<PAGE>
As filed with the Securities and Exchange Commission on January 27, 2000
Registration No. 333-86461
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------
Amendment No. 5
to
Form S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
----------------
GlobeNet Communications Group Limited
(Exact name of registrant as specified in its charter)
Bermuda 4813
(State or other jurisdiction of (Primary Standard Industrial
incorporation or organization) Classification Code Number)
2 Carter's Bay Road Lin Gentemann
Southside, St. David's DDBX General Counsel
Bermuda GlobeNet Communications Group
(441) 296-9000 Limited
(Address, including zip code, and P.O. Box HM 3043
telephone number, including area code, of Hamilton HM NX
registrant's principal executive offices) Bermuda
(441) 296-9030
(Name, address, including zip code,
and
telephone number, including area
code, of
agent for service)
Copy to:
Eric S. Shube
Vinson & Elkins L.L.P.
1325 Avenue of the Americas
17th Floor
New York, NY 10019
(917) 206-8000
Approximate date of commencement of proposed sale of the securities to the
public: As soon as practicable following the effectiveness of this
registration statement.
If the securities being registered on this form are being offered in
connection with the formation of a holding company and there is compliance
with General Instruction G, check the following box. [_]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act of 1933, 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(d)
under the Securities Act of 1933, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. [_]
----------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------
Proposed Proposed
maximum maximum Amount of
Title of each class of Amount to be offering price aggregate offering registration
securities to be registered Registered per unit(1) price(1) fee(2)
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
13% Series B Senior
Notes due 2007 $300,000,000 100% $300,000,000 $83,400
- ----------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------
</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee in
accordance with Rule 457(f) under the Securities Act of 1933.
(2) 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 or until the registration statement
shall become effective on such date as the Securities and Exchange Commission,
acting pursuant to said Section 8(a), may determine.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+The information in this prospectus is not complete and may be changed. We may +
+not sell the new notes until the registration statement filed with the +
+Securities and Exchange Commission is effective. This prospectus is not an +
+offer to sell the new notes and it is not soliciting an offer to buy the new +
+notes in any state where the offer or sale is not permitted. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
Subject to completion, dated January 27, 2000
PROSPECTUS
$300,000,000
GlobeNet Communications Group Limited [LOGO OF GLOBENET]
Offer to Exchange
13% Series B Senior Notes Due 2007
For All Outstanding
13% Senior Notes Due 2007
The New Notes:
. The terms of the new notes are identical to the terms of the old notes,
except that the new notes will be registered under the Securities Act of 1933
and will not contain restrictions on transfer or provisions relating to
additional interest and will contain different administrative terms.
The Exchange Offer:
. Our offer to exchange new notes for old notes will be open until 5:00 p.m.
New York City time on March 6, 2000, unless we extend the offer.
. All old notes that are validly tendered and not validly withdrawn will be
exchanged for an equal principal amount of new notes that are registered
under the Securities Act of 1933.
. Tenders of old notes may be withdrawn at any time prior to the expiration of
the exchange offer.
. The exchange of new notes for old notes will not be a taxable event for U.S.
federal income tax purposes.
-----------
You should carefully consider the risk factors beginning on page 10 of this
prospectus before participating in the exchange offer.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of the new notes or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
-----------
The date of this prospectus is , 2000.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Prospectus Summary.................................................... 1
Risk Factors ......................................................... 10
Forward-Looking Statements............................................ 21
Use of Proceeds....................................................... 21
Capitalization........................................................ 23
Unaudited Condensed Pro Forma Consolidated Financial Information...... 24
Selected Consolidated Financial Data.................................. 31
Management's Discussion and Analysis of Financial Condition and
Results of Operations................................................ 33
Business.............................................................. 42
Management............................................................ 61
Principal Shareholders................................................ 70
Certain Transactions.................................................. 75
Holdings' Bank Credit Facility........................................ 76
Description of the New Notes.......................................... 80
Exchange Offer........................................................ 123
Certain Income Tax Considerations..................................... 133
Plan of Distribution.................................................. 137
Legal Matters......................................................... 139
Chartered Accountants................................................. 139
Available Information................................................. 139
Glossary of Certain Technical Terms................................... 141
Index to Financial Statements......................................... F-1
</TABLE>
------------------------------------------------------------------------
Notice to New Hampshire Residents
Neither the fact that a registration statement or an application for a
license has been filed under Chapter 421-B of the New Hampshire Revised
Statutes with the State of New Hampshire nor the fact that a security is
effectively registered or a person is licensed in the State of New Hampshire
constitutes a finding by the directors of the Office of Securities Regulation
that any document filed under RSA 421-B is true, complete and not misleading.
Neither any such fact nor the fact that an exemption or exception is available
for a security or a transaction means that the directors of the Office of
Securities Regulation have passed in any way upon the merits or qualifications
of, or recommended or given approval to, any person, security or transaction.
It is unlawful to make, or cause to be made, to any prospective investor,
customer or client any representation inconsistent with the provisions of this
paragraph.
---------------------------
The new notes are not offered to persons in the United Kingdom except to
persons whose ordinary activities involve them in acquiring, holding, managing
or disposing of investments (as principal or agent) for the purposes of their
businesses (or in other circumstances that do not constitute an offer to the
public in the United Kingdom for the purposes of the Public Offers of
Securities Regulations 1995), and this prospectus may only be issued or passed
on to persons in the United Kingdom if these persons are of a kind described in
Article 11(3) of the Financial Services Act 1986 (Investment Advertisements)
(Exemptions) Order 1996 or if these persons are persons to whom this prospectus
may otherwise lawfully be issued or passed on.
i
<PAGE>
PROSPECTUS SUMMARY
This summary highlights some information from this prospectus. Because this
is only a summary, it does not contain all of the information that may be
important to you. To understand all of the terms of the exchange offer and to
attain a more complete understanding of our business and financial situation,
you should read carefully the entire prospectus. In this prospectus, the
"Company," "we," "ours" and "us" refer to GlobeNet Communications Group Limited
and its subsidiaries, unless the context indicates otherwise. This prospectus
uses a number of technical terms, such as RFS and Gbps, that are not easily
understandable. We have defined certain technical terms used in this prospectus
in the glossary that is included at the end of this prospectus. Unless
otherwise specified, all references to "$" or "dollars" are to U.S. dollars.
Our Company
We will provide our customers with customized and flexible city-to-city
international telecommunications network solutions. We will be a "carriers'
carrier" whose principal customers will be international telecommunications
providers rather than the ultimate retail customers. We are currently
developing the Atlantica-1 Network, a high capacity undersea fiber optic cable
system that, together with terrestrial extensions from the cable landing points
to various cities and from city to city, will offer seamless connectivity, or
capacity, between certain major cities in the United States, Brazil, Venezuela,
Bermuda and Argentina. In addition, we intend to expand the reach of the
Atlantica-1 Network by offering connectivity to other countries in South
America and Europe through a combination of commercial arrangements, capacity
purchases and further development of undersea or terrestrial fiber optic cable
systems. We are developing the Atlantica-1 Network to satisfy increasing
bandwidth requirements for the transmission of voice, data and video,
particularly over the Internet, between North America and South America.
We currently provide international telecommunications services to both
residential and commercial customers in Bermuda through our subsidiary
TeleBermuda International Limited ("TBI"). TBI, which commenced service in May
1997, is one of only two carriers that the government of Bermuda has licensed
to provide international telecommunications services to customers in Bermuda.
In November 1997, we successfully completed the deployment of the BUS-1
undersea fiber optic cable system, which connects Bermuda and the United
States. The BUS-1 system, which we will incorporate into the Atlantica-1
Network, established us as a full-service facilities-based provider, a company
that has its own long-distance transmission and switching facilities, of
international long-distance service for traffic originating and terminating in
Bermuda. We do not intend to offer telecommunications services to retail
customers outside of Bermuda.
We are a Bermuda company. Our principal executive offices are located at 2
Carter's Bay Road, Southside, St. David's DDBX, Bermuda, and our phone number
is (441) 296-9000. Our common shares are publicly traded on the Bermuda Stock
Exchange under the symbol "GLOCOM."
Atlantica-1 Network
The Atlantica-1 Network will be a 22,500 km four fiber pair undersea fiber
optic cable system. Alcatel Submarine Networks and Alcatel Submarine Networks,
Inc. (collectively, "Alcatel") will design, construct and install the
Atlantica-1 Network for us under a turnkey contract. We believe that the
deployment of the Atlantica-1 Network will position us as one of the first
private undersea fiber optic cable systems that, together with terrestrial
extensions, will offer city-to-city connectivity between the United States,
Brazil, Venezuela, Bermuda and Argentina.
The Atlantica-1 Network will employ the most advanced undersea fiber optic
technology currently available. It will employ self-healing ring technology,
which provides internal restoration capabilities that protect against outages
caused by equipment and cable failures. The initial capacity of the Atlantica-1
Network
1
<PAGE>
will be 40 Gigabits per second, which is a unit of measuring the amount of
information that the network can carry and is often referred to as Gbps, of
total capacity or 20 Gbps of self-healing capacity. Self-healing capacity is
the capacity that we will be able to provide to our customers while still
maintaining the internal restoration capabilities of the Atlantica-1 Network.
We will be able to upgrade the system to 1,280 Gbps of total capacity or 640
Gbps of self-healing capacity. We will upgrade the system incrementally in
advance of expected demand. At 1,280 Gbps of capacity, we estimate that the
Atlantica-1 Network could carry 15 million simultaneous telephone calls. At 40
Gbps of capacity, we estimate that the Atlantica-1 Network could carry 0.47
million simultaneous telephone calls.
The principal components of the Atlantica-1 Network will be the primary ring
and the Rio extension:
. Primary Ring: The primary ring will connect Tuckerton, New Jersey, St.
David's, Bermuda, Fortaleza, Brazil, Punta Gorda, Venezuela and Boca
Raton, Florida. The ready for service, or RFS, date for the connection
from New Jersey to Brazil via Bermuda is September 2000, and the RFS date
for the full ring is December 2000. The cost of the primary ring is
approximately $502 million.
. Rio Extension: The Rio extension will connect Fortaleza, Brazil and Rio
de Janeiro, Brazil. The RFS date for the primary strand of the Rio
extension is February 2001, and the cost is approximately $119 million.
We have an option in our contract with Alcatel to build the secondary
strand of the Rio extension for approximately $112 million. We intend to
exercise this option unless we can obtain capacity on a terrestrial
system from a third party at a lower cost. We expect the target service
date to be approximately 18 months from the date of exercising the
option.
Financing Plan
We estimate that the total cost to build the Atlantica-1 Network, including
the secondary strand of the Rio extension, landing stations and capital
contingencies, will be approximately $825 million. This estimate does not
include potential costs, if any, associated with securing terrestrial capacity,
including any terrestrial extension to Buenos Aires, Argentina.
On July 14, 1999, we obtained approximately $986.0 million of financing
consisting of the following:
. we issued the old notes in an aggregate principal amount of $300 million,
. we issued 13,263,646 common shares (representing 67% of our common shares
on a fully diluted basis) and 1,000 Class B shares, which have special
voting rights, for an aggregate offering price of approximately $270.6
million to certain institutional investors in a private equity financing,
. our subsidiary GlobeNet Communications Holdings Ltd. ("Holdings") entered
into a credit agreement with Toronto Dominion (Texas) Inc., Credit Suisse
First Boston, New York branch, TD Securities (USA) Inc. and certain
lenders under which, subject to certain terms and conditions, Holdings
may borrow up to $400 million and may request an additional facility for
up to $50 million, and
. we retired subordinated loans in the principal amount of $13.5 million
when our subordinated lenders elected to effectively convert the
principal and $1.9 million of accrued interest on their subordinated
loans into 1,635,286 common shares.
On August 9, 1999, we accepted for repurchase 1,500,000 common shares held
by existing shareholders at $20.40 per share (less expenses) for an aggregate
price of $30.6 million. We paid this repurchase price out of a portion of the
proceeds of the private equity financing described above.
As of December 31, 1999, we utilized approximately $128.3 million of the
financing described above to finance the repayment of certain indebtedness,
transaction costs, an initial payment under our contract with Alcatel,
commitment fees and interest on Holdings' bank credit facility and certain
working capital requirements.
2
<PAGE>
We are now offering to exchange new notes for the old notes. See "Use of
Proceeds" for a description of how we will use the proceeds of these offerings.
We expect to incur up to an additional $85 million of senior debt in the
first half of 2000 to finance the acquisition of terrestrial capacity, and we
may incur further costs for terrestrial capacity in the future.
Corporate Structure
The following table shows the organization of the Company and its principal
subsidiaries:
GLOBENET
COMMUNICATIONS GROUP
LIMITED (1)
(the "Company"--the issuer of the notes)
|
|
|
GLOBENET
COMMUNICATIONS
HOLDINGS LTD. (2)
("Holdings"--the borrower of up to
$450 million under the bank credit facility)
--------------------------------------------------------
| | |
| | |
| | |
ATLANTICA GLOBENET TELEBERMUDA
NETWORK COMMUNICATIONS LTD. INTERNATIONAL
(BERMUDA) LTD. LIMITED
(Internet services,
(Atlantica-1 Network) including e-commerce) (BUS-1 system;
Bermuda based
telecommunications
services provider)
- --------
(1) Except for our ownership of Holdings, we have no independent business
operations.
(2) All of the subsidiaries of Holdings have guaranteed Holdings' bank credit
facility and have pledged substantially all of their assets as security for
this credit facility. See "Holdings' Bank Credit Facility."
3
<PAGE>
Summary of the Exchange Offer
On July 14, 1999, we completed a private offering of the old notes. We
entered into a registration rights agreement with the initial purchasers in the
private offering in which we agreed to deliver to you this prospectus and to
use our reasonable best efforts to complete the exchange offer within 210 days
after the date we issued the old notes.
Exchange Offer.......... We are offering to exchange new notes for old notes.
Expiration Date......... The exchange offer will expire at 5:00 p.m. New York
City time, on March 6, 2000, unless we decide to
extend it.
Condition to the
Exchange Offer......... The registration rights agreement does not require us
to accept old notes for exchange if the exchange
offer or the making of any exchange by a holder of
the old notes would violate any applicable law or
interpretation of the staff of the Securities and
Exchange Commission. A minimum aggregate principal
amount of old notes being tendered is not a condition
to the exchange offer.
Procedures for
Tendering Old Notes.... To participate in the exchange offer, you must
complete, sign and date the letter of transmittal, or
a facsimile of the letter of transmittal, and
transmit it together with all other documents
required by the letter of transmittal, including the
old notes that you wish to exchange, to Bankers Trust
Company, as exchange agent, at the address indicated
on the cover page of the letter of transmittal. In
the alternative, you can tender your old notes by
following the procedures for book-entry transfer
described in this prospectus.
If a broker, dealer, commercial bank, trust company
or other nominee is the registered holder of your old
notes, we urge you to contact that person promptly to
tender your old notes in the exchange offer.
For more information on tendering your old notes,
please refer to the sections in this prospectus
entitled "Exchange Offer--Terms of the Exchange
Offer," "--Procedures for Tendering" and "--Book
Entry Transfer."
Guaranteed Delivery
Procedures............. If you wish to tender your old notes and you cannot
get your required documents to the exchange agent on
time, you may tender your old notes according to the
guaranteed delivery procedures described in "Exchange
Offer--Guaranteed Delivery Procedures" beginning on
page 130.
Withdrawal of Tenders... You may withdraw your tender of old notes at any time
prior to the expiration date. To withdraw, you must
have delivered a written or facsimile transmission
notice of withdrawal to the exchange agent at its
address indicated on the cover page of the letter of
transmittal before 5:00 p.m. New York City time on
the expiration date of the exchange offer. See
"Exchange Offer--Withdrawal of Tenders" beginning on
page 130.
4
<PAGE>
Acceptance of Old Notes
and Delivery of New
Notes.................. If you fulfill all conditions required for proper
acceptance of old notes, we will accept any and all
old notes that you properly tender in the exchange
offer on or before 5:00 p.m. New York City time on
the expiration date. We will return any old note that
we do not accept for exchange to you without expense
as promptly as practicable after the expiration date.
We will deliver the new notes as promptly as
practicable after the expiration date and acceptance
of the old notes for exchange. Please refer to the
section in this prospectus entitled "Exchange Offer--
Terms of the Exchange Offer."
Fees and Expenses....... We will bear all expenses related to the exchange
offer. Please refer to the section in this prospectus
entitled "Exchange Offer--Fees and Expenses."
Use of Proceeds......... The issuance of the new notes will not provide us
with any new proceeds. We are making this exchange
offer solely to satisfy our obligations under our
registration rights agreement. Please refer to the
sections entitled "Use of Proceeds" and "Management's
Discussion and Analysis of Financial Condition and
Results of Operations--Liquidity and Capital
Resources" for a discussion of our use of the
proceeds from the issuance of the old notes.
Consequences of Failure
to Exchange Old
Notes.................. If you do not exchange your old notes in this
exchange offer, you will no longer be able to require
us to register the old notes under the Securities Act
of 1933 except in the limited circumstances provided
under our registration rights agreement. In addition,
you will not be able to resell, offer to resell or
otherwise transfer the old notes unless we have
registered the old notes under the Securities Act of
1933, or unless you resell, offer to resell or
otherwise transfer them under an exemption from the
registration requirements of, or in a transaction not
subject to, the Securities Act of 1933. Please refer
to the section in this prospectus entitled "Risk
Factors--Failure to Properly Tender Old Notes in
Exchange Offer."
U.S. Federal Income Tax
Considerations......... The exchange of new notes for old notes in the
exchange offer will not be a taxable event for U.S.
federal income tax purposes. Please read "Certain
Income Tax Considerations" on page 133.
Exchange Agent.......... We have appointed Bankers Trust Company as exchange
agent for the exchange offer. You should direct
questions and requests for assistance, requests for
additional copies of this prospectus or of the letter
of transmittal and requests for the notice of
guaranteed delivery to the exchange agent addressed
as follows: BT Services Tennessee, Inc.,
Reorganization Unit, P.O. Box 292737, Nashville,
Tennessee 37229-2737. Eligible institutions may make
requests by facsimile at (615) 835-3701.
5
<PAGE>
Summary of Terms of the New Notes
The new notes will be identical to the old notes except that the new notes
are registered under the Securities Act of 1933 and will not have restrictions
on transfer, registration rights or provisions for additional interest and will
contain different administrative terms. The new notes will evidence the same
debt as the old notes, and the same indenture will govern the new notes and the
old notes.
The summary below describes the principal terms of the new notes. There are
important limitations and exceptions to the terms and conditions described
below. You should read the discussion under the heading "Description of the New
Notes" beginning on page 80 for further information regarding the new notes.
References in this summary of terms of the new notes to "we" and "our" refer
only to GlobeNet Communications Group Limited and do not include our
subsidiaries.
Issuer.................. GlobeNet Communications Group Limited.
Notes Offered........... $300,000,000 principal amount of 13% Series B Senior
Notes due 2007.
Maturity................ July 15, 2007.
Interest................ Interest will accrue from July 14, 1999 or from the
most recent date to which we have paid interest on
the old notes, and will be payable on January 15 and
July 15, beginning on January 15, 2000.
Ranking................. The new notes are our senior obligations and will
rank equally with all of our existing and future
senior indebtedness, and will be senior to all of our
existing and future subordinated indebtedness. The
new notes will effectively rank behind all of our
secured obligations to the extent of the value of the
assets securing these obligations.
We are a holding company and none of our subsidiaries
will guarantee the new notes. The new notes will
effectively rank behind all existing and future
indebtedness and all other liabilities of our
subsidiaries, including up to $450 million of
indebtedness under Holdings' bank credit facility.
Optional Redemption..... We may redeem some or all of the new notes at any
time after July 15, 2004 at the redemption prices
listed under the heading "Description of the New
Notes--Optional Redemption," plus accrued and unpaid
interest, if any, to the redemption date.
Optional Redemption
After Certain Equity
Offerings.............. At any time prior to July 15, 2002, we may redeem up
to 35% of the notes that we originally issued under
the indenture with funds that we raise in one or more
equity offerings at 113% of the principal amount of
the redeemed notes, plus accrued and unpaid interest,
as long as at least 65% of the aggregate principal
amount of the notes originally issued remains
outstanding after each redemption. See "Description
of the New Notes--Optional Redemption."
Optional Tax
Redemption............. We may redeem all, but not fewer than all, of the new
notes at their principal amount, plus accrued and
unpaid interest, in the event of certain changes
affecting tax laws, as described under "Description
of the New Notes--Optional Tax Redemption."
6
<PAGE>
Change of Control....... If a change of control of the Company occurs, we must
give holders of the new notes the opportunity to sell
us their new notes at the price set forth under the
heading "Description of the New Notes--Change of
Control." We might not be able to repurchase the
notes that you present following a change of control
because:
. we might not have enough funds at that time,
and
. the terms of our indebtedness or the
indebtedness of our subsidiaries may prevent
us.
Certain Indenture
Provisions............. The indenture governing the new notes will contain
covenants limiting our ability and the ability of our
subsidiaries to:
. incur additional debt,
. pay dividends or distributions on our capital
stock or repurchase our capital stock,
. issue or sell capital stock of subsidiaries,
. make certain investments,
. sell assets,
. guarantee debt,
. restrict dividends or other payments to us,
. create certain liens,
. enter into transactions with affiliates, and
. merge, amalgamate, consolidate or sell
substantially all of our assets.
There are a number of important limitations and
exceptions to these covenants that are described
under the heading "Description of the New Notes" and
in the indenture.
Our failure to comply with these and the other
covenants under the indenture, a default in the
payment of any interest on or the principal of the
new notes, certain defaults on other indebtedness,
certain events relating to our bankruptcy and other
customary events may constitute events of default
under the indenture. The indenture requires us to
provide annual certificates to the trustee of our
compliance with the indenture and to otherwise notify
the trustee of defaults within 10 days of becoming
aware of the default.
Trustee................. The trustee under the indenture is Bankers Trust
Company.
Listing................. We do not intend to apply for listing of the new
notes on any securities exchange or for quotation of
the new notes in any automated dealer quotation
system.
Risk Factors
You should carefully consider the risk factors beginning on page 10 of this
prospectus before participating in the exchange offer.
7
<PAGE>
Summary Consolidated Financial Data
The following table sets forth summary consolidated financial data for the
Company. We have derived the summary consolidated statement of operations data
for the fiscal years ended December 31, 1998 and 1997 and for the ten months
ended December 31, 1996 for the Company from our consolidated financial
statements that PricewaterhouseCoopers, Chartered Accountants, has audited. We
have prepared the summary consolidated statement of operations data in
accordance with accounting principles generally accepted in the United States.
We have derived the summary consolidated financial data as at and for the nine
months ended September 30, 1999 and September 30, 1998 from our unaudited
interim consolidated financial statements for these periods and we have
prepared this financial data on the same basis as the audited consolidated
financial statements. In the opinion of management, this financial data
contains all adjustments necessary for the fair statement of the results of
operations for these periods. Operating results for these nine-month periods
are not necessarily indicative of the results of operations for a full year.
We are substantially increasing the scope and scale of our business with the
development of the Atlantica-1 Network. Accordingly, the summary consolidated
financial data presented below may not be indicative of our financial position
or results of operations in the future. You should read the summary
consolidated financial data in conjunction with our consolidated financial
statements and the notes thereto that are included elsewhere in this
prospectus. See also "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
<TABLE>
<CAPTION>
Fiscal Year
Ten Months Ended Nine Months Ended
Ended December 31, September 30,
December 31, ------------------- --------------------
1996 1997 1998 1998 1999
------------ -------- ------- ------- ---------
(dollars in thousands)
<S> <C> <C> <C> <C> <C>
Statement of Operations
Data:
Revenues
Telecommunications
services............... $ -- $ 4,962 $24,940 $16,257 $ 19,468
IRU capacity ........... -- -- 1,784 1,587 236
------- -------- ------- ------- ---------
-- 4,962 26,724 17,844 19,704
------- -------- ------- ------- ---------
Expenses
Carrier charges......... -- 3,559 15,129 10,855 8,446
Cost of IRU capacity ... -- -- 547 547 --
General and
administrative
expenses............... 3,158 4,961 9,328 6,807 13,409
Amortization of deferred
financing costs........ -- 305 321 241 975
Amortization of capital
assets................. 1 429 1,502 1,075 1,256
Interest on long-term
debt................... -- 750 3,542 2,543 8,949
Accrued contingent
interest(1)............ -- 382 960 713 538
Interest income......... (141) (193) (170) (77) (5,220)
Provision for income
taxes.................. 14 53 36 26 96
Minority interest....... -- (249) (204) (204) --
Loss from equity
accounted for
investments............ 228 261 677 1,092 696
Extraordinary loss from
extinguishment of
debt................... -- -- -- -- 809
------- -------- ------- ------- ---------
Net loss................ $(3,260) $ (5,296) $(4,944) $(5,774) $ (10,250)
======= ======== ======= ======= =========
Basic and fully diluted
loss per common share
before extraordinary
item................... $ (1.89) $ (1.52) $ (1.41) $ (1.64) $ (1.26)
======= ======== ======= ======= =========
Basic and fully diluted
loss per common share
relating to the
extraordinary loss from
the debt
extinguishment......... -- -- -- -- (.10)
======= ======== ======= ======= =========
Basic and fully diluted
loss per common share.. $ (1.89) $ (1.52) $ (1.41) $ (1.64) $ (1.36)
======= ======== ======= ======= =========
Other Financial Data:
Capital expenditures.... $ 4,728 $ 22,662 $ 1,791 $ 1,132 $ 65,572
Ratio of earnings to
fixed charges.......... -- (2) -- (2) -- (2) -- (2) -- (2)
Cash provided by (used
in):
Operating activities.... $(1,359) $ 5,447 $(3,489) $(5,177) $ 11,356
Financing activities.... 17,594 29,159 6,937 9,350 580,815
Investing activities.... (6,898) (43,128) (1,777) (1,542) (595,201)
Earnings (loss) before
interest, amortization,
income taxes, minority
interest, equity
accounted for
investment and
extraordinary item(3).. (3,158) (3,558) 1,720 (365) (2,151)
</TABLE>
8
<PAGE>
<TABLE>
<CAPTION>
September 30, 1999
----------------------------
As
Actual(4) adjusted(7)
----------- ------------
(dollars in thousands)
<S> <C> <C>
Balance Sheet Data:
Restricted cash............................... $ 530,969(5) $ 530,971(5)
Capital assets, net........................... 90,496 111,252
Total assets.................................. 670,079 670,079
Total long-term debt (including current
portion)..................................... 400,000(6) 400,000
Shareholders' equity.......................... 246,599 246,599
</TABLE>
- --------
(1) Accrued contingent interest represents the payment that we would have had
to make if the warrant holders had not exercised the warrants that we
issued in connection with subordinated loans to TBI by July 28, 2002. We
calculated it at 7% per annum on the gross exercise price for the
unexercised warrants from the date of issue to the date of expiration. See
note 9(c) to our audited consolidated financial statements.
(2) Earnings were inadequate to cover fixed charges and accordingly the
deficiency of earnings available to cover fixed charges is as follows:
$3,246 for the ten months ended December 31, 1996, $5,243 for the year
ended December 31, 1997, $4,908 for the year ended December 31, 1998,
$5,748 for the nine months ended September 30, 1998, $9,345 for the nine
months ended September 30, 1999, $52,087 for the pro forma year ended
December 31, 1998 and $34,618 for the pro forma nine months ended September
30, 1999. For the purposes of calculating the deficiency of earnings
available to cover fixed charges, earnings consists of earnings (loss)
before income taxes, minority interest, equity accounted for investment and
extraordinary item adjusted for minority interest, earnings (loss) from
equity accounted for investment and the interest component of rental
expense, and fixed charges consists of interest on long-term debt,
amortization of deferred financing costs, accrued contingent interest and
the interest component of rental expense.
(3) Earnings (loss) before interest, amortization, income taxes, minority
interest, equity accounted for investment and extraordinary item is not a
measure of performance under U.S. GAAP, but we present it because we
believe it is a measure of performance that analysts, investors and other
interested parties in our industry commonly report and widely use. You
should not consider it an alternative to net loss as a measure of operating
performance or cash provided by (used in) operations as a measure of
liquidity.
(4) Reflects the private offering of the old notes, the borrowings on Holdings'
bank credit facility, the private equity financing and the exercise of
warrants by our former subordinated lenders, and our use of the net
proceeds therefrom, our payment of interest on one of our retired
subordinated loans and the conversion of interest on the other subordinated
loan, our repurchase of common shares of the Company from existing
shareholders, our repayment of TBI's credit facility and related interest,
transaction costs, accrued contingent interest and existing deferred
financing costs. See "Capitalization."
(5) The Company's use of cash is generally restricted under the terms of
Holdings' bank credit facility to operating and capital expenditures
related to the Atlantica-1 Network and to other telecommunications
activities. The investment of the cash is restricted to investments with a
minimum credit rating of A-1 by Standard & Poor's or P-1 by Moody's.
(6) Includes borrowings of $100 million under Holdings' bank credit facility of
up to $450 million. Availability of these funds is subject to certain terms
and conditions. See "Holdings' Bank Credit Facility."
(7) Reflects the Company's consolidation of TeleBermuda International L.L.C. as
a result of the Company indirectly acquiring, effective November 1, 1999,
all of the shares that it previously did not own.
9
<PAGE>
RISK FACTORS
Before you tender the old notes in the exchange offer, you should carefully
consider the following risk factors and the other information in this
prospectus. The risks that we have described below are not the only ones facing
us. This prospectus also contains forward-looking statements that involve risks
and uncertainties. See "Forward-Looking Statements." Our actual results could
differ materially from those anticipated in the forward-looking statements as a
result of certain factors, including the risks described below and elsewhere in
this prospectus.
Risk Factors Relating to the Notes
Failure to Properly Tender Old Notes in Exchange Offer--If you do not properly
tender your old notes, you will continue to hold unregistered old notes and
your ability to transfer old notes will be adversely affected.
We will only issue new notes in exchange for old notes that you timely and
properly tender. Therefore, you should allow sufficient time to ensure timely
delivery of the old notes and you should carefully follow the instructions on
how to tender your old notes. Neither we nor the exchange agent are required to
tell you of any defects or irregularities with respect to your tender of old
notes.
If you do not exchange your old notes for new notes pursuant to the exchange
offer, the old notes you hold will continue to be subject to the existing
transfer restrictions. In general, you may not offer or sell the old notes
except under an exemption from, or in a transaction not subject to, the
Securities Act of 1933 and applicable state securities laws. We do not plan to
register old notes under the Securities Act of 1933. Further, if you continue
to hold any old notes after the exchange offer is consummated, you may have
trouble selling them because there will be fewer old notes outstanding.
No Prior Market for the New Notes--If an active trading market does not
develop for the new notes, you may be unable to sell the new notes or to sell
the new notes at a price that you deem sufficient.
The new notes will be new securities for which there currently is no
established trading market. Although we will register the new notes under the
Securities Act of 1933, we do not intend to apply for listing of the new notes
on any securities exchange or for quotation of the new notes in any automated
dealer quotation system (including The PORTAL Market). In addition, although
the initial purchasers of the old notes have informed us that they intend to
make a market in the new notes after the exchange offer, the initial purchasers
may stop making a market at any time. Finally, if a large number of holders of
old notes do not tender old notes or tender old notes improperly, the limited
amount of new notes that would be issued and outstanding after we consummate
the exchange offer could adversely affect the development of a market for these
new notes.
Substantial Price Volatility--Even if a market for the new notes develops, the
market price may be subject to substantial volatility.
If a market for the new notes were to develop, changes in our financial
performance, changes in the overall market for similar securities and the
performance or prospects for companies in our industry may adversely affect the
market price for the new notes. Historically, disruptions in the market for
non-investment grade debt have caused substantial volatility in the prices of
securities similar to the new notes.
Substantial Leverage--Our substantial indebtedness could prevent us from
fulfilling our obligations under the new notes and limit our ability to manage
our business effectively.
We have substantial debt and debt service requirements. As of December 31,
1999, we had consolidated indebtedness of approximately $400 million. Our
subsidiary Holdings may be able to borrow up to an additional $350 million
under its credit facility. Further, the indenture under which we issued the
notes and Holdings' bank credit facility may permit us to incur additional
debt, including secured debt, subject to certain
10
<PAGE>
limitations. See "Description of the New Notes--Certain Covenants--Incurrence
of Indebtedness and Issuance of Preferred Stock" and "Holdings' Bank Credit
Facility." We expect to incur up to an additional $85 million of senior debt
in the first half of 2000 to finance the acquisition of terrestrial capacity.
The amount of our debt could have important consequences to you. For
example, it could:
. make it more difficult for us to satisfy our obligations with respect to
the notes,
. increase our vulnerability to general adverse economic and industry
conditions,
. limit our ability to fund future capital expenditures, research and
development costs, 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,
. limit our flexibility in planning for, or reacting to, changes in our
business and the industries in which we operate, and
. place us at a competitive disadvantage compared to competitors that have
less debt.
Ability to Service Debt--If we are unable to generate a significant amount of
cash, we may be unable to service our debt, including the notes.
Our ability to generate sufficient cash flow to pay the principal of and
interest on our debt, including the notes, depends upon the successful and
timely completion of our systems, including the Atlantica-1 Network, the
successful and timely acquisition of terrestrial extensions, our future
operating performance and a number of other factors, many of which are beyond
our control.
If we are unable to generate sufficient cash flow to meet our debt service
requirements, we may have to obtain additional debt or equity financing,
refinance or restructure all or a portion of our existing debt or sell all or
a portion of our assets. Our ability to take any of these actions will depend
on our financial condition at the time and other factors, including general
market and economic conditions. See "--Covenant Restrictions" below for a
description of certain restrictions in the agreements governing our debt that
could limit our ability to take any of these actions. Accordingly, these
transactions may not be possible. If, for any reason, including a shortfall in
anticipated cash flow, we are unable to meet our debt service obligations, we
would be in default under our existing debt agreements.
Holding Company Structure--If our subsidiaries are unable to distribute funds
to us, we will be unable to make payments on the notes.
We are a holding company. Our only material asset is our ownership of the
capital stock of Holdings. As a result, our ability to make required payments
on the notes depends on the performance of the businesses owned by our
subsidiaries and our subsidiaries' ability to distribute funds to us. Our
subsidiaries will have no obligation to pay amounts due on the notes, and none
of our subsidiaries will guarantee the notes. In addition, the applicable law
of the jurisdictions in which these subsidiaries are organized or contractual
or other obligations to which they are subject may limit their ability to pay
dividends or make payments on intercompany loans, including those made with
the proceeds of the offering of the old notes.
Holdings' bank credit facility and the related security, pledge, guarantee
and other documents will restrict our subsidiaries' ability to pay dividends,
make distributions or otherwise transfer funds to us. In addition, Holdings'
bank credit facility and these related instruments will prohibit Holdings from
making distributions to us from which we would otherwise expect to make
interest payments on the notes during the occurrence and continuance of
certain defaults or events of default under Holdings' bank credit facility and
the related instruments. See "Holdings' Bank Credit Facility."
As of December 31, 1999, the notes were structurally subordinated to
approximately $100.0 million of debt of our subsidiaries. Our subsidiaries may
incur up to $350.0 million of additional debt under Holdings' bank credit
facility, and they may incur more debt in the future.
11
<PAGE>
Covenant Restrictions--Holdings' bank credit facility, the related security,
pledge, guarantee and other documents and the indenture impose significant
restrictions on our ability to take certain actions.
These restrictions will significantly limit or prohibit, among other things,
our ability and our subsidiaries' ability to:
. engage in unrelated business activities,
. incur additional indebtedness,
. repay indebtedness prior to stated maturities,
. sell assets,
. make investments,
. engage in transactions with shareholders and affiliates,
. issue capital stock,
. create liens, or
. engage in mergers, amalgamations or acquisitions.
These restrictions could also limit our ability and our subsidiaries'
ability to:
. obtain financing in the future,
. make needed capital expenditures,
. withstand a future downturn in our business or the economy in general, or
. otherwise conduct necessary corporate activities.
Events beyond our control, including prevailing economic and financial
conditions, may affect our ability and our subsidiaries' ability to comply with
these covenants and restrictions. If we or our subsidiaries fail to comply with
these restrictions, a default may occur under the terms of Holdings' bank
credit facility, the related security, pledge, guarantee and other documents or
the indenture notwithstanding our ability and the ability of our subsidiaries
to meet our respective debt service obligations.
Financing Change of Control Offer--We may not be able to raise the funds
necessary to finance the change of control offer required by the indenture.
The indenture requires us, in the event of a change of control, to make an
offer to purchase the notes at a price equal to 101% of the principal amount of
the notes, plus accrued interest to the date of purchase. This provision may be
of limited value to holders of notes because, before making the offer to
purchase the notes, we would be required to (1) repay in full all of our
indebtedness under Holdings' bank credit facility and any other indebtedness
that would prohibit the purchase of the notes, or (2) obtain any requisite
consent to permit the purchase of the notes. We may not have sufficient funds
available at the time of any change of control to make any debt payment
(including purchase of the notes) as described above.
The events that constitute a change of control under the indenture may also
be events of default under Holdings' bank credit facility. An event of default
under Holdings' bank credit facility may permit the lenders to accelerate the
outstanding debt under the credit facility and, if Holdings does not repay the
debt, to foreclose on assets of our subsidiaries subject to security interests.
This would limit our ability to raise cash to purchase the new notes.
12
<PAGE>
Risk Factors Relating to the Company
Limited Operating History--Because of our limited operating history and
negative cash flow, an investment in the notes may involve greater risk than
an investment in the securities of an entity with a longer operational
history.
We began providing telecommunications services in Bermuda in May 1997
through TBI. We have accumulated losses as of September 30, 1999 of $25.2
million and have never earned a profit. In addition, our historical financial
information relates primarily to TBI's retail international telecommunications
business and not the international telecommunications network solutions
business we are entering with the construction of the Atlantica-1 Network.
Accordingly, you have very limited historical financial information upon which
to base your evaluation of our performance and an investment in the new notes.
You should consider our prospects in light of the risks, expenses and
difficulties that companies in an early stage of development frequently
encounter.
We intend to use most of the proceeds from the sale of the old notes and a
significant amount of additional capital to develop the Atlantica-1 Network and
terrestrial extensions. Until we complete the principal segments of the
network, we will continue to spend more building the network than we will earn
from selling capacity on it. Accordingly, we expect to experience negative cash
flows after capital expenditures while we are developing our network. Our
future success will depend substantially on sales of capacity on the Atlantica-
1 Network and any subsequent systems. We may be unable to realize our business
plan, achieve operating profitability or generate sufficient cash flow to
service our debt (including the notes), capital expenditures or working capital
requirements.
Substantial Future Capital Requirements--Our future growth will require
substantial additional capital requirements that may exceed our budgeted
amounts and for which we may need to incur additional indebtedness.
Although we expect the net proceeds we received from the private offering of
the old notes, the net proceeds we received from the private equity financing
and borrowings under Holdings' bank credit facility to be sufficient to
complete the development of the Atlantica-1 Network, we expect to need
significant amounts of additional capital to implement our business plan. We
expect to incur up to an additional $85 million of senior debt in the first
half of 2000 to finance the acquisition of terrestrial capacity for the
Atlantica-1 Network, and we may incur further costs for terrestrial capacity in
the future. In addition to building the Atlantica-1 Network, we may in the
future expand our undersea fiber optic cable systems through the development of
the Atlantica-2 Network. We expect the Atlantica-2 Network to have a comparable
unit price per kilometer to the Atlantica-1 Network and to require substantial
capital to develop.
If we cannot generate sufficient funds from operations, we may issue
additional debt or equity capital. The provisions of the indenture, Holdings'
bank credit facility and the related security, pledge, guarantee and other
documents, however, may restrict our ability to issue debt or equity. We may be
unable to arrange financing in the future or, if we are able to do so, we may
be unable to arrange financing on terms that are favorable to us. Our ability
to arrange financing and the cost of the financing will depend on many factors
including:
. general economic and capital markets conditions and particular conditions
in the non-investment grade debt market,
. conditions in the telecommunications industry,
. regulatory developments,
. investor confidence and credit availability from banks and other lenders,
. the success of the Atlantica-1 Network, and
. tax and securities laws that affect raising capital.
13
<PAGE>
Completion of the Atlantica-1 Network--If we fail to complete our network
within our estimated cost and time-frame, we may be unable to provide our
network services competitively.
In order to implement our business strategy and generate cash flows to
service our indebtedness, we must successfully complete the Atlantica-1
Network at the cost and in the time-frame that we currently estimate. We have
entered into a contract with Alcatel to design, engineer and construct the
Atlantica-1 Network on a turnkey basis. A wide variety of factors,
uncertainties and contingencies, many of which are beyond our or Alcatel's
control, including inclement weather and adverse changes in government
regulations, may affect the construction of the Atlantica-1 Network. Alcatel
also may suspend its work on the network if we fail to make the requisite
periodic payments. Any suspension could result in a failure to meet a
scheduled completion date. In addition, our contract with Alcatel limits the
damages that we could recover in the event of a breach by Alcatel.
There are few manufacturers of materials used to build undersea fiber optic
cable systems and these manufacturers have a limited capacity that network
developers reserve in advance. Alcatel has reserved capacity for the
Atlantica-1 Network. A significant delay in our time-frame could cause us to
be unable to obtain the manufacturing capacity necessary to complete the
network.
Our successful completion of the Atlantica-1 Network at the cost and in the
time-frame that we currently estimate will also depend, among other things,
upon our ability to manage its construction effectively and Alcatel's ability
to obtain all construction permits and licenses.
Sales of Capacity--If we are unable to sell sufficient capacity on our cable
systems or to sell capacity on favorable terms, then we may be unable to
generate sufficient revenues and cash flows to implement our business plan or
service our indebtedness.
As of the date of this prospectus, we have only sold limited capacity on
the BUS-1 system and have not sold any capacity on the Atlantica-1 Network.
There may not be sufficient demand to support our network, we may not be able
to sell capacity on our cable systems and any sales may not be on favorable
terms. Several competitors have announced other undersea fiber optic cable
systems with capacity, technology and scheduled completion dates that we
expect to be similar to our network. These other systems may adversely affect
our ability to sell our capacity.
Realization of Other Revenues--If we fail to increase our revenues beyond
initial capacity sales, we may be unable to implement our business plan.
We intend to increase our revenues and profits by:
. upgrading capacity on the Atlantica-1 Network,
. developing or acquiring additional undersea fiber optic cable capacity,
. developing or purchasing terrestrial extensions in a cost effective
manner to connect landing stations to major city centers,
. introducing new products and services such as value-added offerings
through which a customer could use our Bermuda base of network operations
to generate cost-savings and minimize income taxes, and
. increasing TBI's market share in Bermuda through the introduction of
innovative product and service offerings at competitive prices.
Operations Risks--If our systems fail to operate properly or are damaged, we
may be unable to provide our intended network services and to implement our
business plan.
Our success depends on our systems providing competitive reliability,
capacity and security. The operation, administration, maintenance and repair
of a large-scale, complex telecommunications network, however, requires the
coordination and integration of sophisticated and highly specialized hardware
and software technologies and equipment. The Atlantica-1 Network will employ
certain components that no one has used before in an undersea fiber optic
cable system. The BUS-1 system also is subject to operational risks. The
14
<PAGE>
failure of the hardware or software to function as required could render an
undersea fiber optic cable system unable to perform at design specifications.
Even if built to specifications, our systems may not function as expected in a
cost-effective manner. Additional operational risks include physical damage,
power loss, capacity limitations, breaches of security and disruptions beyond
our control.
Both the Atlantica-1 Network and the BUS-1 system are covered by a limited
manufacturer's warranty for a limited period of time intended to ensure that
the system as installed meets the design specifications. A third party
maintains the BUS-1 system under a contract with us. We expect to enter into a
contract with a third party to provide maintenance and other services on the
Atlantica-1 Network prior to the RFS date. We expect that purchasers of IRU
capacity will pay their pro rata share of maintenance expenses, including
repair costs. If our systems fail to operate properly or are damaged, and the
problem is either not covered by the manufacturer's warranty or applicable
insurance coverage or we have not sold a sufficient amount of IRU capacity to
absorb the repair cost, we may incur a material repair expense.
We expect each of our systems to have a design life of not less than 25
years; however, the actual useful life of any of these systems may be shorter.
A number of factors will affect the useful life of each of our systems,
including, among other things:
. quality of construction,
. unexpected deterioration, and
. technological or economic obsolescence.
Competition--We may be unable to compete with our larger and better financed
competitors.
The international telecommunications industry is extremely competitive. We
face competition from existing and planned systems along each of our planned
routes. We will also compete with satellite providers and land-based cable
systems. Most of our competitors have substantially greater financial,
technical and marketing resources than we do. We will compete primarily on the
basis of price, availability, flexible provisioning, colocation services,
transmission quality and reliability, customer service and the locations our
systems connect.
Future sources of competition for the Atlantica-1 Network include:
. Americas-2, a new carriers' consortium cable system with a scheduled RFS
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.
Global Crossing Ltd. has stated that South American Crossing is scheduled to
be available for service in the first quarter of 2001 and will be capable of
providing up to 1,280 Gbps of total capacity. Telefonica Internacional S.A. and
Tyco International Ltd. have stated that SAm-1 is scheduled to be available for
service in December 2000 and will be capable of providing up to 1,280 Gbps of
total capacity. In addition, we are aware of carrier discussions regarding a
possible new carrier's consortium cable system, Americas-3, that would involve
a ring system connecting the United States, Puerto Rico, Venezuela, Argentina,
Brazil, Chile, Ecuador, Colombia, Uruguay, Peru, Panama, Barbados, Jamaica and
the Dominican Republic with a potential design capacity of up to 2,560 Gbps. We
believe that the third quarter 2001 is the target completion date for this
system. There may not be sufficient demand to support all of these systems or
additional systems that these or other competitors may build.
Our existing business, the provision of retail telecommunications services
in Bermuda, is also very competitive. Our only licensed competitor in this
market, Cable & Wireless, has:
. substantially greater financial, technical and marketing resources,
. access to larger networks through inter-company relationships,
15
<PAGE>
. a broader portfolio of services,
. stronger name recognition, and
. long-standing customer relationships.
In August 1999, an Internet service provider, or ISP, in Bermuda filed for
declaratory relief following the Bermuda Government's refusal to permit it to
provide voice over Internet service under the terms of its data only service
license. TBI has intervened as a party in the lawsuit and a hearing on the
merits is scheduled to commence in mid-February 2000. In addition, in October
1999, the Minister of Telecommunications & E-Commerce Affairs initiated a
reconsideration of whether the license terms of ISPs should be amended to
permit them to provide voice over Internet service and to broaden the class of
carriers authorized to provide Internet services. Further to this initiative,
in December 1999, the Minister requested the Telecommunications Commission to
conduct an inquiry into the Bermuda ISP industry's financial and cost
structure. Accordingly, the Bermuda Government may change its current policy
and permit ISPs to provide voice over Internet, which would constitute a
competitive service to TBI's long-distance services. In addition, the Bermuda
Government may license additional parties to provide long-distance service in
Bermuda. These developments may adversely impact our revenues from TBI's
Bermuda long-distance business.
Dependence on Senior Management--If we lose members of our senior management
team, we may be unable to implement our business plan.
We are dependent on the continued employment of our senior management team
in order to implement our business plan. A small number of key management and
operating personnel who have been extensively involved in our formation and the
establishment of our key business relationships manage our business. Among
other things, we rely on specific individuals to supervise the construction of
our undersea cable network, to negotiate strategic alliances with
telecommunications service providers and other carriers, to sell capacity on
the network and to oversee and implement other aspects of our business plan.
The loss of any member of our management team could delay or prevent us from
achieving these aspects of our business plan. Competition for management-level
individuals in the telecommunications industry is intense, and we may not be
able to attract, motivate and retain highly skilled qualified personnel. We do
not maintain any key person life insurance on the lives of any of our
management personnel.
Ability to Manage Growth--If we are unable to effectively manage our growth
and transition from a development company to an operating company, we may not
be successful in developing and operating our network.
Our planned growth and expansion will place significant demands on our
management and operations. Our ability to manage this growth successfully will
depend on, among other things:
. expanding our management resources, network infrastructure, information
and reporting systems and controls,
. expansion, training and management of our employee base, including
attracting and retaining skilled personnel,
. evaluating new markets,
. monitoring operations,
. controlling costs, and
. obtaining satisfactory interconnection agreements with other network
providers.
16
<PAGE>
Dependence on Third Parties--If the third parties upon whom we depend do not
perform their contractual obligations, we will be unable to provide our
network services.
We and our customers depend and will continue to depend upon third parties,
such as carriers, Post, Telephone and Telegraph companies, or PTTs,
telecommunications facilities providers and suppliers, and local operating
companies, including the Bermuda Telephone Company, to:
. construct and maintain systems and provide equipment,
. provide access to certain origination and termination points of our
systems in various jurisdictions,
. construct and operate landing stations in certain of these jurisdictions,
. acquire rights of way, licenses and permits, and
. provide terrestrial capacity.
These third parties may not perform their contractual obligations.
Tax Matters--We have assumed that a significant portion of our income will
not be subject to certain taxes. If our assumption is incorrect or if there
are changes in the prevailing tax laws, it could adversely impact our
revenues and our cash flow available to make payments on the notes.
We believe that a significant portion of the income derived from our
undersea fiber optic systems will not be subject to tax by any of (1) Bermuda,
which currently does not have a corporate income tax, (2) Brazil, (3)
Venezuela, or (4) certain other countries in which we will conduct activities
or in which our target customers will be located, including the United States.
However, we base our belief upon the anticipated nature and conduct of our
business, which may change, and upon our understanding of the tax laws of the
various countries in which we expect to have assets or conduct activities. Our
position is subject to review and possible challenge by taxing authorities and
to possible changes in law, which may have retroactive effect. We cannot
predict the amount of tax to which we may become subject. For more
information, see "Certain Income Tax Considerations."
Year 2000 Problem--If we experience system failures as a result of the Year
2000 Problem, it could adversely affect our ability to provide our network
services.
The year 2000 problem is the result of writing computer programs using two
digits rather than four to define the applicable year. Computer programs that
have date-sensitive software may recognize a date using "00" as the year 1900
rather than the year 2000. This could result in a system failure or
miscalculations. If companies do not make necessary modifications, the year
2000 problem could adversely impact our ability to provide our
telecommunications services. Furthermore, other companies' systems on which
our systems rely may not be prepared for the year 2000, or these companies may
implement year 2000 preparations with systems that are incompatible with our
systems. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations--Year 2000 Problem."
Significant Shareholders with Potentially Adverse Interests--Our significant
shareholders may cause us to pursue transactions that increase the risk of
your investment in the notes.
The institutional investors named below or their affiliates purchased
approximately 67% of the common shares of the Company on a fully diluted basis
and Class B shares, which have certain voting rights as described under the
heading "Principal Shareholders--Capital Structure," in the private equity
financing:
. Boston Ventures Management, Inc.,
. Kelso & Company,
. Providence Equity Partners, Inc.,
. Spectrum Equity Investors,
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<PAGE>
. TD Capital Group Limited (an affiliate of one of the initial purchasers
of old notes),
. Capital Communications CDPQ Inc.,
. Sandler Capital Management,
. Ontario Municipal Employee Retirement Board and
. Nautilus Equity Investors LLC (whose managing member is an indirect
subsidiary of one of the initial purchasers of old notes).
There may be conflicts of interest between these investors and you if we
encounter financial difficulties or these investors cause us to pursue
transactions that could enhance their equity investment while involving risks
to your interests.
Certain of these investors, or their affiliates, currently have significant
investments in other telecommunications companies, and may in the future invest
in other entities engaged in the telecommunications business, some of which may
compete with us. These investors have no obligation to bring us any investment
or business opportunities of which they are aware, even if opportunities are
within our scope and objectives. Conflicts may also arise in the negotiation or
enforcement of arrangements we may enter into with entities in which these
investors, or their affiliates, have an interest.
Service of Process and Enforcement of Liabilities--It may be difficult for you
to enforce U.S. judgments against our foreign assets, to serve our foreign
officers and directors or to enforce U.S. judgments against them and to
enforce U.S. securities laws in Bermuda.
GlobeNet Communications Group Limited is a Bermuda company. A substantial
portion of our assets and our principal offices are located outside of the
United States. In addition, some of our directors and officers are not
residents of the United States. As a result, it may be difficult for you to
enforce judgments obtained in United States courts against our assets located
outside the United States, and it may be difficult for you to effect service of
process within the United States upon these directors and officers or to
enforce judgments obtained in United States courts against them. Furthermore,
our legal counsel in Bermuda, Conyers Dill & Pearman, has advised us that there
is doubt as to the enforcement in Bermuda, in original actions or in actions
for enforcement of judgments of United States courts, of liabilities predicated
upon U.S. securities laws.
Risk Factors Relating to the Industry
Demand for Fiber Optic Capacity--If fiber optic cable technology becomes
obsolete or is replaced by newer competing technologies, we may be unable to
implement our business plan.
The international telecommunications industry is changing rapidly due to,
among other things:
. the easing of regulatory constraints,
. the privatization of established carriers and PTTs,
. the expansion of telecommunications infrastructure,
. economic globalization, and
. the changing technology for all telecommunications industry sectors,
including cable, wireless and satellite.
Our business strategy and much of our planned growth is predicated upon the
continuation of the growth in demand for international telecommunications
capacity that has occurred over the past several decades and the continued
viability of fiber optic cable networks as a preferred means of transmitting
voice and data. This may not occur.
18
<PAGE>
Declining Prices Per Circuit--If prices for circuits decline more than we
expect, we may not generate sufficient revenues to implement our business
plan.
The fiber optic cable transmission industry has realized significant per
unit cost reductions over the past several years resulting from technological
advances in fiber optics. These advances have caused prices for circuits to
decline. We anticipate that prices for our products and services specifically,
and network transmission capacity in general, will continue to decline over
the next several years, due primarily to the following:
. price competition as various network providers continue to install
networks that might compete with the Atlantica-1 Network,
. recent technological advances that result in substantial increases in the
transmission capacity of both new and, to a lesser extent, existing fiber
optic telecommunications networks, and
. strategic alliances or similar transactions, such as long-distance
capacity purchasing alliances among groups of carriers, that could
increase the parties' purchasing power.
There may, however, be a bigger decline in prices per circuit than we
expect.
Risks Associated with International Markets--We will operate in many foreign
markets and these foreign operations will expose us to risks that may prevent
us from providing our network services or may adversely affect our ability to
do so profitably.
Our foreign operations will expose us to certain risks inherent in doing
business on an international level. These risks include:
. regulatory limitations restricting or prohibiting us from providing our
services,
. unexpected changes in regulatory requirements, tariffs, customs, duties
and other trade barriers,
. difficulties in staffing and managing foreign operations,
. political risks,
. fluctuations in currency exchange rates and restrictions on repatriation
of earnings, and other exchange control regulations,
. delays from customers, brokers or government agencies,
. potentially adverse tax consequences resulting from operating in multiple
jurisdictions with different tax laws, and
. an economic downturn in the countries in which we expect to do business.
Government Regulation--We and our customers are subject to substantial
government regulation in the United States and several other jurisdictions.
These regulations may affect our ability to operate our systems or offer
certain of our products.
Government regulations may require us, in the ordinary course of
development, construction and operation of our network, to obtain and maintain
various permits, licenses and other authorizations including undersea cable
landing licenses (and environmental and natural resources licenses or permits)
in the United States, Brazil, Bermuda, Venezuela and in any other foreign
jurisdictions where our cables may land and exist. If we are unable to obtain
and maintain necessary permits, licenses and other authorizations, we will be
unable to operate our systems.
Brazil: On March 2, 1999, we submitted a written request to the Agencia
Nacional de Telecomunicacoes, or ANATEL, the telecommunications regulatory
authority in Brazil, seeking a determination as to the scope and nature of
ANATEL's authority to regulate undersea cable systems such as the Atlantica-1
Network. On October
19
<PAGE>
13, 1999, ANATEL, in a response to this request, indicated that the provision
of submarine cable infrastructure does not constitute a telecommunications
service and therefore no ANATEL license is necessary to construct, own and
operate the Atlantica-1 Network.
Venezuela: The Comision Nacional de Telecomunicaciones, or CONATEL, the
telecommunications regulatory agency in Venezuela, has provided us with written
confirmation that we may construct and land the Atlantica-1 cable in Venezuela
without formal regulatory approval from CONATEL. Additionally, based on advice
provided to us by CONATEL, we do not believe that any CONATEL permits or
concessions are necessary to operate the cable or sell capacity on the cable.
However, if CONATEL were now to determine that a permit or concession was
necessary, we believe that a permit or concession would be issued by CONATEL in
a time frame consistent with the implementation schedule for the Atlantica-1
Network. Our inability to secure any necessary approvals in the required time
frame could prevent us from providing our intended network services.
We intend to submit to CONATEL an application for the appropriate licenses
that will permit us to provide backhaul services in Venezuela. While we expect
CONATEL to grant us these licenses, CONATEL may not do so, or it may not do so
within our time schedule.
Bermuda: On January 10, 1997, the government of Bermuda granted TBI an
international carrier license. The license is for a term of five years and is
subject to renewal. The government may not renew our license. If the government
fails to renew our license, we will no longer be able to provide
telecommunications services in Bermuda and will be required to sell TBI's
telecommunications business.
20
<PAGE>
FORWARD-LOOKING STATEMENTS
This prospectus includes forward-looking statements. We use words like
"believe," "anticipate," "expect," "estimate," "may," "will," "should" and
similar expressions to help identify these forward-looking statements. Forward-
looking statements contained in this prospectus include, for example,
statements concerning our plans to design, construct, operate and sell capacity
on our planned cable systems, expectations as to funding our future capital
requirements, developments with respect to regulatory and market conditions and
other discussions of future plans and strategies, anticipated developments and
other matters that involve predictions of future events.
We have based these forward-looking statements on our current expectations
and projections about future events. These forward-looking statements are
subject to risks and uncertainties, some of which may be outside of our
control, including, among other things:
. our failure to complete our planned cable systems within the currently
estimated time frame and budget,
. our failure to be early to market,
. our failure to sell capacity on our planned cable systems,
. our failure to obtain and maintain all necessary permits, licenses or
authorizations to construct, land and operate our planned cable systems,
. our failure to contract for or build any necessary backhaul facilities
to provide city-to-city connectivity on our planned cable systems,
. our failure to accurately project levels of demand for
telecommunications capacity,
. political, economic, legal or regulatory changes that negatively affect
our operations, and
. our failure to compete effectively in a rapidly evolving marketplace
characterized by intense price competition and incremental new capacity.
This list is only an example of some of the risks, uncertainties and
assumptions that may affect the forward-looking statements contained in this
prospectus. In light of these and other risks, uncertainties or assumptions,
the actual events or results may be very different from those expressed or
implied in the forward-looking statements in this prospectus or may not occur.
For additional factors that could affect the validity of our forward-looking
statements, you should carefully consider the risk factors beginning on page 10
and the other information in this prospectus. We do not intend to publish
updates or revisions of any forward-looking statement to reflect new
information, future events or otherwise.
USE OF PROCEEDS
New Notes
We will not receive any proceeds from the issuance of the new notes. We are
making this exchange offer solely to satisfy our obligations under our
registration rights agreement.
Financing Plan
We estimate that the total cost to build the Atlantica-1 Network, including
the secondary strand of the Rio extension, landing stations and capital
contingencies, will be approximately $825 million. This estimate does not
include potential costs, if any, associated with securing terrestrial capacity,
including any terrestrial extension to Buenos Aires, Argentina.
As more fully described below, we have used and intend to use the net
proceeds we received from the private offering of the old notes, the net
proceeds we received from the private equity financing (other than the
21
<PAGE>
proceeds that we used to repurchase common shares of the Company from existing
shareholders), the net proceeds from the exercise of warrants by our former
subordinated lenders, and availability under Holdings' bank credit facility to
fund:
. the cost to build the Atlantica-1 Network, including the secondary strand
of the Rio extension, landing stations and capital contingencies,
. the repayment of our subordinated loans and TBI's credit facility,
. transaction costs, and
. pre-RFS working capital requirements.
As of December 31, 1999, we spent approximately $128.3 million of these
funds to make an initial payment under our contract with Alcatel, to pay
certain interest on our subordinated loans, to repay TBI's credit facility, to
pay transaction costs, to pay commitment fees and interest on Holdings' bank
credit facility and to pay working capital requirements.
We expect to incur up to an additional $85 million of senior debt in the
first half of 2000 to finance the acquisition of terrestrial capacity, and we
may incur further costs for terrestrial capacity in the future.
Private Offering of Old Notes
On July 14, 1999, we issued $300 million in aggregate principal amount of
old notes to the initial purchasers in an offering exempt from the registration
requirements of the Securities Act of 1933. The net proceeds we received from
this offering were approximately $288.9 million.
Private Equity Financing
On July 14, 1999, we received approximately $270.6 million from various
institutional investors in exchange for 13,263,646 newly issued common shares
that represent approximately 67% of our common shares on a fully diluted basis
and 1,000 Class B shares, which have special voting rights.
On August 9, 1999, we accepted for repurchase 1,500,000 common shares held
by existing shareholders at $20.40 per share (less expenses) for an aggregate
price of $30.6 million. This repurchase price was paid out of a portion of the
proceeds of the private equity financing.
In connection with this private equity financing, our former subordinated
lenders, one of whom is an indirect affiliate of one of the initial purchasers
of old notes and a subsidiary of TD Capital Group Limited, a shareholder of the
Company, exercised the warrants they obtained when they made subordinated loans
to us. The effect of this exercise was to convert the principal amount of their
$13.5 million of subordinated loans and, in the case of one of these lenders,
$1.9 million of accrued interest, into 1,635,286 common shares of the Company.
We paid accrued interest of $0.9 million owed to the other subordinated lender
out of the net proceeds of the private offering of the old notes and the
private equity financing, thus retiring the subordinated loans. One of the
subordinated lenders also acquired all of the common shares, Class A shares and
TBI Class A shares held by the other subordinated lender. The outstanding Class
A shares of the Company and TBI were then cancelled.
Holdings' Bank Credit Facility
On July 14, 1999, our subsidiary Holdings entered into a credit agreement
with Toronto Dominion (Texas) Inc., Credit Suisse First Boston, and TD
Securities (USA) Inc. pursuant to which, subject to certain terms and
conditions, Holdings may borrow up to $400 million and may request an
additional facility for up to $50 million. As of December 31, 1999, Holdings
had borrowed $100 million under this credit facility. See "Holdings' Bank
Credit Facility."
22
<PAGE>
CAPITALIZATION
The following table sets forth our capitalization at September 30, 1999 and
as adjusted to give effect to the items in footnote (1) below. You should read
this table in conjunction with "Management's Discussion and Analysis of
Financial Condition and Results of Operations," and our unaudited consolidated
financial statements and notes thereto appearing elsewhere in this prospectus.
<TABLE>
<CAPTION>
As of September 30,
1999
----------------------
As
Actual(1) adjusted(4)
--------- -----------
<S> <C> <C>
Restricted cash(2)....................................... $530,969 $530,971
======== ========
Long-term debt:
TBI credit facility.................................... -- --
Subordinated loans and retractable warrants............ -- --
Accrued contingent interest............................ -- --
Holdings' bank credit facility(3)...................... 100,000 100,000
13% Senior Notes due 2007.............................. 300,000 300,000
-------- --------
Total long-term debt................................. 400,000 400,000
Shareholders' equity:
Share capital and additional paid-in capital........... 271,796 271,796
Deficit................................................ (25,197) (25,197)
-------- --------
Total shareholders' equity........................... 246,599 246,599
-------- --------
Total capitalization..................................... $646,599 $646,599
======== ========
</TABLE>
- --------
(1) Reflects (a) our use of the net proceeds that we received from the private
offering of the old notes, (b) our use of the net proceeds that we received
from the private equity financing, (c) our use of $100 million of Holdings'
bank credit facility of up to $450 million, (d) our use of the net proceeds
from the exercise of warrants by our former subordinated lenders, (e) the
payment of interest on one of our retired subordinated loans, (f) the
conversion of interest on the other subordinated loan, (g) our repurchase
of common shares of the Company from existing shareholders, (h) the
repayment of TBI's credit facility and related interest, (i) transaction
costs, (j) accrued contingent interest, and (k) deferred financing costs.
(2) The Company's use of cash is generally restricted under the terms of
Holdings' bank credit facility to operating and capital expenditures
related to the Atlantica-1 Network and to other telecommunications
activities. The investment of the cash is restricted to investments with a
minimum credit rating of A-1 by Standard & Poor's or P-1 by Moody's.
(3) Of the total availability of up to $450 million, $100 million has been
borrowed. Availability of these funds will be subject to certain terms and
conditions. See "Holdings' Bank Credit Facility."
(4) Reflects the Company's consolidation of TeleBermuda International L.L.C. as
a result of the Company indirectly acquiring, effective November 1, 1999,
all of the shares that it previously did not own.
23
<PAGE>
UNAUDITED CONDENSED PRO FORMA CONSOLIDATED FINANCIAL INFORMATION
The following condensed unaudited pro forma consolidated financial
information of the Company has been derived by the application of pro forma
adjustments to the Company's historical consolidated financial statements for
the year ended December 31, 1998 and for the nine month period ended September
30, 1999. The unaudited condensed pro forma consolidated balance sheet gives
effect to the Company's consolidation of TBI's U.S. affiliate, TeleBermuda
International L.L.C. ("TBI L.L.C."), as a result of the Company indirectly
acquiring the shares that it previously did not own. The unaudited condensed
pro forma consolidated statements of operations for the year ended December 31,
1998 and for the nine month period ended September 30, 1999 give effect to the
private equity financing, the issuance of the notes, the application of the
proceeds therefrom, the TBI L.L.C. transaction previously noted and the other
transactions described in the accompanying notes as if they had occurred as of
January 1, 1998.
The pro forma adjustments presented are based upon available information and
certain assumptions that we believe are reasonable under the circumstances.
These adjustments are directly attributable to the transactions referenced
above and are expected to have a continuing impact on our business, results of
operations and financial condition. Interest related to the debt issuance has
been expensed in this pro forma financial information. However, an element of
this interest will be capitalized during the time that the Atlantica-1 Network
is under construction. The amount to be capitalized is not readily determinable
at this time. The unaudited condensed pro forma consolidated balance sheet as
of September 30, 1999 and unaudited condensed pro forma consolidated statement
of operations for the year ended December 31, 1998 and the nine month period
ended September 30, 1999 are derived from the audited consolidated financial
statements and the unaudited consolidated financial statements, respectively,
included elsewhere in this prospectus.
The unaudited condensed pro forma financial information should be read in
conjunction with the historical consolidated financial statements of the
Company and the notes thereto and "Management's Discussion and Analysis of
Financial Condition and Results of Operations," included elsewhere in this
prospectus.
The unaudited condensed pro forma financial information and related notes
are provided for informational purposes only and do not necessarily reflect the
results of operations or financial condition of the Company that would have
actually resulted had the events referred to above or in the notes to the
unaudited condensed pro forma financial information been consummated as of the
dates indicated and are not intended to project the Company's financial
condition or results of operations for any future period.
24
<PAGE>
GLOBENET COMMUNICATIONS GROUP LIMITED
UNAUDITED CONDENSED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
For the year ended December 31, 1998
(in thousands of dollars, except share and per share amounts)
<TABLE>
<CAPTION>
Pro forma Pro forma
adjustments adjustments Pro
Historical (1) Total (5) forma
---------- ----------- -------- ----------- --------
<S> <C> <C> <C> <C> <C>
Revenue
Telecommunications
services............... $ 24,940 $ -- $ 24,940 $ -- $ 24,940
IRU capacity............ 1,784 -- 1,784 -- 1,784
-------- ------- -------- ----- --------
26,724 -- 26,724 -- 26,724
-------- ------- -------- ----- --------
Expenses
Carrier charges......... 15,129 -- 15,129 -- 15,129
Cost of IRU capacity.... 547 -- 547 -- 547
General and
administrative
expenses............... 9,328 -- 9,328 14 (6) 9,342
Amortization of deferred
financing costs........ 321 3,026 (2) 3,347 -- 3,347
Amortization of capital
assets................. 1,502 -- 1,502 899 (6) 2,401
-------- ------- -------- ----- --------
26,827 3,026 29,853 913 30,766
-------- ------- -------- ----- --------
Operating loss.......... (103) (3,026) (3,129) (913) (4,042)
Interest on long-term
debt................... 3,542 45,113 (3) 48,655 -- 48,655
Accrued contingent
interest............... 960 (960)(4) -- -- --
Interest income......... (170) -- (170) 30 (6) (140)
-------- ------- -------- ----- --------
Loss before income
taxes, minority
interest and equity
accounted for
investment............. (4,435) (47,179) (51,614) (943) (52,557)
Provision for income
taxes.................. (36) -- (36) -- (36)
-------- ------- -------- ----- --------
Loss before minority
interest and equity
accounted for
investment............. (4,471) (47,179) (51,650) (943) (52,593)
Minority interest....... 204 -- 204 -- 204
Earnings (loss) from
equity accounted for
investments............ (677) -- (677) 943 (6) 266
-------- ------- -------- ----- --------
Net loss and
comprehensive loss for
the year............... (4,944) (47,179) (52,123) -- (52,123)
======== ======= ======== ===== ========
Basic and fully diluted
loss per common share.. $ (1.41) $ (3.08) $ (3.08)
======== ======== ========
</TABLE>
The accompanying notes are an integral part of this unaudited condensed pro
forma consolidated statement of operations.
25
<PAGE>
GLOBENET COMMUNICATIONS GROUP LIMITED
NOTES TO UNAUDITED CONDENSED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
For the year ended December 31, 1998
(in thousands of dollars, except share and per share amounts)
(1) This pro forma adjustments column reflects the private equity financing,
the issuance of the notes, the application of the proceeds therefrom and
related transactions.
(2) Reflects the amortization of the deferred transaction fees and expenses in
relation to the 13% Senior Notes due 2007 and Holdings' bank credit
facility and the elimination of the amortization costs related to the
existing deferred financing costs, as follows:
<TABLE>
<S> <C>
Amortization related to the 13% Senior Notes due 2007 and
Holdings' bank credit facility................................ $3,347
Amortization expense related to the existing deferred financing
costs......................................................... (321)
------
3,026
======
</TABLE>
(3) Reflects the incremental interest expense relating to the 13% Senior Notes
due 2007 and the elimination of the interest expense related to our retired
subordinated loans and TBI's retired credit facility, as follows:
<TABLE>
<S> <C>
13% Senior Notes due 2007........................................ $39,000
Interest on Holdings' bank credit facility at 9.5%............... 9,500
Interest expense related to the subordinated loans............... (1,501)
Interest expense related to TBI's credit facility................ (1,886)
-------
45,113
=======
</TABLE>
This presentation does not reflect the capitalization of interest related
to the Atlantica-1 Network. An element of this interest will be capitalized
during the time that the Atlantica-1 Network is under construction.
(4) Reflects the reduction in accrued contingent interest in connection with
the exercise of the warrants on the subordinated loans.
(5) This pro forma adjustments column reflects the Company's consolidation of
TeleBermuda International L.L.C. as a result of indirectly acquiring,
effective November 1, 1999, all of the shares that it previously did not
own.
(6)Reflects the consolidation of TeleBermuda International L.L.C. as follows:
<TABLE>
<S> <C>
General and administrative expenses................................. $ 14
Amortization of capital assets...................................... 899
Elimination of intercompany balances................................ 30
Loss from equity accounted for investment........................... (943)
----
--
====
</TABLE>
26
<PAGE>
GLOBENET COMMUNICATIONS GROUP LIMITED
UNAUDITED CONDENSED PRO FORMA CONSOLIDATED BALANCE SHEET
As at September 30, 1999
(in thousands of dollars, except share and per share amounts)
<TABLE>
<CAPTION>
Pro forma
Historical adjustments (1) Total
---------- --------------- -------
<S> <C> <C> <C>
Assets
Current assets
Restricted cash........................... $79,998 $ 2 (1) $80,000
Accounts receivable....................... 2,479 -- 2,479
Other receivables......................... 196 (84)(1) 112
Prepaid expenses and deposits............. 646 -- 646
------- ------- -------
83,319 (82) 83,237
Restricted cash........................... 450,971 -- 450,971
Capital assets............................ 90,496 20,756 (1) 111,252
Note receivables.......................... 374 -- 374
Equity accounted for investments.......... 20,675 (20,675)(1) --
Other assets.............................. 24,244 1 (1) 24,245
------- ------- -------
670,079 -- 670,079
======= ======= =======
Liabilities
Current liabilities
Accounts payable.......................... 4,476 -- 4,476
Accrued liabilities....................... 12,356 -- 12,356
Current portion of long-term debt......... -- -- --
------- ------- -------
16,832 -- 16,832
Long-term debt............................ 400,000 -- 400,000
Deferred revenue.......................... 6,648 -- 6,648
------- ------- -------
423,480 -- 423,480
------- ------- -------
Shareholders' Equity
Share capital and additional paid-in
capital.................................. 271,796 -- 271,796
Deficit................................... (25,197) -- (25,197)
------- ------- -------
246,599 -- 246,599
------- ------- -------
670,079 -- 670,079
======= ======= =======
</TABLE>
The accompanying notes are an integral part of this unaudited condensed pro
forma consolidated balance sheet.
27
<PAGE>
GLOBENET COMMUNICATIONS GROUP LIMITED
NOTES TO UNAUDITED CONDENSED PRO FORMA CONSOLIDATED BALANCE SHEET
As at September 30, 1999
(in thousands of dollars, except share and per share amounts)
(1) To reflect the Company's consolidation of TeleBermuda International L.L.C.
as a result of indirectly acquiring, effective November 1, 1999, all of the
shares that it previously did not own.
<TABLE>
<S> <C>
Cash.............................................................. $ 2
Elimination of intercompany transactions.......................... (84)
Capital assets.................................................... 20,756
Other assets...................................................... 1
Elimination of investment account................................. (20,675)
-------
--
=======
</TABLE>
28
<PAGE>
GLOBENET COMMUNICATIONS GROUP LIMITED
UNAUDITED CONDENSED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
For the nine months ended September 30, 1999
(in thousands of dollars, except share and per share amounts)
<TABLE>
<CAPTION>
Pro forma Pro forma Pro
Historical adjustments (1) Total adjustments (5) forma
---------- --------------- ------- --------------- -------
<S> <C> <C> <C> <C> <C>
Revenue
Telecommunications
services............... $19,468 $ -- $19,468 $-- $19,468
IRU capacity............ 236 -- 236 -- 236
------- ------- ------- ---- -------
19,704 -- 19,704 -- 19,704
------- ------- ------- ---- -------
Expenses
Carrier charges......... 8,446 -- 8,446 -- 8,446
Cost of IRU capacity.... -- -- -- -- --
General and
administrative
expenses............... 13,409 -- 13,409 -- 13,409
Amortization of deferred
financing costs........ 975 1,513 (2) 2,488 -- 2,488
Amortization of capital
assets................. 1,256 -- 1,256 674 (6) 1,930
------- ------- ------- ---- -------
24,086 1,513 25,599 674 26,273
------- ------- ------- ---- -------
Operating loss.......... (4,382) (1,513) (5,895) (674) (6,569)
Interest on long-term
debt................... 8,949 24,298 (3) 33,247 -- 33,247
Accrued contingent
interest............... 538 (538)(4) -- -- --
Interest income......... (5,220) -- (5,220) 22 (6) (5,198)
------- ------- ------- ---- -------
Loss before income
taxes, equity accounted
for investment and
extraordinary item..... (8,649) (25,273) (33,922) (696) (34,618)
Provision for income
taxes.................. (96) -- (96) -- (96)
------- ------- ------- ---- -------
Loss before equity
accounted for
investment............. (8,745) (25,273) (34,018) (696) (34,714)
Loss from equity
accounted for
investment............. (696) -- (696) 696 (6) --
------- ------- ------- ---- -------
Loss before
extraordinary item..... (9,441) (25,273) (34,714) -- (34,714)
======= ======= ======= ==== =======
Basic and fully diluted
loss per common share
before extraordinary
item................... $ (1.26) $ (4.63) $ (4.63)
======= ======= =======
</TABLE>
The accompanying notes are an integral part of this unaudited condensed pro
forma consolidated statement of operations.
29
<PAGE>
GLOBENET COMMUNICATIONS GROUP LIMITED
NOTES TO UNAUDITED CONDENSED PRO FORMA CONSOLIDATED
STATEMENT OF OPERATIONS
For the nine months ended September 30, 1999
(in thousands of dollars, except share and per share amounts)
(1) This pro forma adjustments column reflects the private equity financing,
the issuance of the notes, the application of the proceeds therefrom and
related transactions.
(2) Reflects the amortization of the deferred transaction fees and expenses in
relation to the 13% Senior Notes due 2007 and Holdings' bank credit
facility and the elimination of the amortization costs related to the
existing deferred financing costs, as follows:
<TABLE>
<S> <C>
Amortization related to the 13% Senior Notes due 2007 and
Holdings' bank credit facility................................ $1,684
Amortization expense related to the existing deferred financing
costs......................................................... (171)
------
1,513
======
</TABLE>
(3) Reflects the incremental interest expense relating to the 13% Senior Notes
due 2007 and the elimination of the interest expense related to our retired
subordinated loans and TBI's retired credit facility, as follows:
<TABLE>
<S> <C>
13% Senior Notes due 2007........................................ $20,836
Interest on Holdings' bank credit facility at 9.5%............... 5,146
Interest expense related to the subordinated loans............... (834)
Interest expense related to TBI's credit facility................ (850)
-------
24,298
=======
</TABLE>
This presentation does not reflect the capitalization of interest related
to the Atlantica-1 Network. An element of this interest will be capitalized
during the time that the Atlantica-1 Network is under construction.
(4) Reflects the reduction in accrued contingent interest in connection with
the exercise of the warrants on the subordinated loans.
(5) This pro forma adjustments column reflects the Company's consolidation of
TeleBermuda International L.L.C. as a result of indirectly acquiring,
effective November 1, 1999, all of the shares that it previously did not
own.
(6) Reflects the consolidation of TeleBermuda International L.L.C. as follows:
<TABLE>
<S> <C>
Amortization of capital assets..................................... $ 674
Elimination of intercompany transactions........................... 22
Loss from equity accounted for investment.......................... (696)
-----
--
=====
</TABLE>
30
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The following table sets forth selected consolidated financial data for the
Company. We have derived the selected consolidated statement of operations data
for the fiscal years ended December 31, 1998 and 1997 and for the ten months
ended December 31, 1996 and the selected consolidated balance sheet data as at
December 31, 1998, 1997 and 1996 from our consolidated financial statements
that PricewaterhouseCoopers, Chartered Accountants, has audited. We have
prepared this selected consolidated statement of operations data and balance
sheet data in accordance with accounting principles generally accepted in the
United States. We have derived the selected consolidated financial data as at
and for the nine months ended September 30, 1999 and September 30, 1998 from
our unaudited interim consolidated financial statements for these periods and
we have prepared this financial data on the same basis as the audited
consolidated financial statements. In the opinion of management, this financial
data contains all adjustments necessary for the fair statement of the results
of operations for these periods. Operating results for these nine-month periods
are not necessarily indicative of the results of operations for a full year.
We are substantially increasing the scope and scale of our business with the
development of the Atlantica-1 Network. Accordingly, the selected consolidated
financial data presented below may not be indicative of our financial position
or results of operations in the future. You should read the selected
consolidated financial data in conjunction with our consolidated financial
statements and the notes thereto that are included elsewhere in this
prospectus. See also "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
<TABLE>
<CAPTION>
Fiscal Year
Ten Months Ended Nine Months Ended
Ended December 31, September 30,
December 31, ------------------- --------------------
1996 1997 1998 1998 1999
------------ -------- ------- ------- ---------
(dollars in thousands)
<S> <C> <C> <C> <C> <C>
Statement of Operations
Data:
Revenues
Telecommunications
services............... $ -- $ 4,962 $24,940 $16,257 $ 19,468
IRU capacity ........... -- -- 1,784 1,587 236
------- -------- ------- ------- ---------
-- 4,962 26,724 17,844 19,704
------- -------- ------- ------- ---------
Expenses
Carrier charges......... -- 3,559 15,129 10,855 8,446
Cost of IRU capacity ... -- -- 547 547 --
General and
administrative
expenses............... 3,158 4,961 9,328 6,807 13,409
Amortization of deferred
financing costs........ -- 305 321 241 975
Amortization of capital
assets................. 1 429 1,502 1,075 1,256
Interest on long-term
debt................... -- 750 3,542 2,543 8,949
Accrued contingent
interest(1)............ -- 382 960 713 538
Interest income......... (141) (193) (170) (77) (5,220)
Provision for income
taxes.................. 14 53 36 26 96
Minority interest....... -- (249) (204) (204) --
Loss from equity
accounted for
investments............ 228 261 677 1,092 696
Extraordinary loss from
extinguishment of
debt................... -- -- -- -- 809
------- -------- ------- ------- ---------
Net loss................ $(3,260) $ (5,296) $(4,944) $(5,774) $ (10,250)
======= ======== ======= ======= =========
Basic and fully diluted
loss per common share
before extraordinary
item................... $ (1.89) $ (1.52) $ (1.41) $ (1.64) $ (1.26)
======= ======== ======= ======= =========
Basic and fully diluted
loss per common share
relating to the
extraordinary loss from
the debt
extinguishment......... -- -- -- -- (.10)
======= ======== ======= ======= =========
Basic and fully diluted
loss per common share.. $ (1.89) $ (1.52) $ (1.41) $ (1.64) $ (1.36)
======= ======== ======= ======= =========
Balance Sheet Data (at
period end):
Current assets including
cash................... $12,520 $ 4,517 $ 7,296 $ 8,257 $ 83,319
Capital assets, net..... 4,731 26,970 26,182 26,025 90,496
Total assets............ 17,418 55,152 56,260 57,057 670,079
Total long-term debt
(including current
portion)............... -- 30,122 38,019 40,185 400,000
Shareholders' equity.... 16,725 11,648 6,704 5,874 246,599
Other Financial Data:
Capital expenditures.... $ 4,728 $ 22,662 $ 1,791 $ 1,132 $ 65,572
Ratio of earnings to
fixed charges.......... -- (2) -- (2) -- (2) -- (2) -- (2)
Cash provided by (used
in):
Operating activities.... $(1,359) $ 5,447 $(3,489) $(5,177) $ 11,356
Financing activities.... 17,594 29,159 6,937 9,350 580,815
Investing activities.... (6,898) (43,128) (1,777) (1,542) (595,201)
Earnings (loss) before
interest, amortization,
income taxes, minority
interest, equity
accounted for
investment and
extraordinary item(3).. (3,158) (3,558) 1,720 (365) (2,151)
</TABLE>
31
<PAGE>
- --------
(1) Accrued contingent interest represents the payment that we would have had
to make if the warrant holders had not exercised the warrants that we
issued in connection with our retired subordinated loans by July 28, 2002.
We calculated it at 7% per annum on the gross exercise price for the
unexercised warrants from the date of issue to the date of expiration. See
note 9(c) to our audited consolidated financial statements.
(2) Earnings were inadequate to cover fixed charges and accordingly the
deficiency of earnings available to cover fixed charges is as follows:
$3,246 for the ten months ended December 31, 1996, $5,243 for the year
ended December 31, 1997, $4,908 for the year ended December 31, 1998,
$5,748 for the nine months ended September 30, 1998, $9,345 for the nine
months ended September 30, 1999, $52,087 for the pro forma year ended
December 31, 1998 and $34,618 for the pro forma nine months ended September
30, 1999. For the purposes of calculating the deficiency of earnings
available to cover fixed charges, earnings consists of earnings (loss)
before income taxes, minority interest, equity accounted for investment and
extraordinary item adjusted for minority interest, earnings (loss) from
equity accounted for investment and the interest component of rental
expense, and fixed charges consists of interest on long-term debt,
amortization of deferred financing costs, accrued contingent interest and
the interest component of rental expense.
(3) Earnings (loss) before interest, amortization, income taxes, minority
interest, equity accounted for investment and extraordinary item is not a
measure of performance under U.S. GAAP, but we present it because we
believe it is a measure of performance that analysts, investors and other
interested parties in our industry commonly report and widely use. You
should not consider it an alternative to net loss as a measure of operating
performance or cash provided by (used in) operations as a measure of
liquidity.
32
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
You should read the discussion under this caption in conjunction with our
audited consolidated financial statements and unaudited interim consolidated
financial statements and the notes thereto included elsewhere in this
prospectus. Certain information contained in this section, including
information with respect to our plans and expectations for our business, is
forward-looking. You should carefully consider the factors set forth under the
captions "Forward-Looking Statements" and "Risk Factors" for a discussion of
important factors that could cause actual results to differ materially from any
forward-looking statements contained in this prospectus.
Overview
GlobeNet Communications Group Limited was incorporated and registered on
June 25, 1998 as a Bermuda exempt company as part of a reorganization of the
TBI group of companies. Under the reorganization, TBI, which was incorporated
on January 6, 1995, became our wholly owned subsidiary, and the issued shares
of TBI were exchanged for our common shares on a one-for-one basis with
substantially the same rights and privileges.
Historically, through our wholly owned subsidiary TBI, we have provided
retail international telecommunications services to, from and through Bermuda.
We plan to extend our business to become a provider of city-to-city
international telecommunications network solutions on a wholesale "carriers'
carrier" basis using a combination of undersea fiber optic cable systems and
terrestrial extensions. We are currently developing the Atlantica-1 Network, an
undersea fiber optic cable system, as part of this plan.
Our international telecommunications network solutions business is in the
development stage and, accordingly, our historical consolidated financial
information relates primarily to TBI's retail international telecommunications
business and is not necessarily indicative of future results.
We report our results in U.S. dollars, although historically a significant
portion of our revenues and expenses have been settled in Bermuda dollars,
which are pegged to the U.S. dollar at par. Therefore, currency fluctuations
have not affected the results of our existing operations. Substantially all of
our costs incurred in connection with the Atlantica-1 Network will be incurred
in U.S. dollars. While we expect to invoice a majority of our customers in U.S.
dollars, we may be required to invoice certain customers in other currencies.
To the extent we receive revenues in currencies other than U.S. dollars, our
results of operations may be impacted by currency fluctuations. See "Risk
Factors--Foreign Exchange; Exchange Controls."
Revenues
Revenues from international long-distance services are derived from the
number of minutes of use billed by us and are recorded as the services are
rendered, after deducting an estimate for the traffic for which revenue will
not be collected. Historically deductions have not been material. Revenues from
prepaid calling cards are recognized at the time of usage or upon expiration of
the card. Revenues from private line services are recognized as earned on a
monthly basis.
Customers may enter into agreements to purchase capacity from us in the form
of the granting of indefeasible rights of use, or IRUs, portable IRUs or
capacity leases. Revenue from the sale of capacity by us is recognized at the
date a customer first has access to the capacity, provided certain conditions
are met. IRU and portable IRU sales are methods of transferring rights to fiber
optic cable capacity that grant to the purchaser an indefeasible right to use
the unit of capacity sold for the time, usually the remaining life of the
system, to which the IRU applies. Once the IRU is granted to the purchaser, the
purchase price is non-refundable and the purchaser is required to pay
operations, administration and maintenance fees for as long as connectivity is
maintained. The proceeds from the long-term operating lease of capacity are
deferred and amortized over the term of the contract.
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<PAGE>
Recent Accounting Pronouncements
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 fiber 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. 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.
Carrier Charges and Cost of IRU Capacity
TBI's cost of services is comprised primarily of local access charges and
international termination costs. Local access charges are paid to the Bermuda
Telephone Company for each minute of traffic that we originate or terminate in
Bermuda. As of January 1, 1999, the Minister of Telecommunications and
Technology's December 1998 directive reduced TBI's local access charge to $0.15
per minute for both originating and terminating traffic. The directive mandated
a second reduction on July 1, 1999 to $0.10 per minute, with a subsequent rate
determination expected in the first half of 2000.
International terminations are completed through our correspondent carriers
and are charged to us on the basis of prevailing international settlement
rates. We receive return traffic on the major routes that effectively offset
our payments for Bermuda-originated traffic. Our primary correspondent carriers
are MCI WorldCom and British Telecom. The current settlement rates with
carriers in the United States and the United Kingdom, which comprise the
largest markets for Bermuda-originated traffic, are $0.30 per minute and the
equivalent of $0.48 per minute, respectively. The rates for international
terminations have declined recently and we expect they will continue to decline
as international conventions are modified and competition among international
carriers intensifies.
For our wholesale carriers' carrier business, costs to build our systems are
capitalized. The cost of capacity sales are calculated on a pro rata basis of
total capacity sold in relation to the estimated total capacity.
Operating Expenses
Our operating expenses include network expenses and general and
administrative costs incurred to sustain and expand our Bermuda operations, as
well as to plan and finance the intended construction of the Atlantica-1
Network. As our systems develop, additional resources will be required to
provide for operations and for sales of capacity. Prior to the RFS date for the
connection from Tuckerton, New Jersey to Fortaleza, Brazil via Bermuda, we will
enter into an agreement with a third party that will provide operation,
administration and maintenance services on our systems. Following this RFS
date, we expect to recover a substantial portion of our operating,
administration and maintenance costs from periodic payments by customers. The
amounts of these payments will be based on the pro rata capacity purchased by
the customer in relation to the total capacity of the system. Each customer's
pro rata share will be capped and therefore, our share of operation,
administration and maintenance costs will be higher at the outset and will
decline over time as capacity is sold.
Results of Operations
Nine Months Ended September 30, 1999 Compared With Nine Months Ended September
30, 1998
Revenues
Revenues increased to $19.7 million for the nine months ended September 30,
1999 from $17.8 million for the nine months ended September 30, 1998, an
increase of 10.7%.
Outbound revenues increased to $15.3 million for the nine months ended
September 30, 1999 compared to $13.7 million for the nine months ended
September 30, 1998, an increase of 11.7%. This increase was the result of an
increase in commercial and residential traffic but was offset by a rate
reduction for commercial and residential customers introduced on April 1, 1999.
The average rate per outbound minute realized was $0.88
34
<PAGE>
for the nine months ended September 30, 1999 compared to $0.94 for the nine
months ended September 30, 1998. Outbound traffic volumes increased to 17.5
million minutes for the nine months ended September 30, 1999 from 14.6 million
minutes for the nine months ended September 30, 1998. These volume increases
were a response to an increase in marketing and advertising by the Company and
were reflective of a positive response to the rate reductions.
Inbound revenues increased to $3.0 million for the nine months ended
September 30, 1999 compared to $2.0 million for the nine months ended September
30, 1998, an increase of 50.0%. Revenue from debit sales increased to $0.9
million for the nine months ended September 30, 1999 compared to $0.3 million
for the nine months ended September 30, 1998, an increase of 200.0%. This
increase was the direct result of a distribution arrangement for the debit
cards introduced in November 1998.
These increases were offset by the lack of any IRU sales for the nine months
ended September 30, 1999 compared to $1.5 million for the nine months ended
September 30, 1998.
Carrier Charges and Cost of IRU Capacity
Carrier Charges and Cost of IRU Capacity decreased to $8.4 million for the
nine months ended September 30, 1999 compared to $11.4 million for the nine
months ended September 30, 1998, a decrease of 26.3%. This decrease was largely
due to a reduction in local access charges for Bermuda originating and
terminating traffic. These charges decreased to $3.5 million for the nine
months ended September 30, 1999 from $5.0 million for the nine months ended
September 30, 1998, a decrease of 30.0%. The decrease reflects reductions in
the settlement rates paid to the Bermuda Telephone Company. For outbound
traffic these settlement rates were reduced from $0.27 per minute in 1998 to
$0.15 per minute in January 1999 with a further reduction to $0.10 per minute
in July 1999. For inbound traffic these settlement rates were reduced from
$0.24 per minute in 1998 to $0.15 per minute in January 1999 with a further
reduction to $0.10 per minute in July 1999.
Foreign settlements for the nine months ended September 30, 1999 decreased
to $4.9 million from $5.8 million for the nine months ended September 30, 1998,
a decrease of 15.5%. This decrease was largely due to reductions in costs to
terminate calls to countries other than the U.S. and the U.K. During the nine
months ended September 30, 1999 and 1998, the settlement rate with U.S.
carriers and U.K. carriers was unchanged.
The cost of the sale of cable capacity in the nine months ended September
30, 1998 totaled $547,000. There were no capacity sales in the nine months
ended September 30, 1999.
General and Administrative Expenses
General and Administrative Expenses for the nine months ended September 30,
1999 increased to $13.4 million compared to $6.8 million for the nine months
ended September 30, 1998, an increase of 97.1%. This increase was mainly due to
an increase in compensation expense of $3.8 million resulting from the
recognition of costs related to certain stock options to the Company's
directors, officers and employees. The increase was also due to marketing,
promotions and administrative costs associated with the Atlantica-1 Network and
commitment fees related to the Atlantica-1 Network financing.
Amortization Expense
Amortization of capital assets for the nine months ended September 30, 1999
increased to $1.3 million from $1.1 million for the nine months ended September
30, 1998, an increase of 18.2%. This increase resulted largely from the
addition of network and telecommunications equipment.
Amortization of deferred financing costs for the nine months ended September
30, 1999 increased to $1.0 million compared to $0.2 million for the nine months
ended September 30, 1998, an increase of 400.0%. This increase resulted from
the amortization of deferred financing costs incurred as a result of the
financing of the Atlantica-1 Network.
35
<PAGE>
Interest on Long Term Debt
Interest on long-term debt for the nine months ended September 30, 1999
increased to $8.9 million from $2.5 million for the nine months ended September
30, 1998, an increase of 256.0%. This increase was a result of the debt
financing for the development of the Atlantica-1 Network secured by the Company
in July 1999.
Interest Income
Interest income for the nine months ended September 30, 1999 increased to
$5.2 million from $77,000 for the nine months ended September 30, 1998. This
increase was a result of investing certain proceeds from our July 1999
financing for the Atlantica-1 Network.
Extraordinary Loss
During July 1999, the Company recognized an extraordinary loss of $0.8
million in connection with the re-financing comprising a write-off of
unamortized deferred financing costs.
Year Ended December 31, 1998 Compared With Year Ended December 31, 1997
We began commercial operations in May 1997, initially providing service via
satellite pending the completion of the BUS-1 system in November 1997.
Accordingly, our results of operations for 1997 reflect only seven full months
of operation, as compared to the twelve months of operation in the 1998
results.
Revenues
Revenues increased to $26.7 million in 1998 compared to $5.0 million in
1997, an increase of 434.0%. This increase resulted primarily from an increase
in our market share in Bermuda and the sale of undersea fiber optic cable
capacity in 1998. Outbound revenues for 1998 increased to $18.4 million
compared to $4.5 million for 1997, an increase of 308.9%. Inbound revenues
increased to $5.7 million in 1998 compared to $0.4 million in 1997, an increase
of 1,325.0%. The average rate per outbound minute realized was $0.94 in 1998
and 1997.
Bulk capacity sales on the BUS-1 system to two major international carriers,
in the form of IRUs, were completed in 1998 for aggregate proceeds of $1.5
million. In addition, a Bermuda-based ISP leased bulk capacity on the BUS-1
system, for a 10- to 25-year term, at a total price of $8.0 million. The
proceeds from the IRU sales were recognized in 1998 while the proceeds from the
leased capacity are deferred and amortized over 25 years.
Carrier Charges and Cost of IRU Capacity
Carrier charges and cost of IRU capacity increased to $15.7 million in 1998
compared to $3.6 million in the previous year, an increase of 336.1%. This
increase resulted primarily from higher traffic in 1998, partially offset by
the impact of reduced settlement rates with foreign carriers.
Local access charges for Bermuda originating and terminating traffic
increased to $7.3 million in 1998 compared to $1.5 million in 1997, an increase
of 386.7%. Local access charges for 1998 were levied on the basis of a
government approved tariff of $0.27 per minute for originating traffic and
$0.24 per minute for terminating traffic. These rates remained unchanged from
the previous year. The increase in the charges resulted from an increase in
traffic on our system.
Foreign settlements for 1998 totaled $7.6 million compared to $2.1 million
for the previous year, an increase of 261.9%. During 1998, the settlement rate
with U.S. carriers was reduced from $0.51 to $0.35 per minute and the U.K. rate
was reduced from the equivalent of $0.62 to $0.48 per minute. The increase in
the amount of charges resulted from an increase in traffic on our system.
The cost of IRU capacity sold in 1998 totaled $547,000. There were no
capacity sales in 1997.
36
<PAGE>
General and Administrative Expenses
General and administrative expenses in 1998 increased to $9.3 million
compared to $4.9 million for the previous year, an increase of 89.8%. This
increase resulted primarily from the cost of additional staff and marketing
expenditures required to acquire market share in Bermuda. Significant
additional staffing should not be required to expand and maintain the Bermuda
business. However, as the Atlantica-1 Network develops, staffing levels for
selling and network operations will be increased substantially.
Amortization Expense
Amortization expense increased to $1.8 million in 1998 compared to $0.7
million in the previous year, an increase of 157.1%. This increase is primarily
attributable to the addition of the BUS-1 system in November 1997. Amortization
expense related to the BUS-1 system was $0.9 million in 1998 compared to $0.1
million in the previous year, an increase of 800.0%.
Interest on Long-Term Debt
Interest on long-term debt increased to $3.5 million in 1998 compared to
$0.8 million in 1997, an increase of 337.5%. This increase resulted primarily
from higher average borrowings in 1998.
Year Ended December 31, 1997 Compared with Ten Months Ended December 31, 1996
We did not provide telecommunications services prior to 1997. Therefore, we
did not have any revenues or carrier charges and other cost of sales in the ten
months ended December 31, 1996. In addition, the periods are not directly
comparable because the period ended December 31, 1997 was for 12 months while
the period ended December 31, 1996 was for only 10 months.
Revenues
Revenues increased to $5.0 million in 1997. We had no revenues in 1996. On a
monthly basis outbound revenue increased from $0.3 million in June 1997 to $1.0
million in December 1997. Inbound traffic from MCI Worldcom and British Telecom
began in August 1997 and contributed to approximately 7% of the revenue for the
1997 year. At December 1997, inbound traffic represented 10% of revenue for the
month.
Carrier Charges and Cost of IRU Capacity
Carrier charges and cost of IRU capacity increased to $3.6 million in 1997.
We had no carrier charges and other costs of sales in 1996. The cost of
services was relatively high in 1997 because the BUS-1 system did not become
operational until November 1997 and traffic was carried via satellite until
that time. Also, settlement rates with foreign carriers were relatively high in
1997 until volume-related price reductions were established with these
carriers.
General and Administrative Expenses
General and administrative expenses increased to $4.9 million in 1997
compared to $3.2 million in 1996, an increase of 53.1%. This increase resulted
largely from the development of network, sales and customer service
infrastructure to support our service offerings and operations.
Amortization Expense
Amortization expense increased to $734,000 in 1997 compared to $1,000 in
1996 as the BUS-1 system became operational.
37
<PAGE>
Interest on Long-Term Debt
Interest on long-term debt increased to $750,000 in 1997 as our recently
retired subordinated loans and TBI's recently retired credit facility were
obtained to finance the BUS-1 system, and funds were drawn from these
facilities. We had no interest on long-term debt in 1996.
Liquidity and Capital Resources
Future Capital Expenditures and Capital Resources
The development of the Atlantica-1 Network will require us to make
significant capital expenditures in connection with building the undersea cable
system and the related landing stations, and securing terrestrial capacity to
connect the landing stations with major cities. We estimate the total cost to
build the Atlantica-1 Network, including the secondary strand of the Rio
extension, landing stations and capital contingencies, will be $825 million. We
are examining potential terrestrial alternatives that would eliminate the need
for building the secondary strand of the Rio extension and reduce costs
accordingly. See "Business--Cable System Overview." This $825 million estimate
does not include potential capital costs, if any, associated with securing
terrestrial capacity, including any terrestrial extension to Buenos Aires,
Argentina. We expect the primary ring of the Atlantica-1 Network to be RFS in
December 2000.
We have commitments under our supply contract with Alcatel to make payment
installments in varying amounts as construction milestones are achieved on the
Atlantica-1 Network. The total of these payment installments for the year
ending December 31, 2000 is $558.7 million.
We expect to use the net proceeds we received from the private offering of
the old notes, the private equity financing (net of the proceeds we used to
repurchase outstanding shares of the Company from existing shareholders) and
the exercise of warrants by our former subordinated lenders, together with
available funds under Holdings' bank credit facility, to finance:
. the construction of the Atlantica-1 Network, including the secondary
strand of the Rio extension, landing stations and capital contingencies,
and
. pre-RFS working capital requirements.
We have already repaid our subordinated loans and TBI's credit facility,
paid transaction costs related to our financings, paid certain working capital
requirements, made an initial payment under our contract with Alcatel and paid
commitment fees and interest on Holdings' bank credit facility from these
funds. See "Use of Proceeds."
We expect to incur up to an additional $85 million of senior debt in the
first half of 2000 to finance the acquisition of terrestrial capacity for the
Atlantica-1 Network. We may obtain this financing through a new senior note
offering, bank loans or a combination thereof. We are currently discussing with
a financial institution various means of obtaining this financing, including
obtaining a commitment from this financial institution to provide us with an
$85 million debt facility. Whether or not this commitment is obtained, we
expect to seek to obtain our financing through one of the means described
above. We cannot assure you that we will be able to successfully complete a
senior note offering or obtain any commitment for a debt facility. We may also
incur further costs for terrestrial capacity in the future.
We may in the future build an additional undersea cable system, the
Atlantica-2 Network, to connect Bermuda to the United Kingdom and Southern
Europe if there is sufficient demand and available capital. We are also
considering other potential undersea fiber optic cable system routes that we
believe are currently underserved. We have not decided whether we will build
the Atlantica-2 Network and we do not believe that building the Atlantica-2
Network is necessary for the success of the Atlantica-1 Network. If we build
the Atlantica-2 Network or another undersea fiber optic cable system, we will
require additional financing.
38
<PAGE>
Our expectations of required capital expenditures are based upon our current
estimates. Our actual capital expenditures could vary from our estimates and
these variations could be material. See "Risk Factors--Substantial Future
Capital Requirements."
The Company's use of cash is generally restricted under the terms of
Holdings' bank credit facility to operating and capital expenditures related to
the Atlantica-1 Network and to other telecommunications activities. The
investment of the cash is restricted to investments with a minimum credit
rating of A-1 by Standard & Poor's or P-1 by Moody's.
Historical Capital Expenditures and Capital Resources
We have incurred significant operating losses and capital expenditures
related to the development of TBI. We have financed these expenditures through
a combination of borrowings under TBI's retired credit facility and the retired
subordinated loans, and equity contributions.
Net cash provided by operating activities was $11.4 million for the nine
months ended September 30, 1999, as compared to net cash used in operating
activities of $5.2 million for the nine months ended September 30, 1998. The
use of cash by operations in 1998 was due primarily to a large increase in
payables in 1997 which was paid early in 1998. The cash provided by operations
in 1998 was primarily the result of cash received from leasing capacity on the
BUS-1 cable system and from the accrual of interest payable on the senior notes
and bank credit facility.
Cash provided by financing activities was $580.8 million for the nine months
ended September 30, 1999 and primarily represents proceeds from the private
equity financing and issuance of the old notes in July 1999 and borrowings
under Holdings' bank credit facility in September 1999, partially offset by
repayments of borrowings under long term debt, payments of financing costs and
the purchase and cancellation of common shares. Cash provided by financing
activities was $9.4 million for the nine months ended September 30, 1998 and
relates to draws on our retired term loan and operating credit facility.
Cash used in investing activities was $595.2 million and $1.5 million for
the nine months ended September 30, 1999 and 1998, respectively. The cash used
in investing activities for the nine months ended September 30, 1999 is largely
comprised of the first installment of $62.1 million under our supply contract
with Alcatel and reflects the Company's restricted cash and investments.
Seasonality
Our Bermuda operations experience seasonal fluctuations that are a function
of the volume of tourist traffic. Traffic declines during the winter months
when tourist traffic is low.
Year 2000 Problem
We completed our compliance process in November 1999 to resolve the
potential impact of the year 2000 problem on the processing of date-sensitive
information by our computer systems and programs. To date, we have not
experienced any material problems that we attribute to the year 2000 problem.
The year 2000 problem is the result of computer programs being written using
two digits, rather than four, to indicate the year. Any of our programs that
have date-sensitive software may recognize a date using "00" as the year 1900
rather than the year 2000, which could result in miscalculations or system
failures and lead to disruptions in operations.
In 1998, we formed a year 2000 task force to conduct a comprehensive review
of our computer programs and systems to ensure that these programs and systems
would function properly and be year 2000 compliant. This review included both
hardware and software systems and embedded technology systems. Remediation was
accomplished through a combination of hardware and software upgrades, program
changes and replacement of non-compliant systems. Our remediation costs were
not material.
We completed our internal compliance process in April 1999 and completed the
inter-carrier compliance process with the Bermuda Telephone Company in July
1999. We spoke with third-party vendors that supply our computer programs and
systems as well as various carrier parties that provide us services that are
reliant upon our computer programs or systems. As of April 1999, we
successfully completed all system
39
<PAGE>
updates and system tests on our switching equipment with our equipment and
software vendor Northern Telecom. We were advised by our principal vendors and
manufacturers of our other electronic equipment, such as personal computers,
that this equipment is year 2000 compliant. We were also advised by Data True,
the subcontractor that provides billing services for TBI's commercial accounts,
that, as of November 1999, its software products were year 2000 compliant.
The Bermuda Telephone Company, the local exchange provider upon which we
rely to originate and terminate our international long-distance traffic in
Bermuda and to process billing for our residential customers, advised us that
it successfully completed system tests on its switching equipment with its
equipment and software vendor Northern Telecom, and that it is year 2000
compliant. We completed end-to-end testing with the Bermuda Telephone Company's
system in July 1999. Northern Telecom conducted the testing.
We believe that the costs of addressing potential year 2000 problems will
not have a material adverse effect on our business, financial position or
results of operations unless our vendors and certain carrier parties fail to
resolve year 2000 compliance issues.
We believe that the action plans that we have developed and the
implementation time frames that we have established adequately allow for
unexpected issues that might arise. However, if the Bermuda Telephone Company
is unable to provide services because of the year 2000 problem, then our
customers will not be able to complete their international long-distance calls.
To the extent that we experience any other year 2000 problems, we believe that
these problems would be more likely to result in errors in our billing and
record-keeping functions, rather than in the ability of the Atlantica-1
Network, which has an RFS date in December 2000 for the primary ring, or the
BUS-1 system to provide telecommunications capacity to customers. If these
billing and record-keeping errors were to occur, we believe that we have
adequate contingency plans to determine the correct billing and other
information.
Nevertheless, we cannot assure you that we will not experience any year 2000
problems, and it is difficult to predict the extent or magnitude of a year 2000
problem as it may affect us. To the extent that we experience material year
2000 problems and do not have a contingency plan in effect to remedy the
problem, our business, financial condition and results of operations could be
materially adversely affected. While we believe the occurrence of this scenario
is unlikely, a possible worst case scenario might include (1) our inability to
provide some or all of the services designed to be provided by the BUS-1 system
and the Atlantica-1 Network, (2) delays, inaccuracies or other difficulties
with respect to billing customers or the loss of customers records, and (3) our
key vendors not being able to provide goods and services on a timely basis. The
financial impact of any or all of these worst case scenarios has not been and
cannot be estimated by management with any degree of meaningful precision due
to the numerous uncertainties and variables associated with these scenarios.
Quantitative and Qualitative Disclosure About Market Risk
We are exposed to various market risks relating to changes in foreign
currency exchange rates and interest rates. Market risk is the potential loss
arising from adverse changes in market prices and rates, such as foreign
currency exchange and interest rates. We do not enter into derivatives or other
financial instruments for trading or speculative purposes.
Foreign Currency Exposure
We are exposed to fluctuations in foreign currencies relative to the U.S.
dollar. Because the Bermuda dollar is pegged to the U.S. dollar, there is no
foreign currency exposure for transactions conducted in this currency. Our
foreign currency exposures as at December 31, 1998 and at September 30, 1999
are as follows:
Note Receivable: At both dates, we had a note receivable of (Pounds)250,000
which is non-interest bearing and due November 20, 2000.
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Accounts Payable: At December 31, 1998, we had an account payable of 448,343
SDR's, a notional currency tied to a basket of European currencies, to one of
our carriers. This payable was 488,819 SDR's at September 30, 1999. This
payable is current and non-interest bearing.
Settlements on International Traffic: Settlements on international traffic
are largely made in U.S. dollars. For the year ended December 31, 1998,
approximately 8% of the Company's cost of sales and 3% of the Company's revenue
was denominated in a currency other than the U.S. dollar. For the nine months
ended September 30, 1999, approximately 12% of the Company's cost of sales and
2% of the Company's revenue was denominated in a currency other than the U.S.
dollar.
Interest Rate Exposure
Long Term Debt: We owed approximately $37.0 million of variable-rate long
term debt as at December 31, 1998, which was repaid on July 14, 1999. As at
September 30, 1999, we owed $100.0 million of variable-rate long term debt
which is due September 30, 2005. The interest rate on this debt fluctuates with
the London Interbank Offered Rate or LIBOR. On December 22, 1999, we entered
into an interest rate cap transaction for $50.0 million of this debt, capping
the interest at 7.0% for a three-year term. The interest rate exposure on this
debt is also mitigated by the fact that the proceeds from this debt are
invested in short-term investments, the return on which also fluctuates with
market interest rates. As at September 30, 1999, we also owed $300.0 million on
the old notes, which is due July 15, 2007 and has a fixed interest rate of 13%.
See Note 9 to our consolidated financial statements for more information on our
debt.
Short Term Investments: We held $523.0 million in money market investments
at September 30, 1999. The return of this investment portfolio fluctuates with
market interest rates.
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<PAGE>
BUSINESS
Business Overview
We are developing the Atlantica-1 Network to satisfy increasing bandwidth
requirements for the transmission of voice, data and video, particularly over
the Internet, between North America and South America. The Atlantica-1 Network,
together with terrestrial extensions from beach landing points to city centers
and from city to city, initially will offer capacity between certain major
cities in the United States, Brazil, Venezuela, Bermuda and Argentina. We
intend to expand the reach of the Atlantica-1 Network to other countries in
South America and Europe. We intend to offer customized and flexible
provisioning of capacity at competitive prices to international
telecommunications service providers, including emerging and established
carriers, Internet Services Providers, or ISPs, and value-added resellers. We
expect that initially the majority of our customers will be North American and
European telecommunications service providers or their South American
affiliates.
The Atlantica-1 Network will be a 22,500 km four fiber pair undersea fiber
optic cable system. We have selected Alcatel to design, construct and install
the Atlantica-1 Network pursuant to a turnkey contract. The total activated
capacity of the Atlantica-1 Network initially will be 40 Gbps, but will be
upgradeable to 1,280 Gbps using dense wavelength division multiplexing, or
DWDM, technology. DWDM technology is a technique for increasing the amount of
information that a fiber optic cable can carry by simultaneously transmitting
multiple signals through the same fiber. The primary ring of the Atlantica-1
Network will connect the United States, Bermuda, Brazil and Venezuela. The
connection from Tuckerton, New Jersey to Fortaleza, Brazil via Bermuda is
scheduled to be RFS by September 2000, with the full primary ring scheduled to
be RFS by December 2000. We believe that the deployment of the Atlantica-1
Network will position us as one of the first private undersea fiber optic cable
systems that, together with terrestrial extensions, will offer city-to-city
connectivity between the United States, Brazil, Venezuela, Bermuda and
Argentina.
In order to provide city-to-city connectivity, we will secure terrestrial
extensions, through either cash purchases or exchanges, or swaps, of capacity
with other telecommunications network providers, from each Atlantica-1 Network
landing point to certain major cities in North America and South America. If
necessary, we will secure terrestrial extensions through our own construction.
We are currently in discussions with providers of capacity from these landing
points to various cities and from city to city, referred to as backhaul
capacity, to provide connectivity between the following cities, at a minimum:
. New York City, Boston, Washington, Atlanta and Miami in the United
States,
. Sao Paulo, Rio de Janeiro, Belo Horizonte, Brasilia and Fortaleza in
Brazil,
. Buenos Aires in Argentina,
. Caracas in Venezuela, and
. Hamilton in Bermuda.
The Atlantica-1 Network will also provide interconnection with Western Europe
through a number of transatlantic cable systems, including a planned system in
which we have a minor ownership interest --TAT-14.
We currently provide international telecommunications services to both
residential and commercial customers in Bermuda through our subsidiary TBI.
TBI's products include:
. switched international direct distance dialing,
. calling cards,
. debit/prepaid calling cards, and
. international private line services.
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<PAGE>
Market Opportunity
We are developing the Atlantica-1 Network to capitalize on a combination of
factors that are increasing the demand for telecommunications capacity to carry
voice, data and video between North America and South America. We hired IBM
Global Services, an independent telecommunications industry consultant, to
perform a demand assessment for the Atlantica-1 Network. IBM Global Services
analyzed trends in telecommunications, social, economic and technological
developments and conducted interviews with several carriers to assess the
demand for telecommunications capacity between North America and South America.
Based on this analysis, IBM Global Services believes that demand for
telecommunications capacity between North America and South America will grow
at a compound annual rate of approximately 60% to 70% from 1997 to 2004.
Increasing Global Demand for International Telecommunications Capacity
The dramatic increase in global demand for international telecommunications
capacity is being driven primarily by rapid increases in the use of high
bandwidth applications, and by a global trend towards privatization and
deregulation of telecommunications industries. Prior to 1995, growth in demand
for international telecommunications capacity was driven primarily by voice
traffic, which has grown by approximately 15% per year during the past decade.
However, we expect Internet and data traffic growth to significantly outpace
voice traffic growth. Internet traffic alone has grown at a rate of
approximately 100% per annum during the last three years. The growth in data
traffic globally is being generated by rapid increases in the use of high
bandwidth applications, such as Internet, electronic commerce, or e-commerce,
video-on-demand, corporate Intranets and Extranets, video-conferencing,
electronic data interchange, or EDI, transactions between businesses, CAD/CAM,
or computer-aided design/computer-aided manufacture, manufacturing techniques,
distance learning applications and medical applications. We expect that growth
in Internet and data traffic will be the largest driver of increasing demand
for international telecommunications capacity.
Deregulation and Privatization of South American Telecommunications Industries
Many South American countries have recently completed, or are in the process
of, deregulating and privatizing their telecommunications industries. Based on
the experience in other telecommunications markets, we expect that deregulation
and privatization in South America will:
. increase the development of telecommunications infrastructure and the
availability of telecommunications services relative to the population,
or teledensity, in South America,
. accelerate growth in domestic and international traffic, and
. lead to the creation of new international telecommunications service
providers.
Countries with low teledensities generally experience increased teledensity
after privatization of their telecommunications markets because of the creation
of more efficient, higher capacity terrestrial telecommunications networks that
make access to telecommunications services less expensive and more widely
available. Privatization also drives the emergence of new domestic and
international telecommunications service providers that typically offer
enhanced services and lower pricing than the incumbents. Many of these
telecommunications service providers are seeking to establish global high speed
network facilities through the lease or purchase of undersea fiber optic
capacity from independent sources. We also expect privatization to accelerate
international traffic. The international accounting rate/settlement system,
which historically contributed to artificially high international calling
rates, is eroding. As a result, tariffs are declining and the demand for
international telecommunications services, which has demonstrated significant
price elasticity in deregulating countries, is increasing and stimulating
revenue growth. The presence of competitors in the market has consistently
produced accelerated growth in international traffic.
Brazil: In Brazil, the recent privatization and deregulation of the
telecommunications industry generated in excess of $19 billion in new
investment in 1998. The majority of this investment came from major U.S. and
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<PAGE>
European-based carriers, such as MCI WorldCom, Sprint International, Portugal
Telecom, Telefonica de Espana and Telecom Italia. The Brazilian government
expects investment in excess of $50 billion in new telecommunications
infrastructure over the next seven years, in part to meet a government mandate
to expand teledensity from approximately 11.5 phone lines per 100 people to
23.0 phone lines per 100 people by 2003. These teledensity levels are
relatively low compared to the approximately 60 phone lines per 100 people in
the United States and Canada. We expect that the anticipated investment in
telecommunications infrastructure, phased deregulation scheduled for completion
in 2002 and anticipated increase in teledensity will result in increased
international telecommunications traffic to and from Brazil.
Venezuela: Approximately $4.5 billion has been invested in Venezuela in the
telecommunications market since the privatization of CANTV, the incumbent
monopoly carrier, and the award of a wireless license to TelCel in 1991, and we
expect that an additional $3 to $4 billion will be invested over the next five
years. Venezuela has committed to opening its markets to competition for
facilities-based voice telephone services in all sectors of the market (local,
long-distance and international) by November 2000. We expect additional new
entrants in Venezuela over the next few years as deregulation and privatization
create market opportunities. We expect the Atlantica-1 Network to be a positive
factor influencing new entrants seeking reasonably priced, high quality
international telecommunications capacity.
Argentina: Pursuant to Argentina's privatization and deregulation schedule,
the government recently licensed two long-distance service providers in
addition to the incumbents Telefonica de Argentina and Telecom Argentina, which
previously held exclusive operating licenses for local and long-distance
telephony. Telefonica de Argentina operates in the southern half of the country
and Telecom Argentina operates in the northern half. We anticipate that the
Argentinean government will impose infrastructure expansion requirements
similar to Brazil's regulations in connection with market deregulation. We
expect that Argentina will experience similar growth as seen in other countries
post-deregulation and believe that the Atlantica-1 Network will be in a
position to serve as a feeder system for traffic between Argentina and much of
the rest of South America and North America.
Increasing Demand for Telecommunications Capacity Between North America and
South America
We expect that the increase in demand for bandwidth-intensive Internet and
data services in South America will be the primary stimulant of demand for
telecommunications capacity between North America and South America. According
to industry sources, Internet users in South America are expected to increase
from approximately 8.5 million in 1998 to approximately 34 million by the end
of 2000, representing one of the fastest growth rates in the world. As the
number of Internet users in South America increases, the concentration of
Internet hubs, which are centralized locations for aggregating
telecommunications traffic for transport and distribution, and corporate
Intranets in the United States is expected to drive increased growth in
telecommunications traffic between North America and South America.
In addition, we expect incoming and outgoing voice traffic between North
America and South America, which has grown at a compound annual rate of 21% per
annum over the past five years, will continue to contribute to the increase in
demand for bandwidth. The table below summarizes the volume and compound annual
growth rates (CAGR) of outgoing and incoming international voice traffic
between North America and Brazil, Venezuela and Argentina for the period from
1995 to 1997:
Minutes of Telecommunications Traffic (in millions)
<TABLE>
<CAPTION>
Country: 1995 1996 1997 CAGR
-------- ---- ---- ----- ----
<S> <C> <C> <C> <C>
Brazil............................................... 391 511 676 31.4%
Venezuela............................................ 181 224 302 29.4%
Argentina............................................ 197 255 277 18.6%
--- --- ----- ----
Total.............................................. 769 990 1,255 27.8%
=== === ===== ====
</TABLE>
--------
Source: TeleGeography, 1997-1999
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<PAGE>
Limited Existing Telecommunications Capacity Between North America and South
America
The existing undersea fiber optic cable systems connecting the major cities
in North America and South America have limited capacity. While there has been
substantial development of east-west fiber optic network capacity in recent
years (both trans-Atlantic and trans-Pacific), there has been limited
development providing connectivity between North America and South America.
This limited availability presents a significant opportunity for a new,
independent north-south undersea fiber optic cable system such as the
Atlantica-1 Network.
Due to the scarcity of undersea fiber optic cable systems, a majority of
telecommunications traffic between North America and South America has
historically been transmitted via satellite. Satellite transmission is
generally considered to have some advantages over cable transmission with
respect to point-to-multipoint broadcast from one transmitting location to
multiple receiving locations and "thin route" transmission, as opposed to the
more common point-to-point, high volume transmission from one transmitting
location to one receiving location for which undersea cable systems usage is
considered to be preferable. Satellites, however, provide inferior quality
versus fiber optic cable systems in terms of transmission delay, voice quality
and transmission throughput for data. In addition, satellite transmission is
substantially more expensive than fiber optic cable systems on a per unit basis
for heavy traffic routes. We believe that the vast majority of the growth in
demand for cable systems will be met through undersea fiber optic cable
systems, with satellites providing video broadcast signals, route diversity,
and restoration for non-ring and low capacity fiber optic networks.
The existing undersea cable systems connecting North America and South
America have a number of shortcomings that limit their ability to meet the
projected rapid increase in demand for bandwidth. Much of the existing capacity
does not connect to Rio de Janeiro, Sao Paulo or Buenos Aires, and thus does
not directly provide access to major telecommunications traffic points of
origin and termination. The existing undersea cable systems utilize older
technology and therefore generally offer limited capacity and have limited
ability to upgrade. In addition, no undersea cable systems in the region
currently offer self-healing restoration capabilities. Therefore, restoration
may only be partial or non-existent. We believe that restoration is a
fundamental requirement for telecommunications service providers offering
state-of-the-art service levels, particularly for mission critical data
applications.
Finally, each of the existing undersea cable systems was developed on a
consortium basis, and all available capacity is currently committed to the
consortium members. Access to this capacity is available to third parties only
to the extent a consortium member, increasingly a competitor to potential
purchasers, is willing to resell its unused capacity, if any.
The planned development of other new undersea cable systems in the region
with capacity, technology and scheduled completion dates similar to ours has
recently been announced. We believe that the limited existing availability and
the expected growth in demand for capacity represents a significant opportunity
for the Atlantica-1 Network and these other systems. See "Risk Factors--
Competition" and "Business--Competition."
Business Strategy
Our business strategy is to provide customized and seamless city-to-city
international telecommunications network solutions to wholesale purchasers,
including emerging and established telecommunications carriers, ISPs and value-
added resellers. Key elements of our strategy include:
Become a Preferred Independent Carriers' Carrier
We intend to be a carriers' carrier. We will provide to our target customers
an independent source of international telecommunications capacity with city-
to-city connectivity offered under an efficient one-stop-shop approach. We
believe that our independent status will be a significant marketing advantage
because we will not be perceived as competing with our customers. We believe
that our potential customers will be less
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inclined to purchase capacity from their competitors if they have a readily
available, technologically advanced alternative through an independent
provider. By purchasing from an independent provider, customers can avoid
subsidizing their competitors and providing them access to sensitive traffic
data.
Be Early to Market
We believe that the deployment of the Atlantica-1 Network will position us,
together with the recently announced SAC and SAm-I systems that are expected to
have completion dates similar to ours, among the first private undersea fiber
optic cable systems to offer connectivity between North America and South
America. Further, we believe that we will be the first independent undersea
cable system to provide connectivity between North America and South America.
We expect this early to market presence to represent a competitive advantage
for the early participants in obtaining capacity commitments from major
carriers and ISPs because having an operational cable system will enable the
early participants to establish a foothold with major telecommunications
carriers and ISPs by meeting their rapidly increasing capacity needs. We also
believe that construction of undersea cable systems that would compete with
these early participants will be limited in the near future due to various
barriers to entry, including:
. the substantial capital required to develop undersea cable systems,
. the extensive lead time required for the development of cable systems,
. the strong global demand for the limited resources of major undersea
cable supply and construction companies, including competing demand for
production slots for newly announced systems, and
. the limited number of qualified personnel with the necessary experience
in the undersea cable industry.
Further, the ability of the Atlantica-1 Network and the other recently
announced undersea cable systems to upgrade capacity in advance of expected
demand at a substantially lower unit cost than the cost of original
construction could tend to discourage further undersea cable system development
between North America and South America.
Provide Customized and Flexible Network Solutions
We intend to provide customized solutions to meet the international
telecommunications capacity needs of our customers. We will offer:
. a broad range of bandwidth options, from smaller units of capacity (E-1s,
DS-3s) to larger units of capacity (STM-1s, STM-16s, STM-64s),
. flexible provisioning of capacity at competitive prices to enable our
customers to optimize their capacity purchase decisions based on their
unique requirements and competitive strategies. Our product packages will
include IRUs, portable IRUs and short-term leases with options to buy
IRUs, which will be offered under a variety of payment options.
See"Management's Discussion and Analysis of Financial Condition and
Results of Operations--Overview--Revenues " for a discussion of IRUs,
. customers the ability to acquire capacity on shorter notice than has been
typically offered by traditional carrier consortium systems, allowing our
customers to minimize long-term capital commitments and reliance on long-
term demand projections, and
. a variety of network provisioning and maintenance services, collocation
facilities and technical support options, including offering our larger
customers access to a network management system which will give them
real-time control over their capacity, circuit reassignment and testing
requirements.
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Develop a Technologically Advanced Network
The Atlantica-1 Network will be a technologically advanced, upgradeable,
undersea fiber optic cable system configured in a self-healing ring. We believe
the restoration capability of the Atlantica-1 Network will be a significant
competitive advantage over existing systems in the region, which must acquire
restoration capability from other systems or satellites. Further, the existing
systems in the region were designed and built with a limited ability to upgrade
capacity, and therefore must be supplemented by the construction of additional
undersea cable systems to increase capacity significantly.
Capitalize on Bermuda Advantage
We believe that our Bermuda location will be advantageous to our customers
in developing business opportunities relating to e-commerce and least-cost
routing, which seeks to identify low cost traffic delivery solutions by taking
advantage of variations within the international settlement system, as a result
of a combination of factors:
. favorable tax regime,
. strategic geographic location,
. favorable regulatory environment,
. stable political environment, and
. technologically advanced telecommunications infrastructure.
We intend to promote the hosting of customers' servers, databases and
related equipment in our facility in Bermuda to enable our customers to perform
their e-commerce functions in this strategic location.
Leverage Extensive Management Experience
We have assembled a strong management team and will continue to hire highly
qualified individuals. Our management team was responsible for the successful
financing and deployment of the BUS-1 system, one of the first private
international undersea fiber optic cable systems, and for the successful launch
of our long-distance business in Bermuda. Our management team also has
substantial international telecommunications network development and operating
experience with major international carriers, including MCI WorldCom and
Teleglobe. The team is led by Michael Kedar, our acting Chief Executive Officer
and Executive Chairman, who founded TBI in 1995. Mr. Kedar is a well-known
telecommunications entrepreneur who also founded Call-Net Enterprises Inc.
(Sprint Canada), one of Canada's leading long-distance carriers, and Microcell
Communications Inc., a PCS provider in Canada. Mr. Kedar is serving as the
acting CEO, pending our appointment of a permanent CEO following the
resignation of Mr. Jerry A. DeMartino for medical reasons. Mr. DeMartino served
as the Company's CEO from October 1999 to January 2000.
Cable System Overview
Atlantica-1 Network
The Atlantica-1 Network will be a 22,500 km four fiber pair undersea fiber
optic cable system. The Atlantica-1 Network is being engineered and constructed
using the latest in fiber optic technology, such as self-healing ring
structures with internal restoration capabilities, erbium doped fiber
amplifier, or EDFA, repeaters that boost signals traveling through the cables,
large effective area fibers, or LEAF, with increased capacity and other
performance benefits, DWDM, system and equipment redundancies and a fully
integrated network management system. The incorporation of this advanced
technology will allow us to offer fully redundant, self-healing capacity to our
customers at competitive prices relative to existing and planned systems.
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The Atlantica-1 Network design contemplates system interconnection with
other existing and planned cable systems at various landing points in order to
provide customers with seamless and cost-effective connectivity to major cities
in Europe, the United States, Bermuda and South America.
The initial capacity of the Atlantica-1 Network will be 40 Gbps of total
capacity or 20 Gbps of self-healing capacity. The system will be upgradeable to
1,280 Gbps of total capacity or 640 Gbps of self-healing capacity. We will
upgrade the system incrementally in advance of expected demand. It may require
up to 12 months for an upgrade to be implemented. The Atlantica-1 Network will
incorporate the BUS-1 system for the portion of the primary ring from
Tuckerton, New Jersey to St. David's, Bermuda. The BUS-1 system will have an
initial total capacity of 40 Gbps or an initial self-healing capacity of 20
Gbps when incorporated into the Atlantica-1 Network. The BUS-1 system will be
upgradeable to 160 Gbps of total capacity or 80 Gbps of self-healing capacity.
We will upgrade the system incrementally in advance of expected demand. Once
demand exceeds the BUS-1 system's ultimate total capacity, we intend either to
replace or supplement the system with a new undersea cable at an anticipated
cost of approximately $40 million.
The self-healing system will provide two forms of switching protection
against faults: span switching and ring switching. Span switching provides
protection between adjacent landing stations if the fault involves only one of
the two fiber strands. Ring switching provides protection if there is a fault
involving all fibers between adjacent landing stations. Self-healing capacity
is designed to protect customers against the effect of potential equipment and
cable failures. The Atlantica-1 Network's internal restoration system is
expected to react to failures in less than 300 milliseconds, with no noticeable
degradation in service or dropped calls. Without the ring configuration, users
would need to buy restoration services on alternate systems to ensure the
continuity of their network transmission. Restoration obtained on alternate
systems is subject to a delay of several hours from the time the fault occurs
until the traffic is rerouted.
As shown in the chart below, the principal components of the Atlantica-1
Network will be the primary ring and the Rio extension.
<TABLE>
<CAPTION>
Segment Connections RFS Dates Estimated Cost(1)
------- ----------- --------- -----------------
<S> <C> <C> <C>
Primary Ring............ Tuckerton, New Jersey September 2000 (Tuckerton to $502 million(2)
St. David's, Bermuda Fortaleza via St. David's)
Fortaleza, Brazil December 2000 (full ring)
Punta Gorda, Venezuela
Boca Raton, Florida
Rio Extension........... Fortaleza, Brazil February 2001 (primary strand) $119 million(2)
Rio de Janeiro, Brazil Secondary strand(3) $112 million(2)
</TABLE>
- --------
(1) The estimated cost excludes landing station costs of approximately $50
million and capital contingencies of approximately $42 million. This
estimated cost also excludes potential costs, if any, associated with
securing terrestrial capacity, including any terrestrial extension to
Buenos Aires, Argentina.
(2) Fixed price under our turnkey contract with Alcatel.
(3) We have an option in our contract with Alcatel to build the secondary
strand of the Rio extension. We currently intend to exercise this option
unless we can obtain capacity on a terrestrial system from a third party at
a lower cost. If we do not exercise our option to build the secondary
strand, the cost of building the Rio extension will be $119 million, plus
the cost, if any, of obtaining capacity on a terrestrial network. We expect
the target service date to be approximately 18 months from the date of
exercising the option.
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Atlantica-2 Network
Assuming sufficient demand and available capital, we may in the future
expand the system to provide connectivity between Bermuda and Southern Europe,
including Spain, Portugal and France, as well as the United Kingdom, with the
Atlantica-2 Network.
We expect the Atlantica-2 Network to have a comparable unit price per
kilometer to the Atlantica-1 Network, but with newer technology, and to require
substantial capital to develop. We estimate that the Atlantica-2 Network could
have a potential RFS date as early as the fourth quarter of 2002. Our demand
and feasibility analyses regarding the Atlantica-2 Network are preliminary. We
will complete a more comprehensive analysis of the Atlantica-2 Network before
committing to its construction. We have no current commitment to build the
Atlantica-2 Network, and we do not believe that building the Atlantica-2
Network is necessary for the success of the Atlantica-1 Network. Further, there
are viable and possibly more suitable alternatives to serve Europe through
other cable systems.
Terrestrial Extensions to Key Markets
We will secure terrestrial extensions from each Atlantica-1 Network landing
point to certain major cities in North America and South America through the
purchase of capacity from domestic network providers, strategic alliances with
telecommunications service providers or other carriers or, if necessary,
through our own construction. We are currently in discussions with providers of
backhaul capacity to provide connectivity between the following cities, at a
minimum: New York City, Boston, Washington, Atlanta and Miami in the U.S.; Sao
Paulo, Rio de Janeiro, Belo Horizonte, Brasilia and Fortaleza in Brazil; Buenos
Aires in Argentina; Caracas in Venezuela; and Hamilton in Bermuda. We are also
currently in discussions with major telecommunications service providers who
are contemplating the construction of terrestrial fiber networks that, if
linked with the Atlantica-1 Network, would provide additional direct
connectivity to major cities in Chile, Peru and Colombia.
United States: The Atlantica-1 Network will have two landing stations in the
United States. One will be at or near the existing landing station for the BUS-
1 system in Tuckerton, New Jersey and the other, as presently contemplated,
will be in Boca Raton, Florida. The introduction of numerous new undersea cable
systems landing on the eastern seaboard in recent years, along with the rapid
construction of new competing major national terrestrial networks, has resulted
in the emergence of numerous suppliers of backhaul capacity capable of
connecting with the Atlantica-1 Network landing stations in the United States.
We have issued a request for proposal for the necessary terrestrial capacity to
potential suppliers and are in negotiations with some of these potential
suppliers. In some cases we may exchange capacity on the Atlantica-1 Network
for an equivalent value of backhaul capacity in the United States. We do not
foresee any difficulties in securing backhaul capacity in the United States.
Brazil: We are currently in negotiations with potential suppliers of
backhaul capacity in Brazil. We plan to purchase backhaul capacity in Brazil to
provide our customers with connectivity between Rio de Janeiro and the cities
of Sao Paulo, Belo Horizonte and Brasilia. We have committed to build the
primary strand of the Rio extension to connect Fortaleza and Rio de Janeiro at
a cost of $119 million. We also have an option in our contract with Alcatel to
build the secondary strand of the Rio extension at a cost of $112 million.
Although we currently intend to exercise our option with Alcatel to build the
secondary strand, we are examining the relative costs of buying terrestrial
capacity from Fortaleza to Rio de Janeiro. If cost effective, we will not
exercise our option to build the secondary strand of the Rio extension and
instead will obtain backhaul capacity from Fortaleza to Rio de Janeiro.
We are actively looking for a more cost effective terrestrial extension to
provide self-healing restoration for our Rio extension. We have identified
several companies planning to construct fiber optic networks from Fortaleza to
Rio de Janeiro. These companies include TeleMar (the incumbent licensee in the
northern region of Brazil), Embratel (the existing former monopoly carrier),
Bonari (a joint venture between Sprint/France Telecom/The National Grid) and
Canbra Telefonica S/A (Bell Canada International, Qualcomm, WLL
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International and Vicunha). We believe that there will be significant
development of terrestrial capacity along this route over the next two years
which will provide us with several backhaul alternatives.
We have also identified several potential suppliers of backhaul capacity
from Rio de Janeiro to Sao Paulo, Belo Horizonte and Brasilia. These network
providers include both Embratel as well as the mirror licensee, Bonari. In
addition, alternative network providers including MetroRed (owned by Fidelity
and Boston Ventures, among others), Netstream (a subsidiary of Promon, a
premier Brazilian engineering company) and Pegasus have developed or are
developing networks that could provide us with our required backhaul capacity.
Venezuela: We have had discussions with both CANTV, the recently privatized
former monopoly, and TelCel, an affiliate of BellSouth International, with
regard to either the purchase of, or an exchange for, backhaul capacity from
Punta Gorda to Caracas. In the event we are unable to negotiate acceptable
arrangements with either domestic carrier, we may construct our own terrestrial
extensions.
Argentina: We have identified several potential suppliers of backhaul
capacity between Rio de Janeiro, Brazil and Buenos Aires, Argentina. In
addition to the incumbent monopoly carrier, Telefonica Larga Distancia de
Argentina, several alternative network providers, such as MetroRed, are
building fiber optic networks. These networks should provide connectivity not
only between Buenos Aires and Rio de Janeiro, but also to the other major
cities in Argentina. We believe that the expected deregulation of Argentina in
2000 will result in the emergence of additional new market entrants. In the
event that we are unable to secure backhaul capacity from a third party, we are
considering developing our own undersea cable system from Rio de Janeiro to
Buenos Aires.
Bermuda: The site for our new landing station in Bermuda is located adjacent
to our St. David's network operations center that currently houses both the
BUS-1 system electronics as well as our international gateway switch. We will
secure backhaul capacity from St. David's to Hamilton that is sufficient to
meet our customers' demands.
Alcatel Contract and Cable Deployment Strategy
We have selected Alcatel, a global leader in the construction and
installation of undersea fiber optic cables, as the supplier for the Atlantica-
1 Network. We have entered into an agreement with Alcatel which provides that
Alcatel, on a turnkey basis, will:
. supply and install, at a fixed cost of approximately $502 million
(excluding landing stations), the undersea portion of the primary ring by
December 2000 (the connection from Tuckerton, New Jersey to Fortaleza,
Brazil via Bermuda is scheduled to be RFS in September 2000) equipped
with four fiber pairs and terminal equipment to support 20 Gbps of self-
healing capacity, including the upgrade of the BUS-1 system to use 20
Gbps of self-healing capacity,
. supply and install, at a fixed cost of approximately $119 million
(excluding landing stations), the primary strand of the Rio extension by
February 2001 equipped with four fiber pairs and terminal equipment to
support 20 Gbps of self-healing capacity,
. at our option, which will expire on December 30, 2001, supply and
install, at a fixed cost of approximately $112 million, the secondary
strand of the Rio extension equipped with four fiber pairs and terminal
equipment to support 20 Gbps of self-healing capacity. We estimate that
it will take approximately 18 months from the date we exercise our option
on the secondary strand of the Rio extension until the target service
date,
. seek and obtain on our behalf all permits and licenses (excluding landing
licenses) required to implement the undersea portion of the Atlantica-1
Network,
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. provide all training required for the operation and maintenance of the
Atlantica-1 Network,
. pay liquidated damages in the event of certain failures by Alcatel to
deliver the Atlantica-1 Network by the scheduled RFS date for each of the
primary ring, the connection from Tuckerton, New Jersey to Fortaleza,
Brazil via Bermuda, and the primary strand of the Rio extension (up to
10% of the initial contract value over the first 100 days of delay), and
. at our option, which will expire on December 30, 2001, extend the
Atlantica-1 Network through additional undersea cable systems.
Certain factors may result in increased costs and later RFS dates than
discussed above. See "Risk Factors--Completion of the Atlantica-1 Network."
Pursuant to the contract, Alcatel has caused its ultimate parent company to
guarantee unconditionally, subject to certain limitations, the full and
punctual performance by Alcatel of its obligations under the contract. The
Alcatel contract also limits the damages that we could recover in the event of
a breach by Alcatel.
On August 11, 1999, we signed an intent to proceed letter 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 an estimated cost of approximately $50 million. This intent to
proceed letter expires on February 25, 2000, although we expect the parties to
extend the letter if definitive documentation is not executed by that time.
We selected Alcatel as the system supplier on the basis of quality,
experience and price after reviewing competitive bids with several large
respected undersea cable suppliers. Alcatel, together with its ultimate parent
company, is a world leader in the development, manufacture, installation and
management of state-of-the-art undersea telecommunications cable networks,
transmission equipment, switching equipment and network management systems,
building upon the knowledge and expertise it has gained over the course of more
than 140 years of operating experience. Alcatel and its affiliates operate in
over 130 countries, and provides complete solutions and services to operators,
service providers, enterprises and consumers, ranging from backbone networks to
users' terminals.
Operations, Administration and Maintenance Costs
We will provide, or contract for the provision of, operations,
administration and maintenance services for the Atlantica-1 Network. For the
undersea fiber optic cable and terrestrial extensions, we expect to enter into
a contract with a third party prior to the RFS date for the connection from
Tuckerton, New Jersey to Fortaleza, Brazil via Bermuda to provide operations,
administration and maintenance services. There are a number of potential
providers of these services, including Alcatel and ACMA. For the landing
stations, we intend to train our personnel to provide operations,
administration and maintenance services at these facilities.
Sales and Marketing
Products and Services
We will offer a flexible range of product and pricing alternatives, at
competitive prices, designed to meet the needs of both emerging and established
carriers and telecommunications services providers, including ISPs and value-
added resellers.
We intend to offer a broad range of bandwidth options, from smaller units of
capacity (E-1s, DS-3s) to larger units of capacity (STM-1s, STM-16s, STM-64s).
We believe that this broad product offering is currently unavailable to
customers seeking connectivity between North America and South America. We will
package this capacity in a variety of ways, from standard IRUs to leases.
Customers purchasing standard IRUs prior to a
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segment RFS date will pay a portion of the purchase price upon execution of a
contract to buy an IRU, with the balance of the purchase price due to the
Company upon the applicable RFS date for that segment. Payment plans may be
made available to qualifying purchasers, although we plan to encourage full
payment for IRUs on an up-front basis through advantageous pricing. IRU
ownership typically provides for a fixed connection on the system for the
entire design life, normally up to 25 years. We intend to satisfy shorter term
requirements for capacity through leases, with options to convert the leases
into IRUs.
In addition, we will offer our customers the ability to acquire capacity on
shorter notice than has been offered by the traditional carrier consortium
systems. This will enable customers to minimize long-term capital commitments
and reliance on long-term demand projections.
For capacity purchases smaller than STM-1s, we will also offer customers, at
a premium, portable IRUs. Portable IRUs will allow a carrier to reassign its
purchased capacity to a different city or station pair on the Atlantica-1
Network. To support this product offering, we will be required to reserve
approximately 15% of the portable capacity as idle capacity on our network.
Carriers will be allowed to use this idle capacity for reassignment on a first-
come, first-served basis, and carriers reassigning their circuits will be
required to surrender their current routing to us for use by others. We will
also provide large capacity purchasers with access to the network management
system that will enable these purchasers to monitor their network's performance
on a real-time basis from end-to-end, control their operations and perform
circuit provisioning as needed.
Purchasers of IRU capacity will pay their pro rata share of operations,
administration and maintenance charges based upon the level of expenses we
incur, or expect to incur, in the operation, administration and maintenance of
our systems. For customers purchasing capacity under a lease agreement,
operations, administration and maintenance costs will be included in the lease
payments.
Our billing will be denominated in U.S. dollars wherever possible to
decrease our exposure to foreign currency risks. However, we might be required
to accept payment in local currencies for certain backhaul and other revenues
we receive from operations in certain foreign jurisdictions.
We intend to promote various value-added offerings through which a customer
could utilize our Bermuda network and network operations center to generate
cost savings and optimize its income tax planning. These offerings include
providing (1) turnkey e-commerce and web hosting services, including systems
for order processing, financial transactions, and network-based fulfillment of
digital product, (2) broadband transmission capacity and hosting facilities for
(i) web sites utilizing the customer's own e-commerce systems or (ii) databases
providing service such as disaster recovery backup protection, and (3)
collocation of switches or other equipment to perform traditional circuit-
switched least-cost routing or Internet protocol, or IP, based routing,
including emerging international IP-based voice services. Internet protocol
refers to the set of rules and standards used to exchange data over the
Internet.
We believe that our infrastructure and operating presence in Bermuda should
attract a wholesale segment of the international telecommunications community
to utilize our switching gateway facilities, in conjunction with our Atlantica-
1 Network capacity, as part of a turnkey services and back office solution that
is more cost effective than existing options. With additional traffic volumes
from incremental hubbing activities, combined with our existing base of
traffic, we expect to negotiate favorable terms for international traffic
delivery and to reflect those low costs in rates to our collocated carrier
customers. We intend to be an international gateway in Bermuda for our target
customers.
Target Customers
We are focusing on providing capacity on our system to international
telecommunications service providers. Our target customer base includes many of
the larger North American carriers, South American carriers and new
telecommunications market entrants. We expect that initially the majority of
our customers
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will be North American and European telecommunication carriers or their South
American affiliates. Our target customers include, among others:
. incumbent long-distance carriers,
. competitive long-distance carriers,
. regional Bell operating companies, or RBOCs,
. competitive local exchange carriers,
. former state owned monopoly carriers,
. new South American entrants,
. ISPs and data competitive local exchange carriers, or CLECs, which are
carriers that compete in the local service markets,
. wireless telephone companies,
. cable and telephony providers, and
. existing undersea cable systems in the region that require restoration.
We expect that many of our potential customers that do not currently offer
international long-distance services will obtain an international long-distance
license or be allowed to offer these services as a result of deregulation. We
also expect existing international long-distance carriers to expand the areas
for which they offer service. We believe that international connectivity will
become increasingly important to telecommunications service providers and their
customers.
Marketing Strategy
We intend to develop our own sales and marketing organization to promote
sales of capacity on the Atlantica-1 Network. We intend to have a senior sales
manager overseeing regional sales operations in the United States, Venezuela,
Brazil and Argentina. Each regional operation will handle the direct sales
within its geographic territory, consistent with our overall pricing strategy.
We may supplement our own sales force during our initial marketing effort, and
use third party sales agents that can function in a complementary manner. We
are in discussions with operators of other new cable systems to develop a joint
marketing program that would enable us to expand the reach of our systems by
marketing and promoting capacity on each other's systems.
We will utilize our long standing relationships, our own sales force and our
third party sales agents to identify and encourage early potential purchasers.
Our marketing strategy includes organizing capacity purchase meetings with
potential customers to elicit interest in our systems and identify and respond
to customer demands. In May 1999, we conducted an initial information meeting
in Washington, D.C., providing system features and preliminary pricing, which
attracted over 100 attendees from over 30 companies. We intend to organize
several additional meetings during our system development period to build
further relationships with our potential customers, and to encourage focused
one-on-one meetings to understand fully each potential customer's needs.
Network Operations Center
We currently operate a network operations center in Bermuda to support the
BUS-1 system. In connection with the Atlantica-1 Network, we will develop an
additional network operations center in Bermuda to provide total customer
support and be responsible for the overall operation and maintenance of the
Atlantica-1 Network. We expect to provide dedicated network operations center
personnel to support capacity purchasers in all aspects of capacity usage,
performance and maintenance. Additionally, the network operations center
personnel will provide interconnection coordination and support, both
administrative and technical, and will directly manage capacity provisioning,
network performance, network maintenance and repair, and network restoration.
Network operations center personnel also will serve as a single point of
contact for customer service provisioning, interconnect coordination support,
and any billing inquiry items. The network operations
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center personnel will also provide assistance to purchasers to resolve issues
with their applications and interconnect arrangements. We intend to staff the
network operations center seven days a week and 24 hours per day.
Competition
The international telecommunications industry is extremely competitive. We
face competition from existing and planned undersea fiber optic cable systems
along each of our planned routes. We will also compete with satellite providers
and land-based cable systems. We will compete primarily on the basis of price,
availability, flexible provisioning, collocation, transmission quality and
reliability, customer service and the location of our systems. See "Risk
Factors--Competition."
Existing and Planned Cable Systems
Americas-1 is currently the only undersea cable system in service that
directly connects North America and South America. Americas-1 is a fully
utilized non-self-healing consortium cable system that uses other systems for
its restoration. Americas-2, a consortium cable system currently under
construction, will connect various sites in the Caribbean, North America and
South America. Americas-2 is a non-self-healing collapsed ring system and has
an expected RFS date in the first half of 2000. The system is already fully
committed for its initial capacity and allocation of its upgrade capacity is
limited to consortium members. Unlike the Atlantica-1 Network, Americas-2 will
not offer city-to-city connectivity and will have limited upgrade capability.
In addition, we are aware of carrier discussions regarding a possible new
carrier's consortium cable system, Americas-3, that would involve a ring system
connecting the United States, Puerto Rico, Venezuela, Argentina, Brazil, Chile,
Ecuador, Colombia, Uruguay, Peru, Panama, Barbados, Jamaica and the Dominican
Republic with a potential design capacity of up to 2,560 Gbps. We believe that
the third quarter 2001 is the target completion date for this system. A data
gathering meeting is scheduled at the end of February 2000 to determine if
there is sufficient carrier commitment for proceeding with this system.
There are also two other announced undersea cable systems that intend to
provide connectivity between North America and South America:
. South American Crossing, or SAC, is a new cable system being developed by
Global Crossing Ltd. that will link coastal countries in South America to
Global Crossing's Mid-Atlantic Crossing in St. Croix, U.S.V.I. and Global
Crossing's Pan American Crossing in Ft. Amador, Panama. Global Crossing
has stated that the South American Crossing system is scheduled for
completion in the first quarter of 2001 and will be capable of providing
up to 1,280 Gbps of total capacity.
. The SAm-I cable system is being developed by Telefonica Internacional
S.A. and Tyco International Ltd. and will connect South America, Central
America and the United States. Telefonica Internacional S.A. and Tyco
International Ltd. have stated that the SAm-I system is scheduled for
completion in December 2000 and will be capable of providing up to 1,280
Gbps of total capacity.
SAC is expected to be constructed by Alcatel or one of its affiliates, and
the SAM-I cable system is expected to be constructed by Tyco Submarine Systems
Ltd. Both of these announced systems are expected to have capacity and
technology similar to ours, although neither competitor will be operated as an
independent carriers' carrier. We believe that there will be sufficient demand
in the region to support the Atlantica-1 Network and the other undersea cable
systems described above. In particular we believe there will be demand for
capacity from an independent carriers' carrier. However, we expect these other
systems to receive commitments for capacity that we would have received in
their absence and we cannot assure you that there will be sufficient demand to
support all of these systems. See "Risk Factors--Competition" and "--Sales of
Capacity; Realization of Other Revenues."
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Satellite Transmission
The Atlantica-1 Network will also face competition from existing and planned
satellite systems. When comparing cable transmission against satellite
transmission for high bandwidth and fixed network uses, we believe that cable
has several distinct advantages with respect to transmission delay and quality.
Cable transmission has a lower cost per circuit, higher capacity and longer
expected service life than satellite transmission. Satellite transmission is
generally considered to have some advantages over cable transmission with
respect to point-to-multipoint broadcast and "thin route" transmission, as
opposed to the more common point-to-point, high volume transmission for which
cable usage is considered to be preferable. Based on satellite transmission
cost and quality characteristics, we believe that satellite transmission does
not represent a viable competitor to a large capacity undersea cable system
such as the Atlantica-1 Network.
Bermuda Telecommunications Competition
The provision of retail telecommunications services in Bermuda is also very
competitive. Although TBI has gained market share in its first two years of
operations, our principal competitor in this market, Cable & Wireless, has
substantially greater financial, technical and marketing resources, access to
larger networks through inter-company relationships, a broader portfolio of
services, stronger name recognition and long-standing customer relationships. A
Bermuda ISP has filed for declaratory relief following the Bermuda Government's
refusal to permit it to provide voice over Internet service under the terms of
the ISP's data only service license. A hearing on this matter is scheduled for
mid-February 2000. In addition, the Bermuda Government is currently reviewing
whether the license terms of ISPs should be amended to permit them to provide
voice over Internet service. If ISPs are permitted to provide voice over
Internet service, this service would compete with TBI's international voice
service. See "Risk Factors--Competition."
TBI/E-Commerce Business
TBI Overview
TBI is licensed to provide a broad range of international telecommunications
services, including voice, data, video and Internet, to business, residential
and government customers in Bermuda. TBI began commercial operations in May
1997, initially providing service via satellite pending the November 1997
completion of the BUS-1 system. All services are now carried exclusively over
the BUS-1 system using satellite for restoration. In 1998, TBI became our
wholly owned subsidiary as part of a reorganization.
In two and one-half years of operation, TBI has successfully achieved a
market share in excess of one-third of the Bermuda outbound long-distance
market. TBI believes that recent regulatory and commercial developments,
including the substantial reduction in the local access charges levied by the
Bermuda Telephone Company to the international carriers and the trend to lower
international settlement rates, will result in improved operating margins going
forward.
We believe that the prospect for growth in Bermuda is significant based on
the expected continued expansion of the reinsurance and financial business
sectors, each of which are high volume consumers of international
telecommunications services. TBI's high quality network, combined with the
introduction of enhanced data and Internet services, is expected to fuel
continued growth in higher bandwidth applications.
We believe that we can successfully leverage our Bermuda-based facilities
by, among other things, developing a server farm where Internet and e-commerce
applications can be hosted in a secure, tax advantageous offshore environment.
We launched our corporate calling card service in May 1999, and we launched a
calling card service targeted at the residential market in November 1999.
Growth in sales of TBI's debit card product is being facilitated through a
distribution agreement with the largest distributor of debit cards in Bermuda.
Affinity programs have been introduced that will leverage working relationships
with various businesses and organizations to extend attractive packages to
their members and employees, with the benefit of encouraging new growth as well
as long-term retention. TBI's customer retention rate has been over 96% per
annum since commencement of commercial service in May 1997.
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Historically, the Bermuda Telephone Company's access charges were among the
highest in the world, at $0.27 per minute and $0.24 per minute for outgoing
calls and incoming calls, respectively. TBI's interconnection expense was
recently reduced as a result of a rate reduction mandated by the Bermuda
Minister of Telecommunications and Technology to a flat rate of $0.15 per
minute as of January 1, 1999. A further reduction to $0.10 per minute became
effective on July 1, 1999, with a subsequent rate determination expected in the
first half of 2000 based on a thorough cost study of the Bermuda Telephone
Company's operations. Significant rate rebalancing is causing a commensurate
increase in local rates to offset some of the loss in revenues from the
international carriers.
Business Lines and Products
TBI provides international telecommunications services for traffic
originating and terminating in Bermuda using the BUS-1 system. We offer
services similar to those available from Cable & Wireless, the incumbent
carrier. We believe that our services provide a higher technical quality at
competitive prices to consumers and businesses. TBI also offers other products
and services that were previously not available in Bermuda and supports all
products and services with strong marketing and customer service. Unlike Cable
& Wireless, TBI provides direct billing to all of its commercial customers.
TBI's product offerings include:
Private Line Data and Voice Services: TBI provides dedicated point-to-point
circuits, which connect two locations, for lease on a full-time basis to
commercial customers in Bermuda. As a supplement to its traditional dedicated
private line service offerings, TBI is implementing a private line and long-
distance bundled service offering which will provide high volume users with
private lines at very competitive rates. In addition, TBI intends to provide
Direct Access Lines, which connect the customer directly to TBI's network, to
large commercial customers for the provision of high quality access to Internet
services and videoconferencing.
Card Service: Prepaid and rechargeable card services were launched in the
summer of 1998 and can be utilized on and off Bermuda. A corporate calling card
was launched in May 1999, and we launched a residential calling card in
November 1999.
Hubbing: TBI plans to promote additional hubbing activities through its
Bermuda gateway operations by providing worldwide low cost traffic delivery via
economical satellite access to operators in more remote locations not readily
served by undersea fiber cable systems. TBI also will promote least-cost
routing services to carriers in North America and South America on terms
comparable to those available in the United States, with the additional
potential to achieve greater savings based on Bermuda's favorable tax regime.
The Bermuda Advantage
We believe that Bermuda's strategic offshore location and favorable
regulatory and low-tax environment will make it a preferred operational base
for carriers and ISPs. As such, we see particular benefits of doing business in
Bermuda that enhance our strategic plan and create important competitive
advantages for our customers.
Bermuda does not currently levy sales, income or capital gains taxes. We
believe that the tax advantages of doing business in Bermuda are significant
enough to present a competitive advantage and encourage businesses to migrate
and establish an operating presence there. With the accelerating globalization
of business and heightened competitive pressures, we believe this business
strategy will be attractive to carrier customers, particularly larger carriers
with substantial traffic volumes, as well as companies offering Internet
services, including e-commerce and web hosting services.
Bulk Capacity Sales: We believe that certain multinational customers could
achieve tax benefits by establishing a Bermuda domiciled company to buy
transmission capacity on the Atlantica-1 Network (and other
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systems) and then reselling this capacity to its affiliates on an arms' length
basis. The benefits of this arrangement will depend upon the factual
circumstances and tax planning strategies of each customer. We intend to offer
these customers capacity on Atlantica-1 and to supplement it with TBI's value-
added services.
Value-Added Services: We intend to promote various value-added offerings
through which a customer could utilize our Bermuda network and network
operations center to generate cost savings and minimize income taxes. These
offerings include e-commerce and web hosting services as well as collocation of
switches and other equipment for least-cost routing and IP-based routing.
Specific services we plan to offer are:
. turnkey e-commerce and web hosting services, including systems for order
processing, financial transactions, and network-based fulfillment of
digital product,
. broadband transmission capacity and world-class hosting facilities for
web sites utilizing the customer's own e-commerce systems or databases
providing service such as disaster recovery backup protection,
. collocation of switches or other equipment to perform traditional
circuit-switched least cost routing or IP-based routing, including
emerging international IP-based voice services. Least-cost routing takes
advantage of the international settlement system to identify low cost
solutions for the one-way delivery of voice traffic made possible by the
liberalization and deregulation of many telecommunications markets around
the world, and
. down-linking international satellite traffic through Bermuda, rather than
the United States, to the same ultimate destination at substantial cost
savings, along with the availability of other value-added services.
Regulation
Our undersea fiber optic cable facilities and telecommunications services,
including backhaul services, may be subject to regulation in each jurisdiction
where the Atlantica-1 Network and the BUS-1 system land. We currently have in
place all of the necessary licenses to land and provide services from the BUS-1
system. In order to implement fully the Atlantica-1 Network, it may be
necessary for us 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."
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. We have reviewed with Alcatel our various
options with respect to the most optimal landing locations. On June 2, 1999, we
submitted a cable landing license application to the FCC seeking authority to
land and operate the Atlantica-1 Network 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 Atlantica USA L.L.C., a wholly owned subsidiary of the
Company, a landing license for the Atlantica-1 Network.
TBI's U.S. affiliate, 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.
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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, we have consulted with the
appropriate regulatory authorities in Brazil (ANATEL) and Venezuela (CONATEL).
Based on these consultations, we believe that we are 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 us that the pro-competitive 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 Atlantica-1 Network.
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. Government authorities
have indicated to us that the availability of alternative systems such as the
Atlantica-1 Network is necessary in order to establish a sustainable
competitive international market capable of delivering the economic and
technological benefits of privatization and deregulation.
Brazil: On March 2, 1999, we submitted a request to ANATEL seeking authority
to construct, land and operate the Atlantica-1 Network 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 telecommunications service
and therefore no ANATEL license is necessary to construct, own and operate the
Atlantica-1 Network.
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 our 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. We do not expect regulatory authority to be required for carrier-to-
carrier contracts or the offering of value-added services. Thus, today we
should be able to sell our 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, we should also be able to offer our facilities
to new competitive switched voice telephony providers.
Venezuela: On March 16, 1999, we submitted a letter to CONATEL seeking
guidance on what licenses or permits from CONATEL may be necessary to land the
Atlantica-1 Network in Venezuela. In response to this letter, CONATEL informed
us in writing that no authorization or permit from CONATEL is required to
construct and land the Atlantica-1 Network in Venezuela. Based on advice
provided to us by CONATEL, we do not believe that any CONATEL permits or
concessions are necessary to operate the cable or sell capacity on the cable.
However, if CONATEL were now to determine that a permit or concession was
necessary, we
58
<PAGE>
believe that a permit or concession would be issued by CONATEL in a time frame
consistent with the implementation schedule for the Atlantica-1 Network. In
order to provide backhaul services in Venezuela, we must obtain a Private
Network Concession, which is required under Venezuelan law to install and
operate a telecommunications network for commercial purposes. We shortly plan
to submit an application to CONATEL for this license. Although we cannot assure
you that we will be granted this license, we have no reason to believe that we
will not be successful in obtaining it.
It is our expectation that we 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 we can sell our facilities to
CANTV and private network and value added service providers. Additionally, in
November 2000 we will be able to sell facilities to newly licensed switched
voice telephony providers.
Bermuda
On January 10, 1997, TBI was granted an international carrier license under
which it is authorized to provide a broad range of international
telecommunications services in, from, to and in transit through Bermuda. The
license is for a term of five years and is subject to renewal. TBI pays a
licensing fee based on the greater of 6% of TBI's total revenues (net of
carrier settlements) in Bermuda or 20% of TBI's profit in Bermuda. Although TBI
believes it will be able to obtain a renewal of TBI's international carrier
license, the failure to secure this renewal could have a material adverse
effect on our business, financial condition and results of operations. TBI's
international carrier license also permits TBI to land additional cables in
Bermuda subject to the prior consent of the Minister of Telecommunications and
Technology. On March 31, 1999, TBI applied for the Minister's consent to land
the Atlantica-1 Network in Bermuda. On April 7, 1999, TBI received formal
written approval from the Minister to land the Atlantica-1 Network in Bermuda.
The Minister's consent is subject to receipt of various construction licenses
and permits which are required in the ordinary course of business.
Properties
We lease executive and administrative office space at our headquarters at 2
Carter's Bay Road, Southside, St. David's DDBX, Bermuda. We lease cable station
space in St. David's, Bermuda under a 12-year lease, which is renewable for an
additional nine-year term. We also lease cable station space in Tuckerton, New
Jersey under a lease that will expire when the BUS-1 system is retired from
service, which is expected to occur in 2022. In addition, we lease office space
in Hamilton, Bermuda, and in Canada in Markham, Ontario and Montreal.
We have purchased property in (1) Fortaleza, Brazil, (2) Rio de Janeiro,
Brazil, (3) Tuckerton, New Jersey and (4) Boca Raton, Florida, and have leased
property in St. David's, Bermuda to build new cable landing stations. In
addition, we intend to purchase property in Punta Gorda, Venezuela to build a
new cable landing station.
Intellectual Property and Research and Development
We have no patents or registered trademarks. We claim trademark rights to
the following marks: "GlobeNet," "TeleBermuda," "TBI," "Atlantica," "GlobeNet
Communications" and "GeoReach." The TBI logo, GlobeNet logo and the Atlantica
logo are our service marks. We have filed trademark applications with respect
to some or all of these trademarks in the United States and Bermuda.
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<PAGE>
We are not currently conducting any material research and development
activities.
Employees
As of December 31, 1999, we had 54 employees. We believe that our workforce
is highly capable and motivated and that our relations with our employees are
good. There have been no material changes in the number of our employees during
the past fiscal year.
Legal Proceedings
We are, from time to time, a party to litigation that arises in the normal
course of our business operations. We are not a party to any litigation the
resolution of which we expect to have a material adverse effect on our
business, financial condition and results of operations.
60
<PAGE>
MANAGEMENT
Directors and Officers
The following table sets forth the names, ages and positions of our
directors and officers:
<TABLE>
<CAPTION>
Name(1) Age Position
- ------- --- --------
<S> <C> <C>
Michael Kedar...... 58 Executive Chairman and acting Chief Executive Officer
Anthony Bolland.... 46 Director
Jeffrey G.
Conyers........... 46 Director
Sebastien Rheaume.. 30 Director
Linda Dougherty.... 31 Director
George E.
Matelich.......... 43 Director
Kevin J. Maroni.... 37 Director
Harley J. Murphy... 54 Director
Mark A. Pelson..... 37 Director
Scott K. Socol..... 46 Executive Vice President and Chief Operating Officer
Greg Belbeck....... 44 Executive Vice President and Chief Financial Officer
Laurent Duplantie.. 45 Executive Vice President, Engineering and Operations
Lin Gentemann...... 39 Executive Vice President, General Counsel and Secretary
James Fitzgerald... 53 Vice President, Bermuda Operations
Eldon Blust........ 57 Senior Vice President, Business Development
Edward A.
Weisbrot.......... 53 Senior Vice President, Network Services
</TABLE>
- --------
(1) We also expect to add two new directors to our board in the near future.
Michael Kedar. Mr. Kedar, a citizen of Canada and founder of the Company,
has been the Company's acting Chief Executive Officer since January 2000, he
has been the Company's Executive Chairman since October 1999 and he served as
the Company's Chairman and Chief Executive Officer from January 1995 to October
1999. Mr. Kedar is serving as the acting Chief Executive Officer pending our
appointment of a permanent Chief Executive Officer following the resignation of
Mr. Jerry A. DeMartino for medical reasons. Mr. DeMartino served as the
Company's Chief Executive Officer from October 1999 to January 2000. Prior to
his positions with the Company, Mr. Kedar was the Chairman and Chief Executive
Officer of Call-Net Enterprises Inc., which he founded in 1986. In addition,
Mr. Kedar founded Microcell Communications, Inc., a PCS provider in Canada. Mr.
Kedar holds an Engineering degree from Ecole Superior Technique (Geneva,
Switzerland). Mr. Kedar's business address is 3100 Steeles Ave. E., Ste. 805,
Markham, Ontario L3R 8T3.
Anthony Bolland. Mr. Bolland, a citizen of the United Kingdom, has been a
director of the Company since July 1999. He has been a Managing Director of
Boston Ventures Management, Inc. since 1983. Boston Ventures, through its
partnerships, is an active investor in the media, telecommunications and
services industries. From 1975 to 1983, Mr. Bolland was an Officer of First
National Bank of Boston. Mr. Bolland holds an L.L.B. from Warwick University,
which he received in 1975. He is also a director of Ogden Corporation. Mr.
Bolland's business address is One Federal Street, 23rd Floor, Boston,
Massachusetts 02110.
Jeffrey G. Conyers. Mr. Conyers, a citizen of Bermuda, has been a director
of the Company since its inception and has served on the board of TBI since
January 1995. He is Chief Executive Officer for the First
61
<PAGE>
Bermuda Group of Companies, responsible for Institutional and Retail Brokerage
Services. Prior to joining First Bermuda Securities Ltd. in 1991, he served as
Assistant Manager in the Private Banking/Trust division of the Bank of Bermuda.
Mr. Conyers currently holds licenses with the NASD as Registered
Representative, Registered Options Principal, Financial Operations Principal
and as General Securities Principal. He is a graduate of Trinity College,
University of Toronto (BA 1975). In addition to his responsibilities with First
Bermuda Securities and Bermuda Savings & Loan Ltd., Mr. Conyers is also a
director of numerous companies in Bermuda including Bermuda Aviation Services
Ltd., The Bermuda Rock Fund Ltd., and Bermuda Cablevision. Mr. Conyers'
business address is Chevron House, Ground Floor, 11 Church Street, Hamilton
HM06, Bermuda.
Sebastien Rheaume. Mr. Rheaume, a citizen of Canada, has been a director of
the Company since July 1999. Mr. Rheaume is a Manager at Capital Communications
CDPQ, Inc., a private subsidiary of the Montreal-based Caisse de depot et
placement du Quebec, the fund manager for public sector pension and insurance
plans in Quebec. This fund had total assets of $45 billion at the end of 1998.
Prior to joining Capital Communications CDPQ, Inc. in April 1999, Mr. Rheaume
was an Associate Director in the Corporate Finance/Mergers and Acquisitions
department of Bell Canada, a Senior Analyst in the Financial Strategy
department at Royal Bank of Canada, and Director of Finance in Kerr Financial
Corporation. Mr. Rheaume holds a B.Comm. degree from McGill University. He is a
Chartered Accountant and a Chartered Financial Analyst, and his business
address is 1981 Avenue McGill College, Montreal, Quebec H3A 3C7.
Linda Dougherty. Ms. Dougherty, a citizen of the United States, has served
on the board of the Company since March 1999. She is Vice-President and
Director, Merchant Banking, of TD Capital Group Limited and has more than eight
years of experience in the financial services industry. Prior to joining TD
Capital Group Limited, Ms. Dougherty was with TD Securities Inc. as a Vice-
President in Mergers and Acquisitions and Corporate Finance, specializing in
Project Finance (1993) and Communications (1994-1996). Prior to joining TD
Securities Inc., she was a regional South East Asian equities analyst with
James Capel in Singapore and a Consultant with Oliver, Wyman & Company, a
financial services consulting firm, in New York and London, England. Ms.
Dougherty graduated magna cum laude, Phi Beta Kappa from the Wharton School
(B.S.) and the College of Arts & Sciences (B.A.) of the University of
Pennsylvania. She also completed the Executive Development Program at the
Kellogg Graduate School of Management. Ms. Dougherty's business address is 55
King Street West, Toronto Dominion Bank Tower, 8th Floor, P.O. Box 1, Toronto
Dominion Center, Toronto, Ontario M5K 1A2.
George E. Matelich. Mr. Matelich, a citizen of the United States, has served
on the Company's board since July 1999. He is a Managing Director of Kelso &
Company, and has been with Kelso since 1985. Prior to joining Kelso he spent
two years in the Mergers and Acquisitions and Corporate Finance Departments at
Lehman Brothers Kuhn Loeb, where his responsibilities included the analysis,
evaluation and financing of leveraged buyouts, and the refinancing of more
mature buyout companies. His previous experience includes two years as a
consultant with Ernst & Whinney. Mr. Matelich is a Certified Public Accountant,
holds a Certificate in Management Accounting, and received a B.A. in Business
Administration, summa cum laude, from the University of Puget Sound and an
M.B.A. (Finance and Business Policy) from Stanford Graduate School of Business.
He is also a director of Humphreys Inc., MJD Communications and is a trustee of
the University of Puget Sound. Mr. Matelich's business address is 320 Park
Avenue, New York, NY 10022.
Kevin J. Maroni. Mr. Maroni, a citizen of the United States, has served on
the Company's board since July 1999. Mr. Maroni is a General Partner of
Spectrum Equity Investors. Spectrum is a leading private equity firm which
manages over $1 billion of capital for investment in telecommunications and
media companies. Prior to joining Spectrum in 1994, Mr. Maroni worked at Time
Warner, Inc. and Harvard Management Company. Mr. Maroni holds an MBA from
Harvard University and a BA from the University of Michigan. Mr. Maroni is a
director of CTC Communications Corp. (NASDAQ: CPTL); American Cellular Corp;
Pathnet, Inc., and Formus Communications Inc. His business address is One
International Place, 29th Floor, Boston, Massachusetts 02110.
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<PAGE>
Harley J. Murphy. Mr. Murphy, a citizen of Canada, has served on the
Company's board since its inception and has served on the board of TBI since
January 1995. He joined Wood Gundy in 1971 working in the Money Market,
Corporate Finance and International Investment Banking areas and is presently
Director and Vice-President of the Hamilton, Ontario operations. In 1982, he
co-founded and was President of Celtel Communications Corporation, which when
licensed along with Rogers Cantel, provided cellular services to Canadians. In
1985, he founded Metroplex Communications Inc., an affiliate of Page Canada,
the first privately-owned company to introduce nation-wide paging in Canada.
Mr. Murphy graduated in 1969 from the University of Toronto with a degree in
Industrial Engineering. His business address is 21 King Street West, Ste. 600,
Hamilton, Ontario L8P 4W7.
Mark A. Pelson. Mr. Pelson, a citizen of the United States, has served on
the Company's board since July 1999. Mr Pelson is a Principal of Providence
Equity Partners Inc., which he joined in August 1996. Prior to joining
Providence, he was a co-founder and director of TeleCorp, Inc., a wireless
telecommunications company. From 1989 to 1995, Mr. Pelson served in various
management positions with AT&T, with his most recent position being a general
manager of strategic planning and mergers and acquisitions. Mr. Pelson is also
a director of Language Line LLC, Carrier1 International S.A., and Madison River
Telephone Company, L.L.C. He received a B.A. from Cornell University and a J.D.
from Boston University. Mr. Pelson's business address is 50 Kennedy Plaza, 900
Fleet Center, Providence, Rhode Island 02903.
Scott K. Socol. Mr. Socol, a citizen of the United States, has been the
Company's Executive Vice President and Chief Operating Officer since May 1996.
Prior thereto, he was the Director of Operations from 1995 to 1996. From 1986
to 1994, Mr. Socol worked with MCI/MCI International with responsibility for
global expansion and management of operations of more than 20 international
offices located in the Atlantic Ocean region. Mr. Socol holds a B.A. from
Guilford College and a Juris Doctorate degree from the University of Georgia.
His business address is 3100 Steeles Ave. E., Ste. 805, Markham, Ontario L3R
8T3.
Greg Belbeck. Mr. Belbeck, a citizen of Canada, has been an Executive Vice
President of the Company since October 1999, and has been Chief Financial
Officer of the Company since February 1997. Prior to joining the Company in
1997, Mr. Belbeck worked for 14 years in accounting, corporate finance and
valuation at Price Waterhouse and two years in finance and business development
roles with two Canadian start-up telecommunications companies. Mr. Belbeck
holds a B.A. (economics) degree from York University, and a law degree from
Osgoode Law School. Mr. Belbeck is a Chartered Accountant and a Chartered
Business Valuator and his business address is 3100 Steeles Ave. E., Ste. 805,
Markham, Ontario L3R 8T3.
Laurent Duplantie. Mr. Duplantie, a citizen of Canada, has been Executive
Vice President, Engineering and Operations, of the Company since October 1999,
and was Vice President, Engineering and Operations from October 1996 to October
1999. Prior to joining the Company, he spent 15 years at Teleglobe Canada as
Director of Strategic Development and Director of Network Services promoting
CANTAT-3 and CANUS 1, and as Project Director for the construction of CANTAT-3.
Mr. Duplantie holds a Bachelor's degree in Engineering from l'Ecole
Polytechnique de Montreal. Mr. Duplantie's business address is 170 Taschereau
Blvd., Ste. 310, La Prairie, Quebec J5R 5H6.
Lin Gentemann. Ms. Gentemann, a citizen of the United States, has been an
Executive Vice President of the Company since October 1999, and has been
General Counsel and Secretary of the Company since November 1997. Ms. Gentemann
also was a Vice President of the Company from November 1997 to October 1999.
Prior to joining the Company, Ms. Gentemann served as senior corporate attorney
at MCI from 1992 to 1997. Before joining MCI, Ms. Gentemann was an associate
with the law firm of Jones, Day, Reavis and Pogue. She holds a B.A. from the
University of Virginia and a Juris Doctorate degree from the Washington College
of Law, American University. Ms. Gentemann's business address is P.O. Box HM
3043, Hamilton HM NX, Bermuda.
James Fitzgerald. Mr. Fitzgerald, a citizen of Canada, has been the
Company's Vice President, Bermuda Operations since 1999. He also has served as
TBI's General Manager since 1999, when he was promoted from
63
<PAGE>
Senior Vice President of Marketing, Sales and Customer Service of TBI. Prior
thereto, Mr. Fitzgerald held senior management positions at Bell Canada,
Northern Telecom (Nortel), Unitel (AT&T Canada) and most recently, from 1995 to
1998, as President & Chief Operating Officer of MTS Mobility, Inc., a Canadian
regional cellular provider. Mr. Fitzgerald holds a B.A. degree and a M.B.A.
degree from York University. His business address is 2 Carter's Bay Road,
Southside, St. David's, DDBX Bermuda.
Eldon Blust. Mr. Blust, a citizen of the United States, has been Senior Vice
President, Business Development, of the Company since October 1999. Prior to
joining the Company, Mr. Blust was Senior Director, Global Strategy and
Development, at MCI WorldCom where he was responsible for the company's
offshore investments and alliances in Australia (AAP Telecommunications Pty
Ltd), Canada (Stentor Resource Center, Inc.), Mexico (Avantel, S.A.) and New
Zealand (Clear Communications Company Limited). Prior thereto, Mr. Blust was
Director, Global Network Services, where he was responsible for all sales,
marketing, product management and delivery of MCI's extensive portfolio of
international network services provided through both satellite and fiber cable
facilities. He joined MCI in 1986. Mr. Blust holds a Bachelor's degree in
Electrical Engineering from the University of Missouri at Columbia and is a
registered Professional Engineer (Virginia). His business address is 2 Carter's
Bay Road, Southside, St. David's, DDBX Bermuda.
Edward A. Weisbrot. Mr. Weisbrot, a citizen of the United States, joined the
Company in October 1999 as Senior Vice President, Network Services. For the
last two years, Mr. Weisbrot has served as Vice President of Engineering and
Operations at Primus Telecom. Prior to joining Primus, he served as the
Director for Voice Engineering at GlobalOne, where he supervised the design and
development of its voice network. Previously, he spent 17 years with MCI and
was the primary technical director for MCI's global networks. Mr. Weisbrot
holds a Bachelor of Science, Electrical Engineering degree from the New Jersey
Institute of Technology. His current business address is 2 Carter's Bay Road,
Southside, St. David's, DDBX Bermuda.
Board of Directors
The affairs of the Company are governed by the board of directors. Our
directors are elected to one-year terms. Our board consists of 11 directors:
(1) two directors (who have not yet been nominated), one of whom is to be
nominated by the holders of a majority of the Class B shares and both of whom
must be approved by a vote of the Class B shareholders (although two of the
Class B shareholders are excluded from the nomination and approval of these
directors), (2) six directors appointed by certain of the Class B shareholders,
and (3) three directors approved by a vote of the holders of our common shares,
although Class B shareholders are not permitted to vote their common shares.
Compensation Committee
Our board of directors has established a Compensation Committee. The purpose
of the Compensation Committee is to establish and submit to our board of
directors recommendations with respect to (1) compensation of our officers and
other key employees and (2) awards to be made under our share option and
incentive plan. Messrs. Kedar, Bolland, Maroni, Murphy and Pelson served on the
1999 Compensation Committee.
Compensation of Directors
In 1997 and 1998 we granted our directors stock options representing in the
aggregate 85,000 common shares. In 1999 we granted our directors in their
capacity as directors (except Messrs. Kedar and DeMartino) stock options
representing in the aggregate 50,000 common shares. Directors did not receive
monetary compensation for their services as directors in 1997, 1998 or 1999. We
have not set aside or accrued any amounts during our last fiscal year to
provide pension, retirement or similar benefits for our directors and officers.
64
<PAGE>
Indemnification of Directors and Officers
Indemnification Agreements with Directors
We have entered into indemnity agreements with each of our directors.
Pursuant to the director indemnity agreements, we have agreed to indemnify and
save harmless each director, his/her heirs and legal representatives, to the
fullest extent permitted by law, against all costs, charges, liability,
damages, and expenses, including an amount paid to settle an action or to
satisfy a judgment, reasonably incurred by him/her in respect of any civil,
criminal or administrative action or proceeding to which he/she is made a party
by reason of, or in any connection with him/her, being or having been a
director if (1) the director acted in his/her capacity as a director and (2) in
the case of a criminal or administrative action or proceeding that is enforced
by a monetary penalty, the director had reasonable grounds for believing that
his/her conduct was lawful. Directors are required to obtain our consent to any
settlement of any civil, criminal or administrative action or proceeding.
Indemnification Agreements with Officers
We have entered into indemnity agreements with Michael Kedar, James
Fitzgerald, Laurent Duplantie, Scott Socol, Lin Gentemann, Greg Belbeck, Eldon
Blust and Edward Weisbrot. Pursuant to the indemnification agreements, we have
agreed, to the fullest extent permitted by our bye-laws and applicable law, to
indemnify each indemnitee against all expenses actually and reasonably
incurred, judgments, penalties, fines and amounts paid in settlement by such
indemnitee if he/she is, or is threatened to be made, a party to any
threatened, pending, or completed action, suit, arbitration, alternate dispute
resolution mechanism, investigation, administrative hearing or any other
proceeding as a result of his/her status as an employee or officer of the
Company (1) if, in a proceeding other than a proceeding by or in the right of
the Company, he/she acted in good faith and in a manner reasonably believed to
be in our best interests and, with respect to a criminal proceeding, if he/she
had no reasonable cause to believe his/her conduct was unlawful and (2) if, in
a proceeding brought by or in the right of the Company to procure a judgment in
its favor, to the extent such indemnitee is successful, on the merits or
otherwise, provided that if the indemnitee is only partially successful in such
proceeding, we agree to indemnify him/her for such expenses actually and
reasonably incurred by him/her or on his/her behalf in connection with each
successfully resolved claim, issue or matter.
Bye-Laws
Our bye-laws provide that, subject to the Companies Act 1981 of Bermuda,
every director, officer and member of a committee constituted in accordance
with our bye-laws is indemnified by us against (1) all civil liabilities, loss,
damage, charge or expense incurred or suffered by him as a director, officer or
committee member while exercising his powers and discharging his duties under
the Companies Act 1981 of Bermuda and our bye-laws and (2) all liabilities
incurred by him as a director, officer or committee member in defending any
proceedings, whether civil or criminal, in which judgment is given in his favor
or in which he is acquitted, or in connection with any application under the
Companies Act 1981 of Bermuda in which relief from liability is granted to him
by the court. The indemnity extends to any person acting as a director, officer
or committee member in the reasonable belief that he has been so appointed or
elected notwithstanding any defect in such appointment or election provided,
however, that the indemnity does not extend to any matter which would render it
void pursuant to the Bermuda Act.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers or persons controlling the
Company pursuant to the foregoing provisions, the Company has been informed
that in the opinion of the Securities and Exchange Commission this
indemnification is against public policy as expressed in the Securities Act of
1933 and is therefore unenforceable.
65
<PAGE>
Executive Compensation
The following tables set forth certain historical compensation information
for our two Chief Executive Officers during fiscal year 1999 and the other four
most highly compensated executive officers who were serving as executive
officers at the end of fiscal year 1999 (collectively, the "Named Executive
Officers"). Mr. Kedar served as Chief Executive Officer until October 1999,
when Mr. Jerry A. DeMartino became our Chief Executive Officer. In January
2000, Mr. DeMartino resigned as Chief Executive Officer for medical reasons,
and Mr. Kedar became our acting Chief Executive Officer pending our selection
of a replacement for Mr. DeMartino. The following tables state the current
positions of the Named Executive Officers, although prior to October 1999, when
we hired Mr. DeMartino as President and Chief Executive Officer, Mr. Blust as
Senior Vice President, Business Development, and Mr. Weisbrot as Senior Vice
President, Network Services, Mr. Kedar was Chairman and Chief Executive
Officer, Ms. Gentemann was General Counsel, Vice President and Secretary, Mr.
Duplantie was Vice President, Engineering and Operations, and Mr. Belbeck was
Chief Financial Officer. Mr. Socol's positions did not change.
SUMMARY COMPENSATION TABLE
The following table sets forth the total compensation for fiscal year 1999
for the Named Executive Officers:
<TABLE>
<CAPTION>
Long Term
Annual Compensation Compensation
------------------------------ ---------------------
Awards
---------------------
Name and Principal Other Annual Securities Underlying
Position Salary Bonus Compensation Options
- ------------------ -------- -------- ------------ ---------------------
<S> <C> <C> <C> <C>
Michael Kedar,
Executive Chairman and
acting Chief Executive
Officer................. $257,688 $203,750 8,633 180,000
Jerry A. DeMartino
Former Chief Executive
Officer(1).............. 150,000 -- -- 249,019
Scott K. Socol,
Executive Vice President
and Chief Operating
Officer.................. 201,751 80,150 $16,239 100,000
Lin Gentemann,
Executive Vice President,
General Counsel
and Secretary............ 164,374 43,750 12,750 100,000
Laurent Duplantie,
Executive Vice President,
Engineering and
Operations............... 209,666 41,250 -- 100,000
Greg Belbeck,
Executive Vice President
and Chief Financial
Officer................. 180,999 25,000 -- 100,000
</TABLE>
- --------
(1) Reflects Mr. DeMartino's compensation from October 1, 1999 to December 31,
1999.
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<PAGE>
OPTION GRANTS IN 1999
The following table sets forth option grants during fiscal year 1999 to the
Named Executive Officers:
<TABLE>
<CAPTION>
Potential Realizable Value
At Assumed Annual Rates
Of Stock Price Appreciation
Individual Grants For Option Term
- ---------------------------------------------------------------------------- --------------------------------
Number Of Percent Of
Securities Total Options
Underlying Granted To Exercise
Option Employees Price Expiration
Name Granted In Fiscal Year ($/Share) Date 0% 5% 10%
- -------------------------- ---------- -------------- --------- ------------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Michael Kedar,
Executive Chairman and
acting Chief Executive
Officer.................. 80,000 9% $20.40 Oct. 7, 2009 -- $1,026,356 $2,600,987
100,000 10 9.00 Apr. 12, 2009 $1,140,000 2,422,945 4,391,235
Jerry A. DeMartino,
Former Chief Executive
Officer.................. 200,000 20 20.40 Oct. 7, 2009 -- 2,565,890 6,502,469
49,019 5 20.40 Jan 7, 2000 -- 12,500 2,500
Scott K. Socol,
Executive Vice President
and Chief Operating
Officer.................. 100,000 10 9.00 Apr. 12, 2009 1,140,000 2,422,945 4,391,235
Lin Gentemann,
Executive Vice President,
General Counsel and
Secretary................ 100,000 10 9.00 Apr. 12, 2009 1,140,000 2,422,945 4,391,235
Laurent Duplantie,
Executive Vice President,
Engineering and
Operations............... 100,000 10 9.00 Apr. 12, 2009 1,140,000 2,422,945 4,391,235
Greg Belbeck,
Executive Vice President
and Chief Financial
Officer.................. 100,000 10 9.00 Apr. 12, 2009 1,140,000 2,422,945 4,391,235
</TABLE>
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<PAGE>
AGGREGATED OPTION EXERCISES IN 1999 AND DECEMBER 31, 1999 OPTION VALUES
The following table sets forth options exercised by our Named Executive
Officers during fiscal year 1999 and the value of unexercised options for these
officers at the end of fiscal year 1999:
<TABLE>
<CAPTION>
Number of
Securities
Underlying Value Of
Unexercised Unexercised
Options At In-The-Money
Fiscal Options At
Year-End Fiscal Year-End
-------------- --------------------
Shares
Acquired On Value Exercisable/ Exercisable/
Name Exercise Realized Unexercisable Unexercisable
---- ----------- -------- -------------- --------------------
<S> <C> <C> <C> <C>
Michael Kedar,
Executive Chairman and
acting Chief
Executive Officer...... 0 0 186,666/93,334 $1,640,546/1,074,004
Jerry A. DeMartino,
Former Chief Executive
Officer ............... 0 0 49,019/200,000 0/0
Scott K. Socol,
Executive Vice
President and Chief
Operating Officer...... 5,637 103,552 88,530/98,333 1,240,805/1,129,337
Lin Gentemann,
Executive Vice
President, General
Counsel and Secretary
....................... 0 0 48,333/86,667 557,663/991,337
Laurent Duplantie,
Executive Vice
President, Engineering
and Operations......... 0 0 48,333/86,667 557,663/991,337
Greg Belbeck,
Executive Vice
President and Chief
Financial Officer...... 0 0 48,333/86,667 557,663/991,337
</TABLE>
Employment Agreements with Named Executive Officers
We entered into employment agreements with our Named Executive Officers in
October 1999. Each agreement provides for a term of employment of two years,
commencing in July 1999, and continuing thereafter for successive two-year
terms unless either we or the officer provides at least three months' notice in
advance of the expiration of the current term. Each agreement terminates
automatically upon the death of the officer, we may terminate the agreement for
cause or without cause or due to an officer's disability and the officer may
terminate the agreement for good reason or without good reason. If we terminate
an agreement without cause or due to an officer's disability, the officer
terminates the agreement for good reason, the agreement terminates due to the
officer's death or we elect not to renew an officer's employment for another
term, (1) we are required to make a lump sum payment to the officer (or the
officer's legal representatives) equal to the sum of two times the officer's
then current annual base salary, accrued bonus, certain other accrued
obligations and accrued investments under our investment plans, and (2) the
vesting of the officer's options may be accelerated. Each agreement also
restricts the officer from competing with us during the term of the officer's
employment and for a period of two years thereafter.
1998 Share Option Plan
We adopted the 1998 Share Option and Incentive Plan on December 18, 1998.
Under this option plan, options to purchase common shares of the Company may be
granted to employees, board members and consultants or advisers to the Company
or any subsidiary. The purposes of the option plan are to enhance our ability
to attract and retain qualified individuals to advance our interests and to
provide financial incentives to these individuals to continue to serve us and
our subsidiaries and to improve our business results and earnings. The option
plan is currently administered by the board of directors of the Company which
has the authority to
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<PAGE>
set specific terms and conditions of options granted under the option plan and
to administer the option plan.
Options may be granted for a term not to exceed ten years and are not
transferable other than by will or the laws of descent and distribution, except
as otherwise approved by the board of directors.
Each option may be exercised within the term specified in the option
agreement under which it was granted. In addition, an option may be exercised
as to vested shares within 90 days after the termination of the optionee's
employment, except that our board of directors, in its discretion, may annul
any option grant if the optionee is an employee of the Company or any
subsidiary and is terminated for cause. In the event of a termination due to an
optionee's death or disability, all options shall become exercisable and may be
exercised until the earlier of the first anniversary of such event or the
stated expiration date of the option. If our board of directors approves any
transaction that will result in a change of control of the Company, all options
shall become immediately exercisable for a period of fifteen days immediately
prior to the scheduled consummation of the event. Upon the consummation of any
such event, the option plan and all outstanding, unexercised options will
terminate unless the parties to the transaction provide otherwise.
The exercise price of all stock options is the fair market value of the
common shares of the Company on the date of grant. The option exercise price
may be paid in cash or, in the discretion of our board of directors, by the
delivery of common shares then owned by the optionee, or, in the discretion of
our board of directors, by a combination of these methods. The option agreement
may also permit that payment of the exercise price may be made by delivering a
properly executed exercise notice to us directing that payment of the exercise
price will be made by a broker acceptable to us upon delivery of the common
shares to the broker.
At December 31, 1999, we had outstanding under the option plan options for
220,640 common shares of the Company at a weighted average exercise price of
$9.0, of which 113,973 were exercisable. To date, options to purchase 43,360
common shares have been exercised under the option plan. Our board of directors
has the authority to grant options up to a maximum of 20% of the fully diluted
shares of the Company pursuant to a general mandate of our shareholders, which
expires annually unless re-approved.
1997 Stock Option Plan
TBI adopted the 1997 Stock Option and Incentive Plan on September 24, 1997.
In connection with the reorganization of the TBI group of companies, the
options to purchase common shares of TBI issued under this plan were exchanged
for options to purchase our common shares. Under this option plan, options to
purchase common shares of the Company were granted to directors, executive
management, senior management and senior staff of TBI. The purposes of the
option plan were to enhance TBI's ability to attract and retain qualified
individuals to advance its interests and to provide financial incentives to
these individuals to continue to serve TBI and to improve its business and
earnings. Options granted pursuant to this option plan were granted for a term
not to exceed ten years and are not transferable other than by will or the laws
of descent and distribution.
Each option may be exercised within the term specified in the option
agreement under which it was granted provided that all options must be
exercised within 10 years of the grant date or within 30 days of the optionee's
termination of employment with the Company for any reason other than retirement
or death, whichever occurs first. If the optionee's employment terminates
because of retirement as approved by the board of directors, the optionee may
exercise the options granted before retirement as the options vest but not
later than five years from the date of retirement. In the event of an
optionee's death, unless decided otherwise by the board of directors, the
estate of the optionee may exercise any options that had vested at the time of
the optionee's death within 12 months following the date of death. In the event
of an optionee's disability, unless decided otherwise by the board of
directors, the optionee may exercise the options granted before the
commencement of the disability as the options vest, but not later than five
years from the commencement of the disability. The exercise price of all stock
options is determined by the board of directors but may not be less than the
fair market value of the shares at the time of the grant.
At December 31, 1999, we had outstanding under the option plan options for
153,275 common shares of the Company at a weighted average exercise price of
$8.0 per share, of which 102,942 were exercisable. To date, options to purchase
13,055 common shares have been exercised under the option plan. No options to
purchase common shares of the Company have been issued under this plan since
December 31, 1997.
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<PAGE>
PRINCIPAL SHAREHOLDERS
Security Ownership of Certain Beneficial Owners and Management
The following table sets forth certain information as of December 31, 1999,
regarding the beneficial ownership of our common shares and Class B shares by:
. each person (or group as defined in Section 13(d)(3) of the Exchange
Act) who is known to us to be the beneficial owner of more than five
percent of our common shares or Class B shares,
. our directors and nominees,
. our Named Executive Officers, and
. our directors and executive officers as a group.
Unless otherwise noted and subject to community property laws, the persons
or entities in this table have sole voting and investment power with respect to
all shares owned by them. The information set forth in the table and footnotes
below has been provided to the Company by the shareholders listed below.
<TABLE>
<CAPTION>
Shares Beneficially
Name of Beneficial Total Number of Shares Owned Through
Title of Class Owner(1) Beneficially Owned Options Percent of Class
-------------- ----------------------- ---------------------- ------------------- ----------------
<C> <S> <C> <C> <C>
Common / Class B Boston Ventures Limited 2,941,176 / 199 -- 17.3% / 19.9%
Partnership V(2)
One Federal Street,
23rd Floor
Boston, MA 02110-2003
Common / Class B TD Capital Group 2,918,540 /197 -- 17.2% / 19.7%
Limited(3)
55 King Street
Toronto Dominion Bank
Tower, 8th Floor P.O.
Box 1 Toronto Dominion
Centre
Toronto, Ontario M5K
1AZ Canada
Common / Class B Kelso Investment 2,500,000 / 169 -- 14.7% / 16.9%
Associates VI, L.P.(4)
320 Park Avenue, 24th
Floor
New York, NY 10022
Common / Class B Providence Equity 1,508,378 / 98 -- 8.9% / 9.8%
Partners III, L.P.(5)
Fleet Center, 9th
Floor
50 Kennedy Plaza
Providence, RI 02903
Common / Class B Capital Communications 1,470,588 / 100 -- 8.6% / 10.0%
CDPQ, Inc.(6)
1981 McGill College
Avenue
Montreal, Quebec H3A
3C7 Canada
Common / Class B Spectrum Equity 1,458,824 / 97 -- 8.6% / 9.7%
Investors III, L.P.(7)
One International
Place, 29th Floor
Boston, MA 02110
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
Shares Beneficially
Name of Beneficial Total Number of Shares Owned Through
Title of Class Owner(1) Beneficially Owned Options Percent of Class
-------------- ------------------------ ---------------------- ------------------- ----------------
<C> <S> <C> <C> <C>
Common Michael Kedar (Executive 186,666 186,666 *
Chairman and acting
Chief Executive
Officer)(8)
Common Jeffrey G. Conyers 96,214 *
(Director)(9) 85,000
Common Jerry A. DeMartino 49,019 49,019 *
(Former Director,
President and Chief
Executive Officer)
Common Harley J. Murphy 50,000 *
(Director) 50,000
Common Linda Dougherty -- --
(Director) --
Common / Class B Anthony Bolland -- --
(Director) --
Common / Class B Kevin J. Maroni -- --
(Director) --
Common / Class B George E. Matelich -- --
(Director) --
Common / Class B Mark A. Pelson (Director) -- -- --
Common / Class B Sebastian Rheaume -- --
(Director) --
Common Scott K. Socol 93,177 88,529 *
(Executive Vice
President and Chief
Operating Officer)
Common Lin Gentemann (Executive 53,931 48,333 *
Vice President, General
Counsel
and Secretary)
Common Laurent Duplantie 48,333 48,333 *
(Executive Vice
President, Engineering
and Operations)
Common Greg Belbeck (Executive
Vice President and
Chief Financial Officer) 48,333 48,333 *
Common All Directors and 625,674 -- 3.65%
Executive Officers as a
Group(10)
</TABLE>
- --------
* Denotes ownership of less than one percent.
(1) In accordance with Rule 13d-3 under the Securities Exchange Act of 1934, a
person is deemed a "beneficial owner" of a security if he or she has or
shares the power to vote or direct the voting of such security or the power
to dispose or direct the disposition of such security. A person is also
deemed to be a beneficial owner of any securities that that person has the
right to acquire beneficial ownership of within 60 days. More than one
person may be deemed to be a beneficial owner of the same securities.
(2) Boston Ventures Company V, LLC is the general partner of Boston Ventures
Limited Partnership V, and by virtue of such status may be deemed to be the
beneficial owner of the shares owned by Boston Ventures Limited Partnership
V. Anthony Bolland, Roy Coppedge, Richard Wallace, James Wilson, Martha
Crowninshield and Barbara Genader are the managing directors of Boston
Ventures Company V, LLC, and by virtue of such status may be deemed to be
the beneficial owner of the shares beneficially owned directly or
indirectly by Boston Ventures Company V, LLC. Each of Anthony Bolland, Roy
Coppedge, Richard Wallace, James Wilson, Martha Crowninshield and Barbara
Genader disclaim such beneficial ownership.
(3) Toronto-Dominion Bank, the parent of TD Capital Group Limited, may be
deemed to share beneficial ownership of the shares beneficially owned
directly or indirectly by TD Capital Group Limited.
(4) Excludes 441,176 common shares and 30 Class B shares held by an affiliate
of Kelso Investment Associates VI, L.P. The general partner of Kelso
Investment Associates VI, L.P. may be deemed to share
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<PAGE>
beneficial ownership of the shares beneficially owned directly or indirectly
by Kelso Investment Associates VI, L.P. and the affiliate, but disclaims
beneficial ownership of these shares. Frank T. Nickell, Thomas R. Wall, IV,
George E. Matelich, Michael B. Goldberg, David I. Wahrhaftig, Frank K.
Bynum, Jr. and Philip E. Berney may be deemed to share beneficial ownership
of the shares beneficially owned directly or indirectly by Kelso Investment
Associates VI, L.P. and its affiliate by virtue of their status as managing
members of the affiliate and of the general partner of Kelso Investment
Associates VI, L.P., but disclaim such beneficial ownership. Due to their
common control, Kelso Investment Associates VI, L.P and its affiliate could
be deemed to beneficially own each others shares, but disclaim such
beneficial ownership.
(5) Excludes 11,230 common shares and 1 Class B share held by an affiliate of
Providence Equity Partners III, L.P. Providence Equity Partners III L.L.C.,
the general partner of Providence Equity Partners III, L.P., may be deemed
to share beneficial ownership of the shares beneficially owned directly or
indirectly by Providence Equity Partners III, L.P. and by the affiliate,
but disclaims beneficial ownership of these shares. Jonathan M. Nelson,
Glenn M. Creamer and Paul J. Salem may be deemed to share voting and
investment power with respect to the shares in which Providence Equity
Partners III L.L.C. has direct or indirect beneficial ownership, but each
disclaim such deemed beneficial ownership.
(6) Caisse de Depot et Placement du Quebec, a crown corporation owned by the
Province of Quebec, may be deemed to share beneficial ownership of the
shares beneficially owned directly or indirectly by Capital Communications
CDPQ, Inc.
(7) Excludes 60,784 common shares and 2 Class B shares held by two affiliates
of Spectrum Equity Investors III, L.P. Spectrum Equity Associates III,
L.P., the general partner of Spectrum Equity Investors III, L.P., may be
deemed to share beneficial ownership of the shares beneficially owned
directly or indirectly by Spectrum Equity Investors III, L.P. and the
affiliates, but disclaims beneficial ownership of these shares. Brian B.
Applegate, William P. Collatos, Kevin J. Maroni and Randy Henderson may be
deemed to share beneficial ownership of the shares beneficially owned
directly or indirectly by Spectrum Equity Associates III, L.P. by virtue of
their status as general partners of Spectrum Equity Associates III, L.P.,
but disclaim such beneficial ownership.
(8) Excludes 717,528 common shares and 120,000 options held by TeleBermuda
(BVI) Limited, an investor holding company incorporated in the British
Virgin Islands in which Mr. Kedar holds preference shares that carry more
than 50% of the voting rights. Although Mr. Kedar may be deemed for
disclosure purposes to share beneficial ownership of the common shares and
options held by TeleBermuda (BVI) Limited by virtue of his ownership of the
preference shares, Mr. Kedar disclaims beneficial ownership of the common
shares and options held by TeleBermuda (BVI) Limited. Other than the fixed
equity represented by the preference shares, Mr. Kedar does not have any
equity interest in TeleBermuda (BVI) Limited.
(9) Excludes 27,908 common shares held by First Bermuda Securities Limited, in
which Mr. Conyers holds a 12% interest. Excludes 92,333 common shares held
by the Tel Trust, a trust for which Mr. Conyers serves as trustee.
(10) Includes the holdings of our former Director, President and Chief
Executive Officer, Mr. Jerry A. DeMartino.
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<PAGE>
Capital Structure
The Company is authorized to issue 24,000,000 common shares and 2,000 Class
B shares. The creation of the Class B shares was authorized by amendments to
our bye-laws in June 1999 and July 1999. As of December 31, 1999, there were
17,043,900 common shares outstanding and 1,000 Class B shares outstanding. The
approval of holders of 66.6% of all common shares is required before we can
sell all or substantially all of our assets or amalgamate. Holders of Class B
shares are our only shareholders permitted to hold 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 a majority of the Class B shares is required
before we can amend our governing documents or dissolve. Moreover, pursuant to
an amended and restated securityholders' agreement (which is described below)
executed by the new investors in the private equity financing, the Company and
certain other shareholders, the approval of the holders of a majority of the
Class B shares is required before we can engage in certain transactions,
including:
. certain issuances of securities,
. declarations of dividends, distributions or redemptions,
. sales or leases of assets (other than in the ordinary course of
business) constituting more than 400 STM-1 circuits of capacity or more
than 25% of our other assets or a material interest in a material
subsidiary, in a single transaction or series of related transactions,
. incurring indebtedness (other than trade payables incurred in the
ordinary course of business and debt under Holdings' bank credit
facility or the notes) in excess of $25 million in aggregate principal
amount outstanding at any time,
. adoption of the annual budget and business plan,
. making equity investments, acquisitions or capital expenditures, other
than for maintenance of assets, that exceed, in the aggregate, the
budgeted amounts for these line items by more than 5%,
. amalgamations, mergers, wind-ups, reorganizations and certain other
fundamental changes,
. hiring or firing our chief executive officer or certain other members of
senior management,
. terminating or suspending construction under the Alcatel contract, or
. amending certain material contracts or licenses.
Amended and Restated Securityholders' Agreement
In connection with the private equity financing, the Company, TBI and
certain of our affiliates entered into an amended and restated securityholders'
agreement with Michael Kedar, TeleBermuda (BVI) Limited, IHI Hydro, Inc. (one
of our former subordinated lenders and an indirect affiliate of one of the
initial purchasers of old notes), and the new investors from the private equity
financing (the new investors together with Mr. Kedar, TeleBermuda (BVI) Limited
and IHI Hydro, Inc., the "Holders").
Pursuant to this agreement:
. the approval of holders of a majority of the Class B shares is required
for certain transactions, as described above,
. the Holders have preemptive rights to purchase their pro rata portions
of all new issuances by us of common shares or common share equivalents,
. the new investors have "drag-along" rights, pursuant to which they can
require the other Holders to sell their stock to a third party under
certain circumstances,
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<PAGE>
. the new investors and the Holders have "tag-along" rights, pursuant to
which they can participate in sales to third parties under certain
circumstances, and
. the new investors have "rights of first refusal" with respect to shares
held by each other new investor.
The agreement also provides that the Holders will be provided access to
certain of our financial and operating information prior to a qualified public
offering of $150 million ($100 million if agreed to by holders of a majority of
the Class B shares held by the new investors) in gross proceeds to us in either
the United States or Canada. Finally, the agreement places certain restrictions
on Mr. Kedar's ability to sell, directly or indirectly, his interests in the
Company and on his ability to compete with the Company, TBI or their various
subsidiaries for two years after the termination of his employment with us. In
addition, Jeffrey Conyers and certain members of senior management are parties
to the agreement for certain limited purposes, including restricting senior
management's ability to sell their interests in the Company.
Registration Rights Agreement
Pursuant to a registration rights agreement among the Company, the new
investors in the private equity financing and certain holders of common shares
(including certain members of senior management), the new investors have the
right to require that we file up to three registration statements for the
resale of their shares in the United States and/or Canada within six months
after the completion of a qualified underwritten public offering of common
shares in the United States with aggregate proceeds to the Company of $50
million, and the shareholders who are a party to this agreement have, subject
to customary cutback provisions, the right to participate in any registration
statement filed by us after the qualified public offering.
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<PAGE>
CERTAIN TRANSACTIONS
We have entered into the transactions described below with our officers,
directors or five percent shareholders or entities affiliated with our
officers, directors or five percent shareholders. See also "Management" for a
discussion of indemnity agreements entered with our officers and directors and
employment agreements entered with our Named Executive Officers.
On September 15, 1997, TBI entered into a consulting services arrangement
with First Bermuda Securities Limited, of which Jeffrey Conyers is the Chief
Executive Officer. Under the arrangement as amended on March 23, 1999, First
Bermuda Securities Limited will, among other things, (1) assist TBI in the
development of a business plan and with regulatory compliance matters, (2)
provide advice with respect to strategic alternatives and ongoing regulatory
issues and (3) assist in the Atlantica-1 Network financing efforts in Bermuda.
First Bermuda Securities Limited received a fee of $6,250 per month for its
services through December 31, 1999.
In connection with our repurchase of common shares on August 9, 1999, First
Bermuda Securities Limited served as our repurchase agent. First Bermuda
Securities Limited received customary fees for its services.
Linda Dougherty, one of our directors, is a Vice President of TD Capital
Group Limited, which is an affiliate of one of the initial purchasers of the
old notes. An affiliate of TD Capital Group Limited had previously loaned $9.5
million to us in the form of secured subordinated loans with warrants to
acquire common shares of the Company. This affiliate exercised all its warrants
applying the $9.5 million principal amount of its subordinated loans and the
$1.9 million in accrued interest as the exercise consideration. TD Capital
Group Limited's affiliate used to own a majority of our Class A shares by
virtue of its subordinated loans and is a party to an amended and restated
securityholders' agreement entered in connection with the private equity
financing. TD Capital Group Limited's affiliate is also a party to the
registration rights agreement entered into in connection with the private
equity financing.
Another affiliate of TD Capital Group Limited received customary fees for
serving as an initial purchaser of the old notes, as the financial advisor and
placement agent in connection with the private equity financing and as the
arranger and administrative agent in connection with Holdings' bank credit
facility.
On August 26, 1998, we loaned $1,292,000 (CAD$2,000,000) to Mr. Kedar, our
then Chairman and Chief Executive Officer. Mr. Kedar used the proceeds of the
loan to invest in a joint venture with a third party carrier. The loan to Mr.
Kedar, and his participation in the joint venture, were conditional on the
third party carrier granting an option in favor of TBI to acquire an equity
interest in the third party carrier's Canadian operations. The option was
exercisable until November 30, 1998 for a 20% equity interest in the Canadian
operations at an exercise price of $7,445,000 (CAD$11,525,000) (applying the
August 26, 1998 exchange rate). As a result of our later decision to pursue the
development of the Atlantica-1 Network, TBI elected not to exercise the option.
Subsequent to year-end 1998, the loan to Mr. Kedar and all interest thereon
were paid in full.
TBI's U.S. affiliate, 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 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 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.
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<PAGE>
HOLDINGS' BANK CREDIT FACILITY
On July 14, 1999, Holdings entered a credit facility with Toronto Dominion
(Texas) Inc., as administrative agent for the lenders and issuer of letters of
credit, Credit Suisse First Boston, as syndication agent for the lenders, and
TD Securities (USA) Inc., as arranger.
The Facilities
The credit facility consists of $390 million of term facilities and a $10
million revolving credit facility, as follows:
<TABLE>
<S> <C>
Working
Capital
Loan: $ 10 million senior secured working capital revolver.
Term A
Loan: $ 60 million senior secured multiple draw term loan.
Term B
Loan: $ 80 million senior secured multiple draw term loan.
Term C
Loan: $150 million senior secured multiple draw term loan.
Term D
Loan: $100 million senior secured single draw term loan.
</TABLE>
The term C loan is subject to reduction in the event that we decide not to
exercise our option in our contract with Alcatel to build the secondary strand
of the Rio extension. Holdings may also request an additional facility of up to
$50 million to be available after the actual date of commercial operation on
terms no more restrictive than the terms of the other facilities. This
additional facility is subject to lender approval and restrictions imposed
relating to the Alcatel guarantee.
Use of Credit Facility Proceeds
The proceeds from borrowings under the credit facility will be used together
with the proceeds that we received from the private offering of old notes and
the private equity financing to fund, among other things, the development of
the Atlantica-1 Network, working capital requirements, including the payment of
interest on the notes, and capital expenditures.
Availability of Funds Under the Credit Facility
Availability of funds under the credit facility is subject to certain terms
and conditions. In addition, the term A loan is subject to a maximum of 5.0x
total debt leverage ratio of TBI and the term C loan is limited (1) unless and
until we elect to exercise our option to build the Rio extension and (2) by,
among other things, sales of capacity on the Atlantica-1 Network and/or the
provision of the Alcatel guarantee. See "--Alcatel Guarantee and Reimbursement
Agreement." On September 10, 1999, Holdings borrowed $100 million under the
term D loan.
Maturity of the Credit Facility
Except with respect to the term D loan, loans under the credit facility will
mature on June 30, 2005. The term D loan will mature on September 30, 2005.
There is no required amortization of the working capital loan prior to
maturity. Loans under terms A, B and C will amortize in eight semi-annual
installments commencing on December 31, 2001 and the term D loan will require
minimal amortization prior to maturity.
Prepayments
We are able to prepay outstanding loans under terms A, B and C and the
working capital loan at our option at any time without premium or penalty
(other than break funding payments), and the term D loan at
any time subject to a prepayment fee for payments prior to the third
anniversary of the credit facility (and subject to break funding payments), in
each case subject to certain notice and minimum prepayment
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<PAGE>
requirements. In addition, we are required to make mandatory prepayments of
outstanding loans, which will permanently reduce availability, in an amount
equal to:
. 50% of excess cash flow (100% in the event that we are in default under
the credit facility or in breach of certain financial covenants); plus
. 50% of the net cash proceeds from any equity offering, with exceptions
for the private equity financing, additional equity proceeds of up to
$10 million, certain capital expenditures and other investments and for
building certain extensions of our network;
. the net cash proceeds from permitted future debt offerings, with certain
exceptions, including debt incurred for building certain extensions of
our network;
. the net cash proceeds from permitted asset sales, excluding sales of
capacity, above a minimum threshold amount and subject to a six-month
reinvestment period; and
. the net insurance proceeds related to a damaged or destroyed segment of
the Atlantica-1 Network that is not rebuilt or repaired.
Notwithstanding the above, lenders under the term D loan are able to decline
these prepayments, in which case the amounts that would have been applied to a
prepayment of these lenders' term D loans will instead be applied to a
prepayment of loans under terms A, B and C until these loans are paid in full
and then to the working capital loan.
Interest Rates
Borrowings under the loans under terms A, B and C and the working capital
loan bear interest at an initial rate per annum of LIBOR plus 3.50%, subject to
reductions down to LIBOR plus 3.00% based upon amounts outstanding or at an
alternate rate equal to the greater of the administrative agent's prime rate
and the federal funds effective rate plus 0.50% (the "ABR"), plus 2.50%,
subject to reductions down to ABR plus 2.00% based upon amounts outstanding.
Loans under term D bear interest at a rate of LIBOR plus 4.00% or ABR plus
3.00%. The default rate under the credit facility is 2.00% above the otherwise
applicable rate.
Guarantees
The obligations under the credit facility are guaranteed by all of Holdings'
present and future direct and indirect subsidiaries.
Security
The obligations under the credit facility are secured by substantially all
of the assets of Holdings and of its present and future direct and indirect
subsidiaries, including the capital stock of these subsidiaries. The
obligations under the credit facility are also secured by a pledge by us of the
shares of Holdings and certain other assets. Pursuant to this pledge agreement,
we agreed to certain restrictions, including restrictions on our ability to
incur additional indebtedness, create liens, make investments, make capital
expenditures, lease property, merge or transfer assets. In addition, we agreed
until the commercial operation date of the Atlantica-1 Network to limit our
business activities to our ownership of Holdings, activities related to the
notes and incidental activities.
Conditions
There are conditions precedent to initial borrowings under the credit
facility (except the funding into escrow of borrowings under the term D loan),
including (1) that the net proceeds from the private offering of old notes and
the private equity financing have been spent, and (2) the perfection of all
collateral not previously perfected, establishment of any remaining waterfall
and lockbox accounts, receipt of any remaining guarantees and payment of all
fees and expenses. In addition, all borrowings are subject to satisfaction of
conditions customarily found in credit agreements for similar financings,
including all representations being true and complete, and meeting certain
construction milestones.
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Negative Covenants
The credit facility contains customary restrictive covenants, including
covenants that limit, subject to certain exceptions, our subsidiaries' ability
to:
. incur indebtedness or issue guarantees;
. grant liens;
. sell assets;
. make investments;
. enter into additional contracts;
. make certain capital expenditures;
. declare and pay dividends or make distributions;
. make certain restricted payments;
. enter into transactions with affiliates;
. abandon the Atlantica-1 Network;
. enter into unrelated activities;
. make material amendments to key documents; and
. make alterations to the Atlantica-1 Network.
As described above under "--Security," the pledge agreement pursuant to
which we pledged our shares in Holdings to secure the obligations under the
credit facility contains negative covenants applicable to us.
Events of Default
The credit facility provides that the occurrence of certain events
constitute, subject in certain cases to notice and grace periods, events of
default. The events of default found in the credit facility include many of
those customarily found in credit agreements for similar financings, including:
. default under Atlantica-1 Network contracts;
. suspension of construction;
. change of control;
. breach of the minimum cumulative capacity revenue covenant;
. failure to complete the Atlantica-1 Network by a specified date; and
. certain declines in the rating of the parent of Alcatel providing the
Alcatel guarantee.
Alcatel Guarantee and Reimbursement Agreement
The ultimate parent company of Alcatel has agreed, at the election of
Holdings, to initially guarantee $100 million of the term C loan, subject to
adjustment based upon the amount owed to Alcatel under the Alcatel contract up
to a maximum of $150 million. The guarantee will be reduced by (1) the amount
of sales of capacity on a dollar for dollar basis meeting specified down
payment requirements, as and when qualified contracts for these sales are
executed, and (2) revenue from capacity sales agreements that are not qualified
capacity sales agreements, in each case such reductions to occur when there has
been an increase of at least $1 million in such amounts.
Holdings will, pursuant to the related reimbursement agreement, reimburse
Alcatel's ultimate parent company all amounts paid by it to the banks under the
guarantee and interest will accrue on the amount paid at the default rate under
the credit facility. The reimbursement agreement specifies restrictions on (1)
the incurrence by Holdings and our subsidiaries of indebtedness in excess of
$500 million in the aggregate, (2) payment of principal under the notes, and
(3) the granting of liens by Holdings and its subsidiaries other than in
respect of Holdings' bank credit facility and up to $50 million in principal
amount of purchase money debt. Holdings has the right, subject to limitations
in the credit facility, to prepay amounts outstanding under the reimbursement
agreement at any time and from time to time, in whole or in part, without
penalty or premium. Holdings is obligated to cause its subsidiaries to
guarantee the obligations under the reimbursement agreement and to grant a lien
on certain of their interests after the termination of the credit facility.
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Blockage Events
In the event of and during the continuance of a blockage event under
Holdings' bank credit facility, Holdings will be prohibited from paying to us
the funds that would otherwise have been made available to make scheduled
interest payments on the notes. A "blockage event" is defined as a payment
default under the credit facility, an event of bankruptcy with respect to
Holdings, the Company, any subsidiary of Holdings or, for a period of time,
Alcatel, and certain other events of default under the credit facility,
including an event of default resulting from the failure to complete the
Atlantica-1 Network by June 30, 2001 (or December 31, 2001 if we exercise our
option to build the Rio extension) and an event of default arising from a
change in control of the Company. In addition, under certain circumstances
certain defaults under certain contracts relating to the Atlantica-1 Network
may constitute a blockage event.
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DESCRIPTION OF THE NEW NOTES
General
The form and terms of the new notes are the same as the form and terms of
the old notes, except that the new notes have been registered under the
Securities Act of 1933, will not bear legends restricting the transfer thereof,
will not be entitled to registration rights under our registration rights
agreement, and will not contain provisions relating to additional interest. We
will issue the new notes under the indenture dated as of July 14, 1999 between
us and Bankers Trust Company, as trustee. The following description is a
summary of the material provisions of the indenture. We urge you to read the
indenture because it defines your rights as holders of the new notes. The terms
of the new notes include those stated in the indenture and those made part of
the indenture by reference to the U.S. Trust Indenture Act of 1939. You may
obtain a copy of the indenture from us.
You can find the definitions of certain terms used in this description under
the subheading "Certain Definitions." In this description, references to "we,"
"us," "our" and "the Company" refer only to GlobeNet Communications Group
Limited and not to any of its subsidiaries.
The old notes and the new notes will constitute a single class of debt
securities under the indenture. If the exchange offer is consummated, holders
of old notes who do not exchange new notes for their old notes will vote
together with holders of the new notes for all relevant purposes under the
indenture. Accordingly, in determining whether the required holders have given
any notice, consent or waiver or taken any other action permitted under the
indenture, any old notes that remain outstanding after the exchange offer will
be aggregated with the new notes, and the holders of the old notes and the new
notes will vote together as a single class. All references in this prospectus
to specified percentages in aggregate principal amount of the notes that are
outstanding means, at any time after the exchange offer is consummated, the
percentages in aggregate principal amount of the old notes and the new notes
then outstanding.
Brief Description of the New Notes
The new notes:
. will be our senior unsecured obligations;
. will be equal in right of payment to all of our future senior unsecured
Indebtedness;
. effectively will be subordinated in right of payment to all of our
existing and future secured Indebtedness to the extent of the value of
the assets securing this Indebtedness;
. are the obligations of a holding company and will not be guaranteed by
any of our Subsidiaries, and effectively will be subordinated to all
existing and future Indebtedness and other liabilities and commitments
(including trade payables and lease obligations) of our Subsidiaries; and
. will be senior in right of payment to any of our future subordinated
Indebtedness.
The indenture will permit us and our Subsidiaries to incur additional
Indebtedness, including secured Indebtedness.
As of December 31, 1999, we had no Indebtedness outstanding other than the
notes, and our Subsidiaries had $100.0 million in debt outstanding. One of our
Subsidiaries, Holdings, may incur up to an additional $350.0 million of
Indebtedness under its credit facility, defined in the indenture as the "New
Credit Facility." See "Risk Factors--Holding Company Structure."
As of the Issue Date, all of our Subsidiaries will be Restricted
Subsidiaries. However, under certain circumstances, we may designate current
and future Subsidiaries as Unrestricted Subsidiaries. Unrestricted Subsidiaries
are not subject to any of the restrictive covenants set forth in the indenture.
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Principal, Maturity and Interest
The notes will be limited initially in aggregate principal amount of $300.0
million. We will issue the new notes in fully registered form, without coupons,
in denominations of $1,000 and integral multiples of $1,000. The new notes will
mature on July 15, 2007.
Interest on the notes will accrue at the rate of 13% per annum and will be
payable semi-annually in arrears on each January 15 and July 15, commencing
January 15, 2000 to the persons who are registered holders on the immediately
preceding January 1 and July 1. Interest will accrue from the most recent date
to which interest has been paid on the old notes or, if no interest has been
paid, from July 14, 1999. Interest will be computed on the basis of a 360-day
year comprised of twelve 30-day months.
Issuance of Additional Notes
We may issue up to $150.0 million aggregate principal amount of additional
notes having terms and conditions identical to the notes (the "additional
notes"), subject to compliance with the covenants contained in the indenture
and the New Credit Facility. Any additional notes will be part of the same
issue as the notes, will vote on all matters with the notes and will be
treated, together with the new notes and the old notes, as a single class of
securities under the indenture. Unless the context otherwise requires,
references in this prospectus to the old notes or the new notes do not include
the additional notes. Additional notes are not being offered by means of this
prospectus.
Methods of Receiving Payments on the Notes
The principal of, and premium, if any, and interest on the notes will be
payable, and the notes will be exchangeable and transferable, at the office or
agency of the Company in the City of New York maintained for these purposes.
This office initially will be the office of the trustee located at Four Albany
Street, New York, New York 10006. At our option, interest may be paid by check
mailed to the registered address of the holder.
Paying Agent and Registrar for the Notes
The trustee will be the initial paying agent and registrar for the notes. We
may change the paying agent or registrar without prior notice to the holders of
the notes, and we or any of our Subsidiaries may act as paying agent or
registrar.
Transfer and Exchange
A holder may transfer or exchange notes at the office or agency of the
paying agent and registrar in the City of New York maintained for these
purposes. The registrar and the trustee may require a holder, among other
things, to furnish appropriate endorsements and transfer documents and we may
require a holder to pay any transfer taxes and similar fees required by law or
permitted by the indenture. We are not required to transfer or exchange any
note selected for redemption. Also, we are not required to transfer or exchange
any note for a period of 15 days before a selection of notes to be redeemed.
The registered holder of a note will be treated as the owner of it for all
purposes, other than with respect to the payment of additional amounts (as
defined below).
No Sinking Fund
The notes will not be entitled to the benefit of any sinking fund or other
mandatory redemption.
Foreign Restrictions
There are no restrictions imposed by Bermuda law or by our charter or other
constituent documents on the rights of non-Bermuda residents or non-Bermuda
owners of the new notes to hold the new notes or to receive payments of
interest or principal under the new notes.
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Optional Redemption
On or after July 15, 2004, we may redeem all or a part of the notes upon
not less than 30 nor more than 60 days' notice, at the redemption prices
(expressed as percentages of principal amount) set forth below, plus accrued
and unpaid interest, if any, thereon to the redemption date, if redeemed
during the twelve-month period beginning on July 15 of the years indicated
below:
<TABLE>
<CAPTION>
Redemption
Year Price
---- ----------
<S> <C>
2004.............................................................. 106.500%
2005.............................................................. 103.250%
2006 and thereafter............................................... 100.000%
</TABLE>
In addition, at any time or from time to time prior to July 15, 2002, we
may redeem up to 35% of the aggregate principal amount of notes originally
issued under the indenture at a redemption price of 113% of the principal
amount thereof, plus accrued and unpaid interest, if any, thereon to the
redemption date, with the proceeds from one or more Equity Offerings; provided
that:
(1) at least 65% of the aggregate principal amount of notes originally
issued under the indenture remain outstanding immediately after the
occurrence of any such redemption; and
(2) the redemption must occur within 90 days after the date of the
closing of the Equity Offering.
If fewer than all of the notes are to be redeemed at any time, the trustee
will select the notes to be redeemed on a pro rata basis, by lot or by such
other method as the trustee deems fair and appropriate. No notes of $1,000 or
less shall be redeemed in part. If any note is to be redeemed in part only,
the notice of redemption that relates to that note shall state the portion of
the principal amount thereof to be redeemed. Another note in principal amount
equal to the unredeemed portion of the original note will be issued in the
name of the holder thereof upon cancellation of the original note. Notes
called for redemption become due on the date fixed for redemption. On and
after the redemption date, interest ceases to accrue on notes or portions of
them called for redemption.
Optional Tax Redemption
The notes will be subject to redemption, at our option, in the event that
we become obligated to pay any additional amounts (as defined below) as a
result of a change in any laws or regulations of any Taxing Authority or a
change in any official position regarding the application or interpretation
thereof, that is publicly announced or becomes effective on or after the Issue
Date. Upon the occurrence of any such tax change, we may, at any time prior to
90 days after such tax change, redeem all, but not part, of the notes at a
price equal to 100% of the principal amount thereof, plus accrued and unpaid
interest, if any, to the redemption date. We will give written notice of any
such redemption not less than 30 nor more than 60 days prior to the redemption
date.
Payment of Additional Amounts
All payments made by or on behalf of us on or with respect to the notes
will be made free and clear of and without withholding of or deduction for or
on account of any present or future tax, duty, levy, impost, assessment or
other governmental charge (including any interest or penalties with respect
thereto) imposed or levied by or on behalf of any jurisdiction or any
political subdivision thereof or by any authority or agency therein or thereof
having power to tax (referred to below as "Taxes"), unless the withholding or
deduction of such Taxes is required by law.
If the Company or any other payor is required to withhold or deduct any
amount on account of Taxes from any payment made on or with respect to the
notes, we or such other payor will:
(1) make such withholding or deduction;
(2) remit the full amount deducted or withheld to the relevant
government authority in accordance with applicable law;
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(3) pay such additional amounts ("additional amounts") as may be
necessary so that the net amount received by each holder after such
withholding or deduction (including in respect of additional amounts) will
be not less than the amount the holder would have received if such Taxes
had not been required to be so withheld or deducted;
(4) furnish to the holders, within 30 days after the date the payment of
any Taxes is due, upon request certified copies of tax receipts evidencing
such payment by us or such other payor;
(5) indemnify and hold harmless each holder, other than an excluded
holder, from (a) any Taxes paid by such holder as a result of payments made
on or with respect to the notes, (b) any liability, including penalties,
interest and expenses, arising therefrom or with respect thereto and (c)
any Taxes imposed with respect to any reimbursement under (a) or (b), but
excluding any such taxes described in (i)(a) immediately below; and
(6) at least 30 days prior to each date on which any additional amounts
are payable, we will deliver to the paying agent (if not the Company) an
officers' certificate stating the amounts so payable and such other
information necessary to enable the paying agent to pay such additional
amounts to holders on the payment date.
Notwithstanding the foregoing, we or a successor corporation shall not be
required to make any payment to a holder of additional amounts for or on
account of:
(i) Any tax, assessment or other governmental charge that would not have
been imposed but for
(a) the existence of any present or former connection between such
holder (an "excluded holder") (or between a fiduciary, settlor,
beneficiary or partner of, or possessor of a power over such holder, if
such holder is an estate, trust or partnership) and the taxing
jurisdiction or any political subdivision or territory or possession
thereof or area subject to its jurisdiction (other than the holding of
a new note or the receipt of payments or exercise of rights
thereunder), including, without limitation, such holder (or such
fiduciary, settlor, beneficiary, partner or possessor) being or having
been a citizen or resident thereof or being or having been present or
engaged in a trade or business therein or having or having had
permanent establishment therein,
(b) the presentation of a new note, where presentation is required,
for payment on a date more than 30 days after
(x) the date on which such payment became due and payable or
(y) the date on which payment thereof is duly provided for,
whichever occurs later (except to the extent that the holder of such
new note would have been entitled to additional amounts in respect
of such Taxes on presenting such new note for payment on any date
prior to such date), or
(c) the presentation of a new note for payment in Bermuda or any
political subdivision thereof or therein, unless such new note could
not have been presented for payment elsewhere;
(ii) Except as otherwise provided, any estate, inheritance, gift, sales,
transfer, personal property or similar tax, assessment or other
governmental charge;
(iii) Any tax, assessment or other governmental charge that is imposed
or withheld by reason of the failure by the holder or the beneficial owner
of the note to comply with a written request of the Company addressed to
the holder and made at least 60 days prior to the first payment date with
respect to which the Company or any successor corporation shall apply this
clause (iii),
(a) to provide information, documents or other evidence concerning
the nationality, residence or identity of the holder or such beneficial
owner or
(b) to make and deliver any declaration or other similar claim
(other than a claim for refund of a tax, assessment or other
governmental charge withheld by the Company) or satisfy any information
or reporting requirements, which, in the case of (a) or (b), is
required or imposed by a statute, treaty, regulation or administrative
practice of the taxing jurisdiction as a precondition to exemption from
all or part of such tax, assessment or other governmental charge,
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provided, however, that the limitations on the Company's or any successor
corporation's obligation to pay additional amounts set forth in clauses (a)
and (b) above shall not apply if the provision of the information,
documentation, declaration or other evidence or reporting described in such
clauses (a) and (b) would be materially more onerous, in form, in procedure
or in the substance of information disclosed, to a holder or beneficial
owner of a note than comparable information or other applicable reporting
requirements imposed or provided for under United States tax law (such as
Internal Revenue Service Form 1001 or W-8BEN); or
(iv) Any combination of items (i), (ii) and (iii) above.
Whenever in the indenture there is mentioned, in any context, the payment of
principal, premium, if any, redemption price, Change of Control Payment, offer
price and interest, or any other amount payable under or with respect to any
note, such mention shall be deemed to include mention of the payment of
additional amounts to the extent that, in such context, additional amounts are,
were or would be payable in respect thereof.
Change of Control
If a Change of Control occurs, each holder of notes will have the right to
require the Company to repurchase all or any part (equal to $1,000 or an
integral multiple thereof) of that holder's notes pursuant to the offer
described below (the "Change of Control Offer"). In the Change of Control
Offer, the Company will offer to repurchase notes at a purchase price in cash
equal to 101% of the aggregate principal amount of notes repurchased plus
accrued and unpaid interest, if any, thereon to the date of purchase (the
"Change of Control Payment"). Within 30 days following any Change of Control,
the Company will mail a notice to each holder (with a copy to the trustee)
describing the transaction or transactions that constitute the Change of
Control and offering to repurchase notes on a date specified in such notice
(the "Change of Control Payment Date"), which date shall be no earlier than 30
days and no later than 60 days from the date such notice is mailed, pursuant to
the procedures required by the indenture and described in such notice. The
Company will comply with the requirements of Rule 14e-1 under the Exchange Act
and any other securities laws and regulations thereunder to the extent such
laws and regulations are applicable in connection with the repurchase of the
notes as a result of a Change of Control.
On the Change of Control Payment Date, the Company will, to the extent
lawful:
(1) accept for payment all notes or portions thereof properly tendered
pursuant to the Change of Control Offer;
(2) deposit with the paying agent an amount equal to the Change of
Control Payment in respect of all notes or portions thereof so tendered;
and
(3) deliver or cause to be delivered to the trustee the notes so
accepted together with an Officers' Certificate stating the aggregate
principal amount of notes or portions thereof being purchased by the
Company.
The paying agent will promptly mail to each holder of notes so tendered the
Change of Control Payment for such notes, and the trustee will promptly
authenticate and mail (or cause to be transferred by book entry) to each holder
another note equal in principal amount to any unpurchased portion of the notes
surrendered, if any; provided that each such additional note will be in a
principal amount of $1,000 or an integral multiple thereof. The Company will
publicly announce the results of the Change of Control Offer on or as soon as
practicable after the Change of Control Payment Date.
The provisions described above that require the Company to make a Change of
Control Offer following a Change of Control will be applicable regardless of
whether or not any other provisions of the indenture are applicable. Except as
described above with respect to a Change of Control, the indenture does not
contain provisions that permit the holders of the notes to require that the
Company repurchase or redeem the notes in the event of a takeover,
recapitalization or similar transaction.
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The New Credit Facility contains prohibitions of certain events with respect
to the Company, as guarantor thereunder, including events that would constitute
a Change of Control. If a Change of Control Offer is made, there can be no
assurance that the Company will have sufficient funds to purchase all of the
notes tendered by holders seeking to accept the Change of Control Offer. The
New Credit Facility restricts such a purchase of notes by the Company prior to
repayment in full in cash of Indebtedness outstanding under the New Credit
Facility. Accordingly, any Change of Control Offer would require the approval
of the lenders thereunder. In addition, a Change of Control may be an event of
default under the New Credit Facility or other indebtedness of the Company that
may be incurred in the future. Accordingly, the right of the holders of the
notes to require the Company to repurchase the notes may be of limited value if
the Company cannot obtain the required approval under the New Credit Facility.
There can be no assurance that in the event of a Change of Control the Company
will be able to obtain the necessary consents to consummate a Change of Control
Offer. The failure of the Company to make or consummate the Change of Control
Offer or pay the applicable Change of Control purchase price when due would
result in an Event of Default and would give the trustee and the holders of the
notes and additional notes, if any, the rights described under "Events of
Default and Remedies."
In addition, the exercise by the holders of notes of their right to require
the Company to repurchase the notes upon a Change of Control could cause a
default, even if the Change of Control itself does not, due to the financial
effect of such repurchases on the Company. Finally, the Company's ability to
pay cash to the holders of notes upon a repurchase may be limited by the
Company's then existing financial resources. See "Risk Factors--Financing
Change of Control Offer."
The Company will not be required to make a Change of Control Offer upon a
Change of Control if a third party makes the Change of Control Offer in the
manner, at the times and otherwise in compliance with the requirements set
forth in the indenture applicable to a Change of Control Offer made by the
Company and purchases all notes validly tendered and not withdrawn under such
Change of Control Offer.
The definition of Change of Control includes a phrase relating to the sale,
lease, transfer, conveyance or other disposition of "all or substantially all"
of the assets of the Company and its Subsidiaries taken as a whole. Although
there is a limited body of case law interpreting the phrase "substantially
all," there is no precise established definition of the phrase under applicable
law. Accordingly, the ability of a holder of notes to require the Company to
repurchase such notes as a result of a sale, lease, transfer, conveyance or
other disposition of less than all of the assets of the Company and its
Subsidiaries taken as a whole to another Person or group may be uncertain.
Certain Covenants
Incurrence of Indebtedness and Issuance of Preferred Stock
The Company will not, and will not permit any of its Restricted Subsidiaries
to, directly or indirectly, create, incur, issue, assume, enter into any
guarantee of or otherwise become directly or indirectly liable, contingently or
otherwise (collectively, incur), with respect to any Indebtedness (including
Acquired Debt), other than Permitted Indebtedness, and the Company will not
issue any Disqualified Stock and will not permit any of its Restricted
Subsidiaries to issue any Disqualified Stock or shares of preferred stock,
except, that the Company or any Guarantor may incur Indebtedness (including
Acquired Debt) and issue Disqualified Stock if either:
(1) the Consolidated Leverage Ratio of the Company is less than 5.5 to
1.0 (prior to July 15, 2002), or 5.0 to 1.0 (subsequent to July 15, 2002);
or
(2) the Consolidated Capital Ratio of the Company is less than 2.5 to
1.0.
Indebtedness, Disqualified Stock or preferred stock of any Person which is
outstanding at the time such Person becomes a Restricted Subsidiary of the
Company (including upon designation of any Subsidiary or other Person as a
Restricted Subsidiary) or is merged with or into or consolidated with the
Company or a
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Restricted Subsidiary of the Company shall be deemed to have been incurred at
the time such Person becomes such a Restricted Subsidiary of the Company or is
merged with or into or consolidated with the Company or a Restricted Subsidiary
of the Company, as applicable.
For purposes of determining compliance with any restriction on the
incurrence of Indebtedness denominated in a currency other than U.S. dollars,
the U.S. dollar-equivalent principal amount of such Indebtedness incurred
pursuant thereto shall be calculated based on the relevant currency exchange
rate in effect on the date that such Indebtedness was incurred (or, in the case
of Indebtedness under a revolving credit facility, at the time of commitment),
provided that if such Indebtedness is incurred to refinance other Indebtedness
denominated in a foreign currency, and such refinancing would cause the
applicable restriction to be exceeded if calculated at the relevant currency
exchange rate in effect on the date of such refinancing, such restriction shall
be deemed not to have been exceeded so long as the principal amount of such
refinancing Indebtedness does not exceed the principal amount of such
Indebtedness being refinanced. The principal amount of any Indebtedness
incurred to refinance other Indebtedness, if incurred in a different currency
from the Indebtedness being refinanced, shall be calculated based on the
currency exchange rate applicable to the currencies in which such respective
Indebtedness is denominated that is in effect on the date of such refinancing.
For purposes of determining any particular amount of Indebtedness under this
"Incurrence of Indebtedness and Issuance of Preferred Stock" covenant,
(1) guarantees, Liens or obligations with respect to letters of credit
or other similar instruments supporting Indebtedness otherwise included in
the determination of such particular amount shall not be included and
(2) any Liens granted pursuant to the equal and ratable provisions
referred to in the "Liens" covenant described below shall not be treated as
giving rise to Indebtedness.
For purposes of determining compliance with this "Incurrence of Indebtedness
and Issuance of Preferred Stock" covenant, any other obligations of the obligor
on such Indebtedness arising under any Lien or letter of credit or other
similar instrument or obligation supporting such Indebtedness shall be
disregarded to the extent that the same secures the principal amount of such
Indebtedness.
The accrual of interest or the accretion of accreted value will not be
deemed an incurrence of Indebtedness for the purposes of this "Incurrence of
Indebtedness and Issuance of Preferred Stock" covenant.
Restricted Payments
The Company will not, and will not permit any of its Restricted Subsidiaries
to, directly or indirectly, make any Restricted Payment unless at the time of
and after giving effect to such Restricted Payment:
(1) no Default or Event of Default has occurred and is continuing or
would occur as a consequence thereof; and
(2) the Company would, at the time of such Restricted Payment and after
giving pro forma effect thereto, have been permitted to incur at least
$1.00 of additional Indebtedness pursuant to clause (1) or (2) of the first
paragraph of the covenant described above under the caption "Incurrence of
Indebtedness and Issuance of Preferred Stock;" and
(3) such Restricted Payment, together with the aggregate amount of all
other Restricted Payments declared or made after the Issue Date (excluding
Restricted Payments permitted by clauses (2), (3), (4) and (6) of the next
succeeding paragraph), is less than the sum, without duplication, of
(a) the Applicable Percentage of the Consolidated Net Income of the
Company for the period (taken as one accounting period) from the
beginning of the first fiscal quarter commencing after the Issue Date
to the end of the Company's most recently ended fiscal quarter for
which internal financial statements are available at the time of such
Restricted Payment (or, if such aggregate cumulative Consolidated Net
Income is a deficit, less 100% of such deficit), plus
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(b) 100% of the aggregate net cash proceeds received by the Company
since the Issue Date as a contribution to its common equity capital or
from the issue or sale of Equity Interests of the Company (other than
Disqualified Stock and other than the issuance of Equity Interests in
connection with the Private Equity Financing) or from the issue or sale
since the Issue Date of Disqualified Stock or debt securities of the
Company or a Restricted Subsidiary that have been converted into or
exchanged for such Equity Interests (other than Equity Interests (or
Disqualified Stock or debt securities) sold to a Subsidiary of the
Company), plus the aggregate net cash proceeds received by the Company
upon any such conversion or exchange, plus
(c) 100% of the net reduction in Investments on and after the Issue
Date, resulting
(i) from payments of interest on Indebtedness, dividends,
repayments of loans or advances, or other transfers of property (but
only to the extent such interest, dividends, repayments or other
transfers of property are not included in the calculation of
Consolidated Net Income), in each case to the Company or any of its
Restricted Subsidiaries from any Person (including, without
limitation, from Unrestricted Subsidiaries of the Company) or
(ii) from redesignations of Unrestricted Subsidiaries as
Restricted Subsidiaries (in each case, valued as provided in the
definition of Investments set forth below under the caption "--
Certain Definitions")
in the case of each of (i) and (ii) not to exceed in the case of any
Person the amount of Restricted Investments previously made by the
Company or any of its Restricted Subsidiaries in such Person
(subsequent to the Issue Date) and in each such case which was
treated as a Restricted Payment (other than any such Restricted
Payment that was made pursuant to the provisions of paragraphs (1)
through (8) below).
The preceding provisions will not prohibit the following Restricted
Payments:
(1) the payment of any dividend within 60 days after the date of
declaration thereof, if at the declaration date such payment would have
complied with the provisions of the indenture;
(2) the redemption, repurchase, retirement, defeasance or other
acquisition of any Indebtedness of the Company subordinate to the notes or
of any Equity Interests of the Company or any Restricted Subsidiary in
exchange for, or out of the net cash proceeds of the substantially
concurrent sale (other than to a Subsidiary of the Company) of, Equity
Interests of the Company (other than Disqualified Stock); provided that the
amount of any such net cash proceeds that are utilized for any such
redemption, repurchase, retirement, defeasance or other acquisition shall
be excluded from clause (3)(b) of the preceding paragraph;
(3) the defeasance, redemption, retirement, repurchase or other
acquisition of any Indebtedness of the Company subordinate to the notes in
exchange for, or with the net cash proceeds from an incurrence of,
Permitted Refinancing Indebtedness;
(4) Investments made out of an amount not exceeding the net cash
proceeds of one or more sales (other than to a Subsidiary of the Company)
of Equity Interests (other than Disqualified Stock) of the Company;
provided that the amount of any such net cash proceeds that are utilized
for any such Investment shall be excluded from clause (3)(b) of the
preceding paragraph;
(5) the repurchase, redemption or other acquisition or retirement for
value of any Equity Interests of the Company pursuant to any management
equity subscription agreement or stock option agreement and the repurchase
of Equity Interests of the Company from employees, officers or directors of
the Company or any of its Restricted Subsidiaries or their authorized
representatives upon the death, disability or termination of employment of
such officers, directors and employees in an aggregate amount not to exceed
$2.0 million in any calendar year (provided that unused amounts may be
carried over to succeeding next 12 month periods, subject to a maximum of
$4.0 million);
(6) Investments to the extent payment for which consists of Equity
Interests (other than Disqualified Stock) of the Company;
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(7) pro rata dividends or other distributions made by a Restricted
Subsidiary of the Company to minority stockholders (or owners of an
equivalent interest in the case of a Restricted Subsidiary that is not a
corporation);
(8) the payment, purchase, redemption or other acquisition or retirement
of any Indebtedness of the Company that is expressly subordinated in right
of payment to the notes at a purchase price not greater than 101% of the
principal amount thereof, together with accrued interest, if any, thereon,
in the event of a Change of Control, in accordance with provisions that are
similar to the provisions described under the caption "Change of Control;"
provided, that prior to such purchase the Company has made the Change of
Control Offer to all holders of the notes as provided under such caption
and has purchased all notes validly tendered for payment in connection with
such Change of Control Offer;
(9) the payment, purchase, redemption or other acquisition or retirement
out of any Excess Proceeds of any Indebtedness of the Company that is
expressly subordinated in right of payment to the notes at a purchase price
not greater than 100% of the principal amount thereof together with accrued
interest, if any, thereon, in the event the Company is required to make an
Asset Sale Offer, in accordance with provisions that are similar to the
provisions described under the caption "--Limitation on Certain Asset
Sales;" provided, that prior to such purchase the Company has made the
Asset Sale Offer to all holders of the notes as provided under such caption
and has purchased out of Excess Proceeds all notes validly tendered for
payment in connection with such Asset Sale Offer; and
(10) other Restricted Payments in an aggregate amount not to exceed $5.0
million;
provided, however, that no Default or Event of Default has occurred and is
continuing or will occur as a consequence thereof.
The amount of all Restricted Payments (other than cash) shall be the Fair
Market Value on the date of the Restricted Payment of the asset(s) or
securities proposed to be transferred or issued by the Company or such
Restricted Subsidiary, as the case may be, pursuant to the Restricted Payment.
The Fair Market Value of any assets or securities that are required to be
valued by this covenant shall be determined by the Board of Directors of the
Company whose resolution with respect thereto shall be delivered to the
trustee. The Board of Directors' determination must be based upon an opinion or
appraisal issued by an accounting, appraisal or investment banking firm of
national standing if the Fair Market Value exceeds $10.0 million. Not later
than the date of making any Restricted Payment, the Company shall deliver to
the trustee an Officers' Certificate stating that such Restricted Payment is
permitted and setting forth the basis upon which the calculations required by
this "Restricted Payments" covenant were computed, together with a copy of any
fairness opinion or appraisal required by the indenture.
Limitation on Certain Asset Sales
The Company will not, and will not permit any of its Restricted Subsidiaries
to, consummate an Asset Sale unless:
(1) the Company (or the Restricted Subsidiary, as the case may be)
receives consideration at the time of such Asset Sale at least equal to the
Fair Market Value of the assets or Equity Interests issued or sold or
otherwise disposed of; and
(2) at least 75% of the consideration received by the Company or the
Restricted Subsidiary is in the form of cash and/or Cash Equivalents and/or
Fiber Optic Assets, provided that
(x) the amount of any Indebtedness of the Company (other than
Indebtedness that is expressly subordinated in right of payment to the
notes) or any Restricted Subsidiary that is assumed by the transferee
of any such assets pursuant to an agreement that unconditionally
releases the Company and its Restricted Subsidiaries from further
liability related to such Indebtedness, and
(y) liabilities other than Indebtedness for which any other Person
assumes responsibility,
shall in each case be treated as cash for purposes of this covenant.
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Within 360 days after the receipt of any Net Proceeds from an Asset Sale,
the Company or the Restricted Subsidiary may apply the Net Proceeds:
(1) to permanently reduce commitments under the New Credit Facility or
to permanently repay or retire outstanding Indebtedness incurred pursuant
to clause (1) of the definition of "Permitted Indebtedness," or
(2) to acquire Fiber Optic Assets.
Pending the final application of any such Net Proceeds, the Company may
temporarily reduce revolving credit borrowings or otherwise invest such Net
Proceeds in any manner that is not prohibited by the indenture.
Any Net Proceeds from Asset Sales that are not applied or invested as
provided in the preceding paragraph will constitute Excess Proceeds. When the
aggregate amount of Excess Proceeds exceeds $10.0 million, the Company will
make an offer (an "Asset Sale Offer") to all holders of notes and may make an
offer to all holders of other Indebtedness that is pari passu with the notes
containing provisions similar to those set forth in the indenture with respect
to offers to purchase or redeem with the proceeds of sales of assets, to
purchase the maximum principal amount of notes and such other pari passu
Indebtedness that may be purchased out of the Excess Proceeds. The offer price
in any Asset Sale Offer will be equal to 100% of principal amount plus accrued
and unpaid interest, if any, thereon to the date of purchase and will be
payable in cash. If any Excess Proceeds remain after consummation of an Asset
Sale Offer, the Company may use such Excess Proceeds for any purpose not
otherwise prohibited by the indenture. If the aggregate principal amount of
notes and such other pari passu Indebtedness tendered into such Asset Sale
Offer exceeds the amount of Excess Proceeds, the trustee shall select the notes
and such other pari passu Indebtedness to be purchased on a pro rata basis.
Upon completion of each Asset Sale Offer, the amount of Excess Proceeds will be
reset at zero.
The Fair Market Value of any assets or securities that are required to be
valued by this covenant shall be determined by the Board of Directors of the
Company whose resolution with respect thereto shall be delivered to the
trustee. The Board of Directors' determination must be based upon an opinion or
appraisal issued by an accounting, appraisal or investment banking firm of
national standing if the Fair Market Value of such assets or securities
(excluding any Fiber Optic Assets) exceeds $10.0 million.
The New Credit Facility contains prohibitions of certain events with respect
to the Company, as a guarantor thereunder, including events that would
constitute an Asset Sale. In addition, the exercise by the holders of notes of
their right to require the Company to repurchase the notes upon an Asset Sale
could cause a default under agreements, even if the Asset Sale itself does not,
due to the financial effect of such repurchases on the Company. Finally, the
Company's ability to pay cash to the holders of notes upon a repurchase may be
limited by the Company's then existing financial resources. See "Risk Factors--
Financing Change of Control Offer".
Liens
The Company will not, and will not permit any of its Restricted Subsidiaries
to, directly or indirectly, create, incur, assume or otherwise cause or suffer
to exist or become effective any Lien of any kind on any asset or property now
owned or hereafter acquired, except Permitted Liens, unless the notes are
secured equally and ratably with the obligation so secured, so long as such
obligation is so secured.
Dividend and Other Payment Restrictions Affecting Restricted Subsidiaries
The Company will not, and will not permit any of its Restricted Subsidiaries
to, directly or indirectly, create or permit to exist or become effective any
consensual encumbrance or restriction on the ability of any Restricted
Subsidiary to:
(1) pay dividends or make any other distributions on its Capital Stock
to the Company or any of the Company's Restricted Subsidiaries, or with
respect to any other interest or participation in, or measured by, its
profits, or pay any indebtedness owed to the Company or any of the
Company's Restricted Subsidiaries;
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(2) make loans or advances to the Company or any of the Company's
Restricted Subsidiaries; or
(3) transfer any of its properties or assets to the Company or any of
the Company's Restricted Subsidiaries.
However, the preceding restrictions will not apply to encumbrances or
restrictions existing under or by reason of:
(1) Existing Indebtedness or other agreements as in effect on the Issue
Date and any amendments, modifications, restatements, renewals, increases,
supplements, refundings, replacements or refinancings thereof, provided
that such amendments, modifications, restatements, renewals, increases,
supplements, refundings, replacement or refinancings are not materially
more restrictive, taken as a whole, with respect to such encumbrances and
restrictions than those contained in such Existing Indebtedness, as in
effect on the Issue Date;
(2) the indenture, the old notes and the new notes;
(3) the New Credit Facility, as in effect on the date of its execution
and as may be modified in accordance with the provisions of the commitment
letter relating to the New Credit Facility permitting certain changes in
connection with syndication, and any amendments, modifications,
restatements, renewals, increases, supplements, refundings, replacements or
refinancings thereof, provided that such amendments, modifications,
restatements, renewals, increases, supplements, refundings, replacement or
refinancings are not materially more restrictive, taken as a whole, with
respect to such encumbrances and restrictions than those contained in the
New Credit Facility, as in effect on the date of its execution and as
modified in the manner described above;
(4) applicable law or any governmental or regulatory permit or license;
(5) any instrument governing Indebtedness or Capital Stock of, or
agreement binding on, a Person acquired by the Company or any of its
Restricted Subsidiaries as in effect at the time of such acquisition
(except to the extent such Indebtedness was incurred in connection with or
in contemplation of such acquisition), which encumbrance or restriction is
not applicable to any Person, or the properties or assets of any Person,
other than the Person, or the property or assets of the Person, so
acquired, provided that, in the case of Indebtedness, such Indebtedness was
permitted by the terms of the indenture to be incurred;
(6) customary non-assignment provisions restricting subletting or
assignment in leases or other agreements entered into in the ordinary
course of business and consistent with past practices;
(7) Purchase Money Indebtedness or Vendor Financing Indebtedness that
imposes restrictions of the nature described in clause (3) of the preceding
paragraph, provided that such obligations are permitted to be incurred
under clause (6) or clause (7), as the case may be, of the definition of
"Permitted Indebtedness" set forth below;
(8) any agreement for the sale or other disposition of a Restricted
Subsidiary or any asset that restricts distributions by such Restricted
Subsidiary or transfer of such asset pending its sale or other disposition,
provided that the consummation of such transaction would not result in a
Default or an Event of Default, that such restriction terminates if such
transaction is not consummated and that the consummation or abandonment of
such transaction occurs within one year of the date such agreement was
entered into;
(9) Permitted Refinancing Indebtedness, provided that the restrictions
contained in the agreements governing such Permitted Refinancing
Indebtedness are not materially more restrictive, taken as a whole, than
those contained in the agreements governing the Indebtedness being
refinanced;
(10) Liens otherwise permitted to be incurred pursuant to the provisions
of the covenant described above under the caption "--Liens" that limit the
right of the Company or any of its Restricted Subsidiaries to dispose of
the assets subject to such Lien;
(11) customary limitations on the disposition or distribution of assets
or property in joint venture agreements and other similar agreements
entered into in the ordinary course of business; and
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(12) any encumbrance or restriction under any agreement relating to
Indebtedness incurred by a Restricted Subsidiary of the Company permitted
to be incurred under the covenant described above under "Incurrence of
Indebtedness and Issuance of Preferred Stock"; provided that the Company in
good faith determines
(a) that, taken as a whole, the terms and conditions of any such
encumbrances or restrictions are not materially less favorable to the
holders than those in the New Credit Facility, and
(b) that any such encumbrance or restriction will not prevent such
Restricted Subsidiary from making dividends, distributions, loans or
advances to the Company in amounts sufficient for the Company, together
with amounts otherwise available to the Company, to make mandatory
payments of principal, premium, if any, and interest and any additional
amounts pursuant to the terms of the notes and the indenture and
pursuant to the terms of any other Indebtedness of the Company.
Certain restrictions under the New Credit Facility substantially limit the
payment of dividends or distributions to the Company until the New Credit
Facility is retired. See "Risk Factors--Holding Company Structure" and
"Holdings' Bank Credit Facility."
Amalgamation, Merger, Consolidation or Sale of Assets
The Company may not, directly or indirectly:
(1) amalgamate or consolidate or merge with or into another Person
(whether or not the Company is the surviving or continuing corporation); or
(2) sell, assign, transfer, convey or otherwise dispose of all or
substantially all of its properties or assets, in one or more related
transactions, to another Person; unless:
(1) either:
(a) the Company is the surviving or continuing corporation or
(b) the Person formed by, surviving or continuing after any such
amalgamation, consolidation or merger (if other than the Company), or
to which such sale, assignment, transfer, conveyance or other
disposition is made (the "Surviving Entity"), is a corporation
organized or existing under the laws of Bermuda or the United States,
any state thereof or the District of Columbia;
(2) the Surviving Entity (if other than the Company) assumes all then
existing obligations of the Company under the old notes, the new notes, the
indenture and the registration rights agreement, pursuant to agreements
reasonably satisfactory to the trustee;
(3) no Default or Event of Default (or an event that, with the passing
of time or giving of notice or both, would constitute an Event of Default)
is continuing or would occur immediately after giving effect to such
transactions;
(4) except in the case of the amalgamation, consolidation or merger of
the Company with or into a Wholly Owned Restricted Subsidiary, the Company
or the Surviving Entity will
(A) immediately after such transaction after giving pro forma effect
thereto and to any related financing transactions, be permitted to
incur at least $1.00 of additional Indebtedness pursuant to clause (1)
or (2) of the first paragraph of the covenant described above under the
caption "--Incurrence of Indebtedness and Issuance of Preferred Stock"
and
(B) will, immediately after such transaction, have Consolidated Net
Worth equal to or greater than the Consolidated Net Worth of the
Company immediately preceding the transaction; and
(5) the Company delivers to the trustee an Officers' Certificate and an
opinion of counsel, each stating that such amalgamation, consolidation,
merger or transfer and such supplemental indenture, if any, comply with the
indenture.
In addition, the Company may not, directly or indirectly, lease all or
substantially all of its properties or assets, in one or more related
transactions, to any other Person.
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Upon any amalgamation, consolidation or merger or any transfer of all or
substantially all of the assets of the Company in accordance with the
foregoing, the Surviving Entity shall succeed to and be substituted for, and
may exercise every right and power of, the Company under the indenture with the
same effect as if such successor corporation had been named therein as the
Company and the Company shall be released from its obligations under the notes
and under the indenture, except with respect to any obligations that arise
from, or are related to, such transaction.
For purposes of the foregoing, the transfer (by assignment, sale or
otherwise) of all or substantially all of the properties and assets of one or
more subsidiaries (other than to the Company or a Wholly Owned Restricted
Subsidiary), the Company's interest in which constitutes all or substantially
all of the properties and assets of the Company shall be deemed to be the
transfer of all or substantially all of the properties and assets of the
Company.
This covenant shall not apply to sales, assignments, transfers, conveyances
and other dispositions of telecommunications capacity made in the ordinary
course of business by the Company or a Restricted Subsidiary.
Transactions with Affiliates
The Company will not, and will not permit any of its Restricted Subsidiaries
to, make any payment to, or sell, lease, transfer or otherwise dispose of any
of its properties, assets or securities to, or purchase any property or assets
from, or enter into or make or amend any transaction, contract, agreement,
understanding, loan, advance or guarantee with, or for the benefit of, any
Affiliate (each, an "Affiliate Transaction"), unless:
(1) such Affiliate Transaction is on terms that are no less favorable to
the Company or the relevant Restricted Subsidiary than those that would
have been obtained in a comparable transaction by the Company or such
Restricted Subsidiary with a Person that is not an Affiliate; and
(2) the Company delivers to the trustee:
(a) with respect to any Affiliate Transaction or series of related
Affiliate Transactions involving aggregate consideration in excess of
$5.0 million, a resolution of the Board of Directors set forth in an
Officers' Certificate certifying that such Affiliate Transaction
complies with this covenant and that such Affiliate Transaction has
been approved by a majority of the disinterested members of the Board
of Directors; provided that if there are no disinterested members of
the Board of Directors, the Company shall deliver an opinion as to the
fairness to the Company of such Affiliate Transaction from a financial
point of view issued by an accounting, appraisal or investment banking
firm of national standing; and
(b) with respect to any Affiliate Transaction or series of related
Affiliate Transactions involving aggregate consideration in excess of
$10.0 million, an opinion as to the fairness to the Company of such
Affiliate Transaction from a financial point of view issued by an
accounting, appraisal or investment banking firm of national standing.
The following items will not be subject to the provisions of the prior
paragraph:
(1) (a) the entering into, maintaining or performance of any
employment contract, collective bargaining agreement, benefit plan,
program or arrangement, related trust agreement or any other similar
arrangement for or with any employee, officer or director heretofore or
hereafter entered into in the ordinary course of business, including
vacation, health, insurance, deferred compensation, retirement, savings
or other similar plans,
(b) the payment of compensation, performance of indemnification or
contribution obligations, or an issuance, grant or award of stock,
options or other equity-related interests or other securities, to
employees, officers or directors in the ordinary course of business or
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(c) any transaction with an officer or director in the ordinary
course of business not involving more than $100,000 in any one case;
(2) Affiliate Transactions in effect or approved by the Board of
Directors of the Company on or before the date of the indenture, including
any amendments thereto (provided that the terms of such amendments are not
materially less favorable to the Company than the terms of such agreement
prior to such amendment);
(3) transactions between or among the Company and any of the Company's
Restricted Subsidiaries;
(4) any sale or other issuance of Equity Interests (other than
Disqualified Stock) of the Company;
(5) any transaction consistent with commercially reasonable practices,
and approved by a majority of the disinterested members of the Board of
Directors of the Company; and
(6) Permitted Investments or Restricted Payments that are permitted by
the provisions of the indenture described above under the caption "--
Restricted Payments."
Sale and Leaseback Transactions
The Company will not, and will not permit any of its Restricted
Subsidiaries to, enter into any sale and leaseback transaction; provided that
the Company or any of its Restricted Subsidiaries may enter into a sale and
leaseback transaction if
(1) the Company (or such Restricted Subsidiary, as the case may be)
could have:
(a) incurred Indebtedness in an amount equal to the Attributable Debt
relating to such sale and leaseback transaction pursuant to either of
the Consolidated Leverage Ratio or Consolidated Capital Ratio tests set
forth in the first paragraph of the covenant described above under the
caption "--Incurrence of Indebtedness and Issuance of Preferred Stock";
and
(b) incurred a Lien to secure such Indebtedness pursuant to the
covenant described above under the caption "--Liens";
(2) the gross cash proceeds of such sale and leaseback transaction are
at least equal to the Fair Market Value (as determined in good faith by the
Board of Directors of the Company and set forth in an Officers' Certificate
delivered to the trustee) of the property that is the subject of such sale
and leaseback transaction; and
(3) the transfer of assets in such sale and leaseback transaction is
treated as an Asset Sale, and the Company applies the proceeds of such
transaction in compliance with the covenant described above under the
caption "--Limitation on Certain Asset Sales."
Issuances and Sales of Equity Interests in Restricted Subsidiaries
The Company:
(1) will not, and will not permit any of its Restricted Subsidiaries to,
transfer, convey, sell, lease or otherwise dispose of any Equity Interests
in any Restricted Subsidiary of the Company to any Person (other than the
Company or a Wholly Owned Restricted Subsidiary of the Company), unless
(a) such transfer, conveyance, sale, lease or other disposition is of
all the Equity Interests in such Restricted Subsidiary; and
(b) the cash Net Proceeds from such transfer, conveyance, sale, lease
or other disposition are applied in accordance with the covenant
described above under the caption "--Limitation on Certain Asset Sales;"
and
(2) will not permit any Restricted Subsidiary of the Company to issue
any of its Equity Interests (other than, if necessary, shares of its
Capital Stock constituting directors' qualifying shares) to any Person
other than to the Company or a Wholly Owned Restricted Subsidiary of the
Company (except in a transaction that complies with (1) above);
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provided, however, that this covenant will not prevent any sale or issuance of
Equity Interests of a Restricted Subsidiary, and the ownership by any Person
of such Equity Interests, where such Subsidiary following such sale or
issuance becomes a Fiber Optic Joint Venture, and any Investment in such
Restricted Subsidiary remaining after giving effect to such sale or issuance
would have been permitted to be made under any one or more of the first
paragraph under the Restricted Payments covenant, clause (10) of the second
paragraph of such covenant or under clause (7) of the definition of "Permitted
Investments," and the proceeds of such sale or issuance are applied in
compliance with the "Limitation on Certain Asset Sales" covenant.
Future Guarantees
The Company will not permit any Restricted Subsidiary, directly or
indirectly, to guarantee any Indebtedness of the Company that is pari passu
with or subordinated to the notes, unless
(1) such Restricted Subsidiary previously has provided a Guarantee and
(2) such Restricted Subsidiary waives, and will not in any manner
whatsoever claim or take the benefit or advantage of, any rights of
reimbursement, indemnity or subrogation or any other rights against the
Company or any other Restricted Subsidiary as a result of any payment by
such Restricted Subsidiary under its Guarantee, until payment in full of
the outstanding principal amount of the notes and any premium or accrued
and unpaid interest thereon then due and owing;
provided that this paragraph shall not be applicable to any guarantee of any
Restricted Subsidiary
(a) that existed at the time such Person became a Restricted Subsidiary
and was not incurred in connection with, or in contemplation of, such
Person becoming a Restricted Subsidiary or
(b) of Indebtedness incurred pursuant to clause (1) of the definition of
"Permitted Indebtedness."
If the guaranteed Indebtedness is
(1) pari passu with the notes, then the guarantee of such guaranteed
Indebtedness shall be pari passu with, or subordinated to, the Guarantee,
or
(2) subordinated to the notes, then the guarantee of such guaranteed
Indebtedness shall be subordinated to the Guarantee, at least to the extent
that the guaranteed Indebtedness is subordinated to the notes.
Any Guarantee will include provisions applicable to the Guarantor
substantially similar to the provisions described under the captions "Payment
of Additional Amounts" and "--Amalgamation, Merger, Consolidation or Sale of
Assets." Notwithstanding the foregoing, any Guarantee by any Restricted
Subsidiary may provide by its terms that it shall be automatically and
unconditionally released and discharged upon (and the provisions corresponding
to those described under the caption "--Amalgamation, Merger, Consolidation or
Sale of Assets" will not be applicable in the event of)
(1) any sale, exchange or transfer (including by way of merger or
consolidation), to any Person not an Affiliate of the Company, of all of
the Company's and each Restricted Subsidiary's Capital Stock in, or all or
substantially all the assets of, such Restricted Subsidiary (which sale,
exchange, transfer or other transaction is not prohibited by the
indenture),
(2) the legal or covenant defeasance of the notes or satisfaction and
discharge of the indenture, subject to customary contingent reinstatement
provisions,
(3) the release or discharge of the guarantee, assumption or other
incurrence of liability that resulted in the creation of such Guarantee,
except a discharge or release by or as a result of payment under such
Guarantee or
(4) the merger or consolidation of such Restricted Subsidiary with and
into the Company or another Subsidiary Guarantor that is the surviving
Person in such merger or consolidation.
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Each Guarantee will be limited to the maximum amount that can be Guaranteed
by such Restricted Subsidiary under applicable law without rendering the
Guarantee voidable under applicable law relating to fraudulent conveyance or
fraudulent transfer or similar laws affecting the rights of creditors
generally.
Business Activities
The Company will not, and will not permit any Restricted Subsidiary to,
engage in any business other than a Permitted Business.
Unrestricted Subsidiaries
The Board of Directors of the Company may designate, pursuant to a Board
Resolution, any Subsidiary (including any newly acquired or newly formed
Subsidiary) of the Company (other than Atlantica Network (Bermuda) Ltd.) to be
an Unrestricted Subsidiary so long as such Subsidiary has no Indebtedness other
than Non-Recourse Debt.
In addition, if a Restricted Subsidiary is designated as an Unrestricted
Subsidiary, the aggregate Fair Market Value of all outstanding Investments
owned by the Company and its Restricted Subsidiaries in the Subsidiary so
designated will be deemed to be an Investment made as of the time of such
designation and that designation will only be permitted if such Investment
would be permitted at that time.
Any designation of a Subsidiary of the Company as an Unrestricted Subsidiary
shall be evidenced to the trustee by filing with the trustee a certified copy
of the Board Resolution giving effect to such designation and an Officers'
Certificate certifying that such designation complied with the preceding
conditions.
The Board of Directors of the Company may designate any Unrestricted
Subsidiary as a Restricted Subsidiary, provided that:
(1) no Default or Event of Default has occurred and is continuing
following such designation, and
(2) the Company could incur at least $1.00 of additional Indebtedness
(other than Permitted Indebtedness) pursuant to the first paragraph of the
covenant described under "--Incurrence of Indebtedness and Issuance of
Preferred Stock" (treating any Indebtedness of such Unrestricted Subsidiary
as the incurrence of Indebtedness by a Restricted Subsidiary).
Such redesignation will increase the amount available for Restricted
Payments under the covenant described under the caption "--Restricted Payments"
as provided therein or Permitted Investments, as applicable.
Payments for Consent
The Company will not, and will not permit any of its Subsidiaries to,
directly or indirectly, pay or cause to be paid any consideration to or for the
benefit of any holder of notes for or as an inducement to any consent, waiver
or amendment of any of the terms or provisions of the indenture or the notes
unless such consideration is offered to be paid and is paid to all holders of
the notes that consent, waive or agree to amend in the time frame set forth in
the solicitation documents relating to such consent, waiver or agreement.
Reports
For so long as any notes remain outstanding, the Company will furnish to the
holders the information required to be delivered pursuant to Rule 144A(d)(4)
under the Securities Act. Whether or not the Company is subject to Section
13(a) or 15(d) of the Exchange Act, the Company shall furnish to the holders
and the trustee (and, following the filing of the Exchange Offer Registration
Statement or Shelf Registration Statement, as the case may be, as contemplated
by the registration rights agreement, will file with the Commission so long as
permitted under the Exchange Act and by the Commission)
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(i) within 90 days after the end of each fiscal year, annual reports on
Form 10-K (or any successor form), or within 120 days if on Form 20-F (or
any successor form), containing the information required to be contained
therein (or required in such successor form) and
(ii) within 45 days after the end of each of the first three fiscal
quarters of each fiscal year, reports on Form 10-Q (or any successor form),
or within 60 days if on Form 6-K (or any successor form), which, regardless
of applicable requirements, shall, at a minimum, contain a "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
Events of Default and Remedies
Each of the following is an Event of Default:
(1) default for 30 days in the payment when due of interest on, or
additional amounts, if any, with respect to, the notes;
(2) default in payment when due of the principal of or premium, if any,
on the notes;
(3) failure by the Company or any of its Restricted Subsidiaries to make
or consummate a Change of Control Offer or Asset Sale Offer, respectively,
when required in accordance with the provisions described under the caption
"--Change of Control," or "--Certain Covenants--Limitation on Certain Asset
Sales," or to comply with the provisions described under the caption "--
Certain Covenants--Amalgamation, Merger, Consolidation, or Sale of Assets";
(4) failure by the Company or any of its Restricted Subsidiaries for 30
days after notice to comply with the provisions described under the
captions "--Change of Control" and "--Certain Covenants--Limitation on
Certain Asset Sales" (except for any failure governed by the preceding
clause (3)), or under the captions "--Certain Covenants--Restricted
Payments" and "--Certain Covenants--Incurrence of Indebtedness and Issuance
of Preferred Stock";
(5) failure by the Company or any of its Restricted Subsidiaries for 60
days after notice to comply with any of the other agreements in the
indenture or the notes;
(6) default under any mortgage, indenture or instrument under which
there may be issued or by which there may be secured or evidenced any
Indebtedness for money borrowed by the Company or any of its Restricted
Subsidiaries (or the payment of which is guaranteed by the Company, or any
of its Restricted Subsidiaries) whether such Indebtedness or guarantee now
exists, or is created after the Issue Date, if that default:
(a) is caused by a failure to pay at final maturity such
Indebtedness prior to the expiration of the grace period provided in
such Indebtedness (a "Payment Default"); or
(b) results in the acceleration of such Indebtedness prior to its
express maturity,
and, in each case, the principal amount of any such Indebtedness, together
with the principal amount of any other such Indebtedness under which there
has been a Payment Default or the maturity of which has been so
accelerated, aggregates $10.0 million or more;
(7) failure by the Company or any of its Restricted Subsidiaries to pay
final judgments which are non-appealable aggregating in excess of $10.0
million (net of applicable insurance coverage which is acknowledged in
writing by the insurer), which judgments are not paid, discharged or stayed
for a period of 60 days;
(8) any Guarantee ceases to be in full force and effect or is declared
null and void or a Guarantor denies that it has any further liability under
a Guarantee, or gives notice to such effect (other than by reason of the
termination of the indenture or the release of the Guarantee in accordance
with the indenture) and such condition shall have continued for 30 days
after notice of such failure; and
(9) certain events of bankruptcy or insolvency with respect to the
Company or any of its Restricted Subsidiaries.
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In the case of an Event of Default arising from certain events of bankruptcy
or insolvency, with respect to the Company, any Restricted Subsidiary that is a
Significant Subsidiary or any group of Restricted Subsidiaries that, taken
together, would constitute a Significant Subsidiary of the Company, all notes
outstanding will become due and payable immediately without further action or
notice. If any other Event of Default occurs and is continuing, the trustee by
notice to the Company or the holders of at least 25% in principal amount of the
notes then outstanding by notice to the Company and the trustee may declare all
the notes to be due and payable immediately.
At any time after a declaration of acceleration under the indenture, but
before a judgment or decree for payment of the money due has been obtained by
the trustee, the holders of a majority in aggregate principal amount of the
notes outstanding, by written notice to the Company and the trustee, may
rescind such declaration and its consequences if:
(1) the Company has paid or deposited with the trustee a sum sufficient
to pay
. all overdue interest on all notes,
. all unpaid principal of (and premium, if any, on) any notes
outstanding that has become due otherwise than by such declaration
of acceleration and interest thereon at the rate borne by the
notes,
. to the extent that payment of such interest is lawful, interest
upon overdue interest and overdue principal at the rate borne by
the notes, and
. all sums paid or advanced by the trustee under the indenture and
the reasonable compensation, expenses, disbursements and advances
of the trustee, its agents and counsel; and
(2) all Events of Default, other than the non-payment of amounts of
principal of (or premium, if any, on) or interest on the notes that have
become due solely by such declaration of acceleration, have been cured or
waived. No such rescission will affect any subsequent default or impair any
right consequent thereon.
Notwithstanding the preceding paragraph, in the event of a declaration of
acceleration in respect of the notes because of an Event of Default specified
in clause (6) above shall have occurred and be continuing, such declaration of
acceleration shall be automatically annulled if the Indebtedness that is the
subject of such Event of Default has been discharged or the holders thereof
have rescinded their declaration of acceleration in respect of such
Indebtedness, and written notice of such discharge or rescission, as the case
may be, shall have been given to the trustee by the Company and countersigned
by the holders of such Indebtedness or a trustee, fiduciary or agent for such
holders, within 30 days after such declaration of acceleration in respect of
the notes, and no other Event of Default has occurred during such 30-day period
which has not been cured or waived during such period.
Holders of the notes may not enforce the indenture or the notes except as
provided in the indenture. Subject to certain limitations, holders of a
majority in principal amount of the notes then outstanding may direct the
trustee in its exercise of any trust or power. The trustee may withhold from
holders of the notes notice of any continuing Default or Event of Default
(except a Default or Event of Default relating to the payment of principal or
interest) if it determines that withholding notice is in their interest.
The holders of a majority in aggregate principal amount of the notes then
outstanding by notice to the trustee may on behalf of the holders of all of the
notes waive any existing Default or Event of Default and its consequences under
the indenture except a continuing Default or Event of Default in the payment of
premium, if any, or interest on, or the principal of, the notes.
Under the indenture, the Company shall be required to deliver to the trustee
annually a statement regarding compliance with the indenture. Within 10
business days of becoming aware of any Default or Event of Default, the Company
shall be required to deliver to the trustee a statement specifying such Default
or Event of Default.
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No Personal Liability of Directors, Officers, Employees and Stockholders
No director, officer, employee, incorporator or stockholder of the Company
or any of its Subsidiaries, in such capacity, shall have any liability for any
obligations of the Company or its Subsidiaries under the notes or the
indenture, or for any claim based on, in respect of, or by reason of, such
obligations or their creation. Each holder of notes by accepting a note waives
and releases all such liability. The waiver and release are part of the
consideration for issuance of the notes. The waiver may not be effective to
waive liabilities under the federal securities laws.
Legal Defeasance and Covenant Defeasance
The Company may, at its option and at any time, elect to have all of its
obligations and those of any Guarantor discharged with respect to the notes
then outstanding ("Legal Defeasance") except for:
(1) the rights of holders of notes then outstanding to receive payments
in respect of the principal of, and premium, if any, and interest on such
notes when such payments are due from the trust referred to below;
(2) the Company's obligations with respect to the notes concerning
issuing temporary notes, registration of notes, mutilated, destroyed, lost
or stolen notes and the maintenance of an office or agency for payment and
money for security payments held in trust;
(3) the rights, powers, trusts, duties and immunities of the trustee,
and the Company's obligations in connection therewith;
(4) the Legal Defeasance provisions of the indenture; and
(5) the Company's obligations to pay additional amounts.
In addition, the Company may, at its option and at any time, elect to have
the obligations of the Company and those of any Guarantor released with respect
to certain covenants that are described in the indenture ("Covenant
Defeasance") and thereafter any omission to comply with those covenants shall
not constitute a Default or Event of Default with respect to the notes. In the
event Covenant Defeasance occurs, certain events (not including non-payment,
bankruptcy, receivership, rehabilitation and insolvency events) described under
"Events of Default" will no longer constitute an Event of Default with respect
to the notes.
In order to exercise either Legal Defeasance or Covenant Defeasance:
(1) the Company must irrevocably deposit with the trustee, in trust, for
the benefit of the holders of the notes, cash in U.S. dollars, non-callable
Government Securities, or a combination thereof, in such amounts as will be
sufficient, in the opinion of a nationally recognized firm of independent
public accountants, to pay the principal of, and premium, if any, and
interest on the notes then outstanding on the stated maturity or on the
applicable redemption date, as the case may be, and the Company must
specify whether the notes are being defeased to maturity or to a particular
redemption date;
(2) in the case of Legal Defeasance, the Company shall have delivered to
the trustee an opinion of counsel reasonably acceptable to the trustee
confirming that
(a) the Company has received from, or there has been published by,
the Internal Revenue Service a ruling or
(b) since the Issue Date there has been a change in the applicable
federal income tax law,
in either case to the effect that, and based thereon such opinion of
counsel shall confirm that, the holders of the notes then outstanding
will not recognize income, gain or loss for United States federal
income tax purposes as a result of such Legal Defeasance and will be
subject to United States federal income tax on the same amounts, in the
same manner and at the same times as would have been the case if such
Legal Defeasance had not occurred and the Company shall have delivered
to the trustee an opinion of counsel in Bermuda reasonably acceptable
to the trustee confirming that the holders of the
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notes then outstanding will not recognize income, gain or loss for
Bermuda tax purposes as a result of such Legal Defeasance and will be
subject to Bermuda tax on the same amounts, in the same manner and at
the same times as would have been the case if such Legal Defeasance had
not occurred;
(3) in the case of Covenant Defeasance, the Company shall have delivered
to the trustee an opinion of counsel reasonably acceptable to the trustee
confirming that the holders of the notes then outstanding will not
recognize income, gain or loss for United States federal income tax
purposes as a result of such Covenant Defeasance and will be subject to
United States federal income tax on the same amounts, in the same manner
and at the same times as would have been the case if such Covenant
Defeasance had not occurred and the Company shall have delivered to the
trustee an opinion of counsel in Bermuda reasonably acceptable to the
trustee confirming that the holders of the notes then outstanding will not
recognize income, gain or loss for Bermuda tax purposes as a result of such
Covenant Defeasance and will be subject to Bermuda tax on the same amounts,
in the same manner and at the same times as would have been the case if
such Covenant Defeasance had not occurred;
(4) no Default or Event of Default shall have occurred and be continuing
either:
(a) on the date of such deposit (other than a Default or Event of
Default resulting from the borrowing of funds to be applied to such
deposit); or
(b) insofar as Events of Default from bankruptcy or insolvency
events are concerned, at any time in the period ending on the 91st day
after the date of deposit;
(5) such Legal Defeasance or Covenant Defeasance will not result in a
breach or violation of, or constitute a default under any material
agreement or instrument (other than the indenture) to which the Company or
any of its Restricted Subsidiaries is a party or by which the Company or
any of its Restricted Subsidiaries is bound;
(6) the Company must have delivered to the trustee an opinion of counsel
to the effect that after the 91st day following the deposit, the trust
funds will not be subject to the effect of any applicable bankruptcy,
insolvency, reorganization or similar laws affecting creditors' rights
generally;
(7) the Company must deliver to the trustee an Officers' Certificate
stating that the deposit was not made by the Company with the intent of
preferring the holders of notes over the other creditors of the Company
with the intent of defeating, hindering, delaying or defrauding creditors
of the Company or others; and
(8) the Company must deliver to the trustee an Officers' Certificate and
an opinion of counsel, in the case of the Officers' Certificate, stating
that all conditions precedent relating to the Legal Defeasance or the
Covenant Defeasance have been complied with and, in the case of the opinion
of counsel, that all conditions precedent providing for Legal Defeasance or
Covenant Defeasance have been complied with.
Satisfaction and Discharge
The indenture will be discharged and will cease to be of further effect
(except as to surviving rights of registration of transfer or exchange of the
notes as set forth in the indenture), when:
(1) either:
(a) all notes that have been authenticated (except lost, stolen or
destroyed notes that have been replaced or paid and notes for whose
payment money has theretofore been deposited in trust and thereafter
repaid to the Company) have been delivered to the trustee for
cancellation; or
(b) all notes that have not been delivered to the trustee for
cancellation have become due and payable by reason of the making of a
notice of redemption or otherwise or will become due and payable within
one year and the Company has irrevocably deposited or caused to be
deposited with the trustee as trust funds in trust solely for the
benefit of the holders, cash in U.S. dollars, non-callable Government
Securities, or a combination thereof, in such amounts as will be
sufficient without consideration of any reinvestment of interest, to
pay and discharge the entire indebtedness on
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the notes not delivered to the trustee for cancellation for principal,
premium, if any, and accrued interest to the date of maturity or
redemption;
(2) no Default or Event of Default shall have occurred and be continuing
on the date of such deposit or shall occur as a result of such deposit and
such deposit will not result in a breach or violation of, or constitute a
default under, any other material instrument to which the Company is a
party or by which the Company is bound;
(3) the Company has paid or caused to be paid all sums payable by it
under the indenture; and
(4) the Company has delivered irrevocable instructions to the trustee
under the indenture to apply the deposited money toward the payment of the
notes at maturity or the redemption date, as the case may be.
In addition, the Company must deliver an Officers' Certificate and an
Opinion of Counsel to the trustee stating that all conditions precedent to
satisfaction and discharge have been satisfied.
Indemnification for Judgment Currency Fluctuations
The obligations of the Company to any holder of notes shall, notwithstanding
any judgment in a currency (the "Judgment Currency") other than U.S. dollars
(the "Agreement Currency"), be discharged only to the extent that on the day
following receipt by such holder of notes or the trustee, as the case may be,
of any amount in the Judgment Currency, such holder of notes may in accordance
with normal banking procedures purchase the Agreement Currency with the
Judgment Currency. If the amount of the Agreement Currency so purchased is less
than the amount originally to be paid to such holder of notes or the trustee,
as the case may be, in the Agreement Currency, the Company will pay the
difference and if the amount of the Agreement Currency so purchased exceeds the
amount originally to be paid to such holder of notes or the trustee, as the
case may be, such holder of notes or the trustee, as the case may be, will pay
to or for the account of the Company such excess, provided that such holder of
notes or the trustee, as the case may be, shall not have any obligation to pay
any such excess as long as a Default by the Company in its obligations under
the notes or the indenture has occurred and is continuing, in which case such
excess may be applied by such holder of notes to such obligations.
Amendment, Supplement and Waiver
With the consent of holders of not less than a majority in aggregate
principal amount of the notes at the time outstanding, the Company and the
trustee are permitted to amend or supplement the notes, the indenture or any
supplemental indenture or modify the rights of the holders; provided that
without the consent of each holder affected, no amendment, supplement,
modification or waiver may (with respect to any notes held by a non-consenting
holder):
(1) reduce the principal amount of notes whose holders must consent to
an amendment, supplement or waiver;
(2) reduce the principal of or change the fixed maturity of any note or
alter the provisions with respect to the redemption of the notes (other
than provisions relating to the covenants described above under the
captions "--Change of Control" and "--Certain Covenants--Limitation on
Certain Asset Sales");
(3) reduce the rate of or change the time for payment of interest on any
note;
(4) waive a Default or Event of Default in the payment of principal of
or premium, if any, or interest on the notes (except a rescission of
acceleration of the notes by the holders of at least a majority in
aggregate principal amount of the notes and a waiver of the payment default
that resulted from such acceleration);
(5) make any note payable in currency other than that stated in the
notes;
(6) make any change in the provisions of the indenture relating to
waivers of past Defaults or the rights of holders of notes to receive
payments of principal of or premium, if any, or interest on the notes;
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(7) waive a redemption payment with respect to any note (other than a
payment required by the provisions described above under the captions "--
Change of Control" and "--Certain Covenants--Limitation on Certain Asset
Sales");
(8) cause the notes to become subordinate in right of payment to any
other Indebtedness;
(9) make any change that would adversely affect the rights of the
holders to receive additional amounts;
(10) modify the obligation of the Company to make a Change of Control
Offer at any time after the related Change of Control has occurred and the
Company has become obligated to make and consummate such Change of Control
Offer in accordance with the provisions of the covenant described under "--
Change of Control"; or modify the obligation of the Company to make an
Asset Sale Offer at any time after the related Asset Sale has been
completed and the Company has become obligated to make and consummate such
Asset Sale Offer in accordance with the provisions of the covenant
described under "--Certain Covenants--Limitation on Certain Asset Sales;"
or
(11) make any change in the preceding amendment and waiver provisions.
Notwithstanding the preceding, without the consent of any holder of notes,
the Company and the trustee may amend or supplement the indenture or the notes:
(1) to cure any ambiguity, defect or inconsistency;
(2) to provide for uncertificated notes in addition to or in place of
certificated notes;
(3) to provide for the assumption of the Company's obligations to
holders of notes in the case of a merger, amalgamation or consolidation or
sale of all or substantially all of the Company's assets;
(4) to make any change that would provide any additional rights or
benefits to the holders of notes or that does not adversely affect the
legal rights under the indenture of any such holder;
(5) to add Guarantees with respect to the notes;
(6) to comply with requirements of the Commission in order to effect or
maintain the qualification of the indenture under the Trust Indenture Act
of 1939; or
(7) to issue additional notes. See "--Issuance of Additional Notes."
Concerning the Trustee
The holders of a majority in principal amount of the notes then outstanding
will have the right to direct the time, method and place of conducting any
proceeding for exercising any remedy available to the trustee, subject to
certain exceptions. The indenture provides that in case an Event of Default
shall occur and be continuing, the trustee will be required, in the exercise of
its power, to use the degree of care of a prudent person in the conduct of its
own affairs. Subject to such provisions, the trustee will be under no
obligation to exercise any of its rights or powers under the indenture at the
request of any holder of notes, unless such holder shall have offered to the
trustee security and indemnity satisfactory to it against any loss, liability
or expense.
Additional Information
Anyone who receives this prospectus may obtain a copy of the indenture and
registration rights agreement without charge by writing to GlobeNet
Communications Group Limited, 2 Carter's Bay Road, Southside, St. David's,
Bermuda, Attention: General Counsel.
Governing Law
The indenture provides that the notes will be governed by, and construed in
accordance with, the laws of the State of New York without giving effect to
applicable principles of conflicts of laws to the extent that the application
of the law of another jurisdiction would be required thereby.
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Enforceability of Judgments
Since a majority of the assets of the Company are outside the United States,
any judgments obtained in the United States against the Company, including
judgments with respect to the payment of principal, premium, interest,
additional amounts, Change of Control Payment, offer price, redemption price or
other amounts payable under the notes may be not collectible within the United
States.
The Company has been informed by its Bermuda counsel, Conyers Dill &
Pearman, that the laws of Bermuda permit an action to be brought in a court of
competent jurisdiction in Bermuda (a "Bermuda Court") on any final and
conclusive judgment in personam of any federal or state court located in the
Borough of Manhattan in The City of New York ("New York Court") that is not
impeachable as void or voidable under the internal laws of the State of New
York for a sum certain in respect of the enforcement of the indenture or the
notes if
(i) the court rendering such judgment had jurisdiction over the judgment
debtor, as recognized by the Bermuda Court (and submission by the Company
in the indenture to the non-exclusive jurisdiction of the New York Court
will be sufficient for that purpose),
(ii) such judgment was not obtained by fraud or in a manner contrary to
natural justice and the enforcement thereof would not be inconsistent with
public policy, as that term is applied by a Bermuda Court,
(iii) the enforcement of such judgment does not constitute, directly or
indirectly, the enforcement of such foreign revenue, expropriatory or penal
laws and
(iv) the action to enforce such judgment is commenced within the
applicable limitation period.
The Company has been advised by Conyers Dill & Pearman that it knows of no
reason, based upon public policy under the laws of Bermuda for avoiding
recognition of a judgment of a New York Court to enforce the indenture or the
notes.
Consent to Jurisdiction and Service
Pursuant to the indenture, the Company has irrevocably appointed CT
Corporation System as its agent for service of process in any suit, action, or
proceeding with respect to the indenture or the notes and for actions brought
under federal or state securities laws in any federal or state court located in
the Borough of Manhattan in The City of New York, and submitted to the non-
exclusive jurisdiction of any such court.
Book-Entry, Delivery and Form and Transfer
The new notes initially will be in the form of one or more registered global
notes without interest coupons. Upon issuance, the global notes will be
deposited with the trustee, as custodian for The Depository Trust Company
("DTC"), in New York, New York, and registered in the name of DTC or its
nominee for credit to the accounts of DTC's direct and indirect participants
(as defined below), some of which may be participating in DTC through the
Euroclear System ("Euroclear") and Cedelbank.
Transfer of beneficial interests in any global notes will be subject to the
applicable rules and procedures of DTC and its direct or indirect participants
(including, if applicable, those of Euroclear and Cedelbank), which may change
from time to time.
The global notes may be transferred, in whole and not in part, only to
another nominee of DTC or to a successor of DTC or its nominee in certain
limited circumstances. Beneficial interests in the global notes may be
exchanged for notes in certificated form in certain limited circumstances. See
"--Transfer of Interests in Global Notes for Certificated Notes."
Initially, the trustee will act as paying agent and registrar. The notes may
be presented for registration of transfer and exchange at the offices of the
registrar.
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Depositary Procedures
DTC has advised the Company that DTC is a limited-purpose trust company
created to hold securities for its participating organizations (collectively,
the "direct participants") and to facilitate the clearance and settlement of
transactions in those securities between direct participants through electronic
book-entry changes in accounts of participants. The direct participants include
securities brokers and dealers (including the initial purchasers of the old
notes), banks, trust companies, clearing corporations and certain other
organizations, including Euroclear and Cedelbank. Access to DTC's system is
also available to other entities that clear through or maintain a direct or
indirect, custodial relationship with a direct participant (collectively, the
"indirect participants").
DTC has advised the Company that, pursuant to DTC's procedures,
(1) upon deposit of the global notes, DTC will credit the accounts of
the appropriate direct participants, and
(2) DTC will maintain records of the ownership interests of such direct
participants in the global notes and the transfer of ownership interests by
and between direct participants.
DTC will not maintain records of the ownership interests of, or the transfer of
ownership interests by and between, indirect participants or other owners of
beneficial interests in the global notes. Direct participants and indirect
participants must maintain their own records of the ownership interests of, and
the transfer of ownership interests by and between, indirect participants and
other owners of beneficial interests in the global notes.
Investors in the global notes may hold their interests therein directly
through DTC if they are direct participants in DTC or indirectly through
organizations that are direct participants in DTC. Some investors in the global
notes may hold their interests therein directly through Euroclear or Cedelbank
or indirectly through organizations that are participants in Euroclear or
Cedelbank, or through organizations other than Euroclear and Cedelbank that are
direct participants in the DTC system. Morgan Guaranty Trust Company of New
York, Brussels office, is the operator and depository of Euroclear and
Citibank, N.A. is the operator and depository of Cedelbank (each a "Nominee" of
Euroclear and Cedelbank, respectively). Therefore, they will each be recorded
on DTC's records as the holders of all ownership interests held by them on
behalf of Euroclear and Cedelbank, respectively. Euroclear and Cedelbank must
maintain on their own records the ownership interests, and transfers of
ownership interests by and between, their own customers' securities accounts.
DTC will not maintain such records. All ownership interests in any global
notes, including those of customers' securities accounts held through Euroclear
or Cedelbank, will be subject to the procedures and requirements of DTC.
The laws of some states in the United States require that certain persons
take physical delivery in definitive, certificated form, of securities that
they own. This may limit or curtail the ability to transfer beneficial
interests in a global note to such persons. Because DTC can act only on behalf
of direct participants, which in turn act on behalf of indirect participants
and others, the ability of a person having a beneficial interest in a global
note to pledge such interest to persons or entities that are not direct
participants in DTC, or to otherwise take actions in respect of such interests,
may be affected by the lack of physical certificates evidencing such interests.
For certain other restrictions on the transferability of the notes see "--
Transfers of Interests in Global Notes for Certificated Notes."
Except as described in "--Transfers of Interests in Global Notes for
Certificated Notes," owners of beneficial interests in the global notes will
not have notes registered in their names, will not receive physical delivery of
notes in certificated form and will not be considered the registered owners or
holders thereof under the indenture for any purpose other than with respect to
the payment of additional amounts.
Under the terms of the indenture, the Company and the trustee will treat the
persons in whose names the notes are registered (including notes represented by
global notes) as the owners thereof for the purpose of
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receiving payments and for any and all other purposes whatsoever. Payments in
respect of the principal, premium, additional amounts, if any, and interest on
global notes registered in the name of DTC or its nominee will be payable by
the trustee to DTC or its nominee as the registered holder under the indenture.
Consequently, neither the Company, the trustee nor any agent of the Company or
the trustee has or will have any responsibility or liability for
(1) any aspect of DTC's records or any direct participant's or indirect
participant's records relating to or payments made on account of beneficial
ownership interests in the global notes or for maintaining, supervising or
reviewing any of DTC's records or any direct participant's or indirect
participants records relating to the beneficial ownership interests in any
global note or
(2) any other matter relating to the actions and practices of DTC or any
of its direct participants or indirect participants.
DTC has advised the Company that its current payment practice (for payments
of principal, interest and the like) with respect to securities such as the
notes is to credit the accounts of the relevant direct participants with such
payment on the payment date in amounts proportionate to such direct
participant's respective ownership interests in the global notes as shown on
DTC's records. Payments by direct participants and indirect participants to the
beneficial owners of the notes will be governed by standing instructions and
customary practices between them and will not be the responsibility of DTC, the
trustee or the Company. Neither the Company nor the trustee will be liable for
any delay by DTC or its direct participants or indirect participants in
identifying the beneficial owners of the notes, and the Company and the trustee
may conclusively rely on and will be protected in relying on instructions from
DTC or its nominee as the registered owner of the notes for all purposes.
The global notes will trade in DTC's Same-Day Funds Settlement System and,
therefore, transfers between direct participants in DTC will be effected in
accordance with DTC's procedures, and will be settled in immediately available
funds. Transfers between indirect participants (other than indirect
participants who hold an interest in the notes through Euroclear or Cedelbank)
who hold an interest through a direct participant will be effected in
accordance with the procedures of such direct participant but generally will
settle in immediately available funds. Transfers between and among indirect
participants who hold interests in the notes through Euroclear and Cedelbank
will be effected in the ordinary way in accordance with their respective rules
and operating procedures.
Cross-market transfers between direct participants in DTC, on the one hand,
and indirect participants who hold interests in the notes through Euroclear or
Cedelbank, on the other hand, will be effected by Euroclear's or Cedelbank's
respective nominee through DTC in accordance with DTC's rules on behalf of
Euroclear or Cedelbank; however, delivery of instructions relating to cross-
market transactions must be made directly to Euroclear or Cedelbank, as the
case may be, by the counterparty in accordance with the rules and procedures of
Euroclear or Cedelbank and within their established deadlines (Brussels time
for Euroclear and UK time for Cedelbank). Indirect participants who hold
interests in the notes through Euroclear and Cedelbank may not deliver
instructions directly to Euroclear's or Cedelbank's nominee. Euroclear or
Cedelbank will, if the transaction meets its settlement requirements, deliver
instructions to its respective nominee to deliver or receive interests on
Euroclear's or Cedelbank's behalf in the relevant global note in DTC, and make
or receive payment in accordance with normal procedures for same-day fund
settlement applicable to DTC.
Because of time zone differences, the securities accounts of an indirect
participant who holds an interest in the notes through Euroclear or Cedelbank
purchasing an interest in a global note from a direct participant in DTC will
be credited, and any such crediting will be reported to Euroclear or Cedelbank
during the European business day immediately following the settlement date of
DTC in New York. Although recorded in DTC's accounting records as of DTC's
settlement date in New York, Euroclear and Cedelbank customers will not have
access to the cash amount credited to their accounts as a result of a sale of
an interest in a global note to a DTC participant until the European business
day for Euroclear or Cedelbank immediately following DTC's settlement date.
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DTC has advised the Company that it will take any action permitted to be
taken by a holder of notes only at the direction of one or more direct
participants to whose account interests in the global notes are credited and
only in respect of such portion of the aggregate principal amount of the notes
to which such direct participant or direct participants has or have given
direction. However, if there is an event of default under the notes, DTC
reserves the right to exchange global notes (without the direction of one or
more of its direct participants) for legended notes in certificated form, and
to distribute such certificated forms of notes to its direct participants. See
"--Transfers of Interests in Global Notes for Certificated Notes."
Although DTC, Euroclear and Cedelbank have agreed to the foregoing
procedures to facilitate transfers of interests in the global notes among
direct participants, including Euroclear and Cedelbank, they are under no
obligation to perform or to continue to perform such procedures, and such
procedures may be discontinued at any time. Neither the Company nor the trustee
shall have any responsibility for the performance by DTC, Euroclear or
Cedelbank or their respective direct and indirect participants of their
respective obligations under the rules and procedures governing any of their
operations.
DTC management is aware that some computer applications, systems, and the
like for processing data that are dependent upon calendar dates, including
dates before, on, and after January 1, 2000, may encounter "Year 2000
problems." DTC has informed its participants and other members of the financial
community that it has developed and is implementing a program so that its
systems, as the same relate to the timely payment of distributions (including
principal and income payments) to securityholders, book-entry deliveries, and
settlement of trades within DTC, continue to function appropriately. This
program includes a technical assessment and a remediation plan, each of which
is complete. Additionally, DTC's plan includes a testing phase, which is
expected to be completed within appropriate time frames.
However, DTC's ability to perform properly its services is also dependent
upon other parties, including but not limited to issuers and their agents, as
well as third party vendors from whom DTC licenses software and hardware, and
third party vendors on whom DTC relies for information or the provision of
services, including telecommunication and electrical utility service providers,
among others. DTC has informed the industry that it is contacting (and will
continue to contact) third party vendors from whom DTC acquires services to:
(1) impress upon them the importance of such services being Year 2000
compliant; and
(2) determine the extent of their efforts for Year 2000 remediation
(and, as appropriate, testing) of their services.
In addition, DTC is in the process of developing such contingency plans as it
deems appropriate.
According to DTC, the foregoing information with respect to DTC has been
provided to the industry for informational purposes only and is not intended to
serve as a representation, warranty, or contract modification of any kind.
The information in this section concerning DTC, Euroclear and Cedelbank and
their book-entry systems has been obtained from sources that the Company
believes to be reliable, but the Company takes no responsibility for the
accuracy thereof.
Transfers of Interests in Global Notes for Certificated Notes
An entire global note may be exchanged for definitive notes in registered,
certificated form without interest coupons ("certificated notes") if:
. DTC (x) notifies the Company that it is unwilling or unable to continue
as depositary for the global notes and the Company thereupon fails to
appoint a successor depositary within 90 days or (y) has ceased to be a
clearing agency registered under the Exchange Act of 1934,
. the Company, at its option, notifies the trustee in writing that it
elects to cause the issuance of certificated notes or
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. there shall have occurred and be continuing a default or an event of
default with respect to the notes.
In any such case, the Company will notify the trustee in writing that, upon
surrender by the direct and indirect participants of their interest in such
global note, certificated notes will be issued to each person that such direct
and indirect participants and the DTC identify as being the beneficial owner of
the related notes.
Beneficial interests in global notes held by any direct or indirect
participant may be exchanged for certificated notes upon request to DTC, by
such direct participant (for itself or on behalf of an indirect participant),
to the trustee in accordance with customary DTC procedures. Certificated notes
delivered in exchange for any beneficial interest in any global note will be
registered in the names, and issued in any approved denominations, requested by
DTC on behalf of such direct or indirect participants (in accordance with DTC's
customary procedures).
Neither the Company nor the trustee will be liable for any delay by the
holder of any global note or DTC in identifying the beneficial owners of notes,
and the Company and the trustee may conclusively rely on, and will be protected
in relying on, instructions from the holder of the global note or DTC for all
purposes.
Same Day Settlement and Payment
The indenture requires that payments in respect of the notes represented by
the global notes (including principal, premium, if any, interest and additional
amounts, if any) be made by wire transfer of immediately available same day
funds to the accounts specified by the holder of interests in such global note.
With respect to certificated notes, the Company will make all payments of
principal, premium, if any, interest and additional amounts, if any, by wire
transfer of immediately available same day funds to the accounts specified by
the holders thereof or, if no such account is specified, by mailing a check to
each such holder's registered address. The Company expects that secondary
trading in the certificated notes will also be settled in immediately available
funds.
Certain Definitions
Set forth below are certain defined terms used in the indenture. Reference
is made to the indenture for a full disclosure of all such terms, as well as
any other capitalized terms used herein for which no definition is provided.
"Acquired Debt" means, with respect to any specified Person:
(1) Indebtedness of any other Person existing at the time such other
Person is merged or amalgamated with or into or became a Subsidiary of such
specified Person, whether or not such Indebtedness is incurred in
connection with, or in contemplation of, such other Person merging or
amalgamating with or into, or becoming a Subsidiary of, such specified
Person; and
(2) Indebtedness secured by a Lien encumbering any asset acquired by
such specified Person.
"Alcatel" means Alcatel, a French societe anonyme, or any Affiliate thereof,
and their respective successors and assigns.
"Alcatel Guaranty" means the guarantee to be given by Alcatel in favor of
the lenders under the New Credit Facility, together with any related
reimbursement agreement between or among the Company or any Restricted
Subsidiary and Alcatel, as such guarantee and reimbursement agreement may be
amended, amended and restated, supplemented, modified, renewed, extended,
refunded, restructured, replaced or refinanced, and in effect from time to
time.
"Affiliate" of any specified Person means any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified Person. For purposes of this definition, "control,"
as used with respect to any Person, shall mean the possession, directly or
indirectly, of the power to
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direct or cause the direction of the management or policies of such Person,
whether through the ownership of voting securities, by agreement or otherwise;
provided that beneficial ownership of 10% or more of the Voting Stock of a
Person shall be deemed to be control. For purposes of this definition, the
terms "controlling," "controlled by" and "under common control with" shall have
correlative meanings.
"Applicable Percentage" means 0% for each fiscal quarter commencing prior to
January 1, 2002 and 50% for each fiscal quarter thereafter.
"Asset Sale" means:
(1) the sale, lease, conveyance or other disposition of any assets or
rights, other than any sale, lease, conveyance or other disposition of
capacity (but not including a disposition of a dark fiber involving
transfer of title thereto, other than backhaul) on any cable system owned,
controlled or operated by the Company or any of its Restricted Subsidiaries
or of telecommunications capacity or transmission rights acquired by the
Company or any Restricted Subsidiary for use in a Permitted Business;
provided that the sale, conveyance or other disposition of all or
substantially all of the assets of the Company and its Restricted
Subsidiaries taken as a whole will be governed by the provisions of the
indenture described above under the caption "--Change of Control" and/or
the provisions described above under the caption "--Certain Covenants--
Amalgamation, Merger, Consolidation or Sale of Assets" and not by the
provisions of the Asset Sale covenant; and
(2) the issuance of Equity Interests by any of the Company's Restricted
Subsidiaries or the sale of Equity Interests in any of its Subsidiaries,
Notwithstanding the preceding, the following items shall be deemed not to be
Asset Sales:
(1) any single transaction or series of related transactions that: (a)
involves assets having a Fair Market Value of less than $1.0 million; or
(b) results in net proceeds to the Company and its Restricted Subsidiaries
of less than $1.0 million;
(2) a transfer of assets between or among the Company and its Restricted
Subsidiaries or between Restricted Subsidiaries;
(3) an issuance of Equity Interests by a Restricted Subsidiary to the
Company or to a Wholly Owned Restricted Subsidiary;
(4) a Permitted Investment or a Restricted Payment that is permitted by
the covenant described above under the caption "--Certain Covenants--
Restricted Payments;"
(5) the sale of Fiber Optic Assets for which the Company or any
Restricted Subsidiary receives consideration substantially all of which is
Fiber Optic Assets and such consideration has an aggregate Fair Market
Value at least equal to the Fair Market Value of the Fiber Optic Assets so
sold;
(6) the sale, conveyance or other disposition of dark fiber on any cable
system utilized by the Company or any of its Restricted Subsidiaries for
backhaul capacity;
(7) the licensing of intellectual property of the Company or any of its
Restricted Subsidiaries in the ordinary course of business; and
(8) a disposition of obsolete or worn out equipment or equipment that is
no longer useful in the conduct of a Permitted Business and that is
disposed of in the ordinary course of business.
"Attributable Debt" in respect of a sale and leaseback transaction means, at
the time of determination, the present value (discounted at the rate of
interest implicit in such transaction, determined in accordance with GAAP) of
the obligation of the lessee for net rental payments during the remaining term
of the lease included in such sale and leaseback transaction (including any
period for which such lease has been extended or may, at the option of the
lessor, be extended).
"Beneficial Owner" has the meaning assigned to such term in Rule 13d-3 and
Rule 13d-5 under the Exchange Act.
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"Board of Directors" means, with respect to any Person, the board of
directors or other governing body of such Person, except that if such Person is
owned or managed by a single entity, it means the board of directors or other
governing body of such entity, or, in either case, any committee thereof duly
authorized to act on behalf of such board or governing body.
"Capital Lease Obligation" means, at the time any determination thereof is
to be made, the amount of the liability in respect of a capital lease that
would at that time be required to be capitalized on a balance sheet in
accordance with GAAP.
"Capital Stock" means:
(1) in the case of a corporation, corporate stock;
(2) in the case of an association or business entity, any and all
shares, interests, participations, rights or other equivalents (however
designated) of corporate stock;
(3) in the case of a partnership or limited liability company,
partnership or membership interests (whether general or limited); and
(4) any other interest or participation that confers on a Person the
right to receive a share of the profits and losses of, or distributions of
assets of, the issuing Person.
"Cash Equivalents" means any of the following:
(1) United States dollars;
(2) securities issued or directly and fully guaranteed or insured by the
United States government or any agency or instrumentality thereof (provided
that the full faith and credit of the United States is pledged in support
thereof) having maturities of not more than six months from the date of
acquisition;
(3) certificates of deposit and Eurodollar time deposits with maturities
of six months or less from the date of acquisition and overnight bank
deposits, in each case with any U.S. commercial bank having capital and
surplus in excess of $500 million and a Thompson Bank Watch Rating of "B"
or better;
(4) repurchase obligations with a term of not more than seven days for
underlying securities of the types described in clauses (2) and (3) above
entered into with any financial institution meeting the qualifications
specified in clause (3) above;
(5) commercial paper having the highest rating obtainable from Moody's
Investors Service, Inc. or Standard & Poor's Rating Service, a division of
The McGraw-Hill Companies, Inc., or their successors, and in each case
maturing within six months after the date of acquisition; and
(6) money market funds at least 95% of the assets of which constitute
Cash Equivalents of the kinds described in clauses (1)-(5) of this
definition.
"Change of Control" means the occurrence of any of the following:
(1) the sale, transfer, conveyance or other disposition (other than by
way of merger, amalgamation or consolidation and other than transmission
capacity in the ordinary course of business), in one or a series of related
transactions, of all or substantially all of the assets of the Company and
its Subsidiaries taken as a whole to any "person" or "group" (as such terms
are used in Sections 13(d) and 14(d) of the Exchange Act and the rules
promulgated thereunder) other than a Restricted Subsidiary, or one or more
Permitted Holders, or a person or group of which no other person or group
other than one or more Permitted Holders is the Beneficial Owner, directly
or indirectly, of more than 50% of the Voting Stock of such transferee
Person, measured by voting power rather than number of shares, upon
consummation of such transaction or transactions;
(2) the adoption of a plan relating to the liquidation or dissolution of
the Company;
(3) the consummation of any transaction (including, without limitation,
any merger, amalgamation or consolidation) the result of which is that any
"person" or "group" (as defined above), other than one or
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more Permitted Holders, becomes the Beneficial Owner, directly or
indirectly, of more than 50% of the Voting Stock of the Company, measured
by voting power rather than number of shares;
(4) during any period of two consecutive years beginning on or after the
Issue Date, Continuing Directors cease for any reason to constitute a
majority of the members of the Board of Directors of the Company; or
(5) the Company consolidates with, or merges or amalgamates with or
into, any Person, or any Person consolidates with, or merges or amalgamates
with or into, the Company, in any such event pursuant to a transaction in
which any of the outstanding Voting Stock of the Company is converted into
or exchanged for cash, securities or other property, other than any such
transaction where no "person" or "group" (as defined above), other than one
or more Permitted Holders, becomes the Beneficial Owner, directly or
indirectly, of more than 50% of the Voting Stock, measured by voting power
rather than number of shares, of such surviving, continuing or transferee
Person, in each case immediately after giving effect to such issuance.
"Consolidated Capital Ratio" means, with respect to any Person, as of the
date of any incurrence of Indebtedness or issuance of Disqualified Stock, the
ratio of
(1) the aggregate consolidated principal amount of Indebtedness of such
Person and its Restricted Subsidiaries (other than intercompany debt, and
excluding Hedging Obligations permitted under clause (10) of the definition
of "Permitted Indebtedness") and the liquidation preference of Disqualified
Stock of such Person and its Restricted Subsidiaries, in each case,
outstanding at the end of the most recent fiscal quarter for which a
consolidated balance sheet of such Person is available after giving pro
forma effect to the incurrence of such Indebtedness or the issuance of such
Disqualified Stock, and any other Indebtedness incurred or repaid or any
other Disqualified Stock issued, repurchased or retired since the date of
such balance sheet to
(2) the Consolidated Net Worth of such Person as of such balance sheet
date, after giving pro forma effect to the issuance and repurchase or
retirement of Equity Interests (other than Disqualified Stock) since the
date of such balance sheet.
"Consolidated Cash Flow" means, with respect to any Person for any period,
the Consolidated Net Income of such Person for such period plus:
(1) an amount equal to any extraordinary loss plus any net loss realized
in connection with an Asset Sale, to the extent such losses were deducted
in computing such Consolidated Net Income; plus
(2) provision for taxes based on income or profits of such Person and
its Restricted Subsidiaries for such period, to the extent that such
provision for taxes was deducted in computing such Consolidated Net Income;
plus
(3) consolidated interest expense of such Person and its Restricted
Subsidiaries for such period, whether paid or accrued and whether or not
capitalized (including, without limitation, amortization of debt issuance
costs and original issue discount, non-cash interest payments, the interest
component of any deferred payment obligations, the interest component of
all payments associated with Capital Lease Obligations, imputed interest
with respect to Attributable Debt, commissions, discounts and other fees
and charges incurred in respect of letter of credit, and net of the effect
of all payments, if any, pursuant to Hedging Obligations), to the extent
that any such expense was deducted in computing such Consolidated Net
Income; plus
(4) depreciation, amortization (including amortization of goodwill and
other intangibles but excluding amortization of prepaid cash expenses that
were paid in a prior period) and other non-cash expenses (excluding any
such non-cash expense to the extent that it represents an accrual of or
reserve for cash expenses in any future period or amortization of a prepaid
cash expense that was paid in a prior period) of such Person and its
Restricted Subsidiaries for such period, to the extent that such
depreciation, amortization and other non-cash expenses were deducted in
computing such Consolidated Net Income; minus
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(5) non-cash items increasing such Consolidated Net Income for such
period, other than items that were accrued in the ordinary course of
business (and other than items reversing, offsetting or reducing any
accrual or reserve excluded pursuant to the preceding clause (4)), in each
case, on a consolidated basis and determined in accordance with GAAP.
Notwithstanding the preceding, the provision for taxes based on the income or
profits of, and the depreciation and amortization and other non-cash charges
of, a Restricted Subsidiary of the referent Person shall be added to
Consolidated Net Income to compute Consolidated Cash Flow of such Person only
to the extent that a corresponding amount would be permitted at the date of
determination to be divided or paid to such Person by such Restricted
Subsidiary without prior approval (that has not been obtained), pursuant to the
terms of its charter and all agreements (for purposes of the covenant described
under the caption "Incurrence of Indebtedness and Issuance of Preferred Stock,"
excluding the New Credit Facility), instruments, judgments, decrees, orders,
statutes, rules and governmental regulations applicable to that Subsidiary or
its stockholders.
"Consolidated Leverage Ratio" means, with respect to any Person, as of the
date of any incurrence of Indebtedness or issuance of Disqualified Stock, the
ratio of
(1) the aggregate consolidated principal amount of Indebtedness of such
Person and its Restricted Subsidiaries (other than intercompany debt, and
excluding Hedging Obligations permitted under clause (10) of the definition
of "Permitted Indebtedness") and the consolidated liquidation preference of
Disqualified Stock of such Person and its Restricted Subsidiaries, in each
case, outstanding at the end of the most recent fiscal quarter for which a
consolidated balance sheet of such person is available, after giving pro
forma effect to the incurrence of such Indebtedness or the issuance of such
Disqualified Stock, and any other Indebtedness incurred or repaid and any
other Disqualified Stock issued, repurchased or retired since the date of
such balance sheet, to
(2) the Consolidated Cash Flow of such Person and its Restricted
Subsidiaries for the most recently ended four fiscal quarters immediately
preceding the date of the incurrence of such Indebtedness or issuance of
such Disqualified Stock for which consolidated financial statements of such
Person are available.
"Consolidated Net Income" means, with respect to any Person for any period,
the aggregate of the Net Income of such Person and its Restricted Subsidiaries
for such period, on a consolidated basis, determined in accordance with GAAP;
provided that:
(1) the Net Income (but not loss) of any Person that is not a Restricted
Subsidiary or that is accounted for by the equity method of accounting
shall be included only to the extent of the amount of dividends or
distributions paid in cash to the specified Person or a Restricted
Subsidiary thereof;
(2) the Net Income of any Restricted Subsidiary that is not a Guarantor
shall be excluded to the extent that the declaration or payment of
dividends or similar distributions by that Restricted Subsidiary of that
Net Income is not at the date of determination permitted without any prior
governmental approval (that has not been obtained) or, directly or
indirectly, by operation of the terms of its charter or any agreement (for
purposes of the covenant described under the caption "Incurrence of
Indebtedness and Issuance of Preferred Stock," excluding the New Credit
Facility), instrument, judgment, decree, order, statute, rule or
governmental regulation applicable to that Restricted Subsidiary or its
stockholders, it being understood that the Net Income of any such
Restricted Subsidiary for such period shall be included in Consolidated Net
Income up to the aggregate amount of cash that such Restricted Subsidiary
could have paid pursuant to such dividends or similar distributions during
such period to the Company or any of its Restricted Subsidiaries;
(3) the Net Income of any Person acquired in a pooling of interests
transaction for any period prior to the date of such acquisition shall be
excluded; and
(4) the cumulative effect of a change in accounting principles shall be
excluded.
"Consolidated Net Worth" means, with respect to any Person as of any date,
the sum of:
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(1) the consolidated equity of the common stockholders of such Person
and its Restricted Subsidiaries that are Restricted Subsidiaries as of such
date plus
(2) the respective amounts reported on such Person's balance sheet as of
such date with respect to any series of preferred stock (other than
Disqualified Stock) that by its terms is not entitled to the payment of
dividends unless such dividends may be declared and paid only out of net
earnings in respect of the year of such declaration and payment, but only
to the extent of any cash received by such Person upon issuance of such
preferred stock, plus
(3) amortization reflected in the consolidated equity of common
stockholders in clause (1) above of amounts deducted in clauses (1) and (2)
below,
less,
(1) all write-ups (other than write-ups resulting from foreign currency
translations and write-ups of tangible assets of a going concern business
made within 12 months after the acquisition of such business) subsequent to
the Issue Date in the book value of any asset owned by such Person or a
Restricted Subsidiary of such Person; and
(2) all unamortized debt discount and expense and unamortized deferred
charges as of such date, all of the foregoing determined in accordance with
GAAP.
"Continuing Director" means, any individual who at the beginning of the
period of determination:
(1) was a member of the Board of Directors; or
(2) was nominated for election or elected to such Board of Directors
with the approval of one or more Permitted Holders or a majority of the
directors who were members of such Board of Directors at the beginning of
such period or whose election or nomination was previously so approved.
"Default" means any event that is, or with the passage of time or the giving
of notice, or both, would be, an Event of Default.
"disinterested member" means, with respect to any transaction, a member of
the Board of Directors of the Company having no material financial interest in
or with respect to such transaction. A member of the Board of Directors of the
Company shall not be deemed to have such a financial interest solely by reason
of such member's holding Capital Stock of the Company, or any parent thereof of
which the Company is a Wholly Owned Subsidiary, or any options, warrants or
other rights in respect of such Capital Stock.
"Disqualified Stock" means any Capital Stock that, by its terms (or by the
terms of any security into which it is convertible, or for which it is
exchangeable, in each case at the option of the holder thereof), or upon the
happening of any event, matures or is mandatorily redeemable, pursuant to a
sinking fund obligation or otherwise, or redeemable at the option of the holder
thereof, in whole or in part, on or prior to the date that is 91 days after the
date on which the notes mature. Notwithstanding the preceding sentence, any
Capital Stock that would constitute Disqualified Stock solely because the
holders thereof have the right to require the Company to repurchase such
Capital Stock upon the occurrence of a Change of Control or an Asset Sale shall
not constitute Disqualified Stock if the terms of such Capital Stock provide
that the Company may not repurchase or redeem any such Capital Stock pursuant
to such provisions unless such repurchase or redemption complies with the
covenant described above under the caption "--Certain Covenants--Restricted
Payments."
"Equity Interests" means Capital Stock and all warrants, options or other
rights to acquire Capital Stock (but excluding any debt security that is
convertible into, or exchangeable for, Capital Stock).
"Equity Offering" means any offering of common stock of the Company (other
than Disqualified Stock) other than to a Subsidiary of the Company, in which
the gross cash proceeds to the Company are at least $100.0 million.
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"Existing Indebtedness" means Indebtedness of the Company or any of its
Restricted Subsidiaries outstanding on the Issue Date (other than the New
Credit Facility).
"Fair Market Value" means, with respect to any asset or Property, the sale
value that would be obtained in an arm's length transaction between an informed
and willing seller under no compulsion to sell and an informed and willing
buyer under no compulsion to buy, as determined in good faith by the Board of
Directors.
"Fiber Optic Assets" means assets, rights (contractual or otherwise) and
properties, whether tangible or intangible, used or intended for use in
connection with the development, ownership and operation of undersea fiber
optic cable systems (including complementary assets, such as backhaul capacity
and satellite-related assets).
"Fiber Optic Joint Venture" means any Person that is engaged in the
development, ownership and operation of undersea fiber optic cable systems
(including complementary assets, such as backhaul capacity and satellite
related assets).
"GAAP" means generally accepted accounting principles in effect from time to
time in Bermuda (or the United States of America, to the extent the Company's
consolidated financial statements at any time are prepared in accordance with
generally accepted accounting principles in effect in the United States of
America).
"guarantee" means a guarantee (other than by endorsement of negotiable
instruments for collection in the ordinary course of business), direct or
indirect, in any manner (including, without limitation, by way of a pledge of
assets or through letters of credit or reimbursement agreements in respect
thereof), of all or any part of any Indebtedness, and "guarantee" when used as
a verb shall have corresponding meaning.
"Guarantee" means the full and unconditional guarantee on a senior,
unsubordinated basis by any Guarantor of the Company's obligations under the
indenture and the notes. When used as a verb, "Guarantee" shall have
corresponding meaning.
"Guarantor" means any Restricted Subsidiary of the Company which executes
and delivers a Guarantee in accordance with the provisions of the covenant
described under the caption "--Certain Covenants--Future Guarantees."
"Hedging Obligations" means, with respect to any Person, the obligations of
such Person under:
(1) currency exchange or interest rate swap agreements, interest rate
cap agreements and interest rate collar agreements; and
(2) other agreements or arrangements designed to protect such Person
against fluctuations in currency exchange or interest rates.
"Indebtedness" means, with respect to any specified Person, any indebtedness
of such Person, whether or not contingent, in respect of:
(1) borrowed money;
(2) evidenced by
(a) bonds, notes, debentures or similar instruments or
(b) letters of credit (or reimbursement agreements in respect
thereof);
(3) representing Capital Lease Obligations;
(4) the balance deferred and unpaid of the purchase price of any
property, except any such balance that constitutes an accrued expense or
trade payable; or
(5) representing any Hedging Obligations,
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if and to the extent any of the preceding items (other than letters of credit
and Hedging Obligations) would appear as a liability upon a balance sheet of
the specified Person prepared in accordance with GAAP. In addition, the term
"Indebtedness" includes all Indebtedness of others secured by a Lien on any
asset of the specified Person (whether or not such Indebtedness is assumed by
the specified Person, which shall be deemed the lesser of the full amount of
such Indebtedness and the Fair Market Value of the property or asset so
secured) and, to the extent not otherwise included, the guarantee by such
Person of any Indebtedness of any other Person.
The amount of any Indebtedness outstanding as of any date shall be:
(1) the accreted value thereof, in the case of any Indebtedness issued
with original issue discount; and
(2) the principal amount thereof, together with any interest thereon
that is more than 30 days past due, in the case of any other Indebtedness.
The term "Indebtedness" shall not include obligations
(1) with respect to letters of credit or other similar instruments
securing obligations (other than obligations described in clause (1),
(2)(a), (3) or (5) above) entered into in the ordinary course of business,
to the extent not drawn upon or, if drawn upon, to the extent such drawing
is reimbursed no later than the third business day following receipt by
such Person of a demand for reimbursement,
(2) in respect of performance, surety, judgment, appeal or other similar
bonds provided in the ordinary course of business or
(3) arising from agreements providing for indemnification, adjustment of
purchase price or similar obligations in connection with the disposition of
any business, assets or Person.
"Investments" means, with respect to any Person, all investments by such
Person in other Persons (including Affiliates) in the forms of direct or
indirect loans (including guarantees of Indebtedness or other obligations),
advances or capital contributions (excluding commission, travel and similar
advances to officers and employees made in the ordinary course of business),
purchases or other acquisitions for consideration of Indebtedness, Equity
Interests or other securities, together with all items that are or would be
classified as investments on a balance sheet prepared in accordance with GAAP.
If the Company or any Restricted Subsidiary of the Company sells or otherwise
disposes of any Equity Interests of any direct or indirect Wholly Owned
Restricted Subsidiary of the Company, the Company shall be deemed to have made
an Investment on the date of any such sale or disposition equal to the Fair
Market Value of the Equity Interests of such Restricted Subsidiary not sold or
disposed of in an amount determined as provided in the final paragraph of the
covenant described above under the caption "--Certain Covenants--Restricted
Payments."
"Issue Date" means July 14, 1999, the first date on which any notes were
issued under the indenture.
"Lien" means, with respect to any asset, any mortgage, lien, pledge,
charge, security interest or encumbrance of any kind in respect of such asset,
whether or not filed, recorded or otherwise perfected under applicable law,
including any conditional sale or other title retention agreement, any lease
in the nature thereof, any option or other agreement to sell or give a
security interest in and any filing of or agreement to give any financing
statement under the Uniform Commercial Code (or equivalent statutes) of any
jurisdiction.
"Net Income" means, with respect to any Person, the net income (loss) of
such Person and its Restricted Subsidiaries, determined in accordance with
GAAP and before any reduction in respect of preferred stock dividends,
excluding, however:
(1) any gain (but not loss), together with any related provision for
taxes on such gain (but not loss), realized in connection with:
(a) any Asset Sale; or
(b) the disposition of any securities by such Person or any of its
Restricted Subsidiaries or the extinguishment of any Indebtedness of
such Person or any of its Restricted Subsidiaries; and
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(2) any extraordinary gain (but not loss), together with any related
provision for taxes on such extraordinary gain (but not loss).
"Net Proceeds" means the aggregate cash proceeds received by the Company or
any of its Restricted Subsidiaries in respect of any Asset Sale (including,
without limitation, any cash received upon the sale or other disposition of any
non-cash consideration received in any Asset Sale), net of the direct costs
relating to such Asset Sale, including, without limitation, legal, accounting
and investment banking fees, and sales commissions, and any relocation expenses
incurred as a result thereof, taxes paid or payable as a result thereof, in
each case after taking into account any available tax credits or deductions and
any tax sharing arrangements and amounts required to be applied to the
repayment of Indebtedness secured by a Lien on the asset or assets that were
the subject of such Asset Sale.
"New Credit Facility" means the credit agreement entered into by GlobeNet
Communications Holdings Ltd., as borrower, and all of the borrower's
Subsidiaries, as guarantors, and TD Securities (USA) Inc., as arranger, and the
lenders named therein from time to time, and any ancillary documents executed
in connection therewith (including letters of credit and any guarantee and
security documents, including but not limited to the Alcatel Guaranty), as the
same may be amended, amended and restated, supplemented or otherwise modified
from time to time and any renewal, extension, refunding, restructuring,
replacement or refinancing thereof (whether with the original administrative
agent and lenders or other administrative agent or agents or other lenders
(including Alcatel upon its payment under its guarantee) and whether provided
under the original credit agreement or any other credit or other successor
agreements, including any agreement or agreements
(1) extending or shortening the maturity of any Indebtedness incurred
thereunder or contemplated thereby,
(2) adding or deleting borrowers or guarantors thereunder or
(3) increasing the amount of Indebtedness incurred thereunder or
available to be borrowed thereunder to the extent permitted under the
indenture).
"Non-Recourse Debt" means Indebtedness as to which neither the Company nor
any of its Restricted Subsidiaries
(1) provides credit support of any kind (including any undertaking,
agreement or instrument that would constitute Indebtedness),
(2) is directly or indirectly liable as a guarantor or otherwise or
(3) constitutes the lender.
"Obligations" means any principal, interest, penalties, fees,
indemnifications, reimbursements, damages and other liabilities payable under
the documentation governing any Indebtedness.
"Permitted Business" means any business that is the same as or related,
ancillary or complementary to any business of the Company or any of its
Restricted Subsidiaries on the Issue Date, including without limitation e-
commerce.
"Permitted Holders" means any of the following, and any of the respective
Affiliates or successors of any of the following:
(1) Kelso Investment Associates VI, L.P., KEP VI, L.L.C. and Kelso &
Company,
(2) Boston Ventures Limited Partnership V and Boston Ventures
Management, Inc.,
(3) Providence Equity Partners III L.P., Providence Equity Operating
Partners III L.P. and Providence Equity Partners Inc.,
(4) Spectrum Equity Investors III, L.P., SEI III Entrepreneurs Fund,
L.P., Spectrum III Investment Managers' Fund, L.P. and Spectrum Equity
Investors,
(5) TD Capital Group Limited,
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(6) Capital Communications CDPQ Inc.,
(7) Sandler Capital Partners IV, L.P., Sandler Capital Partners IV FTE
L.P., SCM Communications CBO I LTD and Sandler Capital Management,
(8) Ontario Municipal Employee Retirement Board and
(9) Nautilus Equity Investors LLC.
"Permitted Indebtedness" means:
(1) the incurrence of Indebtedness under or in connection with the New
Credit Facility, including to the extent constituting Indebtedness, any
principal, premium, if any, interest, fees, charges, expenses,
reimbursement obligations, guarantees and all other amounts payable
thereunder or in respect thereof; provided that the aggregate principal
amount of all Indebtedness outstanding under the New Credit Facility after
giving effect to such incurrence does not exceed an amount equal to $450.0
million, less the aggregate amount of all repayments, mandatory or
optional, of the principal of any term Indebtedness under the New Credit
Facility (other than refinancings and repayments that are concurrently
reborrowed) that have actually been made since the date of the indenture,
provided that in any event the aggregate principal amount of Indebtedness
permitted to be outstanding under the New Credit Facility pursuant to this
clause (1) shall be no less than $100.0 million;
(2) the incurrence of any contingent obligation to reimburse Alcatel in
connection with the Alcatel Guaranty or other obligations under the New
Credit Facility, provided that such Indebtedness under the New Credit
Facility is permitted to be incurred under clause (1) of this definition of
"Permitted Indebtedness";
(3) the provision by the Company or any of its Restricted Subsidiaries
of a guarantee of Indebtedness under the New Credit Facility;
(4) the incurrence by the Company and its Restricted Subsidiaries of
Existing Indebtedness;
(5) the incurrence by the Company of Indebtedness represented by the old
notes and the new notes and by any Restricted Subsidiary of any Guarantee;
(6) the incurrence by the Company or any Guarantor of Purchase Money
Indebtedness, provided that the amount thereof does not exceed 75% of the
Company's and its Restricted Subsidiaries' aggregate cost (determined in
accordance with GAAP in good faith by the Board of Directors of the
Company) of the construction, acquisition, development, engineering,
installation and improvement of the applicable Fiber Optic Assets;
(7) the incurrence by the Company or any of its Restricted Subsidiaries
of Vendor Financing Indebtedness, provided that the amount thereof does not
exceed 100% of the Company's and its Restricted Subsidiaries' aggregate
cost (determined in accordance with GAAP in good faith by the Board of
Directors of the Company) of the construction, acquisition, development,
engineering, installation and improvement of the applicable Fiber Optic
Assets, provided, further, that the aggregate amount thereof outstanding at
any time, including all Indebtedness incurred to refund, refinance or
replace any Indebtedness incurred pursuant to this clause (7), shall not
exceed $75.0 million; and provided, further, that the amount of
Indebtedness of Restricted Subsidiaries of the Company outstanding under
this clause (7) and clause (12) of this definition of "Permitted
Indebtedness", including all Indebtedness incurred to refund, refinance or
replace any such Indebtedness, shall not, in the aggregate, exceed $75.0
million at any one time;
(8) the incurrence by the Company or any of its Restricted Subsidiaries
of Permitted Refinancing Indebtedness in exchange for, or the net proceeds
of which are used to refund, refinance or replace, Indebtedness that was
permitted by the indenture to be incurred under the first paragraph of the
covenant described under the caption "Incurrence of Indebtedness and
Issuance of Preferred Stock" or clauses (4), (5), (6), (7), (8) and (12) of
this definition of "Permitted Indebtedness;"
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(9) the incurrence by the Company or any of its Restricted Subsidiaries
of intercompany Indebtedness between or among the Company and any of its
Restricted Subsidiaries and the issuance of preferred stock by a Restricted
Subsidiary to the Company or another Restricted Subsidiary of the Company;
provided, however, that:
(a) if the Company is the obligor on such Indebtedness, such
Indebtedness must be expressly subordinated to the prior payment in full
in cash of all Obligations with respect to the notes; and
(b) (i) any subsequent issuance or transfer of Equity Interests that
results in any such Indebtedness or preferred stock being held by a
Person other than the Company or a Restricted Subsidiary thereof and
(ii) any sale or other transfer of any such Indebtedness or
preferred stock to a Person that is not either the Company or a
Restricted Subsidiary thereof,
shall be deemed, in each case, to constitute an incurrence of such
Indebtedness by the Company or such Restricted Subsidiary, as the
case may be, that was not permitted by this clause (9);
(10) the incurrence by the Company or any of its Restricted Subsidiaries
of Hedging Obligations that are incurred
(a) for the purpose of fixing or hedging interest or foreign currency
exchange rate risk with respect to any floating rate Indebtedness or
foreign currency based Indebtedness, respectively, that is permitted by
the terms of this indenture to be outstanding; provided that the
notional amount of any such Hedging Obligation does not exceed the
amount of Indebtedness or other liability to which such Hedging
Obligation relates; or
(b) for the purpose of fixing or hedging currency exchange risk with
respect to any currency exchanges made in the ordinary course of
business and not for purposes of speculation;
(11) the incurrence of Indebtedness by the Company that is expressly
subordinated in right of payment to the notes, provided that:
(a) the terms of such Indebtedness do not permit any payments of
interest or principal prior to the Stated Maturity of such Indebtedness;
(b) the terms of such Indebtedness do not permit redemption or other
retirement of such Indebtedness prior to the Stated Maturity of such
Indebtedness;
(c) the terms of such Indebtedness do not provide for defaults or
other remedies and such Indebtedness is not subject to acceleration by
its terms, or otherwise;
(d) the Stated Maturity of such Indebtedness occurs after the Stated
Maturity of the notes; and
(e) the terms of such Indebtedness provide that in the event of any
payment or liquidation of the assets of the Company to creditors upon a
total or partial liquidation or dissolution or in a bankruptcy,
insolvency, receivership or similar proceeding relating to the Company,
no distributions to holders of such Indebtedness will be made until
distributions have been made with respect to all other Indebtedness of
the Company, other than other Indebtedness incurred pursuant to this
clause (11); and
(12) the incurrence by the Company or any of its Restricted Subsidiaries
of additional Indebtedness in an aggregate principal amount (or accreted
value, as applicable) at any time outstanding, including all Indebtedness
incurred to refund, refinance or replace any Indebtedness incurred pursuant
to this clause (12), not to exceed $50.0 million; provided that the amount
of Indebtedness of Restricted Subsidiaries of the Company outstanding under
this clause (12) and clause (7) of this definition of "Permitted
Indebtedness" including all Indebtedness incurred to refund, refinance or
replace any such Indebtedness, shall not, in the aggregate, exceed $75.0
million at any one time.
"Permitted Investments" means:
(1) any Investment in the Company or in any Wholly Owned Restricted
Subsidiary of the Company;
(2) any Investment in Cash Equivalents;
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(3) any Investment by the Company or any Wholly Owned Restricted
Subsidiary of the Company in a Person if as a result of such Investment:
(a) such Person becomes a Wholly Owned Restricted Subsidiary of the
Company; or
(b) such Person is merged, consolidated or amalgamated with or into,
or transfers or conveys substantially all of its assets to, or is
liquidated into, the Company or a Wholly Owned Restricted Subsidiary of
the Company;
(4) any Investment made as a result of the receipt of non-cash
consideration from an Asset Sale that was made pursuant to and in
compliance with the covenant described above under the caption "--Certain
Covenants--Limitations on Certain Asset Sales";
(5) Investments in the form of intercompany Indebtedness to the extent
permitted under clause (9) of the definition of "Permitted Indebtedness";
(6) Hedging Obligations, provided that such Hedging Obligations
constitute Permitted Indebtedness permitted by clause (10) of the
definition of "Permitted Indebtedness";
(7) Investments made in Fiber Optic Joint Ventures, provided that the
aggregate amount of all Investments made pursuant to this clause (7) does
not exceed $45.0 million; provided that no more than $20.0 million of such
Investments shall be in Fiber Optic Joint Ventures over which the Company
does not have, directly or indirectly, the power to direct the policies,
management and affairs;
(8) Investments of the Company or any of its Restricted Subsidiaries
existing on the Issue Date;
(9) Investments in accounts and notes receivable, prepaid expenses and
deposits in the ordinary course of business; Investments in negotiable
instruments held for collection; and pledges or deposits constituting
Permitted Liens;
(10) loans or advances made in the ordinary course of business to
officers, directors or employees of the Company or any of its Restricted
Subsidiaries for travel, entertainment and moving and other relocation
expenses; and
(11) any Investment acquired by the Company or any of its Restricted
Subsidiaries (a) in exchange for any other Investment or accounts
receivable held by the Company or any such Restricted Subsidiary, in each
case, in satisfaction of a judgment or in connection with or as a result of
a bankruptcy, workout, reorganization or recapitalization of the issuer of
such other Investment or accounts receivable or (b) as a result of a
foreclosure by the Company or any of its Restricted Subsidiaries with
respect to any secured Investment or other transfer of title with respect
to any secured Investment in default.
In calculating the amount of Investments under clause (7), such amount will
equal the aggregate Fair Market Value of Investments at the time such
Investments were made, less the amount of any net reduction in such Investments
resulting from the payment in cash of dividends, distributions or repayments or
from the receipt of proceeds of dispositions of such Investments, in each case
paid to the Company or any Restricted Subsidiary; provided that the sum of such
dividends, distributions, repayments or disposition proceeds may not exceed the
aggregate amount of Investments made under clause (7).
"Permitted Liens" means:
(1) Liens on assets of the Company or any Restricted Subsidiary of the
Company securing Indebtedness under the New Credit Facility permitted by
clause (1) of the definition of "Permitted Indebtedness" and all other
amounts payable under such Indebtedness or in respect thereof;
(2) Liens on assets of the Company or any Restricted Subsidiary of the
Company securing Indebtedness of the Company or any Restricted Subsidiary
of the Company permitted to be incurred under the indenture and all other
amounts payable under such Indebtedness or in respect thereof, the
principal amount of which Indebtedness shall not at any time exceed the
difference between
(a) $450.0 million and
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(b) the principal amount of any Indebtedness outstanding pursuant to
clause (1) of the definition of "Permitted Indebtedness";
(3) Liens in favor of the Company or its Restricted Subsidiaries;
(4) Liens on property of a Person existing at the time such Person is
merged or amalgamated with or into or consolidated with the Company or any
Restricted Subsidiary of the Company; provided that such Liens were in
existence prior to the contemplation of such merger, amalgamation or
consolidation and do not extend to any assets other than those of the
Person merged or amalgamated with, or into or consolidated with the Company
or the Restricted Subsidiary;
(5) Liens on property existing at the time of acquisition thereof by the
Company or any Restricted Subsidiary of the Company, provided that such
Liens were in existence prior to the contemplation of such acquisition;
(6) Liens incurred or deposits made to secure the performance of
tenders, bids, leases, licenses, obligations for utilities, statutory or
regulatory obligations, letters of credit, surety and appeal bonds,
government or other contracts, completion guarantees, performance and
return-of-money bonds and other obligations of a similar nature incurred in
the ordinary course of business (exclusive of obligations for the payment
of borrowed money);
(7) Liens existing on the Issue Date;
(8) Liens to secure Purchase Money Indebtedness permitted by clause (6)
of the definition of "Permitted Indebtedness" covering only the assets (or
portion thereof) acquired with such Indebtedness;
(9) Liens to secure Vendor Financing Indebtedness permitted by clause
(7) of the definition of "Permitted Indebtedness" covering only the assets
(or portion thereof) acquired with such Indebtedness;
(10) Liens for taxes, assessments or governmental charges or claims that
are not yet delinquent, or that in the aggregate are not material, or that
are being contested in good faith by appropriate proceedings promptly
instituted and diligently concluded, provided that any reserve or other
appropriate provision as shall be required in conformity with GAAP shall
have been made therefor;
(11) Liens created for the benefit of the notes;
(12) Liens imposed by law or arising by operation of law, including,
without limitation, landlords' mechanics', carriers', warehousemen's,
materialmen's, suppliers' and vendors' Liens, Liens for master's and crew's
wages and other similar maritime Liens and mechanics' Liens, in each case
which are incurred in the ordinary course of business for sums not yet
delinquent or that have been bonded or are being contested in good faith,
if such reserves or other appropriate provisions, if any, as shall be
required by GAAP shall have been made with respect thereto;
(13) zoning restrictions, easements, license, covenants, reservations,
restrictions on the use of real property and defects, irregularities and
deficiencies in title to real property that do not, individually or in the
aggregate, materially affect the ability of the Company or any Restricted
Subsidiary to conduct its business and are incurred in the ordinary course
of business;
(14) Liens incurred or pledges and deposits made in the ordinary course
of business in connection with workers' compensation and unemployment
insurance and other types of social security and other similar legislation
or other insurance-related obligations (including, without limitation,
pledges or deposits securing liability to insurance carriers under
insurance or self-insurance arrangements);
(15) Liens securing obligations of the Company or any Restricted
Subsidiary of the Company under Hedging Obligations permitted to be
incurred under clause (10) of the definition of "Permitted Indebtedness";
(16) leases, subleases, licenses or sublicenses granted to others that
do not materially interfere with the ordinary course of business of the
Company and its Restricted Subsidiaries, taken as a whole;
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(17) Liens encumbering property or assets under construction (and
related rights) in favor of a contractor or developer, or arising from
progress or partial payments by a customer of the Company or its Restricted
Subsidiaries relating to such property or assets;
(18) any interest or title of a lessor in the property subject to any
capital lease or operating lease;
(19) Liens (including extensions, renewals, and replacements thereof) on
property or assets of, or on shares of Capital Stock or Indebtedness of,
any Person existing (in the case of the original such Lien) at the time
such Person becomes, or becomes a part of, any Restricted Subsidiary of the
Company; provided that such Liens do not extend to or cover any property or
assets of the Company or any of its Restricted Subsidiaries other than the
property, assets, Capital Stock or Indebtedness so acquired (plus
improvements, accessions or proceeds in respect thereof) and were not
created in contemplation of such transaction;
(20) any Lien arising from
(x) a judgment that does not, and upon the expiration of any
applicable grace period, will not, result in an Event of Default and
(y) any other judgment, but only, in the case of this clause (y),
so long as such Lien is adequately bonded and all appropriate legal
proceedings that may have been initiated for the review of such
judgment, decree or order shall not have been finally terminated or the
period within which such proceedings may be initiated shall not have
expired.
(21) Liens securing reimbursement obligations with respect to commercial
letters of credit incurred in the ordinary course of business which
encumber documents and other property relating to such letters of credit
and products and proceeds thereof;
(22) Liens arising out of consignment or similar arrangements for the
sale of goods in the ordinary course of business;
(23) Liens arising from filing Uniform Commercial Code financing
statements regarding leases, provided that such Liens do not extend to any
property or assets which are not leased property subject to such leases or
subleases;
(24) Liens in favor of customs and revenue authorities arising as a
matter of law to secure payment of customs duties in connection with the
importation of goods;
(25) Liens on or sales or transfers of receivables (including related
rights);
(26) Liens on Capital Stock or other securities of an Unrestricted
Subsidiary that secure Indebtedness or other obligations of such
Unrestricted Subsidiary;
(27) any encumbrance or restriction (including, but not limited to, put
and call agreements) with respect to Capital Stock of any joint venture or
similar arrangement pursuant to any joint venture or similar agreement;
(28) Liens on cash set aside at the time of the incurrence of any
Indebtedness, or government securities purchased with such cash, in either
case to the extent that such cash or government securities pre-fund the
payment of interest on such Indebtedness and are held in an escrow account
or similar arrangement to be applied for such purpose;
(29) the escrow arrangement pursuant to which the proceeds of the
borrowings under the term D loan of the New Credit Facility will initially
be held; and
(30) Liens incurred in the ordinary course of business of the Company or
any Restricted Subsidiary of the Company with respect to obligations that
do not exceed $5.0 million at any one time outstanding and that
(a) are not incurred in connection with the borrowing of money or
the obtaining of advances or credit (other than trade credit in the
ordinary course of business) and
(b) do not in the aggregate materially detract from the value of
the property or materially impair the use thereof in the operation of
business by the Company or such Restricted Subsidiary.
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"Permitted Refinancing Indebtedness" means any Indebtedness of the Company
or any of its Restricted Subsidiaries issued in exchange for, or the net
proceeds of which are used to refund, refinance or replace, other Indebtedness
of the Company or any of its Restricted Subsidiaries (other than intercompany
Indebtedness); provided that:
(1) the principal amount (or accreted value, if applicable) of such
Permitted Refinancing Indebtedness does not exceed the principal amount of
(or accreted value, if applicable), and premium, if any, plus accrued
interest on, the Indebtedness so extended, refinanced, renewed, replaced,
defeased or refunded (plus the amount of reasonable expenses incurred in
connection therewith);
(2) such Permitted Refinancing Indebtedness has a final maturity date
equal to or later than the final maturity date of, and has a Weighted
Average Life to Maturity equal to or greater than the Weighted Average Life
to Maturity of, the Indebtedness being extended, refinanced, renewed,
replaced, defeased or refunded;
(3) if the Indebtedness being extended, refinanced, renewed, replaced,
defeased or refunded is expressly subordinated in right of payment to the
notes, such Permitted Refinancing Indebtedness has a final maturity date
equal to or later than the final maturity date of, and is subordinated in
right of payment to, the notes on terms that taken as a whole are at least
as favorable to the holders of notes as those contained in the
documentation governing the Indebtedness being extended, refinanced,
renewed, replaced, defeased or refunded; and
(4) except in the case of Indebtedness issued in exchange for, or the
net proceeds of which are used to refund, refinance or replace,
Indebtedness incurred pursuant to, and as permitted by, clause (7) or (12)
of the definition of "Permitted Indebtedness" (or other Permitted
Refinancing Indebtedness incurred in respect of such Indebtedness), such
Indebtedness is incurred either
(a) by the Company or any Guarantor or
(b) by the Restricted Subsidiary who is the obligor on the
Indebtedness being extended, refinanced, renewed, replaced, defeased or
refunded.
"Person" means any individual, corporation, partnership, joint venture,
association, limited liability company, joint stock company, trust,
unincorporated organization, government or agency or political subdivision
thereof or any other entity.
"Private Equity Financing" means the private offering of common shares of
the Company that closed on the Issue Date.
"Property" means, with respect to any Person, any interest of such Person in
any kind of property or asset, whether real, personal or mixed, or tangible or
intangible, including Capital Stock in, and other securities of, any other
Person.
"Purchase Money Indebtedness" means Indebtedness of the Company (including
Acquired Debt and Capital Lease Obligations, mortgage financings and purchase
money obligations) incurred for the purpose of financing or refinancing, all or
any part of the cost of construction, engineering, acquisition, installation,
development or improvement by the Company or any Restricted Subsidiary of any
Fiber Optic Assets of the Company or any Restricted Subsidiary and including
any related notes, guarantees, collateral documents, instruments and agreements
executed in connection therewith, as the same may be amended, supplemented,
modified or restated from time to time.
"Restricted Investment" means an Investment other than a Permitted
Investment.
"Restricted Payment" means any of the following:
(1) the declaration or payment of any dividend on or the making of any
other payment or distribution on account of the Company's or any of its
Restricted Subsidiaries' Equity Interests (including, without limitation,
any payment in connection with any merger, amalgamation or consolidation
involving the
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Company or any of its Restricted Subsidiaries) or to the direct or indirect
holders of the Company's or any of its Restricted Subsidiaries' Equity
Interests in their capacity as such (other than dividends or distributions
payable in Equity Interests (other than Disqualified Stock) of the Company
or to the Company or a Restricted Subsidiary of the Company);
(2) the purchase, redemption or other acquisition or retirement for
value (including, without limitation, in connection with any merger,
amalgamation or consolidation involving the Company) of any Equity
Interests of the Company or any direct or indirect parent of the Company or
any Restricted Subsidiary of the Company (other than any such Equity
Interests owned by the Company or any Restricted Subsidiary of the Company,
and other than the purchase by the Company of newly-issued or outstanding
Equity Interests of a Restricted Subsidiary or the purchase by a Restricted
Subsidiary of newly-issued or outstanding Equity Interests of another
Restricted Subsidiary);
(3) the making of any payment of principal on, or the purchase,
redemption, defeasance or other acquisition or retirement for value of, any
Indebtedness that is expressly subordinated in right of payment to the
notes, except a payment of principal at the Stated Maturity thereof; or
(4) the making of any Restricted Investment.
"Restricted Subsidiary" of a Person means any Subsidiary of the referent
Person that is not an Unrestricted Subsidiary.
"Significant Subsidiary" means any Subsidiary that would be a significant
subsidiary as defined in Article 1, Rule 1-02 of Regulation S-X, promulgated
pursuant to the Act, as such Regulation is in effect on the date hereof.
"Stated Maturity" means,
(1) with respect to any Indebtedness, the date specified in the
original documentation governing such Indebtedness as the fixed date on
which the final installment of principal of such Indebtedness is due and
payable and
(2) with respect to any installment of interest or principal on any
series of Indebtedness, the date on which such payment of interest or
principal was scheduled to be paid in the original documentation governing
such Indebtedness,
and shall not include any contingent obligations to repay, redeem or repurchase
any such interest or principal prior to the date originally scheduled for the
payment thereof.
"Subsidiary" means, with respect to any Person:
(1) any corporation a majority of whose Capital Stock with voting power,
under ordinary circumstances, to elect directors is, at the date of
determination, directly or indirectly, owned by such Person (a
"subsidiary"), by one or more subsidiaries of such Person or by such Person
and one or more subsidiaries of such Person;
(2) a partnership in which such Person or a subsidiary of such Person
is, at the date of determination, a general partner of such partnership; or
(3) any partnership, limited liability company or other Person in which
such Person, a subsidiary of such Person or such Person and one or more
subsidiaries of such Person, directly or indirectly, at the date of
determination, has
(x) at least a majority ownership interest or
(y) the power to elect or appoint or direct the election or
appointment of the managing partner or member of such Person or, if
applicable, a majority of the directors or other governing body of such
Person.
"Tax" means any tax, duty, levy, impost, assessment or other governmental
charge (including penalties, interest and any other liabilities related
thereto).
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"Taxing Authority" means any government or political subdivision or
territory or possession or any authority therein or thereof having power to
tax.
"Unrestricted Subsidiary" means any Subsidiary designated as such pursuant
to the covenant described under the caption "Unrestricted Subsidiaries."
"Vendor Financing Indebtedness" means Indebtedness of the Company or any of
its Restricted Subsidiaries incurred pursuant to any agreements between the
Company or any of its Restricted Subsidiaries and one or more vendors or
lessors of Fiber Optic Assets used or intended for use in a Permitted Business
by the Company or any of its Restricted Subsidiaries (or any Affiliate of any
such vendor or lessor or any lender or group of lenders led by or arranged for
by any such vendor, lessor or Affiliate) providing financing for all or any
part of the cost of construction, engineering, acquisition, installation,
development or improvement by the Company or any of its Restricted Subsidiaries
of any Fiber Optic Assets from any such vendor or lessor (or any such Affiliate
or lender) and including any related notes, guarantees, collateral documents,
instruments and agreements executed in connection therewith, as the same may be
amended, supplemented, modified or restated from time to time.
"Voting Stock" of any Person as of any date means the Capital Stock of such
Person that is at the time entitled to vote in the election of the Board of
Directors of such Person.
"Weighted Average Life to Maturity" means, when applied to any Indebtedness
at any date, the number of years obtained by dividing:
(1) the sum of the products obtained by multiplying
(a) the amount of each then remaining installment, sinking fund,
serial maturity or other required payments of principal, including
payment at final maturity, in respect thereof, by
(b) the number of years (calculated to the nearest one-twelfth) that
will elapse between such date and the making of such payment; by
(2) the then outstanding principal amount of such Indebtedness.
"Wholly Owned Restricted Subsidiary" of any Person means a Wholly Owned
Subsidiary of such Person that is a Restricted Subsidiary.
"Wholly Owned Subsidiary" of any Person means a Subsidiary of such Person
all of the outstanding Capital Stock or other ownership interests of which
(other than directors' qualifying shares and shares required to be held by
nationals of any jurisdiction) shall at the time be owned by such Person and/or
by one or more Wholly Owned Subsidiaries of such Person.
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EXCHANGE OFFER
Purpose and Effect of the Exchange Offer
In connection with the issuance of the old notes, we entered into a
registration rights agreement. Under the registration rights agreement, we
agreed to:
. use our reasonable best efforts to file a registration statement with the
Securities and Exchange Commission for an exchange of the new notes for
the old notes under the Securities Act of 1933 and to keep such
registration statement effective until the closing of such exchange
offer;
. use our reasonable best efforts to cause the exchange offer to be
consummated within 210 days following the original issuance of the old
notes;
. keep the exchange offer open for acceptance for a period of not less than
30 days after the date notice thereof is mailed to holders of the old
notes, or longer if required by applicable law; and
. accept for exchange all old notes duly tendered and not validly withdrawn
in the exchange offer in accordance with the terms of the exchange offer
registration statement and letter of transmittal.
As soon as practicable after the exchange offer registration statement
becomes effective, we will offer eligible holders of the old notes the
opportunity to exchange their old notes for new notes registered under the
Securities Act of 1933. Holders are eligible if they are not prohibited by any
law or policy of the Securities and Exchange Commission from participating in
this exchange offer. The new notes will be substantially identical to the old
notes except that the new notes will not contain terms with respect to transfer
restrictions, registration rights or additional interest.
Under limited circumstances, we agreed to use our reasonable best efforts to
cause the Securities and Exchange Commission to declare effective a shelf
registration statement for the resale of the old notes. We also agreed to use
our reasonable best efforts to cause the Securities and Exchange Commission to
keep the shelf registration statement effective for up to two years after its
effective date (or one year from the effective date of the shelf registration
statement if the registration statement is filed upon the request of an initial
purchaser, as described in the third bullet point below). These circumstances
include:
. if any changes in law or their interpretations by the staff of the
Securities and Exchange Commission do not permit us to effect the
exchange offer as contemplated by the registration rights agreement,
. if the exchange offer if not consummated within 210 days after July 14,
1999, and
. if any initial purchaser of the old notes so requests with respect to old
notes held by it and if such initial purchaser is not permitted pursuant
to applicable law or interpretation of the staff of the Securities and
Exchange Commission to participate in the exchange offer.
Under the registration rights agreement, additional interest accrues on the
notes at a rate of 0.5% per annum for the first 90-day period and 0.25% per
annum for each subsequent 90-day period in the following circumstances:
. the exchange offer registration statement is not declared effective on or
prior to the 180th day after July 14, 1999,
. the exchange offer is not consummated on or prior to the 210th day after
July 14, 1999,
. a shelf registration statement, if required, is not declared effective on
or prior to the 60th day after it is required to be filed, or
. the exchange offer registration statement or shelf registration statement
ceases to be effective after being declared effective without being
succeeded immediately by an additional registration statement filed and
declared effective.
The exchange offer registration statement was not declared effective on or
prior to the 180th day after July 14, 1999 and the exchange offer will not be
consummated on or prior to the 210th day after July 14, 1999. Accordingly, the
Company has incurred and will incur additional interest costs payable to the
holders of the old notes.
Upon the effectiveness of the exchange offer registration statement, the
consummation of the exchange offer, the effectiveness of a shelf registration
statement, or the effectiveness of a succeeding registration statement, as the
case may be, the interest rate borne by the notes from the date of such
effectiveness or
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consummation, as the case may be, is reduced to the original interest rate.
However, if after any such reduction in interest rate, a different event
specified in the four clauses above occurs, the interest rate may again be
increased pursuant to the foregoing provisions.
To exchange your old notes for transferable new notes in the exchange offer,
you will be required to make the following representations:
. any new notes will be acquired in the ordinary course of your business;
. you have no arrangement or understanding with any person or entity to
participate in the distribution of the new notes;
. you are not engaged in and do not intend to engage in the distribution of
the new notes;
. if you are a broker-dealer that will receive new notes for your own
account in exchange for old notes, you acquired those notes as a result
of market-making activities or other trading activities and you will
deliver a prospectus, as required by law, in connection with any resale
of such new notes; and
. you are not our "affiliate," as defined in Rule 405 of the Securities
Act.
In addition, we may require you to provide information to be used in
connection with the shelf registration statement to have your notes included in
the shelf registration statement and benefit from the provisions regarding
additional interest described in the preceding paragraphs. A holder who sells
old notes under the shelf registration statement generally will be required to
be named as a selling securityholder in the related prospectus and to deliver a
prospectus to purchasers. Such a holder will also be subject to the civil
liability provisions under the Securities Act of 1933 in connection with such
sales and will be bound by the provisions of the registration rights agreement
that are applicable to such a holder, including indemnification obligations.
The description of the registration rights agreement contained in this
section is a summary only. For more information, you should review the
provisions of the registration rights agreement that we filed with the
Securities and Exchange Commission as an exhibit to the registration statement
of which this prospectus is a part.
Resale of New Notes
Based on no action letters of the Securities and Exchange Commission staff
issued to third parties, we believe that new notes may be offered for resale,
resold and otherwise transferred by you without further compliance with the
registration and prospectus delivery provisions of the Securities Act of 1933
if:
. you are not our "affiliate" within the meaning of Rule 405 under the
Securities Act of 1933;
. such new notes are acquired in the ordinary course of your business; and
. you do not intend to participate in the distribution of such new notes.
The Securities and Exchange Commission, however, has not considered the
exchange offer for the new notes in the context of a no action letter, and the
Securities and Exchange Commission may not make a similar determination as in
the no action letters issued to these third parties.
If you tender in the exchange offer with the intention of participating in
any manner in a distribution of the new notes, you
. cannot rely on such interpretations by the Securities and Exchange
Commission staff; and
. must comply with the registration and prospectus delivery requirements of
the Securities Act of 1933 in connection with a secondary resale
transaction.
Unless an exemption from registration is otherwise available, any security
holder intending to distribute new notes should be covered by an effective
registration statement under the Securities Act of 1933. This
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registration statement should contain the selling security holder's information
required by Item 507 of Regulation S-K under the Securities Act of 1933. This
prospectus may be used for an offer to resell, resale or other retransfer of
new notes only as specifically described in this prospectus. Only broker-
dealers that acquired the old notes as a result of market-making activities or
other trading activities may participate in the exchange offer. Each broker-
dealer that receives new notes for its own account in exchange for old notes,
where such old notes were acquired by such broker-dealer as a result market-
making activities or other trading activities, must acknowledge that it will
deliver a prospectus in connection with any resale of the new notes. Please
read the section captioned "Plan of Distribution" for more details regarding
the transfer of new notes.
Terms of the Exchange Offer
Subject to the terms and conditions described in this prospectus and in the
letter of transmittal, we will accept for exchange any old notes properly
tendered and not withdrawn prior to the expiration date. We will issue new
notes in principal amount equal to the principal amount of old notes
surrendered under the exchange offer. Old notes may be tendered only for new
notes and only in integral multiples of $1,000.
The exchange offer is not conditioned upon any minimum aggregate principal
amount of old notes being tendered for exchange.
As of the date of this prospectus, $300,000,000 aggregate principal amount
of the old notes are outstanding. This prospectus and the letter of transmittal
are being sent to all registered holders of old notes. There will be no fixed
record date for determining registered holders of old notes entitled to
participate in the exchange offer.
We intend to conduct the exchange offer in accordance with the provisions of
the registration rights agreement, the applicable requirements of the
Securities Act of 1933 and the Securities Exchange Act of 1934 and the rules
and regulations of the Securities and Exchange Commission. Old notes that the
holders thereof do not tender for exchange in the exchange offer will remain
outstanding and continue to accrue interest. These old notes will be entitled
to the rights and benefits such holders have under the indenture relating to
the notes and the registration rights agreement.
We will be deemed to have accepted for exchange properly tendered old notes
when we have given oral or written notice of the acceptance to the exchange
agent and complied with the applicable provisions of the registration rights
agreement. The exchange agent will act as agent for the tendering holders for
the purposes of receiving the new notes from us.
If you tender old notes in the exchange offer, you will not be required to
pay brokerage commissions or fees or, subject to the letter of transmittal,
transfer taxes with respect to the exchange of old notes. We will pay all
charges and expenses, other than certain applicable taxes described below, in
connecting with the exchange offer. It is important that you read the section
labeled "--Fees and Expenses" for more details regarding fees and expenses
incurred in the exchange offer.
We will return any old notes that we do not accept for exchange for any
reason without expense to their tendering holder as promptly as practicable
after the expiration or termination of the exchange offer.
Expiration Date
The exchange offer will expire at 5:00 p.m. New York City time on March 6,
2000, unless, in our sole discretion, we extend it.
Extensions, Delays in Acceptance, Termination or Amendment
We expressly reserve the right, at any time or various times, to extend the
period of time during which the exchange offer is open. We may delay acceptance
of any old notes by giving oral or written notice of such
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extension to their holders. During any such extensions, all old notes
previously tendered will remain subject to the exchange offer, and we may
accept them for exchange.
In order to extend the exchange offer, we will notify the exchange agent
orally or in writing of any extension. We will notify the registered holders of
old notes of the extension no later than 9:00 a.m., New York City time, on the
business day after the previously scheduled expiration date.
If any of the conditions described below under "--Conditions to the Exchange
Offer" have not been satisfied, we reserve the right, in our sole discretion
. to delay accepting for exchange any old notes,
. to extend the exchange offer, or
. to terminate the exchange offer,
by giving oral or written notice of such delay, extension or termination to the
exchange agent. Subject to the terms of the registration rights agreement, we
also reserve the right to amend the terms of the exchange offer in any manner.
Any such delay in acceptance, extension, termination or amendment will be
followed as promptly as practicable by oral or written notice thereof to the
registered holders of old notes. If we amend the exchange offer in a manner
that we determine to constitute a material change, we will promptly disclose
such amendment by means of a prospectus supplement. The supplement will be
distributed to the registered holders of the old notes. Depending upon the
significance of the amendment and the manner of disclosure to the registered
holders, we will extend the exchange offer if the exchange offer would
otherwise expire during such period.
Condition to the Exchange Offer
We will not be required to accept for exchange, or exchange any new notes
for, any old notes if the exchange offer, or the making of any exchange by a
holder of old notes, would violate applicable law or any applicable
interpretation of the staff of the Securities and Exchange Commission.
Similarly, we may terminate the exchange offer as provided in this prospectus
before accepting old notes for exchange in the event of such a potential
violation.
In addition, we will not be obligated to accept for exchange the old notes
of any holder that has not made to us the representations described under "--
Purpose and Effect of the Exchange Offer," "--Procedures for Tendering" and
"Plan of Distribution" and such other representations as may be reasonably
necessary under applicable Securities and Exchange Commission rules,
regulations or interpretations to allow us to use an appropriate form to
register the new notes under the Securities Act of 1933.
We expressly reserve the right to amend or terminate the exchange offer, and
to reject for exchange any old notes not previously accepted for exchange, upon
the occurrence of any of the conditions to the exchange offer specified above.
We will give oral or written notice of any extension, amendment, non-acceptance
or termination to the holders of the old notes as promptly as practicable.
These conditions are for our sole benefit, and we may assert them or waive
them in whole or in part at any time or at various times in our sole
discretion. If we fail at any time to exercise any of these rights, this
failure will not mean that we have waived our rights. Each such right will be
deemed an ongoing right that we may assert at any time or at various times.
In addition, we will not accept for exchange any old notes tendered, and
will not issue new notes in exchange for any such old notes, if at such time
any stop order has been threatened or is in effect with respect to the
registration statement of which this prospectus constitutes a part or the
qualification of the indenture relating to the notes under the Trust Indenture
Act of 1939.
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Procedures for Tendering
How to Tender Generally
Only a holder of old notes may tender such old notes in the exchange offer.
To tender in the exchange offer, a holder must:
. complete, sign and date the letter of transmittal, or a facsimile of the
letter of transmittal;
. have the signature on the letter of transmittal guaranteed if the letter
of transmittal so requires; and
. mail or deliver such letter of transmittal or facsimile to the exchange
agent prior to the expiration date; or
. comply with the automated tender offer program procedures of The
Depository Trust Company, or DTC, described below.
In addition, either:
. the exchange agent must receive old notes along with the letter of
transmittal;
. the exchange agent must receive, prior to the expiration date, a timely
confirmation of book-entry transfer of such old notes into the exchange
agent's account at DTC according to the procedure for book-entry transfer
described below or a properly transmitted agent's message; or
. the holder must comply with the guaranteed delivery procedures described
below.
To be tendered effectively, the exchange agent must receive any physical
delivery of the letter of transmittal and other required documents at its
address indicated on the cover page of the Letter of Transmittal. The exchange
agent must receive such documents prior to the expiration date.
The tender by a holder that is not withdrawn prior to the expiration date
will constitute an agreement between the holder and us in accordance with the
terms and subject to the conditions described in this prospectus and in the
letter of transmittal.
The method of delivery of old notes, the letter of transmittal and all other
required documents to the exchange agent is at your election and risk. Rather
than mail these items, we recommend that you use an overnight or hand delivery
service. In all cases, you should allow sufficient time to assure delivery to
the exchange agent before the expiration date. You should not send the letter
of transmittal or old notes to us. You may request your brokers, dealers,
commercial banks, trust companies or other nominees to effect the above
transactions for you.
How to Tender if You Are a Beneficial Owner
If you beneficially own old notes that are registered in the name of a
broker, dealer, commercial bank, trust company or other nominee and you wish to
tender those notes, you should contact the registered holder promptly and
instruct it to tender on your behalf. If you are a beneficial owner and wish to
tender on your own behalf, you must, prior to completing and executing the
letter of transmittal and delivering your old notes, either:
. make appropriate arrangements to register ownership of the old notes in
your name; or
. obtain a properly completed bond power from the registered holder of old
notes.
The transfer of registered ownership may take considerable time and may not
be completed prior to the expiration date.
Signatures and Signature Guarantees
You must have signatures on a letter of transmittal or a notice of
withdrawal (as described below) guaranteed by a member firm of a registered
national securities exchange or of the National Association of
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Securities Dealers, Inc., a commercial bank or trust company having an office
or correspondent in the United States, or an "eligible guarantor institution"
within the meaning of Rule 17Ad-15 under the Securities Exchange Act of 1934.
In addition, such entity must be a member of one of the recognized signature
guarantee programs identified in the letter of transmittal. Signature
guarantees are not required, however, if the notes are tendered:
. by a registered holder who has not completed the box entitled "Special
Issuance Instructions" or "Special Delivery Instructions" on the letter
of transmittal; or
. for the account of a member firm of a registered national securities
exchange or of the National Association of Securities Dealers, Inc., a
commercial bank or trust company having an office or correspondence in
the United States, or an eligible guarantor institution.
When You Need Endorsements or Bond Powers
If the letter of transmittal is signed by a person other than the registered
holder of any old notes, the old notes must be endorsed or accompanied by a
properly completed bond power. The bond power must be signed by the registered
holder as the registered holder's name appears on the old notes. A member firm
of a registered national securities exchange or of the National Association of
Securities Dealers, Inc., a commercial bank or trust company having an office
or correspondent in the United States, or an eligible guarantor institution
must guarantee the signature on the bond power.
If the letter of transmittal or any old notes or bond powers are signed by
trustees, executors, administrators, guardians, attorneys-in-fact, officers of
corporations or others acting in a fiduciary or representative capacity, those
persons should so indicate when signing. Unless waived by us, they should also
submit evidence satisfactory to us of their authority to deliver the letter of
transmittal.
Tendering Through DTC's Automated Tender Offer Program
The exchange agent and DTC have confirmed that any financial institution
that is a participant in DTC's system may use DTC's automated tender offer
program to tender. Participants in the program may, instead of physically
completing and signing the letter of transmittal and delivering it to the
exchange agent, transmit their acceptance of the exchange offer electronically.
They may do so by causing DTC to transfer the old notes to the exchange agent
in accordance with its procedures for transfer. DTC will then send an agent's
message to the exchange agent.
The term "agent's message" means a message transmitted by DTC, received by
the exchange agent and forming part of the book-entry confirmation, to the
effect that:
. DTC has received an express acknowledgment from a participant in its
automated tender offer program that is tendering old notes that are the
subject of such book-entry confirmation;
. such participant has received and agrees to be bound by the terms of the
letter of transmittal or, in the case of an agent's message relating to
guaranteed delivery, that such participant has received and agrees to be
bound by the applicable notice of guaranteed delivery; and
. the agreement may be enforced against such participant.
Determinations Under the Exchange Offer
We will determine in our sole discretion all questions as to the validity,
form, eligibility, time of receipt, acceptance of tendered old notes and
withdrawal of tendered old notes. Our determination will be final and binding.
We reserve the absolute right to reject any old notes not properly tendered or
any old notes our acceptance of which would, in the opinion of our counsel, be
unlawful. We also reserve the right to waive any defect, irregularities or
conditions of tender as to particular old notes. Our interpretation of the
terms and conditions of the exchange offer, including the instructions in the
letter of transmittal, will be final and binding on all parties. Unless waived,
all defects or irregularities in connection with tenders of old notes must be
cured
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within such time as we shall determine. Although we intend to notify holders of
defects or irregularities with respect to tenders of old notes, neither we, the
exchange agent nor any other person will incur any liability for failure to
give such notification. Tenders of old notes will not be deemed made until such
defects or irregularities have been cured or waived. Any old notes received by
the exchange agent that are not properly tendered and as to which the defects
or irregularities have not been cured or waived will be returned to the
tendering holder, unless otherwise provided in the letter of transmittal, as
soon as practicable following the expiration date.
When We Will Issue New Notes
In all cases, we will issue new notes for old notes that we have accepted
for exchange under the exchange offer only after the exchange agent timely
receives:
. old notes or a timely book-entry confirmation of such old notes into the
exchange agent's account at DTC; and
. a properly completed and duly executed letter of transmittal and all
other required documents or a properly transmitted agent's message.
Return of Old Notes Not Accepted or Exchanged
If we do not accept any tendered old notes for exchange or if old notes are
submitted for a greater principal amount than the holder desires to exchange,
the unaccepted or non-exchanged old notes will be returned without expense to
their tendering holder. In the case of old notes tendered by book-entry
transfer into the exchange agent's account at DTC according to the procedures
described below, such non-exchanged old notes will be credited to an account
maintained with DTC. These actions will occur as promptly as practicable after
the expiration or termination of the exchange offer.
Your Representations to Us
By signing or agreeing to be bound by the letter of transmittal, you will
represent to us that, among other things:
. any new notes that you receive will be acquired in the ordinary course of
your business;
. you have no arrangement or understanding with any person or entity to
participate in the distribution of the new notes;
. you are not engaged in and do not intend to engage in the distribution of
the new notes;
. if you are a broker-dealer that will receive new notes for your own
account in exchange for old notes, you acquired those notes as a result
of market-making activities or other trading activities and you will
deliver a prospectus, as required by law, in connection with any resale
of such new notes; and
. you are not our "affiliate," as defined in Rule 405 of the Securities
Act.
Book-Entry Transfer
The exchange agent will establish an account with respect to the old notes
at DTC for purposes of the exchange offer promptly after the date of this
prospectus. Any financial institution participating in DTC's system may make
book-entry delivery of old notes by causing DTC to transfer such old notes into
the exchange agent's account at DTC in accordance with DTC's procedures for
transfer. Holders of old notes who are unable to deliver confirmation of the
book-entry tender of their old notes into the exchange agent's account at DTC
or all other documents required by the letter of transmittal to the exchange
agent on or prior to the expiration date must tender their old notes according
to the guaranteed delivery procedures described below.
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Guaranteed Delivery Procedures
If you wish to tender your old notes but your old notes are not immediately
available or you cannot deliver your old notes, the letter of transmittal or
any other required documents to the exchange agent or comply with the
applicable procedures under DTC's automated tender offer program prior to the
expiration date, you may tender if:
. the tender is made through a member firm of a registered national
securities exchange or of the National Association of Securities Dealers,
Inc., a commercial bank or trust company having an office or
correspondent in the United States, or an eligible guarantor institution,
. prior to the expiration date, the exchange agent receives from such
member firm of a registered national securities exchange or of the
National Association of Securities Dealers, Inc., commercial bank or
trust company having an office or correspondent in the United States, or
eligible guarantor institution either a properly completed and duly
executed notice of guaranteed delivery by facsimile transmission, mail or
hand delivery or a properly transmitted agent's message and notice of
guaranteed delivery:
. setting forth your name and address, the registered number(s) of your
old notes and the principal amount of old notes tendered,
. stating that the tender is being made thereby, and
. guaranteeing that, within three (3) New York Stock Exchange trading
days after the expiration date, the letter of transmittal or
facsimile thereof, together with the old notes or a book-entry
confirmation, and any other documents required by the letter of
transmittal will be deposited by the eligible guarantor institution
with the exchange agent, and
. the exchange agent receives such properly completed and executed letter
of transmittal or facsimile thereof, as well as all tendered old notes in
proper form for transfer or a book-entry confirmation, and all other
documents required by the letter of transmittal, within three (3) New
York Stock Exchange trading days after the expiration date.
Upon request to the exchange agent, a notice of guaranteed delivery will be
sent you if you wish to tender your old notes according to the guaranteed
delivery procedures described above.
Withdrawal of Tenders
Except as otherwise provided in this prospectus, you may withdraw your
tender at any time prior to the expiration date.
For a withdrawal to be effective:
. the exchange agent must receive a written notice of withdrawal at the
address indicated on the cover page of the letter of transmittal or
. you must comply with the appropriate procedures of DTC's automated tender
offer program system.
Any notice of withdrawal must:
. specify the name of the person who tendered the old notes to be
withdrawn, and
. identify the old notes to be withdrawn, including the principal amount of
such old notes.
If old notes have been tendered under the procedure for book-entry transfer
described above, any notice of withdrawal must specify the name and number of
the account at DTC to be credited with withdrawn old notes and otherwise comply
with the procedures of DTC.
We will determine all questions as to the validity, form, eligibility and
time of receipt of notice of withdrawal. Our determination shall be final and
binding on all parties. We will deem any old notes so withdrawn not to have
been validly tendered for exchange for purposes of the exchange offer.
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Any old notes that have been tendered for exchange but that are not
exchanged for any reason will be returned to their holder without cost to the
holder. In the case of old notes tendered by book-entry transfer into the
exchange agent's account at DTC according to the procedures described above,
such old notes will be credited to an account maintained with DTC for the old
notes. This return or crediting will take place as soon as practicable after
withdrawal, rejection of tender or termination of the exchange offer. You may
retender properly withdrawn old notes by following one of the procedures
described under "--Procedures for Tendering" above at any time on or prior to
the expiration date.
Fees and Expenses
We will bear the expenses of soliciting tenders. The principal solicitation
is being made by mail; however, we may make additional solicitation by
telegraph, telephone or in person by our officers and regular employees and
those of our affiliates.
We have not retained any dealer-manager in connection with the exchange
offer and will not make any payments to broker-dealers or other soliciting
acceptances of the exchange offer. We will, however, pay the exchange agent
reasonable and customary fees for its services and reimburse it for its related
reasonable out-of-pocket expenses.
We will pay the cash expenses to be incurred in connection with the exchange
offer. They include:
. Securities and Exchange Commission registration fees;
. fees and expenses of the exchange agent and trustee;
. accounting and legal fees and printing costs; and
. related fees and expenses.
Transfer Taxes
We will pay all transfer taxes, if any, applicable to the exchange of old
notes under the exchange offer. The tendering holder, however, will be required
to pay any transfer taxes, whether imposed on the registered holder or any
other person, if:
. certificates representing old notes for principal amounts not tendered or
accepted for exchange are to be delivered to, or are to be issued in the
name of, any person other than the registered holder of old notes
tendered;
. tendered old notes are registered in the name of any person other than
the person signing the letter of transmittal; or
. a transfer tax is imposed for any reason other than the exchange of old
notes under the exchange offer.
If satisfactory evidence of payment of any transfer taxes payable by a note
holder is not submitted with the letter of transmittal, the amount of such
transfer taxes will be billed directly to that tendering holder.
Consequences of Failure to Exchange
If you do not exchange new notes for your old notes under the exchange
offer, you will remain subject to the existing restrictions on transfer of the
old notes. In general, you may not offer or sell the old notes unless they are
registered under the Securities Act of 1933, or if the offer or sale is exempt
from registration under the Securities Act of 1933 and applicable state
securities laws. Except as required by the registration rights agreement, we do
not intend to register resales of the old notes under the Securities Act of
1933. See "Risk Factors--Failure to Properly Tender Old Notes in Exchange
Offer."
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Accounting Treatment
We will record the new notes in our accounting records at the same carrying
value as the old notes. This carrying value is the aggregate principal amount
of the old notes, as reflected in our accounting records on the date of
exchange. Accordingly, we will not recognize any gain or loss for accounting
purposes in connection with the exchange offer. The expenses of the exchange
offer incurred up to September 30, 1999 have been accrued and are reflected in
the September 30, 1999 balance sheet as Other Assets.
Other
Participation in the exchange offer is voluntary, and you should carefully
consider whether to accept. You are urged to consult your financial and tax
advisors in making your own decision on what action to take.
We may in the future seek to acquire untendered old notes in open market or
privately negotiated transactions, through subsequent exchange offers or
otherwise. We have no present plans to acquire any old notes that are not
tendered in the exchange offer or to file a registration statement to permit
resales of any untendered old notes.
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CERTAIN INCOME TAX CONSIDERATIONS
Taxation of the Company
We believe that a significant portion of our income will not be subject to
tax in Bermuda, which currently has no corporate income tax, or other countries
in which we conduct activities or in which our customers are located, including
the United States. However, this belief is based upon the anticipated nature
and conduct of our business, which may change, and upon our understanding of
our position under the tax laws of the various countries in which we have
assets or conduct activities, which position is subject to review and possible
challenge by taxing authorities and to possible changes in law (which may have
retroactive effect). The extent to which certain taxing jurisdictions may
require us to pay tax or to make payments in lieu of tax cannot be determined
in advance. In addition, our operations and payments due to us may be affected
by changes in taxation, including retroactive tax claims or assessments of
withholding on amounts payable to us or other taxes assessed at the source, in
excess of the taxation anticipated by us based on our business contacts and
practices and the current tax regimes. We cannot assure you that these factors
will not have a material adverse effect on our business, financial condition
and results of operations.
Bermuda Tax Considerations
Under current Bermuda law, we are not subject to tax on income or capital
gains. Furthermore, we have obtained from the Bermuda Minister of Finance under
the Exempted Undertakings Tax Protection Act 1966 (as amended), an undertaking
that, in the event that Bermuda enacts any legislation imposing tax computed on
profits or income or computed on any capital asset, gain or appreciation or any
tax in the nature of estate duty or inheritance tax, then the imposition of
such tax will not be applicable to us or to any of our operations, or our
shares, debentures or other obligations, until March 28, 2016. This undertaking
does not, however, apply to TBI or prevent the application of any tax or duty
to persons ordinarily resident in Bermuda or of any tax payable pursuant to the
Land Tax Act 1967 or otherwise payable in relation to land leased to us.
As a condition to the grant of our international carrier license in Bermuda,
we were required to enter an agreement with the Bermuda Minister of Finance to
pay an ongoing license fee. Under the terms of the agreement, we are assessed a
fee equal to the greater of (i) six percent of our total revenue in Bermuda for
that period, and (ii) twenty percent of our profit in Bermuda for that period,
assessed on a historic cost depreciation basis and after allowing for
administrative and technical support costs not exceeding five percent of total
revenue in Bermuda.
For purposes of this license fee agreement, total revenue is defined by
reference to the Cable & Wireless Act to mean total revenue from Bermuda
sources, net of local and foreign settlements. The limitation on administrative
and technical support costs is intended to restrict the allocation of such
costs in the form of management fees from parent companies. There is no limit
on the deductibility of these costs to the extent that they are incurred
directly.
United States Federal Income Tax Considerations
Our United States subsidiaries will be subject to United States federal
income tax on their worldwide income regardless of its source (subject to
reduction by allowable foreign tax credits), and distributions by such United
States subsidiaries to us or our foreign subsidiaries generally will be subject
to United States withholding tax, which generally is imposed at a rate of 30%
unless reduced by the provisions of an applicable income tax treaty. We and our
non-United States subsidiaries would be subject to United States federal income
tax at regular corporate rates (and to United States branch profits tax) on
income that is effectively connected with the conduct of a trade or business in
the United States, and would be required to file federal income tax returns
reflecting that income. We and our non-United States subsidiaries anticipate
that we will not be subject to United States federal income tax because neither
we nor any of our non-United States subsidiaries expect to derive any such
effectively connected income. However, we base this belief upon the anticipated
nature and conduct of our business and the business of our non-United States
subsidiaries, which may change. Moreover, we cannot assure you that the
Internal Revenue Service (the "IRS") will agree with our positions in this
regard.
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Tax Considerations in Other Jurisdictions
Our subsidiaries that reside in other jurisdictions will be subject to tax
on some or all of their income. In addition, those jurisdictions may impose
withholding tax on distributions to such subsidiaries' parent. We anticipate
that we and our subsidiaries that do not reside in a particular jurisdiction
will not be subject to income taxation in that jurisdiction. Nonetheless, we
and our subsidiaries may be subject to withholding taxes imposed on payments
made to us and our subsidiaries by customers that reside in those countries.
Our belief as to this tax treatment is based upon the anticipated nature and
conduct of our business and that of our non-resident subsidiaries, which may
change. Moreover, we intend to conduct our operations to minimize the taxable
presence in any foreign jurisdiction outside Bermuda. However, we cannot assure
you that the taxing authorities in a jurisdiction will agree with our positions
in this regard.
Taxation of Noteholders
Certain Bermuda Tax Considerations
Under current Bermuda law, no income, withholding or other taxes or stamp or
other duties are imposed upon the issue, transfer or sale of the new notes or
on any payments thereunder. See "Taxation of the Company--Bermuda Tax
Considerations" for a description of the undertaking on taxes obtained by us
from the Bermuda Minister of Finance. There is no reciprocal tax treaty between
Bermuda and the United States regarding withholding taxes.
Certain United States Federal Income Tax Considerations
The following is a summary of certain United States federal income tax
considerations that apply to the exchange of the old notes for the new notes,
and ownership and disposition of the new notes by United States holders (as
defined below). Although the following summary does not describe all of the tax
considerations that may be relevant to you in light of your specific
circumstances, it describes the material United States federal income tax
consequences to a United States holder. We cannot assure you that the
conclusions set out below would be sustained by a court if challenged by the
IRS. We have not obtained, nor do we intend to obtain, a ruling from the IRS
with respect to the United States federal income tax consequences of this
Exchange Offer. This summary deals only with new notes that are held as capital
assets by United States holders that acquire new notes in exchange for old
notes that were purchased at their "issue price" and does not address federal
alternative minimum tax consequences or tax considerations applicable to United
States holders that may be subject to special tax rules, such as dealers or
traders in securities, financial institutions, insurance companies, tax-exempt
entities, United States holders that hold notes as a part of a straddle,
conversion transaction, constructive sale or other arrangement involving more
than one position, United States holders that have a principal place of
business or "tax home" outside the United States, United States holders whose
functional currency is not the United States dollar, and United States holders
that own notes through partnerships or other pass-through entities.
The discussion below is based upon the provisions of the Internal Revenue
Code of 1986, as amended (the "Code"), and regulations (the "Regulations"),
rulings and judicial decisions thereunder as of the date of this prospectus;
any such authority may be repealed, revoked or modified, perhaps with
retroactive effect, so as to result in United States federal income tax
consequences different from those discussed below. We urge each prospective
purchaser to consult its own tax advisor with respect to the tax consequences
of an investment in the notes, including the application to its particular
situation of the tax considerations discussed below, as well as the application
of state, local, foreign or other federal tax laws.
You are a "United States holder" if you are a beneficial owner of the note
and you are (1) an individual who is a citizen or resident of the United
States, (2) a corporation or partnership created or organized in or under the
laws of the United States or any political subdivision thereof, (3) an estate,
the income of which is subject to United States federal income taxation
regardless of its source, or (4) a trust if the administration of the trust is
subject to the primary supervision of a court within the United States and one
or more United States persons (as described in section 7701(a)(30) of the Code)
have the authority to control all substantial decisions
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of the trust. You are a "Non-United States holder" if you are a beneficial
owner of the notes and are not a United States holder.
Taxation of United States Holders
Exchange of New Notes for Old Notes: Pursuant to the Regulations, the
exchange of the new notes for old notes in the exchange offer, see "Exchange
Offer," should not constitute a significant modification of the terms of the
notes, and, accordingly, the exchange should be treated as a "non-event" for
federal income tax purposes. Therefore, the exchange should have no federal
income tax consequences to United States holders of notes. The holding period
of a new note will include the holding period of the old note for which it was
exchanged, and the basis of a new note will be the same as the basis of the old
note for which it was exchanged.
Taxation of Interest: Interest on a new note will be taxable to a United
States holder as ordinary income at the time that such interest accrues or is
received, in accordance with the United States holder's regular method of
accounting for federal income tax purposes.
Effect of Change in Control or Optional Redemption: Upon a Change of
Control, we are required to offer to redeem all notes then outstanding for a
price equal to 101% of the principal amount thereof plus accrued and unpaid
interest. Under the Regulations, such Change of Control redemption requirements
will not affect the yield or maturity date of the notes unless, based on all
the facts and circumstances as of the Issue Date, it was more likely than not
that a Change of Control giving rise to the redemption would occur. We will not
treat the Change of Control redemption provisions of the notes as affecting the
calculation of the yield to maturity of any note.
We, at our option, may redeem part or all of the notes at the times and for
the amounts described in "Description of the New Notes--Optional Redemption"
herein. The Regulations provide that for purposes of calculating the yield to
maturity of a debt instrument, an issuer will be treated as exercising any
option if its exercise would lower the yield of the debt instrument. However, a
redemption of the notes at the optional redemption prices would increase the
effective yield of such notes as calculated from the date of issuance.
Therefore, in accordance with the Regulations, as of the date of issuance of
the notes, the optional redemption provisions will not be taken into account in
calculating the yield to maturity of the notes.
Sale, Redemption or Retirement of New Notes: Upon the sale, redemption,
retirement at maturity or other taxable disposition of a new note, a United
States holder generally will recognize gain or loss equal to the difference
between the sum of cash plus the fair market value of all other property
received on the disposition (except to the extent such cash or property is
attributable to accrued but unpaid interest, which will be taxable as ordinary
income to the extent not previously taken into account) and the United States
holder's tax basis in the new note (generally the cost of the old note, see "--
Exchange of New Notes for Old Notes").
Gain or loss recognized on the sale or other taxable disposition of a new
note generally will be capital gain or loss and will be long-term capital gain
or loss if, at the time of the disposition, the new note has been held for more
than one year (including the holding period of the old note, see "--Exchange of
New Notes for Old Notes"). In the case of a United States holder who is an
individual, long term capital gains generally are subject to tax at a maximum
rate of 20%. The deductibility of capital losses is subject to limitations.
Taxation of Non-United States Holders
For United States federal income tax purposes, a non-United States holder
generally will not be subject to tax or withholding on distributions made with
respect to, and gains realized from the disposition of, new notes unless such
distributions and gains are attributable to an office or fixed place of
business maintained by such non-United States holder in the United States.
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Information Reporting and Backup Withholding
In general, information reporting requirements may apply to certain payments
of principal and interest on a new note, and to the payment of the proceeds of
the sale of a new note, to United States holders other than certain exempt
recipients (such as corporations). Backup withholding at a 31% rate will apply
to such payments if the United States holder fails to provide its taxpayer
identification number or certification of foreign or other exempt status,
provides an incorrect taxpayer identification number or fails to report in full
dividend and interest income.
Any amounts withheld under the backup withholding rules will be allowed as a
credit against the United States holder's U.S. federal income tax liability and
may entitle such holder to a refund, provided that the required information is
furnished to the IRS.
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PLAN OF DISTRIBUTION
Based on interpretations by the staff of the Securities and Exchange
Commission in no action letters issued to third parties, we believe that you
may transfer new notes issued under the exchange offer in exchange for the old
notes if:
. you acquire the new notes in the ordinary course of your business; and
. you are not engaged in, and do not intend to engage in, and have no
arrangement or understanding with any person to participate in, a
distribution of such new notes.
You may not participate in the exchange offer if you are:
. our "affiliate" within the meaning of Rule 405 under the Securities Act;
or
. a broker-dealer that acquired old notes directly from us.
Broker-dealers receiving new notes in the exchange offer will be subject to
a prospectus delivery requirement with respect to resales of the new notes.
To date, the staff of the Securities and Exchange Commission has taken the
position that broker-dealers may fulfill their prospectus delivery requirements
with respect to transactions involving an exchange of securities such as this
exchange offer, other than a resale of an unsold allotment from the original
sale of the old notes, with the prospectus contained in the exchange offer
registration statement. Each broker-dealer that receives new notes for its own
account pursuant to the exchange offer must acknowledge that it will deliver a
prospectus in connection with any resale of such new notes. This prospectus,
and any amendment or supplement to this prospectus, may be used by a broker-
dealer in connection with resales of new notes received in exchange for old
notes where such old notes were acquired as a result of market-making
activities or other trading activities. We have agreed that, starting on the
expiration date and ending on the close of business 150 days after the
expiration date (subject to certain limitations set forth in the registration
rights agreement), we will make this prospectus, and any amendment or
supplement to this prospectus, available to any broker-dealer for use in
connection with any such resale. In addition, until such date all dealers
effecting transactions in the new notes may be required to deliver a
prospectus.
If you wish to exchange new notes for your old notes in the exchange offer,
you will be required to make representations to us as described in "Exchange
Offer--Purpose and Effect of the Exchange Offer" and "--Procedures for
Tendering--Your Representations to Us" in this prospectus and in the letter of
transmittal. In addition, if you are a broker-dealer who receives new notes for
your own account in exchange for old notes that were acquired by you as a
result of market-making activities or other trading activities, you will be
required to acknowledge that you will deliver a prospectus in connection with
any resale by you of such new notes.
We will not receive any proceeds from any sale of new notes by broker-
dealers. Broker-dealers who receive new notes for their own account in the
exchange offer may sell them from time to time in one or more transactions in
the over-the-counter market:
. in negotiated transactions;
. through the writing of options on the new notes or a combination of such
methods of resale;
. at market prices prevailing at the time of resale; and
. at prices related to such prevailing market prices or negotiated prices.
Any resale may be made directly to purchasers or to or through brokers or
dealers who may receive compensation in the form of commissions or concessions
from any broker-dealer or the purchasers of any new notes. Any broker-dealer
that resells new notes it received for its own account in the exchange offer
and any broker or dealer that participates in a distribution of such new notes
may be deemed to be an "underwriter" within the meaning of the Securities Act
of 1933, and must deliver a prospectus meeting the requirements of
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the Securities Act of 1933 in connection with any sale of the new notes. Any
profit on any resale of new notes and any commissions or concessions received
by any such persons may be deemed to be underwriting compensation under the
Securities Act of 1933. The letter of transmittal states that by acknowledging
that it will deliver and by delivering a prospectus, a broker-dealer will not
be deemed to admit that it is an "underwriter" within the meaning of the
Securities Act of 1933.
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LEGAL MATTERS
The validity of the new notes will be passed upon for us by Vinson & Elkins
L.L.P., New York, New York (with respect to matters of United States law), and
Conyers Dill & Pearman, Hamilton, Bermuda (with respect to matters of Bermuda
law).
CHARTERED ACCOUNTANTS
The consolidated financial statements of GlobeNet Communications Group
Limited for the fiscal years ended December 31, 1998 and 1997 and for the ten
month period ended December 31, 1996, included in this prospectus, have been so
included in reliance on the report of PricewaterhouseCoopers, Chartered
Accountants, given on the authority of said firm as experts in accounting and
auditing.
The financial statements of TeleBermuda International L.L.C. for the fiscal
years ended December 31, 1998 and 1997 and for the period from May 17, 1996,
date of organization, to December 31, 1996, included in this prospectus, have
been so included in reliance on the report of PricewaterhouseCoopers L.L.P.,
Chartered Accountants, given on the authority of said firm as experts in
accounting and auditing.
AVAILABLE INFORMATION
Members of the general public have the right to inspect the public documents
of a Bermuda company that are available at the office of the Registrar of
Companies in Bermuda. These documents include our Memorandum of Association
(including our objects) and any alteration to our Memorandum of Association.
Our shareholders have the additional right to inspect our bye-laws, minutes of
general meetings and audited financial statements, which must be presented at
the annual general meeting.
The register of shareholders of a Bermuda company is also open to inspection
by shareholders without charge and to members of the general public upon the
payment of a fee. The register of shareholders is required to be open for
inspection for not less than two hours in any business day (subject to the
power to close the register for up to 30 days in each calendar year). A Bermuda
company is required to maintain its share register in Bermuda but may, subject
to the provisions of the Companies Act 1981 of Bermuda and related regulations
(the "Bermuda Act"), establish a branch register outside Bermuda. Our bye-laws
provide that, unless the board of directors otherwise determines, the share
register shall be open to inspection in the manner prescribed by the Bermuda
Act between 10:00 a.m. and 12:00 noon on every business day. A Bermuda company
is required to keep at its registered office a register of its directors and
officers that is open for inspection for not less than two hours in each day by
members of the public without charge. Bermuda law does not, however, provide a
general right for shareholders to inspect or obtain copies of any other
corporate records.
The indenture governing the notes requires us to distribute to the holders
of the notes annual reports containing our financial statements audited by our
independent auditors and quarterly reports containing unaudited condensed
consolidated financial statements for the first three quarters of each fiscal
year.
Upon consummation of the exchange offer, we will be subject to certain
reporting requirements of the Securities Exchange Act of 1934 and will file
reports, including reports on Form 10-K and 10-Q, and other information with
the Securities and Exchange Commission, so long as we are required or permitted
to do so. You can inspect and copy these reports and other information at the
Public Reference Room maintained by the Securities and Exchange Commission at:
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Judiciary Plaza
450 Fifth Street, N.W.
Washington, D.C. 20549,
and at the Securities and Exchange Commission's regional offices at:
7 World Trade Center
13th Floor
New York, NY 10048
and at:
Citicorp Center
500 West Madison Street
14th Floor
Chicago, Ill 60661-2511.
You may also obtain information on the operation of the Public Reference
Room by calling the Securities and Exchange Commission at 1-800-SEC-0330.
Finally, the Securities and Exchange Commission maintains an Internet site at
"http://www.sec.gov" that contains reports, proxy and information statements
and other information regarding issuers that file electronically with the
Securities and Exchange Commission.
This prospectus constitutes part of a registration statement on Form S-4
filed by us with the Securities and Exchange Commission under the Securities
Act of 1933. This prospectus omits some of the information contained in the
registration statement, as permitted under the rules and regulations of the
Securities and Exchange Commission. Copies of the registration statement and
the exhibits thereto are on file at the offices of the Securities and Exchange
Commission and may be obtained from the Securities and Exchange Commission for
a prescribed fee or examined at its offices or on its Internet site, as
described above.
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GLOSSARY OF CERTAIN TECHNICAL TERMS
Amplifier
A device used to boost the strength of an electronic or optical signal,
which is weakened (attenuated) as it passes through the transport network.
Amplifiers add gain to the signal by an amount equal to the loss in the
previous section of the network since the last amplification.
Backhaul Capacity
Terrestrial capacity from undersea cable landing stations to metropolitan
areas.
Bandwidth
A measure of information-carrying capacity on a communications channel.
1. The difference between the high and low frequencies of a transmission
band, expressed in cycles per second (Hertz) or in wavelengths
(nanometers). It is a measure of raw capacity without compression or coding
of the information signal. A voice transmission requires about 3 KHz and a
TV channel requires about 6 MHz.
2. Transmission capacity is expressed in bits per second. For example
megabits per second (Mbps) is a bit rate expressed in millions of bits per
second while gigabits per second (Gbps) is a bit rate expressed in billions
of bits per second.
Narrowband: Less than or equal to 64 kbps. Typical application: A single
voice channel.
Wideband: Digital rates between 64 kpbs and 1.544 Mbps (DS-1) or 2.048
Mbps (E-1s). Typical applications: Multiplexed voice channels,
LANs, bulk files transfer, video conferencing and multimedia.
Broadband: Greater than 44.736 Mbps (DS-3s) or 34.368 Mbps (E-3). Typical
applications: Broadcast quality video, Internet backbone.
Bit
A binary unit of information that can have either of two values, 0 or 1.
Contraction of binary digit:
<TABLE>
<S> <C> <C>
. kilobit = 1,000 bits
. megabit = 1 million bits
. gigabit = 1 billion bits
. terabit = 1 trillion bits
</TABLE>
Broadband
A transmission channel usually carrying a tremendous amount of information
at transmission speeds of 45 Mbps (45,000,000 bits per second) or greater. Some
facilities have transmission speeds in the billions of bits (gigabits per
second or Gbps).
1. A communications channel with bandwidth sufficiently large to carry
voice, data and video on a single channel.
2. Any voice communications channel having a bandwidth greater than a voice
grade channel.
. A bandwidth of 45 Mbps can carry 672 voice connections (North American
hierarchy)
. Using compression equipment 2,688 telephone grade communication channels
can be carried on one 45 Mbps broadband channel.
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CAD
Computer-Aided Design. A computer and its related software and terminals
used to design products.
CAM
Computer-Aided Manufacture. The actual production of goods implemented and
controlled by computers and robots.
Capacity
The information-carrying ability of a telecommunications system, as defined
by its design (number of fibers, system length, and opto/electronic equipment)
and its deployed equipment (amount of opto/electronics in the station) and
measured in bits per second. Capacity is sold in discrete units, usually system
interface levels such as E-1s (2.048 Mbps), DS-3s (44.736 Mbps) and STM-1s
(155.520 Mbps), that in the aggregate are the equivalent of total system
capacity.
Carrier
Third party provider of communications services by wire, fiber or radio.
Common Carrier:
A private company offering facilities or services to the general public on a
non-discriminatory basis and regulated as to market entry, practices, and rates
by various Federal and State authorities.
Private Carrier:
Services provided for internal use and free of most common carrier
regulations to allow discrimination in service provision or pricing.
CLECs
Competitive Local Exchange Carrier. A company that competes in the local
service market.
Compression
Algorithm that minimizes the redundancy in the signal to be transmitted.
Digital
Describes a method of storing, processing and transmitting information
through the use of distinct electronic or optic pulses representing the binary
digits 0 and 1. In communications they will modify a carrier at a selected
frequency. The precise signal transitions preclude any distortion such as
graininess or snow in the case of video transmission, or static or other
background distortion in the case of audio transmission.
Digital Transmission
Method of storing, processing and transmitting information through the use
of distinct electronic or optical pulses that represent the binary digits 0 and
1. Digital transmission and switching technologies employ sequences of these
pulses to represent information as opposed to a continuously variable analog
signal. The precise digital numbers preclude any distortion such as graininess
or snow in the case of video transmission, or static or other background
distortion in the case of audio transmission.
DWDM
Dense Wavelength Division Multiplexing. A technique that employs more than
one light source and detector operating at different wavelengths and
simultaneously transmits optical signals through the same fiber while the
message integrity of each signal is preserved.
E-Commerce
Electronic Commerce. Using electronic information technologies to conduct
business between trading partners, possibly by EDI.
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EDI
Electronic Data Interchange. A series of standards which facilitate
computer-to-computer exchanges of business documents between different
companies' computers over phone lines. These standards allow for the
transmission of purchase orders, shipping documents, invoices, invoice
payments, etc., between an enterprise and its "trading partners." A trading
partner in EDI parlance is a supplier, customer, subsidiary or any other
organization with which an enterprise conducts business.
EDFA
Erbium Doped Fiber Amplifier. A purely optical (as opposed to electronic)
device used to boost an optical signal. It contains several meters of glass
fiber doped with erbium ions. When the erbium ions are excited to a higher
energy state, the doped fiber changes from a passive medium to an active
amplifying medium.
Extranet
An Internet-like network which a company runs to conduct business with its
employees, its customers and/or suppliers. Extranets typically include Web
sites that provide information to internal employees and also have secure areas
to provide information to customers and external partners such as suppliers,
manufacturers and distributors.
Gbps
Gigabit per second. A data rate of 1 Gbps corresponds to 1 billion bits per
second.
Internet
A fabric of interconnected computer networks, originally known as the DARPA
(Defense Advanced Research Projects Agency) network connecting government and
academic sites. It currently links about 67 million people worldwide who use it
for everything from scientific research to simple e-mail.
Intranet
A private network that uses Internet software and Internet standards. In
essence, an Intranet is a private Internet reserved for use by people who have
been given authority and passwords necessary to use that network. Those people
are typically employees and often customers of a company.
IP
The Internet Protocol. IP is the most important of the protocols on which
the Internet is based. The Internet Protocol is a standard of describing
software that keeps traffic on the Internet, works addresses for different
nodes, routes outgoing messages and recognizes incoming messages. It allows a
packet to traverse multiple networks on the way to its final destination.
IRU
Indefeasible Right of Use. A form of acquisition of undersea fiber optic
cable capacity. The owner of an IRU has the irrevocable right to use the
capacity for the time, usually the system design life (e.g., 25 years), and
bandwidth to which the IRU applies.
ISP
Internet service provider. A vendor who provides access for customers
(companies and private individuals) to the Internet and the World Wide Web.
LAN
Local Area Network. A short distance data communications network (typically
within a building or campus) used to link together computers and peripheral
devices (such as printers) under some form of standard control.
LEAF
Large Effective Area Fiber. An advanced fiber for high-speed undersea
networks that has a large effective area relative to other fibers, thereby
providing increased capacity and other performance benefits.
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Least-Cost Routing
Least-cost routing takes advantage of the international settlement system to
identify low cost solutions for the one-way delivery of voice traffic made
possible by the liberalization and deregulation of many telecommunications
markets around the world.
Mbps
Megabit per second. One Mbps corresponds to a data rate of 1 million bits
per second.
Mirror Licenses
License providing the same privileges and obligations as the incumbent
license holder.
Multimedia
The electronic conversation between two or more people or groups of people
in different places using two or more types of digitally integrated
communication for voice, sound, text, data, graphics, video, image or presence
at the same time. Applications include conferencing, presentations, training,
referencing, games, etc.
Multiplexing
An electronic or optical process that combines two or more lower bandwidth
transmissions into one higher bandwidth signal by splitting the total available
bandwidth into narrower bands (frequency division) or by allotting a common
channel to several transmitting sources one at a time in sequence (time
division).
Multipoint
Pertaining or referring to a communications line to which three or more
stations are connected. It implies that the line physically extends from one
station to another until all are connected.
PTTs
Post, Telephone and Telegraph companies. International telecommunications
carriers that are generally under the control of the government in a country
that has not yet privatized its telecommunications markets.
RBOCs
Regional Bell Operating Companies. The local telephone companies established
as a result of the court ordered break-up in 1984 of AT&T.
Regenerators
An optoelectronic device receiving a low level optical signal converting it
from light to electrical form to reshape and retime the signal and reconverting
it to light for retransmission at the appropriate power level.
Repeater
Equipment that receives a low-power signal and retransmits it at a higher
power level. Repeaters contain either regenerators or amplifiers.
RFS
Ready for Service. The date of provisional acceptance or commercial service
of a cable system.
Wavelength
The distance between two crests of a signal or a carrier and is measured in
terms of meters, millimeters, nanometers, etc. In lightwave applications,
because of the extremely high frequencies, wavelength is measured in
nanometers.
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INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
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<S> <C>
GlobeNet Communications Group Limited Consolidated Financial Statements
Auditors' Report.......................................................... F-2
Consolidated Balance Sheets as at December 31, 1998 and 1997.............. F-3
Consolidated Statements of Shareholders' Equity for the Years Ended Decem-
ber 31, 1998 and 1997, and the Ten Month Period Ended December 31, 1996.. F-4
Consolidated Statements of Operations for the Years Ended December 31,
1998 and 1997, and the Ten Month Period Ended December 31, 1996......... F-5
Consolidated Statements of Cash Flows for the Years Ended December 31,
1998 and 1997, and the Ten Month Period Ended December 31, 1996.......... F-6
Notes to Consolidated Financial Statements for the Years Ended December
31, 1998 and 1997, and the Ten Month Period Ended December 31, 1996...... F-7
Unaudited Consolidated Balance Sheets as at September 30, 1999 and 1998
and Audited Consolidated Balance Sheet as at December 31, 1998........... F-22
Unaudited Consolidated Statement of Shareholders' Equity for the Nine
Months Ended September 30, 1999 and 1998................................. F-23
Unaudited Consolidated Statements of Operations for the Nine Months Ended
September 30, 1999 and 1998.............................................. F-24
Unaudited Consolidated Statements of Cash Flows for the Nine Months Ended
September 30, 1999 and 1998.............................................. F-25
Notes to Unaudited Consolidated Financial Statements for the Nine Months
Ended September 30, 1999 and 1998........................................ F-26
TeleBermuda International L.L.C. Financial Statements
Auditors' Report.......................................................... F-32
Balance Sheets as at December 31, 1998 and 1997........................... F-33
Statements of Members' Equity (Deficit) for the Years Ended December 31,
1998 and 1997, and the Period from May 17, 1996 to December 31, 1996..... F-34
Statements of Operations for the Years Ended December 31, 1998 and 1997,
and the Period from May 17, 1996 to December 31, 1996.................... F-35
Statements of Cash Flows for the Years Ended December 31, 1998 and 1997,
and the Period from May 17, 1996 to December 31, 1996.................... F-36
Notes to Financial Statements for the Years Ended December 31, 1998 and
1997, and the Period from May 17, 1996 to December 31, 1996.............. F-37
Unaudited Balance Sheets as at September 30, 1999 and 1998 and Audited
Balance Sheet as at December 31, 1998.................................... F-39
Unaudited Statement of Members' Equity (Deficit) for the Nine Months Ended
September 30, 1999 and 1998.............................................. F-40
Unaudited Statements of Operations for the Nine Months Ended September 30,
1999 and 1998............................................................ F-41
Unaudited Statements of Cash Flows for the Nine Months Ended September 30,
1999 and 1998............................................................ F-42
Notes to Unaudited Financial Statements for the Nine Months Ended
September 30, 1999 and 1998...... ....................................... F-43
</TABLE>
F-1
<PAGE>
AUDITORS' REPORT
February 22, 1999
To the Directors of
GlobeNet Communications Group Limited
We have audited the consolidated balance sheets of GlobeNet Communications
Group Limited (formerly TeleBermuda International Limited) as at December 31,
1998 and 1997 and the consolidated statements of shareholders' equity,
operations and cash flows for the years then ended and for the ten month period
ended December 31, 1996. 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 Canada. Those standards require that we plan and perform an audit
to obtain reasonable assurance whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation.
In our opinion, these consolidated financial statements present fairly, in
all material respects, the financial position of the Company as of December 31,
1998 and 1997 and the results of its operations and its cash flows for the
years then ended and for the ten month period ended December 31, 1996 in
accordance with accounting principles generally accepted in the United States.
On February 22, 1999 we reported separately to the Directors of GlobeNet
Communications Group Limited on consolidated financial statements for the years
ended December 31, 1998 and 1997 and the ten month period ended December 31,
1996 prepared in accordance with generally accepted accounting principles in
Bermuda.
/s/ PricewaterhouseCoopers
Chartered Accountants
Hamilton, Bermuda
F-2
<PAGE>
GLOBENET COMMUNICATIONS GROUP LIMITED
(formerly TeleBermuda International Limited)
CONSOLIDATED BALANCE SHEETS
As at December 31, 1998 and 1997
(in thousands of U.S. dollars, except share and per share amounts)
<TABLE>
<CAPTION>
1998 1997
------- -------
$ $
<S> <C> <C>
Assets
Current assets
Cash........................................................ 3,030 1,359
Accounts receivable (net of allowance of $80; 1997--$nil)... 1,847 1,270
Other receivables........................................... 718 1,688
Due from related party (note 4)............................. 1,363 --
Prepaid expenses and deposits............................... 338 200
------- -------
7,296 4,517
Capital assets (note 5)...................................... 26,182 26,970
Note receivable (note 6)..................................... 350 --
Other assets (note 7)........................................ 1,061 1,365
Equity accounted for investments (note 11)................... 21,371 22,300
------- -------
56,260 55,152
======= =======
Liabilities
Current liabilities
Accounts payable (note 8)................................... 3,871 10,240
Accrued liabilities (note 8)................................ 4,971 1,063
Current portion of long-term debt (note 9).................. 3,000 --
------- -------
11,842 11,303
Long-term debt (note 9)...................................... 35,019 30,122
Deferred revenue (note 10(b))................................ 2,695 1,521
Minority interest (note 11).................................. -- 558
------- -------
49,556 43,504
------- -------
Shareholders' Equity
Share capital (notes 9(c) and 12)
Class A shares, 100 shares authorized, 100 (1997--100)
shares issued and outstanding
Common shares, 6,999,900 authorized, 3,515,927 (1997--
3,515,927) shares issued and outstanding................... 5,274 5,274
Additional paid-in capital (note 12)........................ 16,377 16,377
Deficit..................................................... (14,947) (10,003)
------- -------
6,704 11,648
------- -------
56,260 55,152
======= =======
</TABLE>
Commitments and contingencies (notes 17, 18 and 21)
The accompanying notes are an integral part of these consolidated financial
statements.
F-3
<PAGE>
GLOBENET COMMUNICATIONS GROUP LIMITED
(formerly TeleBermuda International Limited)
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
For the years ended December 31, 1998 and 1997 and the ten month period ended
December 31, 1996
(in thousands of U.S. dollars, except share and per share amounts)
<TABLE>
<CAPTION>
Additional Total
Par paid-in shareholders'
Class A Common value capital Deficit equity
shares shares $ $ $ $
------- --------- ----- ---------- ------- -------------
<S> <C> <C> <C> <C> <C> <C>
February 29, 1996....... -- 1,369,916 1,299 694 (1,447) 546
Share options........... -- -- -- 1,845 -- 1,845
Share subscription
proceeds............... -- -- 756 -- -- 756
Fully paid shares issued
for cash............... -- 2,118,000 3,177 13,661 -- 16,838
Net loss for the
period................. -- -- -- -- (3,260) (3,260)
--- --------- ----- ------ ------- ------
December 31, 1996....... -- 3,487,916 5,232 16,200 (4,707) 16,725
Share options
exercised.............. -- 28,011 42 42 -- 84
Share options........... -- -- -- 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
=== ========= ===== ====== ======= ======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE>
GLOBENET COMMUNICATIONS GROUP LIMITED
(formerly TeleBermuda International Limited)
CONSOLIDATED STATEMENTS OF OPERATIONS
For the years ended December 31, 1998 and 1997
and the ten month period ended December 31, 1996
(in thousands of U.S. dollars, except share and per share amounts)
<TABLE>
<CAPTION>
1998 1997 1996
------ ------ ------
$ $ $
<S> <C> <C> <C>
Revenues
Telecommunication services............................ 24,940 4,962 --
IRU capacity (note 10)................................ 1,784 -- --
------ ------ ------
26,724 4,962 --
------ ------ ------
Expenses
Carrier charges....................................... 15,129 3,559 --
Cost of IRU capacity.................................. 547 -- --
General and administrative expenses (note 15)......... 9,328 4,961 3,158
Amortization of deferred financing costs.............. 321 305 --
Amortization of capital assets........................ 1,502 429 1
------ ------ ------
26,827 9,254 3,159
------ ------ ------
Operating loss........................................ (103) (4,292) (3,159)
Interest on long-term debt............................ 3,542 750 --
Accrued contingent interest (note 9(c)) .............. 960 382 --
Interest income....................................... (170) (193) (141)
------ ------ ------
Loss before income taxes, minority interest and equity
accounted for investment............................. (4,435) (5,231) (3,018)
Provision for income taxes............................ (36) (53) (14)
------ ------ ------
Loss before minority interest and equity accounted for
investment........................................... (4,471) (5,284) (3,032)
Minority interest (note 11)........................... 204 249 --
Loss from equity accounted for investments (note 11).. (677) (261) (228)
------ ------ ------
Net loss and comprehensive loss for the period........ (4,944) (5,296) (3,260)
====== ====== ======
Basic and fully diluted loss per common share (note
14).................................................. (1.41) (1.52) (1.89)
====== ====== ======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
<PAGE>
GLOBENET COMMUNICATIONS GROUP LIMITED
(formerly TeleBermuda International Limited)
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the years ended December 31, 1998 and 1997
and the ten month period ended December 31, 1996
(in thousands of U.S. dollars, except share and per share amounts)
<TABLE>
<CAPTION>
1998 1997 1996
------ ------- ------
$ $ $
<S> <C> <C> <C>
Operating activities
Net loss for the period............................. (4,944) (5,296) (3,260)
Items not involving cash
Amortization of capital assets...................... 1,502 429 1
Write-down of other assets (note 7)................. 201 -- --
Amortization of deferred financing costs............ 321 305 --
Minority interest................................... (204) (249) --
Loss from equity accounted for investments.......... 677 261 228
Accrued contingent interest......................... 960 382 --
Gain on granting of indefeasible rights of use and
loss on sale of capital assets..................... (970) -- --
Compensatory share options.......................... -- -- 1,845
Net change in non-cash working capital
Accounts receivable................................. (577) (1,270) --
Other receivables................................... 970 (1,688) --
Prepaid expenses and deposits....................... (138) 32 (230)
Accounts payable.................................... (6,369) 9,669 --
Accrued liabilities................................. 2,416 449 299
Interest payable.................................... 1,492 510 --
Deferred revenue.................................... 1,174 1,521 --
Recoverable duties.................................. -- 392 (392)
Subscriptions receivable............................ -- -- 150
------ ------- ------
Cash provided by (used in) operating activities...... (3,489) 5,447 (1,359)
------ ------- ------
Financing activities
Exercise of common share options.................... -- 84 --
Issuance of common shares........................... -- -- 17,594
Proceeds from issuance of long-term debt............ 9,350 29,740 --
Payments on long-term debt.......................... (2,413) -- --
Deferred financing costs............................ -- (1,472) --
Loans provided by minority shareholders............. -- 807 --
------ ------- ------
Cash provided by (used in) financing activities...... 6,937 29,159 17,594
------ ------- ------
Investing activities
Purchase of capital assets.......................... (1,791) (22,662) (4,728)
Granting of indefeasible rights of use and proceeds
on sale of capital assets.......................... 1,596 -- --
Change in other assets.............................. (218) (2) --
Funds held in escrow................................ -- 2,015 (2,015)
Due from related party.............................. (1,363) -- --
Proceeds from sale of equity accounted for
investment (note 6) ............................... 410 -- --
Investment in and advances to equity accounted for
investments........................................ (411) (22,479) (155)
------ ------- ------
Cash used in investing activities.................... (1,777) (43,128) (6,898)
------ ------- ------
Increase (decrease) in cash for the period........... 1,671 (8,522) 9,337
Cash--Beginning of period............................ 1,359 9,881 544
------ ------- ------
Cash--End of period.................................. 3,030 1,359 9,881
====== ======= ======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
<PAGE>
GLOBENET COMMUNICATIONS GROUP LIMITED
(formerly TeleBermuda International Limited)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 1998 and 1997
and the ten month period ended December 31, 1996
(in thousands of U.S. dollars, except share and per share amounts)
1 Formation and operations
TeleBermuda International Limited ("TBI") was incorporated and registered on
January 6, 1995 as a local company pursuant to The Companies Act 1981
(Bermuda), for the purpose of establishing, providing, maintaining and
operating a public telecommunications service in Bermuda.
GlobeNet Communications Group Limited (the "Company") was incorporated and
registered on June 25, 1998 as a Bermuda exempt company as part of a
reorganization of the TeleBermuda group of companies. Under the reorganization
TBI became a wholly-owned subsidiary of the Company and the issued shares of
TBI were exchanged on a one for one basis with substantially the same rights
and privileges as before.
Following the reorganization, the Company incorporated certain subsidiaries.
GlobeNet Communications Limited ("GlobeNet"), a wholly-owned subsidiary of the
Company was incorporated on August 5, 1998 to be the operating company for
initiatives of the Company beyond the Bermuda market, GCG Holdings Ltda., 50%
owned by GlobeNet and 50% owned by TeleBermuda International (Canada) Limited,
a wholly-owned subsidiary of TBI, and GCG Services Ltda., 99% owned by GCG
Holdings Ltda. were incorporated in Brazil on December 10, 1998 to begin the
licensing process for fibre optic submarine cable landing and operating rights
in Brazil. As at December 31, 1998 these companies were inactive.
TeleBermuda International (Canada) Limited was incorporated as a wholly-
owned subsidiary of TBI on September 16, 1996 for the purpose of providing
management services to the Company.
On January 10, 1997, TBI was granted, for no consideration, its public
telecommunications service license in Bermuda under the provisions of the
Telecommunications Act, 1986 and the Public Telecommunication Service (Licence)
Regulations, 1988 for a five-year term.
In addition, TBI has an interconnection agreement with the Bermuda Telephone
Company ("BTC"), the domestic carrier, that enables the Company to directly
connect its operating facility with BTC in order to terminate traffic in and
receive traffic from Bermuda for as long as each party has their public
telecommunications service license in Bermuda. No consideration was paid by the
Company in relation to this agreement.
2 Summary of significant accounting policies
These consolidated financial statements are prepared in accordance with
accounting principles generally accepted in the United States ("U.S. GAAP").
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
F-7
<PAGE>
GLOBENET COMMUNICATIONS GROUP LIMITED
(formerly TeleBermuda International Limited)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(in thousands of U.S. dollars, except share and per share amounts)
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 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 an 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.
The Company to date has not entered into any IRU agreements that are
considered 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: Revenue from the operating leases of capacity in
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.
F-8
<PAGE>
GLOBENET COMMUNICATIONS GROUP LIMITED
(formerly TeleBermuda International Limited)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(in thousands of U.S. dollars, except share and per share amounts)
Cost: Carrier charges are comprised primarily of local access charges and
international termination costs. These costs are recognized based on traffic
volume.
Capital assets
Capital assets are recorded at cost less accumulated amortization.
Amortization commences when an asset is put into service, 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 annum
Software............................. straight-line 5 years
</TABLE>
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 in Rocom TBI Limited and TeleBermuda International
L.L.C. 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.
The assets and liabilities of the non-Bermudian subsidiaries, which are
considered to be self-sustaining operations, 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.
Financial instruments
The fair value of financial assets and liabilities represents the amount at
which these instruments could be exchanged in a current transaction between
willing parties. The carrying values of financial assets and liabilities
F-9
<PAGE>
GLOBENET COMMUNICATIONS GROUP LIMITED
(formerly TeleBermuda International Limited)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(in thousands of U.S. dollars, except share and per share amounts)
as at December 31, 1998 approximate their fair values. In management's
judgment, the fair value of long term debt approximates the carrying value as
interest is at floating rates (note 9) and the debt was settled after year-end
at the carrying value (note 21d).
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 may be subject to
local taxes.
Recent accounting pronouncements
In April 1998, the American Institute of Certified Public Accountants issued
Statement of Position ("SOP") 98-5, "Reporting on the Costs of Start-Up
Activities". This statement, which is effective for fiscal years beginning
after December 15, 1998, requires costs incurred to open a new facility,
introduce a new product, commence a new operation or other similar activities
to be expensed as incurred. Management has not determined the impact of this
statement on its financial position, results of operations and cash flows.
3 Change in reporting currency
Effective January 1, 1998, the Company has adopted the U.S. dollar as its
reporting currency. Its previous currency was the Bermuda dollar. Since the
Bermuda dollar is pegged to the U.S. dollar on a one-to-one basis there are no
differences that arise as a result of this change in reporting currency.
4 Due from related party
On August 26, 1998, TBI loaned $1,292 (CAD$2,000) to the Chairman and Chief
Executive Officer of the Company. The Chairman and Chief Executive Officer used
the proceeds of the loan to invest in a joint venture with a third party
carrier. The loan to the Chairman and Chief Executive Officer, and his
participation in the joint venture, was conditional on the third party carrier
granting an option in favour of TBI to acquire an equity interest in the third
party carrier's Canadian operations. The option was exercisable until November
30, 1998 for a 20% equity interest in the Canadian operations for an exercise
price of CAD$11,525. As a result of the Company's later decision to pursue the
development of the Atlantica-1 Network, TBI elected not to exercise the option.
Subsequent to year-end, the loan to the Chairman and Chief Executive Officer
and all interest thereon was repaid in full.
5 Capital assets
<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>
F-10
<PAGE>
GLOBENET COMMUNICATIONS GROUP LIMITED
(formerly TeleBermuda International Limited)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(in thousands of U.S. dollars, except share and per share amounts)
<TABLE>
<CAPTION>
1997
--------------------------
Accumulated
Cost amortization Net
------ ------------ ------
$ $ $
<S> <C> <C> <C>
Fibre optic submarine cable....................... 22,442 112 22,330
Network and telecommunications equipment.......... 3,050 175 2,875
Leasehold improvements............................ 1,012 64 948
Computer equipment................................ 192 57 135
Furniture and office equipment.................... 446 16 430
Software.......................................... 252 -- 252
------ --- ------
27,394 424 26,970
====== === ======
</TABLE>
6 Note receivable
On December 16, 1998, the Company sold its interest in Rocom TBI Limited for
total consideration of $820 ((Pounds)500), of which $410 ((Pounds)250) was
received in cash and the remaining $410 ((Pounds)250) is non-interest bearing,
due November 20, 2000. This note receivable has been reflected in these
financial statements at its discounted amount of $350 ((Pounds)213). The
effective rate of interest used to discount the note receivable is 8%.
7 Other assets
<TABLE>
<CAPTION>
1998 1997
----- ------
$ $
<S> <C> <C>
Deferred financing costs, net of accumulated amortization of
$626 (1997--$305)........................................... 981 1,302
Due from related party....................................... -- 19
Other........................................................ 80 11
Investment in GeoReach Partnership(a)........................ -- 33
----- ------
1,061 1,365
===== ======
</TABLE>
a) The GeoReach Partnership ("GeoReach") was formed on October 6, 1995
for the purpose of obtaining and exploiting an international carrier
licence in Canada. The original partners were the Chairman and Chief
Executive Officer of the Company and a Director of the Company. During the
year, GeoReach was dissolved, the assets were transferred to GeoReach
Telecommunications Inc. ("GeoReach Inc.") and the Company's 5% interest in
GeoReach Partnership was increased to 100% when the additional 95% was
acquired from the Chairman and Chief Executive Officer and a Director of
the Company for $124. Subsequently, due to a change in business strategy,
this investment was written off.
8 Accounts payable and accrued liabilities
Accounts payable are comprised as follows:
<TABLE>
<CAPTION>
1998 1997
----- ------
$ $
<S> <C> <C>
Trade payables............................................ 777 8,666
Foreign carrier settlement payables....................... 3,037 1,411
Other payable............................................. 57 163
----- ------
3,871 10,240
===== ======
</TABLE>
F-11
<PAGE>
GLOBENET COMMUNICATIONS GROUP LIMITED
(formerly TeleBermuda International Limited)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(in thousands of U.S. dollars, except share and per share amounts)
Foreign carrier settlement payables represent costs incurred for foreign
traffic for which settlement arrangements exist.
Accrued liabilities are comprised as follows:
<TABLE>
<CAPTION>
1998 1997
----- -----
$ $
<S> <C> <C>
Interest payable................................................. 2,002 510
Foreign carrier accrual.......................................... 880 264
Equalization payment accrual..................................... 668 107
Other accruals................................................... 1,421 182
----- -----
4,971 1,063
===== =====
</TABLE>
Foreign carrier accrual represents costs accrued for foreign traffic for
which formal settlement arrangements do not exist. The equalization payment
accrual represents the licensing fee paid to the Bermuda government. This
licensing fee is calculated based on the greater of 6% of TBI's total revenue
(net of carrier settlements) in Bermuda and 20% of TBI's profit in Bermuda.
9 Long-term debt
<TABLE>
<CAPTION>
1998 1997
------ ------
$ $
<S> <C> <C>
Term loan(a)................................................... 21,990 16,740
Operating credit facility(b)................................... 1,687 --
Subordinated debentures and retractable warrants(c)............ 13,000 13,000
Accrued contingent interest(c)................................. 1,342 382
------ ------
38,019 30,122
Less: Current portion.......................................... 3,000 --
------ ------
35,019 30,122
====== ======
</TABLE>
a) On July 28, 1997, the Company entered into a five-year term loan
agreement with a bank for up to $25,000 to finance capital expenditures.
During the year, the available credit on the term facility was reduced to
$21,990. As at December 31, 1998, the unused facility was $nil (1997--
$8,260). The loan bore interest at the London Interbank Offered Rate
("Libor") plus 2.25% for the period to July 28, 1998, and subsequently at
interest rates between Libor plus 1.75% and Libor plus 2.25% subject to
reduction upon the Company meeting certain cash flow criteria. At the
option of the Company, the interest rate may be fixed or converted to a
floating rate based on the U.S. prime rate. During the year, the average
rate of interest incurred on this loan was 7.8% (1997--8.0%).
b) On July 28, 1997, the Company entered into a five-year revolving
operating credit facility with a bank for up to $5,000 to finance the
Company's general working capital requirements. The facility bears interest
on the same terms as the term loan. As at December 31, 1998, the unused
facility was $3,313 (1997--$5,000). Any further draws on this facility will
require term lender approval. The average rate of interest incurred on this
loan in 1998 was 7.7%.
F-12
<PAGE>
GLOBENET COMMUNICATIONS GROUP LIMITED
(formerly TeleBermuda International Limited)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(in thousands of U.S. dollars, except share and per share amounts)
The principal repayments in respect of the term loan and operating line are
as follows:
<TABLE>
<CAPTION>
Fiscal year $
----------- ------
<S> <C>
1999................................................................. 3,000
2000................................................................. 6,000
2001................................................................. 6,000
2002................................................................. 8,677
------
23,677
======
</TABLE>
c) On July 28, 1997, the Company entered into a subordinated debenture
agreement with a financial institution and a vendor for up to $13,000 to
fund capital expenditures. As at December 31, 1998, the principal
outstanding under this loan was $13,000 (1997--$13,000), and is due for
repayment on July 28, 2002. The debenture bears interest at a rate of Libor
plus 5%. Interest accrues for the first two years and is payable on a
quarterly basis commencing July 28, 1999. The average rate of interest
incurred on the debenture in 1998 was 10.72% (1997--10.68%). Included in
accounts payable is accrued interest of $1,967 (1997--$455).
As part of the subordinated debentures agreement, the Company issued
up to 1,529,412 common share purchase warrants to the debenture holders.
The warrants are exercisable at prices between $8.50 and $9.25 per common
share. The Company may repurchase all outstanding warrants subsequent to
July 28, 1998, subject to certain covenants and conditions. The warrants
expire if unexercised on July 28, 2002, in which case, the Company is
required to make a non-exercise payment of up to $5,392, representing
additional contingent interest at 7% per annum on the gross exercise price
for the unexercised warrants from the date of issue to the date of expiry.
The warrants have anti-dilution protection rights whereby the exercise
price of the warrants and the number of common shares issuable by the
Company on exercise of the warrants will be increased or decreased in
certain events, including certain reorganizations and the issuance by the
Company of equity shares at a price which is less than the warrant exercise
price or less than the market price of the Company's common shares. The
Company will accrue the additional contingent interest at 7% per annum over
the five year term of the debt. Management estimates that any additional
value attributable to the equity component of the warrants is
insignificant.
All assets of the Company have been pledged as collateral against the term
loan, the operating credit facility and the subordinated debentures.
10 Granting of indefeasible rights of use to and leasing of the fibre optic
submarine cable
a) The Company has granted indefeasible rights of use ("IRU's") 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 IRU's 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 signed an agreement to lease capacity in its fibre optic
submarine cable to a third party. The term of the lease is for the greater of
25 years or the operational life of the fibre optic submarine cable. The
operational life can be no less than 10 years, otherwise the Company must
provide a refund to the third party, on a pro-rata basis for each year short of
the 10 year period. During the lease term, the Company is responsible for the
maintenance and operating costs associated with the fibre optic submarine cable
for the first four years, and thereafter, the lessee is responsible for payment
of a monthly charge for operating and
F-13
<PAGE>
GLOBENET COMMUNICATIONS GROUP LIMITED
(formerly TeleBermuda International Limited)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(in thousands of U.S. dollars, except share and per share amounts)
maintenance costs. The lease also requires that the Company have full
restoration capacity as of January 1, 2000, otherwise without such capacity,
the lease may be terminated and a refund of $4,400 would be required to be made
by the Company. The total consideration for this lease was $8,000, which was
reduced by $135 as a result of an offset for a receivable by the third party
owing to the Company. During 1998, $2,865 was received. $4,000 is due September
24, 1999 and $1,000 is due on September 24, 2000. The Company accounts for this
lease as an operating lease and, accordingly, amortizes the revenue over the 25
year term. Revenue of $263 with respect to this lease was recognized during the
year.
This agreement also entitles the third party to enter into a second lease of
capacity in the fibre optic submarine cable commencing on the third anniversary
of the September 24, 1998 activation date of the first circuit, expiring at the
same time as the first lease. The consideration for the second lease will be
$4,000 payable upon activation of the second circuit. Prior to signing the
second lease, the third party may elect not to proceed with the second lease at
a penalty of $250 payable to the Company.
11 Minority interest and equity accounted for investments
Rocom TBI Limited
TeleBermuda International (U.K.) Limited ("TBI-UK") was incorporated on June
19, 1996 for the purpose of acquiring and exploiting a license to provide
telecommunications services in the United Kingdom. On November 27, 1997, TBI-UK
changed its name to Rocom TBI Limited ("Rocom TBI") and commenced active
operations. During the year, Rocom TBI was used to establish a corporate joint
venture in the United Kingdom for the purpose of securing a gateway to Europe
and the European market. On December 16, 1998, the Company sold its 50%
interest in Rocom TBI to its joint venture partner.
TeleBermuda International L.L.C.
On May 17, 1996, TeleBermuda International L.L.C. ("TBI L.L.C.") was
incorporated as a limited liability company under the laws of Delaware
primarily for the purposes of having a U.S. entity to be the licensee of a
landing license, consistent with U.S. regulatory practice, for the Company's
BUS-1 cable system in the United States, holding a 50% interest in the BUS-1
cable system, and holding a 100% interest in the U.S. landing plant. TBI has a
20% interest in TBI L.L.C. subject to a put and call agreement to purchase the
remaining 80% for nominal consideration. In addition, under the governing
agreements, TBI has other rights and obligations relating to its investment in
TBI L.L.C. including the requirement to fund operations and capital
expenditures. The Company equity accounts for 100% of the losses of this
investment. TBI has informed the other shareholder of its intent to apply for a
transfer of ownership to acquire the remaining 80% from the other shareholder
(note 21g).
The Company's investment in TBI L.L.C. is comprised as follows:
<TABLE>
<CAPTION>
May 17, 1996
to
1998 1997 December 31, 1996
---- ---- -----------------
$ $ $
<S> <C> <C> <C>
Balance--beginning of year................ 22,300.2 (72.8) --
Initial investment........................ -- -- 0.2
Advances to TBI L.L.C..................... 14 22,634 155
Loss from TBI L.L.C. investment........... (943) (261) (228)
-------- -------- -----
Balance--end of year...................... 21,371.2 22,300.2 (72.8)
======== ======== =====
</TABLE>
F-14
<PAGE>
GLOBENET COMMUNICATIONS GROUP LIMITED
(formerly TeleBermuda International Limited)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(in thousands of U.S. dollars, except share and per share amounts)
Summary balance sheet and statement of operations information for TBI
L.L.C. is provided as follows:
<TABLE>
<CAPTION>
1998 1997
Balance Sheet ---- ----
$ $
<S> <C> <C>
Current assets....................................... 2 2
====== ======
Non-current assets................................... 21,432 22,332
====== ======
Current liabilities.................................. 62 33
====== ======
Non-current liabilities.............................. 22,803 22,789
====== ======
</TABLE>
Statement of Operations
<TABLE>
<CAPTION>
May 17, 1996
to
1998 1997 December 31, 1996
---- ---- -----------------
$ $ $
<S> <C> <C> <C>
Revenues........................................ -- -- --
==== ====== ======
Expenses........................................ 943 261 228
==== ====== ======
Net loss........................................ (943) (261) (228)
==== ====== ======
</TABLE>
12 Share capital
a) Authorized
The Company is authorized to issue 6,999,900 common shares with a par value
of $1.50 per share, and 100 Class A restricted voting shares with a par value
of $1.50 per share.
F-15
<PAGE>
GLOBENET COMMUNICATIONS GROUP LIMITED
(formerly TeleBermuda International Limited)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(in thousands of U.S. dollars, except share and per share amounts)
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.
b) Issued and outstanding shares
<TABLE>
<CAPTION>
Additional
Class A Common paid-in
Shares shares Par Value capital
------- --------- --------- ----------
$ $
<S> <C> <C> <C> <C>
February 29, 1996................... -- 1,369,916 1,299 694
Share options (i)................... -- -- -- 1,845
Share subscription proceeds (ii).... -- -- 756 --
Fully paid shares issued for cash
(iii).............................. -- 2,118,000 3,177 13,661
--- --------- ----- ------
December 31, 1996................... -- 3,487,916 5,232 16,200
--- --------- ----- ------
Share options exercised............. -- 28,011 42 42
Share options (iv).................. -- -- -- 135
Shares issued (v)................... 100 -- -- --
--- --------- ----- ------
December 31, 1997................... 100 3,515,927 5,274 16,377
--- --------- ----- ------
Share options exercised............. -- -- -- --
Shares issued....................... -- -- -- --
--- --------- ----- ------
December 31, 1998................... 100 3,515,927 5,274 16,377
=== ========= ===== ======
</TABLE>
All issued and outstanding common shares are fully paid.
i) 324,489 stock options (45,000 with an exercise price of $0.01 per
option, 32,500 with an exercise price of $1.00 per option and 196,989 with
an exercise price of $3.00 per option) reflected at their fair value.
ii) In February 1996, TBI issued 504,044 shares on an unpaid basis, with
the issue price payable when called in accordance with the TBI's bye-law
16. In May 1996, the Company advised the holders of these 504,044 uncalled
shares that it intended to make a call in respect of all monies unpaid on
these shares. On May 31, 1996, the Company received $756 in respect of this
call. There are no other such balances outstanding at December 31, 1997 and
December 31, 1998.
iii) In October 1996, the Company completed an initial public offering
on the Bermuda Stock Exchange and private placements in the United States,
Canada and the United Kingdom. Pursuant to these offerings, the Company
issued 2,118,000 shares for proceeds of $16,838 net of expenses of the
offering of $1,165.
iv) On July 28, 1997, 50,000 options were granted to non-employees.
Those options were granted with respect to a financing and have been
accounted for at fair value as deferred financing cost, amortized over the
five year term of the loan agreement.
v) On October 3, 1997, the members passed a bylaw to convert 100 of the
authorized common shares into 100 Class A restricted voting shares. Class A
shareholder approval is required for certain corporate matters. On that
date, 80 Class A shares were issued to the subordinated debenture holders,
and 20 shares were issued to a director of the Company for cash
consideration of $1.50 per share.
F-16
<PAGE>
GLOBENET COMMUNICATIONS GROUP LIMITED
(formerly TeleBermuda International Limited)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(in thousands of U.S. dollars, except share and per share amounts)
The Company is entitled to repurchase the Class A shares for cancellation,
at a price of $1.50 per share. This can occur in the event of the
repurchase or expiry of the debenture holders warrants, or in certain
circumstances involving the dilution of the debenture holders' equity
interest taken on a fully diluted basis.
Under the terms of the Company's credit agreement the Company's payment of
dividends is subject to restrictions related to the repayment terms of the term
loan, operating credit facility and subordinated debt.
13 Common share options
The Company awards options to employees, officers and directors of the
Company and employees of service providers under the terms of the 1997 Share
Option and Incentive Plan. In addition, the Board can 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>
Weighted
average
Beginning End of exercise
of period Granted Exercised Forfeited period price
--------- ------- --------- --------- ------- --------
<S> <C> <C> <C> <C> <C> <C>
December 31, 1996........ 302,500 50,000 -- -- 352,500 3.21
December 31, 1997........ 352,500 232,000 28,011 -- 556,489 5.22
December 31, 1998........ 556,489 -- -- 13,000 543,489 5.15
</TABLE>
These options expire on various dates from 2001 to 2009 and generally vest
over a three-year period.
The Board of Directors issued 263,000 options 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. As at
December 31, 1998, these options and the 1998 Share Option and Incentive Plan
are pending shareholder approval (see note 21e).
The following table summarizes information concerning outstanding and
exercisable options at December 31, 1998:
<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, 1998
-------- ----------------------- ----------------- ----------------------
<S> <C> <C> <C>
$0.01 7.10 45,000 45,000
1.00 2.40 32,500 32,500
3.00 3.00 196,989 196,989
8.50 3.75 50,000 50,000
8.00 7.77 219,000 115,820
------- -------
543,489 440,309
======= =======
</TABLE>
The weighted average exercise price of the options outstanding and the
options exercisable at December 31, 1998 are $6.41 and $4.49, respectively. The
weighted average fair value of the options granted in 1998 and 1997 are $0.44
and $1.97, respectively.
The Company applies APB Opinion 25 ("Accounting for Stock Issued to
Employees") in accounting for its stock option plan (except for options granted
to employees of service providers), and, accordingly, does not recognize
compensation cost at the time options are granted unless the exercise price is
less than the market
F-17
<PAGE>
GLOBENET COMMUNICATIONS GROUP LIMITED
(formerly TeleBermuda International Limited)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(in thousands of U.S. dollars, except share and per share amounts)
price of the stock on the date of issue. 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 period and basic and fully diluted loss per common share, would be as
follows:
<TABLE>
<CAPTION>
1998 1997 1996
----- ----- -----
$ $ $
<S> <C> <C> <C>
Net loss for the period--as reported..................... 4,944 5,296 3,260
Net loss for the period--pro forma....................... 5,047 5,296 3,260
Basic and fully diluted loss per common share--as
reported................................................. 1.41 1.52 1.89
Basic and fully diluted loss per common share--pro
forma................................................... 1.43 1.52 1.89
</TABLE>
The fair value of each option grant has been estimated using the Black-
Scholes option pricing model, using a volatility assumption of 20% (1997--20%;
1996--20%), expected life of 7 years (1997--7 years; 1996--7 years), a
dividend rate of nil (1997--nil; 1996--nil) and a risk-free interest rate of
5.28% (1997--6.33%; 1996--6.60%).
The above pro forma effects on the net loss for the period may not be
representative of the effects on the net loss for the period 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 3,515,927 (1997--3,492,915; 1996--
1,722,916). 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 General and administrative expenses
a) Director's service contract
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 1998 were $125 (1997--$145;
1996--$nil).
b) Rent expense
Included in general and administrative expenses is rent expense of $342
(1997--$242; 1996--$127).
c) Bad debt expense
Included in general and administrative expenses is bad debt expense of $114
(1997-$91; 1996-$ nil).
d) Compensation expense
Included in general and administrative expenses is compensation expense of
$nil (1997-$nil; 1996-$1,845).
F-18
<PAGE>
GLOBENET COMMUNICATIONS GROUP LIMITED
(formerly TeleBermuda International Limited)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(in thousands of U.S. dollars, except share and per share amounts)
16 Supplemental cash flow information
Amounts paid for interest and income taxes are as follows:
<TABLE>
<CAPTION>
1998 1997 1996
----- ---- ----
$ $ $
<S> <C> <C> <C>
Interest..................................................... 1,901 540 --
Income taxes................................................. 36 51 10
</TABLE>
17 Commitments
The Company has entered into operating lease agreements for its premises.
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, 1999............................................ 198
2000..................................................................... 89
2001..................................................................... 68
2002..................................................................... 76
2003..................................................................... 88
Thereafter............................................................... 403
---
922
===
</TABLE>
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.
18 Contingencies
The Company is a defendant or interested party (note 21(a)) in various
lawsuits which have arisen in the ordinary course of business. At the present
time, the outcome of these cases is not determinable and the estimate of the
range of the potential loss is $nil to $32. No provision has been made with
respect to any of these claims in these financial statements.
The Company is contingently liable in respect of an irrevocable stand-by
letter of credit issued by a bank on its behalf in the amount of $55 (1997--
$75).
19 Segmented information
The Company operates predominantly in the telecommunications sector and
substantially all of the Company's business activity and services were
conducted in Bermuda during 1998, 1997 and 1996.
20 Uncertainty due to 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
F-19
<PAGE>
GLOBENET COMMUNICATIONS GROUP LIMITED
(formerly TeleBermuda International Limited)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(in thousands of U.S. dollars, except share and per share amounts)
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 an entity's ability to conduct
normal business operations. It is not possible to be certain that all aspects
of the Year 2000 Issue affecting the entity, including those related to the
efforts of customers, suppliers, or other third parties, will be fully
resolved.
21 Subsequent events
a) On January 8, 1999, the Bermuda Telephone Company ("BTC"), the domestic
carrier, filed a notice of appeal with the Supreme Court of Bermuda challenging
the Minister of Telecommunications' December 31, 1998 decision to mandate
certain reductions in the local access charges paid by international carriers,
including the Company, to domestic carriers commencing January 1, 1999. A
favourable ruling for BTC could nullify the existing access charge reduction
and could have retroactive effect commencing from January 1, 1999. The outcome
of this proceeding is currently not determinable.
b) On February 18, 1999, the Company signed a letter of intent to award
Alcatel Submarine Networks ("Alcatel") a supply contract to construct a fibre
optic submarine cable called Atlantica-1 between Hollywood (Fl, USA), Punto
Fijo (Venezuela), Fortaleza (Brazil), St. David's (Bermuda) and Tuckerton (NJ,
USA) for a contract price of $510,485, which amount is subject to amendment by
the mutual agreement of the parties. This letter of intent may be cancelled at
any time prior to June 15, 1999 with the Company's liability being limited to
the actual costs and expenditures authorized by the letter of intent up to a
maximum of $4,000. If a definitive supply contract is cancelled between the
parties, payment of the costs and expenditures incurred by Alcatel become
payable by the Company on June 15, 1999. The Company will render payment of
these costs from either financing proceeds or the issuance of a note to Alcatel
which shall be subordinate to the existing financing facilities. As specified
in the letter of intent, the supply contract is anticipated to be signed by
April 30, 1999, which was subsequently extended to May 30, 1999, and
construction of the cable system to be completed by December 30, 2000. The
Company is currently pursuing financing initiatives to fund this commitment.
In February 1999, the Company reached an agreement in principle with one of
its debenture holders to secure an additional $500 to fund costs for planning
and financing initiatives on the Atlantica-1 project. The terms and conditions
of this additional funding are essentially the same as those for the Company's
existing subordinated debt and warrants.
c) Unaudited--Effective June 15, 1999, the authorized common shares of the
Company were increased by 10,499,900 to an aggregate total of 17,499,800 common
shares. In addition, the Company's bye-laws authorized the creation of 100
Class B shares. On July 12, 1999, the authorized common shares and Class B
shares of the Company were increased by 6,500,200 and 1,900, respectively.
d) Unaudited--On July 14, 1999, the Company secured financing totalling
$970,580 for the development and construction of the Atlantica-1 fibre optic
submarine cable system linking North America, Bermuda and South America. The
financing is comprised of the following components:
i) A private placement equity offering of shares issued at $20.40 per
share (par value $1.50) for aggregate proceeds of $270,580. The
Company subsequently used $30,600 of these proceeds to redeem
1,500,000 outstanding common shares at an aggregate price of $20.40
per common share from existing shareholders.
F-20
<PAGE>
GLOBENET COMMUNICATIONS GROUP LIMITED
(formerly TeleBermuda International Limited)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(in thousands of U.S. dollars, except share and per share amounts)
ii) The issuance of debt in the principal amount of $300,000 in the form
of 13% senior notes maturing July 15, 2007. Interest on these notes
accrues at a rate of 13% per annum, payable semi-annually in arrears
on each January 15 and July 15 commencing January 15, 2000. The notes
effectively rank behind all of the collateralized obligations of the
Company to the extent of the value of the assets collateralizing
these obligations.
iii) A bank credit facility ("Credit Facility") of up to $400,000, that
consists of various term facilities totalling $390,000 and a $10,000
revolving credit facility. All loans under the Credit Facility
mature on June 30, 2005 except for one of the term facilities of
$100,000 which matures on September 30, 2005. The interest rates on
the loans under 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. 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. In addition, Alcatel has
provided an initial guarantee subject to certain conditions and
adjustments of up to $100,000 for one of the term facilities.
The structure, terms and pricing of the Credit Facility are subject
to change at the discretion of the bank that is acting as arranger up
until October 15, 1999.
In addition, on July 14, 1999, $21,408 of the proceeds from the total
financing amount of $970,580, were used to pay the existing term loan,
operating credit facility and certain accrued interest on the
subordinated debentures. As well, all of the remaining obligations to the
subordinated debentureholders were retired when the subordinated
debentureholders elected to exercise their warrants and convert the
principal and remaining accrued interest on their subordinated debt into
1,635,286 common shares. The shares issued in respect of the subordinated
debentures and accrued contingent interest obligation were included in
share capital and additional paid-in capital at their carrying amounts.
e) Unaudited--In July 1999, shareholder approval of the 1998 options and the
1998 Share Option and Incentive Plan was obtained. No revisions were required
as a result of such approval.
f) Unaudited--In September 1999, the Company borrowed $100,000 under one of
its term facilities. On December 22, 1999, the Company entered into an interest
rate cap transaction for $50,000 of this facility, capping the interest at 7.0%
for a three year term.
g) Unaudited--Effective November 1, 1999, all governmental approvals were
obtained to allow the Company to acquire indirectly all of the shares of TBI
L.L.C. that it did not previously own.
F-21
<PAGE>
GLOBENET COMMUNICATIONS GROUP LIMITED
UNAUDITED CONSOLIDATED BALANCE SHEETS
as at September 30, 1999 and 1998 and
Audited Consolidated Balance Sheet as at December 31, 1998
(in thousands of U.S. dollars, except share and per share amounts)
<TABLE>
<CAPTION>
September December September
1999 1998 1998
----------- --------- -----------
$ $ $
<S> <C> <C> <C>
Assets (unaudited) (audited) (unaudited)
Current assets
Cash.................................... -- 3,030 3,990
Restricted cash (note 3)................ 79,998 -- --
Accounts receivable (net of allowance of
$224; 1998--$80; 1998--$50)............ 2,479 1,847 1,822
Other receivables....................... 196 718 751
Due from related party.................. -- 1,363 1,312
Prepaid expenses and deposits........... 646 338 382
----------- --------- -----------
83,319 7,296 8,257
Restricted cash (note 3)................. 450,971 -- --
Capital assets........................... 90,496 26,182 26,025
Note receivable.......................... 374 350 --
Equity accounted for investments......... 20,675 21,371 21,716
Other assets............................. 24,244 1,061 1,059
----------- --------- -----------
670,079 56,260 57,057
=========== ========= ===========
Liabilities
Current liabilities
Accounts payable........................ 4,476 3,871 5,093
Accrued liabilities..................... 12,356 4,971 3,106
Current portion of long-term debt (note
4)..................................... -- 3,000 2,250
----------- --------- -----------
16,832 11,842 10,449
Long-term debt (note 4).................. 400,000 35,019 37,935
Deferred revenue......................... 6,648 2,695 2,799
----------- --------- -----------
423,480 49,556 51,183
----------- --------- -----------
Shareholders' Equity
Share capital (notes 5 and 6)
Class A shares, 100 shares authorized
nil (1998--100) shares issued and
outstanding............................ -- -- --
Class B shares, 2,000 shares authorized
1,000 (1998--nil) shares issued and
outstanding........................... 2 -- --
Common shares, 24,000,000 authorized
17,043,900 (1998--3,515,927) shares
issued and outstanding................. 25,566 5,274 5,274
Additional paid-in capital (note 5)..... 246,228 16,377 16,377
Deficit................................. (25,197) (14,947) (15,777)
----------- --------- -----------
246,599 6,704 5,874
----------- --------- -----------
670,079 56,260 57,057
=========== ========= ===========
</TABLE>
Commitments and contingencies (notes 8 and 9)
The accompanying notes are an integral part of these unaudited consolidated
financial statements.
F-22
<PAGE>
GLOBENET COMMUNICATIONS GROUP LIMITED
UNAUDITED CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
For the nine months ended September 30, 1999 and 1998
(in thousands of U.S. dollars, except share and per share amounts)
<TABLE>
<CAPTION>
Class B Common Total
shares shares Additional share-
par par paid-in holders'
Class A Class B value Common value capital Deficit equity
shares shares $ shares $ $ $ $
------- ------- ------- ---------- ------ ---------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
December 31, 1997....... 100 -- -- 3,515,927 5,274 16,377 (10,003) 11,648
Net loss for the
period................. -- -- -- -- -- -- (5,774) (5,774)
---- ----- --- ---------- ------ ------- ------- -------
September 30, 1998...... 100 -- -- 3,515,927 5,274 16,377 (15,777) 5,874
---- ----- --- ---------- ------ ------- ------- -------
December 31, 1998....... 100 -- -- 3,515,927 5,274 16,377 (14,947) 6,704
Compensatory share
options................ -- -- -- -- -- 8,758 -- 8,758
Deferred compensation... -- -- -- -- -- (4,968) -- (4,968)
Share options
exercised.............. -- -- -- 129,041 194 754 -- 948
Unpaid share
subscription........... -- -- -- -- -- (221) -- (221)
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
period................. -- -- -- -- -- -- (10,250) (10,250)
---- ----- --- ---------- ------ ------- ------- -------
September 30, 1999...... -- 1,000 2 17,043,900 25,566 246,228 (25,197) 246,599
==== ===== === ========== ====== ======= ======= =======
</TABLE>
The accompanying notes are an integral part of these unaudited consolidated
financial statements.
F-23
<PAGE>
GLOBENET COMMUNICATIONS GROUP LIMITED
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
For the nine months ended September 30, 1999 and 1998
(in thousands of U.S. dollars, except share and per share amounts)
<TABLE>
<CAPTION>
1999 1998
------- ------
$ $
<S> <C> <C>
Revenue
Telecommunication services.................................... 19,468 16,257
IRU capacity.................................................. 236 1,587
------- ------
19,704 17,844
------- ------
Expenses
Carrier charges............................................... 8,446 10,855
Cost of IRU capacity.......................................... -- 547
General and administrative expenses........................... 13,409 6,807
Amortization of deferred financing costs...................... 975 241
Amortization of capital assets................................ 1,256 1,075
------- ------
24,086 19,525
------- ------
Operating loss................................................ (4,382) (1,681)
Interest on long-term debt.................................... 8,949 2,543
Accrued contingent interest................................... 538 713
Interest income............................................... (5,220) (77)
------- ------
Loss before income taxes, minority interest, equity accounted
for investment and extraordinary item........................ (8,649) (4,860)
Provision for income taxes.................................... (96) (26)
------- ------
Loss before minority interest, equity accounted for investment
and extraordinary item....................................... (8,745) (4,886)
Minority interest ............................................ -- 204
Loss from equity accounted for investments.................... (696) (1,092)
------- ------
Loss before extraordinary item................................ (9,441) (5,774)
Extraordinary loss relating to extinguishment of debt (note
4(a))........................................................ (809) --
------- ------
Net loss and comprehensive loss for the period................ (10,250) (5,774)
======= ======
Basic and fully diluted loss per common share before
extraordinary item (note 7).................................. (1.26) (1.64)
======= ======
Basic and fully diluted loss per common share relating to the
extraordinary loss from the extinguishment of debt (note 7).. (.10) --
======= ======
Basic and fully diluted loss per common share (note 7)........ (1.36) (1.64)
======= ======
</TABLE>
The accompanying notes are an integral part of these unaudited consolidated
financial statements.
F-24
<PAGE>
GLOBENET COMMUNICATIONS GROUP LIMITED
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
For the nine months ended September 30, 1999 and 1998
(in thousands of U.S. dollars, except share and per share amounts)
<TABLE>
<CAPTION>
1999 1998
-------- ------
$ $
<S> <C> <C>
Cash provided by (used in)
Operating activities
Net loss for the period.................................... (10,250) (5,774)
Items not involving cash
Amortization of capital assets............................ 1,256 1,075
Writedown of other assets................................. -- 174
Amortization of deferred financing costs.................. 975 241
Extraordinary loss--extinguishment of debt................ 809 --
Minority interest......................................... -- (204)
Loss from equity accounted for investment................. 696 1,092
Accrued contingent interest............................... 538 713
Gain on granting of indefeasible rights of use and loss on
sale of capital assets................................... -- (970)
Compensatory share options................................ 3,790 --
Net change in non-cash operating items
Accounts receivable......................................... (632) (552)
Other receivables........................................... 522 937
Prepaid expenses and deposits............................... (226) (83)
Accounts payable............................................ 605 (5,147)
Accrued liabilities......................................... 340 926
Interest payable............................................ 8,980 1,117
Deferred revenue............................................ 3,953 1,278
-------- ------
11,356 (5,177)
-------- ------
Financing activities
Exercise of common share options............................ 948 --
Issuance of common shares................................... 258,913 --
Purchase and cancellation of common shares.................. (30,600) --
Proceeds from issuance of long-term debt.................... 400,500 9,350
Repayment of long-term debt................................. (23,677) --
Deferred financing costs.................................... (25,048) --
Unpaid share subscription................................... (221) --
-------- ------
580,815 9,350
-------- ------
Investing activities
Restricted cash............................................. (530,969) --
Purchase of capital assets.................................. (65,572) (1,132)
Granting of indefeasible rights of use and proceeds on sale
of capital assets.......................................... -- 1,521
Change in other assets...................................... 1 (208)
Due from related party...................................... 1,363 (1,312)
Note receivable............................................. (24) --
Advances to equity accounted for investee................... -- (411)
-------- ------
(595,201) (1,542)
-------- ------
Increase (decrease) in cash for the period................... (3,030) 2,631
Cash--Beginning of period.................................... 3,030 1,359
-------- ------
Cash--End of period ......................................... -- 3,990
======== ======
</TABLE>
The accompanying notes are an integral part of these unaudited consolidated
financial statements.
F-25
<PAGE>
GLOBENET COMMUNICATIONS GROUP LIMITED
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1999 and 1998 and December 31, 1998
(in thousands of U.S. dollars, except share and per share amounts)
1 Formation and operations
GlobeNet Communications Group Limited (the "Company") was incorporated and
registered on June 25, 1998 as a Bermuda exempt company as part of a
reorganization of the TeleBermuda group of companies. Under the reorganization
TBI became a wholly owned subsidiary of the Company and the issued shares of
TBI were exchanged on a one for one basis with substantially the same rights
and privileges as before.
The Company, through its subsidiaries, provides, maintains and operates a
public telecommunications service in Bermuda facilitated by its ownership of
its BUS-1 cable system between Bermuda and the United States. On January 10,
1997, TBI was granted, for no consideration, 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.
In addition, TBI has an interconnection agreement with the Bermuda Telephone
Company ("BTC"), the domestic carrier, that enables the Company to directly
connect its operating facility with BTC in order to terminate traffic in and
receive traffic from Bermuda for as long as each party has its public
telecommunications service licence in Bermuda. No consideration was paid by the
Company in relation to this agreement.
On June 16, 1999, the Company entered into a supply contract, subject to
certain terms and conditions, including the securing of financing, to expand
its operations by building a fibre optic submarine cable system called
Atlantica-1 linking Bermuda, North and South America. On July 14, 1999, the
Company secured financing totalling $970,580 for the development and
construction of Atlantica-1. Such financing is comprised of a private placement
equity offering for aggregate net proceeds of $270,580, the issuance of debt of
$300,000 and a bank credit facility of up to $400,000. In addition, under this
bank credit facility, the Company may also request an additional facility of up
to $50,000, subject to lender approval and other restrictions.
2 Interim unaudited consolidated financial statements
The unaudited consolidated balance sheets as at September 30, 1999 and
September 30, 1998 and the unaudited consolidated statements of shareholders'
equity, operations and cash flows for the nine months ended September 30, 1999
and September 30, 1998, in the opinion of management, have been prepared on the
same basis as the audited consolidated financial statements and include all
adjustments necessary for the fair statement of the results of the interim
periods. All adjustments reflected in the consolidated financial statements are
of a normal recurring nature. The data disclosed in the notes to the unaudited
consolidated financial statements for these periods are also unaudited. Results
for the nine month periods ended September 30, 1999 and 1998 are not
necessarily indicative of the results to be expected for the full year.
F-26
<PAGE>
GLOBENET COMMUNICATIONS GROUP LIMITED
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
September 30, 1999 and 1998 and December 31, 1998
(in thousands of U.S. dollars, except share and per share amounts)
3 Restricted cash
Components of restricted cash are:
<TABLE>
<CAPTION>
September December September
1999 1998 1998
----------- --------- -----------
(unaudited) (audited) (unaudited)
$ $ $
<S> <C> <C> <C>
Cash...................................... 8,015 -- --
Cash equivalents maturing within 90 days:
Commercial paper........................ 413,401 -- --
Term deposit............................ 109,553 -- --
------- --- ---
530,969 -- --
Less: Current portion..................... 79,998 -- --
------- --- ---
450,971 -- --
======= === ===
</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 & Poor's or P-1 by Moody's.
4 Long-term debt
<TABLE>
<CAPTION>
September December September
1999 1998 1998
----------- --------- -----------
(unaudited) (audited) (unaudited)
$ $ $
<S> <C> <C> <C>
Term loan (a)............................ -- 21,990 23,990
Operating credit facility (a)............ -- 1,687 2,100
Subordinated debentures and retractable
warrants (a)............................ -- 13,000 13,000
Senior notes (b)......................... 300,000 -- --
Bank credit facility (c)................. 100,000 -- --
Accrued contingent interest (a).......... -- 1,342 1,095
------- ------ ------
400,000 38,019 40,185
Less: Current portion.................... -- 3,000 2,250
------- ------ ------
400,000 35,019 37,935
======= ====== ======
</TABLE>
a) On July 14, 1999, the Company repaid $21,408 for the term loan,
operating credit facility and certain accrued interest on the subordinated
debentures. As well, all of the remaining obligations to the subordinated
debentureholders were retired when the subordinated debentureholders
elected 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 accrues at a rate of 13% per annum, payable semi-annually in
arrears on each January 15 and July 15 commencing January 15, 2000. The
notes are unsecured. At September 30, 1999 interest of $8,450 was accrued
and recorded in accrued liabilities.
F-27
<PAGE>
GLOBENET COMMUNICATIONS GROUP LIMITED
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
September 30, 1999 and 1998 and December 31, 1998
(in thousands of U.S. dollars, except share and per share amounts)
c) On July 14, 1999 the Company secured a bank credit facility ("Credit
Facility") of up to $400,000, that consists of various term facilities
totalling $390,000 and a $10,000 revolving credit facility. 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. All loans under the Credit Facility mature on June 30, 2005
except for one of the term facilities of $100,000 which matures on
September 30, 2005. The interest rates on the loans under 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.
Substantially all of the assets of the Company and its present and future
direct and indirect subsidiaries have been pledged as collateral for the
Credit Facility. 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.
As at September 30, 1999 the unused facility was $300,000, the average rate
of interest was 10.37% and interest of $597 was accrued and recorded in accrued
liabilities.
The principal repayments 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
2007............................................................ 300,000
-------
400,000
=======
</TABLE>
5 Share capital
a) Authorized
The Company is authorized to issue 24,000,000 common shares with a par value
of $1.50 per share, 100 Class A restricted voting shares with a par value of
$1.50 per share, and 2,000 Class B restricted voting shares with a par value of
$1.50 per share.
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.
F-28
<PAGE>
GLOBENET COMMUNICATIONS GROUP LIMITED
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
September 30, 1999 and 1998 and December 31, 1998
(in thousands of U.S. dollars, except share and per share amounts)
b) Issued and outstanding shares
<TABLE>
<CAPTION>
Class B Common Additional
shares shares paid-in
Class A Class B par value Common par value capital
shares shares $ shares $ $
------- ------- --------- ---------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
December 31, 1997....... 100 -- -- 3,515,927 5,274 16,377
Share options
exercised.............. -- -- -- -- -- --
Shares issued........... -- -- -- -- -- --
---- ----- --- ---------- ------ -------
September 30, 1998...... 100 -- -- 3,515,927 5,274 16,377
==== ===== === ========== ====== =======
December 31, 1998....... 100 -- -- 3,515,927 5,274 16,377
Compensatory share
options (i)............ -- -- -- -- -- 8,758
Deferred
compensation(i)........ -- -- -- -- -- (4,968)
Share options exercised
(ii)................... -- -- -- 129,041 194 754
Unpaid share
subscription (ii)...... -- -- -- -- -- (221)
Shares issued (iii)..... -- -- -- 13,263,646 19,895 239,018
Shares purchased and
cancelled (iv)......... (100) -- -- -- -- --
Shares issued (v)....... -- 1,000 2 -- -- --
Shares issued on
conversion of
subordinated debt and
exercise of warrants
(vi)................... -- -- -- 1,635,286 2,453 14,860
Shares purchased and
cancelled (vii)........ -- -- -- (1,500,000) (2,250) (28,350)
---- ----- --- ---------- ------ -------
September 30, 1999...... -- 1,000 2 17,043,900 25,566 246,228
==== ===== === ========== ====== =======
</TABLE>
All issued and outstanding common shares are fully paid.
Effective June 15, 1999, the authorized common shares of the Company were
increased by 10,499,900 to an aggregate total of 17,499,800 common shares. In
addition, the Company bye-laws authorized the creation of 100 Class B shares.
On July 12, 1999, the authorized common shares and Class B shares of the
Company were increased by 6,500,200 and 1,900, respectively.
i) On December 18, 1998, the Board of Directors issued 263,000 options
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 September 30, 1999.
Compensation expense in the amount of $1,641 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
F-29
<PAGE>
GLOBENET COMMUNICATIONS GROUP LIMITED
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
September 30, 1999 and 1998 and December 31, 1998
(in thousands of U.S. dollars, except share and per share amounts)
milestone occurred on 165,000 of these options, when the financing was
secured (note 4) 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 $2,100 and has been reflected
as compensation expense.
ii) Share options were exercised at an average price of $7.35. As at
September 30, 1999, the Company has a receivable of $221 relating to the
exercise of these options from First Bermuda Securities Ltd., of which a
director of the Company is the Chief Executive Officer.
iii) On July 14, 1999 the Company completed a private placement equity
offering. Pursuant to the offering, the Company issued 13,263,646 shares
with a par value of $1.50 each at $20.40 per share for aggregate proceeds
of $258,913, net of expenses related to the offering of $11,665.
iv) On July 14, 1999 the Company purchased for cancellation 100 Class A
shares at par value of $1.50 per share.
v) In connection with the private placement equity offering, 1,000 Class
B shares were issued with a par value of $1.50 on July 14, 1999 to certain
shareholders. The Company must have the approval of a majority of the Class
B shareholders before entering into certain transactions, including, but
not limited to issuance of securities, incurring indebtedness, amending
material contracts, appointing or dismissing members of senior management
or terminating or suspending construction under the Alcatel contract.
vi) On July 14, 1999 the subordinated debentureholders elected to
exercise their warrants and convert the principal and remaining accrued
interest on their subordinated debt into 1,635,286 shares. The number of
shares issued in respect of the subordinated debentures and accrued
contingent interest obligation are included in equity at their carrying
amounts.
vii) On August 9, 1999 the Company purchased for cancellation 1,500,000
outstanding common shares with a par value of $1.50 each 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.
6 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.
At September 30, 1999 there were 1,251,448 (1998--543,489) outstanding
common share purchase options at a weighted average exercise price of $7.78
(1998--$6.73). During the nine month period ended September 30, 1999, 6,000
(1998--13,000) options were forfeited at a weighted average exercise price of
$8.67 (1998--$8.00). These options expire on various dates from 2001 to 2009
and generally vest over a three-year period.
7 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 7,507,695 (1998--3,515,927) for the nine
months ended September 30, 1999 and 1998. 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 conversions or exercises would be anti-dilutive.
F-30
<PAGE>
GLOBENET COMMUNICATIONS GROUP LIMITED
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
September 30, 1999 and 1998 and December 31, 1998
(in thousands of U.S. dollars, except share and per share amounts)
8 Commitments
a) The Company has entered into operating lease agreements for its premises.
Minimum lease commitments pursuant to these leases over the next five years and
thereafter are as follows:
<TABLE>
<CAPTION>
$
<S> <C>
September 30, 2000.................................................... 840
2001.................................................................. 881
2002.................................................................. 867
2003.................................................................. 879
2004.................................................................. 879
Thereafter............................................................ 12,401
------
16,747
======
</TABLE>
b) On June 16, 1999, the Company entered into a supply contract with Alcatel
Submarine Networks Inc. ("Alcatel") to construct a fibre optic submarine cable
system called Atlantica-1 linking Bermuda, North and South America for a total
contract price of $620,861 (of which $62,086 has been recorded at September 30,
1999), which amount 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 $62,086 that has
been recorded as at September 30, 1999, required as a result of this contract,
are as follows:
<TABLE>
<CAPTION>
<S> <C>
Year ending December 31, 2000....................................... $558,775
========
</TABLE>
c) 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.
9 Contingencies
The Company is contingently liable in respect of an irrevocable standby
letter of credit issued by a bank on its behalf in the amount of $55 (1998--
$55).
10 Segmented information
The Company is in the business of international telecommunication services
and views this as one business segment.
11 Subsequent events
a) 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.
b) Effective November 1, 1999, all governmental approvals were obtained to
enable the Company to indirectly acquire all of the shares, that it did not
previously own, of Telebermuda International L.L.C., which holds, among other
things, the landing license for the BUS-1 cable system in the United States.
c) On December 22, 1999, the Company entered into an interest rate cap
transaction effectively capping the interest rate on $50,000 of the Credit
Facility at 7.0% for a three year term.
F-31
<PAGE>
AUDITORS' REPORT
February 22, 1999
To the Members of
TeleBermuda International L.L.C.
We have audited the balance sheets of TeleBermuda International L.L.C. as at
December 31, 1998 and 1997 and the statements of members' equity (deficit),
operations and cash flows for the years then ended and for the period from May
17, 1996, date of organization, to December 31, 1996. 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 Canada. Those standards require that we plan and perform an audit
to obtain reasonable assurance whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation.
In our opinion, these financial statements present fairly, in all material
respects, the financial position of the company as at December 31, 1998 and
1997 and the results of its operations and its cash flows for the years then
ended and for the period from May 17, 1996, date of organization, to December
31, 1996 in accordance with generally accepted accounting principles in the
United States.
/s/ PricewaterhouseCoopers L.L.P.
Chartered Accountants
Toronto, Canada
F-32
<PAGE>
TELEBERMUDA INTERNATIONAL L.L.C.
(a limited liability company)
BALANCE SHEETS
As at December 31, 1998 and 1997
(in thousands of U.S. dollars)
<TABLE>
<CAPTION>
1998 1997
------- -------
<S> <C> <C>
Assets
Current assets
Cash.......................................................... $ 2 $ 2
Capital assets (note 3)....................................... 21,430 22,329
Other assets.................................................. 2 3
------- -------
21,434 22,334
======= =======
Liabilities
Current liabilities
Accrued liabilities........................................... 62 33
Due to TeleBermuda International Limited (note 4)............. 22,803 22,789
------- -------
22,865 22,822
------- -------
Members' Equity (Deficit)
Members' capital (note 5)..................................... 1 1
Deficit....................................................... (1,432) (489)
------- -------
(1,431) (488)
------- -------
21,434 22,334
======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-33
<PAGE>
TELEBERMUDA INTERNATIONAL L.L.C.
(a limited liability company)
STATEMENT OF MEMBERS' EQUITY (DEFICIT)
For the years ended December 31, 1998 and 1997 and the period from
May 17, 1996 to December 31, 1996
(in thousands of U.S. dollars)
<TABLE>
<CAPTION>
Total
members'
Members' Members' equity
capital deficit (deficit)
-------- -------- ---------
<S> <C> <C> <C>
May 17, 1996....................................... 1 $ -- $ 1
Net loss for the period............................ -- (228) (228)
---- ------- -------
December 31, 1996.................................. 1 (228) (227)
Net loss for the period............................ -- (261) (261)
---- ------- -------
December 31, 1997.................................. 1 (489) (488)
Net loss for the period............................ -- (943) (943)
---- ------- -------
December 31, 1998.................................. 1 (1,432) (1,431)
==== ======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-34
<PAGE>
TELEBERMUDA INTERNATIONAL L.L.C.
(a limited liability company)
STATEMENTS OF OPERATIONS
For the years ended December 31, 1998 and 1997 and the period from
May 17, 1996 to December 31, 1996
(in thousands of U.S. dollars)
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Revenue....................................................... $-- $-- $--
---- ---- ----
Expenses
Amortization of capital assets................................ 899 113 --
Interest expense.............................................. 30 24 9
General and administrative.................................... 14 124 219
---- ---- ----
943 261 228
---- ---- ----
Net loss and comprehensive loss for the period................ (943) (261) (228)
==== ==== ====
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-35
<PAGE>
TELEBERMUDA INTERNATIONAL L.L.C.
(a limited liability company)
STATEMENTS OF CASH FLOWS
For the years ended December 31, 1998 and 1997 and the period from
May 17, 1996 to December 31, 1996
(in thousands of U.S. dollars)
<TABLE>
<CAPTION>
1998 1997 1996
----- ------- -----
<S> <C> <C> <C>
Cash provided by (used in)
Operating activities
Net loss for the period................................. $(943) $ (261) $(228)
Items not involving cash
Amortization of capital assets........................ 899 113 --
Net change in non-cash working capital
Change in other assets................................ 1 12 (15)
Accrued liabilities................................... 29 (63) 96
----- ------- -----
(14) (199) (147)
----- ------- -----
Financing activities
Issuance of members' capital............................ -- -- 1
Due to TeleBermuda International Limited................ 14 22,634 155
----- ------- -----
14 22,634 156
----- ------- -----
Investing activities
Purchase of capital assets.............................. -- (22,442) --
----- ------- -----
Increase (decrease) in cash for the period.............. -- (7) 9
Cash--Beginning of period............................... 2 9 --
----- ------- -----
Cash--End of period..................................... 2 2 9
===== ======= =====
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-36
<PAGE>
TELEBERMUDA INTERNATIONAL L.L.C.
(a limited liability company)
NOTES TO FINANCIAL STATEMENTS
For the years ended December 31, 1998 and 1997
and the period from May 17, 1996 to December 31, 1996
(in thousands of U.S. dollars)
1 Formation and operations
On May 17, 1996, TeleBermuda International, L.L.C. was incorporated as a
limited liability company, under the laws of Delaware primarily for the purpose
of having a U.S. entity to be the licensee of a landing licence, consistent
with U.S. regulatory practice, for the Company's BUS-1 cable system in the
United States, holding a 50% interest in the BUS-1 cable system, and holding a
100% interest in the U.S. landing plant. TeleBermuda International Limited
("TBI"), which is 100% owned by GlobeNet Communications Group Limited, has a
20% interest in TeleBermuda International L.L.C. subject to a put and call
agreement to purchase the remaining 80% for nominal consideration. In addition,
under the governing agreements, TBI has other rights and obligations relating
to its investment in TBI L.L.C. (note 6).
2 Summary of significant accounting policies
These financial statements are prepared in accordance with accounting
principles generally accepted in the United States ("U.S. GAAP"). The following
is a summary of the significant accounting policies followed in the preparation
of these financial statements.
Use of significant accounting estimates
The preparation of financial statements in conformity with generally
accepted accounting principles in 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.
Capital assets
Capital assets are recorded at cost less accumulated amortization.
Amortization commences when an asset is put into service, 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
</TABLE>
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.
Financial instruments
The fair value of financial assets and liabilities represents the amount at
which these instruments could be exchanged in a current transaction between
willing parties. The carrying values of financial assets and liabilities as at
December 31, 1998 approximate their fair values.
F-37
<PAGE>
TELEBERMUDA INTERNATIONAL L.L.C.
(a limited liability company)
NOTES TO FINANCIAL STATEMENTS
For the years ended December 31, 1998 and 1997
and the period from May 17, 1996 to December 31, 1996
(in thousands of U.S. dollars)
3 Capital assets
<TABLE>
<CAPTION>
1998 1997
---------------------------- ----------------------------
Accumulated Accumulated
Cost amortization Net Cost amortization Net
------- ------------ ------- ------- ------------ -------
<S> <C> <C> <C> <C> <C> <C>
Fibre optic submarine
cable.................. $22,442 $1,012 $21,430 $22,442 $113 $22,329
======= ====== ======= ======= ==== =======
</TABLE>
4 Due to TeleBermuda International Limited and economic dependence
<TABLE>
<CAPTION>
1998 1997
------ ------
<S> <C> <C>
Unsecured promissory notes payable to member with interest at
the prime rate and all the principal and interest due 2001 to
2003........................................................... $ 361 $ 347
Non-interest bearing promissory note due to member with no set
repayment terms of principal, due on demand.................... 22,442 22,442
------ ------
22,803 22,789
Less: Current portion........................................... -- --
------ ------
22,803 22,789
====== ======
</TABLE>
During the year, interest expense at an average rate of 8.31% (1997--8.46%)
in the amount of $30 (1997--$24) has been recorded and is included in accrued
liabilities.
Principal repayments required in each of the next five years for the
interest bearing promissory notes are as follows:
<TABLE>
<S> <C>
2000............................................................... $ --
2001............................................................... 155
2002............................................................... 192
2003............................................................... 14
-----
361
=====
</TABLE>
The Company has provided a general security agreement to TBI as collateral
for the non-interest bearing promissory note. A letter of undertaking not to
call the non-interest bearing promissory note in the next year has been
provided to the Company, and accordingly it has been classified as long-term in
these financial statements.
The Company is economically dependent upon one of its members, TBI, for its
financing.
5 Members' capital
On May 17, 1996, the Company was organized and each of the members, Elbac
Cable Corporation and TeleBermuda International Limited, made cash
contributions of $1 and $0.2, respectively, representing an ownership ratio of
80% and 20%, respectively.
<TABLE>
<CAPTION>
Sharing
Members ratio Contribution
------- ------- -------------
<S> <C> <C>
Elbac Cable Corporation............................ 80.0% $ 1,000
TeleBermuda International Limited.................. 20.0 250
</TABLE>
6 Subsequent event
Unaudited--Effective November 1, 1999, TeleBermuda International Limited, a
member of the Company, indirectly acquired all of the shares that it previously
did not, and accordingly, now owns 100% of the Company.
F-38
<PAGE>
TELEBERMUDA INTERNATIONAL L.L.C.
(a limited liability company)
BALANCE SHEETS
As at September 30, 1999 and 1998 and December 31, 1998
(in thousands of U.S. dollars)
<TABLE>
<CAPTION>
September December September
1999 1998 1998
(unaudited) (audited) (unaudited)
---------- -------- ----------
<S> <C> <C> <C>
Assets
Current assets
Cash....................................... $ 2 $ 2 $ 2
Capital assets............................... 20,756 21,430 21,655
Other assets................................. 1 2 2
------ ------ ------
20,759 21,434 21,659
====== ====== ======
Liabilities
Current liabilities
Accrued liabilities........................ 83 62 54
Due to TeleBermuda International Limited..... 22,803 22,803 22,803
------ ------ ------
22,886 22,865 22,857
------ ------ ------
Members' Equity (Deficit)
Members' capital............................. 1 1 1
Deficit...................................... (2,128) (1,432) (1,199)
------ ------ ------
(2,127) (1,431) (1,198)
------ ------ ------
20,759 21,434 21,659
====== ====== ======
</TABLE>
The accompanying notes are an integral part of these unaudited financial
statements.
F-39
<PAGE>
TELEBERMUDA INTERNATIONAL L.L.C.
(a limited liability company)
UNAUDITED STATEMENT OF MEMBERS' EQUITY (DEFICIT)
For the nine months ended September 30, 1999 and 1998
(in thousands of U.S. dollars)
<TABLE>
<CAPTION>
Total
members'
Members' Members' equity
capital deficit (deficit)
-------- -------- ---------
<S> <C> <C> <C>
December 31, 1997................................... $ 1 $ (489) $ (488)
Net loss for the period............................. -- (710) (710)
--- ------ ------
September 30, 1998.................................. 1 (1,199) (1,198)
--- ------ ------
December 31, 1998................................... 1 (1,432) (1,431)
Net loss for the period............................. -- (696) (696)
--- ------ ------
September 30, 1999.................................. 1 (2,128) (2,127)
=== ====== ======
</TABLE>
The accompanying notes are an integral part of these unaudited financial
statements.
F-40
<PAGE>
TELEBERMUDA INTERNATIONAL L.L.C.
(a limited liability company)
UNAUDITED STATEMENTS OF OPERATIONS
For the nine months ended September 30, 1999 and 1998
(in thousands of U.S. dollars)
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Revenue $-- $--
---- ----
Expenses
Amortization of capital assets...................................... 674 674
Interest expense.................................................... 22 22
General and administrative expenses................................. -- 14
---- ----
696 710
---- ----
Net loss and comprehensive loss for the period...................... (696) (710)
==== ====
</TABLE>
The accompanying notes are an integral part of these unaudited financial
statements.
F-41
<PAGE>
TELEBERMUDA INTERNATIONAL L.L.C.
(a limited liability company)
UNAUDITED STATEMENTS OF CASH FLOWS
For the nine months ended September 30, 1999 and 1998
(in thousands of U.S. dollars)
<TABLE>
<CAPTION>
1999 1998
----- -----
<S> <C> <C>
Cash provided by (used in)
Operating activities
Net loss for the period........................................... $(696) $(710)
Items not involving cash
Amortization of capital assets.................................. 674 674
Net change in non-cash operating items
Decrease in other assets........................................ 1 1
Increase in accrued liabilities................................. 21 21
----- -----
-- (14)
----- -----
Financing activities
Due to TeleBermuda International Limited.......................... -- 14
----- -----
Change in cash for the period..................................... -- --
Cash--Beginning of period......................................... 2 2
----- -----
Cash--End of period .............................................. 2 2
===== =====
</TABLE>
The accompanying notes are an integral part of these unaudited financial
statements.
F-42
<PAGE>
TELEBERMUDA INTERNATIONAL L.L.C.
(a limited liability company)
NOTES TO UNAUDITED FINANCIAL STATEMENTS
September 30, 1999 and 1998 and December 31, 1998
(in thousands of U.S. dollars)
1Interim unaudited financial statements
The unaudited balance sheets as at September 30, 1999 and September 30,
1998 and the unaudited statements of members' equity (deficit), operations,
and cash flows for the nine months ended September 30, 1999 and September
30, 1998, in the opinion of management, have been prepared on the same
basis as the audited financial statements and include all adjustments
necessary for the fair statement of the results of the interim periods. All
adjustments reflected in the financial statements are of a normal recurring
nature. The data disclosed in the notes to the unaudited financial
statements for these periods are also unaudited. Results for the nine-month
periods ended September 30, 1999 and 1998 are not necessarily indicative of
the results to be expected for the full year.
2Subsequent events
Effective November 1, 1999, TeleBermuda International Limited, a member
of the Company, indirectly acquired all of the shares that it previously
did not own, and accordingly, now owns 100% of the Company.
F-43
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
You should rely only on the information contained in this prospectus. We have
not authorized anyone to provide you with information that is different.
This prospectus does not offer to sell or ask for offers to buy any of the new
notes in any jurisdiction where it is unlawful, where the person making the
offer is not qualified to do so or to any person who can not legally be offered
the new notes.
The information in this prospectus is current only as of the date on its cover
and may change after that date. For any time after the cover date of this
prospectus we do not represent that our affairs are the same as described or
that the information in this prospectus is correct--nor do we imply those
things by delivering this prospectus or selling securities to you.
Until , 2000, all dealers that effect transactions in the new notes, whether
or not participating in this offering, may be required to deliver a prospectus.
This is in addition to the dealers' obligation to deliver a prospectus when
acting as underwriters and with respect to their unsold allotments or
subscriptions.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
$300,000,000
GlobeNet
Communications
Group Limited
Offer to Exchange
13% Series B Senior Notes Due 2007
For All Outstanding
13% Senior Notes Due 2007
[LOGO]
PROSPECTUS
, 2000
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
Item 20. Indemnification of Directors and Officers
Indemnification Agreements with Directors
We have entered into indemnity agreements with each of our directors.
Pursuant to the director indemnity agreements, we have agreed to indemnify and
save harmless each director, his/her heirs and legal representatives, to the
fullest extent permitted by law, against all costs, charges, liability,
damages, and expenses, including an amount paid to settle an action or to
satisfy a judgment, reasonably incurred by him/her in respect of any civil,
criminal or administrative action or proceeding to which he/she is made a party
by reason of, or in any connection with him/her, being or having been a
director if (1) the director acted in his/her capacity as a director and (2) in
the case of a criminal or administrative action or proceeding that is enforced
by a monetary penalty, the director had reasonable grounds for believing that
his/her conduct was lawful. Directors are required to obtain our consent to any
settlement of any civil, criminal or administrative action or proceeding.
Indemnification Agreements with Officers
We have entered into indemnity agreements with Michael Kedar, James
Fitzgerald, Laurent Duplantie, Scott Socol, Lin Gentemann, Greg Belbeck, Eldon
Blust and Edward Weisbrot. Pursuant to the indemnification agreements, we have
agreed, to the fullest extent permitted by our bye-laws and applicable law, to
indemnify each indemnitee against all expenses actually and reasonably
incurred, judgments, penalties, fines and amounts paid in settlement by such
indemnitee if he/she is, or is threatened to be made, a party to any
threatened, pending, or completed action, suit, arbitration, alternate dispute
resolution mechanism, investigation, administrative hearing or any other
proceeding as a result of his/her status as an employee or officer of the
Company (1) if, in a proceeding other than a proceeding by or in the right of
the Company, he/she acted in good faith and in a manner reasonably believed to
be in our best interests and, with respect to a criminal proceeding, if he/she
had no reasonable cause to believe his/her conduct was unlawful and (2) if, in
a proceeding brought by or in the right of the Company to procure a judgment in
its favor, to the extent such indemnitee is successful, on the merits or
otherwise, provided that if the indemnitee is only partially successful in such
proceeding, we agree to indemnify him/her for such expenses actually and
reasonably incurred by him/her or on his/her behalf in connection with each
successfully resolved claim, issue or matter.
Bye-laws
Our bye-laws provide that, subject to the Companies Act 1981 of Bermuda,
every director, officer and member of a committee constituted in accordance
with our bye-laws is indemnified by us against (1) all civil liabilities, loss,
damage, charge or expense incurred or suffered by him as a director, officer or
committee member while exercising his powers and discharging his duties under
the Companies Act 1981 of Bermuda and our bye-laws and (2) all liabilities
incurred by him as a director, officer or committee member in defending any
proceedings, whether civil or criminal, in which judgment is given in his favor
or in which he is acquitted, or in connection with any application under the
Companies Act 1981 of Bermuda in which relief from liability is granted to him
by the court. The indemnity extends to any person acting as a director, officer
or committee member in the reasonable belief that he has been so appointed or
elected notwithstanding any defect in such appointment or election provided,
however, that the indemnity does not extend to any matter which would render it
void pursuant to the Bermuda Act.
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 of 1933 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 of 1933 and will be governed by the final adjudication of such
issue.
II-1
<PAGE>
Item 21. Exhibits and Financial Statement Schedules
(a) Exhibits
The following instruments and documents are included as exhibits to this
registration statement:
<TABLE>
<CAPTION>
Exhibit
Number Exhibit
------- -------
<C> <S>
*3.1 Memorandum of Association of GlobeNet Communications Group Limited.
*3.2 Bye-Laws of GlobeNet Communications Group Limited dated July 12,
1999.
*4.1 Indenture between GlobeNet Communications Group Limited and Bankers
Trust Company, dated as of July 14, 1999.
*4.2 Registration Rights Agreement among GlobeNet Communications Group
Limited, TD Securities (USA) Inc. and Credit Suisse First Boston
Corporation, dated as of July 14, 1999.
*4.3(a) Credit Agreement among GlobeNet Communications Holdings Ltd., Various
Financial Institutions and Other Persons, Toronto Dominion (Texas)
Inc., Credit Suisse First Boston, and TD Securities (USA) Inc., dated
as of July 14, 1999.
*4.3(b) Guaranty by Alcatel in favor of Lenders under Holdings' Bank Credit
Facility (see Exhibit 4.3(a)) and Toronto Dominion (Texas) Inc.,
dated as of July 14, 1999.
*4.3(c) Reimbursement Agreement between GlobeNet Communications Holdings Ltd.
and Alcatel, dated as of July 14, 1999.
*5.1 Opinion of Vinson & Elkins L.L.P. regarding Legality of the New
Notes.
*5.2 Opinion of Conyers, Dill & Pearman regarding Legality of the New
Notes.
*10.1 Indemnity Agreement dated July 14, 1999 between Anthony Bolland and
GlobeNet Communications Group Limited. (Director)
*10.2 Indemnity Agreement dated May 21, 1999 between Linda Dougherty and
GlobeNet Communications Group Limited. (Director)
*10.3 Indemnity Agreement dated July 14, 1999 between Sebastien Rheaume and
GlobeNet Communications Group Limited. (Director)
*10.4 Indemnity Agreement dated July 14, 1999 between George E. Matelich
and GlobeNet Communications Group Limited. (Director)
*10.5 Indemnity Agreement dated May 21, 1999 between Michael Kedar and
GlobeNet Communications Group Limited. (Director)
*10.6 Indemnity Agreement dated May 21, 1999 between Harley J. Murphy and
GlobeNet Communications Group Limited. (Director)
*10.7 Indemnity Agreement dated July 14, 1999 between Mark A. Pelson and
GlobeNet Communications Group Limited. (Director)
*10.8 Indemnity Agreement dated May 21, 1999 between Jeffrey G. Conyers and
GlobeNet Communications Group Limited. (Director)
*10.9 Indemnity Agreement dated July 14, 1999 between Kevin J. Maroni and
GlobeNet Communications Group Limited. (Director)
*10.10 Indemnity Agreement dated May 21, 1999 between Michael Kedar and
GlobeNet Communications Group Limited. (Officer)
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Exhibit
------- -------
<C> <S>
*10.11 Indemnity Agreement dated May 21, 1999 between Greg Belbeck and
GlobeNet Communications Group Limited. (Officer)
*10.12 Indemnity Agreement dated May 21, 1999 between Lin Gentemann and
GlobeNet Communications Group Limited. (Officer)
*10.13 Indemnity Agreement dated May 21, 1999 between Scott K. Socol and
GlobeNet Communications Group Limited. (Officer)
*10.14 Indemnity Agreement dated May 21, 1999 between Laurent Duplantie and
GlobeNet Communications Group Limited. (Officer)
*10.15 Indemnity Agreement dated July 15, 1999 between James Fitzgerald and
GlobeNet Communications Group Limited. (Officer)
*10.16 Amended & Restated Securityholders' Agreement, dated July 14, 1999.
**10.17 Project Development and Construction Contract Among Alcatel Submarine
Networks, Alcatel Submarine Networks, Inc. and Atlantica Network
(Bermuda) Ltd., dated as of June 16, 1999.
**10.18 AT&T-SSI, Inc. Supply Contract (including Amendment), dated May 16,
1996.
*10.19 1998 Share Option and Incentive Plan, dated December 18, 1998.
*10.20 TBI 1997 Stock Option Plan, dated September 24, 1997.
*10.21 Executive Employment Agreement dated October 1, 1999 between GlobeNet
Communications Group Limited and Jerry A. DeMartino.
*10.22 Stock Option and Compensation Agreement dated October 7, 1999 between
GlobeNet Communications Group Limited and Jerry A. DeMartino.
*10.23 Supplemental Stock Option Agreement dated October 7, 1999 between
GlobeNet Communications Group Limited and Jerry A. DeMartino.
*10.24 Executive Employment Agreement dated October 7, 1999 between
TeleBermuda International (Canada) Limited and Michael Kedar.
*10.25 Supplemental Stock Option Agreement dated October 7, 1999 between
GlobeNet Communications Group Limited and Michael Kedar.
*10.26 Executive Employment Agreement dated October 1, 1999 between
TeleBermuda International Limited and Lin Gentemann.
*10.27 Executive Employment Agreement dated October 7, 1999 between
TeleBermuda International (Canada) Limited and Scott Socol.
*10.28 Executive Employment Agreement dated October 1, 1999 between
TeleBermuda International (Canada) Limited and Laurent Duplantie.
*10.29 Executive Employment Agreement dated October 1, 1999 between
TeleBermuda International (Canada) Limited and Greg Belbeck.
*10.30 Indemnity Agreement dated October 1, 1999 between Edward Weisbrot and
GlobeNet Communications Group Limited. (Officer)
*10.31 Indemnity Agreement dated October 1, 1999 between Eldon Blust and
GlobeNet Communications Group Limited. (Officer)
*10.32 Indemnity Agreement dated October 7, 1999 between Jerry DeMartino and
GlobeNet Communications Group Limited. (Director)
*10.33 Indemnity Agreement dated October 1, 1999 between Jerry DeMartino and
GlobeNet Communications Group Limited. (Officer)
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Exhibit
------- -------
<C> <S>
*12.1 Computation of Ratio of Earnings to Fixed Charges.
*21.1 Subsidiaries of GlobeNet Communications Group Limited.
23.1(a) Consent of PricewaterhouseCoopers (GlobeNet Communications Group
Limited Consolidated Financial Statements).
23.1(b) Consent of PricewaterhouseCoopers (TeleBermuda International L.L.C.
Financial Statements).
*23.2 Consent of Vinson & Elkins L.L.P. (contained in Exhibit 5.1).
*23.3 Consent of Conyers, Dill & Pearman (contained in Exhibit 5.2).
*24.1 Power of Attorney of Michael Kedar, dated August 30, 1999.
*24.2 Power of Attorney of Greg Belbeck, dated August 27, 1999.
*24.3 Power of Attorney of Anthony Bolland, dated August 28, 1999.
*24.4 Power of Attorney of Jeffrey G. Conyers, dated September 3, 1999.
*24.5 Power of Attorney of Sebastien Rheaume, dated August 30, 1999.
*24.6 Power of Attorney of Linda Dougherty, dated August 27, 1999.
*24.7 Power of Attorney of George E. Matelich, dated August 30, 1999.
*24.8 Power of Attorney of Kevin J. Maroni, dated August 30, 1999.
*24.9 Power of Attorney of Harley J. Murphy, dated August 27, 1999.
*24.10 Power of Attorney of Mark A. Pelson, dated September 17, 1999.
*25.1 Statement of Eligibility of Trustee
*27.1 Financial Data Schedule
99.1 Form of Letter of Transmittal
99.2 Form of Letter to Clients
99.3 Form of Letter to Registered Holders and DTC Participants
99.4 Form of Notice of Guaranteed Delivery
</TABLE>
- --------
* Previously filed.
** Material omitted and filed separately with the Commission pursuant to a
confidential treatment request.
(b) Financial Statement Schedules
Schedules for which provision is made in the applicable accounting
regulations of the Securities and Exchange Commission are not required under
the related instructions, are inapplicable or not material, or the information
called for thereby is otherwise included in the consolidated financial
statements or related notes and therefore has been omitted.
Item 22. Undertakings
The undersigned registrant hereby undertakes to respond to requests for
information that are incorporated by reference into the prospectus pursuant to
Items 4, 10(b), 11, or 13 of this form within one business day of receipt of
any such request and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the registration statement through
the date of responding to the request.
The undersigned registrant hereby undertakes to supply by means of a post-
effective amendment all information concerning a transaction, and the company
being acquired involved therein, that was not the subject of and included in
the registration statement when it became effective.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Concord, Province of
Ontario, Canada, on January 27, 2000.
GlobeNet Communications Group
Limited
/s/ Michael Kedar
By: _________________________________
Michael Kedar
Title: Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
Name Title Date
---- ----- ----
<S> <C> <C>
/s/ Michael Kedar Chief Executive Officer January 27, 2000
______________________________________ and Director, Executive
Michael Kedar Chairman (principal
executive officer and
director)
/s/ Greg Belbeck Chief Financial Officer January 27, 2000
______________________________________ (principal financial
Greg Belbeck officer and principal
accounting officer)
/s/ Anthony Bolland* Director January 27, 2000
______________________________________
Anthony Bolland
Director
______________________________________
Jeffrey G. Conyers
Director
______________________________________
Sebastien Rheaume
/s/ Linda Dougherty* Director January 27, 2000
______________________________________
Linda Dougherty
/s/ George E. Matelich* Director January 27, 2000
______________________________________
George E. Matelich
/s/ Kevin J. Maroni* Director January 27, 2000
______________________________________
Kevin J. Maroni
Director
______________________________________
Harley J. Murphy
/s/ Mark A. Pelson* Director and authorized January 27, 2000
______________________________________ representative in the
Mark A. Pelson United States
</TABLE>
* The undersigned by signing his or her name hereto does hereby execute this
registration statement pursuant to a power of attorney filed as an exhibit
to this registration statement.
II-5
<PAGE>
Exhibit 23.1(a)
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
We hereby consent to the use in this Registration Statement on Form S-4 of
GlobeNet Communications Group Limited of our report dated February 22, 1999
relating to the consolidated financial statements of GlobeNet Communications
Group Limited for the years ended December 31, 1998 and 1997 and the ten month
period ended December 31, 1996, which appears in such Registration Statement. We
also consent to the references to us under the headings "Chartered Accountants"
and "Selected Consolidated Financial Data" in such Registration Statement.
/s/ PricewaterhouseCoopers
Chartered Accountants
Hamilton, Bermuda
January 26, 2000
<PAGE>
Exhibit 23.1(b)
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
We hereby consent to the use in this Registration Statement on Form S-4 of
GlobeNet Communications Group Limited of our report dated February 22, 1999
relating to the financial statements of TeleBermuda International L.L.C. for the
years ended December 31, 1998 and 1997 and the period from May 17, 1996, date of
organization, to December 31, 1996, which appears in such Registration
Statement. We also consent to the reference to us under the heading "Chartered
Accountants" in such Registration Statement.
/s/ PricewaterhouseCoopers L.L.P.
Chartered Accountants
Toronto, Canada
January 26, 2000
<PAGE>
EXHIBIT 99.1
GLOBENET COMMUNICATIONS GROUP LIMITED
LETTER OF TRANSMITTAL
FOR
TENDER OF ALL OUTSTANDING
13% SENIOR NOTES DUE 2007
IN EXCHANGE FOR
13% SERIES B SENIOR NOTES DUE 2007 THAT HAVE
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME,
ON MARCH 6, 2000, UNLESS EXTENDED (THE "EXPIRATION DATE").
OLD NOTES TENDERED IN THE EXCHANGE OFFER MAY BE WITHDRAWN
AT ANY TIME PRIOR TO 5:00 P.M., NEW YORK CITY TIME,
ON THE EXPIRATION DATE.
DELIVER TO THE EXCHANGE AGENT:
BANKERS TRUST COMPANY
By Hand: By Mail:
Bankers Trust Company BT Services Tennessee, Inc.
Corporate Trust and Agency Group Reorganization Unit
Attention: Reorganization Department P.O. Box 292737
Receipt & Delivery Window Nashville, Tennessee 37229-2737
123 Washington Street, 1st Floor Facsimile: (615) 835-3701
New York, NY 10006
By Overnight Mail or Courier:
BT Services Tennessee, Inc.
Corporate Trust and Agency Group
Reorganization Unit
648 Grassmere Park Road
Nashville, Tennessee 37211
Confirm by Telephone: (615) 835-3572
Information:
(800) 735-7777
----------------
DELIVERY OF THIS INSTRUMENT TO AN ADDRESS OTHER THAN AS SET FORTH ABOVE OR
TRANSMISSION OF INSTRUCTIONS VIA A FACSIMILE NUMBER OTHER THAN THE ONE LISTED
ABOVE WILL NOT CONSTITUTE A VALID DELIVERY. THE INSTRUCTIONS ACCOMPANYING THIS
LETTER OF TRANSMITTAL SHOULD BE READ CAREFULLY BEFORE THIS LETTER OF
TRANSMITTAL IS COMPLETED.
The undersigned hereby acknowledges receipt and review of the Prospectus
dated , 2000 (the "Prospectus") of GlobeNet Communications Group
Limited, a Bermuda company (the "Company") and this Letter of Transmittal (the
"Letter of Transmittal"), which together describe the Company's offer (the
"Exchange Offer") to exchange its 13% Series B Senior Notes due 2007 that have
been registered under the Securities Act of 1933 (the "Exchange Notes")
pursuant to a Registration Statement of which the Prospectus is a part, for a
like principal amount of its issued and outstanding 13% Senior Notes due 2007
(the "Old Notes"). Capitalized terms used but not defined herein have the
respective meanings given to them in the Prospectus.
The Company reserves the right, at any time or from time to time, to extend
the Exchange Offer at its discretion, in which event the term "Expiration
Date" shall mean the latest date to which the Exchange Offer is
<PAGE>
extended. The Company shall notify the holders of the Old Notes of any
extension by oral or written notice and will mail to the record holders of Old
Notes an announcement thereof, each prior to 9:00 a.m., New York City time, on
the next business day after the previously scheduled Expiration Date.
This Letter of Transmittal is to be used by a holder of Old Notes if
original Old Notes, if available, are to be forwarded herewith or an Agent's
Message is to be used if delivery of Old Notes is to be made by book-entry
transfer to the account maintained by the Exchange Agent at The Depository
Trust Company (the "Book-Entry Transfer Facility") pursuant to the procedures
set forth in the Prospectus under the caption "Exchange Offer--Procedures for
Tendering" and "--Book-Entry Transfer." Holders of Old Notes whose Old Notes
are not immediately available, or who are unable to deliver their Old Notes
and all other documents required by this Letter of Transmittal to the Exchange
Agent on or prior to the Expiration Date, or who are unable to complete the
procedure for book-entry transfer on a timely basis, must tender their Old
Notes according to the guaranteed delivery procedures set forth in the
Prospectus under the caption "Exchange Offer--Guaranteed Delivery Procedures."
See Instruction 2. Delivery of documents to the Book-Entry Transfer Facility
does not constitute delivery to the Exchange Agent.
The term "holder" with respect to the Exchange Offer means any person in
whose name Old Notes are registered on the books of the Company or any other
person who has obtained a properly completed bond power from the registered
holder. The undersigned has completed, executed and delivered this Letter of
Transmittal to indicate the action the undersigned desires to take with
respect to the Exchange Offer. Holders who wish to tender their Old Notes must
complete this Letter of Transmittal in its entirety.
PLEASE READ THE ENTIRE LETTER OF TRANSMITTAL AND THE PROSPECTUS CAREFULLY
BEFORE CHECKING ANY BOX BELOW.
THE INSTRUCTIONS INCLUDED WITH THIS LETTER OF TRANSMITTAL MUST BE FOLLOWED.
QUESTIONS AND REQUESTS FOR ASSISTANCE OR FOR ADDITIONAL COPIES OF THE
PROSPECTUS AND THIS LETTER OF TRANSMITTAL MAY BE DIRECTED TO THE EXCHANGE
AGENT.
List below the Old Notes to which this Letter of Transmittal relates. If
the space below is inadequate, list the registered numbers and principal
amounts on a separate signed schedule and affix the list to this Letter of
Transmittal.
DESCRIPTION OF OLD NOTES TENDERED
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Name(s) and Address(es) of
Registered
Holder(s) Exactly as
Name(s)
Appear(s) on Old Notes
(Please Fill In, If Blank) Old Note(s) Tendered
- -----------------------------------------------------------------------------
Aggregate
Principal
Amount Principal
Registered Represented by Amount
Number(s)* Note(s) Tendered**
-------------------------------------------------
<S> <C> <C> <C>
-------------------------------------------------
-------------------------------------------------
-------------------------------------------------
-------------------------------------------------
-------------------------------------------------
</TABLE>
- -------------------------------------------------------------------------------
* Need not be completed by book-entry holders.
** Unless otherwise indicated, any tendering holder of Old Notes will be
deemed to have tendered the entire aggregate principal amount represented
by such Old Notes. All tenders must be in integral multiples of $1,000.
1
<PAGE>
[_]CHECK HERE IF TENDERED OLD NOTES ARE ENCLOSED HEREWITH.
[_]CHECK HERE IF TENDERED OLD NOTES ARE BEING DELIVERED BY BOOK-ENTRY TRANSFER
MADE TO THE ACCOUNT MAINTAINED BY THE EXCHANGE AGENT WITH THE BOOK-ENTRY
TRANSFER FACILITY AND COMPLETE THE FOLLOWING (FOR USE BY ELIGIBLE
INSTITUTIONS ONLY):
Name of Tendering Institution: ________________________________________________
Account Number: _______________________________________________________________
Transaction Code Number: ______________________________________________________
[_]CHECK HERE IF TENDERED OLD NOTES ARE BEING DELIVERED PURSUANT TO A NOTICE
OF GUARANTEED DELIVERY ENCLOSED HEREWITH AND COMPLETE THE FOLLOWING (FOR
USE BY ELIGIBLE INSTITUTIONS ONLY):
Name(s) of Registered holder(s) of Old Notes: _________________________________
Date of Execution of Notice of Guaranteed Delivery: ___________________________
Window Ticket Number (if available): __________________________________________
Name of Eligible Institution that Guaranteed Delivery: ________________________
Account Number (if delivered by book-entry transfer): _________________________
[_]CHECK HERE IF YOU ARE A BROKER-DEALER AND WISH TO RECEIVE 10 ADDITIONAL
COPIES OF THE PROSPECTUS AND 10 COPIES OF ANY AMENDMENTS OR SUPPLEMENTS
THERETO:
Name: _________________________________________________________________________
Address: ______________________________________________________________________
SIGNATURES MUST BE PROVIDED BELOW
PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY
Ladies and Gentlemen:
Subject to the terms and conditions of the Exchange Offer, the undersigned
hereby tenders to the Company for exchange the principal amount of Old Notes
indicated above. Subject to and effective upon the acceptance for exchange of
the principal amount of Old Notes tendered in accordance with this Letter of
Transmittal, the undersigned hereby exchanges, assigns and transfers to the
Company all right, title and interest in and to the Old Notes tendered for
exchange hereby. The undersigned hereby irrevocably constitutes and appoints
the Exchange Agent the agent and attorney-in-fact of the undersigned (with
full knowledge that the Exchange Agent also acts as the agent of the Company
in connection with the Exchange Offer) with respect to the tendered Old Notes
with full power of substitution to (i) deliver such Old Notes, or transfer
ownership of such Old Notes on the account books maintained by the Book-Entry
Transfer Facility, to the Company and deliver all accompanying evidences of
transfer and authenticity, and (ii) present such Old Notes for transfer on the
books of the Company and receive all benefits and otherwise exercise all
rights of beneficial ownership of such Old Notes, all in accordance with the
terms of the Exchange Offer. The power of attorney granted in this paragraph
shall be deemed to be irrevocable and coupled with an interest.
The undersigned hereby represents and warrants that the undersigned has
full power and authority to tender, exchange, assign and transfer the Old
Notes tendered hereby and to acquire the Exchange Notes issuable upon
2
<PAGE>
the exchange of such tendered Old Notes, and that the Company will acquire
good and unencumbered title thereto, free and clear of all liens,
restrictions, charges and encumbrances and not subject to any adverse claim,
when the same are accepted for exchange by the Company.
The undersigned acknowledge(s) that this Exchange Offer is being made in
reliance upon interpretations contained in no-action letters issued to third
parties by the staff of the Securities and Exchange Commission (the "SEC"),
including Exxon Capital Holdings Corporation, SEC No-Action Letter (available
April 13, 1989), Morgan Stanley & Co. Inc., SEC No-Action Letter (available
June 5, 1991) (the "Morgan Stanley Letter") and Mary Kay Cosmetics, Inc., SEC
No-Action Letter (available June 5, 1991), that the Exchange Notes issued in
exchange for the Old Notes pursuant to the Exchange Offer may be offered for
resale, resold and otherwise transferred by holders thereof (other than a
broker-dealer who purchased Old Notes exchanged for such Exchange Notes
directly from the Company to resell pursuant to Rule 144A or any other
available exemption under the Securities Act), without compliance with the
registration and prospectus delivery provisions of the Securities Act,
provided that such Exchange Notes are acquired in the ordinary course of such
holders' business and such holders are not participating in, and have no
arrangement with any person to participate in, the distribution of such
Exchange Notes. The undersigned specifically represent(s) to the Company that
(i) any Exchange Notes acquired in exchange for Old Notes tendered hereby are
being acquired in the ordinary course of business of the person receiving such
Exchange Notes, whether or not the undersigned, (ii) the undersigned is not
participating in, and has no arrangement with any person to participate in,
the distribution of Exchange Notes, and (iii) neither the undersigned nor any
such other person is an "affiliate" (as defined in Rule 405 under the
Securities Act) of the Company or a broker-dealer tendering Old Notes acquired
directly from the Company for its own account.
If the undersigned is not a broker-dealer, the undersigned represents that
it is not engaged in, and does not intend to engage in, a distribution of
Exchange Notes. If the undersigned or the person receiving the Exchange Notes
is a broker-dealer, the undersigned represents that it or such other person
will receive Exchange Notes for its own account in exchange for Old Notes that
were acquired as a result of market-making activities or other trading
activities, and the undersigned acknowledges that it or such other person will
deliver a prospectus meeting the requirements of the Securities Act in
connection with any resale of such Exchange Notes; however, by so
acknowledging and by delivering a prospectus, the undersigned or such other
person will not be deemed to admit that it is an "underwriter" within the
meaning of the Securities Act. The undersigned acknowledges that if the
undersigned is participating in the Exchange Offer for the purpose of
distributing the Exchange Notes (i) the undersigned cannot rely on the
position of the staff of the SEC in the Morgan Stanley Letter and similar SEC
no-action letters, and, in the absence of an exemption therefrom, must comply
with the registration and prospectus delivery requirements of the Securities
Act in connection with a secondary resale transaction of the Exchange Notes,
in which case the registration statement must contain the selling security
holder information required by Item 507 or Item 508, as applicable, of
Regulation S-K of the SEC, and (ii) a broker-dealer that delivers such a
prospectus to purchasers in connection with such resales will be subject to
certain of the civil liability provisions under the Securities Act and will be
bound by the provisions of the Registration Rights Agreement (including
certain indemnification rights and obligations).
The undersigned will, upon request, execute and deliver any additional
documents deemed by the Exchange Agent or the Company to be necessary or
desirable to complete the exchange, assignment and transfer of the Old Notes
tendered hereby, including the transfer of such Old Notes on the account books
maintained by the Book-Entry Transfer Facility.
For purposes of the Exchange Offer, the Company shall be deemed to have
accepted for exchange validly tendered Old Notes when, as and if the Company
gives oral or written notice thereof to the Exchange Agent. Any tendered Old
Notes that are not accepted for exchange pursuant to the Exchange Offer for
any reason will be returned, without expense, to the undersigned at the
address shown below or at a different address as may be indicated herein under
"Special Delivery Instructions" as promptly as practicable after the
Expiration Date.
All authority conferred or agreed to be conferred by this Letter of
Transmittal shall survive the death, incapacity or dissolution of the
undersigned, and every obligation of the undersigned under this Letter of
Transmittal shall be binding upon the undersigned's heirs, personal
representatives, successors and assigns.
3
<PAGE>
The undersigned acknowledges that the Company's acceptance of properly
tendered Old Notes pursuant to the procedures described under the caption
"Exchange Offer--Procedures for Tendering" in the Prospectus and in the
instructions hereto will constitute a binding agreement between the
undersigned and the Company upon the terms and subject to the conditions of
the Exchange Offer.
Unless otherwise indicated under "Special Issuance Instructions," please
issue the Exchange Notes issued in exchange for the Old Notes accepted for
exchange and return any Old Notes not tendered or not exchanged, in the
name(s) of the undersigned. Similarly, unless otherwise indicated under
"Special Delivery Instructions," please mail or deliver the Exchange Notes
issued in exchange for the Old Notes accepted for exchange and any Old Notes
not tendered or not exchanged (and accompanying documents, as appropriate) to
the undersigned at the address shown below the undersigned's signature(s). In
the event that both "Special Issuance Instructions" and "Special Delivery
Instructions" are completed, please issue the Exchange Notes issued in
exchange for the Old Notes accepted for exchange in the name(s) of, and return
any Old Notes not tendered or not exchanged to, the person(s) so indicated.
The undersigned recognizes that the Company has no obligation pursuant to the
"Special Issuance Instructions" and "Special Delivery Instructions" to
transfer any Old Notes from the name of the registered holder(s) thereof if
the Company does not accept for exchange any of the Old Notes so tendered for
exchange.
SPECIAL ISSUANCE INSTRUCTIONS SPECIAL DELIVERY INSTRUCTIONS
(SEE INSTRUCTIONS 5 AND 6) (SEE INSTRUCTIONS 5 AND 6)
To be completed ONLY (i) if Old To be completed ONLY if Old Notes
Notes in a principal amount not in a principal amount not ten-
tendered, or Exchange Notes issued dered, or Exchange Notes issued in
in exchange for Old Notes accepted exchange for Old Notes accepted
for exchange, are to be issued in for exchange, are to be mailed or
the name of someone other than the delivered to someone other than
undersigned, or (ii) if Old Notes the undersigned, or to the under-
tendered by book-entry transfer signed at an address other than
which are not exchanged are to be that shown below the undersigned's
returned by credit to an account signature.
maintained at the Book-Entry
Transfer Facility. Issue Exchange
Notes and/or Old Notes to:
Mail or deliver Exchange Notes
and/or Old Notes to:
Name ______________________________
(Please Type or Print) Name_______________________________
___________________________________ (Please Type or Print)
___________________________________
Address ___________________________
Address ___________________________
___________________________________ ___________________________________
(Include Zip Code) (Include Zip Code)
___________________________________
___________________________________ (Tax Identification or Social
(Tax Identification or Social Security Number)
Security Number)
(Complete Substitute Form W-9)
[_]Credit unexchanged Old Notes delivered by book-entry transfer to the Book-
Entry Transfer Facility set forth below:
Book-Entry Transfer Facility Account Number:
4
<PAGE>
IMPORTANT
PLEASE SIGN HERE WHETHER OR NOT
OLD NOTES ARE BEING PHYSICALLY TENDERED HEREBY
(Complete Accompanying Substitute Form W-9 on Reverse Side)
X ___________________________________________________________________________
X ___________________________________________________________________________
(Signature(s) of Registered Holders or Old Notes)
Dated _________________________________________________________
(The above lines must be signed by the registered holder(s) of Old Notes as
name(s) appear(s) on the Old Notes or on a security position listing, or by
person(s) authorized to become registered holder(s) by a properly completed
bond power from the registered holder(s), a copy of which must be
transmitted with this Letter of Transmittal. If Old Notes to which this
Letter of Transmittal relate are held of record by two or more joint
holders, then all such holders must sign this Letter of Transmittal. If
signature is by a trustee, executor, administrator, guardian, attorney-in-
fact, officer of a corporation or other person acting in a fiduciary or
representative capacity, then such person must (i) set forth his or her full
title below and (ii) unless waived by the Company, submit evidence
satisfactory to the Company of such person's authority so to act. See
Instruction 5 regarding the completion of this Letter of Transmittal,
printed below.)
Name(s): ____________________________________________________________________
(Please Type or Print)
Capacity: ___________________________________________________________________
Address: ____________________________________________________________________
(Include Zip Code)
Area Code and Telephone Number: _____________________________________________
MEDALLION SIGNATURE GUARANTEE
(If Required by Instruction 5)
Certain signatures must be Guaranteed by an Eligible Institution.
Signature(s) Guaranteed by an Eligible Institution: _________________________
(Authorized Signature)
_____________________________________________________________________________
(Title)
_____________________________________________________________________________
(Name of Firm)
_____________________________________________________________________________
(Address, Include Zip Code)
_____________________________________________________________________________
(Area Code and Telephone Number)
Dated: ______________________________________________________________________
5
<PAGE>
INSTRUCTIONS
Forming Part of the Terms and Conditions of the Exchange Offer
1. Delivery of this Letter of Transmittal and Old Notes or Book-Entry
Confirmations. All physically delivered Old Notes or any confirmation of a
book-entry transfer to the Exchange Agent's account at the Book-Entry Transfer
Facility of Old Notes tendered by book-entry transfer (a "Book-Entry
Confirmation"), as well as a properly completed and duly executed copy of this
Letter of Transmittal or Agent's Message or facsimile hereof, and any other
documents required by this Letter of Transmittal, must be received by the
Exchange Agent at its address set forth herein prior to 5:00 p.m., New York
City time, on the Expiration Date. The method of delivery of the tendered Old
Notes, this Letter of Transmittal and all other required documents to the
Exchange Agent is at the election and risk of the holder and, except as
otherwise provided below, the delivery will be deemed made only when actually
received or confirmed by the Exchange Agent. If delivery is by mail,
registered mail with return receipt requested, properly insured, is
recommended. As an alternative to delivery by mail, the holders may wish to
consider using an overnight or hand delivery service. In all cases, sufficient
time should be allowed to assure delivery to the Exchange Agent before the
Expiration Date. No Letter of Transmittal or Old Notes should be sent to the
Company.
2. Guaranteed Delivery Procedures. Holders who wish to tender their Old
Notes and whose Old Notes are not immediately available or who cannot deliver
their Old Notes, this Letter of Transmittal or any other documents required
hereby to the Exchange Agent prior to the Expiration Date or who cannot
complete the procedure for book-entry transfer on a timely basis and deliver
an Agent's Message, must tender their Old Notes according to the guaranteed
delivery procedures set forth in the Prospectus. Pursuant to such procedures:
(1) such tender must be made by or through a firm which is a member of a
registered national securities exchange or of the National Association of
Securities Dealers, Inc., a commercial bank or a trust company having an
office or correspondent in the United States or an "eligible guarantor
institution" within the meaning of Rule 17Ad-15 under the Exchange Act (an
"Eligible Institution"); (ii) prior to the Expiration Date, the Exchange Agent
must have received from the Eligible Institution a properly completed and duly
executed Notice of Guaranteed Delivery (by facsimile transmission, mail or
hand delivery) setting forth the name and address of the holder of the Old
Notes, the registration number(s) of such Old Notes and the total principal
amount of Old Notes tendered, stating that the tender is being made thereby
and guaranteeing that, within three business days after the Expiration Date,
this Letter of Transmittal (or facsimile hereof) together with the Old Notes
in proper form for transfer (or a Book-Entry Confirmation) and any other
documents required hereby, must be deposited by the Eligible Institution with
the Exchange Agent; and (iii) the certificates for all physically tendered
shares of Old Notes, in proper form for transfer (or Book-Entry Confirmation,
as the case may be) and all other documents required hereby are received by
the Exchange Agent within three business days after the Expiration Date.
Any holder of Old Notes who wishes to tender Old Notes pursuant to the
guaranteed delivery procedures described above must ensure that the Exchange
Agent receives the Notice of Guaranteed Delivery prior to 5:00 p.m., New York
City time, on the Expiration Date. Upon request of the Exchange Agent, a
Notice of Guaranteed Delivery will be sent to holders who wish to tender their
Old Notes according to the guaranteed delivery procedures set forth above.
See "Exchange Offer--Guaranteed Delivery Procedures" section of the
Prospectus.
3. Tender by Holder. Only a holder of Old Notes may tender such Old Notes
in the Exchange Offer. Any beneficial holder of Old Notes who is not the
registered holder and who wishes to tender should arrange with the registered
holder to execute and deliver this Letter of Transmittal on such beneficial
owner's behalf or must, prior to completing and executing this Letter of
Transmittal and delivering such beneficial owner's Old Notes, either make
appropriate arrangements to register ownership of the Old Notes in such
beneficial holder's name or obtain a properly completed bond power from the
registered holder.
6
<PAGE>
4. Partial Tenders. Tenders of Old Notes will be accepted only in integral
multiples of $1,000. If less than the entire principal amount of any Old Notes
is tendered, the tendering holder should fill in the principal amount tendered
in the third column of the box entitled "Description of Old Notes Tendered"
above. The entire principal amount of Old Notes delivered to the Exchange
Agent will be deemed to have been tendered unless otherwise indicated. If the
entire principal amount of all Old Notes is not tendered, then Old Notes for
the principal amount of Old Notes not tendered and Exchange Notes issued in
exchange for any Old Notes accepted will be sent to the holder at such
holder's registered address, unless a different address is provided in the
appropriate box on this Letter of Transmittal, promptly after the Old Notes
are accepted for exchange.
5. Signatures on this Letter of Transmittal; Bond Powers and Endorsements;
Medallion Guarantee of Signatures. If this Letter of Transmittal (or facsimile
hereof) is signed by the record holder(s) of the Old Notes tendered hereby,
the signature must correspond with the name(s) as written on the face of the
Old Notes without alteration, enlargement or any change whatsoever. If this
Letter of Transmittal (or facsimile hereof) is signed by a participant in the
Book-Entry Transfer Facility, the signature must correspond with the name as
it appears on the security position listing as the holder of the Old Notes.
If this Letter of Transmittal (or facsimile hereof) is signed by the
registered holder or holders of Old Notes listed and tendered hereby and the
Exchange Notes issued in exchange therefor are to be issued (or any untendered
principal amount of Old Notes is to be reissued) to the registered holder, the
said holder need not and should not endorse any tendered Old Notes, nor
provide a separate bond power. In any other case, such holder must either
properly endorse the Old Notes tendered or transmit a properly completed
separate bond power with this Letter of Transmittal, with the signatures on
the endorsement or bond power guaranteed by an Eligible Institution.
If this Letter of Transmittal (or facsimile hereof) is signed by a person
other than the registered holder or holders of any Old Notes listed, such Old
Notes must be endorsed or accompanied by appropriate bond powers, in each case
signed as the name of the registered holder or holders appears on the Old
Notes.
If this Letter of Transmittal (or facsimile hereof) or any Old Notes or
bond powers are signed by trustees, executors, administrators, guardians,
attorneys-in-fact, officers of corporations or others acting in a fiduciary or
representative capacity, such persons should so indicate when signing, and,
unless waived by the Company, evidence satisfactory to the Company of their
authority to act must be submitted with this Letter of Transmittal.
Endorsements on Old Notes or signatures on bond powers required by this
Instruction 5 must be guaranteed by an Eligible Institution.
No signature guarantee is required if (i) this Letter of Transmittal (or
facsimile hereof) is signed by the registered holder(s) of the Old Notes
tendered herein (or by a participant in the Book-Entry Transfer Facility whose
name appears on a security position listing as the owner of the tendered Old
Notes) and the Exchange Notes are to be issued directly to such registered
holder(s) (or, if signed by a participant in the Book-Entry Transfer Facility,
deposited to such participant's account at such Book-Entry Transfer Facility)
and neither the box entitled "Special Delivery Instructions" nor the box
entitled "Special Registration Instructions" has been completed, or (ii) such
Old Notes are tendered for the account of an Eligible Institution. In all
other cases, all signatures on this Letter of Transmittal (or facsimile
hereof) must be guaranteed by an Eligible Institution.
6. Special Registration and Delivery Instructions. Tendering holders should
indicate, in the applicable box or boxes, the name and address (or account at
the Book-Entry Transfer Facility) to which Exchange Notes or substitute Old
Notes for principal amounts not tendered or not accepted for exchange are to
be issued or sent, if different from the name and address of the person
signing this Letter of Transmittal. In the case of issuance in a different
name, the taxpayer identification or social security number of the person
named must also be indicated.
8
<PAGE>
7. Transfer Taxes. The Company will pay all transfer taxes, if any,
applicable to the exchange of Old Notes pursuant to the Exchange Offer. If,
however, Exchange Notes or Old Notes for principal amounts not tendered or
accepted for exchange are to be delivered to, or are to be registered or
issued in the name of, any person other than the registered holder of the Old
Notes tendered hereby, or if tendered Old Notes are registered in the name of
any person other than the person signing this Letter of Transmittal, or if a
transfer tax is imposed for any reason other than the exchange of Old Notes
pursuant to the Exchange Offer, then the amount of any such transfer taxes
(whether imposed on the registered holder or any other persons) will be
payable by the tendering holder. If satisfactory evidence of payment of such
taxes or exemption therefrom is not submitted with this Letter of Transmittal,
the amount of such transfer taxes will be billed directly to such tendering
holder.
EXCEPT AS PROVIDED IN THIS INSTRUCTION 7, IT WILL NOT BE NECESSARY FOR
TRANSFER TAX STAMPS TO BE AFFIXED TO THE OLD NOTES LISTED IN THIS LETTER OF
TRANSMITTAL.
8. Tax Identification Number. Federal income tax law requires that a holder
of any Old Notes which are accepted for exchange must provide the Company (as
payor) with its correct taxpayer identification number ("TIN"), which, in the
case of a holder who is an individual is such holder's social security number.
If the Company is not provided with the correct TIN, the holder may be subject
to a $50 penalty imposed by Internal Revenue Service. (If withholding results
in an over-payment of taxes, a refund may be obtained). Certain holders
(including, among others, all corporations and certain foreign individuals)
are not subject to these backup withholding and reporting requirements. See
the enclosed "Guidelines for Certification of Taxpayer Identification Number
on Substitute Form W-9" for additional instructions.
To prevent backup withholding, each tendering holder must provide such
holder's correct TIN by completing the Substitute Form W-9 set forth herein,
certifying that the TIN provided is correct (or that such holder is awaiting a
TIN), and that (i) the holder has not been notified by the Internal Revenue
Service that such holder is subject to backup withholding as a result of
failure to report all interest or dividends or (ii) the Internal Revenue
Service has notified the holder that such holder is no longer subject to
backup withholding. If the Old Notes are registered in more than one name or
are not in the name of the actual owner, see the enclosed "Guidelines for
Certification of Taxpayer Identification Number of Substitute Form W-9" for
information on which TIN to report.
The Company reserves the right in its sole discretion to take whatever
steps are necessary to comply with the Company's obligations regarding backup
withholding.
9. Validity of Tenders. All questions as to the validity, form, eligibility
(including time of receipt), acceptance and withdrawal of tendered Old Notes
will be determined by the Company in its sole discretion, which determination
will be final and binding. The Company reserves the absolute right to reject
any and all Old Notes not properly tendered or any Old Notes the Company's
acceptance of which would, in the opinion of the Company or its counsel, be
unlawful. The Company also reserves the absolute right to waive any conditions
of the Exchange Offer or defects or irregularities in tenders as to particular
Old Notes. The Company's interpretation of the terms and conditions of the
Exchange Offer (includes this Letter of Transmittal and the instructions
hereto) shall be final and binding on all parties. Unless waived, any defects
or irregularities in connection with tenders of Old Notes must be cured within
such time as the Company shall determine. Neither the Company, the Exchange
Agent nor any person shall be under any duty to give notification of defects
or irregularities with regard to tenders of Old Notes nor shall any of them
incur any liability for failure to give such notification.
10. Waiver of Conditions. The Company reserves the absolute right to waive,
in whole or part, any of the conditions to the Exchange Offer set forth in the
Prospectus.
11. No Conditional Tender. No alternative, conditional, irregular or
contingent tender of Old Notes on transmittal of this Letter of Transmittal
will be accepted.
8
<PAGE>
12. Mutilated, Lost, Stolen or Destroyed Old Notes. Any holder whose Old
Notes have been mutilated, lost, stolen or destroyed should contact the
Exchange Agent at the address indicated above for further instructions.
13. Requests for Assistance or Additional Copies. Requests for assistance
or for additional copies of the Prospectus or this Letter of Transmittal may
be directed to the Exchange Agent at the address or telephone number set forth
on the cover page of this Letter of Transmittal. Holders may also contact
their broker, dealer, commercial bank, trust company or other nominee for
assistance concerning the Exchange Offer.
14. Withdrawal. Tenders may be withdrawn only pursuant to the limited
withdrawal rights set forth in the Prospectus under the caption "Exchange
Offer --Withdrawal of Tenders."
IMPORTANT: THIS LETTER OF TRANSMITTAL OR A MANUALLY SIGNED FACSIMILE HEREOF
(TOGETHER WITH THE OLD NOTES DELIVERED BY BOOK-ENTRY TRANSFER OR IN ORIGINAL
HARD COPY FORM) MUST BE RECEIVED BY THE EXCHANGE AGENT, OR THE NOTICE OF
GUARANTEED DELIVERY MUST BE RECEIVED BY THE EXCHANGE AGENT, PRIOR TO THE
EXPIRATION DATE.
9
<PAGE>
Part 1--PLEASE PROVIDE YOUR Social Security Number
SUBSTITUTE TIN IN THE BOX AT RIGHT AND OR Employer
CERTIFY BY SIGNING AND DATING Identification Number
BELOW ---------------------
Form W-9 -----------------------------------------------------
Part 2--Certification--Under Part 3--
penalties of perjury, I certify
Department of the that: Awaiting TIN [_]
Treasury Internal Revenue
Service (1) The number shown on this Please complete
form is my correct Taxpayer the Certificate
Payer's Request for Identification Number (or I of Awaiting
Taxpayer Identification am waiting for a number to Taxpayer
Number (TIN) be issued to me) and Identification
Number below.
(2) I am not subject to backup
withholding either because I
have not been notified by
the Internal Revenue Service
("IRS") that I am subject to
backup withholding as a re-
sult of failure to report
all interest or dividends,
or the IRS has notified me
that I am no longer subject
to backup withholding.
-----------------------------------------------------
Certification Instructions--You must cross out
item (2) in Part 2 above if you have been notified
by the IRS that you are subject to backup with-
holding because of underreporting interest or div-
idends on your tax return. However, if after being
notified by the IRS that you were subject to
backup withholding you received another notifica-
tion from the IRS stating that you are no longer
subject to backup withholding, do not cross out
item (2).
SIGNATURE:_________________ DATE _________________
NOTE: FAILURE TO COMPLETE AND RETURN THIS FORM MAY RESULT IN BACKUP
WITHHOLDING OF 31% OF ANY PAYMENTS MADE TO YOU PURSUANT TO THE
OFFER. PLEASE REVIEW THE ENCLOSED GUIDELINES FOR CERTIFICATION OF
TAXPAYER IDENTIFICATION NUMBER ON SUBSTITUTE FORM W-9 FOR ADDITIONAL
DETAILS.
YOU MUST COMPLETE THE FOLLOWING CERTIFICATE IF YOU CHECKED
THE BOX IN PART 3 OF THE SUBSTITUTE FORM W-9
CERTIFICATE OF AWAITING TAXPAYER IDENTIFICATION NUMBER
I certify under penalties of perjury that a taxpayer identification number
has not been issued to me, and either (a) I have mailed or delivered an
application to receive a taxpayer identification number to the appropriate
Internal Revenue Service Center or Social Security Administration Office
or (b) I intend to mail or deliver an application in the near future. I
understand that if I do not provide a taxpayer identification number to
the payor within 60 days, 31% of all reportable payments made to me
thereafter will be withheld until I provide a number.
------------------------------------- -----------------------------------
Signature Date
CERTIFICATE FOR FOREIGN RECORD HOLDERS
Under penalties of perjury, I certify that I am not a United States
citizen or resident (or I am signing for a foreign corporation,
partnership, estate or trust).
------------------------------------- -----------------------------------
Signature Date
10
<PAGE>
EXHIBIT 99.2
GLOBENET COMMUNICATIONS GROUP LIMITED
LETTER TO CLIENTS
FOR
TENDER OF ALL OUTSTANDING
13% SENIOR NOTES DUE 2007
IN EXCHANGE FOR
13% SERIES B SENIOR NOTES DUE 2007 THAT HAVE
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON MARCH 6,
2000, UNLESS EXTENDED (THE "EXPIRATION DATE") NOTES TENDERED IN THE EXCHANGE
OFFER MAY BE WITHDRAWN AT ANY TIME PRIOR TO 5:00 P.M., NEW YORK CITY TIME, ON
THE EXPIRATION DATE.
To Our Clients:
We are enclosing herewith a Prospectus, dated , 2000, of GlobeNet
Communications Group Limited, a Bermuda company (the "Company") and a related
Letter of Transmittal, which together constitute (the "Exchange Offer")
relating to the offer by the Company to exchange its 13% Series B Senior Notes
due 2007 that have been registered under the Securities Act of 1933 (the
"Exchange Notes") for a like principal amount of its issued and outstanding
13% Senior Notes due 2007 (the "Old Notes"), upon the terms and subject to the
conditions set forth in the Exchange Offer.
The Exchange Offer is not conditioned upon any minimum number of Old Notes
being tendered.
We are the holder of record of Old Notes held by us for your own account. A
tender of such Old Notes can be made only by us as the record holder and
pursuant to your instructions. The Letter of Transmittal is furnished to you
for your information only and cannot be used by you to tender Old Notes held
by us for your account.
We request instructions as to whether you wish to tender any or all of the
Old Notes held by us for your account pursuant to the terms and conditions of
the Exchange Offer. We also request that you confirm that we may on your
behalf make the representations and warranties contained in the Letter of
Transmittal.
Very truly yours,
<PAGE>
Please return your instructions to us in the enclosed envelope within ample
time to permit us to submit a tender on your behalf prior to the Expiration
Date.
INSTRUCTION TO REGISTERED HOLDER AND/OR BOOK
ENTRY TRANSFER PARTICIPANT
To Registered Holder and/or Participant of the Book-Entry Transfer
Facility:
The undersigned hereby acknowledges receipt of the Prospectus dated ,
2000 (the "Prospectus") of GlobeNet Communications Group Limited, a Bermuda
company (the "Company"), and the accompanying Letter of Transmittal (the
"Letter of Transmittal"), that together constitute the Company's offer (the
"Exchange Offer") to exchange its 13% Series B Senior Notes due 2007 that have
been registered under the Securities Act of 1933 (the "Exchange Notes"), for
all of its outstanding 13% Senior Notes due 2007 (the "Old Notes").
Capitalized terms used but not defined herein have the meanings ascribed to
them in the Prospectus.
This will instruct you, the registered holder and/or book-entry transfer
facility participant, as to the action to be taken by you relating to the
Exchange Offer with respect to the Old Notes held by you for the account of
the undersigned.
The aggregate face amount of the Old Notes held by you for the account of
the undersigned is (FILL IN AMOUNT):
$ of the 13% Senior Notes due 2007.
With respect to the Exchange Offer, the undersigned hereby instructs you
(CHECK APPROPRIATE BOX):
[_] To TENDER the following Old Notes held by you for the account of the
undersigned (INSERT PRINCIPAL AMOUNT OF OLD NOTES TO BE TENDERED) (IF ANY):
$ .
[_] NOT to TENDER any Old Notes held by you for the account of the
undersigned.
If the undersigned instructs you to tender the Old Notes held by you for
the account of the undersigned, it is understood that you are authorized to
make, on behalf of the undersigned (and the undersigned by its signature
below, hereby makes to you), the representations and warranties contained in
the Letter of Transmittal that are to be made with respect to the undersigned
as a beneficial owner, including but not limited to the representations, that
(i) the Exchange Notes acquired in exchange for Old Notes pursuant to the
Exchange Offer are being acquired in the ordinary course of business of the
person receiving such Exchange Notes, whether or not undersigned, (ii) the
undersigned is not participating in, and has no arrangement with any person to
participate in, the distribution within the meaning of the Securities Act of
1933, as amended (the "Securities Act") and (iii) neither the undersigned nor
any such other person is an "affiliate" (within the meaning of Rule 405 under
the Securities Act) of the Company or a broker-dealer tendering Old Notes
acquired directly from the Company. If the undersigned is a broker-dealer that
will receive Exchange Notes for its own account in exchange for Old Notes, it
acknowledges that it will deliver a prospectus meeting the requirements of the
Securities Act of 1933 in connection with any resale of such Exchange Notes.
SIGN HERE
Name of beneficial owner(s) (please print): ___________________________________
Signature(s): _________________________________________________
_________________________________________________
_________________________________________________
Address: ______________________________________________________________________
Telephone Number: _____________________________________________________________
Taxpayer Identification or Social Security Number: ____________________________
Date: _________________________________________________________________________
2
<PAGE>
EXHIBIT 99.3
GLOBENET COMMUNICATIONS GROUP LIMITED
LETTER TO REGISTERED HOLDERS AND
DEPOSITORY TRUST COMPANY PARTICIPANTS
FOR
TENDER OF ALL OUTSTANDING 13% SENIOR NOTES DUE 2007
IN EXCHANGE FOR
13% SERIES B SENIOR NOTES DUE 2007 THAT HAVE
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME,
ON MARCH 6, 2000, UNLESS EXTENDED (THE "EXPIRATION DATE").
OLD NOTES TENDERED IN THE EXCHANGE OFFER MAY BE WITHDRAWN
AT ANY TIME PRIOR TO 5:00 P.M., NEW YORK CITY TIME, ON THE EXPIRATION DATE.
To Registered Holders and Depository
Trust Company Participants:
We are enclosing herewith the material listed below relating to the offer
by GlobeNet Communications Group Limited, a Bermuda company (the "Company"),
to exchange its 13% Series B Senior Notes due 2007 that have been registered
under the Securities Act of 1933 (the "Exchange Notes") for a like principal
amount of its issued and outstanding 13% Senior Notes due 2007 (the "Old
Notes") upon the terms and subject to the conditions set forth in the
Company's Prospectus, dated , 2000, and the related Letter of Transmittal
(which together constitute the "Exchange Offer").
Enclosed herewith are copies of the following documents:
1. Prospectus dated , 2000;
2. Letter of Transmittal (together with accompanying Substitute Form W-9
Guidelines);
3. Notice of Guaranteed Delivery; and
4. Letter which may be sent to your clients for whose account you hold
Old Notes in your name or in the name of your nominee.
We urge you to contact your clients promptly. Please note that the Exchange
Offer will expire on the Expiration Date unless extended.
The Exchange Offer is not conditioned upon any minimum number of Old Notes
being tendered.
Pursuant to the Letter of Transmittal, each holder of Old Notes will
represent to the Company that (i) the Exchange Notes acquired in exchange for
Old Notes pursuant to the Exchange Offer are being acquired in the ordinary
course of business of the person receiving such Exchange Notes, whether or not
the holder, (ii) the holder is not participating in, and has no arrangement
with any person to participate in, the distribution of Exchange Notes within
the meaning of the Securities Act, and (iii) neither the holder nor any such
other person is an "affiliate" (within the meaning of Rule 405 under the
Securities Act) of the Company or a broker-dealer tendering Old Notes acquired
directly from the Company. If the holder is a broker-dealer that will receive
Exchange Notes for its own account in exchange for Old Notes, it acknowledges
that it will deliver a prospectus meeting the requirements of the Securities
Act of 1933 in connection with any resale of such Exchange Notes.
The enclosed Letter to Clients contains an authorization by the beneficial
owners of the Old Notes for you to make the foregoing representations.
The Company will not pay any fee or commission to any broker or dealer or
to any other persons (other than the Exchange Agent) in connection with the
solicitation of tenders of Old Notes pursuant to the Exchange Offer. The
Company will pay or cause to be paid any transfer taxes payable on the
transfer of Old Notes to it, except as otherwise provided in Instruction 7 of
the enclosed Letter of Transmittal.
Additional copies of the enclosed material may be obtained from the
undersigned.
Very truly yours,
GLOBENET COMMUNICATIONS GROUP LIMITED
<PAGE>
EXHIBIT 99.4
GLOBENET COMMUNICATIONS GROUP LIMITED
NOTICE OF GUARANTEED DELIVERY
FOR
TENDER OF ALL OUTSTANDING
13% SENIOR NOTES DUE 2007
IN EXCHANGE FOR
13% SERIES B SENIOR NOTES DUE 2007 THAT HAVE BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933
This form, or one substantially equivalent hereto, must be used by a holder
to accept the Exchange Offer of GlobeNet Communications Group Limited, a
Bermuda company (the "Company"), and to tender 13% Senior Notes due 2007 (the
"Old Notes") to the Exchange Agent pursuant to the guaranteed delivery
procedures described in "Exchange Offer--Guaranteed Delivery Procedures" of
the Company's Prospectus, dated , 2000 (the "Prospectus") and in
Instruction 2 to the related Letter of Transmittal. Any holder who wishes to
tender Old Notes pursuant to such guaranteed delivery procedures must ensure
that the Exchange Agent receives this Notice of Guaranteed Delivery prior to
the Expiration Date (as defined below) of the Exchange Offer. Capitalized
terms used but not defined herein have the meanings ascribed to them in the
Prospectus or the Letter of Transmittal.
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON MARCH
6, 2000, UNLESS EXTENDED (THE "EXPIRATION DATE"). OLD NOTES TENDERED IN THE
EXCHANGE OFFER MAY BE WITHDRAWN AT ANY TIME PRIOR TO 5:00 P.M., NEW YORK CITY
TIME, ON THE EXPIRATION DATE.
The Exchange Agent for the Exchange Offer is:
BANKERS TRUST COMPANY
By Hand: By Mail:
Bankers Trust Company BT Services Tennessee, Inc.
Corporate Trust and Agency Group Reorganization Unit
Attention: Reorganization Department P.O. Box 292737
Receipt & Delivery Window Nashville, Tennessee 37229-2737
123 Washington Street, 1st Floor Facsimile: (615) 835-3701
New York, NY 10006
By Overnight Mail or Courier:
BT Services Tennessee, Inc.
Corporate Trust and Agency Group
Reorganization Unit
648 Grassmere Park Road
Nashville, Tennessee 37211
Confirm by Telephone: (615) 835-3572
Information:
(800) 735-7777
----------------
DELIVERY OF THIS NOTICE OF GUARANTEED DELIVERY TO AN ADDRESS OTHER THAN AS
SET FORTH ABOVE, OR TRANSMISSION OF INSTRUCTIONS VIA FACSIMILE OTHER THAN AS
SET FORTH ABOVE, WILL NOT CONSTITUTE A VALID DELIVERY.
THIS NOTICE OF GUARANTEED DELIVERY IS NOT TO BE USED TO GUARANTEE
SIGNATURES. IF A SIGNATURE ON A LETTER OF TRANSMITTAL IS REQUIRED TO BE
GUARANTEED BY AN "ELIGIBLE INSTITUTION" UNDER THE INSTRUCTIONS THERETO, SUCH
SIGNATURE GUARANTEE MUST APPEAR IN THE APPLICABLE SPACE IN THE BOX PROVIDED ON
THE LETTER OF TRANSMITTAL FOR GUARANTEE OF SIGNATURES.
<PAGE>
Ladies and Gentlemen:
The undersigned hereby tenders to the Company, upon the terms and subject
to the conditions set forth in the Prospectus and the related Letter of
Transmittal, receipt of which is hereby acknowledged, the principal amount of
Old Notes set forth below pursuant to the guaranteed delivery procedures set
forth in the Prospectus and in Instruction 2 of the Letter of Transmittal.
The undersigned hereby tenders the Old Notes listed below:
Certificate Number(s) (if known)
of
Old Notes or Account Aggregate Aggregate
Number at the Book- Principal Amount Principal Amount
Entry Transfer Facility Represented Tendered
- --------------------------------- ------------------ ------------------
- --------------------------------- ------------------ ------------------
- --------------------------------- ------------------ ------------------
- --------------------------------- ------------------ ------------------
PLEASE SIGN AND COMPLETE
Names of Record Holder(s): __________ Signature(s): _______________________
Address: ____________________________ -------------------------------------
- ------------------------------------- Dated: _______________________ , 1999
Area Code and Telephone Numbers: ____
- -------------------------------------
This Notice of Guaranteed Delivery must be signed by the Holder(s) exactly
as their name(s) appear on certificates for Old Notes or on a security
position listing as the owner of Old Notes, or by person(s) authorized to
become holder(s) by endorsements and documents transmitted with this Notice of
Guaranteed Delivery. If signature is by a trustee, executor, administrator,
guardian, attorney-in-fact, officer or other person acting in a fiduciary or
representative capacity, such person must provide the following information.
PLEASE PRINT NAME(S) AND ADDRESS(ES)
Name(s):
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Capacity:
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Address(es):
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
2
<PAGE>
GUARANTEE
(NOT TO BE USED FOR SIGNATURE GUARANTEE)
The undersigned, a firm which is a member of a registered national
securities exchange or of the National Association of Securities Dealers, Inc.,
or is a commercial bank or trust company having an office or correspondent in
the United States, or is otherwise an "eligible guarantor institution" within
the meaning of Rule 17Ad-15 under the Securities Exchange Act of 1934,
guarantees deposit with the Exchange Agent of the Letter of Transmittal (or
facsimile thereof), together with the Old Notes tendered hereby in proper form
for transfer (or confirmation of the book-entry transfer of such Old Notes into
the Exchange Agent's account at the Book-Entry Transfer Facility described in
the Prospectus under the caption "Exchange Offer--Book-Entry Transfer" and in
the Letter of Transmittal) and any other required documents, all by 5:00 p.m.,
New York City time, within three business days following the Expiration Date.
Name of Firm: ______________________ ---------------------------------------
Address: ___________________________ (Authorized Signature)
(Include Zip Code) Name: _________________________________
Area Code and Tel. Number: _________ Title: ________________________________
- ------------------------------------ Date:____________________________, 1999
(Please Type or Print)
DO NOT SEND OLD NOTES WITH THIS FORM. ACTUAL SURRENDER OF OLD NOTES MUST BE
MADE PURSUANT TO, AND BE ACCOMPANIED BY, A PROPERLY COMPLETED AND DULY EXECUTED
LETTER OF TRANSMITTAL AND ANY OTHER REQUIRED DOCUMENTS.
3
<PAGE>
INSTRUCTIONS FOR NOTICE OF GUARANTEED DELIVERY
1. Delivery of this Notice of Guaranteed Delivery. A properly completed and
duly executed copy of this Notice of Guaranteed Delivery and any other
documents required by this Notice of Guaranteed Delivery must be received by
the Exchange Agent at its address set forth herein prior to the Expiration
Date. The method of delivery of this Notice of Guaranteed Delivery and any
other required documents to the Exchange Agent is at the election and sole
risk of the holder, and the delivery will be deemed made only when actually
received by the Exchange Agent. If delivery is by mail, registered mail with
return receipt requested, properly insured, is recommended. As an alternative
to delivery by mail, the holders may wish to consider using an overnight or
hand delivery service. In all cases, sufficient time should be allowed to
assure timely delivery. For a description of the guaranteed delivery
procedures, see Instruction 2 of the Letter of Transmittal.
2. Signatures on this Notice of Guaranteed Delivery. If this Notice of
Guaranteed Delivery is signed by the registered holder(s) of the Old Notes
referred to herein, the signature must correspond with the name(s) written on
the face of the Old Notes without alteration, enlargement, or any change
whatsoever. If this Notice of Guaranteed Delivery is signed by a participant
of the Book-Entry Transfer Facility whose name appears on a security position
listing as the owner of the Old Notes, the signature must correspond with the
name shown on the security position listing as the owner of the Old Notes.
If this Notice of Guaranteed Delivery is signed by a person other than the
registered holder(s) of any Old Notes listed or a participant of the Book-
Entry Transfer Facility, this Notice of Guaranteed Delivery must be
accompanied by appropriate bond powers, signed as the name of the registered
holder(s) appears on the Old Notes or signed as the name of the participant
shown on the Book- Entry Transfer Facility's security position listing.
If this Notice of Guaranteed Delivery is signed by a trustee, executor,
administrator, guardian, attorney-in-fact, officer of a corporation, or other
person acting in a fiduciary or representative capacity, such person should so
indicate when signing and submit with the Letter of Transmittal evidence
satisfactory to the Company of such person's authority to so act.
3. Requests for Assistance or Additional Copies. Questions and requests for
assistance and requests for additional copies of the Prospectus may be
directed to the Exchange Agent at the address specified in the Prospectus.
Holders may also contact their broker, dealer, commercial bank, trust company,
or other nominee for assistance concerning the Exchange Offer.
4
