Subsidiaries has any
liabilities or obligations of any nature, whether known, unknown, absolute,
accrued, contingent or otherwise and whether due or to become due, except (A) as
set forth in Section 5.1(g) of the Company Disclosure Letter, (B) as and to the
extent disclosed on and adequately reserved against in the balance sheet of the
Company as of the Audit Date, which are included in the Company Reports, or (C)
for liabilities and obligations that (I) were incurred after December 31, 1999
in the ordinary course of business and are not prohibited by this Agreement and
(II) individually and in the aggregate have not had a Material Adverse Effect
and could not reasonably be expected to have or result in a Material Adverse
Effect.
(h) EMPLOYEE BENEFITS.
(i) A copy of each bonus, deferred compensation, pension, retirement,
profit-sharing, thrift, savings, employee stock ownership, stock bonus, stock
purchase, restricted stock, stock option, employment, termination, severance,
compensation, medical, health or other plan, agreement, policy or arrangement
that covers employees, directors, former employees or former directors of the
Company and its Subsidiaries (the "COMPENSATION AND BENEFIT PLANS") and any
trust agreement or insurance contract forming a part of such Compensation and
Benefit Plans has been made available to Parent prior to the date hereof. The
Compensation and Benefit Plans are listed in Section 5.1(h) of the Company
Disclosure Letter and any "change of control" or similar provisions therein are
specifically identified in Section 5.1(h) of the Company Disclosure Letter.
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(ii) All Compensation and Benefit Plans are in substantial compliance
with all applicable law. None of the Compensation and Benefit Plans is subject
to the Employee Retirement Income Security Act of 1974, as amended ("ERISA"),
except as set forth in Section 5.1(b)(ii) of the Company Disclosure Letter.
Wherever required under applicable law or customary under applicable practice,
the Compensation and Benefit Plans are approved by the relevant taxation and
other governmental authorities such as to enable the Company, its Subsidiaries
and the beneficiaries under the Compensation and Benefits Plans and, in the case
of a Funded Benefit Plan (as defined below), the assets held for the purposes of
the Compensation and Benefits Plans, to enjoy the most favorable taxation status
possible, and, to the knowledge of the officers of the Company, there is no
ground on which such approval may be withdrawn or cease to apply. There is no
pending or, to the knowledge of the officers of the Company, threatened material
litigation relating to the Compensation and Benefit Plans.
(iii) Neither the Company nor any entity which is considered one
employer with the Company under Section 4001 of ERISA has ever maintained or
contributed to any employee benefit plan subject to Title IV of ERISA. All
payments, deductions from wages, reports, returns and similar documents with
respect to the Compensation and Benefit Plan required to be filed with or paid
to any governmental authority or Compensation and Benefit Plan or distributed to
any Compensation and Benefit Plan participant have duly and timely filed, paid
or distributed.
(iv) Each Compensation and Benefit Plan in or under which assets are
set aside in advance relating to the intended or promised benefits, other than a
"defined contribution plan" within the meaning of Section 3(34) of ERISA
("FUNDED BENEFIT PLAN") has been valued actuarially in the last three years
("VALUATION"). The last Valuation of each Funded Benefit Plan showed that the
Funded Benefit Plan was fully funded on the assumptions and methods adopted for
that Valuation. The assumptions and methods used in the last Valuation of each
Funded Benefit Plan were in accordance with applicable law and local practice
and were reasonable assumptions having regard to the nature and circumstances of
the Funded Benefit Plan.
(v) In relation to a Compensation and Benefit Plan which is a Funded
Benefit Plan, all contributions and other payments due from the participating
employers and employees have been paid to the Compensation and Benefit Plan and
nothing has occurred or become known since the effective date of the Valuation
which might reasonably be expected to cause the result of an actuarial valuation
carried out at the date of this Agreement, adopting the same actuarial methods
and assumptions as were adopted for the purpose of the Valuation, to be
materially different from the result of the Valuation.
(vi) In relation to a Compensation and Benefit Plan that is not a
Funded Benefit Plan, the Company or a Subsidiary maintains a book reserve in
respect of the Compensation and Benefit Plan to the extent required by
applicable law and generally accepted best local accounting practices and in any
event sufficient to provide all benefits under such Compensation and Benefit
Plan.
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(vii) Except for the Stock Plans and agreements set forth in Section
5.1(h) of the Company Disclosure Letter, the consummation of the Arrangement and
the other transactions contemplated by this Agreement will not (x) entitle any
employees of the Company or its Subsidiaries to severance pay, (y) accelerate
the time of payment or vesting or trigger any payment or funding (through a
grantor trust or otherwise) of compensation or benefits under, increase the
amount payable or trigger any other material obligation pursuant to, any of the
Compensation and Benefit Plans or (z) result in any breach or violation of, or a
default under, any of the Compensation and Benefit Plans.
(i) COMPLIANCE WITH LAWS; PERMITS. (i) As of the date of this
Agreement, the businesses of each of the Company and its Subsidiaries have not
been, and are not being, conducted in violation of any federal, state, local or
foreign law, statute, ordinance, rule, regulation, judgment, order, injunction,
decree, arbitration award, agency requirement, license or permit of any
Governmental Entity (collectively, "LAWS") and as of the Effective Time, the
businesses of each of the Company and its Subsidiaries will not be conducted in
violation of any federal, state, local or foreign Laws except for any violation,
which individually or in the aggregate, would not be material to the Company.
Except as set forth in the Company Reports filed prior to the date hereof, no
investigation or review by any Governmental Entity with respect to the Company
or any of its Subsidiaries is pending or, to the knowledge of the officers of
the Company, threatened, nor has any Governmental Entity indicated an intention
to conduct the same. To the knowledge of the officers of the Company, no
material change is required in the Company's or any of its Subsidiaries'
processes, properties or procedures in connection with any Laws, and the Company
has not received any notice or communication of any material noncompliance with
any Laws that has not been cured as of the date hereof. Except as set forth in
Section 5.1(i) of the Company Disclosure Letter, as of the date of this
Agreement, the Company and its Subsidiaries each has all and as of the Effective
Time, the Company and its Subsidiaries each will have all permits, licenses,
franchises, variances, exemptions, orders and other governmental authorizations,
consents and approvals necessary to conduct its business as then conducted,
except where the failure to have any of the foregoing would not be material to
the Company.
(ii) The Company and each of its Subsidiaries holds, and is qualified
and eligible to hold, all material licenses, permits and other authorizations
issued by the Federal Communications Commission (the "FCC") to such entity for
the operation of their respective businesses, all of which are set forth in
Section 5.1(i) of the Company Disclosure Letter (the "COMPANY FCC LICENSES").
The Company FCC Licenses are valid and in full force and effect and neither the
Company nor any of its Subsidiaries is or has been delinquent in payment on or
in default under any installment obligation owed to the United States Treasury
in connection with the Company FCC Licenses. As used herein, the term "full
force and effect" means that (A) the orders issuing the Company FCC Licenses
have become effective, (B) no stay of effectiveness of such orders has been
issued by the FCC, and (C) the Company FCC Licenses have not been invalidated by
any
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subsequent published FCC action. All material reports and applications required
by the Communications Act of 1934, as amended (the "COMMUNICATIONS ACT"), or
required to be filed with the FCC by the Company or any of its Subsidiaries have
been filed and are accurate and complete in all material respects. The Company
and its Subsidiaries are, and have been, in compliance in all material respects
with, and the communications systems operated pursuant to the Company FCC
Licenses are and have been operated in compliance in all material respects with,
the Communications Act. There is not pending as of the date hereof any
application, petition, objection, pleading or proceeding with the FCC or any
public service commission or similar body having jurisdiction or authority over
the communications operations of the Company or any of its Subsidiaries which
questions the validity of or contests any Company FCC License or which presents
a substantial risk that, if accepted or granted, or concluded adversely, could
result in (as applicable) the revocation, cancellation, suspension, dismissal,
denial or any materially adverse modification of any Company FCC License or
imposition of any substantial fine or forfeiture against the Company or any of
its Subsidiaries except as set forth in Section 5.1(i) of the Company Disclosure
Letter. No fact is known to the Company or its Subsidiaries which if known by a
Governmental Entity of competent jurisdiction would present a substantial risk
that any Company FCC License could be revoked, cancelled, suspended or
materially adversely modified or that any substantial fine or forfeiture could
be imposed against the Company or any of its Subsidiaries.
(iii) Each of the Company and its Subsidiaries has complied with the
United States Foreign Corrupt Practices Act and neither of them nor any Person
controlled by either of them, nor, to the knowledge of the officers of the
Company, any Person acting on behalf of any of the foregoing has directly or
indirectly offered or promised to transfer, or transferred or authorized the
transfer of, any money or thing of value to any governmental official, political
party or party official, or candidate for political office (or any other Person
offering all or a portion of such money or thing of value to any such official,
party or candidate) in order to cause or induce such person to (A) act or to
refrain from acting in his, her or its official capacity (B) use his, her or its
influence or (C) assist any such party or any of their affiliates in obtaining
or retaining business for or with, or directing business to, any other Person.
(j) TAKEOVER STATUTES. No "fair price," "moratorium," "control share
acquisition" or other similar anti-takeover statute or regulation (each a
"TAKEOVER STATUTE") or any anti-takeover provision in the Company's memorandum
of association and bye-laws is, or at the Effective Time will be, applicable to
the Company, the Shares, the Arrangement or the other transactions contemplated
by this Agreement.
(k) ENVIRONMENTAL MATTERS. Except as set forth in Section 5.1(k) of the
Company Disclosure Letter to the knowledge of the officers of the Company: (i)
the Company and its Subsidiaries have complied in all material respects at all
times with all applicable Environmental Laws; (ii) no property currently owned
or operated by the Company or any of its Subsidiaries (including soils,
groundwater, surface water, buildings or other structures) is contaminated with
any Hazardous Substance; (iii) no property
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formerly owned or operated by the Company or any of its Subsidiaries was
contaminated with any Hazardous Substance during or prior to such period of
ownership or operation; (iv) neither the Company nor any of its Subsidiaries is
subject to liability for any Hazardous Substance disposal or contamination on
any third party property; (v) neither the Company nor any of its Subsidiaries
has been associated with any release or threat of release of any Hazardous
Substance; (vi) neither the Company nor any of its Subsidiaries has received any
written notice, demand, letter, claim or request for information alleging that
the Company or any of its Subsidiaries may be in violation of or subject to
liability under any Environmental Law; (vii) neither the Company nor any of its
Subsidiaries is subject to any order, decree, injunction or other arrangement
with any Governmental Entity or any indemnity or other agreement with any third
party relating to liability under any Environmental Law or relating to Hazardous
Substances; (vii) none of the properties contain any underground storage tanks,
asbestos-containing material, lead products, or polychlorinated biphenyls;
(viii) neither the Company nor any Subsidiary has engaged in any activities
involving the generation, use, handling or disposal of any Hazardous Substance.
(ix) there are no other circumstances or conditions involving the Company or any
of its Subsidiaries that could reasonably be expected to result in any claim,
liability, investigation, cost or restriction on the ownership, use, or transfer
of any property pursuant to any Environmental Law; and (x) the Company has
delivered to Parent copies of all environmental reports, studies, assessments,
sampling data and other environmental information in its possession relating to
Company or its Subsidiaries or their respective current and former properties or
operations.
As used herein, the term "ENVIRONMENTAL LAW" means any federal, state,
local statute, law, regulation, order, decree, permit, authorization, common law
or agency requirement, in each case whether domestic or foreign, relating to:
(A) the protection, investigation or restoration of the environment, or natural
resources, (B) the handling, use, presence, disposal, release or threatened
release of any Hazardous Substance or (C) wetlands, pollution, contamination or
any injury or threat of injury to persons or property relating to any Hazardous
Substance.
As used herein, the term "HAZARDOUS SUBSTANCE" means any substance that
is: (A) listed, classified or regulated pursuant to any Environmental Law; (B)
any petroleum product or by-product, asbestos-containing material,
lead-containing paint or plumbing, polychlorinated biphenyls, radioactive
material or radon; and (C) any other substance which may be the subject of
regulatory action by any Government Entity in connection with any Environmental
Law.
(l) TAXES. Except as set forth in Section 5.1(l) of the Company
Disclosure Letter, the Company and each of its Subsidiaries (i) have prepared in
good faith and duly and timely filed (taking into account any extension of time
within which to file) all material Tax Returns (as defined below), including but
not limited to, treaty-based Tax Returns, required to be filed by any of them
and all such filed Tax Returns are complete and accurate in all material
respects; (ii) have paid all Taxes (as defined below) that are shown as due on
such filed Tax Returns; (iii) have paid over to the proper Governmental
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Entity in a timely manner all material Taxes that the Company or any of its
Subsidiaries is obligated to withhold from amounts owing to any employee,
creditor or third party, to the extent due and payable; and (iv) as of the date
of this Agreement, have not waived any statute of limitations with respect to
Taxes or agreed to any extension of time with respect to a Tax assessment or
deficiency. As of the date hereof, there are not pending or, to the knowledge of
the executive officers of the Company threatened in writing, any audits,
examinations, investigations or other proceedings in respect of Taxes or Tax
matters. As of the date of this Agreement, the Company has made available to
Parent true and correct copies of all material income, franchise, capital and
similar Tax Returns filed by the Company and its Subsidiaries for all taxable
years or periods for which the relevant statute of limitations has not expired.
Neither the Company nor any of its Subsidiaries is a party to any Tax allocation
or sharing agreement, is or has been a member or an affiliated group filing
consolidated or combined Tax Returns (other than a group the common parent of
which is or was the Company) or otherwise has any tax liability for the Taxes of
any person (other than the Company and its Subsidiaries). No closing agreements,
private letter rulings, technical advice memoranda or similar agreements or
rulings have been entered into or issued by any taxing authority with respect to
the Company or any of its Subsidiaries. No liens for Taxes exist with respect to
any of the assets or properties of the Company or any of its Subsidiaries,
except for statutory liens for Taxes not yet due and payable or that are being
contested in good faith and reserved for in accordance with GAAP. No Tax is
required to be withheld pursuant to Section 116 of the Canadian ITA (as defined
herein) or the Laws of any Canadian province or local jurisdiction or any other
foreign jurisdictions as a result of the transfer contemplated by this
Agreement. To the knowledge of the officers of the Company, neither the Company
nor any of its Subsidiaries is as of the date hereof a "controlled foreign
corporation" within the meaning of Section 957(a) of the Code. Except as set
forth in Section 5.1(l) of the Company Disclosure Letter, none of the Company,
any of its Subsidiaries, or Parent will be obligated to make a payment to an
individual that would be a "parachute payment" to a "disqualified individual" as
those terms are defined in Section 280G of the Code (without regard to whether
such payment is reasonable compensation for personal services performed or to be
performed in the future) as a result of the transactions contemplated by this
Agreement.
As used in this Agreement, (i) the term "TAX" (including, with
correlative meaning, the terms "TAXES", and "TAXABLE") includes all United
States federal, state and local, Canadian federal, provincial and local, and
other foreign income, profits, franchise, gross receipts, environmental, customs
duty, capital stock, severances, stamp, payroll, sales, employment,
unemployment, disability, use, property, withholding, excise, production, value
added, occupancy and other taxes, duties or assessments of any nature
whatsoever, together with all interest, penalties and additions imposed with
respect to such amounts and any interest in respect of such penalties and
additions, and (ii) the term "TAX RETURN" includes all returns and reports
(including elections, declarations, disclosures, schedules, estimates and
information returns) required to be supplied to a Tax authority relating to
Taxes.
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(m) LABOR MATTERS. Neither the Company nor any of its Subsidiaries is a
party to or otherwise bound by any collective bargaining agreement, contract or
other agreement or understanding with a labor union or labor organization, nor,
as of the date hereof, is the Company or any of its Subsidiaries the subject of
any material proceeding asserting that the Company or any of its Subsidiaries
has committed an unfair labor practice or is seeking to compel it to bargain
with any labor union or labor organization nor is there pending or, to the
knowledge of officers of the Company, threatened, nor has there been for the
past five years, any labor strike, dispute, walk-out, work stoppage, slow-down
or lockout involving the Company or any of its Subsidiaries. The Company has
previously made available to Parent correct and complete copies of all labor and
collective bargaining agreements, Contracts or other agreements or
understandings with a labor union or labor organization to which the Company or
any of its Subsidiaries is party or by which any of them are otherwise bound
(collectively, the "COMPANY LABOR AGREEMENTS"). The consummation of the
Arrangement and the other transactions contemplated by this Agreement will not
entitle any third party (including any labor union or labor organization) to any
payments under any of the Company Labor Agreements.
(n) INSURANCE. All material fire and casualty, general liability,
business interruption, product liability, and sprinkler and water damage
insurance policies maintained by the Company or any of its Subsidiaries are with
reputable insurance carriers, provide customary coverage for all normal risks
incident to the business of the Company and its Subsidiaries and their
respective properties and assets, and are in character and amount at least
equivalent to that carried by persons engaged in similar businesses and subject
to the same or similar perils or hazards.
(o) CONTRACTS. (i) Section 5.1(o) of the Company Disclosure Letter
contains a complete and correct list, as of the date hereof, of all Contracts
of the Company and its Subsidiaries. The Company and its Subsidiaries have
delivered to Parent complete and correct copies of all written Contracts, and
accurate descriptions of all material terms of all oral Contracts, set forth
or required to be set forth in Section 5.1(o) of the Company Disclosure
Letter.
(ii) All Contracts of the Company and its Subsidiaries are legal,
valid, binding, in full force and effect and enforceable against the
counter-party thereto in accordance with and subject to the terms of the
Contracts, subject to the Bankruptcy and Equity Exception. Except as set forth
in Section 5.1(o) of the Company Disclosure Letter, there does not exist under
any Contract any violation, breach or event of default, or event or condition
that, after notice or lapse of time or both, would constitute a violation,
breach or event of default thereunder, on the part of the Company, its
Subsidiaries or any Affiliate of either, or, to the knowledge of the Company,
any other Person, other than such violations, breaches, events of default, or
events or conditions that, individually and in the aggregate, could not
reasonably be expected to have or result in a Material Adverse Effect.
(p) INTELLECTUAL PROPERTY. (i) Except as set forth in Section 5.1(p) of
the Company Disclosure Letter, the Company and/or each of its Subsidiaries owns,
or is
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licensed or otherwise possesses legally sufficient rights to use all patents,
trademarks, trade names, service marks, copyrights, and any applications
therefor, technology, know-how, computer software programs or applications, and
tangible or intangible proprietary information or materials that are used in and
material to the business of the Company and its Subsidiaries as currently
conducted, and to the knowledge of the executive officers of the Company all
patents, trademarks, trade names, service marks and copyrights held by the
Company and/or its Subsidiaries are valid and subsisting.
(ii) Except as set forth in Section 5.1(p) of the Company Disclosure
Letter:
(A) The Company is not, nor will it be as a result of the
execution and delivery of this Agreement or the performance of its obligations
hereunder, in violation of any licenses, sublicenses and other agreements as to
which the Company is a party and pursuant to which the Company is authorized to
use any third-party patents, trademarks, service marks, copyrights, trade
secrets or computer software (collectively, "THIRD-PARTY INTELLECTUAL PROPERTY
RIGHTS");
(B) as of the date of this Agreement, no claims with respect
to (I) the patents, registered and material unregistered trademarks and service
marks, registered copyrights, trade names, and any applications therefor, trade
secrets or computer software owned by the Company or any of its Subsidiaries
(collectively, the "COMPANY INTELLECTUAL PROPERTY RIGHTS"); or (II) Third-Party
Intellectual Property Rights are currently pending or, to the knowledge of the
officers of the Company, are threatened by any Person and as of the Effective
Time, no claims with respect to (I) or (II) will be pending or, to the knowledge
of the officers of the Company threatened by any Person, that if resolved
against the Company would be material to the Company; and
(C) as of the date of this Agreement, the officers of the
Company do not know of any valid grounds for any bona fide claims (I) to the
effect that the conduct of the business as currently conducted by the Company or
any of its Subsidiaries, infringes on any copyright, patent, trademark, service
mark or trade secret of any Person; (II) against the use by the Company or any
of its Subsidiaries of any Company Intellectual Property Right or Third-Party
Intellectual Property Right used in the business of the Company or any of its
Subsidiaries as currently conducted or as proposed to be conducted; (III)
challenging the ownership, validity or enforceability of any of the Company
Intellectual Property Rights; or (IV) challenging the license or legally
enforceable right to use of the Third-Party Intellectual Rights by the Company
or any of its Subsidiaries and as of the Effective Time, the officers of the
Company do not know of any valid grounds for any bona fide claims with respect
to (I), (II) or (III) which if resolved against the Company would be material to
the Company.
(q) BROKERS AND FINDERS. Neither the Company nor any of its officers,
directors or employees has employed any broker or finder or incurred any
liability for any brokerage fees, commissions or finders, fees in connection
with the Arrangement or the
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other transactions contemplated in this Agreement except, as set forth in
Section 5.1(q) of the Company Disclosure Letter, that the Company has employed
TD Securities Inc. as its financial advisor, the arrangements with which have
been disclosed to Parent prior to the date hereof.
5.2. REPRESENTATIONS AND WARRANTIES OF PARENT. Except as set forth in
the corresponding sections or subsections of the disclosure letter delivered to
the Company by Parent on or prior to entering into this Agreement (the "PARENT
DISCLOSURE LETTER"), Parent hereby represents and warrants to the Company that:
(a) CAPITALIZATION OF PARENT. CAPITAL STRUCTURE. As of the date of this
Agreement, the authorized capital stock of Parent consists of: (i) an unlimited
number of shares of Class A Non-Voting Shares, of which 176,713,200 shares were
outstanding on the close of business on March 8, 2000; (ii) an unlimited number
of Class B Subordinate Voting Shares, of which 41,314,800 shares were
outstanding on the close of business on March 8, 2000; (iii) an unlimited number
of Class C Multiple Voting Shares, of which 40,920,000 shares were outstanding
on the close of business on March 8, 2000; (iv) 100,000,000,000 Series A
Non-Voting Preferred Shares, of which 75,475,656 shares were outstanding on the
close of business on March 8, 2000; (v) 100,000,000,000 Series B Subordinate
Voting Convertible Preferred Shares, of which no shares were outstanding on the
close of business on March 8, 2000; and (vi) 45,000,000 Class C Redeemable
Preferred Shares, of which no shares were outstanding on the close of business
on March 8, 2000 (collectively, items (i) - (vi) are the "EXISTING PARENT
CAPITAL STOCK". Subject to Section 6.15, at the Effective Time, the authorized
capital stock of Parent will consist of (i) an unlimited number of shares of
Parent Class A Voting Stock; (ii) an unlimited number of Parent Class B
Subordinate Voting Shares, of which 20,460,000,000 shares will be issued; (iii)
an unlimited number of shares of Parent Class C Non-Voting Participating Shares,
of which 40,920,000 shares will be issued; (iv) an unlimited number of Class D
Multiple Voting Shares; (v) an unlimited number of Class E Non-Voting Shares;
and (vi) an unlimited number of Preferred Shares issuable in series of which no
shares will be issued and outstanding (collectively, items (i)-(vi) are the "NEW
PARENT CAPITAL STOCK").
All of the outstanding Existing Parent Capital Stock have been duly
authorized and are validly issued, fully paid and nonassessable. Except as set
forth in Section 5.2(a) of the Parent Disclosure Letter, Parent has no Existing
Parent Capital Stock reserved for issuance, except that, as of March 8, 2000,
there were 35,566,504 shares of Existing Parent Capital Stock reserved for
issuance pursuant to Parent's 1998 Long Term Incentive and Share Award Plan (the
"PARENT STOCK PLAN"). Except as set forth in Section 5.2(a) of the Parent
Disclosure Letter, no Person has any rights to require registration by Parent of
the Parent Class A Stock and there are no preemptive or other outstanding
rights, options, warrants, conversion rights, stock appreciation rights,
redemption rights, repurchase rights, agreements, arrangements, calls,
commitments or rights of any kind that obligate Parent or any of its
Subsidiaries to issue or sell any shares of capital stock or other securities of
Parent or any securities or obligations convertible or exchangeable into or
exercisable for, or giving any Person a right to subscribe for or acquire, any
securities of
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the Parent, and no securities or obligations evidencing such rights are
authorized, issued or outstanding.
(b) ORGANIZATION, GOOD STANDING AND QUALIFICATION. Each of Parent and
its Subsidiaries is a corporation duly organized, validly existing and in good
standing under the laws of its respective jurisdiction of organization and has
all requisite corporate or similar power and authority to own and operate its
properties and assets and to carry on its business as presently conducted.
(c) CORPORATE AUTHORITY.
(i) Parent has all requisite corporate power and authority and has
taken all corporate action necessary in order to execute, deliver and perform
its obligations under this Agreement and to consummate the Arrangement subject
to approval of the Capital Reorganization (as defined herein) by the affirmative
vote of at least two-thirds of the votes cast by the holders of each class of
Existing Parent Capital Stock entitled to vote, voting separately, or by written
consent in lieu of such vote of each class of Existing Parent Capital Stock
entitled to vote. This Agreement is a valid and binding agreement of Parent,
enforceable against Parent in accordance with its terms, subject to the
Bankruptcy and Equity Exception.
(ii) The Parent Class A Stock, when issued in the Scheme of
Arrangement, will be validly issued, fully paid and nonassessable, and no
shareholder of Parent will have any preemptive right of subscription or purchase
in respect thereof. The issuance of the Parent Class A Stock to the shareholders
of the Company will be exempt from registration under the Securities Act and
applicable Bermuda, United Kingdom, Italy and Cayman Islands securities laws and
will be exempt from registration and prospectus requirements under applicable
Canadian securities laws and registered or exempt from registration under any
applicable state securities or "blue sky" laws.
(d) GOVERNMENTAL FILINGS; NO VIOLATIONS. (i) Except as set forth in
Section 5.2(d) of the Parent Disclosure Letter, no notices, reports or other
filings are required to be made by Parent with, nor are any consents,
registrations, approvals, permits or authorizations required to be obtained by
Parent from, any Governmental Entity, in connection with the execution and
delivery of this Agreement by Parent and the consummation by Parent of the
Arrangement and the other transactions contemplated hereby.
(ii) Except as set forth in Section 5.2(d) of the Parent Disclosure
Letter, the execution, delivery and performance of this Agreement by Parent does
not, and the consummation by Parent of the Arrangement and the other
transactions contemplated hereby (including the Capital Reorganization and the
issuance of Parent Class A Stock contemplated by Section 4.1) will not,
constitute or result in (A) a breach or violation of, or a default under, the
certificate or bye-laws of Parent or the comparable governing instruments of any
of its Subsidiaries, (B) a breach or violation of, or a default under, the
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acceleration of any obligations or the creation of a Lien on the assets of
Parent or any of its Subsidiaries (with or without notice, lapse of time or
both) pursuant to, any Contract binding upon Parent or any of its Subsidiaries
or any Law or governmental or non-governmental permit or license to which Parent
or any of its Subsidiaries is subject or (C) any change in the rights or
obligations of any party under any of the Contracts, except, in the case of
clause (B) or (C) above, for breaches, violations, defaults, accelerations,
creations or changes that, individually or in the aggregate, is not reasonably
likely to have a Parent Material Adverse Effect (as defined herein) or prevent
or materially impair the ability of Parent to consummate the transactions
contemplated by this Agreement.
(e) PARENT REPORTS; FINANCIAL STATEMENTS. Parent will deliver to the
Company a copy of its Form F-1 Registration Statement (the "FORM F-1"), to be
filed the week of March 13, 2000 (the "PARENT AUDIT DATE"), in the form
(including exhibits, annexes and any amendments thereto) filed with the SEC. As
of its date of filing, the Form F-1 and any registration statement, report,
proxy statement or information statement filed with the SEC subsequent to the
date hereof (collectively, the "PARENT REPORTS"), will not, contain any untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary to make the statements made therein, in light of the
circumstances in which they were made, not misleading. Each of the consolidated
balance sheets included in the Form F-1 (including the related notes and
schedules) fairly presents, or will fairly present, the consolidated financial
position of Parent and its Subsidiaries as of its date and each of the
consolidated statements of income, changes in shareholders equity and cash flows
included in the Form F-1 (including any related notes and schedules) fairly
presents, or will fairly present, or will fairly present, the results of
operations, cash flows and changes in shareholders' equity, as the case may be,
of Parent and its Subsidiaries for the periods set forth therein (subject, in
the case of unaudited statements, to notes and normal year-end audit adjustments
that will not be material in amount or effect), in each case in accordance with
GAAP consistently applied during the periods involved, except as may be noted
therein.
(f) ABSENCE OF CERTAIN CHANGES. Since the Audit Date Parent and its
Subsidiaries have conducted their respective businesses in all material respects
in, and have not engaged in any material transaction other than according to the
ordinary and usual course of such businesses and there has not been any change
in the financial condition, properties, business or results of operations of
Parent and its Subsidiaries or any development or combination of developments of
which the officers of Parent has knowledge that, individually or in the
aggregate, has had or is reasonably likely to have a Parent Material Adverse
Effect (as defined below) or prevent or materially impair the ability of Parent
to consummate the transactions contemplated by this Agreement. "PARENT MATERIAL
ADVERSE EFFECT" means a material adverse effect on the financial condition,
properties, business or results of operations of Parent and its Subsidiaries
taken as a whole.
(g) LITIGATION AND LIABILITIES. (i) Except as disclosed in Section
5.2(g) of the Parent Disclosure Letter, there are no civil, criminal or
administrative Actions pending or, to the knowledge of the officers of Parent,
threatened against Parent or any of
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its Affiliates that, individually or in the aggregate, could reasonably be
expected to have a Parent Material Adverse Effect. Neither Parent nor any of its
Subsidiaries is subject to any settlement or similar agreement with any
Governmental Entity, or to any order, judgment, decree, injunction or award of
any Governmental Entity that, individually or in the aggregate, could reasonably
be expected to have or result in a Parent Material Adverse Effect.
(ii) Neither Parent nor any of its Subsidiaries has any liabilities or
obligations of any nature, whether known, unknown, absolute, accrued, contingent
or otherwise and whether due or to become due, except (A) as set forth in
Section 5.2(g) of the Parent Disclosure Letter, (B) as and to the extent
disclosed on and adequately reserved against in the balance sheet of Parent as
of the Audit Date, which are included in the Parent Reports, or (C) for
liabilities and obligations that (I) were incurred after Parent Audit Date in
the ordinary course of business and are not prohibited by this Agreement and
(II) individually and in the aggregate have not had a Parent Material Adverse
Effect and could not reasonably be expected to have or result in a Parent
Material Adverse Effect. Since Parent Audit Date there has not occurred or come
to exist any Parent Material Adverse Effect or any event, occurrence, fact,
condition, change, development or effect that, individually or in the aggregate,
could reasonably be expected to become or result in a Parent Material Adverse
Effect.
(h) BROKERS AND FINDERS. Neither Parent nor any of its officers,
directors or employees has employed any broker or finder or incurred any
liability for any brokerage fees, commissions or finders, fees in connection
with the Arrangement or the other transactions contemplated by this Agreement.
(i) TELECOMMUNICATIONS ACT (CANADA). Upon the consummation by Parent of
the Arrangement and the other transactions contemplated by this Agreement
(including the issuance of Parent Class A Stock pursuant to Section 4.1), Parent
and its Subsidiaries will be in compliance with or will not be required to
comply with (a) with the provisions of section 16 of the Telecommunications Act
(Canada) and (b) with the provisions of the Canadian Telecommunications Common
Carrier Ownership and Control Regulations enacted pursuant to the
Telecommunications Act (Canada).
(j) TAXES. Parent does not expect to be a "passive foreign investment
company" for U.S. federal income tax purposes for the 2000 taxable year. Neither
Parent nor any "related person" (within the meaning of Treas. Reg. '
1.368-1(e)(3)) owns directly or indirectly, or has in the last five years owned
directly or indirectly, any capital stock of the Company, and neither Parent nor
any such related person will acquire any additional capital stock of the Company
prior to the Arrangement.
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ARTICLE VI.
Covenants
6.1. INTERIM OPERATIONS. The Company covenants and agrees as to itself and
its Subsidiaries that, after the date hereof and prior to the Effective Time
(unless Parent shall otherwise approve in writing or except as otherwise
expressly contemplated by this Agreement or except as expressly provided
pursuant to a business plan of the Company approved by Parent, which approval
shall not be unreasonably withheld; IT BEING UNDERSTOOD that the business plans
of the Company attached hereto as Exhibit D have been agreed to by Parent and
the Company with respect to the operations of the Company covered thereby):
(a) the business of it and its Subsidiaries shall be conducted in the
ordinary and usual course and, to the extent consistent therewith, it and its
Subsidiaries shall use their respective reasonable best efforts to preserve its
business organization intact and maintain its existing relations and goodwill
with customers, suppliers, distributors, creditors, lessors, employees and
business associates;
(b) it shall not (i) except as required pursuant to the Credit Agreement or
any Security Document, issue, sell, pledge, dispose of or encumber any capital
stock owned by it in any of its Subsidiaries; (ii) amend its memorandum of
association or bye-laws; (iii) split, combine or reclassify its outstanding
shares; (iv) declare, set aside or pay any dividend payable in cash, shares or
property in respect of any shares other than dividends from its direct or
indirect wholly owned Subsidiaries; or (v) except as required pursuant to the
Credit Agreement or any Security Document, repurchase, redeem or otherwise
acquire, except in connection with the Stock Plan, or permit any of its
Subsidiaries to purchase or otherwise acquire, any shares or any securities
convertible into or exchangeable or exercisable for any shares;
(c) except as required pursuant to the Credit Agreement or any Security
Document, neither it nor any of its Subsidiaries shall (i) transfer, issue,
sell, pledge, mortgage, dispose of or encumber any shares of, or securities
convertible into or exchangeable or exercisable for, or options, warrants,
calls, commitments or rights of any kind to acquire, any shares of its capital
stock of any class or any Voting Debt or any other property or assets (other
than Shares issuable pursuant to options outstanding on the date hereof under
the Stock Plans or disclosed in Section 5.1(b)(i) of the Company Disclosure
Schedule); (ii) transfer, lease, license, guarantee, sell, mortgage, pledge,
dispose of or encumber any other property or assets (including capital stock of
any of its Subsidiaries) or incur or modify any material indebtedness or other
liability; or (iii) make or authorize or commit for any capital expenditures
other than in the ordinary and usual course of business or, by any means, make
any acquisition of, or investment in, assets or stock of or other interest in,
any other Person or entity in excess of $20,000 or which has been approved in
writing by Scott Lyons, which approval (which shall not be unreasonably
withheld) shall be granted or denied within two business days after a request in
writing to make such an
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acquisition or investment has been delivered to Scott Lyons and Tara Ferris;
provided such written request sets forth sufficient information for Scott Lyons
to make an informed business decision with respect thereto;
(d) neither it nor any of its Subsidiaries shall hire any new employee,
terminate, establish, adopt, enter into, make any new grants or awards under,
amend or otherwise modify, any Compensation and Benefit Plans or increase the
salary, wage, bonus or other compensation of any employees unless any such
action has been approved in writing by Vanessa Wittman, which approval (which
shall not be unreasonably withheld) shall be granted or denied within two
business days after a request in writing to take any such action has been
delivered to Vanessa Wittman and Tara Ferris; provided such written request sets
forth sufficient information for Vanessa Wittman to make an informed business
decision with respect thereto;
(e) neither it nor any of its Subsidiaries shall settle or compromise any
material claims or litigation or, enter into any Contract involving more than
$50,000 in payments or for a term of six or more months or modify, amend or
terminate any of its material Contracts or waive, release or assign any material
rights or claims unless any such action has been approved in writing by Scott
Lyons, which approval (which shall not be unreasonably withheld) shall be
granted or denied within two business days after a request in writing to take
such action has been delivered to Scott Lyons and Tara Ferris, provided that
such written requests sets forth sufficient information for Scott Lyons to make
an informed business decision with respect thereto;
(f) neither it nor any of its Subsidiaries shall permit any insurance
policy naming it as a beneficiary or loss-payable payee to be cancelled or
terminated except in the ordinary and usual course of business unless any such
action has been approved in writing by Paul Townsend, which approval shall be
granted or denied within two business days after a request in writing to take
any such action has been delivered to Paul Townsend and Tara Ferris; provided
such written request sets forth sufficient information for Paul Townsend to make
an informed business decision with respect thereto;
(g) neither it nor any of its Subsidiaries shall settle any material audit,
make or change any material Tax election, file any amended Tax Return or take
any other action with respect to Taxes that is outside of the ordinary course of
business or inconsistent with past practice;
(h) neither it nor any of its Subsidiaries shall take any action or omit to
take any action that would cause any of its representations and warranties
herein to become untrue in any material respect; and
(i) neither it nor any of its Subsidiaries will authorize or enter into an
agreement to do any of the foregoing.
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6.2. ACQUISITION PROPOSALS. The Company agrees that neither it nor any of
its Subsidiaries nor any of the officers and directors of it or its Subsidiaries
shall, and that it shall direct and use its best efforts to cause its and its
Subsidiaries' employees, agents and representatives (including any investment
banker, attorney or accountant retained by it or any of its Subsidiaries) not
to, directly or indirectly, initiate, solicit, encourage or otherwise facilitate
any inquiries or the making of any proposal or offer with respect to a plan of
arrangement, merger, amalgamation, reorganization, share exchange, consolidation
or similar transaction involving, or any purchase of all or 15% or more of the
assets or any equity securities of, it or any of its Subsidiaries (any such
proposal or offer being hereinafter referred to as an "ACQUISITION PROPOSAL").
The Company further agrees that neither it nor any of its Subsidiaries nor any
of the officers and directors of it or its Subsidiaries shall, and that it shall
direct and use its best efforts to cause its and its Subsidiaries' employees,
agents and representatives (including any investment banker, attorney or
accountant retained by it or any of its Subsidiaries) not to, directly or
indirectly, engage in any negotiations concerning, or provide any confidential
information or data to, or have any discussions with, any Person relating to an
Acquisition Proposal, or otherwise facilitate any effort or attempt to make or
implement an Acquisition Proposal; provided, however, that nothing contained in
this Agreement shall prevent the Company or its Board of Directors from
complying with Rule 14e-2 promulgated under the Securities Exchange Act of 1934,
as amended (the "EXCHANGE ACT") with regard to an Acquisition Proposal. The
Company agrees that it will immediately cease and cause to be terminated any
existing activities, discussions or negotiations with any parties conducted
heretofore with respect to any Acquisitions Proposal. The Company agrees that it
will take the necessary steps to promptly inform the individuals or entities
referred to in the first sentence hereof of the obligations undertaken in this
Section 6.2 and in the Confidentiality Agreement (as defined in Section 9.7).
The Company agrees that it will notify Parent immediately if any such inquiries,
proposals or offers are received by, any such information is requested from, or
any such discussions or negotiations are sought to be initiated or continued
with, any of its representatives indicating, in connection with such notice, the
name of such Person and the material terms and conditions of any proposals or
offers and thereafter shall keep Parent informed, on a current basis, on the
status and terms of any such proposals or offers and the status of any such
discussions or negotiations. The Company also agrees that it will promptly
request each Person that has heretofore executed a confidentiality agreement in
connection with its consideration of acquiring it or any of its Subsidiaries to
return all confidential information heretofore furnished to such Person by or on
behalf of it or any of its Subsidiaries.
6.3. INFORMATION SUPPLIED. The Company and Parent each agrees, as to itself
and its Subsidiaries, that none of the information supplied or to be supplied by
it or its Subsidiaries for inclusion in the Company Proxy Statement (as defined
below) will at the date of mailing to shareholders and at the times of the
meeting of shareholders of the Company to be held in connection with the
Arrangement, contain any untrue statement of a material fact or omit to state
any material fact required to be stated therein or necessary in order to make
the statements therein, in light of the circumstances under which they were
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made, not misleading. The Company will ensure that the Company Proxy Statement
complies with all applicable Laws. The "COMPANY PROXY STATEMENT" shall mean the
notice of the special meeting of holders of Shares convened pursuant to an order
of the Bermuda Court to be sent to holders of Shares to consider this Agreement
and the Arrangement and the accompanying explanatory statement in connection
with such meeting, as supplemented or otherwise modified.
6.4. IMPLEMENTATION STEPS. The Company will take, in accordance with
applicable Law and its memorandum of association and bye-laws, all action
necessary to (i) apply in a manner acceptable to Parent, under Section 99 of the
Bermuda Act for the "INTERIM ORDER" (as defined in the Scheme of Arrangement),
and thereafter proceed with and use reasonable best efforts to obtain the
Interim Order, (ii) subject to obtaining the Interim Order, convene a meeting of
holders of Shares (the "COMPANY SHAREHOLDERS MEETING") as promptly as
practicable to consider and vote upon the approval of the Arrangement, (iii)
subject to obtaining approval of the Company's shareholders as required by the
Bermuda Act, use reasonable best efforts to pursue the application to the
Bermuda Court for the Final Order, and (iv) subject to obtaining the Final Order
and the satisfaction or waiver of the other conditions contained in this
Agreement, send to the Bermuda Registrar, for registration by the Bermuda
Registrar, the Final Order of the Bermuda Court and such other documents as may
be required in connection therewith under the Bermuda Act to give effect to the
Arrangement. The Company's board of directors shall recommend approval of this
Agreement and the Arrangement and shall take all lawful action to solicit such
approval, it being understood that the Company's board of directors may withdraw
such approval if it determines in good faith, after consultation with and based
on the advice of its outside counsel, that it is necessary to do so in order to
comply with its fiduciary duties to the shareholders of the Company, provided
that in no event may the Company's board of directors fail to convene the
Company Shareholders Meeting.
6.5. FILINGS; OTHER ACTIONS; NOTIFICATION. (a) The Company shall promptly
prepare the Company Proxy Statement. Parent shall use its reasonable best
efforts to obtain prior to the Effective Date all necessary U.S. federal
securities law, U.S. state securities law or "blue sky" permits and approvals
required in connection with the Arrangement and to consummate the other
transactions contemplated by this Agreement and will pay all expenses incident
thereto.
(b) Parent and the Company shall use reasonable best efforts to prepare all
documents and obtain all orders required from the applicable Canadian securities
authorities to permit (i) the issuance of Parent Class A Stock pursuant to the
Arrangement in accordance with the applicable Canadian securities laws and the
resale thereof without any hold period or requirement that Parent be a
"reporting issuer" under applicable Canadian securities laws for any particular
period, and (ii) the issuance of the Parent Class A Stock issued from time to
time upon the exercise of the Company Options.
(c) The Company and Parent shall cooperate with each other and use (and
shall cause their respective Subsidiaries to use) their respective reasonable
best efforts
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to take or cause to be taken all actions, and do or cause to be done all things,
necessary, proper or advisable on its part under this Agreement and applicable
Laws to consummate and make effective the Arrangement and the other transactions
contemplated by this Agreement as soon as practicable, including preparing and
filing as promptly as practicable all documentation to effect all necessary
notices, reports and other filings and to obtain as promptly as practicable all
consents, registrations, approvals, permits and authorizations necessary or
advisable to be obtained from any third party and/or any Governmental Entity in
order to consummate the Arrangement or any of the other transactions
contemplated by this Agreement; provided, however, that nothing in this Section
6.5 shall require, or be construed to require, Parent to proffer to, or agree
to, sell or hold separate and agree to sell, before or after the Effective Time,
any assets, businesses, or interest in any assets or businesses of Parent, the
Company or any of their respective Affiliates (or to consent to any sale, or
agreement to sell, by the Company of any of its assets or businesses) or to
agree to any material changes or restriction in the operations of any such
assets or businesses. Subject to applicable laws relating to the exchange of
information, Parent and the Company shall have the right to review in advance,
and to the extent practicable each will consult the other on, all the
information relating to Parent or the Company, as the case may be, and any of
their respective Subsidiaries, that appear in any filing made with, or written
materials submitted to, any third party and/or any Governmental Entity in
connection with the Arrangement and the other transactions contemplated by this
Agreement. In exercising the foregoing right, each of the Company and Parent
shall act reasonably and as promptly as practicable.
(d) As promptly as practicable after the execution and delivery of this
Agreement, Parent and the Company shall prepare all appropriate applications for
FCC approval, and such other documents as may be required, with respect to the
transfer of control of the Company to Parent (collectively, the "FCC
APPLICATIONS"). Not later than the tenth business day following execution and
delivery of this Agreement, the Company and Parent will exchange with each other
their respective completed portions of the FCC Applications. Not later than the
fifteenth business day following the execution and delivery of this Agreement,
the Company and Parent shall file, or cause to be filed, the FCC Applications.
No party hereto shall knowingly take, or fail to take, any action if the intent
or reasonably anticipated consequence of such action or failure to act is, or
would be, to cause the FCC not to grant approval of the FCC Applications or
delay either such approval or the consummation of the transfer of control of the
Company. Parent and the Company shall each pay one-half (1/2) of any FCC fees,
if applicable, in connection with the filing or granting of approval of the FCC
Applications. Each of Parent and the Company shall bear its own expenses in
connection with the preparation and prosecution of the FCC Applications, Parent
and the Company shall each use all commercially reasonable efforts to prosecute
the FCC Applications in good faith and with due diligence before the FCC and in
connection therewith shall take such action or actions as may be necessary or
reasonably required in connection with the FCC Applications.
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(e) The Company and Parent each shall, upon request by the other, furnish
the other with all information concerning itself, its Subsidiaries, directors,
officers and shareholders and such other matters as may be reasonably necessary
or advisable in connection with the Company Proxy Statement or any other
statement, filing, notice or application made by or on behalf of Parent, the
Company or any of their respective Subsidiaries to any third party and/or any
Governmental Entity in connection with the Arrangement and the transactions
contemplated by this Agreement.
(f) The Company and Parent each shall keep the other apprised of the status
of matters relating to completion of the transactions contemplated hereby,
including promptly furnishing the other with copies of notices or other
communications received by Parent or the Company, as the case may be, or any of
its Subsidiaries, from any third party and/or any Governmental Entity with
respect to the Arrangement and the other transactions contemplated by this
Agreement. The Company shall give prompt notice to the Parent of any change that
is reasonably likely to result in a Material Adverse Effect.
6.6. TAXATION. Parent agrees to enter into an election under Section 85 of
the Income Tax Act, Canada ("CANADIAN ITA") whereby it would jointly file a Form
T2057 or T2058 with any of the Company's shareholders resident in Canada for
purposes of the Canadian ITA that so desire at an amount as determined by the
particular shareholder, subject to the limitations set out in the Canadian ITA.
6.7. ACCESS. Upon reasonable notice, and except as may otherwise be
required by applicable law, the Company shall (and shall cause its Subsidiaries
to) afford the Parent's officers, employees, counsel, accountants and other
authorized representatives ("REPRESENTATIVES") reasonable access, during normal
business hours throughout the period prior to the Effective Time, to its
properties, books, contracts and records and, during such period, each shall
(and shall cause its Subsidiaries to) furnish promptly to the other all
information concerning its business, properties and personnel as may reasonably
be requested, provided that no investigation pursuant to this Section shall
affect or be deemed to modify any representation or warranty made by the Company
and provided, further, that the foregoing shall not require the Company to
permit any inspection, or to disclose any information, that in the reasonable
judgment of the Company would result in the disclosure of any trade secrets of
third parties or violate any of its obligations with respect to confidentiality
if the Company shall have used reasonable best efforts to obtain the consent of
such third party to such inspection or disclosure. All requests for information
made pursuant to this Section shall be directed to an executive officer of the
Company or Parent, as the case may be, or such Person as may be designated by
either of its officers, as the case may be. All such information shall be
governed by the terms of the Confidentiality Agreement.
6.8. AFFILIATES. Prior to the date of the Company Shareholders Meeting,
Parent shall deliver to the Company a list of names and addresses of those
Persons who will be, in the opinion of Parent, as of the time of the Company
Shareholders Meeting referred to in Section 6.4, "affiliates" of the Company
within the meaning of Rule 145
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under the Securities Act. The Company shall provide to Parent such information
and documents as Parent shall reasonably request for purposes of preparing such
list. There shall be added to such list the names and addresses of any other
Person subsequently identified by either Parent or the Company as a Person who
may be deemed to be such an affiliate of the Company; provided, however, that no
such Person identified by Parent shall be added to the list of affiliates of the
Company if Parent shall receive from the Company, on or before the date of the
Company Shareholders Meeting, an opinion of counsel reasonably satisfactory to
Parent to the effect that such Person is not such an affiliate. The Company
shall exercise its reasonable best efforts to deliver or cause to be delivered
to Parent, prior to the date of the Company Shareholders Meeting, from each
affiliate of the Company identified in the foregoing list (as the same may be
supplemented as aforesaid), a letter dated as of the Closing Date substantially
in the form attached as Exhibit A (the "AFFILIATES LETTER"). The certificates
representing Parent Class A Stock received by such affiliates shall bear a
customary legend regarding applicable Securities Act restrictions and the
provisions of this Section.
6.9. STOCK EXCHANGE LISTING AND DELISTING. Parent shall use its reasonable
best efforts to cause the Parent Class A Stock to be issued in the Arrangement
to be approved for listing on the NASDAQ and The Toronto Stock Exchange prior to
the Closing Date, subject to official notice of issuance. Parent shall use its
reasonable best efforts to cause the Common Shares to be delisted from the
Bermuda Stock Exchange as soon as practicable following the Effective Time.
6.10. PUBLICITY. The initial press release shall be a joint press release
and thereafter the Company and Parent shall not, nor shall they permit their
respective Affiliates to, issue any press release or otherwise make any public
announcement or filing with any Governmental Entity in respect of this Agreement
or the transactions contemplated hereby, without the prior approval of the other
party, except as may be required by law or by obligations pursuant to any
listing agreement with or rules of any national securities exchange.
6.11. BENEFITS. (a) STOCK OPTIONS.
(i) At the Effective Time, each Company Option, whether vested or unvested,
shall be deemed to constitute an option to acquire, on the same terms and
conditions as were applicable under such Company Option, the same number of
shares of Parent Class A Stock as the holder of such Company Option would have
been entitled to receive pursuant to the Arrangement had such holder exercised
such option in full immediately prior to the Effective Time (rounded to the
nearest whole number, with .50 being rounded downward), at a price per share
(rounded to the nearest whole cent with .50 rounded downward) equal to (y) the
aggregate exercise price for the Common Shares otherwise purchasable pursuant to
such Company Option divided by (z) the number of full shares of Parent Class A
Stock deemed purchasable pursuant to such Company Option in accordance with the
foregoing. At or prior to the Effective Time, the Company shall make
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all necessary arrangements with respect to the Stock Plans to permit the
assumption of the unexercised Company Options by Parent pursuant to this
Section.
(ii) Effective at the Effective Time, Parent shall assume each Company
Option in accordance with its terms and, where applicable, the Stock Plan under
which it was issued. At or prior to the Effective Time, Parent shall take all
corporate action necessary to reserve for issuance a sufficient number of shares
of Parent Class A Stock for delivery upon exercise of Company Options assumed by
it in accordance with this Section.
(b) EMPLOYEE BENEFITS. Parent agrees to consider all employees of the
Company and its Subsidiaries as of the date hereof for continued employment
after the Effective Time by Parent or any of its Subsidiaries and Parent will
make its employee long term option incentive program available to all employees
of the Company and its Subsidiaries who become direct or indirect employees of
Parent. Parent shall recognize all prior service of such employees with the
Company and its Subsidiaries for purposes of determining eligibility to
participate and vesting under any employee benefit plan maintained by Parent,
the Company or any of their Subsidiaries after the Effective Time. Parent shall,
and shall cause the Company to, honor all employee benefit obligations to
current and former employees of the Company and its Subsidiaries under the
Compensation and Benefit Plans and all employee severance plans (or policies),
employment and severance agreements in existence prior to the date hereof.
6.12. EXPENSES. Parent shall pay all charges and expenses, including those
of the Exchange Agent, in connection with the transactions contemplated in
Article IV. Except as otherwise provided in Section 8.5(b), whether or not the
Arrangement is consummated, all costs and expenses incurred in connection with
this Agreement and the Arrangement and the other transactions contemplated by
this Agreement shall be paid by the party incurring such expense.
6.13. INDEMNIFICATION. (a) From and after the Effective Time, Parent agrees
that it will indemnify and hold harmless each present and former director and
officer of the Company (when acting in such capacity) determined as of the
Effective Time (the "INDEMNIFIED PARTIES") against any costs or expenses
(including reasonable attorneys' fees), judgments, fines, losses, claims,
damages or liabilities (collectively, "COSTS") incurred in connection with any
claim, action, suit, proceeding or investigation, whether civil, criminal,
administrative or investigative, arising out of matters existing or occurring at
or prior to the Effective Time, whether asserted or claimed prior to, at or
after the Effective Time, to the fullest extent that the Company would have been
permitted under Bermuda law and its memorandum of association or bye-laws or
pursuant to other agreements in effect on the date hereof to indemnify such
Person (and Parent shall also advance expenses as incurred to the fullest extent
permitted under applicable law PROVIDED the Person to whom expenses are advanced
provides an undertaking to repay such advances if it is ultimately determined
that such Person is not entitled to indemnification).
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(b) Any Indemnified Party wishing to claim indemnification under paragraph
(a) of this Section 6.13, upon learning of any such claim, action, suit,
proceeding or investigation, shall promptly notify Parent thereof, using
reputable counsel, but the failure to so notify shall not relieve Parent of any
liability it may have to such Indemnified Party if such failure does not
materially prejudice the indemnifying party. In the event of any such claim,
action, suit, proceeding or investigation (whether arising before or after the
Effective Time), (i) Parent shall have the right to assume the defense thereof,
using reputable counsel, and Parent shall not be liable to such Indemnified
Parties for any legal expenses of other counsel or any other expenses
subsequently incurred by such Indemnified Parties in connection with the defense
thereof, except that if Parent elects not to assume such defense or counsel for
the Indemnified Parties advises that there are issues which raise conflicts of
interest between Parent and the Indemnified Parties, the Indemnified Parties may
retain counsel satisfactory to them, and Parent shall pay all reasonable fees
and expenses of such counsel for the Indemnified Parties promptly as statements
therefor are received; PROVIDED, however, that Parent shall be obligated
pursuant to this paragraph (b) to pay for only one firm of counsel for all
Indemnified Parties in any jurisdiction unless the use of one counsel for such
Indemnified Parties would present such counsel with a conflict of interest, (ii)
the Indemnified Parties will cooperate in the defense of any such matter and
(iii) Parent shall not be liable for any settlement effected without its prior
written consent; and PROVIDED, FURTHER, that Parent shall not have any
obligation hereunder to any Indemnified Party if and when a court of competent
jurisdiction shall ultimately determine, and such determination shall have
become final and non-appealable, that the indemnification of such Indemnified
Party in the manner contemplated hereby is prohibited by applicable law. Parent
may not agree to any settlement of any such claim or action, other than solely
for monetary damages for which the Parent shall be responsible hereunder,
without the prior written consent of the Indemnified Party, which consent shall
not be unreasonably withheld. In any action hereunder as to which the Parent has
assumed the defense thereof, the Indemnified Party shall continue to be entitled
to participate in the defense thereof, with counsel of its own choice, but the
Parent shall not be obligated hereunder to reimburse the indemnified party of
the costs thereof, except as provided in the immediately preceding sentence.
(c) Parent shall for a period of six years from the Effective Time maintain
in effect the Company's current directors' and officers' liability insurance
covering all persons who are directors and officers of the Company on the date
of this Agreement to the extent such policy provides coverage for events
occurring prior to the Effective Time; PROVIDED, HOWEVER, that (i) in no event
shall Parent be required to expend in any one year an amount in excess of 150%
of the last annual premium paid by the Company prior to the date of this
Agreement for such insurance and (ii) Parent may substitute for such Company
policy, a policy or policies with at least the same coverage containing terms
and conditions which are no less advantageous to the persons who are directors
and officers of the Company on the date of this Agreement provided that said
substitution does not result in any gaps or lapses in coverage with respect to
matters occurring prior to the Effective Time.
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6.14. TAKEOVER STATUTE. If any Takeover Statute is or may become applicable
to the Arrangement or the other transactions contemplated by this Agreement,
each of Parent and the Company and its board of directors shall grant such
approvals and take such actions as are necessary so that such transactions may
be consummated as promptly as practicable on the terms contemplated by this
Agreement, or by the Arrangement and otherwise act to eliminate or minimize the
effects of such statute or regulation on such transactions.
6.15. PARENT CAPITAL REORGANIZATION. Prior to the Effective Date, Parent
will use its best efforts to have its shareholders approve, either at a meeting,
or by consent in writing, a reorganization of its authorized and issued capital
stock in the following manner: (i) the issued and unissued Class A Non-Voting
Shares will be changed to Parent Class A Stock with 50 votes per share; (ii) the
issued Class B Subordinate Voting Shares will be converted or exchanged into
Parent Class A Stock and the unissued Class B Subordinate Voting Shares will be
cancelled; (iii) the issued Series A Non-Voting Preferred Shares will be
converted or exchanged into Parent Class A Stock and the unissued Series A
Non-Voting Preferred Shares will be cancelled; (iv) the Class C Redeemable
Preferred Shares will be cancelled; (v) each issued Class C Multiple Voting
Share will be exchanged for 500 Class B Subordinate Voting Shares and one Class
C Non-Voting Participating Share (together, a "UNIT"), and the unissued Class C
Multiple Voting Shares will be cancelled; (vi) a class of unlimited Class D
Multiple Voting Shares will be created; (vii) a class of unlimited Class E
Non-Voting Shares will be created; and (viii) a class of unlimited Preferred
Shares issuable in series will be created (collectively, the "CAPITAL
REORGANIZATION"); PROVIDED, HOWEVER, that (i) the ratio of the voting power of
each Parent Class D Multiple Voting Share to the voting power of each share of
Parent Class A Stock shall not be greater than 10:1, (ii) the ratio of the
voting power of each Unit to the voting power of each share of Parent Class A
Stock shall not be greater than 10:1, and (iii) the ratio of the voting power of
each share of Preferred Shares (if any) established prior to the Effective Time
to the voting power of each share of Parent Class A Stock shall not be greater
than 10:1. The rights, privileges, restrictions and preferences of each class of
the New Parent Capital Stock will be in accordance with this Section 6.15 and
otherwise in all material respects as set forth in Exhibit B to this Agreement.
Notwithstanding the foregoing, Parent may change the capital structure of Parent
to provide for changes in the classes of capital stock, so long as such changes
would be economically equivalent to the Company and its Shareholders in all
material respects and any such new structure shall be deemed the "Capital
Reorganization."
6.16. COVENANTS RELATING TO TAX FREE STATUS OF THE ARRANGEMENT. The parties
intend the Arrangement to qualify as a reorganization under Section 368(a) of
the Code. Each party will (and will cause its Subsidiaries to) both before and
after the Effective Time (i) use all reasonable efforts to cause the Arrangement
to so qualify, (ii) refrain from taking any action that would reasonably be
expected to cause the Arrangement to fail to so qualify, and (iii) take the
position for all purposes that the Arrangement so qualifies. The Company and
Parent shall each reasonably cooperate in
32
<PAGE>
connection with obtaining the opinions of special counsel described in Section
7.3(c) including, without limitation, providing to special counsel such
representations that are reasonably required by special counsel to enable it to
render such opinion.
6.17. PFIC AND GRA COVENANTS. (a) Following the Effective Time, (i) Parent
will make a good faith determination whether it constitutes a "passive foreign
investment company" for U.S. federal income tax purposes (a "PFIC") for each
taxable year ending after the Effective Time and (ii) if Parent so determines
that it does constitute a PFIC for any taxable year ending after the Effective
Time, Parent shall (1) make a good faith determination as to which of its direct
or indirect Subsidiaries constitutes a PFIC for each taxable year for which
Parent has determined in good faith that it is a PFIC and for each subsequent
taxable year, (2) provide notice of such status as a PFIC of the Parent and any
such Subsidiary to each Person that (A) held any shares of Parent Class A Stock
during the taxable year for which such status has been determined and (B)
acquired any shares of Parent Class A Stock pursuant to the Arrangement, (3) in
good faith provide each such Person with the information necessary in order for
such Person to timely (including any applicable extensions) (A) make an election
under Section 1295 of the Code for Parent and each such Subsidiary and (B)
comply with the reporting requirements applicable under Section 1295 of the Code
and (4) in good faith take any other action reasonably necessary to be taken by
Parent and reasonably requested by such Person in order for any such election to
be effective.
(b) Following the Effective Time, in the event that any Person who
(directly or indirectly) acquires any shares of Parent Class A Stock in the
Arrangement files (or notifies Parent that it intends to file) a Again
recognition agreement@ under Section 367 of the Code and the Treasury
Regulations issued thereunder with respect to the Arrangement, the Parent shall
cooperate in good faith in connection with the filing of such agreement and any
subsequent filings required by such agreement.
(c) In any case where specific performance is not possible, any damages
incurred as a result of a breach of this Section 6.17 will be paid solely in
shares of Parent Class A Stock at their then current fair market value unless it
has been finally determined at the time when such damages are paid that for any
reason the Arrangement does not qualify as a reorganization within the meaning
of Section 368(a) of the Code. Any such shares will be subject to all the terms
and conditions of the Voting Agreement.
6.18. SYSTEM EXPANSION REQUIREMENTS. (a) Exhibit G to this Agreement sets
forth a schedule of the Company's and its subsidiaries' near-term estimated
backhaul capacity requirements for the period covered thereby, including the
estimated date, cost, route and proposed provider of such backhaul (the
"BACKHAUL REQUIREMENTS"). The Parties agree that the implementation of any of
the following will not constitute a breach of any other provision of this
Agreement:
(b) NORTH AMERICA. Parent and the Company agree to enter into an agreement
as soon as practicable but not later than April 1, 2000. Such agreement will
33
<PAGE>
provide for the purchase of backhaul capacity from Parent or its Affiliates for
all of the Company's Backhaul Requirements in North America set forth on
Schedule G (i) on terms and conditions no less favorable to the Company than
those provided to the Company under that certain arrangement identified as item
323 on Section 5.1(o) of the Company Disclosure Letter, (ii) with similar
specifications to those currently in place under such arrangement, and (iii) at
an aggregate price for the first twenty Gb/s of $24.6 million.
(c) SOUTH AMERICA BACKHAUL. The Company will be permitted to commit to
purchase backhaul from MetroRed or another comparable supplier on customary
terms and conditions for the Backhaul Requirements outside of North America set
forth on Schedule G or in the event that Parent or one of its Affiliates agrees
to match such terms and conditions by April 1, 2000 then with Parent or such
Affiliate.
(d) FINANCING OF NORTH AMERICA AND SOUTH AMERICA BACKHAUL. The Company will
finance the purchases described in subsections (b) and (c) above with available
working capital. Parent agrees that at any time after the termination of this
Agreement but prior to the two-month anniversary after the termination of this
Agreement pursuant to Article VIII, the Company will have the right to sell to
Parent or any third party designated by Parent, Senior Notes with aggregate
gross proceeds of up to $85 million on approximately the same terms and
conditions as set forth in that certain Senior Debt Facility Commitment Letter
dated as of February 8, 2000 between the Company and Credit Suisse First Boston
Corporation. The Senior Note covenants will be similar to those covenants in the
Company's Senior Notes issued July, 1999 and will have a market clearing rate,
but in no event will such rate be higher than 14.5%.
(e) ARGENTINA EXTENSION. The Company and Parent will use reasonable best
efforts to develop a business and financing plan for the extension of the wet
system to Los Toninas and the Terrestrial extension into Buenos Aires. The
Company will provide an initial plan with 20 days of the date hereof. In the
event that the Company and Parent cannot mutually agree on a final business
plan, including the related financing thereof, within 40 days of the delivery of
the initial plan, then the Company may raise the financing necessary to build
such extensions. The Company will offer the Parent the opportunity to match the
terms of any financing offer.
ARTICLE VII.
Conditions
7.1. CONDITIONS TO EACH PARTY'S OBLIGATION TO EFFECT THE ARRANGEMENT. The
respective obligation of each party to effect the Arrangement is subject to the
satisfaction or waiver at or prior to the Effective Time of each of the
following conditions:
(a) SHAREHOLDER APPROVAL. (i) The Arrangement shall have been duly approved
by holders of Shares constituting the Company Requisite Vote in accordance
34
<PAGE>
with applicable law and the constituent documents of the Company; and (ii) the
Interim Order and the Final Order shall each have been obtained in form and on
terms consistent with this Agreement and satisfactory to each of the Company and
Parent, acting reasonably, and shall not have been set aside or modified in a
manner unacceptable to such parties, acting reasonably, on appeal or otherwise.
(b) REGULATORY CONSENTS. Any waiting period applicable to the consummation
of the Arrangement under the HSR Act shall have expired or been terminated and,
other than the filings provided for in Section 1.3, all notices, reports and
other filings required to be made prior to the Effective Time by the Company or
Parent or any of their respective Subsidiaries with, and all consents,
registrations, approvals, permits and authorizations required to be obtained
prior to the Effective Time by the Company or Parent or any of their respective
Subsidiaries from, any Governmental Entity, including, but not limited to the
FCC (collectively, "GOVERNMENTAL CONSENTS") in connection with the execution and
delivery of this Agreement and the consummation of the Arrangement and the other
transactions contemplated hereby by the Company and Parent shall have been made
or obtained (as the case may be) and in the case of the FCC, shall have become
final orders.
(c) LITIGATION. No court or Governmental Entity of competent jurisdiction
shall have enacted, issued, promulgated, enforced or entered any statute, law,
ordinance, rule, regulation, judgment, decree, injunction or other order
(whether temporary, preliminary or permanent) that is in effect and restrains,
enjoins or otherwise prohibits consummation of the Arrangement or the other
transactions contemplated by this Agreement (collectively, an "ORDER"), and no
Governmental Entity or any other Person shall have instituted any proceeding or
threatened to institute any proceeding seeking any such Order.
(d) BLUE SKY APPROVALS. Parent shall have received all state securities and
"blue sky" permits and approvals necessary to consummate the transactions
contemplated hereby.
7.2. CONDITIONS TO OBLIGATIONS OF PARENT. The obligations of Parent to
effect the Arrangement are also subject to the satisfaction or waiver by Parent
at or prior to the Effective Time of the following conditions:
(a) REPRESENTATIONS AND WARRANTIES. The representations and warranties of
the Company set forth in this Agreement shall be true and correct in all
material respects as of the date of this Agreement and as of the Closing Date as
though made on and as of the Closing Date (except to the extent such
representations or warranties speak as of an earlier date) and the Company shall
have received a certificate signed on behalf of the Company by an executive
officer of Parent to such effect.
(b) PERFORMANCE OF OBLIGATIONS OF THE COMPANY. The Company shall have
performed in all material respects all obligations required to be performed by
it under
35
<PAGE>
this Agreement at or prior to the Closing Date, and Parent shall have received a
certificate signed on behalf of the Company by an executive officer of the
Company to such effect.
(c) CONSENTS UNDER AGREEMENTS. The Company shall have obtained the consents
or approvals listed in Section 7.2(c) of the Company Disclosure Letter and
Parent shall have obtained the consents or approvals listed in Section 7.2(c) of
the Parent Disclosure Letter.
(d) ARRANGEMENT CONSIDERATION. The Final Order shall not provide for any of
the Arrangement Consideration to be paid in other than Shares.
7.3. CONDITIONS TO OBLIGATION OF THE COMPANY. The obligation of the Company
to effect the Arrangement is also subject to the satisfaction or waiver by the
Company at or prior to the Effective Time of the following conditions:
(a) REPRESENTATIONS AND WARRANTIES. The representations and warranties of
Parent set forth in this Agreement shall be true and correct in all material
respects as of the date of this Agreement and as of the Closing Date as though
made on and as of the Closing Date, (except to the extent any such
representation and warranty expressly speaks as of an earlier date) and the
Company shall have received a certificate signed on behalf of Parent by an
executive officer of Parent to such effect.
(b) PERFORMANCE OF OBLIGATIONS OF PARENT. Parent shall have performed in
all material respects all obligations required to be performed by it under this
Agreement at or prior to the Closing Date, and the Company shall have received a
certificate signed on behalf of Parent by an executive officer of Parent to such
effect.
(c) TAX OPINION. The Company shall have received an opinion of Debevoise &
Plimpton, special counsel to the Company, in form and substance reasonably
satisfactory to the Company, dated the Effective Time, to the effect that, on
the basis of the facts, representations and assumptions set forth in such
opinion which are consistent with the stated facts existing at the Effective
Time, (i) the Arrangement will be treated for United States federal income tax
purposes as a reorganization within the meaning of Section 368(a) of the Code
and (ii) each of the Company and Parent will be a party to the reorganization
within the meaning of Section 368(b) of the Code. In rendering the opinion
described in the preceding sentence, such counsel may require and rely upon
representations contained in certificates of officers of Parent and the Company,
substantially in the form of Exhibits E and F hereto.
(d) INITIAL PUBLIC OFFERING; CAPITAL REORGANIZATION. The Form F-1
Registration Statement referred to in Section 5.2(e) shall have been declared
effective by the SEC and the Initial Public Offering of Parent Class A Stock
contemplated thereby shall have occurred. The Capital Reorganization shall have
occurred.
36
<PAGE>
(e) LISTING. Parent shall have caused the Parent Class A Stock to be issued
in the Arrangement to be (i) approved for listing on the NASDAQ, subject to
official notice of issuance and (ii) conditionally approved for listing on The
Toronto Stock Exchange, subject to filing required documentation.
(f) REGISTRATION RIGHTS AGREEMENT. Parent shall have entered into a
registration rights agreement in form and substance consistent with the terms
set forth on EXHIBIT C to this Agreement, with each of the persons who have
executed the Voting Agreement.
ARTICLE VIII.
Termination
8.1. TERMINATION BY MUTUAL CONSENT. This Agreement may be terminated and
the Arrangement may be abandoned at any time prior to the Effective Time,
whether before or after the approval by shareholders of the Company referred to
in Section 7.1(a), by mutual written consent of the Company and Parent by action
of their respective Boards of Directors.
8.2. TERMINATION BY EITHER PARENT OR THE COMPANY. This Agreement may be
terminated and the Arrangement may be abandoned at any time prior to the
Effective Time by action of the Board of Directors of either Parent or the
Company if (i) the Arrangement shall not have been consummated by December 31,
2000, whether such date is before or after the date of approval by the
shareholders of the Company (the "TERMINATION DATE"), (ii) the approval of the
Company's shareholders required by Section 7.1(a) shall not have been obtained
at a meeting duly convened therefor or at any adjournment or postponement
thereof, (iii) the Bermuda Court shall fail to sanction the Scheme of
Arrangement or (iv) any Order permanently restraining, enjoining or otherwise
prohibiting consummation of the Arrangement shall become final and
non-appealable (whether before or after the approval by the shareholders of the
Company or Parent); PROVIDED, that the right to terminate this Agreement
pursuant to clause (i) above shall not be available to any party that has
breached in any material respect its obligations under this Agreement in any
manner that shall have proximately contributed to the occurrence of the failure
of the Arrangement to be consummated.
8.3. TERMINATION BY THE COMPANY. This Agreement may be terminated and the
Arrangement may be abandoned at any time prior to the Effective Time, whether
before or after the approval by shareholders of the Company referred to in
Section 7.1(a), by action of the Board of Directors of the Company there has
been a material breach by Parent of any representation, warranty, covenant or
agreement contained in this Agreement that is not curable or, if curable, is not
cured within 30 days after written notice of such breach is given by the Company
to Parent.
37
<PAGE>
8.4. TERMINATION BY PARENT. (a) This Agreement may be terminated and the
Arrangement may be abandoned at any time prior to the Effective Time, whether
before or after the approval by the shareholders of the Company referred to in
Section 7.1(a), by action of the Board of Directors of Parent (i) if there has
been a material breach by the Company of any covenant or agreement contained in
this Agreement (other than the representations and warranties contained in
Section 5.1) that is not curable or, if curable, is not cured within 30 days
after written notice of such breach is given by Parent to the Company or the
Company to Parent.
(b) This Agreement may be terminated and the Arrangement may be abandoned
as of the Closing Date, by action of the Board of Directors of Parent if as of
such date all of the conditions set forth in Article VII other than the
condition set forth in Section 7.2(a) (and those conditions that by their nature
are to be satisfied at the Closing) shall be satisfied.
8.5. EFFECT OF TERMINATION AND ABANDONMENT. In the event of termination of
this Agreement and the abandonment of the Arrangement pursuant to this Article
VIII, this Agreement (other than as set forth in Section 9.1) shall become void
and of no effect with no liability on the part of any party hereto (or of any of
its directors, officers, employees, agents, legal and financial advisors or
other representatives); PROVIDED, however, except as otherwise provided herein,
no such termination shall relieve any party hereto of any liability or damages
resulting from any breach of this Agreement.
ARTICLE IX.
Miscellaneous and General
9.1. SURVIVAL. This Article IX, the agreements of the Company Parent
contained in Section 6.12 (Expenses), Section 8.5 (Effect of Termination and
Abandonment) and the Confidentiality Agreement shall survive the termination of
this Agreement. All other representations, warranties, covenants and agreements
in this Agreement shall not survive the consummation of the Arrangement or the
termination of this Agreement; it being understood that this Section 9.1 shall
not limit any covenant or agreement of the parties which by its terms
contemplates performance after the Effective Time.
9.2. MODIFICATION OR AMENDMENT. Subject to the provisions of the applicable
law, at any time prior to the Effective Time, the parties hereto may modify or
amend this Agreement, by written agreement executed and delivered by duly
authorized officers of the respective parties.
9.3. WAIVER OF CONDITIONS. The conditions to each of the parties'
obligations to consummate the Arrangement are for the sole benefit of such party
and may be waived by such party in whole or in part to the extent permitted by
applicable law.
38
<PAGE>
9.4. COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each such counterpart being deemed to be an original instrument,
and all such counterparts shall together constitute the same agreement.
9.5. GOVERNING LAW AND VENUE; WAIVER OF JURY TRIAL. (a) THIS AGREEMENT
SHALL BE DEEMED TO BE MADE IN AND IN ALL RESPECTS SHALL BE INTERPRETED,
CONSTRUED AND GOVERNED BY AND IN ACCORDANCE WITH THE LAW OF THE STATE OF NEW
YORK WITHOUT REGARD TO THE CONFLICT OF LAW PRINCIPLES THEREOF. The parties
hereby irrevocably submit to the jurisdiction of the courts of the United States
of America located in the courts of the State of New York and the Federal courts
of the United States of America located in the State of New York solely in
respect of the interpretation and enforcement of the provisions of this
Agreement and of the documents referred to in this Agreement, and in respect of
the transactions contemplated hereby, and hereby waive, and agree not to assert,
as a defense in any action, suit or proceeding for the interpretation or
enforcement hereof or of any such document, that it is not subject thereto or
that such action, suit or proceeding may not be brought or is not maintainable
in said courts or that the venue thereof may not be appropriate or that this
Agreement or any such document may not be enforced in or by such courts, and the
parties hereto irrevocably agree that all claims with respect to such action or
proceeding shall be heard and determined in such a New York State or Federal
court. The parties hereby consent to and grant any such court jurisdiction over
the person of such parties and over the subject matter of such dispute and agree
that mailing of process or other papers in connection with any such action or
proceeding in the manner provided in Section 9.6 or in such other manner as may
be permitted by law shall be valid and sufficient service thereof.
(b) EACH PARTY ACKNOWLEDGES AND AGREES THAT ANY CONTROVERSY WHICH MAY ARISE
UNDER THIS AGREEMENT IS LIKELY TO INVOLVE COMPLICATED AND DIFFICULT ISSUES, AND
THEREFORE EACH SUCH PARTY HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVES ANY
RIGHT SUCH PARTY MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION
DIRECTLY OR INDIRECTLY ARISING OUT OF OR RELATING TO THIS AGREEMENT, OR THE
TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT. EACH PARTY CERTIFIES AND
ACKNOWLEDGES THAT (i) NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PARTY
HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE
EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER, (ii) EACH PARTY
UNDERSTANDS AND HAS CONSIDERED THE IMPLICATIONS OF THIS WAIVER, (iii) EACH PARTY
MAKES THIS WAIVER VOLUNTARILY, AND (iv) EACH PARTY HAS BEEN INDUCED TO ENTER
INTO THIS AGREEMENT BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND
CERTIFICATIONS IN THIS SECTION 9.5.
39
<PAGE>
9.6. NOTICES. Any notice, request, instruction or other document to be
given hereunder by any party to the others shall be in writing and delivered
personally or sent by registered or certified mail, postage prepaid, or by
facsimile:
if to Parent
Gregory B. Maffei,
Chief Executive Officer
800 Fifth Street
Suite 4100
Seattle, WA 98104
fax: (206) 447-1447
(with a copy to Alison Ressler, Esq.,
Sullivan & Cromwell,
1888 Century Park East, Los Angeles, California 90067
fax: (310) 712-8800.)
if to the Company
Jorge L. Escalona,
President and Chief Executive Officer
3300 Highway #7 West, Suite 401
Concord, Ontario, Canada L4K 4M3
fax: (905) 760-7470
(with copies to:
Lin Gentemann,
General Counsel
Swan Building
26 Victoria Street
Hamilton HM12
Bermuda
fax: (441) 296-3970
Margaret A. Davenport, Esq.,
Debevoise & Plimpton
875 Third Avenue
New York, New York 10022
fax: (212) 909-6836.)
or to such other persons or addresses as may be designated in writing by the
party to receive such notice as provided above; PROVIDED, HOWEVER, that all
requests made pursuant to Section 6.1 shall be delivered to Parent in the manner
provided above and by e-mail to the relevant person at the e-mail address
specified below:
40
<PAGE>
Tara Ferris: [email protected]
Scott Lyons: [email protected]
Paul Townsend: [email protected]
Vanessa Wittman: [email protected]
9.7. ENTIRE AGREEMENT. This Agreement (including any exhibits hereto), the
Company Disclosure Letter, the Parent Disclosure Letter and the Confidentiality
Agreement, dated February 29, 2000, between Parent and the Company (the
"CONFIDENTIALITY AGREEMENT") constitute the entire agreement, and supersede all
other prior agreements, understandings, representations and warranties both
written and oral, among the parties, with respect to the subject matter of this
Agreement.
9.8. NO THIRD PARTY BENEFICIARIES. Except for the rights granted under
Section 6.13 and Sections 6.16 and 6.17, only with respect to the parties to the
Voting Agreement (on behalf of themselves and their equity owners), this
Agreement is not intended to confer upon any Person other than the parties
hereto any rights or remedies hereunder.
9.9. OBLIGATIONS OF PARENT AND OF THE COMPANY. Whenever this Agreement
requires a Subsidiary of Parent to take (or refrain from taking) any action,
such requirement shall be deemed to include an undertaking on the part of Parent
to cause such Subsidiary to take (or refrain from taking) such action. Whenever
this Agreement requires a Subsidiary of the Company to take (or refrain from
taking) any action, such requirement shall be deemed to include an undertaking
on the part of the Company to cause such Subsidiary to take (or refrain from
taking) such action.
9.10. SEVERABILITY. The provisions of this Agreement shall be deemed
severable and the invalidity or unenforceability of any provision shall not
affect the validity or enforceability or the other provisions hereof. If any
provision of this Agreement, or the application thereof to any Person or any
circumstance, is invalid or unenforceable, (a) a suitable and equitable
provision shall be substituted therefor in order to carry out, so far as may be
valid and enforceable, the intent and purpose of such invalid or unenforceable
provision and (b) the remainder of this Agreement and the application of such
provision to other Persons or circumstances shall not be affected by such
invalidity or unenforceability, nor shall such invalidity or unenforceability
affect the validity or enforceability of such provision, or the application
thereof, in any other jurisdiction.
9.11. INTERPRETATION. The table of contents and headings herein are for
convenience of reference only, do not constitute part of this Agreement and
shall not be deemed to limit or otherwise affect any of the provisions hereof.
Where a reference in this Agreement is made to a Section or Exhibit, such
reference shall be to a Section of or Exhibit to this Agreement unless otherwise
indicated. Whenever the words "include," "includes" or "including" are used in
this Agreement, they shall be deemed to be followed by the words "without
limitation."
41
<PAGE>
9.12. ASSIGNMENT. This Agreement shall not be assignable by operation of
law or otherwise.
42
<PAGE>
IN WITNESS WHEREOF, this Agreement has been duly executed and
delivered by the duly authorized officers of the parties hereto as of the date
first written above.
GLOBENET COMMUNICATIONS GROUP LIMITED
By: __________________________
Name:
Title:
WORLDWIDE FIBER INC.
By: __________________________
Name:
Title:
<PAGE>
EXHIBIT A
Form of Company Affiliates Letter
March __, 2000
Worldwide Fiber Inc.
800 Fifth Avenue
Suite 4100
Seattle, WA 98104
Ladies and Gentlemen:
The undersigned is a holder of Common Shares, par value
$1.50 per share ("Company Common Stock"), of GlobeNet Communications Group
Limited, a Bermuda company (the "Company") and/or shares of Class B
Restricted Voting Shares, par value $1.50 per share, of the Company ("Class B
Shares"). Pursuant to the terms of that certain Agreement and Plan of Merger,
dated as of March __, 2000, by and between the Company and Worldwide Fiber
Inc., a Canadian corporation ("WFI"), Company Common Stock will be exchanged
for shares of WFI (the "Arrangement"). In connection with the Arrangement,
the undersigned, as a holder of Company Common Stock will be entitled to
receive Class A Voting Shares of WFI (the "Securities") in exchange for the
shares of Company Common Stock held by the undersigned at the effective time
of the Arrangement.
The undersigned acknowledges that the undersigned may be
deemed an "affiliate" of the Company within the meaning of Rule 145 ("Rule 145")
promulgated under the Securities Act of 1933, as amended (the "Act"), and/or as
such term is used in and for purposes of Accounting Series Release Nos. 130 and
135, as amended, of the Securities and Exchange Commission (the "Commission") by
virtue of the undersigned's position as an officer or director of the Company or
ownership of Company Common Stock or Class B Shares, although nothing contained
herein shall be construed as an admission of such status.
If in fact the undersigned were an affiliate of the Company
under the Act, the undersigned's ability to sell, assign or transfer any
Securities received by the undersigned in exchange for any shares of Company
Common Stock pursuant to the Arrangement may be restricted unless such sale,
assignment or transfer is registered under the Act or an exemption from such
registration is available. The undersigned understands that such exemptions are
limited and the undersigned has obtained advice of counsel as to the nature and
conditions of such exemptions, including information with respect to the
applicability to the sale of such Securities of Rules 144 and 145(d) promulgated
under the Act.
A-1
<PAGE>
The undersigned hereby represents to and covenants with WFI
that it will not sell, assign or transfer any Securities received by the
undersigned in exchange for shares of Company Common Stock pursuant to the
Arrangement except (i) pursuant to an effective registration statement under the
Act, (ii) by a sale made in conformity with the volume and other limitations of
Rule 145 (and otherwise in accordance with Rule 144 under the Act, if the
undersigned is an affiliate of WFI and if so required at the time) or (iii) in a
transaction which, in the opinion of independent counsel reasonably satisfactory
to WFI, or as described in a "no-action" or interpretive letter from the Staff
of the Commission reasonably satisfactory to WFI, is not required to be
registered under the Act.
The undersigned understands that WFI is under no obligation to
register the sale, assignment, transfer or other disposition of the Securities
by the undersigned or on behalf of the undersigned under the Act or to take any
other action necessary in order to make compliance with an exemption from such
registration available solely as a result of the Arrangement.
In the event of a sale of Securities pursuant to Rule 145, the
undersigned will supply WFI with evidence of compliance with such Rule, in the
form of customary seller's and broker's Rule 145 representation letters or as
WFI may otherwise reasonably request. The undersigned understands that WFI may
instruct its transfer agent to withhold the transfer of any Securities disposed
of by the undersigned in a manner inconsistent with this letter.
The undersigned acknowledges and agrees that appropriate
legends will be placed on certificates representing Securities received by the
undersigned in the Arrangement or held by a transferee thereof, which legends
will be removed (i) by delivery of substitute certificates upon the earlier of
(a) the expiration of the one year period immediately following the Effective
Time and (b) the receipt of a letter from the staff of the Commission, or an
opinion of counsel in form and substance reasonably satisfactory to WFI, to the
effect that such legends are no longer required for the purposes of the Act and
the rules and regulations of the Commission promulgated thereunder or (ii) in
the event of a sale of the Securities which has been registered under the Act or
made in conformity with the provisions of Rule 145.
The undersigned further understands and agrees that this
letter agreement shall apply to all shares of Company Common Stock, Class B
Shares and Securities that the undersigned is deemed to beneficially own
pursuant to applicable federal securities law.
A-2
<PAGE>
The undersigned acknowledges that it has carefully reviewed
this letter and understands the requirements hereof and the limitations imposed
upon the distribution, sale, transfer or other disposition of Securities.
Sincerely,
[NAME OF COMPANY AFFILIATE]
A-3
<PAGE>
EXHIBIT G
NORTH AMERICA
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
RFS Date Cost Proposed Provider
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Tuckerton, NJ September 2000 $17.2m WFI
@ 20 G b/s
- -------------------------------------------------------------------------------
Boca Raton, FL November 2000 $7.4m WFI
@ 20 G b/s
- -------------------------------------------------------------------------------
</TABLE>
OTHER
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
RFS Date Cost Proposed Provider
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Rio de Janeiro, Brazil February 2001 13* MetroRed or WFI
@ 10 G b/s
- -------------------------------------------------------------------------------
Sao Paolo, Brazil February 2001 32* MetroRed or WFI
@ 10 G b/s
- -------------------------------------------------------------------------------
</TABLE>
NOTE: Additional routes or capacity to be resolved on an as needed basis and
subject to review of business case.
- ---------------------------
* Asterisk denotes that the numbers represented are subject to confirmation.
G-1
<PAGE>
Exhibit 10.32
AGREEMENT
THIS AGREEMENT is made as of this 20th day of March, 2000, by
and among 360NETWORKS INC., a company continued under the laws of Canada
(formerly known as Worldwide Fiber Inc.) ("360"), WORLDWIDE FIBER NETWORKS LTD.,
a Canadian company incorporated in the Province of Alberta (`WFN"), LEDCOR
COMMUNICATIONS LTD., a Canadian company incorporated in the province of Alberta,
LEDCOR INDUSTRIES, INC., a Washington corporation, WORLDWIDE FIBER (USA), INC.,
a Nevada corporation (formerly known as Pacific Fiber Link, Inc.) (the
"Company"), MI-TECH COMMUNICATIONS, LLC, a Wisconsin limited liability company
("Mi-Tech"), LEDCOR INC., a Canadian company incorporated in the Province of
Alberta and MICHELS PIPELINE CONSTRUCTION, INC., a Wisconsin corporation
("Michels").
WITNESSETH :
WHEREAS, the parties entered into a Shareholders' Agreement,
dated December 31, 1998, a copy of which is attached hereto as EXHIBIT A (the
"Shareholders' Agreement");
WHEREAS, Mi-Tech is the holder of 50 shares of Class A Voting
Preferred Stock and 50 shares of Non-Voting Common Stock of the Company
(collectively referred to herein as the "Company Shares");
WHEREAS, among other things, the Shareholders' Agreement
provides Mi-Tech with an option to convert its Company Shares into shares of 360
in the event 360 effects an underwritten initial public offering of its stock
(the "IPO");
WHEREAS, Articles IV, V and VI of the Shareholders' Agreement
set forth the manner in which the Company Shares are to be converted into shares
of 360 of the same class and series to be offered to the public;
WHEREAS, 360 and Mi-Tech wish to forego the procedures set
forth in Articles IV, V and VI of the Shareholders' Agreement and instead set
forth herein the agreement of 360 and Mi-Tech with respect to the amount of 360
shares Mi-Tech will receive in exchange for the Company Shares;
WHEREAS, Mi-Tech has agreed to exchange the Company Shares for
fully paid and non-assessable Class A Subordinate Voting Shares (the "Class A
Subordinate Voting Shares") of 360 pursuant to this Agreement; and
WHEREAS, 360, Mi-Tech and the other parties to this Agreement
also wish to set forth herein other agreements which relate to 360, Mi-Tech, the
Company, the other parties to this Agreement and the Shareholders' Agreement.
<PAGE>
NOW, THEREFORE, for good and valuable consideration, the
receipt of which is hereby acknowledged, the parties hereby agree as follows:
Section 1. CONVERSION OF COMPANY SHARES INTO 360 SHARES.
Subject to the terms and conditions set forth in this Agreement, at the Closing
(as hereinafter defined), all Company Shares held by Mi-Tech shall be
transferred to 360 and 360 shall, in the manner provided below, issue in
exchange therefor, the number of shares of Class A Subordinate Voting Shares
equal to the quotient obtained by dividing Three Hundred and Twelve Million
Dollars (US$312,000,000) by the initial public offering price to the public per
share of the Class A Subordinate Voting Shares as reflected in the final
prospectus distributed in connection with the IPO (the "IPO Price"). Such
transaction is hereinafter referred to as the "Exchange". Mi-Tech hereby assigns
to William Blair & Company ("Blair") 2% of the subscription rights held by
Mi-Tech in connection with the Exchange, so that Blair shall receive 2% of the
Class A Subordinate Voting Shares to be issued in the Exchange.
Section 2. CLOSING; EXCHANGE OF SHARES; VALIDITY OF WORLDWIDE
SHARES.
(a) CLOSING. Subject to the terms and conditions set forth in
this Agreement, the closing of the Exchange (the "Closing") shall take place at
such location as 360 shall specify by notice in writing to Mi-Tech, on the day
of and immediately prior to the IPO, or on such other Business Day as may be
agreed to in writing by Mi-Tech and 360 (the "Closing Date"). For purposes of
this Agreement, "Business Day" means any day other than a Saturday, a Sunday or
a day when commercial banks in Vancouver, British Columbia are required to be
closed.
(b) EXCHANGE. At the Closing, Mi-Tech shall cause to be
delivered to Worldwide certificates representing Mi-Tech's Company Shares
together with such documents and instruments of transfer necessary or required
to transfer the Company Shares on the books of the Company into the name of 360,
and, within three (3) Business Days after the Closing, 360 shall deliver (i) to
Mi-Tech a certificate or certificates representing ninety-eight percent (98%) of
the Class A Subordinate Voting Shares to be issued in the Exchange; and (ii) to
Blair a certificate or certificates representing two percent (2%) of the Class A
Subordinate Voting Shares issuable in the Exchange. Each certificate
representing 360 Shares issued to Mi-Tech and to Blair shall have a legend
containing the following:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN QUALIFIED
FOR PUBLIC DISTRIBUTION IN CANADA AND HAVE NOT BEEN REGISTERED UNDER
THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED. THE SECURITIES
HAVE BEEN ACQUIRED FOR INVESTMENT AND MAY NOT BE SOLD, TRANSFERRED OR
OTHERWISE DISPOSED OF EXCEPT IN COMPLIANCE WITH APPLICABLE CANADIAN
SECURITIES LAWS AND THE UNITED STATES SECURITIES ACT OF 1933, AS
AMENDED.
IN ADDITION, THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT
TO THE RESTRICTIONS ON TRANSFER SET FORTH IN THE WORLDWIDE FIBER, INC.
SHAREHOLDERS AGREEMENT, DATED
-2-
<PAGE>
AS OF SEPTEMBER 9, 1999, AS AMENDED, BY THE CORPORATION AND THE PARTIES
THERETO, A COPY OF WHICH IS ON FILE IN THE OFFICE OF THE CORPORATION.
The requirement that the above securities legend be placed upon certificates
evidencing any such securities shall cease and terminate upon the earliest of
the following events: (a) when such securities are transferred in a registered
offering subsequent to the IPO; (b) when such securities are transferred
pursuant to Rule 144 under the 1933 Act; or (c) when such securities are
transferred in any other transaction if the seller delivers to 360 an opinion of
its counsel, which counsel and opinion shall be reasonably satisfactory to 360,
to the effect that such legend is no longer necessary in order to protect 360
against a violation by it of applicable securities laws upon any sale or other
disposition of such securities without registration thereunder. The requirement
that the above legend regarding the Shareholders Agreement of 360, dated
September 9, 1999, as amended (the "360 Shareholders Agreement") be placed upon
certificates evidencing any such securities shall cease and terminate upon the
termination of the 360 Shareholders Agreement. Upon the occurrence of any event
requiring the removal of a legend hereunder, 360, upon the surrender of
certificates containing such legend, shall, at its own expense, deliver
immediately to the holder of any such securities as to which the requirement for
such legend shall have terminated, one or more new certificates evidencing such
securities not bearing such legend.
(c) CLOSING ESCROW AGREEMENT. As soon as practicable after the
execution of this Agreement 360, Mi-Tech and Michels shall execute and deliver a
Closing Escrow Agreement (the "Closing Escrow Agreement") in the form attached
as EXHIBIT B, and each of 360, Mi-Tech and Michels shall deliver to the escrow
agent named in the Closing Escrow Agreement (the "Closing Escrow Agent") the
closing documents described in the Closing Escrow Agreement as being delivered
by such party.
(d) VALIDITY OF SHARES. The Class A Subordinate Voting Shares
to be issued in the Exchange shall be duly authorized by all necessary corporate
action by 360 and, upon issuance in accordance with the provisions of Sections 1
and 2 of this Agreement, such Class A Subordinate Voting Shares to be issued in
the Exchange shall be validly issued, fully paid and nonassessable.
(e) NO FRACTIONAL SHARES. Notwithstanding any other provision
in this Agreement, no certificates or scrip for fractional shares of Class A
Non-Voting stock shall be issued in the Exchange. In lieu of any such fractional
shares, Mi-Tech or Blair, as the case may be, shall be entitled to receive a
cash payment equal to such fraction multiplied by the IPO Price.
Section 3. REGISTRATION RIGHTS. The parties acknowledge that
the Registration Rights Agreement attached hereto as EXHIBIT C (the
"Registration Rights Agreement") shall be executed and delivered by 360 and
Mi-Tech pursuant to the Closing Escrow Agreement and that such Registration
Rights Agreement shall be effective concurrent with the Closing.
-3-
<PAGE>
Section 4. CONTINUANCE OF INDEMNIFICATION OBLIGATIONS. The
agreements and obligations of the Company set forth in the 3rd and 4th sentences
of Section 1.2 of the Shareholders' Agreement shall survive the termination of
the Agreement.
Section 5. [DELETED]
Section 6. GOVERNING AGREEMENT. Section 3.2(b) of the
Governing Agreement by and among Worldwide Fiber Ltd., Mi-Tech, Ledcor Inc.,
Michels, Ledcor Industries Inc. and the Company, dated August 31, 1998 shall
survive the termination of the Shareholders' Agreement. For convenience of
reference, Section 3.2(b) provides as follows:
"Ledcor or its affiliates shall use their best reasonable commercial
efforts to obtain releases of all guarantees given by Mi-Tech or
Michels and, to the extent that such guarantees are not released,
Ledcor will defend, indemnify and save harmless Mi-Tech and Michels
(the "Indemnified Persons") or either of them from and against all
actions, proceedings, demands, claims, liabilities, losses, damages,
judgments, costs and expenses including, without limiting the
generality of the foregoing, reasonable legal fees and disbursements
which the Indemnified Persons or either of them may be liable to pay or
may incur by reason of such guarantees."
Section 7. TERMINATION OF AGREEMENT; SURVIVAL. Upon the
Closing, the Shareholders' Agreement shall terminate except to the extent
specifically set forth herein and except for Sections 1.4, 1.5, 1.6, 3.4 and
14.10 of the Shareholders' Agreement, all of which shall survive termination of
the Shareholders' Agreement, and all of which shall be amended by deleting the
same and replacing the same with the following.
1.4 SCOPE OF BUSINESS
The parties hereto acknowledge and agree that the Company's
scope of business ("Scope of Business") shall be to continue the
development of the fiber optic builds within the continental United
States and to undertake within the continental United States and any
festoons between cities in the continental United States (the
"Territory") any and all projects as developer related to the
development of telecommunications infrastructures, including conduits,
design, management of construction, marketing, management of
maintenance, operation, ownership and/or management, of all conduit and
rights-of-way associated with related copper cable, fiber optic cable
and coaxial cable telecommunications and transmission systems,
ownership and operation of, and the selling and reselling of, capacity,
or any similar such functions or services that can reasonably be
included in the definition of telecommunications development within the
Territory.
1.5 COMMITMENTS OF MICHELS
(a) Michels commits to support and assist the Company in its
strategy of developing fiber optic systems in the Territory. Michels
shall provide the Company with general advice and assistance in
complying with labor or other union issues and such
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<PAGE>
requirements pertinent to all projects of the Company. In addition,
Michels shall provide the Company upon request the following services
to support the direct staff of the Company:
(i) general advice and assistance concerning the
design, marketing and construction of projects of the Company;
(ii) general referrals to all contacts and resources
in the construction industry, especially but not limited to
potential clients on the Company's development projects; and
(iii) construction services and ancillary equipment
of the type provided generally to its customers for
installation of fiber optic systems.
All services provided to the Company pursuant to Section 1.5(a)(iii)
shall be provided at a cost to the Company equal to Cost (as
hereinafter defined) plus twenty-five percent (25%). For purposes
hereof, "Cost" shall mean the actual allocated cost of Michels, as
determined by its accountants, including the costs of materials,
supplies, equipment, labor and overhead and including allocation of a
reasonable amount of administrative services. All services other than
those specified in this Section 1.5(a)(iii) shall be provided at no
cost to the Company.
(b) Notwithstanding the good faith commitment of Michels to
support and assist the Company, Michels shall not be required to
provide any services until the Company has used its best efforts to
exhaust any and all other alternatives, Michels shall not have any
obligation to suspend or otherwise delay any work on any other project
for any customer in order to provide such services, whether incurring a
penalty or not, and Michel's obligations to provide any such services
shall be subject to the availability of necessary personnel (both
management and crew), equipment and supplies. The Company shall provide
as much notice as is practicable in advance of requesting services
hereunder. The sufficiency of the services and the control and
management of any and all aspects of any services shall be determined
and controlled by Michels.
(c) The obligations of Michels under this Section 1.5 shall
expire on December 31, 2002.
1.6 EXCLUSIVITY; NONCOMPETITION.
(a) Neither Mi-Tech, Michels nor any of their respective
Affiliates (collectively, the "Michel's Group") shall undertake any
project within the Company's Scope of Business, except through the
Company and no member of the Michel's Group shall acquire an ownership
interest in, or render advice or assistance to, or engage in any
business, incorporated or otherwise, which undertakes such projects,
except that, beginning on the earlier of April 15, 2000 or the date
that is 12 months after the closing of the IPO any member of the
Michel's Group may engage in telecommunications construction projects,
including, without limitation, the construction of
-5-
<PAGE>
telecommunication facilities for which one or more members of the
Michel's Group receives consideration, directly or indirectly, in the
form of, in whole or in part, the securities (including, but not
limited to common equity, partnership interests, warrants, debt and
convertible instruments) or personal or real property of any of the
owners or developers of such projects or facilities or securities or
real or personal property of one or more Affiliates of such owners or
developers; PROVIDED THAT:
(i) no member or members of the Michel's Group,
individually or together, shall be permitted to
receive consideration in the form of such securities
if the receipt of such securities would result in a
member or members of the Michel's Group, individually
or together, beneficially owning securities, directly
or indirectly representing Control of the issuer of
such securities; and
(ii) if a member of the Michel's Group receives, or has
entered into a legally binding contract to receive,
title to such property in the form of
telecommunications assets (whether conduits, ducts,
fiber cable, coaxial cable, bandwidth or otherwise)
in the Territory, WFI shall have a right of first
refusal to purchase such assets (the "Right of First
Refusal"), which Right of First Refusal shall be on
the following terms:
A. Michels and Mi-Tech shall not, and shall
cause the other members of the Michel's
Groups not to, sell, transfer or otherwise
dispose of, or offer to sell, transfer or
otherwise dispose of, all or any part of
such assets, except in compliance with the
terms of this Right of First Refusal.
B. Mi-Tech and Michels shall provide notice in
writing (a "Clause B "Offer") to WFI of the
receipt by any member of the Michel's Group
of any such assets, such notice to be
provided within 30 days of such receipt. The
Clause B Offer shall provide reasonable
particulars of the nature of such assets,
and shall state the price (expressed only in
lawful money of the United States) and other
terms (such other terms shall be reasonable
in the circumstances) on which such member
of the Michel's Group is prepared to sell
all or any part of such assets to WFI.
Michels and Mi-Tech shall forthwith provide
such additional information on such assets
as WFI may reasonably request. The Clause B
Offer shall be open for acceptance by WFI
for a period of 30 days after its receipt by
WFI. WFI may accept the Clause B Offer as to
all or any contiguous part of such assets.
If and to the extent the Clause B Offer is
not accepted, the applicable member of the
Michel's Group may sell, transfer, or
otherwise dispose of such assets, as
described in the Clause B Offer, to any
other person, firm or corporation, but only
for consideration and on terms not more
favorable to such person, firm or
corporation than those set out in the Clause
B Offer, and
-6-
<PAGE>
only within a period of six months after the
expiration of the period for acceptance by
WFI and, if such member of the Michel's
Group does not do so, the provisions of this
Clause (B) will again become applicable to
the sale, transfer or other disposition of
such assets, and so on from time to time.
C. If, during the six month period referred to
in Clause (B), the applicable member of the
Michel's Group wishes to transfer such
assets to a third party (the "Third Party")
at a price or on terms more favorable than
the price and terms specified in the last
Offer by such member of the Michel's Group
to WFI under Clause (B), then such member of
the Michel's Group shall deliver to WFI a
notice in writing (the "Clause C Offer")
together with a copy of the agreement that
such member of the Michel's Group proposes
to enter into with such third party (the
"Third Party Agreement"). The Clause C Offer
shall be an offer to sell to WFI all or part
of such assets that are the subject matter
of the Third Party Agreement on the terms
and conditions referred to in the Third
Party Agreement. Michel's and Mi-Tech shall
forthwith provide to WFI such additional
information on such assets as WFI may
reasonably request. The Offer shall be open
for acceptance by WFI for a period of 10
Business Days (as defined in Clause (D))
after its receipt by WFI. WFI may accept the
offer as to all or any contiguous part of
such assets. If and to the extent that the
Clause C Offer is not accepted, the
applicable member of the Michel's Group may
transfer such assets, as described in the
Clause C Offer, to the Third Party at the
price and terms specified in the Third Party
Agreement and, if the applicable member of
the Michel's Group does not do so, the
provisions of Clause (B) and this Clause (C)
will again become applicable to the sale,
transfer or other disposition of such
assets, and so on from time to time.
D. The closing of any purchase and sale of
assets to be effected as a result of the
acceptance of a Clause B Offer or a Clause C
Offer by WFI shall take place at the offices
of WFI at a date and time that is mutually
acceptable to the applicable member of the
Michel's Group, or, if no date and time for
closing are so agreed upon, the time for
closing shall be 11:00 a.m. (Vancouver, B.C.
time) on the 20th Business Day following the
acceptance of the Offer by WFI. For the
purposes of this Clause (C) and Clause (D),
"Business Day" means any day other than a
Saturday and Sunday or a day when commercial
banks in Vancouver, British Columbia, are
required to be closed. At the time of
closing, the applicable member of the
Michels Group shall deliver or cause to be
delivered to WFI or its nominee such
transfer documents as WFI may reasonably
request to transfer good and marketable
title in such
-7-
<PAGE>
assets to WFI or its nominee, free and clear
of any mortgage, lien, charge, pledge,
hypothecation, security interest,
encumbrance, restriction, covenant, right,
demand or adverse claim of any kind, and the
members of the Michels Group shall execute
and deliver any further instruments or
documents and take all such further actions
as WFI may reasonably request in order to
evidence or effect such transfer, against
delivery by WFI or its nominee of payment of
the purchase price for such assets.
E. Except with respect to any Clause B Offer or
Clause C Offers that have been made prior to
December 31, 2002 (or that were required to
have been made in accordance with the terms
of this Agreement prior to such date), the
obligations of Mi-Tech and Michels under
this Section 1.6 shall expire on December
31, 2002.
(b) Notwithstanding the foregoing, the Parties acknowledge and
agree that Worldwide and Michels are leading construction contractors
with special expertise in telecommunications construction (the "Core
Business"). The Parties expressly agree that no provision of this
Agreement or any other agreement between them shall be interpreted as
to restrain or in any manner impede Michels or any member of the
Michel's Group, Ledcor or Worldwide from performing such Core Business,
for consideration consisting of cash or cash equivalents, except that
until December 31, 2002, Michels and Mi-Tech shall, and shall cause the
other members of the Michels Group to, use their good faith reasonable
efforts not to perform telecommunications construction on the same
right of way as a competing contractor on contracts in excess of 50
miles within 50 miles of any point along a contiguous 50-mile segment
of an Active Company Project. For purposes of this Section 1.6(b), an
"Active Company Project" shall mean any project being undertaken by the
Company with respect to which the Company has secured the legal right
to commence construction on a contiguous 50 or more miles segment of
the route (including attempting to own or license the applicable right
of way and to obtain all building and construction permits and
franchises for such segment), has commenced construction with respect
to such contiguous 50 or more miles segment, and has executed at least
one contract with a purchaser of strands."
3.4 ADDITIONAL FIBER OPTIONS.
(a) Mi-Tech provided, and the original execution of this
Agreement constituted, an option to the Company to purchase from Mi-Tech and its
Affiliates 24 strands of the existing Montreal to Albany fiber optic build owned
by Mi-Tech and its Affiliates, at a price and on terms no less favorable than
the price paid by any third party for the purchase of an equivalent number of
strands of the Montreal to Albany build. Such option was to be exercisable
commencing on the date such strands were available and was to terminate one year
thereafter; provided, that if no third party had purchased an equivalent number
of strands of the Montreal to Albany build prior to exercise of the option, the
exercise price and terms upon which the option was to be exercisable was to be
as mutually agreed by Mi-Tech and the Company.
-8-
<PAGE>
(b) Mi-Tech and the Company acknowledge and agree that the
Company has exercised such option and that Mi-Tech and the Company have reached
agreement on the principal terms applicable to the purchase of such strands.
Mi-Tech and the Company shall negotiate reasonably and in good faith to conclude
a definitive agreement for such purchase.
14.10 DEFINITIONS
The following terms shall have the following meanings:
"Affiliate" means any Person that directly or indirectly
controls, or is under common control with, or is controlled by another
Person, where "control" means the possession, directly or indirectly,
of more than fifty percent (50%) of the combined voting power of all
outstanding securities, or the direction of management or policies
(whether through ownership of securities or partnership or other
ownership interests, by contract or otherwise) and shall be deemed to
include senior executive officers of Mi-Tech or Michels.
"Company", for the purposes of Sections 1.4, 1.5 and 1.6,
shall include the Company and its Affiliates.
"Control" shall mean, for the purpose of Section 1.6(a)(i),
the ownership, possession or control, directly or indirectly, of:
(i) 5% of the issued and outstanding securities of
Williams Communications Group, Inc., Broadcasting
Communications Services Inc., Global Crossing Ltd.,
Colt Telecom Group plc, Level 3 Communications, Inc.,
Qwest Communications Corporation, GST
Telecommunications Inc., Metromedia Fiber Network,
Inc. or their publicly traded Affiliates; or;
(ii) securities representing 50% or more of the combined
voting power of all outstanding securities of the
issuer, or the direction of management policies
(whether through ownership of securities or
partnership or other ownership interests, by contract
or otherwise); or
(iii) securities representing 50% or more of the combined
equity of all outstanding securities of the issuer.
"Person" means any natural person, partnership, corporation or
other legal entity.
Capitalized terms used above and not defined shall have the
meaning set forth in the Shareholders' Agreement.
Section 8. IPO DATE. In the event the IPO is terminated or
does not close on or before June 1, 2000 thereby preventing the conversion of
the Company Shares into Class A Subordinate Voting Shares pursuant to this
Agreement by or before June 1, 2000, this Agreement shall be null and void and
the Shareholders' Agreement shall remain in full force and effect as if
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<PAGE>
the IPO Notice (as defined in the Shareholders' Agreement) provided by 360 on
November 19, 1999 had never been provided.
Section 9. REPRESENTATIONS AND WARRANTIES OF 360. 360 hereby
represents and warrants to Mi-Tech and Michels as of the date hereof and, unless
otherwise provided, as of the Closing Date as follows:
(a) 360 is a corporation, duly organized, validly existing and
in good standing under the CANADA BUSINESS CORPORATIONS ACT, and has
all requisite corporate power and authority to enter into and carry out
the transactions contemplated by this agreement.
(b) The execution and delivery by 360 of this Agreement, the
Registration Rights Agreement and the Closing Escrow Agreement
(collectively, "360 Transaction Documents") and the performance by 360
of its obligations hereunder and thereunder has been duly authorized by
all requisite corporate action on the part of 360. Each 360 Transaction
Document constitutes a legal, valid and binding agreement of 360,
enforceable against 360 in accordance with its terms except to the
extent that enforceability may be limited by bankruptcy, insolvency or
other similar laws affecting creditors' rights generally and by
equitable principles generally, whether enforced in a court of law or
at equity.
(c) The execution, delivery and performance by 360 of the 360
Transaction Documents and the consummation by 360 of the transactions
contemplated thereby will not (i) violate any provision of law,
statute, rule or regulation, or any ruling, writ, injunction, order,
judgment or decree of any court, administrative agency or other
governmental body applicable to it, or any of its properties or assets;
(ii) conflict with or result in any breach of any of the terms,
conditions or provisions of, or constitute (with due notice or lapse of
time, or both) a default (or give rise to any right of termination,
cancellation or acceleration) under any contract to which 360 is a
party that would materially adversely affect 360's ability to
consummate the transactions contemplated by any 360 Transaction
Document or perform its obligations under any Transaction Document; or
(iii) violate its constating documents.
(d) The authorization, issuance, sale and delivery of the
Class A Subordinate Voting Shares to Mi-Tech and Blair pursuant to this
Agreement have been duly authorized by all requisite corporate action
on the part of 360, and when issued, sold and delivered in accordance
with this Agreement, will be validly issued and outstanding, fully paid
and nonassessable with no personal liability attaching to the ownership
thereof and not subject to preemptive or similar rights of the
shareholders of 360 or others, except as set out in the Shareholders
Agreement and the 360 Transaction Documents.
(e) Assuming the accuracy of the representations and
warranties contained in Section 10 hereof in the case of Mi-Tech and
the representations and warranties made by Blair in the separate
agreement referenced in Section 11 hereof, in the case of Blair, the
offer, sale and/or the issuance and delivery of the Class A Subordinate
Voting Shares to
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<PAGE>
Mi-Tech and to Blair as contemplated herein is exempt from the
prospectus and registration requirements under applicable securities
laws.
(f) No permit, authorization, consent or approval of or by, or
any notification of or filing with, any government, regulatory
authority, governmental department, agency, commission, board,
tribunal, crown corporation, or court or other law, rule or
regulating-making entity having or purporting to have jurisdiction on
behalf of any nation, or province or state or other subdivision thereof
or any municipality, district or other subdivision thereof; (a
"Governmental Authority") or any individual, sole proprietorship,
general, limited or any other partnership, limited liability company,
unincorporated association, unincorporated syndicate, unincorporated
organization, trust, body corporate, or other entity, and a natural
person in such person's capacity as trustee, executor, administrator or
other legal representative (collectively, with Governmental Authority,
a "Person") is required in connection with the execution, delivery and
performance by 360 of any 360 Transaction Document, the consummation by
360 of the transactions contemplated hereby or thereby, or the
issuance, sale or delivery of the Class A Subordinate Voting Shares to
Mi-Tech and Blair (other than such notifications or filings required
under applicable securities laws, if any, which shall be made by 360 on
a timely basis and other than provided for in any 360 Transaction
Document).
(g) 360 acknowledges and agrees that the foregoing
representations, warranties and covenants set out herein are made by
360 with the intent that they be relied upon by Mi-Tech in determining
its willingness to effect the Exchange. 360 further agrees that by
accepting the Company Shares, 360 shall be representing and warranting
that the foregoing representations and warranties are true as at the
Closing Date with the same force and effect as if they had been made by
360 at the Closing Date. 360 undertakes to notify Mi-Tech in writing of
any change in any representation, warranty or other information
relating to 360 set forth herein that takes place prior to the Closing
Date.
Section 10. REPRESENTATIONS AND WARRANTIES OF MICHELS AND
MI-TECH. Michels and Mi-Tech represent, warrant and acknowledge to 360 as of the
date hereof and, unless otherwise provided, as of the Closing Date, as follows:
(a) Mi-Tech is acquiring Class A Subordinate Voting Shares as
principal with an aggregate acquisition cost to Mi-Tech of not less
than C$150,000 and is purchasing the Class A Subordinate Voting Shares
for investment only and not with a view to resale or distribution in
violation of applicable securities laws.
(b) Mi-Tech, if a "U.S. Person" (as defined in Regulation S
under the United States Securities Act of 1993, as amended (the "1933
Act"), is an "Accredited Investor" (as defined in Rule 501 under the
1933 Act). Mi-Tech is acquiring the Class A Subordinate Voting Shares
for its own account, for investment purposes only and not with a view
to any resale, distribution or other disposition of the Class A
Subordinate Voting Shares in violation of the United States securities
laws. If Mi-Tech decides to offer, sell or otherwise transfer any of
the Class A Subordinate Voting Shares, it will not
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<PAGE>
offer, sell or otherwise transfer any of such Class A Subordinate
Voting Shares directly or indirectly, unless such sale is made in
compliance with, or in reliance of an exemption from, the 1933 Act and
applicable state securities laws. Mi-Tech understands and agrees that
there may be material tax consequences to Mi-Tech of an acquisition or
disposition of the Class A Subordinate Voting Shares and that, except
as expressly set forth in this Agreement, 360 gives no opinion and
makes no representation with respect to the tax consequences to
Mi-Tech under United States, state, local or foreign tax law of
Mi-Tech's acquisition or disposition of such securities.
(c) Mi-Tech acknowledges that no offering memorandum,
prospectus or registration statement has been prepared or filed by 360
with any securities commission or similar authority in any jurisdiction
in connection with the Exchange and the issue and sale of Class A
Subordinate Voting Shares to Mi-Tech is subject to such sale being
exempt from the requirements of applicable securities laws as to the
filing of an offering memorandum, prospectus or registration statement.
(d) Mi-Tech has received and reviewed 360's Registration
Statement on Form F-1 as filed with the Securities and Exchange
Commission of the United States on January 28, 2000 and has had the
opportunity to discuss the disclosure therein, as well as developments,
concerning 360 and the industry in which it competes, with
representatives of 360 and has received complete answers to all of its
questions. Mi-Tech is not relying on any written or oral
representations made by 360, except to the extent expressly provided in
this Agreement.
(e) To Mi-Tech's knowledge, the Class A Subordinate Voting
Shares were not advertised in printed media of general and regular paid
circulation, radio or television and Mi-Tech has not purchased the
Class A Subordinate Voting Shares as a result of any form of general
solicitation or general advertising, including advertisements,
articles, notices or other communications published in any newspaper,
magazine or similar media or broadcast over radio, or television, or
any seminar or meeting whose attendees have been invited by general
solicitation or general advertising.
(f) Mi-Tech has such knowledge and experience in financial and
business affairs as to be capable of evaluating the merits and risks of
the investment hereunder and is able to bear the economic risk of loss
of such investment.
(g) Mi-Tech understands that the Class A Subordinate Voting
Shares have not been and will not be registered under the 1933 Act, as
amended, or the securities laws of any state of the United States and
that the sale contemplated hereby is being made in reliance on an
exemption from such registration requirements and Mi-Tech understands
and agrees that the Class A Subordinate Voting Shares may not be traded
in the United States or by or on behalf of a U.S. Person or a person in
the United States unless permitted by the terms of the 360 Shareholders
Agreement and either registered under the 1933 Act and any applicable
state securities laws or an exemption from such registration
requirements is available and that certificates representing the Class
A Subordinate Voting Shares will bear a legend to such effect.
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<PAGE>
(h) Mi-Tech understands that no prospectus has been or will be
filed in accordance with the securities laws, and the regulations
thereunder, of, and the applicable published rules, policy statements,
blanket orders and notices of the securities regulatory authorities in
the provinces and territories of Canada (the "Canadian Securities
Laws") qualifying the distribution of the Class A Subordinate Voting
Shares in any province or territory of Canada and that the Class A
Subordinate Voting Shares may not be offered or sold by Mi-Tech in any
province or territory of Canada except pursuant to an applicable
exemption from the prospectus requirements of the applicable Canadian
Securities Laws and from a dealer appropriately registered under the
applicable Canadian Securities Laws or, other than in Ontario, in
accordance with an exemption from the registration requirements of such
laws.
(i) Neither Mi-Tech nor Michels has employed any broker or
finder in connection with the transactions contemplated by this
agreement.
(j) The execution, delivery and performance by Mi-Tech and
Michels of this Agreement, and the execution, delivery and performance
by Mi-Tech of the 360 Transaction Documents and the Agreement to be
Bound by the 360 Shareholders Agreement (collectively the "Mi-Tech
Transaction Documents") and the consummation by Mi-Tech and Michels of
the transactions contemplated hereby and thereby will not (i) violate
any provision of law, statute, rule or regulation, or any ruling, writ,
injunction, order, judgment or decree of any court, administrative
agency or other governmental body applicable to it, or any of its
properties or assets; (ii) conflict with or result in any breach of any
of the terms, conditions or provisions of, or constitute (with due
notice or lapse of time, or both) a default (or give rise to any right
of termination, cancellation or acceleration) under any contract to
which Mi-Tech or Michels is a party that would materially adversely
affect their ability to consummate the transactions contemplated by
this agreement or perform their obligations under any Mi-Tech
Transaction Documents; or (iii) violate its constating documents.
(k) Mi-Tech is duly organized and validly existing under the
laws of the jurisdiction of its organization, and Michels is duly
incorporated and validly existing under the laws of its jurisdiction of
incorporation, and each has all partnership, corporate or company
power, as applicable, and authority to enter into and carry out the
transactions contemplated by each of the Mi-Tech Transaction Documents
and the performance by them of their obligations hereunder and
thereunder. Each of the Mi-Tech Transaction Documents has been duly
authorized by all necessary action on the part of Mi-Tech and Michels.
Each of the Mi-Tech Transaction Documents constitutes a valid and
binding agreement of Mi-Tech, and this Agreement constitutes a valid
and binding agreement of Michels, enforceable against Mi-Tech and
Michels, as the case may be, in accordance with its terms except to the
extent that enforceability may be limited by bankruptcy, insolvency or
other similar laws affecting creditors' rights generally and by
equitable principles generally whether enforced in a court of law or at
equity.
(l) No permit, authorization, consent or approval of or by, or
any notification of or filing with, any Person is required in
connection with the execution, delivery and
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<PAGE>
performance by Mi-Tech or Michels of any Mi-Tech Transaction Document,
the consummation by Mi-Tech or Michels of the transactions
contemplated hereby or thereby, or the issuance, purchase or delivery
of the Mi-Tech Shares (other than such notifications or filings
required under applicable securities laws, if any, which shall be made
on a timely basis and other than provided for in any Mi-Tech
Transaction Document).
(m) In respect of the Company Shares (i) no Person, other than
360 or WFN, has any written or oral agreement or option or any right or
privilege (whether by law, pre-emptive or contractual) capable of
becoming an agreement or option for the purchase or acquisition from
Mi-Tech of any of the Company Shares, (ii) no Person other than 360 or
WFN has any agreement or option or any right or privilege (whether by
law, pre-emptive or contractual) capable of becoming an agreement,
including convertible securities, warrants or convertible obligations
of any nature, for the purchase, subscription, allotment or issuance of
any unissued shares or other securities of the Company, (iii) Mi-Tech
is the registered and beneficial owner of the Company Shares, with good
and marketable title thereto, free and clear of any mortgage, lien,
security interest, pledge, escrow, charge, or other encumbrance of any
kind or character whatsoever (an "Encumbrance") and, without limiting
the generality of the foregoing, none of the Company Shares are subject
to any voting trust, shareholder agreement or voting agreement other
than the Shareholders Agreement, and (d) upon completion of the
transaction contemplated by this agreement, all of the Company Shares
will be owned by 360 as the registered and beneficial owner, with a
good and marketable title thereto free and clear of any Encumbrance
except for such Encumbrances as may have been granted by 360.
(n) Mi-Tech and Michels acknowledge and agree that the
foregoing representations, warranties and covenants set out herein are
made by Mi-Tech and Michels with the intent that they be relied upon in
determining the suitability of Mi-Tech as a purchaser of Class A
Subordinate Voting Shares. Mi-Tech and Michels further agree that by
Mi-Tech accepting the Class A Subordinate Voting Shares, Mi-Tech and
Michels shall be representing and warranting that the foregoing
representations and warranties are true as at the Closing Date with the
same force and effect as if they had been made by Mi-Tech and Michels
at the Closing Date and shall continue in full force and effect
notwithstanding any subsequent disposition by Mi-Tech of the Class A
Subordinate Voting Shares. Mi-Tech and Michels undertake to notify 360
in writing of any change in any representation, warranty or other
information relating to Mi-Tech or Michels set forth herein that takes
place prior to the Closing Date.
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<PAGE>
Section 11. BLAIR'S REPRESENTATIONS AND ACKNOWLEDGMENT. On or
prior to the Closing, Mi-Tech shall cause Blair to execute a Representation and
Acknowledgment in the form attached as EXHIBIT E.
Section 12. OTHER COVENANTS.
(a) COOPERATION BY PARTIES; SATISFACTION OF CLOSING
CONDITIONS. From the date hereof and prior to the Closing, each party shall use
its commercially reasonable efforts, and will cooperate with each other, to
secure as promptly as practicable all necessary consents, approvals,
authorizations, exemptions and waivers from third parties as shall be required
to enable the parties hereto to effect the transactions contemplated hereby,
provided however that 360 shall not by this section be obliged to proceed with
an IPO unless 360 decides to proceed, in its sole and absolute discretion.
(b) 360 SHAREHOLDERS AGREEMENT AND REGISTRATION RIGHTS
AGREEMENT. As soon as practicable after the execution of this Agreement, 360 and
Mi-Tech shall execute and deliver to the Closing Escrow Agent pursuant to the
Closing Escrow Agreement (a) an agreement by which Mi-Tech agrees to be bound by
the 360 Shareholders Agreement, (b) the Registration Rights Agreement, and (c)
such other documents and instruments as required pursuant to the Closing Escrow
Agreement.
Section 13. ACKNOWLEDGEMENT OF INTENDED AMENDMENT TO ARTICLES
OF 360. Mi-Tech acknowledges that it has been advised that it is the intention
of 360 to request its shareholders to amend the Articles of 360, to alter the
share capital of 360, and to alter the rights, privileges, restrictions and
conditions attached to each class of shares in the share capital of 360, as
described in the draft Articles of Amendment (to be attached as EXHIBIT D as
soon as practicable after the execution of this Agreement), prior to, or
concurrently with, the IPO.
Section 14. CONDITIONS TO THE EXCHANGE.
(a) CONDITIONS TO OBLIGATIONS OF EACH PARTY. The respective
obligations of each party hereto to consummate the transactions contemplated
hereby shall be subject to the satisfaction at or prior to the Closing Date of
the following conditions, any or all of which may be waived in writing, in whole
or in part, by 360 or Mi-Tech, to the extent permitted by applicable law:
(b) No Governmental Authority shall have enacted, issued,
promulgated or enforced any statute, rule, regulation, executive order, decree,
judgment, preliminary or permanent injunction or other order which is in effect
and which prohibits, enjoins or otherwise restrains the consummation of the
transactions contemplated hereby; provided, that the parties shall use
commercially reasonable efforts to cause any such decree, judgment, injunction
or order to be vacated or lifted.
(c) Each consent or approval from, or filing with any Person,
required to be obtained or made and any waiting period required to have expired
in order to consummate the
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<PAGE>
transactions contemplated by this agreement at the Closing shall have been
obtained, or made, as the case may be, and any such waiting period shall have
expired.
(d) The events described in Section 8 shall not then have
occurred.
Section 15. CONDITIONS TO OBLIGATIONS OF MI-TECH. The
obligations of Mi-Tech to consummate the Exchange shall be subject to the
satisfaction or waiver, on or prior to the Closing Date, of the following
conditions:
(a) Each representation and warranty made by 360 herein shall
be true and correct, in all material respects on and as of the Closing
Date, with the same force and effect as though such representation and
warranty had been made on and as of the Closing Date, except for
changes permitted or contemplated by this agreement and except for each
representation and warranty that is made as of a specific date or time,
which shall be true and correct in all material respects, only as of
such specific date or time.
(b) 360 shall have complied in all material respects with all
its agreements and covenants contained herein required to be performed
at or prior to the Closing to the extent such agreements and covenants
relate to the Closing.
(c) 360 shall have delivered to Mi-Tech a certificate executed
by a senior executive officer of 360, which shall be satisfactory in
form and substance to Mi-Tech, certifying that the conditions set forth
in paragraphs (a) and (b) have been met.
Section 16. CONDITIONS TO THE OBLIGATIONS OF 360. The
obligations of 360 to consummate the Exchange shall be subject to the
satisfaction or waiver, on or before the Closing Date, of the following
conditions:
(a) Each representation and warranty made by Mi-Tech and
Michels herein shall be true and correct in all material respects, with
the same force and effect as though such representation and warranty
had been made on and as of the Closing Date, except for changes
permitted or contemplated by this agreement and except for each
representation and warranty that is made as of a specific date or time,
which shall be true and correct, in all material respects, only as of
such specific date or time.
(b) Mi-Tech and Michels shall have complied in all material
respects with all of its agreements and covenants contained herein
required to be performed at or prior to the Closing to the extent such
agreements and covenants relate to the Closing.
(c) Each of Mi-Tech and Michels shall have delivered to 360 a
certificate executed by a senior executive officer, which shall be
satisfactory in form and substance to 360, certifying that the
conditions set forth in paragraphs (a) and (b) have been met.
Section 17. SURVIVAL OF REPRESENTATIONS, WARRANTIES,
AGREEMENTS AND COVENANTS. All representations and warranties in this Agreement
shall survive the Closing indefinitely and shall in no way be affected by any
investigation of the subject matter thereof made by or on behalf of 360 or
Mi-Tech. All statements contained in any certificate or other
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<PAGE>
instrument delivered by 360 pursuant to this Agreement shall constitute
representations and warranties by 360 under this agreement. All statements
contained in any certificate or other instrument delivered by Mi-Tech or Michels
pursuant to this agreement shall constitute representations and warranties by
the Mi-Tech or Michels, as the case may be, under this agreement.
Section 18. EXPENSES. Each of the parties shall pay all the
costs and expenses incurred by it or on its behalf in connection with this
agreement and the consummation of the transactions contemplated hereby.
Section 19. CONFIDENTIALITY.
(a) The parties hereto hereby covenant and agree with each
other that, subject to subsection 19(c), they will not disclose, or allow their
respective directors, officers, employees agents, representatives or
consultants, if any, to disclose, to any Person, any of the terms, conditions or
other facts of or concerning this Agreement or the existence of this agreement
without the prior written consent of the other parties hereto. The parties
hereto hereby further covenant and agree with each other that they will at all
times keep, and all reasonable and normal steps to cause their respective
directors, officers, employees, agents, representatives and consultants, if any,
to at all times keep, all information of every nature and kind whatsoever
regarding 360, Mi-Tech and their affiliates including, without limitation,
information on and/or copies of material agreements, corporate, proceedings and
other data, whether transferred in writing, orally, visually, electronically or
by any other means, and all analyses, studies, compilations, data, supplies or
other documents prepared by any party or 360 or Mi-Tech or their affiliates
containing, or based in whole or in part on, any such information or reflecting
any such information, strictly confidential, and shall at no time convey or
disclose, or knowingly allow their respective directors, officers, employees,
agents, representatives or consultants, if any, to convey or disclose, in any
manner whatsoever, to any person, firm or corporation any of the aforesaid
information. The parties hereto hereby further covenant and agree with each
other not to use, and to take all normal and reasonable steps to ensure that
their respective directors, officers, employees, agents, representatives or
consultants, if any, do not use, any of the aforesaid information except for the
purposes of exercising their respective rights and performing their respective
obligations under this agreement. The obligations in this Section 19(a) shall
not apply to: (i) information that, at the time of its disclosure, is publicly
available; (ii) information that, after the time of its disclosure, becomes
publicly available other than through a breach of the confidentiality
obligations of this Agreement; (iii) information that was, is, or becomes
available to a party on a non-confidential basis, which a party obtains from a
third person who is not known by such party as being under confidentiality
obligations respecting such information; or (iv) information that, at the time
of such disclosure, the receiving party already had in its own possession as
evidenced by such party's written records.
(b) Each party hereto hereby covenants and agrees with each
other party hereto to indemnify and hold harmless each other party hereto from
any losses, damages, charges, fees or expenses (including reasonable lawyers'
fees) arising out of or resulting from any breach of subsection 19(a). The
parties hereto hereby further covenant and agree with each other not to do any
act, or knowingly allow their respective directors, officers, employees, agents,
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<PAGE>
representatives or consultants, if any, to do any act, to infringe upon any
copyright, patent, industrial design or other proprietary rights of 360 or its
affiliates.
(c) The parties hereto hereby further covenant and agree with
each other that, in the event they, or their respective directors, officers,
employees, agents, representatives or consultants, if any, become legally
compelled to disclose any of the aforesaid information, or are advised by their
respective legal counsel that such disclosure is required to comply with
applicable law, to immediately provide the other parties with written notice so
that the other parties may seek a protective order or other appropriate remedy,
and to cooperate, and to cause their respective directors, officers, employees,
agents, representatives and consultants, if any, to cooperate, with the other
parties in any effort undertaken to obtain a protective order or other remedy.
Each party hereto hereby further covenants and agrees with each other party to,
in the event that such protective order or remedy is not obtained, furnish, and
to cause his directors, officers, employees, agents, representatives and
consultants, if any, to furnish, only that portion of the aforesaid information
which he is legally required to furnish, and to use his best efforts, and to
cause his directors, officers, employees, agents, representatives, and
consultants, if any, to use their best efforts, to obtain an assurance from the
recipient of any of the aforesaid information that confidential treatment will
be accorded to such information, to the extent that such assurance is available.
Notwithstanding the foregoing, each of the parties acknowledges that the parties
may be required to disclose the terms of this Agreement, and provide a copy of
this Agreement, in filings made by such party under applicable securities law,
and may have to disclose the aforesaid information in an open court in legal
proceedings between the parties, or between a party and others, and each of the
parties hereby consents to such disclosure and to the filing of a copy of this
Agreement for public viewing under filings required to be made by a party under
applicable securities law.
(d) Each party hereto hereby acknowledges to and covenants and
agrees with each other party hereto that a breach by it of any of its covenants
contained in this Section 19 may result in damages to each of the other parties
and that a monetary award would not adequately compensate for such damages, and,
accordingly, that in the event of any such breach, in addition to all other
remedies available in law or in equity, the other parties, or any of them, shall
be entitled as a matter of right to apply to a court of competent equitable
jurisdiction for such relief by way of restraining order, injunction, decree or
otherwise as may be appropriate to ensure compliance by it with Section 19.
(e) Each of the parties hereto hereby acknowledges to and
covenants and agrees with each of the other parties hereto that, notwithstanding
any provision of this Agreement, its covenants contained in Section 19 survive
any termination of this Agreement, whether or not it continues to hold shares in
the capital of 360.
Section 20. UNDERWRITTEN OFFERING - LOCK-UP OF SHARES. Mi-Tech
agrees, if requested in writing by the managing underwriter(s) of an IPO, not to
effect any sale (or in any other way, directly or indirectly, effect any
transfer, assignment, distribution, pledge, encumbrance or other disposition of,
either voluntarily or involuntarily, including the assignment or transfer of
voting rights, if any) (collectively, with "sale", a "Sale") of any shares or of
any equity securities (or securities convertible into or exchangeable for equity
securities) of 360,
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<PAGE>
including, without limitation, any Sale pursuant to Canadian Securities Laws or
Rule 144 under the U.S. Securities Act, (other than as part of such underwritten
public offering) during the time period requested by the managing underwriter(s)
not to exceed one year.
Section 21. RESTRICTIONS ON CONVERSION INTO VOTING SHARES. To
the extent required by the Hart-Scott-Rodino Antitrust Improvements Act of 1976,
as amended, and the rules and regulations promulgated thereunder (the "HSR
Act"), if Mi-Tech elects to convert its non-voting Shares into voting Shares,
Mi-Tech and (upon written request by Mi-Tech) 360 agree to file or cause to be
filed, as promptly as practicable after such request, with the United States
Federal Trade Commission and the Antitrust Division of the United States
Department of Justice, all reports and documents required to be filed by Mi-Tech
and 360 under the HSR Act concerning the conversion transaction and (b) promptly
comply with or cause to be complied with any requests by the United States
Federal Trade Commission or the Antitrust Division of the United States
Department of Justice for additional information concerning such transactions,
in order to obtain antitrust regulatory clearance as soon as possible. 360
agrees to request, and to cooperate with Mi-Tech in requesting, early
termination of any applicable waiting period under the HSR Act. All fees
required to be paid in connection with such filings shall be borne by 360.
Section 22. MODIFICATION OR AMENDMENT. The parties hereto may
modify or amend this Agreement only by written agreement duly executed and
delivered on behalf of the respective parties.
Section 23. WAIVER OF CONDITIONS.
(a) IN WRITING. Any provision of this Agreement may be waived
if, and only if, such waiver is in writing and signed by the party against whom
the waiver is to be effective.
(b) FAILURE OR DELAY. No failure or delay by any party in
exercising any right, power or privilege hereunder shall operate as a waiver
thereof nor shall any single or partial exercise thereof preclude any other or
further exercise thereof or the exercise of any other right, power or privilege.
Except as otherwise herein provided, the rights and remedies herein provided
shall be cumulative and not exclusive of any rights or remedies provided by law.
Section 24. COUNTERPARTS. This Agreement may be executed in
any number of counterparts, each such counterpart being deemed to be an original
instrument, and all such counterparts shall together constitute the same
agreement.
Section 25. GOVERNING LAW. This Agreement shall be deemed to
be made in and in all respects shall be interpreted, construed and governed by
and in accordance with the laws of the State of New York without regard to the
conflict of law principles thereof.
Section 26. NOTICES. Notices, requests, instructions or other
documents to be given under this Agreement shall be in writing and shall be
deemed given, (i) when sent if sent by facsimile, provided that the fax is
promptly confirmed by telephone confirmation thereof, (ii) when delivered, if
delivered personally to the intended recipient, and (iii) one business day
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later, if sent by overnight delivery via a national courier service, and in each
case, addressed to a party at the address for such party set forth below or to
such other persons or addresses as may be designated in writing by the party to
receive such notice:
(a) If to 360, WFN, Ledcor Communications Ltd. or the
Company, to:
c/o 360networks inc.
#1510-1066 West Hastings Street
Vancouver, British Columbia V6E 3X1
Fax: (604) 648-7747
Attn: General Counsel
with a copy to:
Campney & Murphy
2100-1111 West Georgia Street
Vancouver, British Columbia V7X 1K9
Fax: (604) 688-0829
Attn: Bruce Tattrie
(b) If to Ledcor Inc. or Ledcor Industries, Inc., to:
Ledcor Industries Limited
Suite 1000, 1066 West Hastings Street West
Vancouver, British Columbia V6E 3X1
Fax: (604) 681-5372
Attn: David Lede
(c) If to Michels or Mi-Tech
Mi-Tech Communications, LLC
P.O. Box 128
Brownsville, WI 53006-0128
Fax: (920) 583-3429
Attn: Brian Johnson, Manager
with a copy to:
Michels Pipeline Construction, Inc.
P.O. Box 128
Brownsville, WI 53006-0128
Fax: (920) 583-3429
Attn: A. David Stegeman
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<PAGE>
and
Foley & Lardner
777 East Wisconsin Avenue
Milwaukee, WI 53202
Fax: (414) 297-4900
Attn: Marc J. Marotta
Section 27. ENTIRE AGREEMENT. This Agreement, the 360
Shareholders' Agreement, the documents delivered pursuant to the Closing Escrow
Agreement, the Shareholders' Agreement to the extent it survives, the Transfer
Agreement, dated as of December 31, 1998, and any other written agreement
between the parties not expressly terminated hereunder, constitute the entire
agreement among the parties hereto, and supersede all other prior agreements,
understandings, representations and warranties both written and oral, among the
parties, with respect to the subject matter hereof.
Section 28. SEVERABILITY. The provisions of this Agreement
shall be deemed severable and the invalidity or unenforceability of any
provision shall not affect the validity or enforceability or the other
provisions hereof.
Section 29. CAPTIONS. The captions herein are for convenience
of reference only, do not constitute part of this Agreement and shall not be
deemed to limit or otherwise affect any of the provisions hereof.
Section 30. ASSIGNMENT. This Agreement shall not be assignable
by operation of law or otherwise.
Section 31. DISPUTE RESOLUTION.
(a) RESOLUTION BY DISCUSSION BETWEEN PARTIES. The parties
hereto shall attempt to resolve any disputes arising out of the terms and
conditions of this Agreement by discussions between representatives of the
respective parties which representatives shall have the authority to take all
actions necessary for the resolution of such dispute. Such individuals shall
cooperate with each other for the purpose of resolving such disputes and shall
exchange such information as the other shall request for purposes thereof. If a
party desires to commence such discussions, it shall notify the other and upon
such notice the parties shall use their good faith efforts to resolve the
dispute within 30 days of such notice. Any dispute which cannot be resolved to
the satisfaction of such parties during such 30 day period may, upon written
notice by any such party, be submitted to arbitration in accordance with Section
31(b) below.
(b) ARBITRATION. All disputes, controversies and claims which
cannot be settled by mutual discussions as provided in Section 31(a) above may,
upon written notice by any party be submitted to arbitration with the American
Arbitration Association (the "AAA") in accordance with the rules of the AAA. The
arbitration shall be conducted by three arbitrators. One arbitrator shall be
appointed by 360 on behalf of itself and its affiliates and one arbitrator shall
be appointed by Mi-Tech on behalf of itself and its affiliates, and the two
appointed
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arbitrators shall select a third arbitrator. If a party shall fail to appoint an
arbitrator, such party's arbitrator shall be selected in accordance with the
rules and procedures of the AAA. The arbitration shall take place in New York,
New York. Each of the parties agrees to provide such information as the
arbitrators shall request for purposes of resolving the dispute. Any award
issued by the arbitrators shall be final and binding on the parties. Judgment
upon such award may be entered in any court having jurisdiction. Each of the
parties shall bear its own costs in connection with the arbitration, unless the
arbitrators shall otherwise determine. Nothing in this Section 31 shall prevent
a party from seeking injunctive relief or other equitable or extraordinary
remedies from a court of competent jurisdiction at any time prior to, or during,
an arbitration initiated under the terms of this Agreement.
Section 32. ENFORCEMENT. The parties hereto agree that money
damages or other remedy at law would not be a sufficient or adequate remedy for
any breach or violation of, or a default under, this Agreement by them and that
in addition to all other monetary and other remedies available to them, each of
them shall be entitled to the fullest extent permitted by law to an injunction
restraining such breach, violation or default or threatened breach, violation or
default and to any other equitable relief, including, without limitation,
specific performance, without bond or other security being required.
Section 33. CURRENCY. Unless otherwise indicated, references
to "dollars", "$" or "US$" are to U.S. dollars and references to "C$" are to
Canadian dollars.
Section 34. NO PARTNERSHIP. The obligations of each of the
parties to this agreement are several and not joint. Nothing in this agreement
shall imply or be deemed to imply a partnership, joint venture or other
relationship between the parties.
Section 35. FURTHER ASSURANCES. At any time or from time to
time after the Closing, 360, on the one hand, and Mi-Tech and Michels, on the
other hand, agree to cooperate with each other, and at the request of the other
party, to execute and deliver any further instruments or documents and to take
all such further action as the other may reasonably request in order to evidence
or effectuate the consummation of the transactions contemplated hereby and to
otherwise carry out the intent of the parties hereunder.
[THE REST OF THE PAGE IS INTENTIONALLY LEFT BLANK.]
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IN WITNESS WHEREOF, this Agreement has been duly executed and
delivered by the duly authorized officers of the parties hereto as of the date
first written above.
360NETWORKS INC.
By: /s/ David Lede
-----------------------
(Title)
WORLDWIDE FIBER NETWORKS LTD.
By: /s/ David Lede
-----------------------
(Title)
LEDCOR COMMUNICATIONS LTD.
By: /s/ David Lede
-----------------------
(Title)
LEDCOR INDUSTRIES, INC.
By: /s/ David Lede
-----------------------
(Title)
WORLDWIDE FIBER (USA) INC.
By: /s/ David Lede
-----------------------
(Title)
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MI-TECH COMMUNICATIONS, LLC
By: /s/ Brain P. Johnson
-----------------------
Brian P. Johnson, Manager
LEDCOR INC.
By: /s/ David Lede
-----------------------
(Title)
MICHELS PIPELINE CONSTRUCTION, INC.
By: /s/ Brain P. Johnson
-----------------------
Brian P. Johnson, Executive
Vice President
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EXHIBIT B
CLOSING ESCROW AGREEMENT
THIS AGREEMENT is dated for reference the _ day of March, 2000.
AMONG:
360NETWORKS INC.
----------------
(the "Corporation")
AND:
MI-TECH COMMUNICATIONS, LLC
---------------------------
("Mi-Tech")
AND:
MICHELS PIPELINE CONSTRUCTION, INC.
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("Michels")
AND:
CAMPNEY & MURPHY
----------------
("Campney")
WHEREAS:
A. By a Share Exchange Agreement dated as of March 20, 2000 by and among
the Corporation, Worldwide Fiber Networks Ltd., Ledcor Communications Ltd.,
Ledcor Industries, Inc., Worldwide Fiber (USA), Inc., Mi-Tech, Ledcor Inc. and
Michels (the "Share Exchange Agreement"), Mi-Tech agreed to exchange its 50
shares of Class A Voting Preferred Stock and 50 shares of Non-Voting Common
Stock in the capital stock of Worldwide Fiber (USA), Inc. for Class A
Subordinate Voting Shares in the capital stock of the Corporation, the number of
such shares to be determined in the manner specified in the Share Exchange
Agreement.
B. This Closing Escrow Agreement is entered into pursuant to the terms of
the Share Exchange Agreement.
IN CONSIDERATION of the mutual agreements in this Agreement, pursuant to the
obligations of the Corporation, Mi-Tech and Michels in the Share Exchange
Agreement, and subject to the terms and conditions specified in this Agreement,
the parties agree as follows:
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ARTICLE 1
DEFINITIONS
1.1 DEFINITIONS
In this Agreement, including the recitals and the schedules, words
having a meaning defined in the Share Exchange Agreement will have the same
meaning when used in this Agreement and the following words and expressions have
the following meanings unless the context otherwise requires:
"Closing Agenda" means the Closing Agenda attached as Schedule A.
"Conditions Notice" has the meaning specified in Section 2.3.
"Conditions Precedent" has the meaning specified in Section 2.2.
"Escrow Documents" means the closing documents listed as document
numbers -, - [LIST] in the Closing Agenda.
"Escrow Release Notice" has the meaning specified in Section 2.3.
"IPO Notice" has the meaning specified in Section 2.3.
"Notice Deadline" has the meaning specified in Section 2.3.
"Share Exchange Agreement" has the meaning specified in the Recitals.
"Transaction Parties" means the Corporation, Mi-Tech and Michels.
ARTICLE 2
CLOSING ESCROW
2.1 DELIVERY OF ESCROW DOCUMENTS
All of the Escrow Documents shall be signed by the applicable
Transaction Party or Transaction Parties, and the other parties thereto, as
applicable, with the number of copies specified in the Closing Agenda, left
undated, and delivered in escrow to Campney on or before March -, 2000 (or such
other time as may be agreed upon between the Transaction Parties), to be held in
escrow pursuant to the terms of this Agreement. The Escrow Documents shall not
be considered to have been delivered unless and until Campney has sent the
Escrow Release Notice in accordance with Section 2.3. With the consent of
Mi-Tech and Michels (such consent not to be unreasonably withheld or delayed),
the Corporation may from time to time replace an Escrow Document delivered by it
and, with the consent of the Corporation not to be unreasonably withheld,
Mi-Tech and Michels may from time to time replace an Escrow Document delivered
by either of them (by way of an example only, such a replacement might be
necessary if a representation in the Share Exchange Agreement was no longer
accurate, and an amendment to a bring down certificate was required as a
result).
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2.2 CONDITIONS PRECEDENT TO THE EXCHANGE
Notwithstanding that the Escrow Documents have been placed in escrow,
the obligations of the Corporation, Michels and Mi-Tech to complete the Share
Exchange Agreement shall continue to be subject to the condition precedents (the
"Conditions Precedent") set forth in Sections 14, 15 and 16 of the Share
Exchange Agreement, but, for greater clarity, there shall be no other conditions
precedent to the closing of the Share Exchange Agreement.
2.3 RELEASE FROM ESCROW FOR CLOSING
If, on or before June 1, 2000 (the "Notice Deadline"), Campney receives from the
Corporation a written notice (the "IPO Notice") that the IPO is about to close,
on the date of the IPO Notice, and that there are no conditions to the
completion of the closing of the IPO other than the closing of the Share
Exchange Agreement, such notice to also specify the IPO Price, then, provided
that, before sending the Escrow Release Notice in accordance with Section
2.3(b), Campney has not received notice in writing from Mi-Tech referring to
either Section 14 or Section 15 of the Share Exchange Agreement and advising
that it is the position of Mi-Tech, as the case may be, that one of the events
described in Sections 14 or 15 has failed to occur and that Mi-Tech does not
waive such condition (a "Conditions Notice"), Campney shall forthwith proceed
to:
(a) insert the date of the closing of the IPO in those documents
that are described as documents -, -, -, and - in the Closing
Agenda;
(b) send by fax to the Transaction Parties (at the fax numbers
specified in the Share Exchange Agreement) a notice in writing
advising that the Escrow Documents are by such notice released
from escrow (the "Escrow Release Notice"), and send by fax to
Mi-Tech and Michels photocopies of the IPO Notice;
(c) deliver to the Transaction Parties and their legal counsel the
Escrow Documents in accordance with the provisions for
delivery in the Closing Agenda.
2.4 DELIVERY OF SHARE CERTIFICATE
Within three Business Days after the delivery by Campney of the Escrow
Release Notice, the Corporation shall deliver to Mi-Tech and to Blair the share
certificates described in, and in accordance with the terms of, Section 2(b) of
the Share Exchange Agreement.
2.5 EFFECT OF ESCROW RELEASE NOTICE
Upon Campney sending the Escrow Release Notice as specified in Section
2.3, the Share Exchange Agreement will be deemed to have been completed
effective such date, the Conditions Precedent will be deemed to be satisfied or
waived on such date and, upon Campney making the deliveries described in
Sections 2.3(c), Campney shall have fulfilled its obligations as escrow agent
and this Agreement shall terminate.
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2.6 RELEASE FROM ESCROW IF NO CLOSING
If Campney does not receive the IPO Notice by the Notice Deadline or if
Campney receives a Conditions Notice before sending the Escrow Release Notice,
then, unless the Corporation, Michels and Mi-Tech otherwise agree in writing:
(a) the Escrow Documents shall be released from escrow and, at the
election of Campney, destroyed (except that the share
certificates listed as item - on the Closing Agenda shall not
be destroyed and shall be returned to Mi-Tech or its legal
counsel) or returned unused to the parties who delivered them
into escrow, on the basis that the Escrow Documents are not
delivered and have no effect;
(b) the parties to the Share Exchange Agreement shall have no
further obligations to each other under this Agreement,
and upon Campney returning or destroying the Escrow Documents in accordance with
the foregoing, Campney shall have fulfilled its obligations as escrow agent and
this Agreement shall terminate.
ARTICLE 3
ESCROW AGENT TERMS
3.1 IRREVOCABLE AUTHORIZATION TO CAMPNEY
The Transaction Parties hereby irrevocably authorize and direct
Campney to hold the Escrow Documents in escrow and to carry out the terms of the
escrow, in accordance with the terms of this Agreement.
3.2 CAMPNEY LEGAL COUNSEL TO THE CORPORATION
Mi-Tech and Michels acknowledge that Campney is legal counsel to the
Corporation, and each of Mi-Tech and Michels expressly consents to Campney also
acting as escrow agent pursuant to this Agreement, notwithstanding its
representation of the Corporation.
3.3 DUTIES LIMITED
Campney shall act at all times and for all purposes under this
Agreement as an escrow agent. However, the duties and powers of Campney shall
only be as expressly stated in this Agreement and no further duties shall be
implied.
3.4 INDEMNITY AND LIMITATION OF LIABILITIES
The Transaction Parties agree that:
(a) The Transaction Parties shall jointly and severally indemnify
and save Campney harmless from and against any losses, claims
and damages arising out of this Agreement or Campney's
possession or disposition of the Escrow Documents,
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except where the losses, claims or damages are caused by
Campney's deliberate and wilful breach of this Agreement.
(b) Campney shall not incur any liability for anything done by
Campney in pursuance of the duties of Campney hereunder,
unless caused by Campney's deliberate and wilful breach of
this Agreement, and the Transaction Parties each release
Campney of and from any and all liability from any and all
claims and demands both at law and in equity that the
Transaction Parties, or any of them, may now or hereafter have
against Campney relating to anything done by Campney in
pursuance of its duties hereunder, unless arising out of or
from Campney's deliberate and wilful breach of this Agreement.
(c) Campney shall not be responsible or liable in any manner
whatsoever for the sufficiency, correctness, genuineness or
validity of any of the Escrow Documents deposited with
Campney.
(d) Campney shall be protected in acting upon any written notice,
request, waiver, consent, receipt, statutory declaration or
other paper or document furnished to Campney, and signed by or
purporting to be signed by any of the Transaction Parties, or
any of the directors and officers thereof, not only as to its
due execution and the validity and effectiveness of its
provisions, but also as to the truth and acceptability of any
information contained therein, which Campney in good faith
believes to be genuine.
(e) If Campney considers such action necessary or desirable,
Campney may at any time apply to any court of competent
jurisdiction to interplead the Escrow Documents or any of
them.
(f) Campney shall have no liability for lost, misplaced or
destroyed documents, unless such documents are lost, misplaced
or destroyed by Campney's deliberate and wilful breach of this
Agreement.
3.5 COURT ORDERS
Any and all requirements of Campney to do any acts pursuant to the
terms of this Agreement will always be subject to an order of a court of
competent jurisdiction.
3.6 FEES
The fees and expenses of Campney for acting hereunder shall be paid by
the Corporation.
ARTICLE 4
GENERAL
4.1 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
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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.
4.2 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.
4.3 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 the same to the parties as follows:
(a) To the Corporation at:
c/o 360networks inc.
#1510-1066 West Hastings Street
Vancouver, British Columbia V6E 3X1
Fax: (604) 681-6822
Attention: General Counsel
Fax No.: (604) 648-7747
(b) To Mi-Tech or Michels at:
Mi-Tech Communications, LLC
P.O. Box 128
Brownsville, WI 53006-0128
Fax: (920) 583-3429
Attention: Brian Johnson, Manager
Fax No.: (920) 583-3429
with a copy to:
Foley & Lardner
Firstar Center
777 East Wisconsin Avenue
Milwaukee, WI 53202-5367
Attention: Mr. Marc Marotta
Fax No.: (414) 297-4900
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(c) To Campney at:
Campney & Murphy
P.O. Box 48800
2100 - 1111 West Georgia Street
Vancouver, B.C.
V7X 1K9
Attention: Bruce Tattrie
Fax No.: (604) 688-0829
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, 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.
4.4 ASSIGNMENT
This Agreement is not assignable by any party in whole or in part,
without the prior written consent of the other parties.
4.5 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.
4.6 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.
4.7 FURTHER ASSURANCES
Each of the parties will promptly execute and deliver to the other
party such further documents and assurances and take such further actions as any
of the others may from time to time request in order to more effectively carry
out the intent and purpose of this Agreement and
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to establish and protect the rights, interests and remedies intended to be
created in favour of the others.
4.8 ENTIRE AGREEMENT
This Agreement, the Share Exchange Agreement and any documents and
agreements to be delivered pursuant to this Agreement or the Share Exchange
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.
4.9 AMENDMENTS
No change or modification of this Agreement will be valid unless
it is in writing and signed by each party to this Agreement.
4.10 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.
4.11 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 successors and assigns.
[THE REST OF THIS PAGE HAS BEEN LEFT BLANK INTENTIONALLY.]
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IN WITNESS WHEREOF the parties have executed this Agreement on the dates stated
below.
360NETWORKS INC.
Per:
___________________________________
Authorized Signatory
MI-TECH COMMUNICATIONS, LLC
Per:
___________________________________
Authorized Signatory
MICHELS PIPELINE CONSTRUCTION, INC.
Per:
___________________________________
Authorized Signatory
CAMPNEY & MURPHY
Per:
___________________________________
Partner
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<PAGE>
SCHEDULE A
CLOSING AGENDA
<PAGE>
EXHIBIT C
REGISTRATION RIGHTS AGREEMENT
REGISTRATION RIGHTS AGREEMENT, dated as of ____________, 2000,
by and among MI-TECH COMMUNICATIONS, LLC, a Wisconsin limited liability company
("Mi-Tech") and 360NETWORKS INC., a Canadian company incorporated in the
Province of Alberta (formerly called Worldwide Fiber Inc.) (the "Company").
W I T N E S S E T H :
WHEREAS, pursuant to an agreement by and among Mi-Tech, the
Company, Worldwide Fiber Networks, Ltd., Ledcor Communications Ltd., Ledcor
Industries, Inc., Worldwide Fiber (USA), Inc. (formerly known as Pacific Fiber
Link, Inc.) ("Worldwide (USA)"), Ledcor, Inc. and Michels Pipeline Construction,
Inc., dated March 20, 2000, Mi-Tech is, as of the date hereof, exchanging its
shares of Class A Voting Preferred Stock and Non-Voting Common Stock of
Worldwide (USA) for Class A Subordinate Voting Shares of the Company
(hereinafter the "Exchange"); and
WHEREAS, the Company desires to allow Mi-Tech and its
Affiliates, as well as William Blair & Company ("Blair") to publicly sell such
Class A Subordinate Voting Shares of the Company pursuant to certain
registration statements which may be filed by the Company under the Securities
Act of 1933, as amended (the "Act") pursuant to the terms and conditions
hereinafter set forth.
NOW, THEREFORE, in consideration of the mutual covenants and
promises herein made and mutual benefits to be derived from this Agreement, it
is hereby agreed as follows:
1. DEFINITIONS. All capitalized terms used in this Agreement
shall have, unless otherwise defined below in this Section 1 or otherwise in
this Agreement, the meaning ascribed such terms in that certain Shareholders
Agreement dated December 31, 1998, among the Company, Worldwide Fiber Networks
Ltd., Ledcor Industries Inc., Mi-Tech, Ledcor, Inc., Ledcor Communications Ltd.,
Worldwide (USA) and Michels Pipeline Construction, Inc. (the "Shareholders
Agreement").
"AFFILIATE" means any Person which directly or indirectly
controls, or is under common control with, or is controlled by another Person,
where "control" means the possession, directly or indirectly, of more than fifty
percent (50%) of the combined voting power of all outstanding securities, or the
direction of management or policies (whether through ownership of securities or
partnership or other ownership interests, by contract or otherwise) and shall be
deemed to include senior employees of Mi-Tech or Michels designated by Mi-Tech
or Michels by notice to the Company from time to time.
"COMMISSION" means the Securities and Exchange Commission.
<PAGE>
"COMMON STOCK" means the Class A Subordinate Voting Shares of
the Company.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended.
"HOLDER" means Mi-Tech and any of its Affiliates and Blair
holding Registrable Stock
"OTHER REGISTRATION RIGHTS AGREEMENTS" means the Private
Equity Registration Rights Agreement, the Registration Rights Agreement between
the Company and Canadian National Railway, and the agreements to provide
registration rights to Gregory B. Maffei, Ramsey Beirne Investment Partners LLC,
Madison Square Inc. and Larry R. Olsen.
"PERSON" means any natural person, partnership, corporation or
other legal entity.
"PRIVATE EQUITY REGISTRATION RIGHTS AGREEMENT" means the
Registration Rights Agreement dated as of September 9, 1999 between the Company,
DWF SRL, GSCP3 WWF (Barbados) SRL, Providence Equity Fiber, L.P. and Tyco Group
S.a.r.l.
"REGISTRABLE STOCK" means the Common Stock issued or issuable
to Mi-Tech and its Affiliates and Blair upon conversion of the Worldwide (USA)
Stock and any other shares of Common Stock issued in respect of such shares by
way of a stock dividend, or stock split or in connection with a combination of
shares, recapitalization, merger, consolidation, share exchange or
reorganization; PROVIDED, HOWEVER, that Registrable Stock shall not include
shares of Common Stock which the holder thereof is entitled to sell into the
public market, together with all other Registrable Stock of the Company
beneficially owned by such holder (and all Registrable Stock as to which such
holder shares beneficial ownership) that is at the time of registration,
transferable by the holder thereof in a single brokerage transaction under the
provisions and within the volume limitations or Rule 144(e)(1) promulgated under
the Securities Act or any successor to such Rule.
"REGISTRATION STATEMENT" means a registration statement filed
by the Company with the Commission for a public offering and sale of securities
of the Company (other than a registration statement on Form S-8, Form S-4, or
successor form).
"SECURITIES ACT" means the Securities Act of 1933, as amended.
"WORLDWIDE (USA) STOCK" means all shares of stock of Worldwide
(USA) owned by Mi-Tech or its Affiliates.
2. REQUIRED REGISTRATION.
(a) [Deleted]
(b) At any time following one (1) year after the effective
date of the first registration statement filed by the Company under the
Securities Act covering an underwritten offering of its securities to the
general public, the Holder or Holders holding, in the aggregate, at
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least fifty percent (50%) of the then outstanding Registrable Stock, may by
notice in writing to the Company request that the Company file a Registration
Statement with respect to all or any portion of shares of Registrable Stock the
aggregate proceeds of which (after deduction for underwriter's discounts and
expenses related to the issuance) are reasonably expected to exceed $5,000,000.
Notwithstanding anything to the contrary contained herein, if the Company shall
furnish to Holder a certificate signed by the President of the Company stating
that in good faith judgment of the Board it would be seriously detrimental to
the Company or its shareholders for a registration statement to be filed in the
near future due to pending Company events, or that it would require disclosure
of material non-public information relating to the Company which, in the
reasonable opinion of the Board, should not be disclosed, then the Company's
obligation to use all reasonable efforts to register, qualify or comply under
this Section 2 shall be deferred for a period not to exceed one hundred eighty
(180) days from the date of receipt of written request from such Holders;
PROVIDED, HOWEVER, that the Company may not utilize this right more than once in
any twelve (12) month period.
(c) Following receipt of any notice given under this Section 2
by Holders of Registrable Stock, the Company shall immediately notify all
Holders from whom notice has not been received that such registration is to be
effected and shall use its best efforts to register under the Securities Act the
number of shares of Registrable Stock specified in such notice (and in all
notices received by the Company from other holders within twenty (20) days after
the giving of such notice by the Company to such other Holders). The Holders of
a majority of the shares of Registrable Stock to be sold in such offering may
designate the managing underwriter of such offering (subject to the consent of
the Company, which consent will not be unreasonably withheld). The Company shall
be obligated to register Registrable Stock pursuant to Section 2(b) on two (2)
occasions only, PROVIDED, HOWEVER, that such obligation shall be deemed
satisfied only when a Registration Statement covering all shares of Registrable
Stock specified in notices received as aforesaid and which have not been
withdrawn by the Holders thereof shall have become effective. A registration
which does not become effective after the Company has filed a Registration
Statement with respect thereto solely by reason of the refusal of the requesting
Holders to proceed shall be deemed to have been effected by the Company at the
request of such requesting Holders unless such requesting Holders shall have
elected to pay all the Company's reasonable expenses in connection with such
registration.
(d) The Holders requesting registration under this Section 2
must distribute the Registrable Stock covered by their request by means of a
public offering underwritten by a reputable national or regional underwriter.
The rights of any Holder to include its Registrable Stock in such registration
under this Section 2 shall be conditioned upon such Holder's participation in
such underwriting and the inclusion of such Holder's Registrable Stock in the
underwriting to the extent provided herein. All Holders proposing to distribute
their Registrable Stock through such underwriting shall (together with the
Company as provided in Section 4(b)) enter into an underwriting agreement in
customary form with the managing underwriter designated for such underwriting.
(e) If in the good faith judgment of the managing underwriter
of such public offering the inclusion of all of the Registrable Stock requested
for inclusion pursuant to this Section 2 would interfere with the successful
marketing of a smaller number of shares to be
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offered, then the number of shares of Registrable Stock to be included in the
offering shall be reduced to the required level. The Company shall be entitled
to include in any Registration Statement referred to in this Section 2 shares of
Common Stock to be sold by the Company for its own account, and pursuant to the
exercise of piggyback registration rights granted by the Company pursuant to the
Other Registration Rights Agreements, except as and to the extent that, in the
opinion of the managing underwriter, such inclusion would adversely affect the
marketing of the Registrable Stock of the Holders to be sold.
(f) Notwithstanding anything to the contrary contained herein,
the Company shall not be obligated to effect, or to take any action to effect,
any registration pursuant to Section 2(b) during the period starting with the
date sixty (60) days prior to the Company's good faith estimate of the date of
filing of, and ending on a date one hundred eighty (180) days after the
effective date of, a Company-initiated registration; PROVIDED, that the Company
is actively employing in good faith all reasonable efforts to cause such
registration statement to become effective.
3. INCIDENTAL REGISTRATION. Each time the Company shall
determine to file a Registration Statement (other than in connection with the
initial public offering of the Company) in connection with the proposed offer
and sale for money of any of its securities by it or any of its security
holders, the Company will give written notice of its determination to all
Holders. Upon the written request of a Holder given within ten (10) days after
the giving of any such notice by the Company, the Company will use its best
efforts to cause all such shares of Registrable Stock, the Holders of which have
so requested registration thereof, to be included in such Registration
Statement, all to the extent requisite to permit the sale or other disposition
by the prospective seller or sellers of the Registrable Stock to be so
registered. If the Registration Statement is to cover an underwritten
distribution, the Company shall use its best efforts to cause the Registrable
Stock requested for inclusion pursuant to this Section 3 to be included in the
underwriting on the same terms and conditions as the securities otherwise being
sold through the underwriters. If, in the good faith judgment of the managing
underwriter of such public offering, the inclusion of all of the Registrable
Stock requested for inclusion pursuant to this Section 3 and other securities
would interfere with the successful marketing of a smaller number of shares to
be offered, then the number of shares of Registrable Stock and other securities
to be included in the offering (except for shares: (a) to be issued by the
Company in an offering initiated by the Company; (b) shares to be registered
pursuant to the Private Equity Registration Rights Agreement; or (c) shares to
be registered pursuant to the exercise of a demand registration right held by
one of the Company's security holders) shall be reduced to the required level
with the participation in such offering to be PRO RATA among the holders thereof
requesting such registration, based upon the number of shares of Registrable
Stock and other securities owned by such holders.
4. REGISTRATION PROCEDURES. If and whenever the Company is
required by the provisions of Section 2 or 3 hereof to effect the registration
of shares of Registrable Stock under the Securities Act, the Company will, at
its expense, as expeditiously as possible:
(a) In accordance with the Securities Act and the rules and
regulations of the Commission, prepare and file with the Commission a
Registration Statement with respect to such securities and use its best
efforts to cause such Registration Statement to become
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and remain effective for a period of one hundred twenty (120) days or
until the securities covered by such Registration Statement have been
sold, whichever first occurs, and prepare and file with the Commission
such amendments to such Registration Statement (and use its best
efforts to cause post-effective amendments to become and remain
effective) and supplements to the prospectus contained therein as may
be necessary to comply with the provisions of the Securities Act with
respect to the disposition of all securities covered by such
Registration Statement;
(b) If the offering is to be underwritten in whole or in part,
enter into a written underwriting agreement in customary form with the
managing underwriter of the public offering;
(c) Furnish to the participating Holders and to the
underwriters such reasonable number of copies of the Registration
Statement (including all exhibits thereto), preliminary prospectus,
final prospectus and such other documents as such underwriters and
participating Holders may reasonably request in order to facilitate the
public offering of such securities;
(d) Use its best efforts to register or qualify the securities
covered by such Registration Statement under such state securities or
blue sky laws of such jurisdictions (i) as shall be reasonably
appropriate for the distribution of the securities covered by such
Registration Statement or (ii) as such participating Holders and
underwriters may reasonably request within twenty (20) days following
the original filing of such Registration Statement, except that the
Company shall not for any purpose be required to execute a general
consent to service of process, to subject itself to taxation, or to
qualify to do business as a foreign corporation in any jurisdiction
where it is not so qualified;
(e) Notify the Holders participating in such registration,
promptly after it shall receive notice thereof, of the date and time
when such Registration Statement and each post-effective amendment
thereto has become effective or a supplement to any prospectus forming
a part of such Registration Statement has been filed;
(f) Notify the Holders participating in such registration
promptly of any request by the Commission or any state securities
commission or agency for the amending or supplementing of such
Registration Statement or prospectus or for additional information;
(g) Prepare and file with the Commission, promptly upon the
request of any such participating Holders, any amendments or
supplements to such Registration Statement or prospectus which is
required under the Securities Act or the rules and regulations
thereunder in connection with the distribution of the Registrable Stock
by such participating Holders;
(h) Prepare and promptly file (in any event within twenty (20)
days) with the Commission, and immediately notify such participating
Holders of the need to file and of the filing of, such amendments or
supplements to such Registration Statement or
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prospectus as may be necessary to correct any statements or omissions
if, at the time when a prospectus relating to such securities is
required to be delivered under the Securities Act, any event has
occurred as the result of which any such prospectus or any other
prospectus as then in effect would include an 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;
(i) In case any of such participating Holders or any
underwriter for any such Holders is required to deliver a prospectus at
a time when the prospectus then in circulation is not in compliance
with the Securities Act or the rules and regulations of the Commission,
prepare promptly upon request such amendments or supplement to such
Registration Statement and such prospectus as may be necessary in order
for such prospectus to comply with the requirements of the Securities
Act and such rules and regulations;
(j) Advise such participating Holders, promptly after it shall
receive notice or obtain knowledge thereof, of the issuance of any stop
order by the Commission or any state securities commission or agency
suspending the effectiveness of such Registration Statement or the
initiation or threatening of any proceeding for that purpose and
promptly use its best efforts to prevent the issuance of any stop order
or to obtain its withdrawal if such stop order should be issued;
(k) At the request of any participating Holder (i) furnish on
the date that such Registrable Stock is delivered to the underwriters
for sale in connection with such registration, an opinion, dated such
date, of the counsel representing the Company for the purposes of such
registration, addressed to the underwriters, in form and substance as
it customarily provided by issuer's counsel to underwriters in an
underwritten public offering and (ii) use its best efforts to furnish
letters dated each such effective date and such closing date, from the
independent certified public accountants of the Company, addressed to
the underwriters, in form and substance as is customarily provided by
independent certified public accountants to underwriters in an
underwritten public offering; and
(l) Cooperate with the Holders to facilitate the timely
preparation and delivery (under normal way settlement procedures) of
certificates representing securities to be sold pursuant to any
Registration Statement free of any restrictive legends and in such
denominations and registered in such names as Holders may request prior
to sales of securities pursuant to such Registration Statement.
5. EXPENSES. With respect to each registration effected
pursuant to Section 2 and 3 hereof, all fees, costs and expenses of and
incidental to such registration and the public offering in connection therewith
shall be borne by the Company; PROVIDED, HOWEVER, that security Holders
participating in any such registration shall bear (a) their PRO RATA share of
the underwriting discounts and selling commissions; (b) the fees and expenses of
more than one counsel for the selling Holders selected by Holders of a majority
of the Registrable Stock to be registered, which additional counsel, if any,
shall be paid by the Holder or Holders that engaged
-6-
<PAGE>
such counsel; and (c) expenses in excess of $15,000 of any special audit
required in connection with a demand registration, which shall be paid by the
selling Holders in proportion to the aggregate value of the securities offered
for sale by each of them. The fees, costs and expenses of registration to be
borne by the Company as provided in this Section 5 above, shall include, without
limitation, all registration, filing fees, printing expenses, fees and
disbursements of counsel and accountants for the Company, fees and disbursements
of counsel for the underwriter or underwriters of such securities (if the
Company and/or selling security holders are otherwise required to bear such fees
and disbursements), all legal fees and disbursements and other expenses of
complying with state securities or blue sky laws of any jurisdictions in which
the securities to be offered are to be registered or qualified, reasonable fees
and disbursement of one counsel for the Holders and the premiums and other costs
of policies of insurance insuring the Company against liability arising out of
such public offering. Notwithstanding the foregoing, the Company shall not be
required to pay for any expenses of any registration proceeding begun pursuant
to Section 2 above if the registration request is subsequently withdrawn (other
than a withdrawal due to (i) a material adverse change in the Company's business
or financial condition or (ii) a reduction in the closing sale price of the
Company's Common Stock (as reported in THE WALL STREET JOURNAL) since the
registration was initiated by the Holders) at the request of the Holders of a
majority of the Registrable Stock to be registered (which Holders shall bear
such expenses), unless the Holders of a majority of the Registrable Stock agree
to forfeit the right to one demand registration pursuant to Section 2.
6. INDEMNIFICATION AND CONTRIBUTION.
(a) The Company will indemnify and hold harmless each Holder
of shares of Registrable Stock which are included in a Registration Statement
pursuant to the provisions of this Agreement, the directors, officers, employees
and agents of such Holder, any underwriter (as defined in the Securities Act) of
the securities covered by the Registration Statement, the directors, officers,
employees and agents of such underwriter, and any Person who controls such
Holder or such underwriter within the meaning of the Securities Act or the
Exchange Act, and each of their successors, from and against any and all claims,
actions, demands, losses, damages or liabilities (including legal and other
expenses reasonably incurred in connection with defending same), joint or
several (collectively, "Damages"), to which they or any of them may become
subject under the Securities Act, the Exchange Act or other federal or state
statutory law or regulation, at common law or otherwise, insofar as such Damages
arise out of or are based upon any untrue statement or alleged untrue statement
of any material fact contained in such Registration Statement (including all
documents incorporated therein by reference) as originally filed or in any
amendment thereto, any preliminary or final prospectus contained therein or any
amendment or supplement thereto, or arise out of or are based upon the ommission
or alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading or arise out
of or are based on any violation or alleged violation of any federal, state or
common law rule or regulation applicable to the Company and relating to action
required of or inaction by the Company in connection with any such registration
and agrees to reimburse each such Holder, as incurred, for any legal or other
expenses reasonably incurred by it in connection with the investigation or
defending any such Damages; PROVIDED, HOWEVER, that the Company will not be
liable in any such case to the extent that any such Damages arise out of or are
based upon an untrue statement or alleged untrue statement or
-7-
<PAGE>
omission or alleged omission so made in reliance upon and in strict conformity
with information furnished by such Holder, such underwriter or such controlling
Person in writing specifically for use in the preparation thereof. This
indemnity shall be in addition to any liability which the Company may otherwise
have and shall be in addition to any subsequently executed indemnity agreements.
(b) Each Holder of shares of the Registrable Stock which are
included in a registration pursuant to the provisions of this Agreement will,
severally, indemnify and hold harmless the Company, the directors, officers,
employees and agents of the Company, any underwriter (as defined in the
Securities Act) of the securities covered by the Registration Statement, the
directors, officers, employees and agents of such underwriter, and any Person
who controls the Company or such underwriter within the meaning of the
Securities Act or the Exchange Act, and each of their successors, from and
against any and all Damages, joint or several, to which they or any of them may
become subject under the Securities Act, the Exchange Act or other federal or
state statutory law or regulation, at common law or otherwise, insofar as such
Damages arise out of or are based upon any untrue statement or alleged untrue
statement of any material fact contained in such Registration Statement
(including all documents incorporated therein by reference) as originally filed
or in any amendment thereto, any preliminary or final prospectus contained
therein 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,
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 so made in reliance
upon and in strict conformity with written information furnished by such Holder
for use in the preparation thereof. This indemnity shall be in addition to any
liability which such Holder may otherwise have and shall be in addition to any
subsequently executed indemnity agreements.
(c) Promptly after receipt by a party to be indemnified
pursuant to the provision of paragraph (a) or (b) of this Section 6 (an
"indemnified party") of notice of the commencement of any action involving the
subject matter of the foregoing indemnity provisions, such indemnified party
will, if a claim thereof is to be made against the indemnifying party pursuant
to the provisions of paragraph (a) or (b), notify the indemnifying party of the
commencement thereof; but the omission so to notify the indemnifying party will
not relieve it from any liability which it may have to an indemnified party
otherwise than under this Section 6 and shall not relieve the indemnifying party
from liability under this Section 6 unless such indemnifying party is prejudice
by such omission. The indemnifying party shall be entitled to appoint counsel of
the indemnifying party's choice at the indemnifying party's expense to represent
the indemnified party in any action for which indemnification is sought (in
which case the indemnifying party shall not thereafter be responsible for the
fees and expenses of any separate counsel retained by the indemnified party or
parties except as set forth below); PROVIDED, HOWEVER, that such counsel shall
be reasonably satisfactory to the indemnified party. Notwithstanding the
indemnifying party's election to appoint counsel to represent the indemnified
party in an action, the indemnified party shall have the right to employ
separate counsel (including local counsel), and the indemnifying party shall
bear the reasonable fees, costs and expenses of such separate counsel (and local
counsel) if (i) the use of counsel chosen by the indemnifying party to represent
the indemnified party would present such counsel with a conflict
-8-
<PAGE>
of interest; (ii) the actual or potential defendants in, or targets of, any such
action include both the indemnified party and the indemnifying party and the
indemnified party shall have reasonably concluded that there may be legal
defenses available to it and/or other indemnified parties which are different
from or additional to those available to the indemnifying party; (iii) the
indemnifying party shall not have employed counsel satisfactory to the
indemnified party to represent the indemnified party within a reasonable time
after notice of the institution of such action; or (iv) the indemnifying party
shall authorize the indemnified party to employ separate counsel at the expense
of the indemnifying party. An indemnifying party will not, without the prior
written consent of the indemnified parties, settle or compromise or consent to
the entry of any judgment with respect to any pending or threatened claim,
action, suit or proceeding in respect of which indemnification or contribution
may be sought hereunder (whether or not the indemnified parties are actual or
potential parties to such claim or action) unless such settlement, compromise or
consent includes an unconditional release of each indemnified party from all
liability arising out of such claim, action, suit or proceeding.
(d) In order to provide for just and equitable contribution to
joint liability under the Securities Act in any case in which either (i) any
Holder exercising rights under this Agreement, or any controlling Person of any
such Holder, makes a claim for indemnification pursuant to this Section 6 but it
is judicially determined (by the entry of a final judgment or decree by a court
of competent jurisdiction and the expiration of time to appeal or the denial of
the last right of appeal) that such indemnification may not be enforced in such
case notwithstanding the fact that this Section 6 provides for indemnification
is such case, or (ii) contribution under the Securities Act may be required on
the part of any such selling Holder or any such controlling Person in
circumstances for which indemnification is provided under this Section 6; then,
and in each such case, the Company and such Holder will contribute to the
aggregate Damages in such proportion as is appropriate to reflect the relative
fault of the indemnifying party, on the one hand, and the indemnified party, on
the other. Relative fault shall be determined by reference to whether any
alleged untrue statement or omission relates to information provided by the
indemnifying party, on the one hand, or by the indemnified party, on the other
hand. The parties agree that it would not be just and equitable if contribution
were determined by pro rata allocation or any other method of allocation which
does not take account of the equitable considerations referred to above.
Notwithstanding the provisions of this paragraph (d), no person guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of the
Securities Act) shall be entitled to contribution from any person who was not
guilty of such fraudulent misrepresentation. For purposes of this Section 6,
each Person who controls a Holder within the meaning of either the Securities
Act or the Exchange Act and each director, officer, employee and agent of such
Holder shall have the same rights to contribution as such Holder, and each
Person who controls the Company within the meaning of either the Securities Act
or the Exchange Act, each officer of the Company who shall have signed the
Registration Statement and each director of the Company shall have the same
rights to contribution as the Company, subject in each case to the applicable
terms and conditions of this paragraph (d); PROVIDED, HOWEVER, that, in any such
case, no Person or entity guilty of fraudulent misrepresentation (within the
meaning of Section 11(f) of the Securities Act) will be entitled to contribution
from any Person or entity who was not guilty of such fraudulent
misrepresentation.
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<PAGE>
(e) Notwithstanding the foregoing, to the extent that the
provisions on indemnification and contribution contained in the underwriting
agreement entered into in connection with the underwritten public offering are
in conflict with the foregoing provisions, the provisions in the underwriting
agreement shall control.
(f) The provisions of this Section 6 will remain in full force
and effect, regardless of any investigation made by or on behalf of any Holder
or the Company or any of the officers, directors, employees or agents or
controlling Persons referred to in Section 6 hereof, and will survive the sale
by a Holder of securities covered by a Registration Statement.
7. REPORTING REQUIREMENTS UNDER EXCHANGE ACT. When it is first
legally required to do so, the Company shall register its Common Stock under
Section 12 of the Exchange Act and shall keep effective such registration and
shall timely file such information, documents and reports as the Commission may
require or prescribe under Section 13 of the Exchange Act. From and after the
effective date of the first Registration Statement filed by the Company, the
Company shall (whether or not it shall then be required to do so) timely file
such information, documents and reports as the Commission may require or
prescribe under Section 13 or 15(d) (whichever is applicable) of the Exchange
Act. The Company acknowledges and agrees that the purposes of the requirements
contained in this Section 7 are (a) to enable any such Holder to comply with the
current public information requirement contained in Paragraph (c) of Rule 144
under the Securities Act should such Holder ever wish to dispose of any of the
securities of the Company acquired by it without registration under the
Securities Act in reliance upon Rule 144 (or any other similar or successor
exemptive provision), and (b) to qualify the Company for the use of Registration
Statements on Form S-3 or Form F-3 (or any successor form or forms). In
addition, the Company shall take such other measures and file such other
information, documents and reports, as shall hereafter be required by the
Commission as a condition to the availability of Rule 144 under the Securities
Act (or any similar or successor exemptive provision hereafter in effect) and
the use of Form S-3 or Form F-3 (or any successor form or forms). From and after
the effective date of the first Registration Statement filed by the Company, the
Company agrees to use its best efforts to facilitate and expedite transfers of
Registrable Stock pursuant to Rule 144 under the Securities Act (or any similar
or successor exemptive provision hereafter in effect), which efforts shall
include timely notice to its transfer agent to expedite such transfers of
Registrable Stock.
8. DELAY OF REGISTRATION. No Holder shall have any right to
obtain or seek an injunction restraining or otherwise delaying any such
registration as the result of any controversy that might arise with respect to
the interpretation or implementation of this Agreement.
9. WAIVERS. The terms provided for in this Agreement may be
amended, waived, discharged or terminated (either generally or in a particular
instance and either retroactively or prospectively) only by a writing executed
by the Company and the Holders of a majority of the Registrable Stock, and any
such amendment, waiver, discharge or termination shall be binding on all the
Holders, but in no event shall the obligation of any Holder be materially
increased, except upon the written consent of such Holder.
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<PAGE>
10. ASSIGNMENT. The rights to cause the Company to register
securities granted to Holders by the Company pursuant hereto may not be
transferred or assigned for 180 days after the date of grant except to any
Affiliate of a Holder; PROVIDED that the Company is, within a reasonable period
of time after such transfer, furnished with written notice of the name and
address of such transferee or assignee and the securities with respect to which
such registration rights are being assigned; and PROVIDED, FURTHER, that such
assignment shall be effective only if immediately following such transfer the
further disposition of such securities by the transferee or assignee is
restricted under the Securities Act.
11. TERMINATION. The registration rights provided for in this
Agreement shall terminate as to all Holders on the fifth anniversary of the
closing of the Company's first public offering (the "Fifth Anniversary")
PROVIDED, HOWEVER, such termination shall be postponed until the later of (i)
that number of days following such Fifth Anniversary equal to the number of
days, if any, between the date of such first public offering and the Fifth
Anniversary that the Common Stock of the Company is not traded on a national
stock exchange or the Nasdaq National Market System (or any successor
organization) and (ii) if as of the Fifth Anniversary, the Company is not so
traded, then, one year following such date as the Company first resumes trading
on a national stock exchange or the Nasdaq National Market System (or any
successor organization).
12. THIRD PARTY BENEFICIARIES. Blair and any Affiliate of
Mi-Tech who is a Holder shall be express third party beneficiaries of this
Agreement.
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<PAGE>
IN WITNESS WHEREOF, the undersigned have executed this
Agreement as of the date set forth above.
MI-TECH COMMUNICATIONS LLC
By: ______________________________
Brian P. Johnson, Manager
360NETWORKS INC.
By: ______________________________
______________________________
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<PAGE>
EXHIBIT D
ARTICLES OF AMENDMENT OF 360
To be provided by 360 to Mi-Tech as soon as
possible after the execution of this Agreement.
<PAGE>
EXHIBIT E
BLAIR REPRESENTATION AND ACKNOWLEDGEMENT
TO: 360networks inc.
WHEREAS:
A. By an Agreement made as of the 20th day of March 2000 (the
"Share Exchange Agreement") by and among 360networks inc. ("360"), Worldwide
Fiber (USA), Inc. (the "Company"), Mi-Tech Communications, LLC ("Mi-Tech"),
Michels Pipeline Construction, Inc. and the other parties named therein, Mi-Tech
agreed to exchange its shares of the Company for Class A Subordinate Voting
Shares of 360, and assigned 2% of its subscription rights in respect thereof to
William Blair & Company ("Blair").
B. Under the Share Exchange Agreement Mi-Tech has agreed that,
prior to the issuance of shares (the "Blair Shares") by 360 to Blair, it shall
cause Blair to execute and deliver this instrument to 360.
THEREFORE, in consideration of the issuance of the Blair Shares to Blair, and
for other good and valuable consideration, the receipt and sufficiency of which
is hereby acknowledged, Blair covenants to and for the benefit of 360 as
follows:
Section 1. DEFINED TERMS. Terms having a meaning defined in
the Share Exchange Agreement shall have the same meaning when used in this
instrument, unless the context otherwise requires.
Section 2. REPRESENTATIONS AND WARRANTIES OF BLAIR. Blair
represents, warrants and acknowledges to 360 as of the date hereof and, unless
otherwise provided, as of the Closing Date, as follows:
(a) Blair is acquiring Class A Subordinate Voting Shares as
principal with an aggregate acquisition cost to Blair of not less than
C$150,000 and is purchasing the Class A Subordinate Voting Shares for
investment only and not with a view to resale or distribution in
violation of applicable securities laws.
(b) Blair, if a "U.S. Person" (as defined in Regulation S
under the United States Securities Act of 1993, as amended (the "1933
Act"), is an "Accredited Investor" (as defined in Rule 501 under the
1933 Act). Blair is acquiring the Class A Subordinate Voting Shares for
its own account, for investment purposes only and not with a view to
any resale, distribution or other disposition of the Class A
Subordinate Voting Shares in violation of the United States securities
laws. If Blair decides to offer, sell or otherwise transfer any of the
Class A Subordinate Voting Shares, it will not offer, sell or otherwise
transfer any of such Class A Subordinate Voting Shares directly or
indirectly, unless such sale is made in compliance with, or in reliance
of an exemption from, the 1933 Act and
<PAGE>
applicable state securities laws. Blair understands and agrees that
there may be material tax consequences to Blair of an acquisition or
disposition of the Class A Subordinate Voting Shares and that, except
as expressly set forth in this Agreement, 360 gives no opinion and
makes no representation with respect to the tax consequences to Blair
under United States, state, local or foreign tax law of Blair's
acquisition or disposition of such securities.
(c) Blair acknowledges that no offering memorandum, prospectus
or registration statement has been prepared or filed by 360 with any
securities commission or similar authority in any jurisdiction in
connection with the Exchange and the issue and sale of Class A
Subordinate Voting Shares to Blair is subject to such sale being exempt
from the requirements of applicable securities laws as to the filing of
an offering memorandum, prospectus or registration statement.
(d) Blair has received and reviewed 360's Registration
Statement on Form F-1 as filed with the Securities and Exchange
Commission of the United States on January 28, 2000 and has had the
opportunity to discuss the disclosure therein, as well as developments,
concerning 360 and the industry in which it competes, with
representatives of 360 and has received complete answers to all of its
questions. Blair is not relying on any written or oral representations
made by 360, except to the extent expressly provided in this Agreement.
(e) To Blair's knowledge, the Class A Subordinate Voting
Shares were not advertised in printed media of general and regular paid
circulation, radio or television and Blair has not purchased the Class
A Subordinate Voting Shares as a result of any form of general
solicitation or general advertising, including advertisements,
articles, notices or other communications published in any newspaper,
magazine or similar media or broadcast over radio, or television, or
any seminar or meeting whose attendees have been invited by general
solicitation or general advertising.
(f) Blair has such knowledge and experience in financial and
business affairs as to be capable of evaluating the merits and risks of
the investment hereunder and is able to bear the economic risk of loss
of such investment.
(g) Blair understands that the Class A Subordinate Voting
Shares have not been and will not be registered under the 1933 Act, as
amended, or the securities laws of any state of the United States and
that the sale contemplated hereby is being made in reliance on an
exemption from such registration requirements and Blair understands and
agrees that the Class A Subordinate Voting Shares may not be traded in
the United States or by or on behalf of a U.S. Person or a person in
the United States unless permitted by the terms of the 360 Shareholders
Agreement and either registered under the 1933 Act and any applicable
state securities laws or an exemption from such registration
requirements is available and that certificates representing the Class
A Subordinate Voting Shares will bear a legend to such effect.
(h) Blair understands that no prospectus has been or will be
filed in accordance with the securities laws, and the regulations
thereunder, of, and the applicable
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<PAGE>
published rules, policy statements, blanket orders and notices of the
securities regulatory authorities in the provinces and territories of
Canada (the "Canadian Securities Laws") qualifying the distribution of
the Class A Subordinate Voting Shares in any province or territory of
Canada and that the Class A Subordinate Voting Shares may not be
offered or sold by Blair in any province or territory of Canada except
pursuant to an applicable exemption from the prospectus requirements
of the applicable Canadian Securities Laws and from a dealer
appropriately registered under the applicable Canadian Securities Laws
or, other than in Ontario, in accordance with an exemption from the
registration requirements of such laws.
(i) Blair has not employed any broker or finder in connection
with the transactions contemplated by the Share Exchange Agreement.
(j) Blair acknowledges and agrees that the foregoing
representations, warranties and covenants set out herein are made by
Blair and Michels with the intent that they be relied upon in
determining the suitability of Blair as a purchaser of Class A
Subordinate Voting Shares. Blair further agrees that by Blair accepting
the Blair Shares, Blair shall be representing and warranting that the
foregoing representations and warranties are true as at the Closing
Date with the same force and effect as if they had been made by Blair
at the Closing Date and shall continue in full force and effect
notwithstanding any subsequent disposition by Blair of the Class A
Subordinate Voting Shares. Blair undertakes to notify 360 in writing of
any change in any representation, warranty or other information
relating to Blair set forth herein that takes place prior to the
Closing Date.
Section 3. UNDERWRITTEN OFFERING - LOCK-UP OF SHARES. Blair
agrees, if requested in writing by the managing underwriter(s) of an IPO, not to
effect any sale (or in any other way, directly or indirectly, effect any
transfer, assignment, distribution, pledge, encumbrance or other disposition of,
either voluntarily or involuntarily, including the assignment or transfer of
voting rights, if any) (collectively, with "sale", a "Sale") of any shares or of
any equity securities (or securities convertible into or exchangeable for equity
securities) of 360, including, without limitation, any Sale pursuant to Canadian
Securities Laws or Rule 144 under the U.S. Securities Act, (other than as part
of such underwritten public offering) during the time period requested by the
managing underwriter(s) not to exceed one year.
Section 4. GOVERNING LAW. This Agreement shall be deemed to be
made in and in all respects shall be interpreted, construed and governed by and
in accordance with the laws of the State of New York without regard to the
conflict of law principles thereof.
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<PAGE>
Section 5. ENUREMENT. This instrument shall be binding upon
Blair and its successors and shall enure to the benefit of 360 and its
successors and assigns.
EXECUTED this ________ day of March, 2000.
WILLIAM BLAIR & COMPANY
Per:
_________________________________
Signature
_________________________________
Name
_________________________________
Title
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<PAGE>
Exhibit 10.33
SHARE EXCHANGE AGREEMENT
BY AND AMONG
WORLDWIDE FIBER INC.
AND
CANADIAN NATIONAL RAILWAY COMPANY
DATED AS OF
MARCH 6, 2000
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
SECTION 1 - EXCHANGE FOR CLASS A NON-VOTING SHARES................................................................1
1.1 The Exchange....................................................................................1
1.2 The Closing.....................................................................................2
1.3 Deliveries at the Closing.......................................................................2
1.4 Adjustments.....................................................................................3
SECTION 2 -REPRESENTATIONS AND WARRANTIES OF THE CORPORATION......................................................7
SECTION 3 -REPRESENTATIONS, WARRANTIES AND ACKNOWLEDGMENTS OF CN..................................................9
SECTION 4 -OTHER COVENANTS.......................................................................................12
4.1 Cooperation by Parties; Satisfaction of Closing Conditions.....................................12
4.2 Shareholders Agreement and Registration Rights Agreement.......................................13
4.3 Amendments to Side Letters.....................................................................13
4.4 Restrictions on Conversion into Voting Shares..................................................13
4.5 Access to Records..............................................................................14
4.6 Financial Statements...........................................................................14
4.7 Consent to Amendment to Articles of the Corporation............................................14
SECTION 5 -CONDITIONS TO THE EXCHANGE............................................................................15
5.1 Conditions to Obligations of Each Party........................................................15
5.2 Conditions to Obligations of CN................................................................15
5.3 Conditions to the Obligations of the Corporation...............................................16
SECTION 6 -DELETED...............................................................................................17
SECTION 7 -SURVIVAL OF REPRESENTATIONS, WARRANTIES, AGREEMENTS AND COVENANTS, ETC................................17
SECTION 8 -EXPENSES..............................................................................................17
SECTION 9 -CALL OPTION...........................................................................................17
9.1 Call Option....................................................................................17
9.2 Closing of Call Option.........................................................................17
SECTION 10 -CONFIDENTIALITY......................................................................................19
SECTION 11 -UNDERWRITTEN OFFERING -LOCK -UP OF SHARES............................................................20
SECTION 12 -REMEDIES.............................................................................................22
</TABLE>
<PAGE>
<TABLE>
<S> <C>
SECTION 13 -FURTHER ASSURANCES...................................................................................22
SECTION 14 -SUCCESSORS AND ASSIGNS...............................................................................22
SECTION 15 -ENTIRE AGREEMENT.....................................................................................22
SECTION 16 -NOTICES..............................................................................................22
SECTION 17 -AMENDMENTS...........................................................................................23
SECTION 18 -COUNTERPARTS.........................................................................................23
SECTION 19 -HEADINGS.............................................................................................24
SECTION 20 -NOUNS AND PRONOUNS...................................................................................24
SECTION 21 -GOVERNING LAW........................................................................................24
SECTION 22 -CURRENCY.............................................................................................24
SECTION 23 -NO PARTNERSHIP.......................................................................................24
</TABLE>
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<PAGE>
INDEX OF DEFINED TERMS
<TABLE>
<S> <C>
1933 Act.............................................................................................Section 3(b)
Actual Michel's Roll-up Number.......................................................................Section 1.4(a)
Actual Number of Issue Event Shares..................................................................Section 1.4(a)
Additional Shares....................................................................................Section 1.4(a)
Affiliate............................................................................................Section 1.4(a)
Agreement..................................................................................................recitals
Articles...................................................................................................recitals
Assumed Michel's Roll-up Number......................................................................Section 1.4(a)
Assumed Number of Issue Event Shares.................................................................Section 1.4(a)
Below Market Employee Shares.........................................................................Section 1.4(a)
Business Day............................................................................................Section 1.2
Call Option.............................................................................................Section 9.1
Call Price..............................................................................................Section 9.1
Canadian Securities Laws...............................................................................Section 3(h)
Class A Non-Voting Shares..................................................................................recitals
Closing Date............................................................................................Section 1.2
Closing.................................................................................................Section 1.2
CN.........................................................................................................recitals
CN Shares...............................................................................................Section 1.1
CN WFI-CN Shares ..........................................................................................recitals
Common Share Equivalents.............................................................................Section 1.4(a)
Common Shares..........................................................................................Section 2(d)
Corporation................................................................................................recitals
Encumbrance............................................................................................Section 3(n)
Exchange................................................................................................Section 1.1
Governmental Authority.................................................................................Section 2(g)
HSR Act..............................................................................................Section 4.4(b)
IPO Price............................................................................................Section 1.4(d)
IPO Shares...........................................................................................Section 1.4(d)
</TABLE>
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<TABLE>
<S> <C>
IPO..................................................................................................Section 1.4(d)
Joinder Agreement ......................................................................................Section 4.2
Lapsed Option........................................................................................Section 1.4(a)
Litigation...............................................................................................Section 21
Maffei Purchase ......................................................................................Schedule 2(d)
Michels Roll-Up Transaction............................................................................Schedule 1.4
Permitted Assigns Section 14
Permitted Option ....................................................................................Section 1.4(a)
Permitted Reissue Option................................................................................Section 1.4
Person.................................................................................................Section 2(g)
Preferred Share Purchase Agreement.....................................................................Schedule 1.4
Preferred Shares.......................................................................................Section 2(d)
Registration Rights Agreement...........................................................................Section 4.2
Sale.....................................................................................................Section 11
Share Reorganization.................................................................................Section 1.4(e)
Shareholders Agreement..................................................................................Section 4.2
Shares.................................................................................................Section 2(d)
Stock Compensation Plan..............................................................................Section 1.4(a)
Time of Closing......................................................................................Section 9.3(a)
Transaction Documents..................................................................................Section 2(b)
WFI-CN.....................................................................................................recitals
WFI-CN Shareholder Agreement...........................................................................Section 3(n)
</TABLE>
-iv-
<PAGE>
SCHEDULES
<TABLE>
<S> <C>
Schedule B Articles of the Corporation
Schedule 1.4 Estimated Number of Shares to be Issued in Respect of
the Michels Roll-up Transaction
Schedule 2(d) Outstanding Common Shares, Preferred Shares and Common
Shares Equivalents
Schedule 3 U.S. Representations & Warranties
Schedule 4.2(a) Joinder Agreement
Schedule 4.2(b) Registration Rights Agreement
Schedule 4.3(a) Surviving IC Side Letter Terms
Schedule 4.3(b) Surviving CN Side Letter Terms
</TABLE>
-v-
<PAGE>
WORLDWIDE FIBER INC.
and
CANADIAN NATIONAL RAILWAY COMPANY
SHARE EXCHANGE AGREEMENT
THIS AGREEMENT, dated as of March 6, 2000 (as amended from time to
time, this "AGREEMENT") is entered into, by and among WORLDWIDE FIBER INC., a
Canadian corporation (the "CORPORATION"), and CANADIAN NATIONAL RAILWAY COMPANY,
a corporation continued under the laws of Canada ("CN").
WITNESSETH:
WHEREAS:
A. CN is the holder of 25 Class A common shares (the "CN WFI-CN SHARES")
in the capital stock of WFI-CN Fibre Inc., a Canadian corporation ("WFI-CN");
B. CN has agreed to exchange the CN WFI-CN Shares and $20 million for a
total of 7,460,433 fully paid and non-assessable Class A Non-Voting Shares (the
"CLASS A NON-VOTING SHARES") in the capital stock of the Corporation, having the
terms set forth in the Articles (the "ARTICLES") of the Corporation in effect on
the date hereof, a copy of which is attached hereto as Schedule B.
ACCORDINGLY, the parties hereto hereby agree as follows: SECTION 1-
EXCHANGE FOR CLASS A NON-VOTING SHARES
1.1 THE EXCHANGE.
Subject to the terms and conditions set forth in this agreement, at the
Closing, CN shall transfer to the Corporation the CN WFI-CN Shares (which the
parties agree and declare have a value of $40 million) and pay to the
Corporation $20 million, and the Corporation shall issue to CN, in exchange
therefor, 7,460,433 Class A Non-Voting Shares (the "EXCHANGE"), subject to
adjustment as set forth in Section 1.4 (such Class A Non-Voting Shares or other
shares into which such Class A Non-Voting Shares have been converted, exchanged,
reclassified or recapitalized, together with all Class A Non-Voting Shares
issued or to be issued to CN and less any shares surrendered or to be
surrendered by CN to the Corporation pursuant to an adjustment made or to be
made pursuant to Section 1.4, all as the same may be subdivided, redivided,
consolidated, combined or reduced from time to time, and including any shares
issued thereon by way of a stock dividend or other distribution, are herein
called the "CN SHARES"). For greater clarity, the aggregate issue price of the
CN Shares shall be $60 million.
<PAGE>
1.2 THE CLOSING.
Subject to the terms and conditions set forth in this agreement, the
closing of the Exchange (the "CLOSING") shall take place at the offices of
Campney & Murphy, 21st Floor, 1111 West Georgia Street, Vancouver, British
Columbia on March 6, 2000 or such other Business Day as may be agreed to in
writing by each of the parties hereto (the "CLOSING DATE"). For purposes of this
agreement, "BUSINESS DAY" means any day other than a Saturday, a Sunday or a day
when commercial banks in Vancouver, British Columbia are required to be closed.
1.3 DELIVERIES AT THE CLOSING (a) At the Closing, and each time Class A
Non-Voting Shares are issued to CN pursuant to Section 1.4, the Corporation
shall deliver to CN a certificate or certificates representing the Class A
Non-Voting Shares to be issued to CN in the Exchange or pursuant to Section 1.4,
as the case may be, registered in the name of CN, against, in the case of the
Class A Non-Voting Shares issued at the Closing, delivery at the Closing by CN
of payment of $20 million and certificates for the CN WFI-CN Shares, accompanied
by such documents and instruments of transfer necessary or required to transfer
the CN WFI-CN Shares, on the books of WFI-CN, into the name of the Corporation.
Each certificate representing CN Shares shall bear a legend containing
the following words:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN QUALIFIED
FOR PUBLIC DISTRIBUTION IN CANADA AND HAVE NOT BEEN REGISTERED UNDER
THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED. THE SECURITIES
HAVE BEEN ACQUIRED FOR INVESTMENT AND MAY NOT BE SOLD, TRANSFERRED OR
OTHERWISE DISPOSED OF EXCEPT IN COMPLIANCE WITH APPLICABLE CANADIAN
SECURITIES LAWS AND THE UNITED STATES SECURITIES ACT OF 1933, AS
AMENDED.
IN ADDITION, THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT
TO THE RESTRICTIONS ON TRANSFER SET FORTH IN THE SHAREHOLDERS
AGREEMENT, DATED AS OF SEPTEMBER 9, 1999, AS AMENDED, BY THE
CORPORATION AND THE PARTIES THERETO, A COPY OF WHICH IS ON FILE IN THE
OFFICE OF THE CORPORATION.
The requirement that the above securities legend be placed upon certificates
evidencing any such securities shall cease and terminate upon the earliest of
the following events: (a) when such securities are transferred in an initial
public offering; (b) when such securities are transferred pursuant to Rule 144
under the 1933 Act; or (c) when such securities are transferred in any other
-2-
<PAGE>
transaction if the seller delivers to the Corporation an opinion of its counsel,
which counsel and opinion shall be reasonably satisfactory to the Corporation to
the effect that such legend is no longer necessary in order to protect the
Corporation against a violation by it of applicable securities laws upon any
sale or other disposition of such securities without registration thereunder.
The requirement that the above legend regarding the Shareholders Agreement be
placed upon certificates evidencing any such securities shall cease and
terminate upon the termination of the Shareholders Agreement. Upon the
occurrence of any event requiring the removal of a legend hereunder, the
Corporation, upon the surrender of certificates containing such legend, shall,
at its own expense, deliver to the holder of any such securities as to which the
requirement for such legend shall have terminated, one or more new certificates
evidencing such securities not bearing such legend.
(b) At the Closing, the Corporation will deliver to CN, and CN will
deliver to the Corporation, the various certificates, instruments and documents
referred to in Section 5.
1.4 ADJUSTMENTS
(a) If at any time after the Closing and prior to the closing of the
issue of IPO Shares pursuant to the IPO, the Actual Number of Issue Event Shares
on an Adjustment Date:
(i) is greater than 110% of the Assumed Number of Issue Event
Shares, or
(ii) is less than 90% of the Assumed Number of Issue Event Shares,
then the Corporation shall promptly thereafter advise CN by notice in writing of
the occurrence of such event and:
(iii) if the Actual Number of Issue Event Shares is greater than
110% of the Assumed Number of Issue Event Shares, then the
Corporation will issue to CN for no additional payment by CN to the
Corporation and as an adjustment to the number of Class A
Non-Voting Shares to be issued to CN in the Exchange, (A) that
number of Class A Non-Voting Shares equal to (2.040816% of that
number which is the Actual Number of Issue Event Shares less the
Assumed Number of Issue Event Shares) (B) less the aggregate number
of Class A Non-Voting Shares issued pursuant to this subsection
1.4(a)(iii) prior to such time, (C) plus the aggregate number of
Class A Non-Voting Shares surrendered pursuant to subsection
1.4(a)(iv) prior to such time; and
(iv) if the Actual Number of Issue Event Shares is less than 90% of
the Assumed Number of Issue Event Shares, then CN will surrender to
the Corporation for cancellation and without further consideration,
as an adjustment to the number of Class A Non-Voting Shares to be
issued in the Exchange, (A) that number of Class A Non-Voting
Shares equal to (2.040816% of that number which is the Assumed
Number of Issue Event Shares less the Actual Number of Issue Event
Shares) (B) less the aggregate number of Class A Non-Voting Shares
surrendered pursuant to this subsection 1.4(a)(iv) prior to such
time, (C) plus the
-3-
<PAGE>
aggregate number of Class A Non-Voting Shares issued pursuant to
subsection 1.4(a)(iii).
If the Adjustment Date is on the occurrence of the IPO, then such issuance or
surrender shall be effected immediately prior to the IPO as soon as practicable
thereafter. If CN sells all of the CN Shares in a sale permitted under this
Agreement and the Other Transaction Documents, the obligations of the
Corporation and CN under this Section 1.4(a) shall terminate. If CN sells part
of the CN Shares prior to an Adjustment Date in a sale permitted under this
Agreement and the Other Transaction Documents, then the number of Shares to be
issued by the Corporation under subsection 1.4(a)(iii) or surrendered by CN
under subsection 1.4(a)(iv) shall be multiplied by a fraction, the numerator of
which is the number of CN Shares held by CN on the Adjustment Date, and the
denominator of which is the original number of CN Shares, as previously adjusted
under this subsection 1.4(a) and under subsection 1.4(e).
On the date of the IPO, or immediately prior to the IPO, the Corporation shall
give notice in writing to CN specifying the Actual Number of Issue Event Shares.
For purposes of this agreement:
"ACTUAL NUMBER OF ISSUE EVENT SHARES" means, at an Adjustment Date, the Assumed
Number of Issue Event Shares:
(i) plus the number of any Common Shares or Common Share
Equivalents issued by the Corporation after December 16, 1999 as
Below Market Employee Shares, subject to adjustment as set forth in
subsection 1.4(e); and
(ii) in respect of the Michels Roll-up Transaction, if the actual
number of Common Shares or Common Share Equivalents issued in
respect of the Michels Roll-up Transaction, including Preferred
Shares issued pursuant to the Preferred Share Purchase Agreement as
a result of the Michels Roll-up Transaction (subject to adjustment
as set forth in subsection 1.4(e), collectively the "ACTUAL MICHELS
ROLL-UP NUMBER") exceeds the sum of the totals of the Common Shares
and Preferred Shares shown on Schedule 1.4 as having been assumed,
for the purposes of this Agreement, to be issued in respect of the
Michels Roll-up Transaction, including pursuant to the Preferred
Share Purchase Agreement as a result of the Michels Roll-up
Transaction (subject to adjustment as set forth in subsection
1.4(e), collectively the "ASSUMED MICHELS ROLL-UP NUMBER"), then
plus the amount by which the Actual Michels Roll-up Number exceeds
the Assumed Michels Roll-up Number or, if the Actual Michels
Roll-up Number is less than the Assumed Michels Roll-up Number,
then less the amount by which the Actual Michels Roll-up Number is
less than the Assumed Michels Roll-up Number.
"ADJUSTMENT DATE" means the date of the closing of the IPO and, if the IPO has
not then occurred, June 30, 2000, September 30, 2000, December 31, 2000, and
March 31, June 30, September 30 and December 31 of each year thereafter until
the earlier of the occurrence of the IPO or December 31, 2002.
-4-
<PAGE>
"AFFILIATE" of any Person means any partnership, corporation, trust, or other
organization which is controlled by or under common control of such Person.
"ASSUMED NUMBER OF ISSUE EVENT SHARES" means, subject to adjustment as set forth
in subsection 1.4(e), 64,682,963 Common Shares, being the aggregate of (a) the
number of Common Share Equivalents issued and outstanding as at December 16,
1999 in respect of employee, executive and incentive plans, as described in
Schedule 2(d); (b) the number of Shares issued pursuant to the Maffei Purchase
as described in Schedule 2(d); (c) the number of Shares issued in respect of the
Maffei Purchase pursuant to the Preferred Share Purchase Agreement, as described
in Schedule 2(d); (d) the number of Shares assumed, for the purposes of this
Agreement, to be issued under the Michels Roll-up Transaction, as described in
Schedule 1.4; and (e) the number of Shares assumed, for the purposes of this
Agreement, to be issued in respect of the Michels Roll-up Transaction under the
Preferred Share Purchase Agreement, as described in Schedule 1.4.
"BELOW MARKET EMPLOYEE SHARES" means any Common Shares or Common Share
Equivalents issued to directors, officers, employees or consultants of the
Corporation or its subsidiaries, other than as, or pursuant to, Permitted
Options or Permitted Reissue Options.
"COMMON SHARE EQUIVALENT" means all outstanding warrants, options, agreements,
convertible securities or other commitments or outstanding securities
convertible into, or exchangeable or exercisable for Common Shares.
"LAPSED OPTION" means any stock option issued by the Corporation pursuant to a
Stock Compensation Plan, which after the date hereof, lapses or terminates
without being converted or exercised.
"PERMITTED OPTION" means any Common Share Equivalent issued under the terms of
any stock compensation plan of the Corporation approved by the board of
directors of the Corporation (a "STOCK COMPENSATION PLAN") provided that the
issue price of any Common Share to be issued pursuant to any Common Share
Equivalent issued or agreed to be issued by the Corporation after the date
hereof pursuant to any Stock Compensation Plan is not less than the fair market
value of such Common Share as determined by the board of directors of the
Corporation as at the time of the issue by the Corporation of, of the agreement
by the Corporation to issue, such Common Share Equivalent.
"PERMITTED REISSUE OPTION" means any Common Share Equivalent issued in
accordance with a Stock Compensation Plan then in effect to replace any Lapsed
Option with a conversion or exercise price equal to or greater than the
conversion or exercise price of the Lapsed Option (as adjusted to reflect any
stock split, stock dividend, combination, reorganization, reclassification or
other similar event involving Common Shares) and a term no longer than the
original term of the Lapsed Option.
(b) Any Class A Non-Voting Shares and Common Shares issued to CN or
surrendered by CN pursuant to this Section 1.4 shall be treated as if they were
issued or surrendered, as the case may be, on December 16, 1999 and shall
reflect any dividends or other
-5-
<PAGE>
distributions which would have accrued or have been payable with respect to and
the application of any anti-dilution, ratable treatment or similar provisions as
set forth in the Articles, applicable law or otherwise which would have been
applicable to such Class A Non-Voting Shares and Common Shares had they been
issued or surrendered, as the case may be, on December 16, 1999.
(c) Any Class A Non-Voting Shares or Common Shares issued to CN
pursuant to this Section 1.4 shall, when issued, be validly issued and fully
paid and nonassessable with no personal liability attaching to the ownership
thereto.
(d) Notwithstanding the provisions of subsection 1.4(a), if, at the
time of the initial sale of any shares ("IPO SHARES") in the capital stock of
the Corporation by the Corporation pursuant to a BONA FIDE underwritten public
offering made pursuant to (i) a final prospectus (for which a receipt or
receipts have been obtained) under Canadian Securities Laws and/or (ii) an
effective registration statement filed under the 1933 Act, as amended
(collectively an "IPO"), the value of the CN Shares is less than US$ 100 million
or more than US$ 160 million (such value being determined by multiplying the
number of CN Shares by the price to the public (the "IPO PRICE") per IPO Share
issued in the IPO), then, (y) if the value of the CN Shares on the basis of the
IPO Price is less than US$ 100 million, then the Corporation will issue to CN,
for no additional payment by CN to the Corporation and as an adjustment to the
number of Class A Non-Voting Shares to be issued in the Exchange, that number of
Class A Non-Voting Shares as is required so that, immediately after giving
effect to such issue, the value of the CN Shares, determined as aforesaid on the
basis of the IPO Price, is US$ 100 million; and (z) if the value of the CN
Shares on the basis of the IPO Price is more than US$ 160 million, then CN will
surrender to the Corporation for cancellation and without further consideration,
as an adjustment to the number of Class A Non-Voting Shares to be issued in the
Exchange, that number of Class A Non-Voting Shares as is required so that,
immediately after giving effect to such surrender and cancellation, the value of
the CN Shares, determined as aforesaid on the basis of the IPO Price, is US$160
million.
(e) If and whenever at any time prior to the IPO the Corporation shall
(a) subdivide or redivide any outstanding Class A Non-Voting Shares into a
greater number of Class A Non-Voting Shares, (b) consolidate, combine or reduce
any outstanding Class A Non-Voting Shares into a lesser number of Class A
Non-Voting Shares, or (c) issue any shares of Class A Non-Voting Shares to all
or substantially all of the holders of Class A Non-Voting Shares by way of a
stock dividend or other distribution (any of such events being called a "Share
Reorganization"), then, in each such event:
(i) the Assumed Number of Issue Event Shares, as previously
adjusted under this subsection 1.4(e);
(ii) the number of Common Shares or Common Share Equivalents issued
by the Corporation (to the extent that such Common Share
Equivalents do not automatically adjust on the occurrence of such
Share Reorganization) as Below Market Employee Shares after
December 16, 1999 and prior to the occurrence of such Share
Reorganization, as previously adjusted under this subsection
1.4(e);
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<PAGE>
(iii) the Actual Michels Roll-up Number, if Common Shares or Common
Share Equivalents are issued as a result of the Michels Roll-up
Transaction prior to the occurrence of such Share Reorganization,
as previously adjusted under this subsection 1.4(e);
(iv) the Assumed Michels Roll-up Number, as previously adjusted
under this subsection 1.4(e); and
(v) the original number of CN Shares, as described in subsection
1.4(a), as previously adjusted under this subsection 1.4(e),
shall each be adjusted by a fraction, of which the numerator shall be the total
number of Class A Non-Voting Shares outstanding on such date after giving effect
to such Share Reorganization, and of which the denominator shall be the total
number of Class A Non-Voting Shares outstanding on such date before giving
effect to such Share Reorganization. Each such adjustment will be made
successively whenever any such Share Reorganization shall occur.
SECTION 2 - REPRESENTATIONS AND WARRANTIES OF THE CORPORATION.
The Corporation hereby represents and warrants to CN as of the
date hereof and, unless otherwise provided, as of the Closing Date as follows:
(a) The Corporation is a corporation, duly organized, validly existing
and in good standing under the CANADA BUSINESS CORPORATIONS ACT, and has all
requisite corporate power and authority to enter into and carry out the
transactions contemplated by this agreement.
(b) The execution and delivery by the Corporation of this agreement,
the Joinder Agreement and the Registration Rights Agreement (collectively, the
"TRANSACTION DOCUMENTS") and the performance by the Corporation of its
obligations hereunder and thereunder has been duly authorized by all requisite
corporate action on the part of the Corporation. Each Transaction Document
constitutes a legal, valid and binding agreement of the Corporation, enforceable
against the Corporation in accordance with its terms except to the extent that
enforceability may be limited by bankruptcy, insolvency or other similar laws
affecting creditors' rights generally and by equitable principles generally,
whether enforced in a court of law or at equity.
(c) The execution, delivery and performance by the Corporation of the
Transaction Documents and the consummation by the Corporation of the
transactions contemplated thereby will not (a) violate any provision of law,
statute, rule or regulation, or any ruling, writ, injunction, order, judgment or
decree of any court, administrative agency or other governmental body applicable
to it, or any of its properties or assets; (b) conflict with or result in any
breach of any of the terms, conditions or provisions of, or constitute (with due
notice or lapse of time, or both) a default (or give rise to any right of
termination, cancellation or acceleration) under any contract to which the
Corporation is a party that would materially adversely affect the Corporation's
ability to consummate the transactions contemplated by any Transaction Document
or perform its obligations under any Transaction Document; or (c) violate its
organizational documents.
-7-
<PAGE>
(d) The authorized and issued share capital ("SHARES") of the
Corporation, as of March 6, 2000 (for clarity, prior to the issuance of the CN
Shares and prior to the issuance of Shares under the Preferred Share Purchase
Agreement in respect thereof), consists of:
<TABLE>
<CAPTION>
Class or Series Number Number
OF SHARES AUTHORIZED ISSUED
<S> <C> <C>
PREFERRED SHARES Unlimited
Series A Non-Voting Preferred Shares 100,000,000,000 75,475,656
Series B Subordinate Voting Preferred Shares 100,000,000,000 Nil
Series C Redeemable Preferred Shares 45,000,000,000 Nil
(collectively, the "PREFERRED SHARES")
COMMON SHARES
Class A Non-Voting Shares Unlimited 176,713,200
Class B Subordinate Voting Shares Unlimited 41,314,800
Class C Multiple Voting Shares Unlimited 40,920,000
</TABLE>
(collectively, together with any common shares of the Corporation of any other
class or series, hereinafter authorized (the "COMMON SHARES")
Schedule 2(d) sets forth the number of Common Shares and Common Share
Equivalents issued and outstanding as of the dates specified therein. On the
date hereof, the issued Preferred Shares are convertible into 75,475,656 Common
Shares and, as of January 28, 2000, all of the Common Share Equivalents (other
than the Preferred Shares) issued and outstanding are convertible into
23,181,347 Common Shares.
(e) The authorization, issuance, sale and delivery of the Class A
Non-Voting Shares to CN pursuant to this agreement have been duly authorized by
all requisite corporate action on the part of the Corporation, and when issued,
sold and delivered in accordance with this agreement, will be validly issued and
outstanding, fully paid and nonassessable with no personal liability attaching
to the ownership thereof and not subject to preemptive or similar rights of the
shareholders of the Corporation or others, except as set out in the Shareholders
Agreement and the Transaction Documents. The terms, designations, powers,
preferences and relative, participating, optional and other special rights, and
the qualifications, limitations and restrictions, of any series of Common
Shares, or any series of Preferred Shares of the Corporation, are as stated in
the Articles.
(f) Assuming the accuracy of the representations and warranties
contained in Section 3 hereof, the offer, sale and/or the issuance and delivery
of the CN Shares as contemplated herein is exempt from the prospectus and
registration requirements under applicable securities laws.
-8-
<PAGE>
(g) No permit, authorization, consent or approval of or by, or any
notification of or filing with, any government, regulatory authority,
governmental department, agency, commission, board, tribunal, crown corporation,
or court or other law, rule or regulating-making entity having or purporting to
have jurisdiction on behalf of any nation, or province or state or other
subdivision thereof or any municipality, district or other subdivision thereof;
(a "GOVERNMENTAL AUTHORITY") or any individual, sole proprietorship, general,
limited or any other partnership, limited liability company, unincorporated
association, unincorporated syndicate, unincorporated organization, trust, body
corporate, or other entity, and a natural person in such person's capacity as
trustee, executor, administrator or other legal representative (collectively,
with Governmental Authority, a "PERSON") is required in connection with the
execution, delivery and performance by the Corporation of any Transaction
Document, the consummation by the Corporation of the transactions contemplated
hereby or thereby, or the issuance, sale or delivery of the CN Shares (other
than such notifications or filings required under applicable provincial
securities laws, if any, which shall be made by the Corporation on a timely
basis and other than provided for in any Transaction Document).
(h) The CN Shares constitute 2% of the aggregate of (i) the total
issued and outstanding Common Shares and Preferred Shares as of December 16,
1999, (ii) the Common Share Equivalents issued and outstanding as at December
16, 1999 in respect of employee, executive and inactive plans, (iii) 6,000,000
Class A Non-Voting Shares (being the number of shares that the parties have
assumed, for the purpose of this representation, have been issued on the Michels
Roll-up Transaction); (iv) 1,605,131 Preferred Shares (being the number of
Shares to be issued in respect of (iii) under the Preferred Share Purchase
Agreement based on the above assumption); (v) 31,000,000 Class A Non-Voting
Shares (being the number of such Shares issued on the Maffei Purchase); (vi)
4,541,192 Preferred Shares (being the number of such Shares issued in respect of
(v) under the Preferred Share Purchase Agreement); (vii) 7,460,433 Class A
Non-Voting Shares (being the CN Shares) and (viii) 1,995,823 Preferred Shares
(being the number of Preferred Shares to be issued in respect of (vii) under the
Preferred Share Purchase Agreement. The Class A Non-Voting Shares are the class
of shares of the Corporation that are intended to be registered upon completion
of an IPO.
(i) The Corporation acknowledges and agrees that the foregoing
representations, warranties and covenants set out herein are made by the
Corporation with the intent that they be relied upon by CN in determining its
willingness to effect the Exchange. The Corporation further agrees that by
accepting the CN WFI-CN Shares and CN's payment of $20 million, the Corporation
shall be representing and warranting that the foregoing representations and
warranties are true as at the Closing Date with the same force and effect as if
they had been made by the Corporation at the Closing Date. The Corporation
undertakes to notify CN in writing of any change in any representation, warranty
or other information relating to the Corporation set forth herein which takes
place prior to the Closing Date.
SECTION 3 - REPRESENTATIONS, WARRANTIES AND ACKNOWLEDGMENTS OF CN.
CN represents, warrants and acknowledges to the Corporation as of the
date hereof as follows:
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<PAGE>
(a) CN is acquiring Class A Non-Voting Shares as principal with an
aggregate acquisition cost to CN of not less than C$150,000 and is purchasing
the Class A Non-Voting Shares for investment only and not with a view to resale
or distribution in violation of applicable Securities Laws.
(b) CN, if a "U.S. Person" (as defined in Regulation S under the United
States Securities Act of 1993, as amended (the "1933 ACT"), is an "Accredited
Investor" (as defined in Rule 501(a)(1), (2), (3) (7) or (8) under the 1933
Act), and CN makes the additional representations and warranties contained in
SCHEDULE 3.
(c) CN acknowledges that no offering memorandum, prospectus or
registration statement has been prepared or filed by the Corporation with any
securities commission or similar authority in any jurisdiction in connection
with the Exchange and the issue and sale of Class A Non-Voting Shares to CN is
subject to such sale being exempt from the requirements of applicable securities
laws as to the filing of an offering memorandum, prospectus or registration
statement.
(d) CN has not received or been provided with a prospectus, offering
memorandum or other similar document, nor has it requested, nor does it have any
need to receive, a prospectus, offering memorandum or any other similar document
describing the business and affairs of the Corporation.
(e) To CN's knowledge, the Class A Non-Voting Shares were not
advertised in printed media of general and regular paid circulation, radio or
television and CN has not purchased the Class A Non-Voting Shares as a result of
any form of general solicitation or general advertising, including
advertisements, articles, notices or other communications published in any
newspaper, magazine or similar media or broadcast over radio, or television, or
any seminar or meeting whose attendees have been invited by general solicitation
or general advertising.
(f) CN has such knowledge and experience in financial and business
affairs as to be capable of evaluating the merits and risks of the investment
hereunder and is able to bear the economic risk of loss of such investment.
(g) CN understands that the Class A Non-Voting Shares have not been and
will not be registered under the 1933 Act, as amended, or the securities laws of
any state of the United States and that the sale contemplated hereby is being
made in reliance on an exemption from such registration requirements and CN
understands and agrees that the Class A Non-Voting Shares may not be traded in
the United States or by or on behalf of a U.S. Person or a person in the United
States unless permitted by the terms of the Shareholders Agreement and either
registered under the 1933 Act and any applicable state securities laws or an
exemption from such registration requirements is available and that certificates
representing the Class A Non-Voting Shares will bear a legend to such effect.
(h) CN understands that no prospectus has been or will be filed in
accordance with the securities laws, and the regulations thereunder, of, and the
applicable published rules, policy
-10-
<PAGE>
statements, blanket orders and notices of the securities regulatory authorities
in the provinces and territories of Canada (the "CANADIAN SECURITIES Laws")
qualifying the distribution of the Class A Non-Voting Shares in any province or
territory of Canada and that the Class A Non-Voting Shares may not be offered or
sold by CN in any province or territory of Canada except pursuant to an
applicable exemption from the prospectus requirements of the applicable Canadian
Securities Laws and from a dealer appropriately registered under the applicable
Canadian Securities Laws or, other than in Ontario, in accordance with an
exemption from the registration requirements of such laws.
(i) CN has not employed any broker or finder in connection with the
transactions contemplated by this agreement. The Corporation acknowledges that
CN has retained Merrill Lynch as an advisor to CN, and CN represents, warrants
and acknowledges to the Corporation that Merrill Lynch is not employed as a
broker or finder in connection with the transactions contemplated by this
agreement and that CN will be responsible for all fees payable to Merrill Lynch.
(j) The execution, delivery and performance by CN of this agreement and
each of the other Transaction Documents and the consummation by CN of the
transactions contemplated hereby and thereby will not (a) violate any provision
of law, statute, rule or regulation, or any ruling, writ, injunction, order,
judgment or decree of any court, administrative agency or other governmental
body applicable to it, or any of its properties or assets; (b) conflict with or
result in any breach of any of the terms, conditions or provisions of, or
constitute (with due notice or lapse of time, or both) a default (or give rise
to any right of termination, cancellation or acceleration) under any contract to
which CN is a party that would materially adversely affect CN's ability to
consummate the transactions contemplated by this agreement or perform its
obligations under any Transaction Documents; or (c) violate its constating
documents.
(k) CN is duly organized and validly existing under the laws of the
jurisdiction of its organization and has all partnership, corporate or company
power, as applicable, and authority to enter into and carry out the transactions
contemplated by each of the Transaction Documents and the performance by CN of
its obligations hereunder and thereunder. Each of the Transaction Documents has
been duly authorized by all necessary action on the part of CN. Each of the
Transaction Documents constitutes a valid and binding agreement of CN
enforceable against CN in accordance with its terms except to the extent that
enforceability may be limited by bankruptcy, insolvency or other similar laws
affecting creditors' rights generally and by equitable principles generally
whether enforced in a court of law or at equity.
(l) No permit, authorization, consent or approval of or by, or any
notification of or filing with, any Person is required in connection with the
execution, delivery and performance by CN of any Transaction Document, the
consummation by CN of the transactions contemplated hereby or thereby, or the
issuance, purchase or delivery of the CN Shares (other than such notifications
or filings required under applicable provincial securities laws, if any, which
shall be made on a timely basis and other than provided for in any Transaction
Document).
(m) WFI-CN was duly incorporated and organized under the laws of its
jurisdiction of incorporation.
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(n) In respect of the CN WFI-CN Shares (a) no Person, other than the
Corporation or Worldwide Fiber Networks Ltd., has any written or oral agreement
or option or any right or privilege (whether by law, pre-emptive or contractual)
capable of becoming an agreement or option for the purchase or acquisition from
CN of any of the CN WFI-CN Shares, (b) no Person other than the Corporation or
Worldwide Fiber Networks Ltd. has any agreement or option or any right or
privilege (whether by law, pre-emptive or contractual) capable of becoming an
agreement, including convertible securities, warrants or convertible obligations
of any nature, for the purchase, subscription, allotment or issuance of any
unissued shares or other securities of WFI-CN, (c) CN is the registered and
beneficial owner of the CN WFI-CN Shares, with good and marketable title
thereto, free and clear of any mortgage, lien, security interest, pledge,
escrow, charge, or other encumbrance of any kind or character whatsoever (an
ENCUMBRANCE") and, without limiting the generality of the foregoing, none of the
CN WFI-CN Shares are subject to any voting trust, shareholder agreement or
voting agreement other than the Unanimous Shareholder Agreement dated May 28,
1999 between the Worldwide Fiber Networks Ltd., CN and WFI-CN (the "WFI-CN
SHAREHOLDER AGREEMENT") and (d) upon completion of the transaction contemplated
by this agreement, all of the CN WFI-CN Shares will be owned by the Corporation
as the registered and beneficial owner, with a good and marketable title thereto
free and clear of any Encumbrance except for such Encumbrances as may have been
granted by the Corporation.
(o) CN acknowledges and agrees that the foregoing representations,
warranties and covenants set out herein are made by CN with the intent that they
be relied upon in determining its suitability as a purchaser of Class A
Non-Voting Shares. CN further agrees that by accepting the Class A Non-Voting
Shares, CN shall be representing and warranting that the foregoing
representations and warranties are true as at the Closing Date with the same
force and effect as if they had been made by CN at the Closing Date and shall
continue in full force and effect notwithstanding any subsequent disposition by
it of the Class A Non-Voting Shares. CN undertakes to notify the Corporation in
writing of any change in any representation, warranty or other information
relating to CN set forth herein which takes place prior to the Closing Date.
SECTION 4 - OTHER COVENANTS.
4.1 COOPERATION BY PARTIES; SATISFACTION OF CLOSING CONDITIONS.
From the date hereof and prior to the Closing, each party shall use its
commercially reasonable efforts, and will cooperate with each other, to secure
as promptly as practicable all necessary consents, approvals, authorizations,
exemptions and waivers from third parties as shall be required to enable the
parties hereto to effect the transactions contemplated hereby, and the
Corporation shall use its commercially reasonable efforts to cause (but not
waive) any closing condition in Section 5.3 to be satisfied.
4.2 SHAREHOLDERS AGREEMENT AND REGISTRATION RIGHTS AGREEMENT
On the Closing Date the Corporation and CN shall execute and deliver
(a) an agreement (the "JOINDER AGREEMENT") in the form attached as SCHEDULE
4.2(A) to become a party to, and be bound by, and to be entitled to the
benefits, rights and features, subject to the
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obligations, of the Shareholders Agreement (the "SHAREHOLDERS AGREEMENT"), dated
as of September 9, 1999, by and among Worldwide Fiber Inc., DWF SRL, GS Capital
Partners III, L.P., GSCP3 WWF (Barbados) SRL, a, WWF (Barbados) SRL, Providence
Equity Fiber, L.P., Tyco Group S.a.r.l., Worldwide Fiber Holdings Ltd., Ledcor
Inc., and each other Person who has become a party thereto and (b) the
Registration Rights Agreement (the "REGISTRATION RIGHTS AGREEMENT"), in the form
attached as SCHEDULE 4.2(B).
4.3 AMENDMENTS TO SIDE LETTERS
From and after the Closing Date:
(a) the letter agreement dated May 28, 1999 addressed from Illinois
Central Railroad Company to the Corporation shall be amended by deleting all of
the provisions thereof and substituting the terms specified in Schedule 4.3(a),
and CN shall cause Illinois Central Railroad Company to execute such further
documents and assurances as WFI may reasonably request from time to time to give
effect to the intent of this provision; and
(b) the letter agreement dated May 28, 1999 addressed from CN to the
Corporation shall be amended by deleting all of the provisions thereof and
substituting the terms specified in Schedule 4.3(b).
4.4 RESTRICTIONS ON CONVERSION INTO VOTING SHARES
(a) CN agrees that it may convert any Class A Non-Voting Shares into
Class B Subordinate Voting Shares only concurrently with or after (a) any
underwritten public offering of shares with voting rights providing gross
aggregate proceeds to the Corporation or any selling shareholders of at least
$150,000,000 before deducting underwriting discounts and commissions and
offering expenses or (b) the Corporation has issued, paid any dividend of, or
made any distribution of, any shares with voting rights other than the Class B
Subordinate Voting Shares issued and outstanding as of the date hereof. The
Corporation will provide to CN timely information regarding the transactions
referred to in clause (a) or (b) of the preceding sentence in order to permit CN
time to convert Shares in accordance with this subsection 4.4(a) and the terms
of such Shares. Notwithstanding the foregoing, following the elimination of the
restrictions on the ownership of voting shares and on the control in fact of the
Corporation by non-Canadians under the TELECOMMUNICATIONS ACT (Canada) and the
rules and regulations promulgated thereunder, there shall either be (i) no
restrictions on the conversion by CN of any Class A Non-Voting Shares into Class
B Subordinate Voting Shares; or (ii) the Class A Non-Voting Shares will
automatically obtain the voting rights presently attached to the Class B
Subordinate Voting Shares.
(b) To the extent required by the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended, and the rules and regulations promulgated
thereunder (the "HSR ACT"), if CN elects to convert its non-voting Shares into
voting Shares, CN and (upon written request by CN) the Corporation agree to (a)
file or cause to be filed, as promptly as practicable after such request, with
the United States Federal Trade Commission and the Antitrust Division of the
United States Department of Justice, all reports and documents required to be
filed by CN and the Corporation
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under the HSR Act concerning the conversion transaction and (b)
promptly comply with or cause to be complied with any requests by the United
States Federal Trade Commission or the Antitrust Division of the United States
Department of Justice for additional information concerning such transactions,
in order to obtain antitrust regulatory clearance as soon as possible. The
Corporation agrees to request, and to cooperate with CN in requesting, early
termination of any applicable waiting period under the HSR Act.
4.5 ACCESS TO RECORDS
From and after that day which is six months after the Closing and until
the occurrence of the earliest of any of the following events:
(a) CN no longer holds any CN Shares; or
(b) the closing of an IPO,
the Corporation shall, and shall cause each of its subsidiaries to, afford CN
and their respective employees, counsel and other authorized representatives
access, during normal business hours, upon reasonable advance notice, with due
regard to its ongoing operations, to all of its books, records and properties,
and to all of its officers and employers for any reasonable purpose related to
monitoring CN's investment in the CN Shares.
4.6 FINANCIAL STATEMENTS
Until the occurrence of an IPO, the Corporation shall furnish to CN the
financial statements and documents that the Corporation is required to furnish
to Investors under Section 12.6 of the Shareholders Agreement.
4.7 CONSENT TO AMENDMENT TO ARTICLES OF THE CORPORATION
CN shall execute such consent shareholders resolutions and incidental
documents as the Corporation may request to amend the Articles of the
Corporation, to alter the share capital of the Corporation, and to alter the
rights, privileges, restrictions and conditions attached to each class of shares
in the share capital of the Corporation, as described in the Registration
Statement of the Corporation filed on Form F-1 and dated January 28, 2000, or as
may otherwise be requested by the Company provided any alterations so requested
have substantially the same effect as those so described in such Registration
Statement.
SECTION 5 - CONDITIONS TO THE EXCHANGE.
5.1 CONDITIONS TO OBLIGATIONS OF EACH PARTY
The respective obligations of each party hereto to consummate the
transactions contemplated hereby shall be subject to the satisfaction at or
prior to the Closing Date of the following conditions, any or all of which may
be waived in writing, in whole or in part, by the Corporation or CN, to the
extent permitted by applicable law:
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(a) No Governmental Authority shall have enacted, issued, promulgated
or enforced any statute, rule, regulation, executive order, decree, judgment,
preliminary or permanent injunction or other order which is in effect and which
prohibits, enjoins or otherwise restrains the consummation of the transactions
contemplated hereby; provided, that the parties shall use commercially
reasonable efforts to cause any such decree, judgment, injunction or order to be
vacated or lifted.
(b) Each consent or approval from, or filing with any Person, required
to be obtained or made and any waiting period required to have expired in order
to consummate the transactions contemplated by this agreement at the Closing
shall have been obtained, or made, as the case may be, and any such waiting
period shall have expired.
(c) The sale of 25 units of Worldwide Fiber IC LLC from IC Fiber
Holding Inc. ("ICFHI") to Worldwide Fiber IC Holdings, Inc. ("WFICHI") pursuant
to that certain Purchase Agreement dated March 6, 2000 and made between ICFHI,
WFICHI and Illinois Central Railroad Company shall have been completed.
5.2 CONDITIONS TO OBLIGATIONS OF CN.
The obligations of CN to consummate the Exchange shall be subject to
the satisfaction or waiver, on or prior to the Closing Date, of the following
conditions:
(a) Each representation and warranty made by the Corporation herein
shall be true and correct, in all material respects on and as of the Closing
Date, with the same force and effect as though such representation and warranty
had been made on and as of the Closing Date, except for changes permitted or
contemplated by this agreement and except for each representation and warranty
that is made as of a specific date or time, which shall be true and correct in
all material respects, only as of such specific date or time.
(b) The Corporation shall have complied in all material respects with
all its agreements and covenants contained herein required to be performed at or
prior to the Closing to the extent such agreements and covenants relate to the
Closing.
(c) The Corporation shall have delivered to CN a certificate executed
by a senior executive officer of the Corporation, which shall be satisfactory in
form and substance to CN, certifying that the conditions set forth in paragraphs
(a) and (b) have been met.
(d) The Corporation shall have delivered to CN a certificate of the
corporate secretary of the Corporation, in form and substance satisfactory to
CN, certifying (i) a copy of the Articles of the Corporation and all amendments
thereto, (iii) a Certificate of Status for the Corporation issued by the
Director under the Canada Business Corporations Act, (iv) resolutions of the
board of directors of the Corporation authorizing the execution, delivery and
performance by the Corporation of this agreement, any other agreement entered
into or instrument delivered by the Corporation in connection herewith, and the
transactions contemplated thereby, (v) copies of each governmental or third
party consent, approval or filing required to be obtained or made in
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order to consummate the transactions contemplated by this agreement at the
Closing, and (vi) incumbency matters.
(e) The Joinder Agreement shall be executed and delivered by the
Corporation and each other party thereto.
(f) The Registration Rights Agreement shall have been executed and
delivered by the Corporation.
5.3 CONDITIONS TO THE OBLIGATIONS OF THE CORPORATION
The obligations of the Corporation to consummate the Purchase shall be
subject to the satisfaction or waiver, on or before the Closing Date, of the
following conditions:
(a) Each representation and warranty made by CN herein shall be true
and correct in all material respects, with the same force and effect as though
such representation and warranty had been made on and as of the Closing Date,
except for changes permitted or contemplated by this agreement and except for
each representation and warranty that is made as of a specific date or time,
which shall be true and correct, in all material respects, only as of such
specific date or time.
(b) CN shall have complied in all material respects with all of its
agreements and covenants contained herein required to be performed at or prior
to the Closing to the extent such agreements and covenants relate to the
Closing.
(c) CN shall have delivered to the Corporation a certificate executed
by a senior executive officer of CN, which shall be satisfactory in form and
substance to the Corporation, certifying that the conditions set forth in
paragraphs (a) and (b) have been met.
(d) CN shall have delivered to the Corporation a certificate of its
corporate secretary, in form and substance satisfactory to the Corporation,
certifying (i) a copy of the constating documents of CN and all amendments
thereto, (ii) the By-Laws of CN, (iii) a Certificate of Status for CN issued by
an appropriate governmental official, (iv) resolutions of the board of directors
of CN authorizing the execution, delivery and performance by CN, respectively,
of this agreement, any other agreement entered into or instrument delivered by
CN in connection herewith, and the transactions contemplated thereby, (v) copies
of each governmental or third party consent, approval or filing required to be
obtained or made in order to consummate the transactions contemplated by this
agreement at the Closing, and (vi) incumbency matters.
(e) The Joinder Agreement shall have been executed and delivered by CN
and each other party thereto.
(f) The Registration Rights Agreement shall have been executed and
delivered by CN.
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SECTION 6 - DELETED
SECTION 7 - SURVIVAL OF REPRESENTATIONS, WARRANTIES, AGREEMENTS AND
COVENANTS, ETC.
All representations and warranties in the this agreement shall survive
the Closing indefinitely and shall in no way be affected by any investigation of
the subject matter thereof made by or on behalf of the Corporation or CN. All
statements contained in any certificate or other instrument delivered by the
Corporation pursuant to this agreement shall constitute representations and
warranties by the Corporation under this agreement. All statements contained in
any certificate or other instrument delivered by CN pursuant to this agreement
shall constitute representations and warranties by CN under this agreement.
SECTION 8 - EXPENSES
Each of the Corporation and CN shall pay all the costs and expenses
incurred by it or on its behalf in connection with this agreement and the
consummation of the transactions contemplated hereby.
SECTION 9 - CALL OPTION 9.1 CALL OPTION
On the terms and subject to the conditions set forth herein, CN hereby
grants to the Corporation an irrevocable option (the "CALL OPTION") exercisable
at any time after December 31, 2002 and before the earlier of: (i) the closing
of the IPO, (ii) April 1, 2003, and, upon exercise of the Call Option in
accordance herewith, CN irrevocably agrees to sell to Corporation all, but not
less than all, of the CN Shares for the aggregate purchase price for all of the
CN Shares of US$ 80 million (the "CALL PRICE"). If the Corporation desires to
exercise the Call Option, the Corporation shall give CN written notice of
exercise of the Call Option. A notice of exercise of the Call Option may be
given during, but not after the end of, the period in which the Call Option is
exercisable and shall, subject to the terms and conditions set out herein,
irrevocably commit the Corporation to the purchase of the CN Shares from CN.
9.2 CLOSING OF CALL OPTION
(a) The closing of any purchase and sale of CN Shares to be effected as
a result of the exercise of the Call Option shall take place at the offices of
the Corporation at a date and time that is mutually acceptable to the
Corporation and CN, or, if no date and time for closing are so agreed upon, the
time for closing shall be 11 a.m. (Vancouver, BC time) (the "TIME OF CLOSING")
on the 15th Business Day following the exercise of the Call Option.
(b) At the Time of Closing of any purchase and sale of the CN Shares
pursuant to or as a result of the exercise of the Call Option, the Corporation
shall deliver to CN, subject to subsection 9.3(d), the Call Price.
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(c) At the Time of Closing: (a) CN shall deliver or cause to be
delivered to the Corporation (i) the certificates representing the CN Shares,
duly endorsed by CN for transfer or accompanied by appropriate transfers duly
executed by CN, (ii) a representation and warranty executed by CN in favour of
the Corporation that the CN Shares being sold by CN are owned of record and
beneficially by CN with a good and marketable title thereto, free and clear of
any mortgage, lien, charge, pledge, hypothecation, security interest,
encumbrance, restriction, covenant, right, demand or adverse claim of any kind,
and (iii) a release of the Corporation from all provisions of this agreement,
the Shareholders Agreement and the Registration Rights Agreement; and (b) the
Corporation shall, subject to subsection 9.3(d), deliver to CN a certified
cheque or bank draft payable to or to order of CN in payment of the Call Price.
(d) If CN is not present at the place of closing at the Time of
Closing, or is present but fails for any reason whatsoever to comply with
subsection 9.3(c)(a) or any other relevant requirements hereof, in addition to
and without limitation to any other rights it may have at law, the Corporation
may make payment of the amount payable pursuant to subsection 9.3(c)(b) to CN by
depositing such amount into a special interest-bearing account at a branch of
the Corporation's bankers in the name of CN. Such deposit shall constitute valid
and effective payment of such amount to CN, even though CN has voluntarily
encumbered or disposed of any the CN Shares and notwithstanding the fact that a
certificate or certificates representing any such CN Shares may have been
delivered to any pledgee, transferee or other person.
(e) If the required amount is deposited pursuant to subsection 9.3(d)
into a special account at a branch of the Corporation's bankers in the name of
CN, then from and after the date of such deposit and even though the CN Shares
to be sold by CN have not been delivered to the Corporation, the purchase and
sale of the CN Shares to be sold by CN shall be deemed to have been fully
completed and all right, title, benefit and interest, both at law and in equity,
in and to the CN Shares to be sold by CN shall conclusively be deemed to have
been transferred and assigned to and become vested in the Corporation and all
right, title, benefit and interest, both at law and in equity, of CN or of any
transferee, assignee or other person having any interest, legal or equitable,
therein or thereto, whether as shareholder or creditor of any company or
otherwise, shall cease and determine; provided, however, that CN shall be
entitled to receive the amount so deposited with interest thereon upon the
delivery of all documents, releases or indemnities to be delivered by CN as
contemplated by subsection 9.3(c)(a).
(f) CN irrevocably constitutes and appoints the Corporation as its true
and lawful attorney in fact as agent for, in the name and on behalf of CN, to
execute and deliver in the name of CN, if CN is not present at the place of
closing at the Time of Closing or is present but fails for any reason whatsoever
to comply with subsection 9.3(c)(a) or any other relevant requirement hereof,
all such assignments, transfers, deeds and instruments as may be necessary
effectively to transfer and assign to the Corporation or its nominee or nominees
on the books of the Corporation the CN Shares to be sold by CN pursuant to the
Call Option. Such appointment and power of attorney, being coupled with an
interest, shall not be revoked by the insolvency, bankruptcy or incapacity of
CN, and CN hereby ratifies and confirms and agrees to ratify and confirm all
that the Corporation may lawfully do or cause to be done by virtue of the
provisions of this subsection 9.2.
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(g) CN shall be entitled to receive the amount deposited with the
bankers of the Corporation pursuant to subsection 9.2(d) on delivery to the
Corporation of the documents required to be delivered by CN pursuant to
subsection 9.2(c)(a) and compliance with any other relevant requirements of this
agreement.
(h) In addition to and without limiting any remedy that may be
available at law or in equity to CN, in the event that the Corporation is
obligated to purchase CN Shares as a result of the exercise of the Call Option
and defaults in the performance of its obligation to complete such purchase, CN
may, at its option, by notice in writing to the Corporation, terminate all its
obligations relating to such purchase and, upon the giving of such notice in
accordance with the provisions of this subsection 9.3(h), such obligations shall
be terminated without prejudice to the continued effectiveness of this
agreement.
SECTION 10 - CONFIDENTIALITY
(a) The parties hereto hereby covenant and agree with each other that,
subject to subsection 10(c), they will not disclose, or allow their respective
directors, officers, employees agents, representatives or consultants, if any,
to disclose, to any Person, any of the terms, conditions or other facts of or
concerning this agreement or the existence of this agreement without the prior
written consent of the other parties hereto. The parties hereto hereby further
covenant and agree with each other that they will at all times keep, and all
reasonable and normal steps to cause their respective directors, officers,
employees, agents, representatives and consultants, if any, to at all times
keep, all information of every nature and kind whatsoever regarding the
Corporation and CN including, without limitation, information on and/or copies
of material agreements, corporate, proceedings and other data, whether
transferred in writing, orally, visually, electronically or by any other means,
and all analyses, studies, compilations, data, supplies or other documents
prepared by any party or the Corporation or CN containing, or based in whole or
in part on, any such information or reflecting any such information, strictly
confidential, and shall at no time convey or disclose, or knowingly allow their
respective directors, officers, employees, agents, representatives or
consultants, if any, to convey or disclose, in any manner whatsoever, to any
person, firm or corporation any of the aforesaid information. The parties hereto
hereby further covenant and agree with each other not to use, and to take all
normal and reasonable steps to ensure that their respective directors, officers,
employees, agents, representatives or consultants, if any, do not use, any of
the aforesaid information except for the purposes of exercising their respective
rights and performing their respective obligations under this agreement.
(b) Each party hereto hereby covenants and agrees with each other party
hereto to indemnify and hold harmless each other party hereto from any losses,
damages, charges, fees or expenses (including reasonable solicitors' fees)
arising out of or resulting from any breach of subsection 10(a). The parties
hereto hereby further covenant and agree with each other not to do any act, or
knowingly allow their respective directors, officers, employees, agents,
representatives or consultants, if any, to do any act, to infringe upon any
copyright, patent, industrial design or other proprietary rights of the
Corporation.
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(c) The parties hereto hereby further covenant and agree with each
other that, in the event they, or their respective directors, officers,
employees, agents, representatives or consultants, if any, become legally
compelled to disclose any of the aforesaid information, or are advised by their
respective legal counsel that such disclosure is required to comply with
applicable law, to immediately provide the other parties with written notice so
that the other parties may seek a protective order or other appropriate remedy,
and to cooperate, and to cause their respective directors, officers, employees,
agents, representatives and consultants, if any, to cooperate, with the other
parties in any effort undertaken to obtain a protective order or other remedy.
Each party hereto hereby further covenants and agrees with each other party to,
in the event that such protective order or remedy is not obtained, furnish, and
to cause his directors, officers, employees, agents, representatives and
consultants, if any, to furnish, only that portion of the aforesaid information
which he is legally required to furnish, and to use his best efforts, and to
cause his directors, officers, employees, agents, representatives, and
consultants, if any, to use their best efforts, to obtain an assurance from the
recipient of any of the aforesaid information that confidential treatment will
be accorded to such information, to the extent that such assurance is available.
Notwithstanding the foregoing, each of the parties acknowledges that the parties
may be required to disclose the terms of this agreement, and provide a copy of
this agreement, in filings made by such party under applicable securities law,
and may have to disclose the aforesaid information in an open court in legal
proceedings between the parties, or between a party and others, and each of the
parties hereby consents to such disclosure and to the filing of a copy of this
agreement for public viewing under filings required to be made by a party under
applicable securities law.
(d) Each party hereto hereby acknowledges to and covenants and
agrees with each other party hereto that a breach by him of any of his covenants
contained in this Section 10 may result in damages to each of the other parties
and that a monetary award would not adequately compensate for such damages, and,
accordingly, that in the event of any such breach, in addition to all other
remedies available in law or in equity, the other parties, or any of them, shall
be entitled as a matter of right to apply to a court of competent equitable
jurisdiction for such relief by way of restraining order, injunction, decree or
otherwise as may be appropriate to ensure compliance by him with Section 10.
(e) Each of the parties hereto hereby acknowledges to and covenants and
agrees with each of the other parties hereto that, notwithstanding any provision
of this agreement, its covenants contained in Section 10 survive any termination
of this agreement, whether or not it continues to hold shares in the capital of
the Corporation.
SECTION 11 - UNDERWRITTEN OFFERING - LOCK -UP OF SHARES
CN agrees, if requested in writing by the managing underwriter(s) of an
IPO, not to effect any sale (or in any other way, directly or indirectly, effect
any transfer, assignment, distribution, pledge, encumbrance or other disposition
of, either voluntarily or involuntarily, including the assignment or transfer of
voting rights, if any) (collectively, with "sale", a "SALE") of any Shares or of
any equity securities (or securities convertible into or exchangeable for equity
securities) of the Corporation, including, without limitation, any Sale pursuant
to Canadian Securities Laws or Rule 144 under the U.S. Securities Act, (other
than as part of such
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underwritten public offering) during the time period requested by the managing
underwriter(s) not to exceed the lesser of: (a) one year from the effective date
of the IPO, and (b) the period of time for which Worldwide Fiber Holdings Ltd.
agrees with the managing underwriters not to effect any such Sale of Shares or
of any equity securities (or securities convertible into or exchangeable for
equity securities) of the Corporation (for clarity, excluding any sale under the
IPO). The Corporation hereby represents and warrants to CN that all shareholders
of the Corporation with shareholdings the size of CN's shareholdings or larger
(other than (i) Worldwide Fiber Holdings Ltd., Ledcor Limited Partnership, Larry
Olsen and Stephen Stow, to the extent of certain private sales agreed to before
the closing of the IPO, (ii) Ledcor Limited Partnership, the "selling
shareholder" identified in the registration statement filed with the U.S.
Securities and Exchange Commission on Form F-1 dated January 28, 2000, and (iii)
Ledcor Limited Partnership to the extent of transfers of shares pursuant to its
Designated Share Program) are also locked up for a period of not less than one
year from the effective date of the IPO. The Corporation shall exercise its
reasonable best efforts such that no waivers of such lockups be given by such
underwriter(s) or the Corporation prior to the end of such one-year period,
unless CN is granted a waiver for not less than a prorata portion of the number
of shares in respect of which the waiver is being granted. For the purpose of
this section "prorata" means that:
(a) if a single such shareholder has its lockup waived so that it is
permitted to sell a percentage of its shares (the "Specified Percentage"), then
CN shall be entitled to a similar waiver of the Specified Percentage of CN's
holdings; and
(b) if there are more than one such shareholder, then CN shall be
entitled to a similar waiver for the highest such Specified Percentage for all
such shareholders
(calculated in each case to include the holdings of such shareholder
and of its affiliates). For purposes hereof, "affiliate" means any natural
person, partnership, corporation or other legal entity ("Person") that directly
or indirectly controls, or is under common control with, or is controlled by
another Person, where "control" means the possession, directly or indirectly, of
more than fifty percent (50%) of the combined voting power of all outstanding
securities, or the direction of management or policies (whether through
ownership of securities or partnership or other ownership interests, by contract
or otherwise).
SECTION 12 - REMEDIES.
In case any one or more of the covenants and/or agreements set forth in
this agreement shall have been breached by any party hereto, each other party
may proceed to protect and enforce its rights either by suit in equity and/or by
action at law, including, but not limited to, an action for damages as a result
of any such breach and/or an action for specific performance of any such
covenant or agreement contained in this agreement, and to exercise all other
rights existing in their favor. The parties hereto agree and acknowledge that
money damages may not be an adequate remedy for any breach of the provisions of
this agreement and that each party may in its sole discretion apply to any court
of law or equity of competent jurisdiction for specific
-21-
<PAGE>
performance and/or injunctive relief (without posting a bond or other security)
in order to enforce or prevent any violation of the provisions of this
agreement.
SECTION 13 - FURTHER ASSURANCES.
At any time or from time to time after the Closing, the Corporation, on
the one hand, and CN, on the other hand, agree to cooperate with each other, and
at the request of the other party, to execute and deliver any further
instruments or documents and to take all such further action as the other party
may reasonably request in order to evidence or effectuate the consummation of
the transactions contemplated hereby and to otherwise carry out the intent of
the parties hereunder.
SECTION 14 - SUCCESSORS AND ASSIGNS
This agreement shall bind and inure to the benefit of the Corporation
and CN and the respective successors, Permitted Assigns, heirs and personal
representatives of the Corporation and CN. The parties acknowledge that, subject
to compliance with applicable securities laws, CN may transfer and assign all or
a part of its rights and obligations under this agreement to one or more other
partnerships, corporations, trusts or other organizations which have been
created by, or are controlled by, control, or are under common control with, CN,
without the consent of the Corporation (collectively, "PERMITTED ASSIGNS"). This
agreement shall not be assignable by the Corporation, without the consent of CN,
or by CN except to Permitted Assigns without the consent of the Corporation.
SECTION 15 - ENTIRE AGREEMENT.
This agreement and the other writings referred to herein or delivered
pursuant hereto which form a part hereof contain the entire agreement among the
parties with respect to the subject matter hereof and supersede all prior and
contemporaneous arrangements or understandings with respect thereto.
SECTION 16 - NOTICES.
All notices, requests, consents and other communications hereunder to
any party shall be deemed to be sufficient if contained in a written instrument
delivered in person or sent by fax, nationally recognized overnight courier or
first class registered or certified mail, return receipt requested, postage
prepaid, addressed to such party at the address set forth below or such other
address as may hereafter be designated in writing by such party to the other
parties:
(i) if to the Corporation, to:
Worldwide Fiber Inc.
#1510-1066 West Hastings Street
Vancouver, British Columbia V6E 3X1
Fax: (604) 681-6822
Attention: Stephen Stow
-22-
<PAGE>
with a copy to:
Farris, Vaughan, Wills & Murphy
2600-700 West Georgia Street
Vancouver, British Columbia V7Y 1B3
Fax: (604) 661-9349
Attention: Cameron G. Belsher
(ii) if to CN, to:
Canadian National Railway Company
935, de la Gauchetiere Street West
Montreal, Quebec H3B 2M9
Attention: Chief Legal Officer and Corporate Secretary (1 copy)
Fax (514) 399-7627
Senior Vice-President and Chief Financial Officer
(1 copy)
Fax (514) 399-7786
All such notices, requests, consents and other communications shall be deemed to
have been given when received.
SECTION 17 - AMENDMENTS.
The terms and provisions of this agreement may be modified or amended,
or any of the provisions hereof waived, temporarily or permanently, pursuant to
the written consent of the Corporation and CN.
SECTION 18 - COUNTERPARTS.
This Agreement may be executed in any number of counterparts, and each
such counterpart hereof shall be deemed to be an original instrument, but all
such counterparts together shall constitute but one agreement.
SECTION 19 - HEADINGS.
The headings of the sections of this agreement have been inserted for
convenience of reference only and shall not be deemed to be a part of this
agreement.
SECTION 20 - NOUNS AND PRONOUNS.
Whenever the context may require, any pronouns used herein shall
include the corresponding masculine, feminine or neuter forms, and the singular
form of names and pronouns shall include the plural and vice versa.
-23-
<PAGE>
SECTION 21 - GOVERNING LAW.
This Agreement shall be governed by and construed in accordance with
the laws of the Province of British Columbia without giving effect to the
principles of conflicts of law. Each of the parties hereto hereby irrevocably
and unconditionally consents to submit to the non-exclusive jurisdiction of the
courts of the Province of British Columbia located in the City of Vancouver, for
any action, proceeding or investigation in any court or before any governmental
authority ("LITIGATION") arising out of or relating to this agreement and the
transactions contemplated hereby, and further agrees that service of any
process, summons, notice or document by registered mail to its respective
address set forth in this agreement shall be effective service of process for
any Litigation brought against it in any such court. Each of the parties hereto
hereby irrevocably and unconditionally waives any objection to the laying of
venue of any Litigation arising out of this agreement or the transactions
contemplated hereby in the courts of the Province of British Columbia located in
the City of Vancouver, and hereby further irrevocably and unconditionally waives
and agrees not to plead or claim in any such court that any such Litigation
brought in any such court has been brought in an inconvenient forum.
SECTION 22 - CURRENCY.
Unless otherwise indicated, references to "dollars", "$" or "US$" are
to U.S. dollars and references to "C$" are to Canadian dollars.
SECTION 23 - NO PARTNERSHIP.
The obligations of each of the parties to this agreement are several
and not joint. Nothing in this agreement shall imply or be deemed to imply a
partnership, joint venture or other relationship between the parties.
[THE REST OF THIS PAGE IS INTENTIONALLY LEFT BLANK.]
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have duly executed this
agreement as of the date first above written.
WORLDWIDE FIBER INC.
By: /s/ David Lede
--------------------------------
Name: David Lede
------------------------------
Title: Chairman
-----------------------------
CANADIAN NATIONAL RAILWAY COMPANY
By: /s/ Claude Mongeau
--------------------------------
Name: Claude Mongeau
------------------------------
Title: Senior Vice President and
Chief Financial Officer
-----------------------------
<PAGE>
SCHEDULE B
COPY OF ARTICLES OF THE CORPORATION
<PAGE>
SCHEDULE 1.4
ESTIMATED NUMBER OF SHARES TO BE ISSUED IN RESPECT OF
THE MICHELS ROLL-UP TRANSACTION
<TABLE>
<S> <C>
For the purposes of this Agreement, assumed to be issued 6,000,000
pursuant to the Shareholders Agreement dated December 31,
1998 between the Corporation, Worldwide Fiber Networks
Ltd., Ledcor Industries Inc., Worldwide Fiber (USA) Inc.,
Mi-Tech Communications, LLC, Ledcor and Michels Pipeline
Construction (or any transactions or series of related
transactions with similar effect) (the "MICHELS ROLL-UP
TRANSACTION")
For the purposes of this Agreement, assumed to be issued
in respect of the Michels Roll-up Transaction pursuant to 1,605,131
the agreement dated September 7, 1999 by and among the
Corporation, DWF SRL, GSCP3 WWF (Barbados) SRL, Providence
Equity Fiber L.P. and Tyco Group S.A.R.L. (the "PREFERRED
SHARE PURCHASE AGREEMENT") ---------
TOTAL 7,605,131
---------
---------
</TABLE>
<PAGE>
SCHEDULE 2(d)
OUTSTANDING COMMON SHARES, PREFERRED SHARES AND COMMON SHARE EQUIVALENTS
<TABLE>
<S> <C>
Issued and Outstanding Common Shares and Preferred Shares 298,882,464
as at December 16, 1999
Common Share Equivalents issued and outstanding as at 21,536,640
December 16, 1999 in respect of employee, executive and
incentive plans
Common Shares issued pursuant to Stock Purchase Agreement 31,000,000
entered into with Gregory Maffei (CEO) (the "MAFFEI
PURCHASE")
Preferred Shares issued in respect of the Maffei Purchase 4,541,192
pursuant to the Preferred Share Purchase Agreement
---------------------------------------------------------
TOTAL 355,960,296
=========================================================
</TABLE>
<PAGE>
SCHEDULE 3
U.S. REPRESENTATIONS & WARRANTIES
If CN falls under one of the categories listed in Section 3(b)
of the Agreement, by executing the Agreement, CN, on its own behalf and, if
applicable on behalf of others for whom it is contracting, represents, warrants
and acknowledges to the Corporation the following:
(a) CN is acquiring the Class A Non-Voting Shares for its own account,
for investment purposes only and not with a view to any resale, distribution or
other disposition of the Class A Non-Voting Shares in violation of the United
States securities laws.
(b) If CN decides to offer, sell or otherwise transfer any of the Class
A Non-Voting Shares, it will not offer, sell or otherwise transfer any of such
Class A Non-Voting Shares directly or indirectly, unless such sale is made in
compliance with, or in reliance of an exemption from, the 1933 Act and
applicable state securities laws.
(c) CN understands and agrees that there may be material tax
consequences to CN of an acquisition or disposition of the Class A Non-Voting
Shares and that, except as expressly set forth in this Agreement, the
Corporation gives no opinion and makes no representation with respect to the tax
consequences to CN under United States, state, local or foreign tax law of CN's
acquisition or disposition of such securities.
<PAGE>
SCHEDULE 4.2(a)
JOINDER TO SHAREHOLDERS AGREEMENT
THIS AGREEMENT (the "Agreement") dated as of March 6, 2000 by
and among Worldwide Fiber Inc., a corporation continued under the laws of Canada
(the "Corporation"), Canadian National Railway Company, a Canadian corporation
(the "New Investor"), DWF SRL, a Barbados company ("DLJ"), GS Capital Partners
III L.P, a Delaware limited partnership, GSCP3 WWF (Barbados) SRL, a Barbados
company, WWF (Barbados) SRL (collectively "GSCP"), Providence Equity Fiber, LP,
a Delaware limited partnership, ("Providence") and Tyco Group S.a.r.l., a
Luxembourg corporation ("Tyco"), (collectively with DLJ, GSCP and Providence,
the "Investors"), Gregory B. Maffei ("Maffei'), Worldwide Fiber Holdings Ltd.,
an Alberta Corporation, ("WFH"), Ledcor Inc., an Alberta corporation ("Ledcor"),
Clifford Lede, Larry Olsen, Ron Stevenson, Jim Voelker, Madison Square Inc.,
David Lede, William Ramsey, Stephen Stow, Ledcor Industries Limited as General
Partner for Ledcor Limited Partnership and Ledcor Industries Limited.
WHEREAS, by an Agreement dated as of September 9, 1999, as
amended (the "Shareholders Agreement"), the parties thereto (being all of the
parties hereto other than CN) entered into an agreement with respect to certain
rights and obligations associated with ownership of Shares (as defined in the
Shareholders Agreement).
WHEREAS, the Corporation and the New Investor have entered
into a Share Exchange Agreement made as of the 6th day of March, 2000 (the
"Share Exchange Agreement") pursuant to which the New Investor is to be issued
Class A Non-Voting Shares of the Corporation and is to be entitled to certain
benefits, rights and features contained in the Shareholders Agreement.
WHEREAS, WFH and the New Investor have entered into a Put
Option Agreement made as of March 6, 2000 (the "Put Option Agreement") pursuant
to which the New Investor is entitled to put to WFH the shares of the
Corporation that the New Investor has received under the Share Exchange
Agreement, at the price and on the terms specified in the Put Option Agreement.
WHEREAS, the Shareholders Agreement provides that any person
who acquires more than one percent of the issued shares of the Corporation is to
execute and agree to be bound by the terms of the Shareholders Agreement.
WHEREAS, the Investors and the Corporation, for receipt of
good and valuable consideration, have agreed to provide such rights, benefits
and features:
NOW, THEREFORE, in consideration of the premises and mutual
covenants and obligations hereinafter set forth, the parties hereto hereby agree
as follows:
-6-
<PAGE>
1. Terms having a meaning defined in the Shareholders Agreement and not
otherwise defined in this Agreement shall have the same meaning as
provided in the Shareholders Agreement, unless the context otherwise
requires.
2. The New Investor agrees to join in and be bound by the Shareholders
Agreement and each of the Investors in the Corporation hereby agrees
that, for all purposes of the Shareholders Agreement, the New Investor
shall constitute, and shall be entitled to all the benefits, rights and
features associated with being, a "Shareholder" and is deemed a
Shareholder for all purposes of the Shareholders Agreement.
3. It is acknowledged that no provision of the Shareholders Agreement
shall in any manner whatsoever affect CN's rights under the
Registration Rights Agreement (as defined in the Share Exchange
Agreement) or Section 1 of the Put Option Agreement and, in particular,
and without limiting the generality of the foregoing:
(a) Sections 3, 4 and 5 of the Shareholders Agreement shall not apply
to the Call Option in Section 9.1 of the Share Exchange Agreement,
the Put Option in Section 1.1 of the Put Option Agreement, or any
transfer of Shares made pursuant to either of them.
(b) For the purposes of Section 9 of the Shareholders Agreement
including, without limitation, Section 9(b)(v), each of the
parties hereby confirms that they consent to the transactions
described in the Share Exchange Agreement, except for the exercise
by the Corporation of the Call Option in Section 9.1 of the Share
Exchange Agreement, and the Investors agree that they shall not
(except in connection with the exercise by the Corporation of the
Call Option in Section 9.1 of the Share Exchange Agreement) give
notice to the Corporation of their election to disapprove or veto
any Major Transaction resulting therefrom.
4. Section 8.6 of the Shareholders Agreement shall apply to the New
Investor and to the Affiliates of the New Investor, as if the New
Investor were an Investor and the Affiliates of the New Investor were
Investor Affiliates for all of the purposes of that Section.
5. The parties agree that the Shareholders Agreement is in full force and
effect, and has neither been amended nor modified save and except for
the matters contemplated by this Agreement.
-7-
<PAGE>
6. This Agreement can be executed in any number of counterparts, each of
which when executed and delivered is an original but all of which when
taken together constitute one and the same instrument, and any party
may execute this Agreement by signing any counterpart of it.
IN WITNESS WHEREOF this Agreement has been executed by the parties on the day
and year first above written.
<TABLE>
<S> <C>
WORLDWIDE FIBER INC. CANADIAN NATIONAL RAILWAY
COMPANY
Per: Per;
------------------------------------ -----------------------------
Authorized Signatory Authorized Signatory
GSCP3 WWF (BARBADOS) SRL DWF SRL
Per: Per:
------------------------------------ -----------------------------
Authorized Signatory Authorized Signatory
GS CAPITAL PARTNERS III L.P. PROVIDENCE EQUITY FIBER, LP
Per: Per:
------------------------------------ -----------------------------
Authorized Signatory Authorized Signatory
WWF (BARBADOS) SRL WORLDWIDE FIBER HOLDINGS LTD.
Per: Per:
------------------------------------ -----------------------------
Authorized Signatory Authorized Signatory
TYCO GROUP S.A.R.L. LEDCOR INC.
Per: Per:
------------------------------------ -----------------------------
Authorized Signatory Authorized Signatory
- ---------------------------------------- ---------------------------------
GREGORY B. MAFFEI CLIFFORD LEDE
- ---------------------------------------- ---------------------------------
LARRY OLSEN RON STEVENSON
</TABLE>
-8-
<PAGE>
<TABLE>
<S> <C>
MADISON SQUARE INC.
Per:
- ---------------------------------------- -----------------------------
JIM VOELKER Authorized Signatory
- ---------------------------------------- ---------------------------------
DAVID LEDE WILLIAM RAMSEY
LEDCOR INDUSTRIES LIMITED as
General Partner for Ledcor Limited
Partnership
Per:
- ---------------------------------------- -----------------------------
STEPHEN STOW Authorized Signatory
LEDCOR INDUSTRIES LIMITED
Per:
------------------------------------
Authorized Signatory
</TABLE>
-9-
<PAGE>
SCHEDULE 4.2(b)
FORM OF REGISTRATION RIGHTS AGREEMENT
-10-
<PAGE>
SCHEDULE 4.3(a)
SURVIVING IC SIDE LETTER TERMS
The terms in the Schedule relate to the Amended and Restated License Agreements
(each a "License Agreement" and collectively the "License Agreements") dated as
of March 6, 2000 among Worldwide Fiber Inc. ("WFI"), Illinois Central Railroad
Company ("IC"), and, respectively, IC Fiber Illinois LLC, IC Fiber Kentucky LLC,
IC Fiber Tennessee LLC, IC Fiber Mississippi LLC, IC Fiber Louisiana LLC, IC
Fiber Alabama LLC and IC Fiber Iowa LLC (each such limited liability company a
"Newco" and collectively the "Newcos").
1. Any terms used in this Schedule as defined terms and not defined herein
shall have the meanings assigned to them or in the License Agreements
as the context requires.
2. WFI and IC have entered into the License Agreements, each of which
covers the IC ROW in one of the States of Illinois, Kentucky,
Tennessee, Mississippi, Louisiana, Alabama and Iowa. Both WFI and IC
believe the use of a separate License Agreement for the IC ROW located
in each of such States is beneficial and furthers the purposes of the
License Agreements. However, WFI has advised IC that WFI may in the
future include the interest of the Newcos under the License Agreements
in a public offering of securities ("Offering"), to be issued by WFI or
an affiliate, and IC has agreed that, in the event it is reasonably
determined by the lead underwriter for such Offering that the use of a
separate License Agreement for each State (as opposed to one agreement
covering the entire IC ROW in all of the States referred to above) will
result in the Offering having a lower initial valuation than would be
the case if one agreement were employed, IC will, within 14 days
following written notice thereof from WFI, modify the License Agreement
structure (other than a modification which would eliminate any of the
Newcos) or enter into another arrangement in order to develop an
alternative which provides WFI with an initial valuation at least equal
to the initial valuation that would be achieved if one agreement were
utilized for the entire IC ROW. In addition, IC has agreed that it will
bear any incremental direct administrative costs (as reasonably
determined by the management of WFI LLC) resulting from the current
License Agreement structure.
3. Should IC be required by judgement or other order of a court or other
tribunal (notwithstanding that IC may appeal or otherwise contest such
judgement or order) other than a judgement or order with respect to the
existing agreements by and between CN and fONOROLA Telecommunications,
Limited Partnership, or should IC reasonably determine that it has a
legal obligation, to grant to a party other than the Newcos a license
or other rights with respect to the IC ROW for the purpose of
installing and maintaining a fiber optic communications system, IC
hereby irrevocably appoints each Newco to negotiate the consideration
(subject to any limitations imposed by an applicable law) for the
license or other rights granted to such party on a per-mile basis, and
IC will pay over to the appropriate Newco the net amount of such
consideration when and as received by IC.
<PAGE>
4. As soon as and to the extent practicable, the following grants of Fiber
Optic Cable capacity shall be made to IC:
(a) to IC, upon request by IC, the rights, for railroad purposes, to
Fiber Optic Cable capacity at all times equivalent to (i) two (2)
Fiber Optic Cable strands along the entire length of the Initial
Facility, including spur lines to major traffic centers, and (ii)
two (2) Fiber Optic Cable strands along the entire length of each
Additional Facility, including spur lines to major traffic
centres.
5. Pursuant to Section 4 and the License Agreements IC, from time to time,
has the right to acquire Fiber Optic Cable capacity from the Newcos
along the IC ROW. IC agrees that to the extent any of the Newcos or WFI
LLC incur tax liability as a result of the acquisition of Fiber Optic
Cable strands by IC, IC shall reimburse the Newcos or WFI LLC, as the
case may be, for the amount of any tax which becomes payable (including
all related costs, penalties and interest) by such Newco or WFI LLC, as
the case may be.
-12-
<PAGE>
SCHEDULE 4.3(b)
SURVIVING CN SIDE LETTER TERMS
1. In respect of the contractual relationship between CN and fONOROLA
Telecommunications, Limited Partnership ("fONOROLA"), which includes a
telecommunications agreement dated October 1, 1997 ("Telecommunications
Agreement") and a License Agreement dated April 26, 1995, as amended on
October 1, 1997 ("fONOROLA License Agreement") (the above-mentioned
agreements being collectively referred to as the "fONOROLA
Agreements"), CN has advised WFI as follows:
(a) Pursuant to the fONOROLA License Agreement, fONOROLA has a license
to construct and install fiber optic telecommunications systems
("FOTS") along the CN right of way ("CN ROW"), solely for the
purpose of carrying on the business of owning, upgrading,
maintaining, installing and marketing Bulk Telecommunications
Services (Bulk Telecommunications Services being defined as
unchannelized dedicated and switched transmission capacity). CN
undertakes not to extend or expand this right of fONOROLA by
contractual amendment, waiver, renunciation or in any other matter
whatsoever, without the prior written consent of WFI, over any
portion of the CN ROW available to WFI or its subsidiary WFI-CN
pursuant to the Amended and Restated License Agreement made as of
March 6, 2000 between WFI, WFI-CN and CN ("CN License Agreement").
(b) In the event that fONOROLA decides to proceed with the
construction of a FOTS pursuant to the fONOROLA Agreements, CN
shall exercise its right as set forth in section 2.4 of the
Telecommunications Agreement to act as subcontractor for the
construction of such FOTS and shall engage WFI (or such other
company as WFI may request), at a fair market rate, subject to the
payment by WFI to CN of an appropriate referral fee.
(c) CN confirms that the only Existing FOTS Party with an ongoing
right to build on the CN ROW is fONOROLA.
(d) In the event that WFI does not agree with CN's view as to
fONOROLA's right to access the IC ROW under the terms of the
fONOROLA License Agreement, CN, if so requested by WFI, will
diligently and in good faith contest any such claim by fONOROLA
that its license pursuant to the fONOROLA License Agreement
extends to subsidiaries acquired by CN after April 26, 1995, such
as IC, provided that all costs and expenses of any court or
arbitration proceeding taken by or against CN or IC to contest any
such claim (including reasonable legal fees) related to such
contestation are paid by WFI and provided that WFI shall indemnify
CN or IC from any costs or damages which are awarded against CN or
IC in any such court or arbitration proceedings.
<PAGE>
(e) Should fONOROLA's license be found to apply to the right of way of
Illinois Central Railroad Company ("IC") or part thereof ("IC
ROW"), then CN shall cause IC to perform the obligations set forth
in paragraphs 1(a) and (b) of this letter, MUTATIS MUTANDIS.
2. In connection with the CN License Agreement, CN and WFI each understand
that WFI-CN may suffer or incur a tax liability as a result of the
transfer of fibre optic strands to CN and to WFI pursuant to Section
2.1 of the CN License Agreement. CN agrees to indemnify and save
harmless WFI-CN from and against any such tax liability suffered or
incurred by WFI-CN from the disposition of fibre optic strands to CN
pursuant to Section 2.1 of the CN License Agreement, and all related
costs, penalties and interest.
3. CN acknowledges that the licensing transactions between and among CN,
IC and WFI are intended to include rights of way belonging to railways
operated by the Grand Trunk Corporation ("GTC"), namely the Grand Trunk
Western Railroad and the Duluth Winnipeg & Pacific Railroad. Should WFI
elect to construct any Facility over all or a portion of the rights of
way belonging to these railways, transaction documents paralleling the
seven Amended and Restated License Agreements dated as March 6, 2000
between WFI and IC ("IC License Agreements") on the one hand and each
of IC Fiber Illinois LLC, IC Fiber Kentucky LLC, IC Fiber Tennessee
LLC, IC Fiber Mississippi LLC, IC Fiber Louisiana LLC, IC Fiber Alabama
LLC and IC Fiber Iowa LLC.
4. CN, GTC and IC hold exclusive rights to grant licenses for the
installation of fiber optic cable along certain rights of way not owned
by CN, GTC or IC. The rights of way over which such right to grant
licenses applies will be identified by CN and, if not previously
provided by CN to WFI, the details with respect to such rights of way
will be provided by CN to WFI within thirty days of the execution of
this Agreement. Subject to the provisions of the agreements between CN,
GTC and IC and the owners of such rights of way, WFI shall have the
right to add all or a portion of such rights of way to the Reserved CN,
IC or GTC ROW List, as the case may be.
5. Should CN be required by judgement or other order of a court or other
tribunal (notwithstanding that CN may appeal or otherwise contest such
judgement or order) other than a judgement or order with respect to the
existing agreements by and between CN and fONOROLA, or should CN
reasonably determine that it has a legal obligation, to grant to a
party other than WFI-CN a license or other rights with respect to the
CN ROW for the purpose of installing and maintaining a fiber optic
communications system, CN hereby irrevocably appoints WFI-CN to
negotiate the consideration for the license or other rights granted to
such party on a per-mile basis and will pay over to WFI-CN the net
amount of such consideration when and as received by CN.
-14-
<PAGE>
Exhibit 10.34
PURCHASE AGREEMENT
THIS PURCHASE AGREEMENT dated as of March 3, 2000 (this
"Agreement") is by and between IC FIBER HOLDING INC., a Delaware corporation
("Seller"), WORLDWIDE FIBER IC HOLDINGS, INC., a Nevada corporation ("Buyer"),
and ILLINOIS CENTRAL RAILROAD COMPANY, an Illinois corporation ("IC").
RECITALS
WHEREAS, pursuant to that certain Limited Liability Company
Agreement of Worldwide Fiber IC LLC dated May 28, 1999 (the "LLC Agreement"),
Seller acquired units (the "Units") constituting 25% of the issued and
outstanding equity capital of Worldwide Fiber IC LLC, a Delaware limited
liability company ("WFI-IC"); and
WHEREAS, Seller desires to sell, and Buyer desires to
purchase, the Units, on the terms and conditions set forth herein;
NOW, THEREFORE, in consideration of the premises and other
good and valuable consideration had and received, the parties agree as follows:
1. SALE AND PURCHASE OF UNITS; PURCHASE PRICE. Seller hereby agrees to sell, and
Buyer hereby agrees to purchase, the Units at the Closing (as hereinafter
defined) for a total payment of Twenty Million and No/100 United States Dollars
(US$20,000,000) (the "Purchase Price") in immediately available funds.
2. CLOSING; DELIVERIES AT CLOSING
(a) Closing. the "Closing" Means the Time At Which Seller
Consummates the Sale of the Units to the Buyer by Delivery by
Seller and Ic of the Documents Referred to in Sections
2(B)(i), 5(C)(iii) and 5(C)(iv) Against Delivery by Buyer of
the Purchase Price and the Documents Referred to in Sections
2(B)(ii)(b), 5(B)(iii) and 5(B)(iv). the Closing Shall Occur
At Such Time and Place as the Parties Mutually Agree (The
"Closing Date").
(b) DELIVERIES AT CLOSING. At the Closing, (I) the Seller Shall
deliver to the Buyer (A) an assignment, in substantially the
form attached hereto as Exhibit A (the "Assignment"), executed
by Seller, transferring the Units to Buyer, and (B) a
cross-receipt, in substantially the form attached hereto as
Exhibit B (the "Cross-Receipt," and together with this
Agreement and the Assignment, the "Unit Transaction
Documents"), executed by Seller acknowledging receipt by
Seller of the Purchase Price; and (ii) the Buyer shall deliver
to the Seller (A) the Purchase Price to the Seller by wire
transfer of funds to an account designated by Seller or IC,
and (B) a cross-receipt, in substantially the form attached
hereto as Exhibit B, executed by Buyer acknowledging receipt
by Buyer of the Units.
<PAGE>
3. REPRESENTATIONS AND WARRANTIES OF SELLER AND IC. Seller and IC hereby jointly
and severally represent and warrant to Buyer as of the date hereof and, unless
otherwise provided, as of the Closing Date (as though made then and as though
the Closing Date were substituted for the date hereof throughout this Agreement)
as follows:
(a) Neither Seller nor IC has employed any broker or finder in
connection with the transactions contemplated by this
Agreement. The Buyer acknowledges that Seller and IC have
retained Merrill Lynch as an advisor to them, and Seller and
IC each represent, warrant and acknowledge to the Buyer that
Merrill Lynch is not employed as a broker or finder in
connection with the transactions contemplated by this
Agreement and that Seller or IC will be responsible for all
fees payable to Merrill Lynch.
(b) The execution, delivery and performance by Seller and IC of
this Agreement and each of the other Unit Transaction
Documents and the consummation by Seller and IC of the
transactions contemplated hereby and thereby will not (a)
violate any provision of law, statute, rule or regulation, or
any ruling, writ, injunction, order, judgment or decree of any
court, administrative agency or other governmental body
applicable to it, or any of its properties or assets; (b)
conflict with or result in any breach of any of the terms,
conditions or provisions of, or constitute (with due notice or
lapse of time, or both) a default (or give rise to any right
of termination, cancellation or acceleration) under any
contract to which Seller or IC is a party that would
materially adversely affect Seller's or IC's ability to
consummate the transactions contemplated by this Agreement or
perform its obligations under any Unit Transaction Documents;
or (c) violate the organizational documents (if any) of Seller
or IC.
(c) Each of Seller and IC is duly organized and validly existing
under the laws of the jurisdiction of its organization and has
all corporate power and authority to enter into and carry out
the transactions contemplated by each of the Unit Transaction
Documents and the performance by Seller and IC of their
obligations hereunder and thereunder. Each of the Unit
Transaction Documents has been duly authorized by all
necessary action on the part of Seller and IC. Each of the
Unit Transaction Documents constitutes a valid and binding
agreement of Seller and IC, as applicable, enforceable against
Seller or IC or both, as the case may be, in accordance with
its terms except to the extent that enforceability may be
limited by bankruptcy, insolvency or other similar laws
affecting creditors' rights generally and by equitable
principles generally whether enforced in a court of law or at
equity.
(d) No permit, authorization, consent or approval of or by, or any
notification of or filing with, any government, regulatory
authority, governmental department, agency, commission, board,
tribunal, or court or other law, rule or regulating-making
entity having or purporting to have jurisdiction on behalf of
any nation, or state or other subdivision thereof or any
municipality, district or other subdivision
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<PAGE>
thereof; (a "Governmental Authority") or any individual, sole
proprietorship, general, limited or any other partnership,
limited liability company, unincorporated association,
unincorporated syndicate, unincorporated organization, trust,
body corporate, or other entity, and a natural person in such
person's capacity as trustee, executor, administrator or other
legal representative (collectively, with Governmental
Authority, a "Person") is required in connection with the
execution, delivery and performance by Seller or IC of any
Transaction Document, the consummation by Seller or IC of the
transactions contemplated hereby or thereby, or the issuance,
purchase or delivery of the Units (other than such
notifications or filings required under applicable securities
laws, if any, which shall be made on a timely basis and other
than provided for in any Unit Transaction Document).
(e) In respect of the Units (i) no Person, other than Worldwide
Fiber Inc., a Canadian corporation ("WFI") or Buyer, has any
written or oral agreement or option or any right or privilege
(whether by law, pre-emptive or contractual) capable of
becoming an agreement or option for the purchase or
acquisition from Seller of any of the Units, (ii) no Person
other than WFI or Buyer has any agreement or option or any
right or privilege (whether by law, pre-emptive or
contractual) capable of becoming an agreement, including
convertible securities, warrants or convertible obligations of
any nature, for the purchase, subscription, allotment or
issuance of any unissued units, shares or other securities of
WFI-IC, (iii) Seller is the beneficial owner of record of the
Units, with good and marketable title thereto, free and clear
of any mortgage, lien, security interest, pledge, escrow,
charge, or other encumbrance of any kind or character
whatsoever (an "Encumbrance") and, without limiting the
generality of the foregoing, none of the Units are subject to
any voting trust, shareholder agreement or voting agreement
other than the LLC Agreement and (iv) upon completion of the
transaction contemplated by this Agreement, all of the Units
will be owned by the Buyer as the beneficial owner of record,
with a good and marketable title thereto free and clear of any
Encumbrance except for such Encumbrances as may have been
granted by WFI or Buyer.
(f) Seller and IC agree that by Seller accepting the Purchase
Price at Closing, Seller and IC shall be representing and
warranting that the foregoing representations and warranties
are true as at the Closing Date with the same force and effect
as if they had been made by Seller and IC at the Closing Date
and shall continue in full force and effect. Each of Seller
and IC undertakes to notify the Buyer in writing of any change
in any representation, warranty or other information relating
to Seller or IC set forth herein which takes place prior to
the Closing Date.
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4. REPRESENTATIONS AND WARRANTIES OF BUYER
Buyer hereby represents and warrants to Seller and IC as of
the date hereof and, unless otherwise provided, as of the Closing Date (as
though made then and as though the Closing Date were substituted for the date
hereof throughout this Agreement) as follows:
(a) Buyer is a corporation, duly organized, validly existing and
in good standing under the laws of the State of Nevada, and
has all requisite corporate power and authority to enter into
and carry out the transactions contemplated by this Agreement.
(b) The execution and delivery by Buyer of this Agreement and the
other Unit Transaction Documents and the performance by the
Buyer of its obligations hereunder and thereunder have been
duly authorized by all requisite corporate action on the part
of the Buyer. Each Unit Transaction Document constitutes a
legal, valid and binding agreement of the Buyer, enforceable
against the Buyer in accordance with its terms except to the
extent that enforceability may be limited by bankruptcy,
insolvency or other similar laws affecting creditors' rights
generally and by equitable principles generally, whether
enforced in a court of law or at equity.
(c) The execution, delivery and performance by the Buyer of the
Unit Transaction Documents and the consummation by the Buyer
of the transactions contemplated thereby will not (a) violate
any provision of law, statute, rule or regulation, or any
ruling, writ, injunction, order, judgment or decree of any
court, administrative agency or other governmental body
applicable to it, or any of its properties or assets; (b)
conflict with or result in any breach of any of the terms,
conditions or provisions of, or constitute (with due notice or
lapse of time, or both) a default (or give rise to any right
of termination, cancellation or acceleration) under any
contract to which the Buyer is a party that would materially
adversely affect the Buyer's ability to consummate the
transactions contemplated by any Unit Transaction Document or
perform its obligations under any Unit Transaction Document;
or (c) violate its organizational documents.
(d) No permit, authorization, consent or approval of or by, or any
notification of or filing with, any Person is required in
connection with the execution, delivery and performance by the
Buyer of any Unit Transaction Document, the consummation by
the Buyer of the transactions contemplated hereby or thereby
(other than such notifications or filings required under
applicable securities laws, if any, which shall be made by the
Buyer on a timely basis and other than provided for in any
Unit Transaction Document).
(e) Buyer agrees that by Buyer accepting the Units at Closing,
Buyer shall be representing and warranting that the foregoing
representations and warranties are
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true as at the Closing Date with the same force and effect as
if they had been made by Buyer at the Closing Date and shall
continue in full force and effect. Buyer undertakes to notify
Seller and IC in writing of any change in any representation,
warranty or other information relating to Buyer set forth
herein which takes place prior to the Closing Date.
5. CONDITIONS TO THE CLOSING
(a) CONDITIONS TO OBLIGATIONS OF EACH PARTY. The respective
obligations of Seller and Buyer to consummate the transactions
contemplated hereby shall be subject to the satisfaction at or
prior to the Closing Date of the following conditions, any or
all of which may be waived in writing, in whole or in part, by
the Seller or the Buyer, to the extent permitted by applicable
law:
(i) No Governmental Authority shall have enacted, issued,
promulgated or enforced any statute, rule,
regulation, executive order, decree, judgment,
preliminary or permanent injunction or other order
which is in effect and which prohibits, enjoins or
otherwise restrains the consummation of the
transactions contemplated hereby; provided, that the
parties shall use commercially reasonable efforts to
cause any such decree, judgment, injunction or order
to be vacated or lifted.
(ii) Each consent or approval from, or filing with any
Person, required to be obtained or made and any
waiting period required to have expired in order to
consummate the transactions contemplated by this
Agreement at the Closing shall have been obtained, or
made, as the case may be, and any such waiting period
shall have expired.
(b) CONDITIONS TO OBLIGATIONS OF SELLER. The obligations of Seller
to consummate the transactions contemplated hereby shall be
subject to the satisfaction or waiver, on or prior to the
Closing Date, of the following conditions:
(i) Each representation and warranty made by the Buyer
herein shall be true and correct, in all material
respects on and as of the Closing Date, with the same
force and effect as though such representation and
warranty had been made on and as of the Closing Date,
except for changes permitted or contemplated by this
Agreement and except for each representation and
warranty that is made as of a specific date or time,
which shall be true and correct in all material
respects, only as of such specific date or time.
(ii) The Buyer shall have complied in all material
respects with all its agreements and covenants
contained herein required to be performed at or prior
to the Closing to the extent such agreements and
covenants relate to the Closing.
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<PAGE>
(iii) The Buyer shall have delivered to the Seller a
certificate executed by a senior executive officer of
the Buyer, which shall be satisfactory in form and
substance to the Seller, certifying that the
conditions set forth in paragraphs (i) and (ii) have
been met.
(iv) The Buyer shall have delivered to the Seller a
certificate of the corporate secretary of the Buyer,
in form and substance satisfactory to the Seller,
certifying (A) a copy of the Articles of
Incorporation of the Buyer and all amendments
thereto, certified by the Secretary of State of the
State of Nevada, (ii) the By-Laws of the Buyer, (iii)
a Certificate of Good Standing for the Buyer issued
by the Secretary of State of the State of Nevada,
(iv) resolutions of the board of directors of the
Buyer authorizing the execution, delivery and
performance by the Buyer of this Agreement, any other
agreement entered into or instrument delivered by the
Buyer in connection herewith, and the transactions
contemplated thereby, (v) copies of each governmental
or third party consent, approval or filing required
to be obtained or made in order to consummate the
transactions contemplated by this Agreement at the
Closing, and (vi) incumbency matters.
(c) CONDITIONS TO THE OBLIGATIONS OF THE BUYER. The obligations of
the Buyer to consummate the transactions contemplated hereby
shall be subject to the satisfaction (or waiver), on or before
the Closing Date, of the following conditions:
(i) Each representation and warranty made by Seller and
IC herein shall be true and correct in all material
respects, with the same force and effect as though
such representation and warranty had been made on and
as of the Closing Date, except for changes permitted
or contemplated by this Agreement and except for each
representation and warranty that is made as of a
specific date or time, which shall be true and
correct, in all material respects, only as of such
specific date or time.
(ii) Seller and IC shall have complied in all material
respects with all of its agreements and covenants
contained herein required to be performed at or prior
to the Closing to the extent such agreements and
covenants relate to the Closing.
(iii) Seller and IC shall each have delivered to the Buyer
a certificate executed by a senior executive officer
of each of Seller and IC, which shall be satisfactory
in form and substance to the Buyer, certifying that
the conditions set forth in paragraphs (i) and (ii)
have been met.
(iv) Seller and IC shall each have delivered to the Buyer
a certificate of its corporate secretary, in form and
substance satisfactory to the Buyer, certifying (i) a
copy of the Articles of Incorporation of Seller or
IC, as the
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<PAGE>
case may be, and all amendments thereto, certified
by an appropriate governmental official, (ii) the
By-Laws of Seller or IC, as the case may be, (iii)
a Certificate of Good Standing for Seller or IC,
as the case may be, issued by an appropriate
governmental official, (iv) resolutions of the
board of directors of Seller or IC, as the case
may be, authorizing the execution, delivery and
performance by Seller or IC, as the case may be,
respectively, of this Agreement, any other
agreement entered into or instrument delivered by
Seller or IC, as the case may be, in connection
herewith, and the transactions contemplated
thereby, (v) copies of each governmental or third
party consent, approval or filing required to be
obtained or made in order to consummate the
transactions contemplated by this Agreement at the
Closing, and (vi) incumbency matters.
6. CONFIDENTIALITY
(a) The parties hereto hereby covenant and agree with each other
that, subject to subsection 6(c), they will not disclose, or
allow their respective directors, officers, employees agents,
representatives or consultants, if any, to disclose, to any
Person, any of the terms, conditions or other facts of or
concerning this Agreement or the existence of this Agreement
without the prior written consent of the other parties hereto.
The parties hereto hereby further covenant and agree with each
other that they will at all times keep, and all reasonable and
normal steps to cause their respective directors, officers,
employees, agents, representatives and consultants, if any, to
at all times keep, all information of every nature and kind
whatsoever regarding Buyer, Seller and IC including, without
limitation, information on and/or copies of material
agreements, corporate, proceedings and other data, whether
transferred in writing, orally, visually, electronically or by
any other means, and all analyses, studies, compilations,
data, supplies or other documents prepared by any party or
Buyer, Seller or IC containing, or based in whole or in part
on, any such information or reflecting any such information,
strictly confidential, and shall at no time convey or
disclose, or knowingly allow their respective directors,
officers, employees, agents, representatives or consultants,
if any, to convey or disclose, in any manner whatsoever, to
any person, firm or corporation any of the aforesaid
information. The parties hereto hereby further covenant and
agree with each other not to use, and to take all normal and
reasonable steps to ensure that their respective directors,
officers, employees, agents, representatives or consultants,
if any, do not use, any of the aforesaid information except
for the purposes of exercising their respective rights and
performing their respective obligations under this Agreement.
(b) Each party hereto hereby covenants and agrees with each other
party hereto to indemnify and hold harmless each other party
hereto from any losses, damages, charges, fees or expenses
(including reasonable attorneys' or solicitors' fees) arising
out of or resulting from any breach of subsection 6(a). The
parties hereto hereby further covenant and agree with each
other not to do any act, or knowingly
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<PAGE>
allow their respective directors, officers, employees, agents,
representatives or consultants, if any, to do any act, to
infringe upon any copyright, patent, industrial design or
other proprietary rights of Buyer or its affiliates.
(c) The parties hereto hereby further covenant and agree with each
other that, in the event they, or their respective directors,
officers, employees, agents, representatives or consultants,
if any, become legally compelled to disclose any of the
aforesaid information, or are advised by their respective
legal counsel that such disclosure is required to comply with
applicable law, to immediately provide the other parties with
written notice so that the other parties may seek a protective
order or other appropriate remedy, and to cooperate, and to
cause their respective directors, officers, employees, agents,
representatives and consultants, if any, to cooperate, with
the other parties in any effort undertaken to obtain a
protective order or other remedy. Each party hereto hereby
further covenants and agrees with each other party to, in the
event that such protective order or remedy is not obtained,
furnish, and to cause his directors, officers, employees,
agents, representatives and consultants, if any, to furnish,
only that portion of the aforesaid information which he is
legally required to furnish, and to use his best efforts, and
to cause his directors, officers, employees, agents,
representatives, and consultants, if any, to use their best
efforts, to obtain an assurance from the recipient of any of
the aforesaid information that confidential treatment will be
accorded to such information, to the extent that such
assurance is available. Notwithstanding the foregoing, each of
the parties acknowledges that the parties may be required to
disclose the terms of this Agreement, and provide a copy of
this Agreement, in filings made by such party under applicable
securities law, and may have to disclose the aforesaid
information in an open court in legal proceedings between the
parties, or between a party and others, and each of the
parties hereby consents to such disclosure and to the filing
of a copy of this Agreement for public viewing under filings
required to be made by a party under applicable securities
law.
(d) Each party hereto hereby acknowledges to and covenants and
agrees with each other party hereto that a breach by him of
any of his covenants contained in this Section 6 may result in
damages to each of the other parties and that a monetary award
would not adequately compensate for such damages, and,
accordingly, that in the event of any such breach, in addition
to all other remedies available in law or in equity, the other
parties, or any of them, shall be entitled as a matter of
right to apply to a court of competent equitable jurisdiction
for such relief by way of restraining order, injunction,
decree or otherwise as may be appropriate to ensure compliance
by him with Section 6.
(e) Each of the parties hereto hereby acknowledges to and
covenants and agrees with each of the other parties hereto
that, notwithstanding any provision of this Agreement, its
covenants contained in Section 6 survive any termination of
this Agreement.
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<PAGE>
7. OTHER COVENANTS
(a) COOPERATION BY PARTIES; SATISFACTION OF CLOSING CONDITIONS.
From the date hereof and prior to the Closing, each party
shall use its commercially reasonable efforts, and will
cooperate with each other, to secure as promptly as
practicable all necessary consents, approvals, authorizations,
exemptions and waivers from third parties as shall be required
to enable the parties hereto to effect the transactions
contemplated hereby, and each party shall use its commercially
reasonable efforts to cause (but not waive) any closing
condition in Section 5 to be satisfied.
(b) SURVIVAL OF REPRESENTATIONS, WARRANTIES, ETC. All
representations and warranties in the this Agreement shall
survive the Closing indefinitely and shall in no way be
affected by any investigation of the subject matter thereof
made by or on behalf of Buyer, Seller or IC. All statements
contained in any certificate or other instrument delivered by
party pursuant to this Agreement shall constitute
representations and warranties by any party under this
Agreement.
(c) EXPENSES. Each of Buyer, Seller and IC shall pay all the costs
and expenses incurred by it or on its behalf in connection
with this Agreement and the consummation of the transactions
contemplated hereby.
(d) REMEDIES. In case any one or more of the covenants and/or
agreements set forth in this Agreement shall have been
breached by any party hereto, each other party may proceed to
protect and enforce its rights either by suit in equity and/or
by action at law, including, but not limited to, an action for
damages as a result of any such breach and/or an action for
specific performance of any such covenant or agreement
contained in this Agreement, and to exercise all other rights
existing in their favor. The parties hereto agree and
acknowledge that money damages may not be an adequate remedy
for any breach of the provisions of this Agreement and that
each party may in its sole discretion apply to any court of
law or equity of competent jurisdiction for specific
performance and/or injunctive relief (without posting a bond
or other security) in order to enforce or prevent any
violation of the provisions of this Agreement.
(e) FURTHER ASSURANCES. At any time or from time to time after the
Closing, Buyer, on the one hand, and Seller and IC, on the
other hand, agree to cooperate with each other, and at the
request of the other party, to execute and deliver any further
instruments or documents and to take all such further action
as the other party may reasonably request in order to evidence
or effectuate the consummation of the transactions
contemplated hereby and to otherwise carry out the intent of
the parties hereunder.
(f) REPORTING OF TRANSACTION. The parties hereto agree to report
(for all purposes, including without limitation tax purposes)
the transactions contemplated hereby in
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<PAGE>
a manner consistent with the express terms hereof, and the
parties agree to cooperate fully with each other to ensure
accurate and consistent reporting of such transactions for tax
purposes.
(g) SUCCESSORS AND ASSIGNS. This Agreement shall bind and inure to
the benefit of Buyer, Seller and IC, and the respective
successors, permitted assigns, heirs and personal
representatives of each of them. This Agreement shall not be
assignable by Buyer, without the consent of Seller, or by
Seller or IC, without the consent of Buyer.
(h) ENTIRE AGREEMENT. This Agreement and the other writings
referred to herein or delivered pursuant hereto which form a
part hereof contain the entire agreement among the parties
with respect to the subject matter hereof and supersede all
prior and contemporaneous arrangements or understandings with
respect thereto.
(i) NOTICES. All notices, requests, consents and other
communications hereunder to any party shall be deemed to be
sufficient if contained in a written instrument delivered in
person or sent by fax, nationally recognized overnight courier
or first class registered or certified mail, return receipt
requested, postage prepaid, addressed to such party at the
address set forth below or such other address as may hereafter
be designated in writing by such party to the other parties:
(i) if to Buyer, to:
c/o Worldwide Fiber Inc.
#1510-1066 West Hastings Street
Vancouver, British Columbia V6E 3X1
Fax: (604) 681-6822
Attention: Stephen Stow
with a copy to:
Campney & Murphy
2100-1111 West Georgia Street
Vancouver, British Columbia V6E 3X1
Fax: (604) 688-0829
Attention: Bruce Tattrie
(ii) if to Seller or IC, to:
455 North Cityfront Plaza Drive
20th Floor
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<PAGE>
Chicago, Illinois 60611-5505
Fax: (312) 755-7669
Attention: Myles K. Tobin
with a copy to:
Freeborn & Peters
311 South Wacker Drive
Suite 3000
Chicago, Illinois 60606
Fax: (312) 360-6597
Attention: Michael L. O'Shaughnessy
All such notices, requests, consents and other communications
shall be deemed to have been given when received.
(j) AMENDMENTS. The terms and provisions of this Agreement may be
modified or amended, or any of the provisions hereof waived,
temporarily or permanently, pursuant to the written consent of
Buyer, Seller and IC.
(k) COUNTERPARTS. This Agreement may be executed in any number of
counterparts, and each such counterpart hereof shall be deemed
to be an original instrument, but all such counterparts
together shall constitute but one agreement.
(l) HEADINGS. The headings of the sections of this Agreement have
been inserted for convenience of reference only and shall not
be deemed to be a part of this Agreement.
(m) NOUNS AND PRONOUNS. Whenever the context may require, any
pronouns used herein shall include the corresponding
masculine, feminine or neuter forms, and the singular form of
names and pronouns shall include the plural and vice versa.
(n) GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the laws of the State of New York
without giving effect to the principles of conflicts of law.
Each of the parties hereto hereby irrevocably and
unconditionally consents to submit to the non-exclusive
jurisdiction of the courts of the State of New York located in
the City of New York, for any action, proceeding or
investigation in any court or before any governmental
authority ("LITIGATION") arising out of or relating to this
Agreement and the transactions contemplated hereby, and
further agrees that service of any process, summons, notice or
document by registered mail to its respective address set
forth in this Agreement shall be effective service of process
for any Litigation brought against it in any such court. Each
of the parties hereto hereby irrevocably and
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<PAGE>
unconditionally waives any objection to the laying of venue of
any Litigation arising out of this Agreement or the
transactions contemplated hereby in the courts of the State of
New York located in the City of New York, and hereby further
irrevocably and unconditionally waives and agrees not to plead
or claim in any such court that any such Litigation brought in
any such court has been brought in an inconvenient forum.
(o) CURRENCY. Unless otherwise indicated, references to "dollars",
"$" or "US$" are to U.S. dollars and references to "C$" are to
Canadian dollars.
(p) NO PARTNERSHIP. The obligations of each of the parties to this
Agreement are several and not joint. Nothing in this Agreement
shall imply or be deemed to imply a partnership, joint venture
or other relationship between the parties.
[The rest of this page is intentionally left blank.]
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Purchase
Agreement to be duly executed as of the date first above written.
IC FIBER HOLDING INC.
By: /s/ Claude Mongeau
----------------------------
Its: Senior Vice President and
Chief Financial Officer
----------------------------
WORLDWIDE FIBER IC HOLDINGS, INC.
By: /s/ David Lede
----------------------------
Its: President
----------------------------
ILLINOIS CENTRAL RAILROAD COMPANY
By: /s/ Claude Mongeau
----------------------------
Its: Senior Vice President and
Chief Financial Officer
----------------------------
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<PAGE>
EXHIBIT A
ASSIGNMENT
FOR VALUE RECEIVED, IC Fiber Holding Inc., a Delaware corporation ("IC
Fiber"), DOES HEREBY ASSIGN AND TRANFER unto Worldwide Fiber IC Holdings, Inc.,
a Nevada corporation, 25 Units in Worldwide Fiber IC LLC, a Delaware limited
liability company, being all of IC Fiber's Units in Worldwide Fiber IC LLC.
IN WITNESS WHEREOF, the undersigned has executed these presents as of
March ____, 2000.
IC FIBER HOLDING INC.
By:________________________________
Its:_______________________________
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<PAGE>
EXHIBIT B
CROSS-RECEIPT
THIS CROSS-RECEIPT is made with respect to the Purchase Agreement dated
as of March ___, 2000 (the "Purchase Agreement") by and between IC Fiber Holding
Inc., a Delaware corporation ("Seller"), and Worldwide Fiber IC Holdings, Inc.,
a Nevada corporation ("Buyer").
By its signature below, Buyer hereby acknowledges receipt from Seller
of Seller's Units (the "Units") in Worldwide Fiber IC LLC, a Delaware limited
liability company.
By its signature below, Seller hereby acknowledges receipt from Buyer
of $20,000,000 in the form of a bank draft payable to Seller, such payment
representing payment of the Purchase Price to Seller pursuant to Section 2 of
the Purchase Agreement.
Capitalized terms used and not otherwise defined herein have the
meanings given such terms in the Purchase Agreement.
Dated: March ____, 2000
BUYER:
WORLDWIDE FIBER IC HOLDINGS, INC.
By:________________________________
Its:_______________________________
SELLER:
IC FIBER HOLDING INC.
By:________________________________
Its:_______________________________
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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
Deloitte & Touche LLP
2000 ManuLife Place
10180 - 101 Street
Edmonton, Alberta
T5J 4E4
Telephone: (780) 421-3611
Facsimile: (780) 421-3782
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 November 30, 1998,
relating 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 flow for the nine months ended
May 31, 1998 and the year ended August 31, 1997, which appears in such
Prospectus.
We also consent to the references to us under the headings "Experts" and
"Selected Financial Data" in such Prospectus. However, it should be noted
that Deloitte & Touche LLP has not prepared or certified such "Selected
Financial Data".
/s/ Deloitte & Touche LLP
Edmonton, Canada
March 21, 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
