<PAGE>
SCHEDULE 14A
(RULE 14A-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[_] Preliminary Proxy Statement
[_] Confidential, for Use of the Commission (as permitted by Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
FRONTIER CORPORATION
- --------------------------------------------------------------------------------
(Name of Registrant as Specified in its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[_] No Fee required
[_]Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transaction applies:
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
(4) Proposed maximum aggregate value of transaction: $
(5) Total fee paid: $
[X] Fee paid previously with preliminary materials.
[_]Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid: $
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
<PAGE>
[LOGO OF FRONTIER CORPORATION]
August 5, 1999
Dear Shareholders:
You are cordially invited to attend a special meeting of shareholders of
Frontier Corporation which we will hold at 10:30 a.m., local time, on September
23, 1999, at the Crowne Plaza of Rochester, 70 State Street, Rochester, New
York.
As you may know, on March 16, 1999, Frontier entered into a merger agreement,
which was amended on May 16, 1999, with Global Crossing Ltd. and a subsidiary
of Global Crossing pursuant to which Frontier will become a wholly owned
subsidiary of Global Crossing. The purpose of this special meeting is to adopt
the merger agreement and approve the merger transaction described in the merger
agreement.
In the merger, your shares of Frontier common stock will be exchanged for a
number of shares of Global Crossing common stock. The number of shares you will
receive will be based on the volume weighted averages of the trading prices of
the Global Crossing common stock for 15 randomly selected trading days during a
30 trading day period ending one trading day before the conditions to the
merger are satisfied or waived. If the average trading price is at least
$34.5625 and not more than $56.7813, the value of the shares of Global Crossing
common stock you receive for each Frontier share will be $63.00, based on the
average trading price. You will not receive less than 1.1095 Global Crossing
shares for each Frontier share or, subject to the next sentence, more than
1.8229 Global Crossing shares for each Frontier share. If the average trading
price is less than $34.5625, Frontier may terminate the merger agreement unless
Global Crossing elects to increase the merger consideration to ensure that you
receive consideration having a value, based on the average trading price, of
$63.00 per share, but it is not required to terminate the merger agreement. If
we do not complete the merger by December 31, 1999, the value of the merger
consideration will be increased by a specified interest factor unless the
average trading price is above $56.7813.
On August 4, 1999, the Global Crossing common stock, which is listed on the
Nasdaq National Market under the symbol "GBLX," closed at $36.00 per share.
Based on that Global Crossing trading price, the shares of Global Crossing
common stock that you would receive for each Frontier share would have a value
of $63.00.
We believe this transaction represents an exciting strategic combination.
Your board of directors has unanimously determined that the merger is in the
best interest of Frontier and its shareholders and recommends that you adopt
the merger agreement with Global Crossing.
Please review carefully this entire document. You should consider the matters
discussed under the caption "Risk Factors" beginning on page 23 of the enclosed
document before voting.
In order to vote at the special meeting, please either attend the special
meeting, complete, sign and date the enclosed proxy and return it in the
accompanying postage-paid envelope or cast your vote by telephone or
electronically over the Internet.
Sincerely,
/s/ Joseph P. Clayton
Joseph P. Clayton
Chief Executive Officer
The Securities and Exchange Commission and the state securities regulators
have not approved or disapproved the shares of Global Crossing common stock
to be issued in the merger or determined if this document is accurate or
complete. Any representation to the contrary is a criminal offense.
This document is dated August 5, 1999 and was first mailed to
shareholders on or about August 9, 1999.
<PAGE>
[LOGO OF FRONTIER CORPORATIONS]
Notice of Special Meeting of Shareholders
to Be Held on September 23, 1999
We will hold a special meeting of shareholders of Frontier Corporation at
10:30 a.m., local time, on September 23, 1999, at the Crowne Plaza of
Rochester, 70 State Street, Rochester, New York for the following purpose:
To consider and vote upon a proposal to adopt the Agreement and Plan of
Merger, dated as of March 16, 1999, as amended, among Global Crossing Ltd.,
GCF Acquisition Corp. and Frontier and on any other matters which may
properly come before the meeting or which are incident to the conduct of
the meeting. In the merger, Frontier will merge with GCF Acquisition Corp.
and become a wholly owned subsidiary of Global Crossing and all outstanding
shares of Frontier common stock, other than shares held by the parties to
the merger agreement and Global Crossing's subsidiaries, will be converted
into the right to receive a number of shares of Global Crossing common
stock based on an exchange ratio that will be calculated shortly before the
merger.
Shareholders of record at the close of business on July 29, 1999 are entitled
to vote their shares at the special meeting and any adjournments or
postponements of it. Each share of Frontier common stock will entitle the
record holder to one vote on each matter put to a vote at the special meeting.
We cannot complete the merger unless the holders of two-thirds of the
outstanding shares of Frontier common stock vote to adopt the merger agreement.
You will need an admission card to gain entry to the special meeting. If you
are planning to attend the special meeting, please check the appropriate box on
the proxy card. Your admission card will be available at the registration table
at the special meeting. The special meeting will be sign language interpreted
for the hearing impaired.
For more information about the merger, please review the accompanying
document and the merger agreement attached as Annex A. A copy of this document
is also available on Frontier's web site which can be found at:
http://www.frontiercorp.com.
Your vote is very important. Please either vote electronically or sign and
date the enclosed proxy card and return it promptly in the enclosed return
envelope, whether or not you plan to attend the meeting. The accompanying
envelope requires no postage if mailed in the United States. If you do not
specify your vote on your submission, your shares will be voted FOR the
adoption of the merger agreement. If you fail to submit a proxy or vote
electronically or if you abstain from voting, it will have the effect of a vote
against the adoption of the merger agreement. You may revoke your proxy and
vote in person if you decide to attend the special meeting.
Please do not send in any stock certificates at this time.
By action of the Board of Directors,
/s/ Josephine S. Trubek
JOSEPHINE S. TRUBEK
Corporate Secretary
<PAGE>
To find any of the principal sections identified below, simply bend the
document slightly to expose the black tabs and open the document to the tab
which corresponds to the title of the section you wish to read.
Table of contents
Questions & answers about the merger
Summary; Risk factors; The meetings
The merger; The merger agreement; Related agreements
Unaudited pro forma financial information
The companies; Global Crossing common stock; Shareholder information
Global Crossing annual meeting proposals and related information
Additional information
Financial statements of Global Crossing and Global Marine
Annexes
<PAGE>
Table of Contents
<TABLE>
<CAPTION>
Page
----
<S> <C>
Questions & Answers about the Merger................................................. vi
Summary.............................................................................. 1
Overview........................................................................... 1
The companies...................................................................... 1
What you will receive in the merger................................................ 1
Ownership of Global Crossing after the merger...................................... 4
Tax consequences................................................................... 4
Board recommendations.............................................................. 4
Interests of members of Frontier's board of directors and management in the
merger............................................................................ 4
Opinions of financial advisors..................................................... 4
Record date for voting; Required votes............................................. 5
Conditions to the completion of the merger......................................... 5
Termination of the merger agreement; Fees payable.................................. 6
Regulatory matters................................................................. 7
Accounting treatment............................................................... 7
No appraisal rights................................................................ 7
Trading of Global Crossing common stock............................................ 7
Transactions with Qwest and U S WEST............................................... 7
Selected historical financial information.......................................... 9
Selected unaudited pro forma financial information................................. 16
Comparative per share data......................................................... 20
Market prices and dividends........................................................ 21
Risk Factors......................................................................... 23
Cautionary Statement Regarding Forward-Looking Statements............................ 31
The Global Crossing Annual Meeting................................................... 32
General............................................................................ 32
Date, time and place............................................................... 32
Matters to be considered at the meeting............................................ 32
Record date; votes per share....................................................... 33
Quorum............................................................................. 33
Votes required..................................................................... 34
How shares will be voted at the annual meeting..................................... 34
How to revoke a proxy.............................................................. 35
Solicitation of proxies.......................................................... 35
1998 audited financial statements................................................ 35
The Frontier Special Meeting......................................................... 36
General.......................................................................... 36
Date, time and place............................................................. 36
Matter to be considered at the special meeting................................... 36
Record date...................................................................... 36
Vote required.................................................................... 36
How shares will be voted at the special meeting.................................. 36
Voting at the special meeting.................................................... 37
Methods of voting................................................................ 37
How to revoke a proxy............................................................ 37
Solicitation of proxies.......................................................... 37
The Merger........................................................................... 39
What you will receive in the merger.............................................. 39
Background of the merger......................................................... 39
</TABLE>
i
<PAGE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
Recommendation of the Global Crossing board of directors; Reasons for
the merger............................................................. 45
Opinions of Global Crossing's financial advisors........................ 47
Recommendation of the Frontier board of directors; Reasons for the
merger................................................................. 57
Opinion of Frontier's financial advisor................................. 58
Interests of members of Frontier's board of directors and management in
the merger............................................................. 66
Certain federal income tax and Bermuda tax consequences ................ 68
Anticipated accounting treatment........................................ 74
Regulatory approvals.................................................... 74
No appraisal rights..................................................... 75
Quotation on the Nasdaq National Market................................. 75
Litigation.............................................................. 75
Resales of Global Crossing common stock................................. 75
The Merger Agreement...................................................... 77
The merger.............................................................. 77
Effective time of the merger............................................ 77
Exchange procedures..................................................... 77
Frontier preferred stock................................................ 78
Stock options and warrants.............................................. 78
Representations and warranties.......................................... 78
Covenants............................................................... 79
No solicitation of transactions......................................... 81
Board of directors' covenant to recommend............................... 82
Transition planning; Continued operations of Frontier................... 82
Services agreement...................................................... 82
Reasonable best efforts................................................. 83
Employee benefits....................................................... 83
Indemnification and insurance........................................... 83
Conditions to the completion of the merger.............................. 83
Termination; Possible exchange ratio increase........................... 84
Termination fees........................................................ 87
Other expenses.......................................................... 87
Amendments and waivers.................................................. 87
Alternative merger structure............................................ 88
Related Agreements........................................................ 89
Stock option agreement.................................................. 89
Voting agreement........................................................ 90
Unaudited Pro Forma Condensed Combined Financial Statements .............. 92
The Companies............................................................. 98
Global Crossing Ltd. ................................................... 98
Overview.............................................................. 98
Recent developments................................................... 98
Business activity..................................................... 99
The Global Crossing network........................................... 100
Atlantic Crossing..................................................... 101
Pacific Crossing...................................................... 102
Mid-Atlantic Crossing................................................. 102
Pan American Crossing................................................. 102
South American Crossing............................................... 103
Terrestrial capacity.................................................. 103
Additional network expansion opportunities............................ 104
Other activities...................................................... 104
</TABLE>
ii
<PAGE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
Financing plan........................................................ 104
System performance.................................................... 105
Sales and marketing................................................... 106
Summary of principal terms of standard contractual documentation...... 107
Operations, administration and maintenance support ................... 107
Competition........................................................... 108
Suppliers............................................................. 110
Regulation............................................................ 110
Employees............................................................. 110
Financial information by business segment and geographic area......... 110
Frontier Corporation.................................................... 111
Strategy.............................................................. 111
Integrated services................................................... 112
Transmission.......................................................... 114
Local communications services......................................... 115
Global Crossing's Management Discussion and Analysis of Financial
Condition and Results of Operations...................................... 116
Overview................................................................ 116
Revenues and deferred revenues.......................................... 116
Cost of sales........................................................... 117
Operating expenses...................................................... 118
Results of operations for the three months ended June 30, 1999 and June
30, 1998............................................................... 118
Results of operations for the six months ended June 30, 1999 and June
30, 1998............................................................... 121
Results of operations for the year ended December 31, 1998 and the
period from March 19, 1997 (date of inception) to December 31, 1997.... 123
Liquidity and capital resources......................................... 126
Inflation............................................................... 128
Year 2000 compliance.................................................... 128
Euro conversion......................................................... 129
Qualitative and quantitative disclosures about market risk.............. 129
Foreign Currency Risk................................................... 130
Stock Ownership of Management, Directors and 5% Shareholders of Global
Crossing................................................................. 131
Stock Ownership of Management, Directors and 5% Shareholders of Frontier.. 133
Description of Global Crossing Capital Stock.............................. 135
General................................................................. 135
Voting and transfer restrictions........................................ 135
Distributions........................................................... 136
Global Crossing stockholders agreement and registration rights
agreement.............................................................. 136
Some Differences Between Rights of Shareholders of Frontier and Rights of
Shareholders of Global Crossing.......................................... 137
Size and classification of the board of directors....................... 137
Removal of directors; vacancies; alternate directors.................... 137
Meetings of shareholders................................................ 138
Action by written consent of shareholders; shareholder resolutions...... 138
Vote required for extraordinary corporate transaction................... 138
Interested director transactions........................................ 139
Transfer restrictions................................................... 139
Business combination statutes........................................... 139
Shareholder suits....................................................... 140
</TABLE>
iii
<PAGE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
Dissenters' rights....................................................... 140
Dividends................................................................ 141
Voting................................................................... 141
Preemptive rights........................................................ 141
Amendments to corporate governance documents............................. 141
Limitations on directors' liability...................................... 142
Rights of inspection..................................................... 142
Repurchase of untraced shares............................................ 143
Indemnification of Global Crossing by shareholders for some taxes and
other impositions....................................................... 143
Indemnification of officers and directors................................ 143
Indemnification of shareholders by Global Crossing for some taxes........ 144
Rights agreement......................................................... 144
"Anti-Greenmail"......................................................... 144
Listing.................................................................. 144
Proposals to Global Crossing Shareholders To Be Voted on at the Global
Crossing Annual Meeting................................................... 145
Proposal No. 1: Increase in Global Crossing's authorized share capital... 145
Proposal No. 2: Issuance of shares of Global Crossing common stock in the
merger.................................................................. 147
Proposals Nos. 3 and 4: Amendment and restatement of Global Crossing bye-
laws.................................................................... 147
Proposal No. 3: Amendment and restatement of Global Crossing bye-laws
(other than bye-laws 34(2), 63, 130 and 148)........................... 147
Proposal No. 4: Amendment and restatement of Global Crossing bye-laws
34(2), 63, 130 and 148................................................. 150
Proposal No. 5: Election of directors.................................... 151
Proposal No. 6: Amendment of the 1998 Global Crossing Ltd. Stock
Incentive Plan ......................................................... 155
Proposal No. 7: Ratification of outside directors' compensation.......... 157
Proposal No. 8: Ratification of Arthur Andersen & Co. as Global
Crossing's independent auditors for 1999 and approval of the board of
directors' authority to determine their remuneration.................... 158
Receipt of financial statements.......................................... 158
Global Crossing Executive Compensation..................................... 159
Compensation committee report............................................ 159
Summary compensation table............................................... 161
Certain compensation arrangements........................................ 161
Compensation of outside directors........................................ 162
Option grants in last fiscal year........................................ 163
Aggregated option exercises in last fiscal year and fiscal year-end
option values........................................................... 164
Compensation committee interlocks and insider participation.............. 164
Compliance with Section 16 of the Exchange Act........................... 164
Comparison of cumulative total returns................................... 165
Some Global Crossing Transactions.......................................... 166
Transactions with Pacific Capital Group and its affiliates............... 166
Transactions with Canadian Imperial Bank of Commerce and its affiliates.. 168
Transactions with Worldport.............................................. 168
Transactions with Telecommunications Development Corporation............. 169
Legal Matters.............................................................. 170
Experts.................................................................... 170
Service of Process and Enforcement of Liabilities.......................... 170
Submission of Future Shareholder Proposals................................. 170
Global Crossing.......................................................... 170
Frontier................................................................. 171
Where You Can Find More Information........................................ 171
</TABLE>
iv
<PAGE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
Global Crossing Financial Statements....................................... F-1
Global Marine Financial Statements......................................... F-45
</TABLE>
<TABLE>
<S> <C> <C>
Annex A Agreement and Plan of Merger and Consent and Amendment No. 1
Annex B Stock Option Agreement
Annex C Voting Agreement
Annex D-1 Opinion of Salomon Smith Barney, dated as of March 16, 1999
Annex D-2 Opinion of Salomon Smith Barney, dated as of May 16, 1999
Annex E Opinion of Merrill Lynch, Pierce, Fenner & Smith Incorporated
Annex F Opinion of Morgan Stanley & Co. Incorporated
Annex G Resolutions of Global Crossing's board of directors in connection with the annual meeting
Annex H 1998 Global Crossing Ltd. Stock Incentive Plan
</TABLE>
v
<PAGE>
Questions & Answers
about the Merger
Q: Why are the two companies proposing the merger?
A: Global Crossing and Frontier believe that the merger will create an
innovative, highly competitive company with an integrated high capacity global
telecommunications and Internet network. Global Crossing and Frontier believe
that the combined company will be well-positioned to
. meet the growing bandwidth demand worldwide required to handle Internet,
data, video and voice transmissions,
. capitalize on future growth opportunities and
. provide more comprehensive products, services and support to customers
across both the Internet and the public communications networks.
To review the reasons for the merger in greater detail, see pages 45 through 47
and 57 through 58.
Q: What do I need to do now?
A: Global Crossing shareholders:
After you carefully read this document, please indicate on the enclosed proxy
card how you want to vote. Sign and mail the proxy card in the enclosed return
envelope as soon as possible, so that your shares may be represented at the
Global Crossing annual meeting.
Frontier shareholders:
First, carefully read this document. There are several ways your shares can be
represented at the Frontier special meeting. You can indicate on the enclosed
proxy card how you want to vote and then sign and mail the proxy card in the
enclosed return envelope as soon as possible. You can also cast your vote
electronically by telephone by calling the number on your proxy card or over
the Internet by going to the web site designated on your proxy card.
Q: If my broker holds my shares in "street name," will my broker vote my
shares?
A: Your broker will not vote your shares unless you follow the directions your
broker provides to you regarding how to vote your shares.
Q: What do I do if I want to change my vote?
A: You can change your vote by sending in a notice of revocation or a later-
dated, signed proxy card to your company's Secretary before your shareholders
meeting or by attending the meeting in person and voting. Frontier shareholders
can also change their vote by voting by telephone or Internet at a later time.
Q: What do I need to do to get my Global Crossing shares?
A: After the merger is completed we will send Frontier shareholders written
instructions for exchanging their stock certificates. Frontier shareholders
should not send in their stock certificates now. Global Crossing shareholders
will keep their existing certificates.
Q: Will I continue to receive a dividend on my shares after the merger?
A: Global Crossing does not currently pay cash dividends on its common stock
and does not anticipate paying dividends in the foreseeable future.
Q: When do you expect to complete the merger?
A: We expect to complete the merger late in the third quarter or early in the
fourth quarter of 1999. We are working toward completing the merger as quickly
as possible and expect to do so shortly after the meetings, provided that we
have obtained the regulatory approvals necessary for the merger.
Q: Who should I call with questions?
A: Global Crossing shareholders:
Investor Relations--Global Crossing
Attention: Jensen Chow
(310) 385-5200
Frontier shareholders:
Innisfree M&A Incorporated
(888) 750-5835
Investor Relations--Frontier
(800) 573-2473
vi
<PAGE>
Summary
This summary highlights selected information from this document. It does not
contain all of the information that is important to you. We urge you to read
carefully the entire document and the other documents referred to in this docu-
ment to fully understand the merger. More information on Global Crossing is in-
cluded in this document beginning on page 98. For a guide as to where you can
obtain more information on Frontier, see "Where You Can Find More Information"
on page 171.
Overview
Global Crossing, Frontier and a wholly owned subsidiary of Global Crossing
entered into a merger agreement on March 16, 1999 which was amended on May 16,
1999. Under the terms of the Global Crossing--Frontier merger agreement, at the
closing, shares of Frontier common stock will be converted into the right to
receive a number of shares of Global Crossing common stock based on an exchange
ratio that will be calculated shortly before the closing. Upon completion of
the merger, Frontier will become a wholly owned subsidiary of Global Crossing.
The companies
Global Crossing Ltd. (Page 98)
Wessex House
45 Reid Street
Hamilton HM12, Bermuda
(441) 296-8600
Global Crossing is building the world's first independent global network of
state-of-the-art Internet and long distance telecommunications facilities util-
izing a combination of undersea and terrestrial digital fiber optic cable sys-
tems. Global Crossing offers "one-stop shopping" for its customers to multiple
destinations worldwide and currently operates as a "carrier's carrier," provid-
ing tiered pricing and segmented products to licensed providers of interna-
tional telecommunications services. Capacity on the Global Crossing network is
offered to all customers on an open, equal access basis.
Upon completion, the currently announced segments of the Global Crossing net-
work will directly connect Asia, North America, Europe, Central America, South
America and the Carribean and, in addition, will provide terrestrial services
to major cities in the United States, Europe, South America, Mexico and Japan.
The undersea component of this initial portion of the Global Crossing network
totals 74,700 km, and the terrestrial component adds 17,800 km, for a total of
92,500 km.
On July 2, 1999, Global Crossing acquired the Global Marine business of Cable
& Wireless plc. Global Marine is the world's largest undersea cable installa-
tion and maintenance company with a fleet of 13 cable ships, representing ap-
proximately 33% of the world's total, 21 submersible vehicles and 1,200 employ-
ees servicing approximately 35% of the world's undersea cable miles.
Frontier Corporation (Page 111)
180 South Clinton Avenue
Rochester, New York 14646-0700
(716) 777-1000
Frontier's subsidiaries provide integrated telecommunications services in-
cluding Internet, Internet Protocol and data applications, long distance, local
telephone and enhanced services to business, carrier, web-centric and targeted
residential customers nationwide and in some foreign countries.
Through its Integrated Services segment, Frontier is one of the nation's
largest long distance companies and its Frontier Optronics NetworkSM is nearing
completion. When completed, Frontier Optronics NetworkSM will consist of ap-
proximately 20,000 route miles: the core fiber network will offer more than
13,000 miles of dense wave division multiplexed optical fiber capacity and an-
other 3,000 miles are currently under construction in the southeast United
States. In addition, 4,000 miles of network are available through network
swaps.
What you will receive in the merger (Page 39)
Global Crossing shareholders:
After the merger each share of Global Crossing common stock will remain out-
standing.
1
<PAGE>
Frontier shareholders:
When we complete the merger, each Frontier share will be canceled and each
Frontier shareholder will receive for each share of Frontier common stock a
number of shares of Global Crossing common stock based on a floating exchange
ratio, subject to a collar:
<TABLE>
<CAPTION>
If the average
Global Crossing This is the number of
trading price during Global Crossing
the measurement shares to be issued for
period is: each Frontier share:
-------------------- -----------------------
<S> <C>
more than $56.7813...................................... 1.1095
between $34.5625 and $56.7813........................... $63.00 divided by
the average Global
Crossing trading
price during the
measurement period
(a number between
1.1095 and 1.8229),
subject to increase
if the closing
occurs after
December 31, 1999 as
described below
under "--Interest
Factor"
less than $34.5625...................................... 1.8229, subject to
Frontier's walk-away
right and Global
Crossing's top-up
right and subject to
increase if the
closing occurs after
December 31, 1999,
as described below
under "--Interest
Factor"
</TABLE>
The floating exchange ratio is intended to provide you with shares of Global
Crossing common stock valued at $63.00, based on the average trading price of
the Global Crossing common stock during the measurement period, so long as that
average Global Crossing trading price remains between $34.5625 and $56.7813.
The measurement period for purposes of determining the exchange ratio is 15
randomly selected trading days during a 30 trading-day period ending one trad-
ing day before the conditions to the merger are satisfied or waived. In addi-
tion, the collar means that the number of shares of Global Crossing common
stock that Frontier shareholders will receive for each Frontier share in the
merger will
. never be less than 1.1095, regardless of what happens to Global Crossing's
stock price during the measurement period, and
. never be more than 1.8229 except as described below.
Walk-Away Right/Top-Up Right. If the average trading price of the Global
Crossing common stock during the measurement period is less than $34.5625,
Frontier may, but is not required to, terminate the merger agreement unless
Global Crossing agrees to increase the merger consideration. If Frontier elects
to terminate the merger agreement, Global Crossing may elect to increase the
merger consideration so that Frontier shareholders will receive consideration
having a value, based on the average trading price of the Global Crossing com-
mon stock during the measurement period, of $63.00 for each share of Frontier
common stock. Global Crossing may use additional shares of Global Crossing com-
mon stock to increase the merger consideration or may also use cash or a combi-
nation of cash and stock under some circumstances.
Since the date of the merger agreement, the Global Crossing common stock has
traded within a range from $32.94 to $64.25. The average trading price for
purposes of determining the exchange ratio will be based on the trading prices
of the Global Crossing common stock during the measurement period shortly
before the closing, which measurement period may end after the date of the
Frontier special meeting.
Interest Factor. If the merger closing does not occur by December 31, 1999,
the value of the shares of Global Crossing common stock to be received by Fron-
tier shareholders in the merger will be increased by an interest factor equal
to 7% per annum, compounded daily, from and after December 31, 1999 to the ef-
fective time of the merger. This interest factor will not apply if the average
trading price for the Global Crossing common stock during the measurement pe-
riod is more than $56.7813. Therefore, if the merger closes after December 31,
1999, Frontier shareholders will receive for each Frontier share
. a number of Global Crossing shares with a value of $63.00, as increased by
the 7% per annum in-
terest factor, if the average trading price during the measurement period is
between $34.5625 and $56.7813,
. 1.8229 Global Crossing shares, as increased by the 7% per annum interest fac-
tor, if the average trading price during the measurement period is less than
$34.5625, or
2
<PAGE>
. 1.1095 Global Crossing shares, without any increase for the 7% per annum in-
terest factor, if the average trading price is more than $56.7813.
For purposes of the examples contained in this document, we have assumed that
the closing will occur by December 31, 1999 unless we have indicated otherwise.
Calculation of the Exchange Ratio. Assuming the average Global Crossing trad-
ing price during the measurement period is $36.00, which was the closing price
of the Global Crossing common stock on August 4, 1999, because the price is be-
tween $34.5625 and $56.7813, the exchange ratio would be 1.7500. Based on that
Global Crossing stock price, the value of the merger consideration per share of
Frontier common stock would be $63.00. The initial value of the shares of
Global Crossing common stock you receive in the merger may be more or less than
the value based on the average price because the trading price of the Global
Crossing common stock at closing may be higher or lower than the average trad-
ing price during the measurement period or because the average trading price
may be outside the collar.
The table below shows a range of assumed average trading prices of Global
Crossing common stock along with entries showing the corresponding exchange ra-
tios and values of the shares of Global Crossing common stock that would be is-
sued in the merger in exchange for one share of Frontier common stock, based on
the assumed average trading prices presented in the first column of the table.
Because the calculation of the exchange ratio depends on when we complete the
merger, the actual number of shares of Global Crossing common stock issuable in
the merger for each share of Frontier common stock may be different from the
examples listed in the table below and in this document. In addition, the val-
ues of the Global Crossing common stock are illustrative only and do not repre-
sent the actual amount per share of Global Crossing common stock that might be
realized by any Frontier shareholder on or after the effective time of the
merger. Frontier shareholders are urged to obtain and review current market
quotations for Global Crossing common stock.
Table of Illustrative Values
<TABLE>
<CAPTION>
Illustrative
Assumed value of
Global merger
Crossing consideration
average per share of
trading Exchange Frontier
price ratio common stock
-------- -------- -------------
<S> <C> <C> <C>
$60.00 1.1095 $66.57
59.00 1.1095 65.46
58.00 1.1095 64.35
57.00 1.1095 63.24
Minimum
Exchange Ratio 56.7813 1.1095 63.00
56.00 1.1250 63.00
55.00 1.1455 63.00
54.00 1.1667 63.00
53.00 1.1887 63.00
52.00 1.2115 63.00
51.00 1.2353 63.00
50.00 1.2600 63.00
49.00 1.2857 63.00
48.00 1.3125 63.00
47.00 1.3404 63.00
46.00 1.3696 63.00
45.00 1.4000 63.00
44.00 1.4318 63.00
43.00 1.4651 63.00
42.00 1.5000 63.00
41.00 1.5366 63.00
40.00 1.5750 63.00
39.00 1.6154 63.00
38.00 1.6579 63.00
37.00 1.7027 63.00
36.00 1.7500 63.00
35.00 1.8000 63.00
Maximum
Exchange Ratio 34.5625 1.8229 63.00
Walk-Away
Right/Top-Up
Right 34.00 1.8229 61.98
33.00 1.8229 60.16
32.00 1.8229 58.33
31.00 1.8229 56.51
30.00 1.8229 54.69
</TABLE>
3
<PAGE>
Ownership of Global Crossing after the merger
Assuming that the closing occurs by December 31, 1999, Global Crossing will
issue between approximately 192,523,809 shares and 316,315,144 shares of common
stock in the merger since the exchange ratio can vary between 1.1095 and
1.8229. These shares will represent between approximately 32% and 43% of the
outstanding shares of Global Crossing common stock immediately after the merg-
er. This information is based on the number of outstanding shares of Frontier
on July 29, 1999 and the number of outstanding shares of Global Crossing on
July 29, 1999, without taking into account shares issuable upon exercise of
stock options or warrants.
Tax consequences (Page 68)
We expect the merger to qualify as a tax-free reorganization for United
States federal income tax purposes. In general, Frontier shareholders will not
recognize any gain or loss on the exchange of Frontier common stock for Global
Crossing common stock, except to the extent they receive cash instead of
fractional shares or otherwise as merger consideration.
There will be no Bermuda tax of any kind payable in respect of the exchange
of shares in themerger. We urge Frontier shareholders to consult their own tax
advisors to discuss the tax consequences of the merger.
Board recommendations
Global Crossing (Page 45):
The Global Crossing board of directors unanimously recommends that you vote
FOR the proposals to approve the increase in authorized share capital and the
share issuance, FOR the director nominees to be elected and FOR each other
proposal presented at the 1999 annual meeting.
Frontier (Page 57):
The Frontier board of directors unanimously recommends that you vote FOR the
proposal to adopt the merger agreement.
Interests of members of Frontier's board of directors and management in the
merger (Page 66)
Some Frontier directors, officers and executives have interests in the merger
that may be different from, or in addition to, the interests of other Frontier
shareholders. These interests include employment agreements and stock options.
In addition, some Frontier directors and executive officers will become Global
Crossing directors or executive officers after the merger. You should be aware
of these interests because they may conflict with yours. These interests in-
clude:
. eighteen of Frontier's officers and executives will become entitled to
enhanced severance benefits, including cash payments and other benefits under
specified circumstances, upon the termination of their employment following
the merger,
. all stock options held by directors and employees of Frontier will vest and
become immediately exercisable,
. when we complete the merger, four of the current directors of Frontier will
be appointed to the Global Crossing board of directors, and
. Global Crossing has agreed to take all action necessary to elect Joseph P.
Clayton as a Vice Chairman of Global Crossing and Rolla P. Huff as President
and Chief Operating Officer of North American Operations of Global Crossing.
Opinions of financial advisors
Global Crossing (Page 47):
Salomon Smith Barney and Merrill Lynch, Pierce, Fenner & Smith Incorporated
each delivered an opinion to the Global Crossing board of directors that, as of
March 16, 1999, the original exchange ratio was fair from a financial point of
view to Global Crossing. In addition, Salomon Smith Barney delivered an opinion
to the Global Crossing board of directors that, as of May 16, 1999, the
exchange ratio, as revised on that date, was fair from a financial point of
view to Global Crossing. Merrill Lynch was not requested to deliver and did not
deliver an opinion regarding the revised exchange ratio because it represented
U S WEST in the proposed Global Crossing--U S WEST merger. These opinions are
not recommendations to any
4
<PAGE>
Global Crossing shareholder as to how to vote. We have attached these opinions
as Annexes D-1, D-2 and E to this document. You should read them in their
entirety.
Frontier (Page 58):
Morgan Stanley & Co. Incorporated delivered an opinion to the Frontier board
of directors that, as of March 16, 1999, the original exchange ratio was fair
from a financial point of view to Frontier's shareholders. In addition, Morgan
Stanley delivered an opinion to the Frontier board of directors that, as of May
16, 1999, the exchange ratio, as revised on that date, was fair from a finan-
cial point of view to Frontier's shareholders. This opinion is not a recommen-
dation as to how any Frontier shareholder should vote with respect to the merg-
er. We have attached the May 16, 1999 opinion to this document as Annex F. You
should read it in its entirety.
Record date for voting; Required votes
Global Crossing shareholders (Page 33):
You can vote at the 1999 annual meeting of Global Crossing shareholders if
you own Global Crossing common stock on the date of the meeting. You will be
entitled on a poll to one vote per share. If, however, you hold more than 9.5%
of all outstanding shares of Global Crossing common stock, your voting power
will be limited. You will also beentitled to any additional votes that may be
allocated to your shares pursuant to a formula contained in the Global Crossing
bye-laws, but you will not be allocated any additional votes if you own more
than 9.5% of the outstanding shares.
The approval of at least a majority of all outstanding shares of Global
Crossing common stock is required to adopt the proposals relating to the in-
crease in authorized share capital, the share issuance and each other proposal
presented at the annual meeting, with the exception of some proposed amendments
to the Global Crossing bye-laws, which require the approval of 75% of all out-
standing shares of Global Crossing common stock.
Shareholders representing more than a majority of the voting power of Global
Crossing have entered into a voting agreement with Frontier in which they
agreed to vote in favor of both the proposal to in crease the authorized share
capital of Global Crossing and the proposal to issue Global Crossing shares in
the merger. The vote of these shareholders will be sufficient to approve these
two proposals without any further vote by any other Global Crossing sharehold-
er. We have attached a copy of the voting agreement as Annex C to this docu-
ment. You should read it in its entirety.
Frontier shareholders (Page 36):
You can vote at the special meeting of Frontier shareholders if you owned
Frontier common stock at the close of business on July 29, 1999. The approval
of two-thirds of the outstanding shares of Frontier common stock is required to
adopt the merger agreement.
Conditions to the completion of the merger (Page 83)
The completion of the merger depends on the satisfaction or waiver of a num-
ber of conditions, including the following:
. adoption of the merger agreement by Frontier's shareholders,
.approval by Global Crossing's shareholders of the increase of its authorized
share capital and of the issuance of the Global Crossing shares in the merger,
. the absence of legal prohibitions to the merger,
. the absence of any stop order suspending theeffectiveness of the registration
statement relating to the Global Crossing shares to be issued in the merger
and approval of those shares for trading on the Nasdaq National Market,
. receipt of all FCC and state public utility commission approvals without the
imposition of conditions that would reasonably be expected to have a material
adverse effect on Global Crossing and its subsidiaries after the merger,
other than approvals which, if not obtained, would not reasonably be expected
to result in a material adverse effect on Global Crossing and its subsidiar-
ies after the merger,
5
<PAGE>
. expiration or termination of the waiting periodapplicable to the merger under
the Hart-Scott-Rodino Act, which was terminated on May 11, 1999,
. receipt of the approval of the issuance and subsequent free transferability
of Global Crossing shares by the Bermuda Monetary Authority, which approval
was received on July 1, 1999,
. receipt of opinions with respect to the tax-free nature of the merger,
. redemption of all outstanding Frontier preferred stock, which was redeemed on
July 1, 1999, and
. material compliance by Global Crossing and Frontier with their obligations,
and the truth and correctness of the representations made by each of them,
under the merger agreement.
Termination of the merger agreement; Fees payable (Pages 84 and 87)
1. Global Crossing and Frontier may agree to terminate the merger agreement at
any time if both companies agree.
2. Either Global Crossing or Frontier may also terminate the merger agreement
if:
. the merger is not completed by March 16, 2000, except that if all the
conditions to completing the merger have been satisfied or waived other
than the conditions relating to FCC and state public utility commission
approvals, then Global Crossing cannot terminate for this reason,
. a governmental entity permanently prohibits the merger or has finally de-
termined not to issue an order required to fulfill the conditions de-
scribed in the fifth and sixth bullet points above under "Conditions to
the completion of the merger,"
. the Frontier shareholders do not adopt the merger agreement, or
. the Global Crossing shareholders do not approve the proposals to increase
its authorized share capital and issue Global Crossing shares in the
merger.
3. Global Crossing may terminate the merger agreement if, before the Frontier
special meeting, the Frontier board of directors withdraws or adversely mod-
ifies its approval of the merger or approves or recommends a
superiorproposal. Frontier is required to pay Global Crossing a $270 million
termination fee ifFrontier terminates the merger agreement for this reason.
4. Frontier may terminate the merger agreement:
. at any time before the Frontier special meeting if the Frontier board of
directors approves a superior proposal; however, Frontier must have com-
plied with the relevant provisions of the merger agreement relating to
not soliciting alternative proposals to acquire Frontier. Frontier may
only exercise this termination right if it pays Global Crossing a $270
million termination fee and complies with specified notice and waiting
period provisions in the merger agreement, or
. if the average share price of Global Crossing common stock to be used in
calculating the exchange ratio is less than $34.5625, unless Global
Crossing agrees to increase the merger consideration so that Frontier
shareholders receive consideration having a value, based on the average
trading price of Global Crossing common stock during the measurement pe-
riod, of $63.00 per share.
Frontier's board of directors cannot assure you that it would exercise its
right to terminate the merger agreement if the average price was less than
$34.5625. If the Frontier board of directors exercises its right to terminate
the merger agreement for this reason, Global Crossing's board of directors can-
not assure you that it would increase the merger consideration. Adoption of the
merger agreement by Frontier's shareholders and approval by Global Crossing's
shareholders of the increase in the authorized share capital and the issuance
of Global Crossing shares in the merger will give
. the Frontier board of directors the power but not the obligation to decide to
complete the merger if the average trading price of the Global Crossing
6
<PAGE>
common stock during the measurement period is less than $34.5625 and
.the Global Crossing board of directors the power but not the obligation to de-
cide to increase the merger consideration in the event that the Frontier board
of directors exercises its right to terminate the merger agreement.
These powers can be exercised by the Frontier board of directors and the
Global Crossing board of directors without any further action or resolicitation
of the Frontier shareholders or the Global Crossing shareholders.
Frontier is required to pay Global Crossing a $270 million termination fee if
the merger agreement is terminated under specified circumstancesafter a third
party makes a proposal to acquire Frontier.
In addition, on March 16, 1999, Frontier and Global Crossing entered into a
stock option agreement under which Frontier has granted to Global Crossing an
option to purchase up to 19.9% of the Frontier common stock at a price of
$62.00 per share, exercisable only upon the occurrence of specified events when
a termination fee would be payable by Frontier to Global Crossing under the
merger agreement.
The fee and the stock option could discourage other companies from trying or
proposing to combine with Frontier. The total fees payable to Global Crossing
under the merger agreement and the profit realizable by Global Crossing under
the stock option agreement is limited to $275 million. We have attached the
stock option agreement to this document as Annex B. You should read it in its
entirety.
Regulatory matters (Page 74)
The completion of the merger is subject to regulatory requirements, including
expiration or termination of the waiting period under the Hart-Scott-Rodino
Act, which was terminated on May 11, 1999. The completion of the merger is also
subject to obtaining required regulatory approvals from the FCC and some state
public utilities commissions.
Accounting treatment (Page 74)
The merger will be accounted for using the purchase method of accounting.
No appraisal rights (Page 75)
Under the New York Business Corporation Law, Frontier shareholders are not
entitled to appraisal rights in connection with the merger. Under Bermuda law,
Global Crossing shareholders are not entitled to appraisal rights in connection
with the merger.
Trading of Global Crossing common stock (Page 75)
Global Crossing's common stock is currently trading on the Nasdaq National
Market and the Bermuda Stock Exchange. The shares of Global Crossing common
stock to be issued in the merger will also trade on the Nasdaq National Market
and the Bermuda Stock Exchange.
Transactions with Qwest and U S WEST
On May 16, 1999, Global Crossing entered into a merger agreement with U S
WEST. As part of its agreement with Global Crossing, on June 18, 1999, U S WEST
completed a tender offer pursuant to which U S WEST purchased 39,259,305 shares
of Global Crossing common stock for $62.75 in cash per share. U S WEST agreed
to vote the shares that it purchased in the tender offer in favor of the pro-
posals relating to the Global Crossing--Frontier merger.
On June 13, 1999, Qwest Communications International Inc. announced proposals
to acquire all the outstanding stock of Frontier and U S WEST, which proposals
were revised on June 23, 1999.
On July 18, 1999,
. the U S WEST board of directors approved Qwest's acquisition proposal, and U
S WEST entered into a merger agreement with Qwest,
. Global Crossing and U S WEST agreed to terminate their merger agreement. As
a result, U S WEST paid Global Crossing $140 million in cash and returned to
Global Crossing 2,231,076 shares of Global Crossing common
7
<PAGE>
stock that U S WEST had acquired for a total of $140 million in its tender
offer for Global Crossing common stock,
. Qwest committed to purchase capacity on the Global Crossing network at
established market rate prices for delivery over the next four years and
committed to make purchase price payments to Global Crossing for this
capacity of $140 million over the next two years, and
. Qwest withdrew its proposal to acquire all the outstanding stock of
Frontier.
U S WEST remains bound by its agreement to vote the remaining shares of
Global Crossing common stock it purchased in the tender offer in favor of the
proposals relating to the Global Crossing--Frontier merger.
8
<PAGE>
Selected historical financial information
Selected historical financial information for Global Crossing, Global Marine
and Frontier have been provided in the following tables. This selected
historical financial information has been derived from the audited and
unaudited financial statements of Global Crossing, Global Marine and Frontier
for the periods presented. This information is only a summary and should be
read together with the more detailed historical financial information included
or incorporated by reference in this document. You can find financial
information included in this document beginning on page F-1. For instructions
on how to obtain information incorporated by reference, see "Where You Can Find
More Information" on page 171.
Global Crossing selected historical financial information
The table below shows the selected historical financial information for
Global Crossing. This information has been prepared using the consolidated
financial statements of Global Crossing as of the dates indicated and for each
of the fiscal years in the period from inception, March 19, 1997, to December
31, 1998 and for the six months ended June 30, 1999 and 1998. The consolidated
income statement data below for each of the fiscal years in the period from
inception, March 19, 1997, to December 31, 1998 and the consolidated balance
sheet data as of December 31, 1998 and 1997 have been derived from financial
statements audited by Arthur Andersen & Co., independent public accountants,
which are included in this document beginning on page F-10. We derived the
remaining data from unaudited condensed consolidated financial statements,
which are included in this document beginning on page F-1.
In reading the following selected historical financial information, please
note the following:
. During the six-month period ended June 30, 1999, Global Crossing
recorded a $15 million expense (net of tax benefit) due to the adoption
of Statement of Position 98-5, "Reporting on the Cost of Start-Up
Activities." See the "Cumulative effect of change in accounting
principles" item in the Statement of Operations Data.
. During the year ended December 31, 1998, Global Crossing recognized $37
million from a total of $94 million of stock-related expense relating to
stock options and rights to purchase stock issued during that period
which entitle the holders to purchase common stock. The remaining $57
million will be recognized as follows: $28 million in 1999, $21 million
in 2000 and $8 million in 2001. See the "Stock related expense" item in
the Statement of Operations Data.
. The "Termination of advisory services agreement" item in the Statement
of Operations Data includes a charge for the termination of the advisory
services agreement as of June 30, 1998. See "Some Global Crossing
Transactions" on page 166. Global Crossing acquired the rights from
those entitled to fees payable under the advisory services agreement in
consideration for the issuance of common stock having an aggregate value
of $135 million and the cancellation of approximately $3 million owed to
Global Crossing under a related advance agreement. As a result of this
transaction, Global Crossing recorded a non-recurring charge in the
approximate amount of $138 million during the year ended December 31,
1998. In addition, Global Crossing recognized as an expense
approximately $2 million of advisory fees incurred prior to termination
of the contract.
. The "Provision for income taxes" item in the Statement of Operations
Data reflects income taxes on profits earned during the periods
presented in jurisdictions where Global Crossing has a taxable presence.
A significant portion of Global Crossing's operating losses have been
incurred in non-taxable jurisdictions, and, therefore, these operating
losses cannot be applied to offset Global Crossing's future taxable
earnings.
. On May 18, 1998, a portion of the proceeds from the issuance of the 9
5/8% Senior Notes due 2008 of Global Crossing Holdings Ltd. was used to
repurchase the 12% Senior Notes Due 2004 of Global Telesystems Holdings
Ltd. Global Crossing recognized an extraordinary loss of approximately
$20
9
<PAGE>
million in connection with this repurchase, comprised of a repurchase
premium of approximately $10 million and the write-off of approximately
$10 million of unamortized deferred financing costs. See the
"Extraordinary loss on retirement of senior notes" item in the Statement
of Operations Data.
. The preferred stock dividends for the year ended December 31, 1998
include dividends from both the 10 1/2% Senior Exchangeable Preferred
Stock due 2008 of Global Crossing Holdings and the 14% Senior Increasing
Rate Redeemable Exchangeable Preferred Stock of Global Telesystems
Holdings. The Global Crossing Holdings preferred stock is mandatorily
redeemable on December 1, 2008 and exchangeable at any time by Global
Crossing Holdings into notes. The Global Crossing Holdings preferred
stock entitles the holders to receive cumulative compounding dividends
at an annual rate of 10 1/2%. The dividends can be paid in cash or prior
to June 1, 2002 with the issuance of additional Global Crossing Holdings
preferred stock at the option of Global Crossing Holdings.
The holders of the Global Telesystems Holdings preferred stock were
entitled to receive cumulative, compounding dividends at an initial
annual rate of 14%. Preferred stock dividends include cumulative 14%
dividends and amortization of the discount and issuance costs. Global
Crossing used proceeds from the Global Crossing Holdings Senior Notes to
redeem all outstanding Global Telesystems Holdings preferred stock
effective as of June 17, 1998. All dividends prior to the redemption had
been paid through the issuance of additional preferred stock and charged
against additional paid-in capital. See the "Preferred stock dividends"
item in the Statement of Operations Data.
. As a result of the redemption of the Global Telesystems Holdings
preferred stock, Global Crossing incurred a one-time $34 million charge
against additional paid-in capital. The charge consisted of: (1) a $16
million charge for redemption premium and (2) a write-off of $18 million
of unamortized discount and unamortized deferred financing costs. See
the "Redemption of preferred stock" item in the Statement of Operations
Data.
. Construction in progress and capacity available for sale includes direct
and indirect expenditures for construction of the Atlantic Crossing
system and other systems and is stated at cost. Included are costs
incurred under (1) the construction contracts; (2) advisory, consulting
and legal fees; (3) interest, including amortization of debt issuance
costs incurred during the construction phase; and (4) other costs
necessary for developing the Atlantic Crossing system and other systems.
Additionally, Global Crossing granted warrants to Pacific Capital Group,
Inc., a shareholder, and some of its affiliates for the Pacific
Crossing, Mid-Atlantic Crossing and Pan American Crossing systems and
related rights. The $275 million value of the common stock was allocated
to "Construction in progress" in the amount of $112 million and as
"Investment in affiliates" in the amount of $163 million. See the
"Construction in progress, property, plant and equipment and capacity
available for sale" item in the Balance Sheet Data.
. The "Investment in affiliates" item in the Balance Sheet Data includes
$163 million as of December 31, 1998, representing the value of the
warrants described in the bullet point immediately above applicable to
the Pacific Crossing system.
. The December 31, 1998 amount in the "Mandatorily redeemable preferred
stock" item in the Balance Sheet Data includes (1) $500 million of
Global Crossing Holdings preferred stock, less (2) $17 million
reflecting the unamortized issue costs, plus (3) $4 million of accrued
dividends. The December 31, 1997 amount includes (1) $100 million of the
Global Telesystems Holdings preferred stock originally issued, plus (2)
$10 million of Global Telesystems Holdings preferred stock issued as
dividends on the originally issued Global Telesystems Holdings preferred
stock, less (3) $19 million reflecting the unamortized discount and
issue costs, plus $1 million of accrued dividends. Global Crossing
redeemed all outstanding Global Telesystems Holdings preferred stock
effective as of June 17, 1998.
10
<PAGE>
<TABLE>
<CAPTION>
Period from
For the Six For the Six For the March 19, 1997
Months Ended Months Ended Year Ended (Date of Inception) to
June 30, 1999 June 30, 1998 December 31, 1998 December 31, 1997
------------- ------------- ----------------- ----------------------
(unaudited) (unaudited)
(in thousands, except share and per share information)
<S> <C> <C> <C> <C>
Statement of Operations
Data:
Revenues................ $ 368,461 $ 101,256 $ 424,099 $ --
----------- ----------- ----------- -----------
Expenses:
Cost of capacity sold... 150,292 41,200 178,492 --
Operations,
administration and
maintenance............ 25,869 2,470 18,056 --
General and
administrative......... 44,503 8,850 26,844 1,657
Sales and marketing..... 23,256 7,313 26,194 1,366
Network development..... 9,753 4,314 10,962 78
Stock related expense... 26,074 23,398 39,374 --
Depreciation and
amortization........... 4,200 473 -- --
Provision for doubtful
accounts............... 3,683 1,012 4,233 --
Termination of advisory
services agreement..... -- 139,669 139,669 --
----------- ----------- ----------- -----------
287,630 228,699 443,824 3,101
----------- ----------- ----------- -----------
Operating income
(loss)................. 80,831 (127,443) (19,725) (3,101)
Equity in loss of
affiliates............. (5,542) -- (2,508) --
Other income (expense):
Interest income........ 31,666 4,422 29,986 2,941
Interest expense....... (46,454) (7,426) (42,880) --
Other expense, net..... (7,683) -- -- --
Provision for income
taxes.................. (30,038) (9,000) (33,067) --
----------- ----------- ----------- -----------
Income (loss) before
extraordinary item and
cumulative effect of
change in accounting
principle.............. 22,780 (139,447) (68,194) (160)
Extraordinary loss on
retirement of senior
notes.................. -- (19,709) (19,709) --
Cumulative effect of
change in accounting
principle.............. (14,710) -- -- --
----------- ----------- ----------- -----------
Net income (loss)....... 8,070 (159,156) (87,903) (160)
Preferred stock
dividends.............. (27,241) (8,306) (12,681) (12,690)
Redemption of preferred
stock.................. -- (34,140) (34,140) --
----------- ----------- ----------- -----------
Net loss applicable to
common shareholders.... $ (19,171) $ (201,602) $ (134,724) $ (12,850)
=========== =========== =========== ===========
Net Loss per Common
Share:
Loss applicable to
common shareholders
before extraordinary
item and cumulative
effect of change in
accounting principle
Basic and Diluted...... $ (0.01) $ (0.55) $ (0.32) $ (0.04)
=========== =========== =========== ===========
Extraordinary item
Basic and Diluted...... $ -- $ (0.06) $ (0.06) $ --
=========== =========== =========== ===========
Cumulative effect of
change in accounting
principle
Basic and Diluted...... $ (0.04) $ -- $ -- $ --
=========== =========== =========== ===========
Net loss applicable to
common shareholders
Basic and Diluted...... $ (0.05) $ (0.61) $ (0.38) $ (0.04)
=========== =========== =========== ===========
Shares used in computing
basic and diluted loss
per share..............
Basic and Diluted....... 412,000,658 332,125,394 358,735,340 325,773,934
=========== =========== =========== ===========
</TABLE>
11
<PAGE>
<TABLE>
<CAPTION>
December 31,
June 30, ---------------------
1999 1998 1997
----------- ---------- ---------
(unaudited)
(in thousands)
<S> <C> <C> <C>
Balance Sheet Data:
Current assets including cash and
investments and restricted cash and
investments................................ $ 905,469 $ 976,615 $ 27,744
Long term restricted cash and investments... 367,387 367,600 --
Long term accounts receivable............... 63,128 43,315 --
Construction in progress, property, plant
and equipment and capacity available for
sale....................................... 1,406,170 1,008,556 518,519
Investment in affiliates.................... 184,676 177,334 --
Other assets................................ 111,767 65,757 25,934
---------- ---------- ---------
Total assets............................... $3,038,597 $2,639,177 $ 572,197
========== ========== =========
Current liabilities......................... $ 302,082 $ 256,265 $ 90,817
Long term debt.............................. 559,707 269,598 162,325
Senior notes................................ 796,682 796,495 150,000
Deferred revenue............................ 60,140 25,325 --
Obligations under inland service agreements
and capital leases......................... 15,237 24,520 3,009
Deferred income taxes....................... 24,167 9,654 --
---------- ---------- ---------
Total liabilities.......................... 1,758,015 1,381,857 406,151
Mandatorily redeemable preferred stock...... 484,958 483,000 91,925
Shareholders' equity........................
Common stock............................... 4,361 4,328 3,258
Treasury stock............................. (209,415) (209,415) --
Other shareholders' equity................. 1,080,671 1,067,470 71,023
Accumulated deficit........................ (79,993) (88,063) (160)
---------- ---------- ---------
Total shareholders' equity.................. 795,624 774,320 74,121
---------- ---------- ---------
Total liabilities and shareholders' equity.. $3,038,597 $2,639,177 $ 572,197
========== ========== =========
</TABLE>
Global Marine selected historical financial information
The table below shows selected historical financial information for Global
Marine. This information has been prepared using the combined financial
statements of Global Marine as of the dates indicated and for the three months
ended June 30, 1999 and each of the fiscal years in the five-year period ended
March 31, 1999 and for the three months ended June 30, 1999 and 1998. The
combined income statement data below for each of the three fiscal years ended
March 31, 1999 and the combined balance sheet data at March 31, 1999 and 1998
were derived from financial statements audited by KPMG Audit Plc, chartered
accountants, which are included in this document beginning on page F-52. The
combined income statement data below for each of the two fiscal years ended
March 31, 1996 and the combined balance sheet data of March 31, 1996 and 1995
were derived from management accounts. We derived the remaining data from
unaudited combined financial statements, which are included in this document
beginning on page F-45.
The unaudited translations of Global Marine's sterling amounts into U.S.
dollars have been translated using convenience translation rates. The
convenience translations should not be construed as representations that the
sterling amounts have been, could have been, or could in the future be,
converted into U.S. dollars at this rate or any other rate of exchange.
<TABLE>
<CAPTION>
For the Three For the Three For the Years Ended March 31,
Months Ended Months Ended ----------------------------------------------
June 30, 1999 June 30, 1998 1999 1998 1997 1996 1995
------------- ------------- -------- -------- -------- --------- ---------
(in thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Operating revenues...... $ 78,004 $52,315 $347,335 $280,705 $288,813 $ 231,614 $ 127,725
Income from continuing
operations............. 8,448 $ 6,665 47,051 22,730 30,140 42,134 17,337
Total assets............ 712,124 753,333 740,181 614,345 548,419 380,502
Long term obligations... $270,229 $261,923 $331,742 $263,420 $ 225,702 $ 88,718
</TABLE>
12
<PAGE>
Frontier selected historical financial information
The table below shows selected historical financial information for Frontier.
This information has been prepared using the consolidated financial statements
of Frontier as of the dates indicated and for each of the fiscal years in the
five-year period ending December 31, 1998 and for the six months ended June 30,
1999 and 1998. The consolidated income statement data below for each of the
fiscal years in the five-year period ending December 31, 1998 and the
consolidated balance sheet data as of December 31, 1994 through December 31,
1998 have been derived from financial statements audited by
PricewaterhouseCoopers LLP, independent accountants, which are incorporated by
reference in this document. We derived the remaining data from unaudited
consolidated financial statements, which are incorporated by reference in this
document. For instructions on how to obtain information incorporated by
reference, see "Where You Can Find More Information" on page 171.
Revenues have been impacted by the following acquisitions for the periods
presented:
. On February 27, 1998, Frontier acquired GlobalCenter Inc., a leading
provider in digital distribution, Internet and data services
headquartered in Sunnyvale, California. Frontier acquired all of the
outstanding shares of GlobalCenter and issued 6.4 million shares to
effect this merger. At the time of the merger, GlobalCenter had 1.1
million stock options and warrants outstanding as converted into
Frontier equivalents. This transaction was accounted for using the
pooling of interests method of accounting and, accordingly, historical
information has been restated to include GlobalCenter.
. In August 1995, Frontier merged with ALC Communications Corporation.
Frontier exchanged two shares of its common stock for each ALC common
share. The total shares issued by Frontier to effect the merger were
69.2 million. In March 1995, Frontier acquired American Sharecom Inc.
Frontier acquired all of the outstanding shares of American Sharecom for
approximately 8.7 million shares of Frontier common stock. These
transactions were accounted for as poolings of interests and,
accordingly, historical information has been restated to include ALC and
American Sharecom.
. In 1995, Frontier paid $318.4 million in cash for several acquisitions
that were accounted for as purchases. These purchase acquisitions were
Minnesota Southern Cellular Telephone Company, ConferTech International,
Inc., WCT Communications, Inc., Enhanced Telemanagement, Schneider
Communications, Inc. and Schneider Communications' 80.8 percent interest
in LinkUSA Corporation and Link-VTC, Inc. In February 1996, Frontier
acquired the remaining 19.2 percent interest in LinkUSA Corporation for
$2.3 million in cash, and in June 1996 made a payment of $4.3 million to
Link-VTC, Inc. in settlement of the original earnout agreement.
The following extraordinary, unusual or infrequently occurring items have
impacted net income for the periods presented:
. In the first quarter of 1999, Frontier recorded a $7.5 million charge,
or $0.04 per diluted share, for costs related to the merger with Global
Crossing. These charges primarily include investment banker fees, legal
fees and other direct costs.
. In the first quarter of 1998, Frontier recorded a pre-tax charge of $6.5
million associated with the acquisition of GlobalCenter. These charges
included investment banker, legal fees and other direct costs.
. In October 1997, Frontier recorded a pre-tax charge of $86.8 million
consisting of a restructuring charge of $43.0 million and a provision
for asset and lease impairments of $43.8 million. The restructuring
charge was primarily associated with a workforce reduction, program
cancellations and discontinuing some product lines. The provision for
asset and lease impairments primarily relates to long term assets and
some lease obligations Frontier was in the process of disposing of or
exiting.
13
<PAGE>
. In March 1997, Frontier recorded a $96.6 million pre-tax charge
primarily related to the write-off of certain leased network facilities
no longer required as a result of the migration of Frontier's major
carrier customer's one-plus traffic volume to other networks and
Frontier's overall network integration efforts.
. In November 1996, Frontier recorded a $48.8 million pre-tax charge. This
charge included $28.0 million for the curtailment of specified Frontier
pension plans and a $20.8 million charge primarily to the write-off of
unrecoverable product development costs for its conference calling
product line.
. In December 1996, Frontier, through GlobalCenter, recorded a pre-tax
charge of $18.9 million related to the write-off of in-process product
development costs associated with the 1996 merger with GCIS, an Internet
management services company.
. Frontier's 1995 operating results reflect pre-tax acquisition related
charges of $114.2 million associated with the integration of a number of
long distance companies acquired during the year, including the August
1995 merger with ALC Communications.
. Frontier determined in 1995 that Statement of Financial Accounting
Standards No. 71, "Accounting for the Effects of Certain Types of
Regulation," was no longer applicable based upon changes in regulation,
increasingly rapid advancements in telecommunications technology and
other factors creating competitive markets. As a result of the
discontinuance of FAS 71, Frontier recorded a non-cash extraordinary
charge of $112.1 million, net of an income tax benefit of $68.4 million,
as of September 30, 1995. Frontier also recorded a $9.0 million loss on
the early extinguishment of debt in 1995.
14
<PAGE>
<TABLE>
<CAPTION>
Six Months Six Months Year Ended December 31,
Ended Ended ----------------------------------------------------------
June 30, 1999 June 30, 1998 1998 1997 1996 1995 1994
------------- ------------- ---------- ---------- ---------- ---------- ----------
(unaudited)
(in thousands, except per share information)
<S> <C> <C> <C> <C> <C> <C> <C>
Consolidated Statements
of Income:
Revenues................ $1,321,597 $1,280,314 $2,593,558 $2,374,809 $2,588,519 $2,150,328 $1,667,545
Costs and expenses...... 1,174,055 1,131,465 2,276,162 2,288,651 2,220,296 1,865,492 1,341,919
Operating income........ 147,542 148,849 317,396 86,158 368,223 284,836 325,626
Interest expense........ 29,850 25,989 55,318 48,239 43,312 53,572 50,216
Other income, net of
other expense.......... 14,994 25,470 45,025 38,070 15,850 14,991 20,922
Income taxes............ 55,411 66,753 129,560 44,188 142,556 101,126 109,078
Income before
extraordinary items and
cumulative effect of
changes in accounting
principles............. 77,275 81,577 177,543 31,801 198,205 145,129 187,254
Extraordinary items..... -- -- -- -- -- (121,208) --
Cumulative effect of
changes in accounting
principles............. -- (1,755) (1,755) -- (8,018) (1,477) (7,197)
Consolidated net
income................. 77,275 79,822 175,788 31,801 190,187 22,444 180,057
Dividends on preferred
stock.................. (506) (503) (1,005) (1,019) (1,182) (1,191) (1,187)
Income applicable to
common stock........... $ 76,769 $ 79,319 $ 174,783 $ 30,782 $ 189,005 $ 21,253 $ 178,870
Earnings per common
share:
Basic earnings per
share:
Income before
extraordinary item and
cumulative effect of
changes in accounting
principles............ $ .45 $ .48 $ 1.03 $ .18 $ 1.19 $ .94 $ 1.26
Net income............. .45 .47 1.02 .18 1.14 .14 1.21
Diluted earnings per
share:
Income before
extraordinary item and
cumulative effect of
changes in accounting
principles............ .43 .47 1.02 .18 1.18 .88 1.16
Net income............. .43 .46 1.01 .18 1.13 .13 1.11
Cash dividends declared
per common share....... $ .10 $ .45 $ .89 $ .875 $ .855 $ .835 $ .815
Consolidated Balance
Sheets (at period end):
Current assets.......... $ 577,637 $ 566,674 $ 490,305 $ 477,761 $ 524,200 $ 673,826
Property, plant and
equipment, net......... 2,038,457 1,677,559 1,046,884 975,982 883,046 1,034,442
Goodwill and customer
base, net.............. 466,851 484,015 517,754 538,296 550,081 222,442
Deferred and other
assets................. 391,493 330,495 432,977 237,353 154,088 130,084
Total assets........... $3,474,438 $3,058,743 $2,487,920 $2,229,392 $2,111,415 $2,060,794
Current liabilities..... $ 551,229 $ 567,697 $492,978 $ 424,397 $ 506,073 $ 305,698
Long-term debt.......... 1,647,960 1,350,821 934,681 677,570 618,867 661,549
Deferred income taxes... 50,462 40,046 10,927 2,542 15,644 98,217
Deferred employee
benefits obligation.... 92,049 81,925 74,965 57,573 58,385 46,001
Preferred stock......... 18,294 18,770 20,126 22,611 22,769 22,777
Shareholders' equity,
exclusive of preferred
stock.................. 1,114,444 999,484 954,243 1,044,699 889,677 926,552
Total liabilities and
shareholders' equity.. $3,474,438 $3,058,743 $2,487,920 $2,229,392 $2,111,415 $2,060,794
</TABLE>
15
<PAGE>
Selected unaudited pro forma financial information
The following unaudited pro forma condensed combined financial information of
Global Crossing, Global Marine and Frontier, which we refer to as "Pro Forma
Global Crossing," has been prepared to demonstrate how these companies or
businesses might have looked if the merger and merger-related transactions had
been completed as of the dates or at the beginning of the periods presented.
We have prepared the pro forma financial information using the purchase
method of accounting. We expect that we will have reorganization and
restructuring expenses and potential synergies relating to our long distance
business and increased opportunities to earn more revenue as a result of
combining our companies. The unaudited pro forma information does not reflect
these expenses and synergies.
The pro forma information, while helpful in illustrating the financial
characteristics of the combined company under one set of assumptions, does not
attempt to predict or suggest future results. The pro forma information also
does not attempt to show how the combined company would actually have performed
had the companies been combined throughout these periods. If the companies had
actually been combined in prior periods, these companies and businesses might
have performed differently. You should not rely on pro forma financial
information as an indication of the results that would have been achieved if
the transactions outlined in this document had taken place earlier or the
future results that the companies will experience after completion of the
transactions.
Global Crossing and Frontier estimate that the Global Marine acquisition, the
merger and related transactions will result in fees and expenses totaling
approximately $95 million.
These unaudited pro forma condensed combined financial statements should be
read in conjunction with the historical financial statements of Global
Crossing, Global Marine and Frontier, which, in the case of Global Crossing and
Global Marine, are included in this document and, in the case of Frontier, are
incorporated by reference in this document.
16
<PAGE>
Pro Forma Global Crossing
Unaudited Pro Forma Condensed Combined Statement of Operations
(in thousands, except share and per share data)
<TABLE>
<CAPTION>
Six Months Ended
June 30, 1999
----------------
<S> <C>
Operating revenues............................................ $ 1,863,556
------------
Operating expenses:
Operating, selling, general and administrative.............. 1,430,520
Stock related expense....................................... 26,074
Depreciation and amortization............................... 315,960
------------
1,772,554
------------
Operating income.............................................. 91,002
Equity in income of affiliates................................ 8,684
Other income (expense):
Interest expense............................................ (107,173)
Interest income............................................. 35,311
Other income................................................ (5,367)
------------
Income before taxes and cumulative effect of change in
accounting principle......................................... 22,457
Provision for income taxes.................................. (87,206)
------------
Loss before cumulative effect of change in accounting
principle.................................................... (64,749)
Preferred stock dividends................................... (27,241)
Redemption of preferred stock............................... (183)
------------
Loss applicable to common shareholders before cumulative
effect of change in accounting principle (Basic and
Diluted)..................................................... $ (92,173)
============
Loss per common share:
Loss applicable to common shareholders before cumulative
effect of change in accounting principle
Basic and Diluted......................................... $ (0.13)
============
Shares used in computing information applicable to common
shareholders
Basic and Diluted......................................... 684,883,385
============
</TABLE>
17
<PAGE>
Pro Forma Global Crossing
Unaudited Pro Forma Condensed Combined Statement of Operations
(in thousands, except share and per share data)
<TABLE>
<CAPTION>
Fiscal Year 1998
----------------
<S> <C>
Operating revenues........................................... $ 3,364,992
------------
Operating expenses:
Operating, selling, general and administrative............. 2,548,346
Termination of Advisory Services Agreement................. 139,669
Stock related expense...................................... 39,374
Depreciation and amortization.............................. 603,001
------------
3,330,390
------------
Operating income............................................. 34,602
Equity in income of affiliates............................... 18,935
Other income (expense):
Interest expense........................................... (157,374)
Interest income............................................ 38,863
Other income............................................... 23,230
------------
Income before taxes, extraordinary item, and cumulative
effect of change in accounting principle.................... (41,744)
Provision for income taxes................................. (168,064)
------------
Loss before extraordinary item and cumulative effect of
change in accounting principle.............................. (209,808)
Preferred stock dividends.................................. (12,681)
Redemption of preferred stock.............................. (34,323)
------------
Loss applicable to common shareholders before extraordinary
item and cumulative effect of change in accounting principle
(Basic and Diluted)......................................... $ (256,812)
============
Loss per common share:
Loss applicable to common shareholders before extraordinary
item and cumulative effect of change in accounting
principle
Basic and Diluted........................................ $ (0.41)
============
Shares used in computing information applicable to common
shareholders
Basic and Diluted........................................ 631,618,067
============
</TABLE>
18
<PAGE>
Pro Forma Global Crossing
Unaudited Pro Forma Condensed Combined Balance Sheet
(in thousands)
<TABLE>
<CAPTION>
June
30, 1999
-----------
<S> <C>
Cash and cash equivalents.......................................... $ 318,918
Other current assets............................................... 779,923
-----------
Total current assets............................................. 1,098,841
Restricted cash and cash equivalents............................... 367,387
Accounts receivable................................................ 63,128
Capacity available for sale........................................ 503,878
Property, plant and equipment, net................................. 2,460,451
Construction in process............................................ 842,439
Goodwill and other intangibles, net................................ 11,480,897
Other assets, net.................................................. 503,260
Investment in affiliates........................................... 225,033
-----------
Total assets..................................................... $17,545,314
===========
Current liabilities................................................ $ 1,153,225
Long term debt..................................................... 2,790,906
Senior notes....................................................... 796,682
Deferred income taxes.............................................. (121,632)
Postretirement and other post-employment benefit obligations....... 92,049
Deferred credits and other......................................... 191,926
-----------
Total liabilities................................................ 4,903,156
-----------
Mandatorily redeemable preferred stock............................. 484,958
-----------
Shareholders' equity
Preferred stock.................................................. --
Common stock..................................................... 7,090
Other shareholders' equity....................................... 12,513,663
Unearned compensation............................................ (74,145)
Treasury stock................................................... (209,415)
Accumulated deficit.............................................. (79,993)
-----------
Total shareholders' equity......................................... 12,157,200
-----------
Total liabilities and shareholders' equity....................... $17,545,314
===========
</TABLE>
19
<PAGE>
Comparative per share data
Presented below is the income/loss from operations before extraordinary item
and cumulative effect of changes in accounting principle, book value per common
share and cash dividends per common share data for Global Crossing and Frontier
on an historical basis and a pro forma basis. We combined historical
consolidated financial information of Global Crossing, Global Marine and
Frontier using the purchase method of accounting for business combinations. See
"Unaudited Pro Forma Condensed Combined Financial Statements" beginning on page
92.
The unaudited Frontier equivalent pro forma information was calculated by
multiplying the corresponding unaudited Pro Forma Global Crossing consolidated
data by an assumed exchange ratio of 1.5750, which is the exchange ratio if the
average trading price of Global Crossing common stock during the measurement
period is $40.00, the closing price of Global Crossing common stock on August
2, 1999. This information shows how each share of Frontier common stock would
have participated in net earnings and book value of Global Crossing if the
merger had been completed at January 1, 1998. These amounts, however, do not
necessarily reflect future per share levels of net earnings or book value of
Global Crossing.
<TABLE>
<CAPTION>
Six months
Fiscal ended
Year June 30,
1998 1999
------ ----------
<S> <C> <C>
Global Crossing historical
Loss per share:
Basic...................................................... $(0.32) $(0.05)
Diluted.................................................... (0.32) (0.58)
Book value per common share.................................. 1.89 1.82
Cash dividends declared per common share..................... -- --
Frontier historical
Earnings per share:
Basic...................................................... 1.03 0.45
Diluted.................................................... 1.02 0.43
Book value per common share.................................. 5.93 6.54
Cash dividends declared per common share..................... 0.89 0.10
Unaudited Global Crossing equivalent pro forma
Loss per share:
Basic...................................................... (0.41) (0.13)
Diluted.................................................... (0.41) (0.13)
Book value per common share.................................. * 17.70
Unaudited Frontier equivalent pro forma
Earnings per share:
Basic...................................................... (0.65) (0.20)
Diluted.................................................... (0.65) (0.20)
Book value per common share.................................. * 27.88
</TABLE>
- --------
* Information not provided
20
<PAGE>
Market prices and dividends
The Global Crossing common stock trades on both the Nasdaq National Market
and the Bermuda Stock Exchange under the symbol "GBLX." Frontier common stock
is listed on the New York Stock Exchange under the symbol "FRO."
The table below shows, for the calendar quarters indicated, the reported high
and low sale prices of Global Crossing common stock as reported on the Nasdaq
National Market and the Frontier common stock as reported on the New York Stock
Exchange Composite Transactions Tape, in each case based on published financial
sources and the dividends, if any, declared on the stock. Share amounts and
values for Global Crossing common stock take into account the two-for-one stock
split in the form of a stock dividend effective March 9, 1999. The third
quarter 1998 information for Global Crossing covers the period between August
14, the date of the initial public offering of the Global Crossing common
stock, through September 30.
<TABLE>
<CAPTION>
Global Crossing Common Stock Frontier Common Stock
--------------------------------------------------------
Market Price Cash Market Price Cash
-------------------- Dividends ------------- Dividends
High Low Declared High Low Declared
---------- --------- ------------------ ------ ---------
<S> <C> <C> <C> <C> <C> <C>
Calendar 1997
First Quarter.......... -- -- -- $23.25 $17.75 $.2175
Second Quarter......... -- -- -- 20.50 15.38 .2175
Third Quarter.......... -- -- -- 24.19 19.00 .2175
Fourth Quarter......... -- -- -- 25.00 20.00 .2225
Calendar 1998
First Quarter.......... -- -- -- 33.44 24.44 .2225
Second Quarter......... -- -- -- 33.00 28.31 .2225
Third Quarter.......... $ 12.75 $ 8.00 -- 36.75 24.13 .2225
Fourth Quarter......... 23.50 8.63 -- 34.13 24.81 .2225
Calendar 1999
First Quarter.......... 62.63 18.94 -- 54.94 33.19 .0500
Second Quarter......... 64.25 39.63 -- 60.38 49.13 .0500
Third Quarter (through
August 4, 1999)....... 50.00 32.94 -- 59.94 43.63 --
</TABLE>
Since the date of the merger agreement, the Global Crossing common stock has
traded within a range from $32.94 to $64.25. The average trading price for
purposes of determining the exchange ratio will be based on the trading prices
of the Global Crossing common stock during the measurement period shortly
before the closing, which measurement period may end after the date of the
Frontier special meeting.
21
<PAGE>
The following table presents trading information for the Global Crossing
common stock and Frontier common stock on March 16, 1999 and August 4, 1999.
March 16, 1999 was the last full trading day before our announcement of the
signing of the merger agreement. August 4, 1999 was the last practicable
trading day for which information was available before the date of this
document. The equivalent pro forma price of Frontier common stock is also
presented below for each price. The equivalent pro forma price for each date
was determined by multiplying the applicable price of Global Crossing common
stock by the exchange ratio that would result if the applicable price of Global
Crossing common stock shown were the average trading price of Global Crossing
common stock during the measurement period. We cannot assure you what the
market prices of the Global Crossing common stock will be at the merger date or
during the period when the exchange ratio is calculated. You should obtain
current market quotations.
<TABLE>
<CAPTION>
Frontier
Global Crossing Frontier Equivalent Pro
Common Stock Common Stock Forma
--------------- ------------ --------------
<S> <C> <C> <C>
Closing price on March 16, 1999.... $ 51 1/2 $44 5/8 $63
Closing price on August 4, 1999.... $ 36 $47 3/8 $63
</TABLE>
Global Crossing does not anticipate paying cash dividends on its common stock
in the foreseeable future. The terms of some debt instruments of Global
Crossing limit its ability to pay cash dividends. Future cash dividends, if
any, will be at the discretion of the Global Crossing board of directors and
will depend upon, among other things, Global Crossing's operations, capital
requirements and surplus, general financial condition, contractual restrictions
and those other factors the Global Crossing board of directors may deem
relevant. See "Global Crossing's Management Discussion and Analysis of
Financial Condition and Results of Operations" beginning on page 116.
22
<PAGE>
Risk Factors
Shareholders of Global Crossing and Frontier should consider the following
factors, in addition to the other information contained in this document.
Risks Relating to the Merger
The successful integration of Frontier's business and the achievement of
expected benefits cannot be assured
We expect that the merger will result in benefits arising out of the creation
of a seamless global network of telecommunications facilities and services.
Even though Global Crossing and Frontier have little direct overlap of
employees, markets, customers, products or facilities, we also expect the
merger to result in some operating efficiencies and cost savings related to the
transport of communications and information over long distances. Achieving the
benefits of the merger will depend in part upon the integration of the
businesses of Global Crossing and Frontier in an efficient manner. We cannot
assure you that this will happen or that it will happen in a timely manner.
Global Crossing has not previously had significant experience integrating the
operations of acquired companies. The consolidation of operations will require
substantial attention from management. The diversion of management attention
and any difficulties encountered in the transition and integration process
could have a material adverse effect on the revenues, levels of expenses and
operating results of the combined company. We cannot assure you that the
combined company will realize any of the anticipated benefits of the merger.
Since the market price of the Global Crossing common stock will vary, Frontier
shareholders cannot be sure of the value of the Global Crossing common stock to
be received in the merger
Since the date of the merger agreement, the Global Crossing common stock has
traded within a range from $32.94 to $64.25. The average trading price for
purposes of determining the exchange ratio will be based on the trading prices
of the Global Crossing common stock during the measurement period shortly
before the closing, which measurement period may end after the date of the
Frontier special meeting.
If the average trading price of the Global Crossing common stock during the
measurement period for determining the exchange ratio is less than $34.5625,
Frontier shareholders will receive less than $63.00 in value of Global Crossing
common stock for each share of Frontier common stock in the merger, unless the
Frontier board of directors chooses to terminate the merger agreement and
Global Crossing chooses to increase the value of the merger consideration.
Frontier shareholders will not be able to vote against the merger if the
trading price of the Global Crossing common stock falls below $34.5625 after
the Frontier special meeting and the Frontier board of directors will not be
required to terminate the merger agreement if the average trading price during
the measurement period is below $34.5625. In addition, the number of shares of
Global Crossing common stock that Frontier shareholders will receive in the
merger will not be adjusted for changes in Global Crossing's stock price if the
average trading price during the measurement period is above $56.7813. As a
result, the value of the Global Crossing shares received by Frontier
shareholders in the merger will also vary with fluctuations in the Global
Crossing stock price above this level.
Also, the exchange ratio is based on an average price of the Global Crossing
common stock during the measurement period shortly before the closing.
Accordingly, because the market price of Global Crossing common stock will
fluctuate and may increase or decrease during the period from the end of the
measurement period to the effective time of the merger, and from the effective
time until Global Crossing delivers certificates representing Global Crossing
shares to Frontier shareholders, the value of the Global Crossing common stock
actually received by Frontier shareholders may be more or less than the average
trading price or the value of the Global Crossing common stock at the effective
time of the merger.
23
<PAGE>
Because the closing of the merger may happen at a date later than the
shareholder meetings, we cannot assure you that the price of the Global
Crossing common stock on the date of the meetings will be indicative of its
price at the closing of the merger.
Risks relating to the business and operations of Global Crossing
Global Crossing has a limited operating history
Global Crossing was organized in March 1997 and has a limited operating
history. Global Crossing's financial information relates principally to a
period in which it was constructing and developing the Atlantic Crossing system
and, until May 1998, had minimal revenues and operating costs. Despite
recognizing approximately $793 million in revenues, Global Crossing has
incurred a net loss applicable to common shareholders of approximately $167
million for the period from March 19, 1997, its date of inception, through June
30, 1999, due primarily to the termination of some advisory services
agreements, the incurrence of stock-related expense, the extraordinary loss on
the retirement of some senior notes, preferred stock dividends and the
redemption of some preferred stock. Global Crossing has financed its net
losses, debt service, capital expenditures and other cash needs to date through
operations, the proceeds of sales of common stock and mandatorily redeemable
preferred stock and the issuance of debt. Global Crossing will require
substantial additional capital in order to carry out its business plan.
Global Crossing's significant indebtedness could adversely affect it by leaving
it with insufficient cash to fund operations and impairing its ability to
obtain additional financing
The amount of Global Crossing's debt could have important consequences for
its future, including, among other things:
. cash from operations may be insufficient to meet the principal and
interest on its indebtedness as it becomes due,
. payments of principal and interest on borrowings may leave it with
insufficient cash resources for its operations, and
. restrictive debt covenants may impair its ability to obtain additional
financing.
Global Crossing has incurred a high level of debt. As of June 30, 1999,
Global Crossing and its consolidated subsidiaries had a total of $1,758 million
of total liabilities, including approximately $1,384 million in senior
indebtedness, of which $560 million was secured. Global Crossing's direct
subsidiary, Global Crossing Holdings, also has mandatorily redeemable preferred
stock outstanding with a face value of $500 million. In addition, Global
Crossing's Pacific Crossing joint venture entered into an $850 million non-
recourse credit facility, under which it had incurred $468 million of
indebtedness as of June 30, 1999. Global Crossing also incurred additional
indebtedness of $600 million in connection with its acquisition of Global
Marine.
Global Crossing's ability to repay its debt depends upon a number of factors,
many of which are beyond its control. In addition, Global Crossing relies on
dividends, loan repayments and other intercompany cash flows from its
subsidiaries to repay its obligations. Global Crossing's operating subsidiaries
have entered into a senior secured corporate credit facility. Accordingly, the
payment of dividends from these operating subsidiaries and the making and
repayments of loans and advances are subject to statutory, contractual and
other restrictions.
In addition, if Global Crossing is unable to generate sufficient cash flow to
meet its debt service requirements, Global Crossing may have to renegotiate the
terms of its long-term debt. Global Crossing cannot assure you that it would be
able to successfully renegotiate those terms or refinance its indebtedness when
required or that satisfactory terms of any refinancing would be available. If
Global Crossing were not able to refinance its indebtedness or obtain new
financing under these circumstances, Global Crossing would have to consider
other options, such as:
24
<PAGE>
. sales of some assets to meet its debt service obligations,
. sales of equity,
. negotiations with its lenders to restructure applicable indebtedness, or
. other options available to it under applicable law.
Global Crossing may encounter difficulties in completing its cable systems
Global Crossing's ability to achieve its strategic objectives will depend in
large part upon the successful, timely and cost-effective completion of its
planned cable systems as well as on achieving substantial capacity sales on
these systems once they become operational. The construction of the Global
Crossing systems will be affected by a variety of factors, uncertainties and
contingencies, many of which are beyond Global Crossing's control including:
. its ability to manage their construction effectively,
. its ability to obtain all construction and operating permits and
licenses,
. third-party contractors performing their obligations on schedule, and
. its ability to enter into favorable construction contracts with a
limited number of suppliers.
These factors may significantly delay or prevent completion of one or more of
the Global Crossing systems, which could have a material adverse effect on
Global Crossing's business, financial condition and results of operations.
Global Crossing cannot assure you that each of its systems will be completed
at the cost and in the time frame currently estimated by Global Crossing, or
even at all. Although Global Crossing awards contracts for construction of its
systems to suppliers who in most cases are expected to be bound by a fixed-
price construction cost schedule and to provide guarantees in respect of
completion dates and system design specifications, Global Crossing cannot
assure you that the actual construction costs or the time required to complete
these systems will not exceed its current estimates. These circumstances could
have a material adverse effect on Global Crossing's results of operations or
financial condition.
Global Crossing depends upon the continued success of its sales and marketing
capabilities
Global Crossing's success will depend substantially on sales of capacity on
its systems. Although Global Crossing's sales and marketing efforts have
resulted to date in substantial sales of undersea and terrestrial capacity on
its systems, Global Crossing cannot be certain that it will continue to be
successful in selling capacity or that it will be able to realize its business
plan. Furthermore, even if Global Crossing realizes its plan, it still may not
be able to sustain operating profitability or generate sufficient cash flow to
service its indebtedness.
If Global Crossing is unable to effectively sell capacity on its cable
systems, its results of operations will be materially adversely affected.
Global Crossing's ability to achieve its business objectives depends in large
part upon its sales and marketing capabilities. Global Crossing has assembled a
dedicated sales and marketing force. Global Crossing depends upon the ability
of these employees to effectively market and sell capacity. We cannot be
certain that Global Crossing will be able to effectively sell capacity on its
cable systems.
Global Crossing's revenue growth plan depends on product and service expansion
Global Crossing intends to grow revenues and profits by:
. upgrading capacity on its planned systems,
. developing additional undersea cable projects,
. developing or purchasing additional terrestrial fiber capacity, and
. introducing new services.
If Global Crossing is unable to effect these upgrades, develop additional
cable projects, develop or obtain additional terrestrial capacity or introduce
new services, its business, financial condition and results of operations could
be adversely affected.
Some of Global Crossing's capacity purchase contracts are terminable under
specified circumstances
Under some capacity purchase agreements for the Atlantic Crossing system, the
customer may terminate the agreement if, among other things, Global Crossing
does not obtain and hold specified governmental authorizations, approvals,
consents, licenses and permits. Purchase agreements for Global Crossing's other
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systems may contain similar provisions. If a substantial number of purchase
agreements are terminated for these or other reasons, Global Crossing's
business, financial condition and results of operations could be materially
adversely affected.
Global Crossing faces competition along its routes
The international telecommunications industry is highly competitive. Global
Crossing faces competition from existing and planned systems along each of its
planned routes. Global Crossing also competes with satellite providers,
including existing geosynchronous satellites and low- and medium-earth orbit
systems now under construction. Global Crossing competes primarily on the basis
of price, availability, transmission quality and reliability, customer service
and the location of its systems. Traditionally, carriers have made substantial
long-term investments in ownership of cable capacity. We cannot assure you that
Global Crossing will be able to compete successfully against systems to which
prospective customers have made long-term commitments.
Global Crossing's principal shareholders may be able to materially influence
the outcome of shareholder votes
As of July 29, 1999, Pacific Capital Group had a 21.69% beneficial ownership
interest in Global Crossing. Global Crossing has entered into various
transactions with Pacific Capital Group and assumed the on-going development of
some of its systems from an affiliate of Pacific Capital Group. Mr. Gary
Winnick, co-chairman of the Global Crossing board of directors, controls
Pacific Capital Group and its subsidiaries. In addition, several of Global
Crossing's other officers and directors are affiliated with Pacific Capital
Group. Furthermore, as of July 29, 1999, Canadian Imperial Bank of Commerce had
a 19.98% beneficial ownership interest in Global Crossing. Canadian Imperial
Bank of Commerce and its affiliates have acted as underwriter, lender or
initial purchaser in several of Global Crossing's financial transactions in
connection with the development and construction of the Global Crossing
systems. Several members of the Global Crossing board of directors are
employees of an affiliate of Canadian Imperial Bank of Commerce.
As of July 29, 1999, Pacific Capital Group and Canadian Imperial Bank of
Commerce collectively beneficially owned 41.67% of the outstanding Global
Crossing common stock. Accordingly, Pacific Capital Group and Canadian Imperial
Bank of Commerce may be able to materially influence the outcome of matters
submitted to a vote of Global Crossing shareholders, including the election of
directors.
Officers and directors own a substantial portion of Global Crossing and may
have conflicts of interest
Global Crossing's executive officers and directors have substantial equity
interests in Global Crossing. As of July 29, 1999, all of Global Crossing's
directors and executive officers as a group collectively beneficially owned
73.25% of the outstanding common stock of Global Crossing, including shares
beneficially owned by Pacific Capital Group and Canadian Imperial Bank of
Commerce. Some of these individuals have also received amounts from Global
Crossing due to advisory services fees paid to Pacific Capital Group and its
affiliates.
Some of Global Crossing's directors and executive officers also serve as
officers and directors of other companies. Additionally, some of Global
Crossing's officers and directors are active investors in the
telecommunications industry. Service as a director or officer of Global
Crossing and as a director or officer of another company could create conflicts
of interest when the director or officer is faced with decisions that could
have different implications for Global Crossing and the other company. A
conflict of interest could also exist with respect to allocation of time and
attention of persons who are directors or officers of both Global Crossing and
another company. The pursuit of these other business interests could distract
these officers from pursuing opportunities on Global Crossing's behalf. These
conflicts of interest could have a material adverse effect on Global Crossing's
financial condition.
Global Crossing must complete the transition to an operating company
The transition from a development stage company to an operating company
places significant demands on Global Crossing's management and operations.
Global Crossing is in the process of expanding the management and operational
capabilities necessary for this transition.
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Global Crossing's ability to manage this transition successfully will depend
on, among other things:
. expanding, training and managing Global Crossing's employee base,
including attracting, retaining and motivating highly skilled personnel,
. taking over or outsourcing its customer interface and operations,
administrative and maintenance systems,
. procuring terrestrial capacity to provide connectivity to inland cities,
and
. controlling expenses.
We cannot assure you that Global Crossing will succeed in developing all or
any of these capabilities, and any failure to do so could have a material
adverse effect on its results of operations.
Global Crossing is growing rapidly in a changing industry
Part of Global Crossing's strategy is to construct several cable systems in a
short time frame in order to take advantage of the supply and demand imbalance
that currently exists and is projected to exist in the global marketplace.
Global Crossing expects each of its currently announced systems to be
operational between now and 2001. As a result of this aggressive strategy,
Global Crossing is experiencing rapid expansion and expects it to continue for
the foreseeable future. This growth has increased Global Crossing's operating
complexity. At the same time, the international telecommunications industry is
changing rapidly due to, among other things:
. the easing of regulatory constraints,
. the privatization of established carriers,
. the expansion of telecommunications infrastructure,
. the globalization of the world's economies, and
. the changing technology for wired, wireless and satellite communication.
Much of Global Crossing's planned growth is predicated upon the growth in
demand for international telecommunications capacity. We cannot assure you that
this anticipated demand growth will occur.
Global Crossing faces pricing uncertainties
Advances in fiber optic technology have resulted in significant per circuit
price declines in the fiber optic cable transmission industry. Recent changes
in technology caused prices for circuits to go down even further. If there is
less demand than Global Crossing projects or a bigger drop in prices per
circuit than it projects, there could be a material adverse effect on its
business, financial condition and results of operations. We cannot assure you,
even if Global Crossing's projections with respect to those factors are
realized, that Global Crossing will be able to implement its strategy or that
its strategy will be successful in the rapidly evolving telecommunications
market.
Global Crossing confronts several system operational risks
Each of the Global Crossing systems will be subject to the risks inherent in
a large-scale, complex fiber optic telecommunications system. The operation,
administration, maintenance and repair of these systems requires the
coordination and integration of sophisticated and highly specialized hardware
and software technologies and equipment located throughout the world. We cannot
assure you that, even if built to specifications, the Global Crossing systems
will function as expected in a cost-effective manner. The failure of the
hardware or software to function as required could render a cable system unable
to perform at design specifications.
Each of the Global Crossing systems either has or is expected to have a
design life of generally 25 years; however, we cannot assure you of the actual
useful life of any of these systems. A number of factors will affect the useful
life of each of the Global Crossing systems, including, among other things:
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. quality of construction,
. unexpected damage or deterioration, and
. technological or economic obsolescence.
Failure of any of the Global Crossing systems to operate for its full design
life could have a material adverse effect on its business, financial condition
and results of operations.
Global Crossing depends on its key personnel
Global Crossing's future success depends on the skills, experience and
efforts of the officers and key technical and sales employees. As some of these
officers and employees are new, we cannot be certain that Global Crossing will
be able to integrate new management into its existing operations. In addition,
competition for these individuals is intense, and Global Crossing may not be
able to attract, motivate and retain highly skilled qualified personnel. Global
Crossing does not have "key person" life insurance policies covering any of its
employees.
Global Crossing faces risks associated with international operations
Because Global Crossing will derive substantial revenues from international
operations and intends to have substantial physical assets in several
jurisdictions along the routes of its planned systems, its business is subject
to risks inherent in international operations, including:
. political and economic conditions,
. unexpected changes in regulatory environments,
. exposure to different legal standards, and
. difficulties in staffing and managing operations.
Global Crossing has not experienced any material adverse effects with respect
to its foreign operations arising from these factors. However, problems
associated with these risks could arise in the future. Finally, managing
operations in multiple jurisdictions may place further strain on Global
Crossing's ability to manage its overall growth.
Global Crossing is subject to government regulation in various jurisdictions
Global Crossing will, in the ordinary course of development, construction and
operation of its fiber optic cable systems, be required to obtain and maintain
various permits, licenses and other authorizations in both the United States
and in international jurisdictions where its cables land and exist.
. Undersea cable landing or similar licenses will be required in many of
the jurisdictions where the Global Crossing systems will land and exist.
These licenses are typically issued for a term of years, subject to
renewal. Moreover, the licenses may subject Global Crossing's business
and operations to varying forms of regulation, which could change over
time. If Global Crossing fails to obtain or renew a license or if there
is a material change in the nature of the regulation to which Global
Crossing is subject, there could be a material adverse effect on its
business, financial condition and results of operations.
. Global Crossing must obtain construction and operating licenses during
the construction phase of each of its cable systems. Although Global
Crossing intends that the construction contracts for each of its
undersea cable systems impose the burden of acquiring and maintaining
construction licenses and permits on the contractor for each of these
systems, Global Crossing cannot assure you that the contractors will
successfully obtain all permits and licenses. If Global Crossing or any
contractor fails to obtain or maintain any construction or operating
permit or license, there could be a material adverse effect on Global
Crossing's business, financial condition and results of operations.
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Global Crossing depends on third parties for many functions
Global Crossing depends and will continue to depend upon third parties to:
. construct some of its systems and provide equipment and maintenance,
. provide access to a number of origination and termination points of the
Global Crossing systems in various jurisdictions,
. construct and operate landing stations in a number of those
jurisdictions,
. acquire rights of way,
. provide terrestrial capacity to its customers through contractual
arrangements, and
. act as joint venture participants with regard to some of its current and
potential future systems.
We cannot assure you that third parties will perform their contractual
obligations or that they will not be subject to political or economic events
which may have a material adverse effect on Global Crossing's business,
financial condition and results of operations.
Global Crossing cannot predict its future tax liabilities
Global Crossing believes that a significant portion of the income derived
from its undersea systems will not be subject to tax by any of (1) Bermuda,
which currently does not have a corporate income tax, or (2) some other
countries in which Global Crossing conducts activities or in which customers of
Global Crossing are located. However, Global Crossing bases this belief upon
. the anticipated nature and conduct of its business, which may change,
and
. its understanding of its position under the tax laws of the various
countries in which it has assets or conducts activities, which 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 Global Crossing may become
subject and cannot be certain that any of these factors would not have a
material adverse effect on its business, financial condition and results of
operations.
Global Crossing shareholders may be subject to Foreign Personal Holding
Company, Passive Foreign Investment Company, Controlled Foreign Corporation and
Personal Holding Company rules
Global Crossing believes that neither it nor any of its non-United States
subsidiaries is a foreign personal holding company and does not expect that
either it or any of its affiliates will become a foreign personal holding
company. However, we cannot assure you in this regard. If a shareholder of
Global Crossing is a United States person and Global Crossing or one of its
non-United States subsidiaries is classified as a foreign personal holding
company, then that shareholder would be required to pay tax on its pro rata
share of Global Crossing's or its relevant non-United States subsidiary's
undistributed foreign personal holding company income. Global Crossing intends
to manage its affairs so as to attempt to avoid or minimize having income
imputed to United States persons under these rules, to the extent this
management of its affairs would be consistent with its business goals.
Global Crossing believes that it is not a passive foreign investment company
and does not expect to become a passive foreign investment company in the
future. However, we cannot assure you in this regard. In addition, this belief
is based, in part, on interpretations of existing law that Global Crossing
believes are reasonable, but which have not been approved by any taxing
authority. If Global Crossing were a passive foreign investment company, then a
shareholder of Global Crossing that is a United States person could be liable
to pay tax at the then prevailing rates on ordinary income plus an interest
charge upon some distributions by Global Crossing or when that shareholder sold
the Global Crossing capital stock at a gain.
Furthermore, additional tax considerations would apply if Global Crossing or
any of its affiliates were a controlled foreign corporation or a personal
holding company.
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Global Crossing does not plan on paying dividends
Global Crossing does not anticipate paying cash dividends on its common stock
in the foreseeable future. Global Crossing's ability to pay dividends is
limited by some of its debt instruments. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Liquidity and
capital resources."
Large Global Crossing shareholders face voting and transfer restrictions
Global Crossing's bye-laws provide that each share of Global Crossing common
stock will have one vote. However, if the shares controlled by any person
constitute more than 9.5% (or, in the case of Canadian Imperial Bank of
Commerce and its affiliates, more than 35%) of the voting power of the
outstanding shares, the voting rights of that shareholder's shares will be
limited to 9.5% (or 35% in the case of Canadian Imperial Bank of Commerce and
its affiliates) of the voting power of the outstanding shares and the
additional votes of those shares will be allocated to the other holders of
common stock on a pro rata basis. The other holders who were allocated these
additional votes may not exceed the above limitation as a result of this
allocation.
The bye-laws also prohibit any transfer of shares of common stock that,
subject to specified exceptions, would result in a natural person beneficially
owning shares in excess of 5% of the outstanding shares of common stock or a
group of persons or any person other than a natural person beneficially owning
shares in excess of 9.5% of the outstanding shares of common stock, without the
approval of a majority of the members of the board of directors and
shareholders holding at least 75% of the votes of all outstanding shares of
Global Crossing common stock. These voting and transfer restrictions could make
it difficult for any person or group of persons acting in concert (other than
specified existing shareholders) to acquire a substantial ownership position
in, or control of, Global Crossing.
If the proposed bye-law amendments are adopted at the 1999 annual shareholder
meeting of Global Crossing,
. the voting power of any 9.5% or larger shareholder will be limited to
9.5% of the total votes cast at a shareholder meeting in connection with
any matter being voted on (with reallocation of this voting power as
specified above),
. the voting power of Canadian Imperial Bank of Commerce and its
affiliates will be limited to 20% of the total votes cast at a
shareholder meeting in connection with any matter being voted on (with
reallocation of this voting power as specified above) and
. any transfer of shares of Global Crossing common stock that, subject to
specified exceptions, would result in a shareholder beneficially owning
5% or more, if the shareholder is a natural person, or 9.5% or more,
otherwise, of the outstanding shares of Global Crossing common stock
will need to be approved by at least a majority of the directors and a
majority of the total votes cast at the shareholder meeting called to
approve that transfer.
Global Crossing's stock performance may be volatile
Historically, the market prices for securities of emerging companies in the
telecommunications industry have been highly volatile. A number of factors
could cause the market price of Global Crossing common stock to fluctuate
substantially including:
. quarterly variations in operating results,
. competition,
. announcements of technological innovations or new products by Global
Crossing or its competitors,
. product enhancements by Global Crossing or its competitors,
. regulatory changes,
. any differences in actual results and results expected by investors and
analysts,
. changes in financial estimates by securities analysts, and
. other events or factors.
In addition, the stock market has experienced volatility that has affected
the market prices of equity securities of many companies, and that often has
been unrelated to the operating performance of these companies. These broad
market fluctuations may adversely affect the market price of Global Crossing's
common stock.
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Cautionary Statement Regarding Forward-Looking Statements
Global Crossing and Frontier have included forward-looking statements
throughout this document. These statements describe their attempt to predict
future occurrences. Global Crossing and Frontier use the words "believe,"
"anticipate," "expect," "intend" and similar expressions to identify forward-
looking statements. These statements also include references to cost savings,
benefits, revenues and earnings estimated to result from the merger and
estimated costs of combining Global Crossing and Frontier. Forward-looking
statements are subject to a number of risks, assumptions and uncertainties. For
Global Crossing and Frontier, these risks, assumptions and uncertainties, which
may cause actual results to differ materially from those predicted by the
forward-looking statements, include:
. the ability to complete systems within currently estimated time frames
and budgets,
. the ability to sell capacity on systems,
. the successful transition of Global Crossing from a system development
company to an operating company,
. the ability to compete effectively in a rapidly evolving and price
competitive marketplace,
. international, national and local general economic and market
conditions,
. the size and growth of the overall telecommunications market,
. new product and service development and introduction,
. changes in consumer preferences,
. existing governmental regulations and changes in the nature of
telecommunications regulation in the United States and other countries,
. the loss of significant customers, employees or suppliers,
. changes in business strategy or development plans,
. the ability to attract and retain qualified personnel, and
. the successful integration of Global Crossing and Frontier.
This list provides only an example of some of the risks, uncertainties and
assumptions that may affect the forward-looking statements of Global Crossing
and Frontier. If any of these risks or uncertainties materialize or fail to
materialize, as applicable, or if the underlying assumptions prove incorrect,
actual results may differ materially from those projected in the forward-
looking statements.
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The Global Crossing Annual Meeting
General
We are furnishing this document to holders of Global Crossing common stock in
connection with the solicitation of proxies by the Global Crossing board of
directors for use at the annual meeting of Global Crossing shareholders and any
adjournment or postponement of the meeting.
Date, time and place
We will hold the Global Crossing annual meeting at the St. Regis Hotel, 2
East 55th Street, New York, New York on September 22, 1999 at 10:00 a.m., local
time, subject to any adjournments or postponements.
Matters to be considered at the meeting
For more information regarding the proposals described below, see "Proposals
to Global Crossing Shareholders To Be Voted on at the Global Crossing Annual
Meeting" beginning on page 145.
The merger proposals
At the Global Crossing annual meeting, the shareholders of Global Crossing
will consider and vote upon two merger-related proposals:
. to approve an increase in the authorized share capital of Global
Crossing to 3,000,000,000 shares and
. to approve the issuance of shares of Global Crossing common stock to
Frontier shareholders in the merger.
We are submitting these proposals for the approval of shareholders of Global
Crossing pursuant to Global Crossing's bye-laws and the requirements of the
National Association of Securities Dealers applicable to companies with
securities quoted on the Nasdaq National Market.
Other proposals
In addition, at the Global Crossing annual meeting, the shareholders of
Global Crossing will consider and vote upon:
. a proposal to authorize 20,000,000 shares of preferred stock, par value
$0.01 per share;
. a proposal to amend a number of the bye-laws of Global Crossing and to
restate them;
. a proposal to elect Abbott L. Brown, Thomas J. Casey, William E. Conway
and Barry Porter as class A directors with terms expiring in 2000;
. a proposal to elect Robert Annunziata, Lodwrick M. Cook, Geoffrey J.W.
Kent, David L. Lee, Bruce Raben and Jack M. Scanlon as class B directors
with terms expiring in 2001;
. a proposal to elect Jay R. Bloom, Dean C. Kehler, Michael R. Steed,
Hillel Weinberger and Gary Winnick as class C directors with terms
expiring in 2002;
. a proposal to elect, subject to the merger closing, the following
persons who are currently Frontier directors as directors of Global
Crossing: James F. McDonald as a class A director with a term beginning
immediately after the closing and expiring in 2000, Eric Hippeau as a
class B director with a term beginning immediately after the closing and
expiring in 2001 and Joseph P. Clayton and Douglas H. McCorkindale as
class C directors, each with a term beginning immediately after the
closing and expiring in 2002;
. a proposal to amend the 1998 Global Crossing Ltd. Stock Incentive Plan
for the purpose of increasing the number of authorized shares of Global
Crossing common stock reserved for issuance under that plan;
. a proposal to ratify Global Crossing's existing compensation plan for
its outside directors;
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. a proposal to ratify the appointment of Arthur Andersen & Co. as
independent auditors of Global Crossing for the year ending December 31,
1999 and authorize the Global Crossing board of directors to determine
their remuneration; and
. any other business which may properly come before the annual meeting or
any adjournment or postponement thereof.
Record date; votes per share
The Global Crossing board of directors has fixed the close of business on
July 29, 1999 as the record date for the determination of Global Crossing
shareholders entitled to notice of the annual meeting. On that date, the
outstanding voting shares of capital stock of Global Crossing consisted of
412,732,100 shares of common stock. However, all holders of record of shares of
Global Crossing common stock on the date of the Global Crossing annual meeting
will be entitled to attend and vote at the meeting.
On a poll, each share entitled to vote at the meeting, other than shares held
by holders of greater than 9.5% of all outstanding shares of Global Crossing
common stock whose voting power will be limited as described in the next two
paragraphs, will be entitled to one vote plus any additional votes that may be
allocated to each share based on a formula contained in the Global Crossing
bye-laws and described in the next two paragraphs.
For purposes of the following discussion, when we refer to "Controlled
Shares" we mean, among other things, all shares of Global Crossing common stock
that a shareholder is deemed (1) to own directly, indirectly or constructively
pursuant to Section 958 of the Internal Revenue Code or (2) to own beneficially
directly or indirectly as a result of the possession of sole or shared voting
power within the meaning of Section 13(d) of the Securities Exchange Act of
1934 and the rules and regulations under that act.
Under the Global Crossing bye-laws, on a poll each share of common stock will
have one vote, except that if, and so long as, the Controlled Shares of (1) any
shareholder constitute more than 9.5% of the voting power of all outstanding
shares of Global Crossing common stock or (2) Canadian Imperial Bank of
Commerce and its affiliates constitute more than 35% of the voting power of all
outstanding shares of Global Crossing capital stock, the voting rights with
respect to the Controlled Shares owned by that shareholder will be limited, in
the aggregate, to a voting power of 9.5% or, in the case of Canadian Imperial
Bank of Commerce and its affiliates, collectively, to 35% based on a formula
contained in the bye-laws. The additional votes that could be cast by that
shareholder or the Canadian Imperial Bank of Commerce and its affiliates if
there were no restrictions on voting rights will be allocated to the other
holders of common stock, pro rata based on their number of shares of common
stock. However, no shareholder that has been allocated any additional votes may
exceed the limitation on voting rights as a result of that allocation. See
"Description of Global Crossing Capital Stock--Voting and transfer
restrictions."
On the record date for notice of the annual meeting, each share of Global
Crossing common stock, other than shares held by any 9.5% or larger
shareholder, would have been entitled on a poll to approximately 1.1794 votes.
Quorum
The presence in person or by proxy of at least two shareholders entitled to
vote and holding shares representing more than 50% of the votes of all
outstanding shares of Global Crossing common stock will constitute a quorum at
the annual meeting.
Abstentions and shares held by brokers that are represented at the annual
meeting without specific instructions by shareholders on how to vote those
shares will be counted as present for purposes of determining whether there is
a quorum at the annual meeting.
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Votes required
Approval of each of the proposals requires the affirmative vote of at least a
majority of all outstanding shares of Global Crossing common stock, except in
the case of the proposed amendments of
(1) bye-laws 34(2) and 63(2), (3) and (4) regarding the voting and
transfer of share restrictions,
(2) bye-laws 63(1) and 130 regarding the Global Crossing board of
directors' authority to establish a record date for shareholders entitled
to vote at annual and special meetings of shareholders and
(3) bye-law 148 regarding minimum voting requirements for bye-law
amendments,
which in each case require the affirmative vote of at least 75% of all
outstanding shares of Global Crossing common stock to be approved. Some of the
proposed bye-law amendments, if approved, will become effective only if and
when the merger is complete.
Shareholders who beneficially own shares of Global Crossing common stock
representing over a majority of the voting power of Global Crossing after
giving effect to the voting limitations of large shareholders entered into a
voting agreement with Frontier on March 16, 1999 which was reaffirmed on May
16, 1999. In addition, U S WEST entered into a voting agreement with Global
Crossing with respect to shares it acquired in the tender offer.
Under the voting agreements, these shareholders have agreed to vote in favor
of both the proposal to increase the authorized share capital of Global
Crossing and the proposal to issue shares of Global Crossing common stock in
the merger. As a result, the vote of these shareholders will be sufficient to
approve these two proposals without any further vote by any other Global
Crossing shareholder. See "Related Agreements--Voting agreement."
As of July 29, 1999, directors and executive officers of Global Crossing were
entitled to vote approximately 68.43% of the outstanding votes entitled to be
cast by Global Crossing shareholders at the annual meeting after giving effect
to the voting limitations of large shareholders. Each director and executive
officer of Global Crossing has indicated that he or she intends to vote his or
her shares of common stock for the proposal to increase Global Crossing's
authorized share capital and for the proposal to issue shares of Global
Crossing common stock in the merger.
How shares will be voted at the annual meeting
Shares of Global Crossing common stock represented by a proxy properly
executed and received before the vote at the Global Crossing annual meeting
will be voted at the meeting on a poll in the manner directed on the proxy
card, unless the proxy is revoked in advance of the vote.
Properly executed blank proxy cards will be voted (1) in favor of the
proposals described in the notice of the 1999 annual meeting to Global Crossing
shareholders and (2) in the discretion of the authorized proxies with respect
to any other business that may properly come before the annual meeting or any
adjournment or postponement of the meeting.
Abstentions and shares held by brokers and represented at the annual meeting
without specific instructions by shareholders on how to vote those shares will
not be voted and will have the effect of a vote against the merger-related
proposals and the other proposals to be voted on at the annual meeting.
To be valid, proxy cards must be received at the offices of Global Crossing's
transfer agent, First Chicago Trust Company of New York, by September 21, 1999.
As an alternative to appointing a proxy, a Global Crossing shareholder which is
a corporation may appoint any person to act as its representative by delivering
written evidence of that appointment, which must be received at Global
Crossing's principal executive offices not later than one hour before the time
fixed for the beginning of the meeting. A representative so appointed may
exercise the same powers, including voting rights, as the appointing
corporation could exercise if it were an individual shareholder.
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How to revoke a proxy
You may revoke your proxy at any time before it is voted by (1) so notifying
the Secretary of Global Crossing in writing at the address of Global Crossing's
principal executive offices not less than one hour before the time fixed for
the beginning of the meeting, (2) signing and dating a new and different proxy
card or (3) voting your shares in person or by an appointed agent or
representative at the meeting. You may not revoke your proxy by merely
attending the Global Crossing annual meeting.
The Global Crossing board of directors is not currently aware of any business
that will be brought before the annual meeting other than the proposals
described in the notice of the 1999 annual meeting to Global Crossing
shareholders. If, however, other matters are properly brought before the Global
Crossing annual meeting or any adjournment or postponement of the meeting, the
persons appointed as proxies will have discretionary authority to vote the
shares represented by duly executed proxies in accordance with their discretion
and judgment.
Solicitation of proxies
Global Crossing will bear the costs of soliciting proxies from the holders of
Global Crossing common stock. Proxies will initially be solicited by Global
Crossing by mail, but directors, officers and selected other employees of
Global Crossing may also solicit proxies by personal interview, telephone,
telegraph or e-mail. Directors, executive officers and any other employees of
Global Crossing who solicit proxies will not be specially compensated for those
services, but may be reimbursed for out-of-pocket expenses incurred in
connection with the solicitation. Brokerage houses, nominees, fiduciaries and
other custodians will be requested to forward soliciting materials to
beneficial owners and will be reimbursed for their reasonable out-of-pocket
expenses incurred in sending proxy materials to beneficial owners. Global
Crossing has retained MacKenzie Partners, Inc. to aid in the solicitation of
proxies. MacKenzie Partners will receive customary fees and expense
reimbursement for its services. Global Crossing's transfer agent, First Chicago
Trust Company of New York, has agreed to assist Global Crossing in connection
with the tabulation of proxies.
1998 audited financial statements
Under the Global Crossing bye-laws and Bermuda law, audited financial
statements must be presented to shareholders at an annual meeting. To fulfill
this requirement, Global Crossing will present at the annual meeting audited
consolidated financial statements for the fiscal year 1998. Global Crossing has
included copies of those financial statements in this document.
Representatives of Arthur Andersen & Co., Global Crossing's independent
auditors, will be present at the annual meeting and available to respond to
appropriate questions. These representatives will have the opportunity to make
a statement at the annual meeting if they desire to do so.
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The Frontier Special Meeting
General
We are furnishing this document to holders of Frontier common stock for use
at a special meeting of Frontier shareholders and any adjournments or
postponements of the meeting.
Date, time and place
We will hold a special meeting of Frontier shareholders on September 23,
1999, at 10:30 a.m., local time, at the Crowne Plaza of Rochester, 70 State
Street, Rochester, New York, subject to any adjournments or postponements
thereof.
Matter to be considered at the special meeting
At the Frontier special meeting, Frontier shareholders will be asked to
consider and vote on a proposal to adopt the merger agreement. You are urged to
read the copy of the merger agreement attached to this document as Annex A.
Representatives of PricewaterhouseCoopers LLP, Frontier's independent
auditors, are expected to be present at the Frontier special meeting and
available to respond to appropriate questions. These representatives will be
given the opportunity to make a statement at the Frontier special meeting if
they desire to do so.
Record date
Only holders of record of Frontier common stock at the close of business on
July 29, 1999 will be entitled to receive notice of and to vote at the Frontier
special meeting. As of the Frontier record date, there were 173,523,037
outstanding shares of Frontier common stock.
Vote required
The affirmative vote by holders of two-thirds of the outstanding shares of
Frontier common stock is required in order to adopt the merger agreement.
Therefore, if you fail to submit a proxy or vote electronically or if you
abstain from voting, it will have the effect of a vote against the adoption of
the merger agreement. Each share of Frontier common stock is entitled to one
vote. Holders of a majority of the shares entitled to vote at the Frontier
special meeting, present in person or by proxy, will constitute a quorum for
the transaction of business at the Frontier special meeting.
As of July 29, 1999, Frontier's current directors and executive officers
beneficially owned a total of approximately 3,026,000 shares of Frontier common
stock, or approximately 1.7% of the issued and outstanding shares of Frontier
common stock on that date.
The shareholders present at the Frontier special meeting, in person or by
proxy, may by a majority vote adjourn the meeting despite the absence of a
quorum. In the event of an absence of a quorum, Frontier expects that the
meeting will be adjourned or postponed to solicit additional proxies.
How shares will be voted at the special meeting
All shares of Frontier common stock represented by properly executed proxies
received before or at the Frontier special meeting, and not revoked, will be
voted as specified in the proxies. Properly executed proxies that do not
contain voting instructions will be voted FOR the adoption of the merger
agreement.
Frontier will count a properly executed proxy marked "ABSTAIN" as present for
purposes of determining whether there is a quorum at the Frontier special
meeting. Abstentions, however, will have the same effect as a vote against the
adoption of the merger agreement.
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Under New York Stock Exchange rules, your broker cannot vote your shares of
Frontier common stock without specific instructions from you. Unless you follow
the directions your broker provides to you regarding how to instruct your
broker to vote your shares, your shares will not be voted and will have the
effect of a vote against the adoption of the merger agreement.
The Frontier board of directors is not currently aware of any other business
to be brought before the Frontier special meeting. If, however, other matters
are properly brought before the Frontier special meeting or any adjournment or
postponement of the meeting, the people appointed as proxies will have
discretionary authority to vote the shares represented by duly executed proxies
in accordance with their discretion and judgment.
The people named as proxies by a shareholder may propose and vote for one or
more adjournments of the Frontier special meeting to permit further
solicitations of proxies in favor of adoption of the merger agreement; except
that no proxy which is voted against the adoption of the merger agreement will
be voted in favor of any adjournment.
Voting at the special meeting
Whether or not you plan to attend the special meeting, please take the time
to vote your shares as soon as possible. Your prompt voting by telephone,
electronically or by mail may save Frontier the expense of a second mailing.
Each proxy which is properly completed will be voted at the special meeting. If
you return a proxy by mail or vote by telephone or electronically over the
Internet and do not specify your vote, your shares will be voted as recommended
by the Frontier board of directors. Specifically, if your proxy does not
specify a choice, your shares will be voted FOR the adoption of the merger
agreement.
Methods of voting
All shareholders may vote by mail. Shareholders of record can also vote by
telephone or electronically over the Internet. Shareholders who hold their
shares through a bank or broker can vote by telephone or electronically over
the Internet if that option is offered by the bank or broker.
. Voting by mail. Shareholders may sign, date and mail their proxies in
the postage-paid envelope provided.
. Voting by telephone or Internet. Shareholders of record may vote by
using the toll-free number listed on the proxy card or electronically
over the Internet. Telephone and/or Internet voting is also available to
shareholders who hold their shares through a Frontier Corporation
benefit plan. The telephone and Internet voting procedures verify
shareholders through the use of a control number that is provided on
each proxy card. Both procedures allow you to vote your shares and to
confirm that your shares have been properly recorded. Please see your
proxy card for specific instructions.
How to revoke a proxy
Your grant of a proxy on the enclosed proxy card does not prevent you from
voting in person or otherwise revoking your proxy.
You may revoke your proxy at any time before its use by delivering to the
Corporate Secretary of Frontier a signed notice of revocation or a later-dated
signed proxy or by voting by telephone or Internet at a later time or by
attending the Frontier special meeting and voting in person. Attendance at the
Frontier special meeting will not itself constitute the revocation of a proxy.
Solicitation of proxies
Frontier will pay the cost of solicitation of proxies for the Frontier
special meeting. In addition to solicitation by mail, Frontier will arrange for
brokerage houses and other custodians, nominees and fiduciaries to send the
proxy materials to beneficial owners, and Frontier will, upon request,
reimburse the brokerage
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houses and custodians for their reasonable expenses. Frontier has retained
Innisfree M&A Incorporated to aid in the solicitation of proxies and to verify
some of the records related to the solicitations. Innisfree will receive
customary fees, and expense reimbursement for its services. To the extent
necessary in order to ensure sufficient representation at its meeting, Frontier
or its representatives may request by telephone, facsimile, electronic mail or
the Internet the return of proxy cards. The extent to which this will be
necessary depends entirely on how promptly proxy cards are returned. We urge
you to send in your proxies as soon as possible.
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The Merger
What you will receive in the merger
At the effective time of the merger, a direct wholly owned subsidiary of
Global Crossing will be merged with and into Frontier. As a result of the
merger, Frontier will continue as the surviving corporation of the merger and
will become a wholly owned subsidiary of Global Crossing.
At the effective time of the merger, each issued and outstanding share of
Frontier common stock, other than shares owned or held directly or indirectly
by Global Crossing or directly by Frontier, which will be canceled, will be
converted into the right to receive a number of shares of Global Crossing
common stock equal to the exchange ratio. The exchange ratio will be equal to
the number, rounded to the nearest 1/10,000, obtained by dividing $63.00, as
increased by 7% per annum, compounded daily, from and after December 31, 1999
to and including the effective time of the merger, by the average, rounded to
the nearest 1/10,000, of the volume weighted averages, rounded to the nearest
1/10,000, of the trading prices of the Global Crossing common stock for 15
trading days randomly selected by lot by Frontier and Global Crossing during
the 30 trading days ending on the trading day before the date that all
conditions to closing have been satisfied or waived. However, the merger
agreement provides that the exchange ratio will not be less than 1.1095, when
the average trading price is more than $56.7813, or, except as described in the
next sentence, greater than 1.8229, as increased by 7% per annum, compounded
daily, from and after December 31, 1999 to and including the effective time of
the merger, when the average trading price is less than $34.5625. The exchange
ratio will remain 1.1095, without any increase for the 7% per annum interest
factor, if the average trading price during the measurement period is more than
$56.7813.
Since the date of the merger agreement, the Global Crossing common stock has
traded within a range from $32.94 to $64.25. The average trading price for
purposes of determining the exchange ratio will be based on the trading prices
of the Global Crossing common stock during the measurement period shortly
before the closing, which measurement period may end after the date of the
Frontier special meeting.
If the average price of Global Crossing common stock during the measurement
period is less than $34.5625, Frontier may, but is not required to, terminate
the merger agreement unless Global Crossing elects to increase the merger
consideration so that the value of the merger consideration to be received by
Frontier shareholders, based on the average price during the measurement
period, is equal to $63.00.
Global Crossing will not issue fractional shares of Global Crossing common
stock in the merger. Instead, Frontier shareholders who would otherwise have
been entitled to receive a fraction of a share of Global Crossing common stock
will receive cash, without interest, in an amount equal to the product of the
fractional part of a share of Global Crossing common stock multiplied by the
last sales price per share of the Global Crossing common stock reported on the
Nasdaq National Market on the closing date.
As an example, if the closing occurs on or before December 31, 1999 and you
own 100 shares of Frontier common stock and assuming that the average trading
price during the measurement period is $36.00, which was the closing price of
the Global Crossing common stock on August 4, 1999, the exchange ratio would be
1.7500, or $63 divided by $36.00. This would translate into 175 shares of
Global Crossing common stock. Using this same trading price, if the closing
occurs on March 31, 2000, the exchange ratio would be 1.7807, or $64.1060
divided by $36.00. $64.1060 is equal to $63.00 plus the 7% per annum interest
factor compounded daily from January 1, 2000 through March 31, 2000. In this
case, you would receive 178 shares of Global Crossing common stock. In the
event of fractional shares, you would receive a check for an amount equal to
the fractional share multiplied by the last sales price of Global Crossing
common stock on the closing date.
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Background of the merger
In light of the rapid changes in the telecommunications and Internet
industries, including industry consolidation and globalization, it had become a
regular practice of the Frontier board of directors to review periodically with
senior management Frontier's position relative to its traditional peers and new
entrants in the industry, changes in the competitive landscape and technology
as well as the strategic alternatives available to Frontier in order for it to
remain competitive and enhance shareholder value. In connection with this
ongoing review of its long-term strategic plans, Frontier had been considering
a wide range of strategic options, including internal growth through the
buildout and aggressive marketing of its existing network to existing and
emerging telecommunications and information service providers, growth through
various strategic alliances, acquisitions or combinations and potential
corporate restructuring transactions. In furtherance of these objectives, from
time to time Frontier has had contact with various parties to explore on a
preliminary basis several of these alternatives, including some discussions
with one or more parties during the time periods described below.
In October of 1998, at a Morgan Stanley investors' conference, Barry Porter,
a Senior Vice President of Global Crossing, suggested to Rolla Huff, then Chief
Financial Officer of Frontier, that Frontier and Global Crossing consider the
possibility of engaging in strategic partnerships. A few weeks later, Thomas
Casey, a Vice Chairman of Global Crossing, contacted Joseph Clayton, Chief
Executive Officer of Frontier, and requested a meeting to discuss a number of
potential mutually beneficial business arrangements, including purchases or
swaps of capacity, other commercial arms'-length business transactions and the
possibility of a strategic transaction involving the two companies.
On November 17, 1998, Mr. Casey met with Mr. Huff, Jonathan Horowitch, Vice
President-Corporate Development of Frontier, and R. Charles Mancini, Vice
President-Network Financial Management of Frontier. At the meeting, the
representatives of each company discussed generally their respective businesses
and various potential strategic business arrangements that might benefit both
Frontier and Global Crossing. In addition, Mr. Casey raised the possibility of
a "merger of equals" business combination transaction involving a share-for-
share exchange of Frontier shares for Global Crossing shares following which
either Frontier shareholders or Global Crossing shareholders would own a
majority of the resulting company, based on the respective capitalizations of
the two companies at that time.
At its regularly scheduled executive committee meeting on November 23, 1998,
the executive committee of the Frontier board of directors was briefed on
recent discussions with various entities, including Global Crossing, regarding
potential strategic transactions.
During the next few weeks, there were various meetings and discussions among
representatives of Global Crossing, Frontier, Merrill Lynch, one of Global
Crossing's financial advisors, and Morgan Stanley & Co. Incorporated,
Frontier's financial advisor, regarding possible transaction structures and the
strategic objectives that could be achieved through such a transaction. At a
meeting held on November 30, 1998, Mr. Casey indicated that Global Crossing was
contemplating a transaction based upon one of two alternative structures, the
first involving consideration consisting of a combination of cash and Global
Crossing common stock, subject to a collar, and shares of Frontier's local
exchange company following a split-off of that company, and the other proposal
involving cash and Global Crossing common stock, subject to a collar. The
collar mechanism would provide for a range of exchange ratios, subject to a
maximum ratio and a minimum ratio, at which one share of Frontier common stock
would be exchanged for shares of Global Crossing common stock. The collar would
enable the value of the shares of Global Crossing common stock to remain fixed
so long as the average trading price of the Global Crossing common stock during
a period of time shortly before the closing remained within the endpoints of
the collar. Mr. Huff indicated that Frontier would need to better understand
the structure of Global Crossing's financing of any transaction involving cash
and that, in any such transaction, Frontier would not bear the risk of that
financing not being obtained.
On December 5, 1998, Global Crossing engaged Salomon Smith Barney as its
financial advisor in addition to Merrill Lynch.
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On December 8, 1998, Global Crossing and Frontier executed a confidentiality
agreement, effective as of November 30, 1998, covering the exchange of
nonpublic information between the companies for the purpose of evaluating a
potential strategic combination.
On December 15, 1998, at a regularly scheduled meeting of the Frontier board
of directors, Mr. Huff, in connection with updating the Frontier board of
directors on the progress with respect to the various strategic alternatives
discussed at an earlier meeting in October and at the November executive
committee meeting, briefly reviewed the discussions with Global Crossing and
other entities to date.
On December 18, 1998, representatives of Global Crossing and its financial
advisors discussed its financing plans with Frontier and its representatives.
On December 30, 1998, representatives of Global Crossing and its financial
advisors met with representatives of Frontier and its financial advisor to
discuss Global Crossing's business plan and to hold further discussions
regarding the respective valuations of Global Crossing and Frontier and the
appropriate mechanisms to protect the value of the consideration to be received
by Frontier shareholders.
Representatives of Global Crossing and Frontier and their respective
financial advisors again met on January 11, 1999 to discuss a potential
combination of the two companies and the potential valuation of Frontier. At
the end of the meeting, the parties determined that there was a difference in
views as to the appropriate value to be placed on the stock of Frontier and
discussions with respect to a business combination transaction were terminated
with no expectation that they would be resumed in the immediate future.
Frontier subsequently focused on the pursuit of other strategic alternatives
designed to enhance shareholder value, including those described below.
On January 25, 1999, at its regularly scheduled meeting, the Frontier board
of directors was updated on the status of the prior discussions with Global
Crossing. Representatives of Morgan Stanley gave a presentation on Global
Crossing, including a discussion of Global Crossing's business, strategy and
financial results, the strategic rationale for a transaction between Global
Crossing and Frontier, an analysis of Frontier's current position and a review
of other potential strategic and capitalization alternatives, including a
possible spin-off transaction. At the meeting, presentations were also made
regarding a change in Frontier's dividend policy. After discussion and
consideration, the Frontier board of directors decided to adopt a reduction in
the dividend to be paid on the Frontier common shares effective with the next
quarterly dividend to be declared and it determined to continue studying the
possibility of a spin-off.
Although discussions regarding a business combination between Global Crossing
and Frontier had broken off, Frontier and Global Crossing continued to discuss
other mutually beneficial business arrangements, including shared capacity and
network swaps. In mid-February 1999, during a meeting to discuss these
arrangements, the possibility of a business combination was again discussed.
Mr. Huff suggested that Frontier might be willing to resume discussions if
Global Crossing provided increased value to Frontier shareholders and offered
appropriate collar protection.
On March 2, 1999, Mr. Casey telephoned Mr. Clayton to arrange a meeting to
discuss a potential business combination. On March 3, 1999, Messrs. Clayton and
Huff met with Robert Annunziata, the Chief Executive Officer of Global
Crossing, and Mr. Casey. At the meeting, the parties renewed discussions
regarding potential transaction structures and valuations based on the current
price of Global Crossing common stock, which at the close of trading on the day
of the meeting was $31.5625 (adjusted for the March 9 stock split). At the
meeting, the parties agreed that any transaction would be structured to provide
consideration to Frontier shareholders based on a fixed value of Global
Crossing shares, with the value of the consideration to be protected through a
collar mechanism.
Following the meeting, Messrs. Clayton and Huff telephoned the members of the
executive committee of the Frontier board of directors to report on these
discussions. Frontier also contacted, and authorized Morgan Stanley to contact,
other potential acquirors, none of whom made a proposal to acquire Frontier.
By March 8, 1999, Global Crossing's stock price had increased to $37.50
(adjusted for the March 9 stock split). During the week of March 8th, Mr. Huff
called Mr. Casey to discuss the recent increases in Global Crossing's stock
price. Mr. Huff informed Mr. Casey that, as a result of the increase in Global
Crossing's stock price, the level of value and the structure of the value
assurance protection that the parties had been discussing
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were no longer appropriate. Accordingly, before any transaction could be agreed
upon, Global Crossing would have to reconsider the levels of value being
discussed to increase the consideration to be paid to Frontier shareholders to
take into account the increase in Global Crossing stock price. Also, Global
Crossing would need to consider adjusting the collar mechanism so that the
increase in price did not eliminate the protection against a decline in Global
Crossing stock price that had previously been discussed and so that Frontier
shareholders would still have an opportunity to share in future increases in
Global Crossing's stock price. The parties agreed to continue conducting due
diligence and defer further discussions of the pricing issues until near the
end of the contract negotiations.
Also during the week of March 8th, representatives of Global Crossing and
Frontier and their respective legal and financial advisors conducted due
diligence on each other, including tax due diligence to determine the
feasibility of Global Crossing completing a tax-free reorganization. In the
beginning of that week, Skadden, Arps, Slate, Meagher & Flom LLP, Global
Crossing's legal advisor, also delivered a draft merger agreement to Frontier
and Simpson Thacher & Bartlett, Frontier's legal advisor. During the remainder
of that week, there were numerous meetings and telephone calls between senior
management of both parties and their respective legal and financial advisors to
negotiate the terms of the merger agreement and the related agreements.
On March 12, 1999, when the price of Global Crossing's common stock was
$49.375, representatives of Global Crossing suggested that Global Crossing at
that time would be prepared to offer, subject to board approval, completion of
due diligence and the negotiation of satisfactory definitive agreements, shares
of Global Crossing common stock valued at $62.00, based on the average trading
prices for the Global Crossing common stock during a period shortly before the
merger, for each share of Frontier common stock, with a 30% downside collar and
a 15% upside collar, all based on the Global Crossing closing price of $49.375
on that date. As a result, Frontier shareholders would receive $62.00 per
share, based on that average trading price, so long as Global Crossing's
average trading price was between $34.5625 and $56.7813. In addition, Frontier
would have the right, but not the obligation, to terminate the merger agreement
if the Global Crossing average trading price during the applicable measurement
period was below $34.5625, unless Global Crossing agreed to provide additional
consideration to ensure that Frontier shareholders would receive $62.00 in
value in the merger, based on the average trading price. Frontier shareholders
would also be able to participate in an increase in Global Crossing's stock
price above $56.7813.
On March 13th and 14th, Messrs. Clayton and Huff contacted each member of the
Frontier board of directors to update him or her on the discussions that had
taken place during the past two weeks. Also on those dates, representatives of
Frontier and Global Crossing and their legal counsel continued to negotiate the
terms of a definitive merger agreement and the related agreements and continued
due diligence.
On March 15, 1999, the Frontier board held a meeting to review the terms of
the proposed merger. At the beginning of the meeting, Simpson Thacher &
Bartlett advised the Frontier board regarding its fiduciary duties with respect
to any potential transaction involving Global Crossing. Senior management of
Frontier updated the Frontier board on the negotiations that had taken place
during the last two days. The Frontier board of directors was also informed of
the status of contacts with other potential acquirors as to any interest in a
potential business combination with Frontier and it discussed its other
strategic alternatives, including the alternative of engaging in no
transaction. Representatives of Simpson Thacher & Bartlett reviewed the terms
of the proposed merger agreement, stock option agreement and voting agreement.
Representatives of Morgan Stanley reviewed in detail with the Frontier board of
directors their financial and valuation analyses of the Global Crossing
proposal as well as provided a brief summary of certain of the restructuring
options. The Frontier board also discussed the break-up fee requested by Global
Crossing as well as the stock option and, after discussions with senior
management and its advisors, concluded that those deal protections would not
meaningfully impair the possibility of a superior alternative transaction.
After further discussion, the Frontier board authorized senior management to
pursue discussions to finalize a definitive merger agreement and stock option
agreement with Global Crossing.
On March 16, 1999, the Global Crossing board of directors met to consider the
terms and conditions of a proposed merger with Frontier. At the meeting,
Skadden, Arps, Slate, Meagher & Flom LLP and Appleby
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Spurling & Kempe advised the Global Crossing board of directors regarding its
fiduciary duties with respect to any potential merger transaction involving
Frontier. Several presentations were then made by Global Crossing senior
management regarding, among other things, an overview of Frontier, strategy for
the combined company and the results of due diligence. Representatives of
management and Skadden, Arps, Slate, Meagher & Flom LLP reviewed the terms of
the proposed merger agreement, the stock option agreement and the voting
agreement. The board of directors also discussed the deal protection benefits
provided by the break-up fee and the stock option agreement. Representatives of
Merrill Lynch and Salomon Smith Barney reviewed in detail their financial and
valuation analyses of the merger proposal and rendered their respective
opinions that the original exchange ratio was fair from a financial point of
view to Global Crossing. After further discussion and consideration, the Global
Crossing board of directors unanimously determined that the merger was fair to
Global Crossing and approved the merger agreement, the stock option agreement
and the voting agreement and the transactions contemplated by the merger
agreement, the stock option agreement and the voting agreement, including the
increase in authorized share capital and the issuance of shares of Global
Crossing common stock in the merger.
On March 16, 1999, the Frontier board of directors met to continue its
consideration of the Global Crossing proposal. The Frontier board was updated
on the discussions held since the previous day and on a few changes to the
terms of the merger agreement. In addition, Morgan Stanley gave a presentation
that provided additional analysis of the Global Crossing proposal and rendered
its opinion as to the fairness from a financial point of view of the original
exchange ratio to Frontier shareholders. Following discussion among the board
members, Messrs. Annunziata and Casey joined the meeting to elaborate on Global
Crossing's strategy and rationale for the transaction and to answer questions
raised by the directors. After Messrs. Annunziata and Casey departed and
following further discussion and consideration, the Frontier board of directors
unanimously determined that the merger was fair to and in the best interests of
Frontier and its shareholders and adopted the merger agreement and approved the
merger and the stock option agreement and the transactions contemplated by the
merger agreement and the stock option agreement.
Following the Frontier board meeting, the merger agreement, the stock option
agreement and the voting agreement were executed. The parties issued a joint
press release announcing the proposed merger before the opening of business on
March 17, 1999.
During late April, representatives of Global Crossing disclosed to
representatives of Frontier that Global Crossing was holding preliminary
discussions with U S WEST regarding a possible business combination. At the
beginning of the week of May 10, 1999, representatives of Global Crossing
contacted representatives of Frontier to inform them of a proposed transaction
between Global Crossing and U S WEST and to request Frontier's consent to the
transaction pursuant to specified provisions of the merger agreement.
Throughout the remainder of that week, representatives of Global Crossing and
its legal and financial advisors held various meetings with representatives of
Frontier and its legal and financial advisors to discuss the terms of the
proposed transaction and the impact of that transaction on the pending merger
with Frontier. After discussion and negotiation, Global Crossing and Frontier
agreed to specified amendments to the merger agreement, including, among other
things, an increase in the fixed value per share consideration to be received
by Frontier shareholders in the merger to $63.00 so long as the cash tender
offer to be made by U S WEST to purchase Global Crossing shares was completed
and an increase in the value of the consideration by a 7% per annum interest
factor if the Frontier merger did not close by December 31, 1999 and the
average trading price of the Global Crossing common stock during the
measurement period was not greater than $56.7813.
On May 16, 1999, the Frontier board of directors had a telephonic meeting to
consider whether to consent to the Global Crossing--U S WEST transaction. At
that meeting, management of Frontier described the structure of the transaction
with U S WEST and the potential impact on the merger with Frontier,
representatives of Simpson Thacher & Bartlett described the proposed amendments
to the terms of the Frontier merger agreement and representatives of Global
Crossing and its legal and financial advisors provided additional information
and answered questions regarding the proposed U S WEST transaction.
Representatives of Salomon Smith Barney, Global Crossing's financial advisor,
gave a presentation regarding financial aspects
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of the proposed U S WEST merger that they planned to make to the Global
Crossing board of directors and informed the Frontier board of directors that
Salomon Smith Barney would be rendering an opinion to the Global Crossing board
of directors as to the fairness from a financial point of view of the
consideration to be received by Global Crossing shareholders in the U S WEST
merger. Representatives of Morgan Stanley also gave a presentation with respect
to the U S WEST merger and the amended terms of the Global Crossing-- Frontier
merger agreement and rendered its opinion as to the fairness from a financial
point of view of the revised exchange ratio to the Frontier shareholders.
Following additional discussion, the board of directors of Frontier determined
by the unanimous vote of all directors present that Frontier should consent to
Global Crossing entering into the merger agreement with U S WEST and approved
the amendment to the merger agreement.
On May 16, 1999, the Global Crossing board of directors met to consider,
among other things, the terms and conditions of the proposed merger with U S
WEST and the terms and conditions of the amendment to the merger agreement.
Global Crossing's financial and legal advisors attended the meeting. Senior
management of Global Crossing and representatives of Skadden Arps reviewed with
the board of directors of Global Crossing the terms and conditions of the
amendment to the merger agreement, as well as various matters relating to the
proposed merger with U S WEST, and reviewed related legal considerations.
Salomon Smith Barney addressed various financial aspects of the proposed U S
WEST merger. In addition, Salomon Smith Barney orally rendered its opinion
that, as of May 16, 1999, the revised exchange ratio, as set forth in the
amendment to the merger agreement, was fair from a financial point of view to
Global Crossing. Extensive discussion followed relating to the financial and
legal aspects of the amendment to the merger agreement and the U S WEST
transaction. After discussion, Global Crossing's board of directors unanimously
approved the amendment to the merger agreement, as well as the merger with U S
WEST and the various definitive agreements related to that merger.
Before the opening of business on May 17, 1999, the parties executed the
amendment to the merger agreement and Global Crossing and U S WEST entered into
a merger agreement and related agreements.
On June 13, 1999, Frontier received an unsolicited acquisition proposal from
Qwest Communications International Inc. to acquire all of the common stock of
Frontier. Qwest offered to pay $20 in cash and issue 1.181 shares of Qwest
common stock for each share of Frontier common stock. On June 13, Qwest also
announced a proposal to acquire all of the outstanding stock of U S WEST. In
Qwest's June 13 proposal to Frontier, Qwest stated that it would increase the
consideration payable for Frontier common stock to $20 in cash and 1.226 shares
of Qwest common stock if U S WEST accepted Qwest's proposal. However, Qwest
also stated that it would offer to enter into an agreement to acquire Frontier
whether or not Qwest concluded its transaction with U S WEST.
On June 17, 1999, Frontier issued a press release announcing that its board
of directors had reviewed the unsolicited acquisition offer made by Qwest and
had determined to take no action with respect to the offer at that time.
Frontier's board of directors directed Frontier's management to monitor events
relating to the Qwest proposal.
On June 23, 1999, Qwest submitted a revised acquisition proposal to Frontier.
Qwest offered to deliver cash and Qwest common stock having a value of $68 for
each share of Frontier common stock consisting of $20 in cash and the balance
in Qwest common stock. Qwest's revised offer included a "collar" on the price
of Qwest common stock between $30.50 and $43.50. Qwest stated that it would
protect the Frontier shareholders' value by paying more cash or issuing
additional shares of Qwest common stock, at Qwest's option, to offset any
decline in Qwest's stock price down to $30.50 per share. On June 23, 1999,
Qwest also delivered a revised offer to U S WEST pursuant to which it increased
the price of its offer and added a collar mechanism.
On June 30, 1999, Frontier announced that in view of all currently available
information and in consultation with its advisors, the Frontier board of
directors had determined that the revised Qwest proposal
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"could reasonably be expected to constitute a superior proposal" for Frontier
shareholders within the meaning of the Global Crossing merger agreement. The
Frontier board of directors further determined that, consistent with its
fiduciary obligations, it was appropriate to more fully inform itself in order
to best serve Frontier's shareholders. Frontier's board of directors directed
Frontier's management and advisors to meet with Qwest and explore the proposal
and also to explore Global Crossing's position with respect to the revised
Qwest proposal.
On July 2, 1999, Frontier entered into a confidentiality agreement with
Qwest. Over the next two weeks, Frontier and its financial and legal advisors
had a number of meetings and conversations with Qwest and its financial and
legal advisors to discuss the Qwest proposal. In addition, during this period
representatives of Global Crossing and Qwest held discussions that included,
among other things, the possibility that Qwest would terminate its acquisition
proposal for Frontier upon execution by Qwest of a definitive merger agreement
with U S WEST.
On July 18, 1999, Global Crossing and Qwest entered into an agreement under
which Global Crossing agreed to terminate its merger agreement with U S WEST,
while Qwest agreed to cease all further discussions and actions in connection
with its proposal to acquire Frontier. Also under this agreement, Qwest agreed
to purchase capacity on the Global Crossing network at established market rate
prices for delivery over the next four years and committed to make purchase
price payments to Global Crossing for this capacity of $140 million over the
next two years.
Also on July 18, 1999, Global Crossing and U S WEST entered into an agreement
to terminate the Global Crossing--U S WEST merger agreement. Under this
agreement, U S WEST paid Global Crossing $140 million in cash and returned to
Global Crossing 2,231,076 shares of Global Crossing common stock that U S WEST
had acquired for a total of $140 million in its tender offer for Global
Crossing common stock on June 18, 1999. U S WEST, however, remained bound by
its agreement to vote the remaining shares of Global Crossing common stock it
purchased in the tender offer in favor of the proposals relating to the Global
Crossing--Frontier merger. U S WEST also agreed to give up the right it
otherwise would have had upon termination of the Global Crossing--U S WEST
merger agreement to appoint one member to the Global Crossing board of
directors.
Recommendation of the Global Crossing board of directors; Reasons for the
merger
The Global Crossing board of directors has unanimously determined that the
merger and the share issuance in the merger are in the best interests of Global
Crossing and its shareholders and has approved the merger agreement. The Global
Crossing board of directors unanimously recommends that shareholders of Global
Crossing vote FOR the increase in the authorized share capital and the share
issuance at the Global Crossing annual meeting.
The Global Crossing board of directors believes that the combined company
following the merger would have the potential to realize long-term enhanced
operating and financial results and a stronger competitive position.
Specifically, the Global Crossing board of directors believes that the
following represent benefits to be realized because of the merger and reasons
for shareholders of Global Crossing to vote FOR approval of the proposals to
increase the authorized share capital and issue the shares of Global Crossing
common stock in the merger:
1. combining with Frontier will accelerate Global Crossing's global
strategy by integrating Frontier's United States terrestrial fiber optic
capacity with Global Crossing's worldwide undersea and terrestrial fiber
optic network, creating a seamless global network of telecommunications
facilities and services,
2. given the complementary nature of Global Crossing's and Frontier's
businesses, the merger will expand Global Crossing's global customer
base and create new revenue sources,
3. Global Crossing will be able to leverage its bandwidth capabilities to
enter into Internet-related businesses and to offer national
asynchronous transfer mode services,
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4. Global Crossing's shareholders will have the opportunity to participate
in the potential for diversified and enhanced growth after the merger,
5. Frontier's network infrastructure and computer support systems and
associated business processes will promote rapid deployment of an
integrated voice and data network that will cover North America as well
as the broader global market,
6. Global Crossing will avoid having to incur large build-out costs for
United States terrestrial infrastructure,
7. the technical and marketing knowledge of Frontier's management and
employees will permit Global Crossing to participate in the North
American market immediately and aggressively,
8. the combined company will avoid the need to duplicate sales, marketing
and administrative functions, and
9. the increased scale of activities in the combined company's long-
distance and international operations will result in opportunities to
reduce costs through greater purchasing power and the adoption of best
practices in cost containment related to the transport of communications
and information over long distance.
In the course of deliberations, the Global Crossing board of directors
reviewed with Global Crossing management and outside advisors a number of
additional factors relevant to the merger, including:
1. historical information concerning Global Crossing's and Frontier's
respective businesses, financial performance and condition, operations,
technology, management and competitive position,
2. Global Crossing's view as to the financial condition, results of
operations and businesses of Global Crossing and Frontier before and
after giving effect to the merger based on management due diligence and
publicly available information,
3. reports from management and legal advisors as to the results of their
due diligence investigation of Frontier,
4. current financial market conditions and historical market prices and
trading information with respect to Global Crossing common stock and
Frontier common stock,
5. the consideration to be offered by Global Crossing in the merger and an
analysis of the market value of the Global Crossing common stock to be
issued in exchange for each share of Frontier common stock in light of
comparable merger transactions, and
6. detailed financial analyses and pro forma and other information with
respect to the companies presented by Merrill Lynch and Salomon Smith
Barney in a board presentation, including Merrill Lynch's and Salomon
Smith Barney's respective opinions that the original exchange ratio was
fair, as of March 16, 1999, the date of their opinions, to Global
Crossing from a financial point of view and Salomon Smith Barney's
opinion that the revised exchange ratio was fair, as of May 16, 1999, to
Global Crossing from a financial point of view.
The Global Crossing board of directors also considered the terms of the
merger agreement, the stock option agreement and the voting agreement. In
addition, the Global Crossing board of directors noted that the merger is
expected to be a tax-free transaction and accounted for as a purchase.
The Global Crossing board of directors believed that these factors supported
the board's recommendations of the merger when viewed together with the risks
and potential benefits of the merger.
The Global Crossing board of directors also identified and considered a
variety of potentially negative factors in its deliberations concerning the
merger, including, but not limited to:
1. the substantial charges to be incurred in connection with the merger,
including costs of integrating the businesses and transaction expenses
arising from the merger,
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2. the risk that the integration of the two companies' respective
operations and employees might not occur in a timely manner,
3. the risk that, despite the efforts of the combined company, key
technical and management personnel might not remain employed by the
combined company,
4. the risk that the potential benefits sought in the merger might not be
fully realized,
5. the risk that potential growth strategies might not be fully achieved,
and
6. the other risks described under "Risk Factors" beginning on page 23 of
this document.
The Global Crossing board of directors believed that these risks were
outweighed by the potential benefits of the merger.
The foregoing discussion is not an exhaustive list of all factors considered
by the Global Crossing board of directors. Each member of the Global Crossing
board of directors may have considered different factors, and the Global
Crossing board of directors evaluated these factors as a whole and did not
quantify or otherwise assign relative weights to factors considered.
The determination of the Global Crossing board of directors involved
judgments with respect to, among other things, future economic, competitive,
regulatory and financial market conditions and future business decisions which
may not be realized and are inherently subject to significant business,
economic, competitive and regulatory uncertainties, all of which are difficult
to predict and many of which are beyond the control of Global Crossing and will
be beyond the control of Global Crossing after the merger. In deciding whether
or not to approve the merger, shareholders of Global Crossing should not put
undue reliance upon this information. This section contains "forward looking
statements." See "Cautionary Statement Regarding Forward-Looking Statements" on
page 31 and "Risk Factors" on page 23.
Opinions of Global Crossing's financial advisors
On March 16, 1999, Salomon Smith Barney and Merrill Lynch delivered their
oral opinions, subsequently confirmed in writing, to the Global Crossing board
of directors to the effect that, as of that date, and based upon the
assumptions made and matters considered as set forth in their opinions, the
original exchange ratio was fair from a financial point of view to Global
Crossing.
On May 16, 1999, Salomon Smith Barney delivered its oral opinion,
subsequently confirmed in writing, to the Global Crossing board of directors to
the effect that, as of that date, the revised exchange ratio was fair from a
financial point of view to Global Crossing. Merrill Lynch was not requested to
deliver and did not deliver an opinion regarding the revised exchange ratio
because it represented U S WEST in the negotiations of the proposed Global
Crossing--U S WEST merger.
Opinions of Salomon Smith Barney
We have attached as Annexes D-1 and D-2 to this document a copy of the
written opinions of Salomon Smith Barney. Global Crossing shareholders are
urged to read carefully Salomon Smith Barney's opinions in their entirety.
In connection with rendering its opinions, Salomon Smith Barney reviewed
publicly available information concerning Global Crossing and Frontier and
other financial information concerning Global Crossing and Frontier, including
financial forecasts and estimated cost savings and synergies resulting from the
merger, that Global Crossing and Frontier provided to Salomon Smith Barney.
Salomon Smith Barney discussed the past and current business operations,
financial condition and prospects of Global Crossing and Frontier with certain
officers and employees of Global Crossing and Frontier. Salomon Smith Barney
also considered other information, financial studies, analyses, investigations
and financial, economic and market criteria that it deemed relevant.
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In its review and analysis and in arriving at its opinions, Salomon Smith
Barney assumed and relied upon the accuracy and completeness of the information
it reviewed, and Salomon Smith Barney did not assume any responsibility for
independent verification of the information. Salomon Smith Barney assumed the
financial forecasts of Global Crossing and Frontier were reasonably prepared on
bases reflecting the best currently available estimates and judgments of the
managements of Global Crossing and Frontier. Salomon Smith Barney expressed no
opinion with respect to these forecasts or the assumptions on which they were
based. Salomon Smith Barney also assumed that the merger will be consummated
according to the terms of the merger agreement. Salomon Smith Barney did not
make or obtain, or assume any responsibility for making or obtaining, any
independent evaluation or appraisal of any of the assets or liabilities of
Global Crossing or Frontier.
Salomon Smith Barney's opinions are necessarily based upon conditions as they
existed and could be evaluated on the respective dates of the opinions. Salomon
Smith Barney's opinions do not imply any conclusion as to the likely trading
range for Global Crossing common stock following the completion of the merger,
which may vary depending upon, among other factors, changes in interest rates,
dividend rates, market conditions, general economic conditions and other
factors that generally influence the price of securities. Salomon Smith
Barney's opinions do not address Global Crossing's underlying business decision
to effect the merger. Salomon Smith Barney expressed no view on the effect on
Global Crossing of the merger and related transactions. Further, Salomon Smith
Barney's opinions are directed only to the fairness, from a financial point of
view, of the original exchange ratio and the revised exchange ratio,
respectively to Global Crossing and are not a recommendation concerning how the
holders of Global Crossing common stock should vote on the proposed issuance of
shares of Global Crossing common stock in the merger or any related matter.
In an engagement letter dated December 5, 1998, Global Crossing agreed to pay
to Salomon Smith Barney: (a) a fee of $250,000, which was payable on the date
of execution of the engagement letter; (b) a fee of $4,000,000, which was
payable on the date of execution of an agreement in principle or definitive
agreement to merge Global Crossing and Frontier; and (c) an additional fee of
$20,000,000, which is payable at the closing if the merger is completed, minus
the $4,250,000 previously received. Global Crossing also agreed to reimburse
Salomon Smith Barney for all reasonable fees and disbursements of Salomon Smith
Barney's counsel and all of Salomon Smith Barney's reasonable travel and other
out-of-pocket expenses incurred in connection with the merger, or otherwise
from Salomon Smith Barney's engagement. Global Crossing further agreed to
indemnify Salomon Smith Barney and certain related persons against various
liabilities, including liabilities under the federal securities laws, relating
to or arising out of its engagement.
In the past, Salomon Smith Barney has rendered investment banking and
financial advisory services to Global Crossing and Frontier for which Salomon
Smith Barney received customary compensation. In addition, in the ordinary
course of its business, Salomon Smith Barney and its affiliates may actively
trade the securities of Global Crossing and Frontier for its own account and
the accounts of its customers and, accordingly, may at any time hold a long or
short position in their securities. Salomon Smith Barney and its affiliates may
have other business relationships with Global Crossing and Frontier and their
respective affiliates.
Opinion of Merrill Lynch
We have attached as Annex E to this document a copy of the Merrill Lynch
opinion dated March 16, 1999 with respect to the original exchange ratio, which
sets forth the assumptions made, matters considered and certain limitations on
the scope of review undertaken by Merrill Lynch. Each holder of common stock is
urged to read the Merrill Lynch opinion in its entirety. The opinion was
intended for the use and benefit of the Global Crossing board of directors, was
directed only to the fairness from a financial point of view to Global Crossing
of the original exchange ratio, did not address the merits of the underlying
decision by Global Crossing to engage in the merger and does not constitute a
recommendation to any shareholder as to how that shareholder should vote on the
proposed issuance of Global Crossing common stock or any related matter. The
exchange ratio was determined on the basis of negotiations between Global
Crossing and Frontier and was approved by the Global Crossing board of
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directors. The summary of the Merrill Lynch opinion set forth in this document
is qualified in its entirety by reference to the full text of the opinion
attached as Annex E. The Merrill Lynch opinion dated March 16, 1999 did not
address the revised exchange ratio that was subsequently agreed to under the
merger agreement. Merrill Lynch was not requested to deliver and did not
deliver an opinion with respect to the revised exchange ratio because it
represented U S WEST in the negotiations of the proposed Global Crossing--U S
WEST merger.
In arriving at its opinion, Merrill Lynch, among other things:
1. reviewed certain publicly available business and financial information
relating to Frontier and Global Crossing that Merrill Lynch deemed to be
relevant;
2. reviewed certain information, including financial forecasts, relating
to the business, earnings, cash flow, assets, liabilities and prospects of
Frontier and Global Crossing, as well as the amount and timing of the cost
savings and related expenses, including potential tax expenses, and
synergies expected to result from the merger furnished to Merrill Lynch by
Frontier and Global Crossing, respectively;
3. conducted discussions with members of senior management and
representatives of Frontier and Global Crossing concerning the matters
described in clauses 1 and 2 above, as well as their respective businesses
and prospects before and after giving effect to the merger and the expected
synergies;
4. reviewed the market prices and valuation multiples for Frontier common
stock and Global Crossing common stock and compared them with those of
certain publicly traded companies that Merrill Lynch deemed to be relevant;
5. reviewed the results of operations of Frontier and Global Crossing and
compared them with those of certain publicly traded companies that Merrill
Lynch deemed to be relevant;
6. compared the proposed financial terms of the merger with the financial
terms of certain other transactions that Merrill Lynch deemed to be
relevant;
7. participated in certain discussions and negotiations among
representatives of Frontier and Global Crossing and their financial and
legal advisors;
8. reviewed the potential pro forma impact of the merger;
9. reviewed the merger agreement; and
10. reviewed such other financial studies and analyses and took into
account other matters as Merrill Lynch deemed necessary, including Merrill
Lynch's assessment of general economic, market and monetary conditions.
In preparing its opinion, Merrill Lynch assumed and relied on the accuracy
and completeness of all information supplied or otherwise made available to
Merrill Lynch, discussed with or reviewed by or for Merrill Lynch, or publicly
available. Merrill Lynch did not assume any responsibility for independently
verifying such information or for undertaking an independent evaluation or
appraisal of any of the assets or liabilities of Frontier or Global Crossing
and was not furnished with any such evaluation or appraisal. In addition,
Merrill Lynch did not assume any obligation to conduct any physical inspection
of the properties or facilities of Frontier or Global Crossing. With respect to
the financial forecast information and the expected synergies furnished to or
discussed with Merrill Lynch by Frontier or Global Crossing, Merrill Lynch
assumed that they were reasonably prepared and reflected the best currently
available estimates and judgment of Frontier's or Global Crossing's management
as to the expected future financial performance of Frontier or Global Crossing,
as the case may be. Merrill Lynch further assumed that the merger will qualify
as a tax-free reorganization for U.S. federal income tax purposes.
The Merrill Lynch opinion was necessarily based upon market, economic and
other conditions as they existed and could be evaluated on, and on the
information made available to Merrill Lynch as of, the date of
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the Merrill Lynch opinion. Merrill Lynch assumed that in the course of
obtaining the necessary regulatory or other consents or approvals, whether
contractual or otherwise, for the merger, no restrictions, including any
divestiture requirements or amendments or modifications, would be imposed that
would have a material adverse effect on the contemplated benefits of the
merger.
In connection with the preparation of its opinion, Merrill Lynch was not
authorized by Global Crossing or Global Crossing's board of directors to
solicit, nor did Merrill Lynch solicit, third-party indications of interest for
the acquisition of all or any part of Global Crossing. In addition, Merrill
Lynch expressed no opinion as to the prices at which shares of Global Crossing
common stock would trade following the announcement or consummation of the
merger.
Pursuant to the terms of a letter agreement between Global Crossing and
Merrill Lynch dated March 9, 1999, Global Crossing has agreed to pay Merrill
Lynch the following fees:
1. a fee of $4,250,000 upon the execution of the merger agreement and
2. an additional fee of $20,000,000 payable upon consummation of the
merger, against which the $4.25 million fee referenced above will be
credited.
Global Crossing has also agreed to reimburse Merrill Lynch for its reasonable
out-of-pocket expenses, including the reasonable fees and disbursements of
legal counsel, and to indemnify Merrill Lynch and certain related parties from
and against certain liabilities, including liabilities under the federal
securities laws, arising out of its engagement.
Merrill Lynch has, in the past, provided financing services to Global
Crossing, including serving as co-lead underwriter in connection with Global
Crossing's initial public offering in August 1998, and provided financial
advisory and financing services to Frontier, and may continue to do so and has
received, and may receive, fees for the rendering of those services. In
addition, in the ordinary course of Merrill Lynch's business, Merrill Lynch may
actively trade Frontier shares and other securities of Frontier, as well as
Global Crossing shares and other securities of Global Crossing, for its own
account and for the accounts of its customers and, accordingly, may at any time
hold a long or short position in these securities. As of March 16, 1999,
certain affiliates of Merrill Lynch's Asset Management Group held in various
funds approximately 4.3% of Frontier's common stock. Merrill Lynch also
provided financial advisory services to U S WEST in connection with the
proposed Global Crossing--U S WEST merger.
Financial Analyses
The following is a summary of the material portions of the financial and
comparative analyses performed by Salomon Smith Barney and Merrill Lynch which
were jointly presented to Global Crossing's board of directors in connection
with the opinions delivered to Global Crossing's board of directors on March
16, 1999 with respect to the original exchange ratio.
Historical Stock Price Performance. Global Crossing's financial advisors
reviewed the relationship between movements of the price of Frontier's common
stock and the following long distance companies' common stock for the three-
year period ending March 12, 1999:
1. AT&T Corp.;
2. MCI Worldcom, Inc.;
3. Qwest Communications International Inc.; and
4. Sprint Corporation.
Global Crossing's financial advisors also reviewed the relationship between
movements of the price of Frontier's common stock and the following local
telephone companies' common stock for the three-year period ending March 12,
1999:
1. Aliant Communications Inc.;
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2. ALLTEL Corporation;
3. Century Telephone Enterprises, Inc.;
4. Cincinnati Bell Inc.;
5. Commonwealth Telephone Enterprises, Inc.; and
6. Telephone & Data Systems, Inc.
Global Crossing's financial advisors also reviewed the relationship between
movements of the price of Frontier's common stock and the S&P 500 for the
three-year period ending March 12, 1999. Global Crossing's financial advisors
noted that over this three-year period Frontier's common stock underperformed
all the above listed companies' common stock and the S&P 500, with the
underperformance becoming more dramatic in the last half of 1998.
Implied Exchange Ratios. Global Crossing's financial advisors calculated a
range of implied valuations for Frontier and Global Crossing by utilizing the
following three principal valuation analyses:
1. Comparable Public Company Analysis. A comparable public company
analysis reviews a business' operating performance and outlook relative to
a group of publicly traded peer companies to determine an implied
unaffected market trading value.
2. Comparable Transaction Analysis. A comparable transaction analysis
provides a valuation range based upon financial information of companies
which have been acquired in selected recent transactions and which are in
the same or similar industries as the business being valued.
3. Discounted Cash Flow Analysis. A discounted cash flow analysis
provides insight into the intrinsic value of a business based on the
projected earnings and capital requirements and the net present value of
the subsequent cash flows anticipated to be generated by the assets of the
business.
Based on these analyses, Global Crossing's financial advisors calculated the
following implied exchange ratios:
Comparable Public Company Valuation. The implied exchange ratio ranged from
0.7029x to 2.0116x based upon a comparison of estimated comparable public
company valuations and including estimated synergies (resulting primarily from
the long distance and Internet/data services business segments). This range of
implied exchange ratios was calculated by comparing the lowest estimated
valuation of Frontier common stock to the highest estimated valuation of Global
Crossing common stock and the highest estimated valuation of Frontier common
stock to the lowest estimated valuation of Global Crossing common stock.
Comparable Transaction/Discounted Cash Flow Valuation. The implied exchange
ratio ranged from 0.8448x to 1.6267x based upon a comparison of Frontier's
estimated comparable transaction valuation to Global Crossing's discounted cash
flow valuations. This range of implied exchange ratios was calculated by
comparing the lowest estimated valuation of Frontier common stock to the
highest estimated valuation of Global Crossing common stock and the highest
estimated valuation of Frontier common stock to the lowest estimated valuation
of Global Crossing common stock.
Discounted Cash Flow Valuation. The implied exchange ratio ranged from
0.9129x to 1.9427x based upon a comparison of a valuation of Frontier which
combined the discounted cash flow valuation of Frontier's local and integrated
services business, which is comprised of the long distance telephony business
and the Internet/data services business, with the public market valuation of
Frontier's cellular business and excess fiber network, to the discounted cash
flow valuation of Global Crossing, and including estimated synergies (resulting
primarily from the long distance and Internet/data services business segments).
This range of implied exchange ratios was calculated by comparing the lowest
estimated valuation of Frontier common stock to the highest estimated valuation
of Global Crossing common stock and the highest estimated valuation of Frontier
common stock to the lowest estimated valuation of Global Crossing common stock.
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In each case, the ranges of implied exchange ratios were compared to the
original exchange ratio in the merger.
Frontier Valuation
Global Crossing's financial advisors calculated estimated aggregate equity
and per share equity valuation ranges for Frontier by separately analyzing and
calculating the values of Frontier's main business segments, including the
following:
1. Long distance telephony;
2. Local telephony;
3. Cellular telephony;
4. Internet/data services; and
5. Excess fiber network capacity.
Based upon these analyses, which included a comparable public companies
analysis, a comparable transaction analysis and a discounted cash flow
analysis, including estimated synergies (resulting primarily from the long
distance and Internet/data services business segments), and after subtracting
estimated corporate overhead costs, Global Crossing's financial advisors
calculated estimated aggregate equity valuations for Frontier which
corresponded to estimated per share equity valuations for Frontier ranging from
$40.00 to $75.76.
Frontier Long Distance Telephony Segment
Using the analyses described below, Global Crossing's financial advisors
calculated an estimated enterprise valuation for Frontier's long distance
telephony business segment.
Comparable Public Companies Analysis. Global Crossing's financial advisors
reviewed publicly available information to compare financial and operating
information and multiples of firm value to 1999 estimated earnings before
interest, taxes, depreciation and amortization, which is referred to as EBITDA,
for Frontier's long distance telephony business segment with the corresponding
financial and operating information and multiples for a group of publicly
traded companies that Global Crossing's financial advisors deemed to be
comparable to Frontier's long distance telephony business segment. Global
Crossing's financial advisors determined the relevant range of these comparable
public company multiples was 9.0x to 11.0x. The companies reviewed in this
analysis included the following:
1. AT&T Corp.;
2. IXC Communications, Inc.;
3. Level 3 Communications, Inc.;
4. MCI Worldcom, Inc.;
5. Qwest Communications International Inc.;
6. Sprint Corporation; and
7. Tel-Save.com, Inc.
Comparable Transaction Analysis. Global Crossing's financial advisors
reviewed publicly available information to compare the merger with business
combinations in the long distance telephony industry that they deemed relevant.
Global Crossing's financial advisors compared the transaction value, which was
calculated as the offer value plus total debt plus the value of the acquiror's
minority interest less cash and marketable securities, of each of these
transactions to the forward EBITDA of the acquired company. Global Crossing's
financial advisors determined the relevant range of these comparable
transaction multiples was 11.0x to 13.0x. The transactions reviewed in this
analysis included the following:
1. EXCEL Communications, Inc./Telco Communications Group, Inc.;
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2. Worldcom, Inc./MCI Communications Corporation;
3. Teleport Communications Group Inc./ACC Corp.;
4. Qwest Communications International Inc./LCI International, Inc.; and
5. Teleglobe Inc./EXCEL Communications, Inc.
Discounted Cash Flow Analysis. Global Crossing's financial advisors performed
a discounted cash flow analysis for Frontier's combined integrated services
business segment, which includes the long distance telephony and Internet/data
services segments, using Frontier management's projections. The discounted cash
flow was calculated assuming discount rates ranging from 11.0% to 12.0% and was
comprised of the sum of the present values of:
1. the projected unlevered free cash flows for the years 1999 through 2003;
and
2. the 2003 terminal value based upon a range of multiples from 11.0x to
12.0x estimated 2003 EBITDA.
Frontier's Local Telephony Business Segment
Using the analyses described below, Global Crossing's financial advisors
calculated an estimated enterprise valuation for Frontier's local telephony
business segment.
Comparable Public Companies Analysis. Global Crossing's financial advisors
reviewed publicly available information to compare financial and operating
information and multiples of firm value to 1999 estimated EBITDA for Frontier's
local telephony business segment with the corresponding financial and operating
information and multiples for the local telephony business segments of a group
of publicly traded companies that Global Crossing's financial advisors deemed
to be comparable to Frontier's local telephony business segment. Global
Crossing's financial advisors determined the relevant range of these public
company multiples was 9.0x to 10.0x. The companies reviewed in this analysis
included the following:
1. Aliant Communications Inc.;
2. ALLTEL Corporation;
3. Ameritech Corporation;
4. Bell Atlantic Corporation;
5. BellSouth Corporation;
6. Century Telephone Enterprises, Inc.;
7. Cincinnati Bell Inc.;
8. Commonwealth Telephone Enterprises, Inc.;
9. GTE Corporation;
10. SBC Communications Inc.;
11. Telephone & Data Systems, Inc.; and
12. U S WEST, Inc.
Comparable Transaction Analysis. Global Crossing's financial advisors
reviewed publicly available information to compare the merger with business
combinations in the local telephony industry that they deemed relevant. Global
Crossing's financial advisors compared the transaction value of each of these
transactions to the forward EBITDA of the acquired company. Global Crossing's
financial advisors determined the relevant range of these comparable
transaction multiples was 9.0x to 10.0x. These transactions included the
following:
1. ALLTEL Corporation/Aliant Communications Inc.;
2. ALLTEL Corporation/GTE Corporation;
3. Ameritech Corporation/Sprint Corporation;
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4. Bell Atlantic Corporation/GTE Corporation;
5. Bell Atlantic Corporation/NYNEX Corporation;
6. Century Telephone Enterprises, Inc./Ameritech Corporation (Wisconsin
access lines);
7. Century Telephone Enterprises, Inc./Centel Corporation (Central
Telephone Company of Ohio);
8. Century Telephone Enterprises, Inc./Pacific Telecom Inc.;
9. Citizens Utilities Company/ALLTEL Corporation;
10. Citizens Utilities Company/GTE Corporation;
11. Conestoga Enterprises, Inc./Buffalo Valley Telephone Company;
12. Gallatin River Communications, LLC/Sprint Corporation (Illinois access
lines);
13. GTE Corporation/Centel Corporation;
14. PacifiCorp/Pacific Telecom Inc.;
15. Rochester Telephone Corporation/Centel Corporation (Iowa and Minnesota
access lines);
16. SBC Communications Inc./Ameritech Corporation;
17. SBC Communications Inc./Pacific Telesis Group;
18. SBC Communications Inc./The Southern New England Telephone Company;
19. The Southern New England Telephone Company/The Woodbury Telephone
Company; and
20. Sprint Corporation/Centel Corporation.
Discounted Cash Flow Analysis. Global Crossing's financial advisors performed
a discounted cash flow analysis for Frontier's local telephony business segment
using Frontier management's projections. The discounted cash flow was
calculated assuming discount rates ranging from 9.0% to 10.0% and was comprised
of the sum of the present values of:
1. the projected unlevered free cash flows for the years 1999 though
2003; and
2. the 2003 terminal value based upon a range of multiples from 9.0x to
10.0x estimated 2003 EBITDA.
Frontier's Cellular Business Segment
Global Crossing's financial advisors calculated an estimated enterprise
valuation for Frontier's cellular telephony business segment of approximately
$175 per person in each of Frontier's cellular service areas based on
information supplied by Frontier's management.
Frontier's Internet/Data Business Segment
Comparable Public Companies Analysis. Global Crossing's financial advisors
reviewed publicly available information to compare certain financial and
operating information and multiples of firm value to 1999 estimated revenue for
Frontier's Internet/data services business segment with the corresponding
financial and operating information and multiples for a group of publicly
traded companies that Global Crossing's financial advisors deemed to be
comparable to Frontier's Internet/data services business segment. Global
Crossing's financial advisors determined the relevant range of these comparable
public company multiples was 9.0x to 13.0x. The companies reviewed in this
analysis included the following internet service providers:
1. Concentric Network Corporation;
2. Earthlink Network, Incorporated;
3. Globix Corporation;
4. Mindspring Enterprises, Inc.;
5. Network Solutions, Inc.;
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<PAGE>
6. PSINet, Inc.;
7. Rocky Mountain Internet, Inc.; and
8. Verio Inc.
The companies reviewed in this analysis also included the following data
service providers:
1. Equant, N.V.;
2. Exodus Communications, Inc.;
3. AboveNet Communications, Inc.; and
4. Covad Communications Group, Inc.
Frontier's Excess Fiber Network
Global Crossing's financial advisors calculated an estimated valuation for
Frontier's excess fiber network business segment by comparing this business
segment with companies that Global Crossing's financial advisors deemed
relevant. The companies reviewed in this analysis included the following:
1. IXC Communications, Inc.;
2. Level 3 Communications, Inc.; and
3. Qwest Communications International Inc.
Using this analysis, Global Crossing's financial advisors calculated an
estimated valuation of Frontier's excess fiber network ranging from $5,000 to
$10,000 per excess strand mile.
Global Crossing Valuation
Global Crossing's financial advisors calculated estimated aggregate equity
and per share equity valuation ranges for Global Crossing by utilizing a
comparable public company analysis and a discounted cash flow analysis. Based
upon these analyses, Global Crossing's financial advisors calculated estimated
aggregate fully diluted equity valuations for Global Crossing which
corresponded to estimated per share equity valuations for Global Crossing
ranging from $35.00 to $60.00.
Comparable Public Companies Analysis. Global Crossing's financial advisors
reviewed publicly available information to compare financial and operating
information and multiples of 1999-2001 estimated EBITDA to the compound annual
growth rate in estimated EBITDA over the respective periods from 1999 through
2001 and 1999 through 2003 for Global Crossing with the corresponding financial
and operating information and multiples for a group of publicly traded
companies that Global Crossing's financial advisors deemed to be comparable to
Global Crossing. Global Crossing's financial advisors determined the relevant
range of these comparable public company multiples was .45x to .90x. The
companies reviewed in this analysis included the following:
1. AT&T Corp.;
2. Equant, N.V.;
3. Frontier Corporation;
4. IXC Communications, Inc.;
5. MCI Worldcom, Inc.;
6. Metromedia Fiber Network, Inc.;
7. Qwest Communications International Inc.; and
8. Sprint Corporation.
55
<PAGE>
Using this range of multiples, Global Crossing's financial advisors
calculated an implied per share equity valuation for Global Crossing ranging
from $35.00 to $60.00.
Discounted Cash Flow Analysis. Global Crossing's financial advisors performed
a discounted cash flow analysis for Global Crossing using Global Crossing
management's projections. The discounted cash flow was calculated assuming
weighted average cost of capital rates ranging from 11.0% to 13.0% and was
comprised of the sum of the present values of the following:
1. the projected unlevered free cash flows for the years 1999 through 2008;
and
2. the 2008 terminal value based upon a range of multiples from 7.0x to
9.0x estimated 2008 EBITDA.
Using this analysis, Global Crossing's financial advisors calculated an
implied per share equity valuation for Global Crossing ranging from $39.00 to
$55.00.
Pro Forma Combination Analysis
Pro Forma Stock Ownership Analysis. Global Crossing's financial advisors
reviewed the original exchange ratio and the number of shares of Global
Crossing's common stock to be issued to holders of Frontier common stock based
upon the original base exchange ratio of 1.2557x. This analysis indicated that
current shareholders of Frontier would own approximately 33% of Global
Crossing's common stock after the merger.
The summary set forth above does not purport to be a complete description of
the analyses performed by Global Crossing's financial advisors in arriving at
their respective opinions. The preparation of a fairness opinion is a complex
process and is not necessarily susceptible to partial or summary description.
Global Crossing's financial advisors believe that their analyses must be
considered as a whole and that selecting portions of their analyses and the
factors considered by them, without considering all their factors and analyses,
could create a misleading view of the process underlying the analyses set forth
in their respective opinions. Global Crossing's financial advisors did not
assign relative weights to any of their analyses in preparing their respective
opinions. The matters considered by Global Crossing's financial advisors in
their analyses were based on numerous macroeconomic, operating and financial
assumptions with respect to industry performance, general business and economic
conditions and other matters, many of which are beyond Global Crossing's and
Global Crossing's financial advisors' control and involve the application of
complex methodologies and educated judgment. Any estimates contained in Global
Crossing's financial advisors' analyses are not necessarily indicative of
actual past or future results or values, which may be significantly more or
less favorable than the estimates. Estimated values do not purport to be
appraisals and do not necessarily reflect the prices at which businesses or
companies may be sold in the future, and the estimates are inherently subject
to uncertainty.
No company utilized as a comparison in the analyses described above is
identical to Frontier or Global Crossing. Also, no transaction utilized in the
analyses described above is identical to the merger of Frontier and Global
Crossing. In addition, various analyses performed by Global Crossing's
financial advisors incorporate projections prepared by research analysts using
only publicly available information. These estimates may or may not prove to be
accurate. An analysis of comparable transactions and publicly traded comparable
companies is not mathematical; rather it involves complex considerations and
judgments concerning differences in financial and operating characteristics of
the comparable companies and other factors that could affect the public trading
value of the comparable companies or company to which they are being compared.
The Global Crossing board of directors selected Salomon Smith Barney and
Merrill Lynch to act as its financial advisors because of their reputations as
internationally recognized investment banking firms with substantial experience
in transactions similar to the merger and because they are familiar with Global
Crossing and its business. The Global Crossing board of directors did not
impose any limitations on the investigation made or the procedures followed by
Salomon Smith Barney and Merrill Lynch in rendering their opinions. As part of
their respective investment banking businesses, Salomon Smith Barney and
Merrill Lynch are
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<PAGE>
continually engaged in the valuation of businesses and their securities in
connection with mergers and acquisitions, leveraged buyouts, negotiated
underwritings, competitive biddings, secondary distributions of listed and
unlisted securities, private placements and other purposes.
Recommendation of the Frontier board of directors; Reasons for the merger
The board of directors of Frontier believes that the merger offers the
Frontier shareholders an opportunity to receive significant value for their
shares of Frontier common stock and to participate in a combined organization
that will be a larger, more diversified company in the Internet and
telecommunications industry and that will be well-positioned to compete
effectively in that industry. The Frontier board of directors has carefully
considered the terms of the proposed merger and has determined that the merger
and the merger agreement are fair to, and in the best interests of, Frontier
and the Frontier shareholders, has adopted the merger agreement and approved
the merger and the other transactions contemplated by the merger agreement and
recommends that the Frontier shareholders vote FOR the adoption of the merger
agreement.
In reaching its decision, the Frontier board of directors consulted with its
financial and legal advisors and with senior management and considered a number
of factors, including, without limitation, the following material factors:
1. the information and presentations by management of Frontier and its
financial advisor concerning Frontier's and Global Crossing's respective
businesses, assets, management, competitive position and prospects,
2. the financial condition, cash flows and results of operations of
Frontier and Global Crossing, both on a historical and prospective
basis,
3. the original exchange ratio negotiated with Global Crossing, including
the related collar provision which gives Frontier shareholders the
opportunity to participate in the increased value of the Global Crossing
common stock if the value of the stock increases above $56.7813 and
which gave Frontier the ability to terminate the merger agreement if the
value of the Global Crossing common stock to be received by Frontier
shareholders is less than $62.00 (following the amendment to the merger
agreement, $63.00 per share) during the measurement period, based on the
average trading price,
4. the opportunity for Frontier shareholders to receive Global Crossing
common stock, based on the original $62.00 deal value, valued at a
significant premium to the recent market price of the Frontier common
stock (39% over the closing price on March 16, 1999, the last trading
day before public announcement of the merger agreement, 67% over the
closing price on March 9, 1999, one week before public announcement of
the merger agreement and 80% over the closing price on February 16,
1999, one month before public announcement of the merger agreement),
5. the opportunity for the Frontier shareholders to participate, as holders
of Global Crossing common stock, in a larger, more diversified,
competitive company in the Internet and telecommunications industry,
including participation in the value that may be generated through the
combination of the two companies,
6. the fact that the overlap of the markets, capital investment and
personnel of Frontier and Global Crossing would allow the combined
company to focus on new technology and growth in markets,
7. the opportunity for the facilities of Global Crossing and Frontier to be
seamlessly integrated,
8. the strategic and financial alternatives available to Frontier in the
rapidly changing industry environment, including remaining an
independent company,
9. the written opinion of Morgan Stanley & Co. Incorporated that, subject
to the assumptions and limitations set forth in the opinion, the
original exchange ratio was fair from a financial point of view to the
holders of Frontier common stock, other than Global Crossing and its
affiliates, and the financial presentation made by Morgan Stanley & Co.
Incorporated to the Frontier board of directors in connection with the
delivery of its opinion,
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<PAGE>
10. the absence of any other firm proposal to engage in a business
combination involving Frontier at the time of the board meeting despite
various contacts between third parties and Morgan Stanley and members
of senior management of Frontier,
11. the ability of Frontier, subject to specified conditions, (a) to
provide information to, and negotiate with, a third party which has
made an unsolicited acquisition proposal and (b) to terminate the
merger agreement if the Frontier board of directors approves a superior
proposal, subject to the payment of a termination fee in an amount
which the Frontier board of directors and its financial advisor
believed would not meaningfully impair the possibility of a competing
transaction,
12. the other terms and conditions of the original merger agreement,
including (a) the limited number of closing conditions which provides
increased certainty that the merger will be completed and (b) the fact
that Global Crossing must close the merger without regard to its stock
price, while, as noted in 3. above, Frontier may, but is not required
to, terminate the merger if the average price of the Global Crossing
common stock during a period shortly before closing is below $34.5625
unless Global Crossing elects to increase the consideration to Frontier
shareholders so that they will receive total consideration valued at
$62.00 per share (following the amendment to the merger agreement,
$63.00 per share), based on that average price,
13. the fact that the merger is intended to be a tax-free exchange to
Frontier shareholders,
14. the fact that Frontier will be able to designate four directors to the
Global Crossing board of directors at the time of the merger and Global
Crossing is required to take all action necessary to elect Joseph
Clayton as a Vice Chairman of Global Crossing and Rolla Huff as
President and Chief Operating Officer of North American Operations of
Global Crossing following the merger,
15. the terms and conditions of the stock option agreement,
16. the existence and terms of the agreement of holders of at least 51% of
Global Crossing common stock to vote in favor of the Global Crossing
merger proposals,
17. historical market prices and trading information with respect to the
Frontier common stock and the Global Crossing common stock, and
18. current industry, economic and market conditions.
The discussion of the information and factors considered by the Frontier
board of directors is not intended to be exhaustive. In view of the variety of
material factors considered in connection with its evaluation of the merger,
the Frontier board of directors did not find it practicable to, and did not
quantify or otherwise assign relative weights to, the specific factors
considered in reaching its determination. In addition, individual members of
the Frontier board of directors may have given different weights to different
factors. For a discussion of the interests of some members of Frontier's
management and the Frontier board of directors, see "The Merger--Interests of
members of Frontier's board of directors and management in the merger."
Opinion of Frontier's financial advisor
Under a letter agreement dated January 6, 1999, Frontier retained Morgan
Stanley to provide financial advisory services to Frontier. On March 16, 1999,
Morgan Stanley delivered its opinion to the Frontier board of directors that,
as of such date and based upon and subject to the various considerations in the
opinion, the original exchange ratio pursuant to the merger agreement was fair
from a financial point of view to holders of shares of Frontier common stock,
other than Global Crossing and its affiliates. On May 16, 1999, in connection
with the approval of the consent and amendment to the merger agreement, Morgan
Stanley delivered its opinion to the Frontier board of directors that, as of
such date and based upon and subject to the various considerations in the
opinion, the exchange ratio pursuant to the merger agreement was fair from a
financial point of view to holders of shares of Frontier common stock, other
than Global Crossing and its affiliates. The opinion delivered on March 16,
1999 was substantially the same as the May 16, 1999 opinion. In connection with
the opinion delivered on May 16, 1999, Morgan Stanley reviewed certain
information regarding U S WEST, which had entered into a merger agreement with
Global Crossing on that date, as described below.
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<PAGE>
On July 18, 1999, U S WEST and Global Crossing agreed to terminate that merger
agreement. Morgan Stanley's opinion delivered on May 16, 1999--that as of such
date and based upon and subject to the various considerations in the opinion,
the exchange ratio pursuant to the merger agreement was fair from a financial
point of view to the holders of shares of the Frontier common stock, other than
Global Crossing and its affiliates--was not contingent on the consummation of
the Global Crossing--U S WEST merger.
We have attached as Annex F to this document the full text of the opinion
dated May 16, 1999, which describes assumptions made, procedures followed,
matters considered and limitations on the scope of the review undertaken by
Morgan Stanley in rendering its opinion. Morgan Stanley's written opinion is
directed to the Frontier board of directors and only addresses the fairness of
the exchange ratio pursuant to the merger agreement from a financial point of
view to holders of shares of Frontier common stock, other than Global Crossing
and its affiliates, as of the date of the opinion. Morgan Stanley's written
opinion does not address any other aspect of the merger and does not constitute
a recommendation to any Frontier shareholder as to how to vote at the Frontier
special meeting. The following is only a summary of the Morgan Stanley opinion
and should not be viewed as a substitute for the Morgan Stanley opinion.
Frontier shareholders are urged to read the entire opinion.
In arriving at its opinions, Morgan Stanley, among other things:
. reviewed certain publicly available financial statements and other
information of Frontier, Global Crossing and U S WEST,
. reviewed certain internal financial statements and other financial and
operating data concerning Frontier, Global Crossing and U S WEST
prepared by the managements of Frontier, Global Crossing and U S WEST,
respectively,
. analyzed certain financial projections for Frontier, Global Crossing and
U S WEST prepared by the managements of Frontier, Global Crossing and U
S WEST, respectively,
. reviewed certain reports prepared by consultants retained by Global
Crossing with respect to demand forecasts for certain markets in which
Global Crossing currently intends to operate and held discussions
regarding such forecasts with one of these consultants,
. analyzed certain financial projections for Frontier contained in certain
securities analysts' research reports that were recommended for review
by the management of Frontier,
. discussed the past and current operations and financial condition and
the prospects of Frontier, including information relating to certain
strategic, financial and operational benefits anticipated from the
merger, or, if applicable the alternative merger, with the senior
executives of Frontier,
. discussed the past and current operations and financial condition and
the prospects of Global Crossing, including information relating to
certain strategic, financial and operational benefits anticipated from
the merger, or, if applicable the alternative merger, and the proposed,
and subsequently terminated, Global Crossing-U S WEST merger with the
senior executives of Global Crossing,
. discussed the past and current operations and financial condition and
the prospects of U S WEST, including information relating to certain
strategic, financial and operational benefits anticipated from the
merger or, if applicable, the alternative merger, and the U S WEST
merger with certain senior executives of U S WEST,
. reviewed the pro forma impact of the merger or, if applicable the
alternative merger, on Global Crossing's cash flow, consolidated
capitalization and financial ratios,
. reviewed the reported prices and trading activity for the Frontier
common stock, the Global Crossing common stock and the U S WEST common
stock,
. compared the financial performance of Frontier and Global Crossing and
the prices and trading activity of the Frontier common stock and the
Global Crossing common stock with those of certain other comparable
publicly-traded companies and their securities,
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<PAGE>
. compared the prices and trading activity of U S WEST common stock with
those of certain other comparable publicly-traded companies and their
securities,
. reviewed the financial terms, to the extent publicly available, of
certain transactions comparable to the merger,
. participated in discussions and negotiations among representatives of
Frontier and Global Crossing and their financial and legal advisors in
connection with the merger,
. discussed certain tax issues with senior executives of Frontier and
Global Crossing and with Frontier's legal and tax advisors,
. reviewed the merger agreement, the Global Crossing--U S WEST merger
agreement and certain related documents, and
. performed such other analyses and considered such other factors as
deemed appropriate.
Morgan Stanley assumed and relied upon, without independent verification, the
accuracy and completeness of the information reviewed by it for purposes of its
opinions. With respect to the financial and other operating data and
discussions relating to the strategic, financial and operational benefits
anticipated from the respective transactions, Morgan Stanley assumed that such
financial and operating data were reasonably prepared on bases reflecting the
best currently available estimates and judgments of the future operating and
financial performance of Frontier and Global Crossing. Morgan Stanley relied
upon the financial projections for Frontier included in the securities
analysts' research reports reviewed by Morgan Stanley based on its own
independent evaluation of these reports and indications by management of
Frontier that the analyses contained in these reports were reasonably
comprehensive and detailed and were based on assumptions about the trends
influencing Frontier's financial results that were generally consistent with
the assumptions of Frontier's management. Morgan Stanley did not make any
independent valuation or appraisal of the assets or liabilities of Frontier,
nor was Morgan Stanley furnished with any appraisals.
Morgan Stanley further assumed with Frontier's consent that, except as
provided below, the transactions contemplated by the merger agreement,
including the merger or, if applicable, the alternative merger, will be
consummated on the terms set forth in the merger agreement, including, among
other things, that the merger or, if applicable, the alternative merger will be
treated as a tax-free reorganization or, if applicable, exchange pursuant to
the Internal Revenue Code. In addition, with the consent of Frontier, Morgan
Stanley relied upon the advice of legal and tax advisors of Frontier as to
certain tax matters relating to the alternative merger. Morgan Stanley's
opinion does not address the impact, if any, of a determination by Frontier not
to exercise its termination rights pursuant to Section 7.1(g) of the merger
agreement, which relates to termination by Frontier if the average Global
Crossing trading price is below $34.5625. In addition, Morgan Stanley assumed
that in connection with the receipt of all necessary regulatory approvals for
the merger or, if applicable, the alternative merger, no restrictions will be
imposed that would have a material adverse effect on Frontier, Global Crossing
or the contemplated benefits expected to be derived in the merger or, if
applicable, the alternative merger. Morgan Stanley's opinions were necessarily
based on economic, market and other conditions as in effect on, and the
information made available to it as of, the dates of the opinions.
The following is a summary of the material financial analyses performed by
Morgan Stanley in preparing its opinions to the Frontier board of directors on
March 16, 1999 and May 16, 1999. Certain of these summaries of financial
analyses include information presented in tabular format. In order to fully
understand the financial analyses used by Morgan Stanley, the tables must be
read together with the text of each summary. The tables alone do not represent
a complete description of the financial analyses. Morgan Stanley used financial
estimates for Frontier that were based on estimates published by securities
research analysts in the investment community in performing some of its
analyses. Morgan Stanley used financial estimates for Global Crossing that were
provided by Global Crossing management.
Historical Public Market Trading Value. Morgan Stanley reviewed the recent
stock price performance of Frontier based on an analysis of the historical
closing prices and trading volumes during the period from March
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12, 1998 through March 12, 1999. The following table summarizes the price
performance of Frontier's common stock over that period:
<TABLE>
<CAPTION>
Historical Frontier
Common Stock Prices
-------------------
<S> <C>
March 12, 1999........................................... $ 40.63
High Price............................................... $ 40.63
Low Price................................................ $ 24.00
Average Price............................................ $ 33.00
Average Daily Trading Volume (8/14/98-3/15/99)........... 646,000
</TABLE>
Morgan Stanley also reviewed the recent stock price performance of Global
Crossing based on an analysis of the historical closing prices and trading
volumes during the period from the Global Crossing initial public offering on
August 14, 1998, through March 15, 1999 and through May 14, 1999. The following
table summarizes the price performance of Global Crossing's common stock over
that period:
<TABLE>
<CAPTION>
Historical Global Crossing
Common Stock Prices
--------------------------
<S> <C>
May 14, 1999..................................... $ 62.29
March 15, 1999................................... $ 56.56
High Price....................................... $ 64.25
Low Price........................................ $ 8.00
Average Daily Trading Volume (8/14/98-3/15/99)... 1,338,000
</TABLE>
Comparative Stock Price Performance. As part of its analysis, Morgan Stanley
reviewed the recent stock price performance of Frontier and compared this
performance with that of groups of the following five competitive
telecommunications infrastructure companies, three long distance companies,
five local exchange companies and Qwest on a stand-alone basis.
<TABLE>
<CAPTION>
Competitive
Infrastructure
Companies Long Distance Companies Local Exchange Companies
-------------- ----------------------- ----------------------------------------
<S> <C> <C>
Global Crossing AT&T Corp. Aliant Communications Inc.
Ltd.
GTS MCI WorldCom, Inc. ALLTEL Corporation
IXC Communica- Sprint Corporation Century Telephone Enterprises, Inc.
tions, Inc.
Level 3 Commu- Cincinnati Bell Inc.
nications,
Inc.
Qwest Commonwealth Telephone Enterprises, Inc.
Communications
International
Inc.
</TABLE>
Morgan Stanley observed that over the period from March 12, 1998, to March
12, 1999, the closing market prices appreciated as set forth below:
<TABLE>
<CAPTION>
% Appreciation
--------------
<S> <C>
Frontier.................................................... 37.4%
Five Competitive Infrastructure Companies (equal-weighted
index)..................................................... 124.9%
Three Long Distance Companies (equal-weighted index)........ 57.2%
Five Local Exchange Companies (equal-weighted index)........ 34.1%
Qwest....................................................... 78.8%
</TABLE>
Morgan Stanley also reviewed the recent stock price performance of Global
Crossing and compared this performance with that of a group of comparable
companies. Morgan Stanley observed that over the period from Global Crossing's
initial public offering on August 14, 1998, to March 12, 1999, the closing
market prices appreciated as set forth below:
61
<PAGE>
<TABLE>
<CAPTION>
Global Crossing and Comparative Companies % Appreciation
----------------------------------------- --------------
<S> <C>
Global Crossing............................................... 287.3%
Allegiance.................................................... 147.7%
Qwest......................................................... 82.9%
MCI WorldCom.................................................. 71.2%
Level 3....................................................... 63.8%
Equant........................................................ 50.4%
Colt.......................................................... 43.7%
</TABLE>
Morgan Stanley also observed that over the period from August 14, 1998 to May
14, 1999, the closing price of Global Crossing common stock appreciated 381.4%,
as compared to 80.9% for an index of peer companies (composed of MCI WorldCom,
Qwest, Level 3 and IXC) and 25.9% for the S&P 500 index.
Securities Research Analysts' Future Price Targets. Morgan Stanley reviewed
and analyzed future public market trading price targets for Frontier common
stock prepared and published by a number of securities research analysts during
the periods from July 24, 1998 to January 25, 1999, before the announcement by
Frontier of its intention to reduce its dividend on January 26, 1999, and from
January 26, 1999 to March 12, 1999, after the dividend announcement. Morgan
Stanley also reviewed and analyzed future public market trading price targets
for Global Crossing common stock both at the time after Global Crossing's
August 14, 1998 initial public offering and during the period from December 1,
1998 to March 12, 1999 and from March 18, 1999 to May 14, 1999. These targets
reflected each analyst's estimate of the future public market trading price of
Frontier and Global Crossing common stock at the end of the particular time
period considered for each time estimate. Morgan Stanley discounted, at a cost
of equity rate of 11.1%, each Frontier research analyst's public market price
target to March 16, 1999. Morgan Stanley also reviewed and analyzed the future
private market value targets for Frontier common stock prepared and published
by certain securities research analysts in the period from July 31, 1998 to
March 12, 1999, reflecting each analyst's estimate of the future private market
value of Frontier common stock at the end of the time period considered in such
estimate.
<TABLE>
<CAPTION>
Value Range
------------
Low High
----- ------
<S> <C> <C>
Present Value of Frontier Public Market Price Target (1/26/99-
3/12/99)...................................................... $ 37 $ 41
Present Value of Frontier Public Market Price Target (7/24/98-
1/25/99)...................................................... 25 51
Frontier Private Market Value Target........................... 40 59
Present Value of Global Crossing Public Market Price Target
(3/18/99-5/14/99)............................................. 57 81
Global Crossing Public Market Price Target (12/1/98-3/12/99)... 35 35
Global Crossing Public Market Price Target at IPO.............. 14 15
</TABLE>
Morgan Stanley noted that certain securities analysts had their public market
price target for Global Crossing common stock under review as of March 12,
1999.
Morgan Stanley also noted that the public market trading price and private
market value targets published by the securities research analysts do not
reflect current market trading prices and private market value targets for
Frontier or Global Crossing common stock and that these estimate are subject to
uncertainties, including the future financial performance of Frontier and
Global Crossing and future financial market conditions.
Peer Group Comparison. Morgan Stanley reviewed and analyzed the financial
information of four local exchange companies, an index of four Regional Bell
Operating Companies, and three competitive long distance and telecommunications
infrastructure companies to arrive at a sum-of-the parts value for Frontier
based on the implied theoretical public market trading values for Frontier's
integrated services and local exchange business segments.
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<PAGE>
Morgan Stanley derived a theoretical value for Frontier's local exchange
business segment based on the financial information for the four local exchange
companies and for an average of the four Regional Bell Operating Companies,
which are Bell Atlantic, BellSouth, SBC, and U S WEST. Morgan Stanley analyzed,
among other things, the current aggregate value, which means equity value
adjusted for capital structure, of each company expressed as a multiple of
earnings before interest, taxes, and depreciation and amortization expense,
which we refer to as "EBITDA," and the current public market price of each
company expressed as a multiple of its earnings per share, which we refer to as
"EPS." As of March 12, 1999 and based on estimates of EBITDA and EPS taken from
selected securities research analysts, the statistics derived from this
analysis are set forth below.
<TABLE>
<CAPTION>
Regional Bell
Operating
Cincinnati Company
ALLTEL Bell Commonwealth Century Average
------ ---------- ------------ ------- -------------
<S> <C> <C> <C> <C> <C>
1999 EBITDA Multiple....... 8.9x 9.8x 10.9x 10.7x 8.0x
Price/1999E EPS............ 22.9x 25.3x NM 28.2x 20.6x
</TABLE>
NM = not meaningful
Morgan Stanley derived a theoretical value for Frontier's Integrated Services
Business Segment based on the financial information for the three competitive
long distance and infrastructure telecommunications companies. Morgan Stanley
analyzed, among other things, the current aggregate value, which means equity
value adjusted for capital structure, of each company expressed as a multiple
of revenues and as a multiple of EBITDA, and the ratio of the multiple of
current aggregate value to estimated EBITDA in the calendar year 1999 to the
estimated, long-term EBITDA growth rate. As of March 12, 1999 and based on
estimates of revenue, EBITDA and long-term EBITDA growth rates taken from
selected securities research analysts, the statistics derived from this
analysis are set forth below.
<TABLE>
<CAPTION>
MCI
IXC WorldCom Qwest
----- -------- -----
<S> <C> <C> <C>
1999 Revenue Multiple.................................. 2.0x 4.7x 7.5x
1999 EBITDA Multiple................................... 12.4x 14.6x 34.7x
EBITDA Multiple Growth................................. 0.42x 0.89x 1.21x
</TABLE>
Based on peer group comparisons and the corresponding implied value of
Frontier's local exchange company and Integrated Services business segments,
Morgan Stanley derived a theoretical sum-of-the-parts value range for Frontier
of $42 to $46 per share.
Morgan Stanley also reviewed and analyzed the financial information of seven
competitive long distance and telecommunications infrastructure companies and
compared the results to financial information relating to Global Crossing.
Morgan Stanley analyzed, among other things, the current aggregate value of
each company expressed as a multiple of revenues and as a multiple of EBITDA,
and the ratio of the multiple of current aggregate value to estimated EBITDA in
the calendar year 1999 to the estimated, long-term EBITDA growth rate. As of
March 12, 1999 and based on estimates of revenue, EBITDA and long-term EBITDA
growth rates taken from selected securities research analysts, the statistics
derived from this analysis are set forth below.
<TABLE>
<CAPTION>
Global Global
Crossing/ Crossing/
MCI Global Frontier Frontier
Colt Equant GTS IXC Level 3 WorldCom Qwest Crossing (with LEC) (without LEC)
------ ------ ----- ----- ------- -------- ----- -------- ---------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1999 Revenue Multiple... 16.8x 14.6x 6.3x 2.0x 41.6x 4.7x 7.5x 28.2x 9.5x 10.6x
2000 Revenue Multiple... 10.5x 11.0x 3.7x 1.8x 24.0x 4.1x 6.1x 17.8x 7.6x 8.1x
1999 EBITDA Multiple.... NM 66.3x NM 12.4x NM 14.6x 34.7x 62.6x 33.2x 45.9x
2000 EBITDA Multiple.... 116.8x 39.5x 46.6x 8.5x NM 11.3x 22.1x 29.9x 21.5x 25.3x
1999 EBITDA Multiple
Growth................. NM 1.76x NM 0.42x NM 0.89x 1.21x 1.18x 0.92x 0.98x
2000 EBITDA Multiple
Growth................. NM 1.05x NM 0.29x NM 0.69x 0.77x 0.57x 0.60x 0.54
</TABLE>
NM = not meaningful
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No company used in the peer group comparisons is identical to Frontier or
Global Crossing. In evaluating the peer group companies, Morgan Stanley made
judgments and assumptions with regard to industry performance, general
business, economic, market and financial conditions and other matters, many of
which are beyond the control of Frontier and Global Crossing such as the impact
of competition on Frontier or Global Crossing and the industry generally,
industry growth and the absence of any material adverse change in the financial
condition and prospects of Frontier or the industry or in the financial markets
in general.
Analysis of Selected Precedent Transactions. As part of its analysis, Morgan
Stanley reviewed the following eight transactions involving emerging growth
long distance and telecommunications infrastructure companies since June 1992:
. June 1992--LDDS Communications, Inc./Advanced Telecommunications, Inc.
. April 1995--Frontier Corporation/ALC Communications Corporation
. June 1997--Excel Communications, Inc./Telco Communications Group, Inc.
. September 1997--LCI International, Inc./USLD Communications Corp.
. November 1997--WorldCom, Inc./MCI Communications Corporation
. November 1997--Teleport Communications Group Inc./ACC Corp.
. March 1998--Qwest Communications International Inc./LCI International,
Inc.
. June 1998--Call-Net Enterprises Inc./Fonorola Inc.
For each of these, Morgan Stanley reviewed the prices paid and calculated the
multiples of one year trailing revenue and EBITDA as well as the premium to
unaffected share price. The table below shows the statistics from this
analysis.
<TABLE>
<CAPTION>
Median High Low
------ ----- -----
<S> <C> <C> <C>
Revenue Multiple....................................... 2.7x 4.0x 1.7x
EBITDA Multiple........................................ 17.3x 35.7x 10.1x
Premium to Unaffected Share Price...................... 52.9% 94.3% 35.2%
</TABLE>
The precedent transactions analysis implied a range of values for Frontier
common stock of $46 to $54 per share.
No transaction used in the analysis of selected precedent transactions is
identical to the merger. In evaluating these transactions, Morgan Stanley made
judgments and assumptions with regard to industry performance, general
business, economic, market and financial conditions and other matters, many of
which are beyond the control of Frontier and Global Crossing, such as the
impact of competition on Frontier or Global Crossing and the industry
generally, industry growth and the absence of any material adverse change in
the financial condition and prospects of Frontier or Global Crossing or the
industry or in the financial markets in general.
Discounted Cash Flow Analysis. Morgan Stanley performed discounted cash flow
analyses, which are analyses of the present value of projected cash flows using
discount rates and terminal year EBITDA multiples, as specified, of Frontier's
businesses. Morgan Stanley analyzed Frontier's business using a forecast for
the period beginning January 1, 1999, and ending December 31, 2007, based on
estimates published by securities research analysts. Morgan Stanley estimated
Frontier's discounted cash flow value using discount rates ranging from 10% to
11% and terminal multiples of estimated 2008 EBITDA ranging from 9x to 10x. The
discounted cash flow analysis implied a range of values for Frontier common
stock of $48 to $59 per share.
Morgan Stanley also performed discounted cash flow analyses of Global
Crossing's businesses. Morgan Stanley analyzed Global Crossing's business using
a forecast for the period beginning January 1, 1999 and ending December 31,
2007, based on estimates provided to Morgan Stanley by Global Crossing
management. Morgan Stanley estimated Global Crossing's discounted cash flow
value using discount rates ranging from 11% to 13% and terminal multiples of
estimated 2008 EBITDA ranging from 9x to 11x. The discounted cash flow analysis
implied a range of values for Global Crossing common stock of $44 to $59 per
share.
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<PAGE>
Morgan Stanley also reviewed and analyzed the sensitivity of Global
Crossing's discounted cash flow value to changes in the projected future
pricing of STM-1 cable sales and backhaul pricing on the Atlantic Crossing
cable. Morgan Stanley reviewed the effect of various annual pricing declines as
compared to the pricing declines projected by Global Crossing management. The
table below summarizes the discounted cash flow value of Global Crossing's
businesses implied by various annual pricing declines:
<TABLE>
<CAPTION>
Management
Pricing Decline: 15% 20% Case 25% 30%
---------------- ---- ---- ---------- ---- ----
<S> <C> <C> <C> <C> <C>
Discount Cash Flow Midpoint ($Billion)... $9.7 $8.0 $7.7 $6.5 $5.2
% Change in Value........................ 28% 4% -- (15%) (32%)
</TABLE>
Morgan Stanley also reviewed and analyzed the sensitivity of Global
Crossing's discounted cash flow value to changes in the projected demand for
STM-1 cables on the Atlantic Crossing cable. Morgan Stanley reviewed the
effects of STM-1 demand at 75% and 50% of that projected by Global Crossing
management. The table below summarizes the discounted cash flow value range
implied by various levels of demand for STM-1 cables:
<TABLE>
<CAPTION>
Discounted Cash Flow
Range ($Billions)
--------------------
<S> <C>
Management Case......................................... $6.6--$8.7
75% of Demand for STM-1s................................ $5.6--$7.3
50% of Demand for STM-1s................................ $3.9--$5.1
</TABLE>
Exchange Ratio Analysis. Morgan Stanley compared the effective exchange ratio
to the ratio of the closing market prices of Frontier common stock and Global
Crossing common stock on March 12, 1999. Morgan Stanley also compared this
ratio to selected average historical ratios of the closing market prices of
Frontier common stock and Global Crossing common stock over various periods
ending March 12, 1999. The table below shows the results of this analysis:
<TABLE>
<CAPTION>
Market
Price Ratio
-----------
<S> <C>
March 12, 1999................................................... 0.82x
5 prior trading days average..................................... 0.93x
30 prior trading days average.................................... 1.18x
60 prior trading days average.................................... 1.35x
Average since Global Crossing initial public offering............ 1.94x
</TABLE>
Morgan Stanley performed a variety of financial and comparative analyses
solely for purposes of providing its opinions to the Frontier board of
directors as to the fairness from a financial point of view to the holders of
Frontier common stock of the exchange ratio pursuant to the merger agreement.
The preparation of a fairness opinion is a complex process and is not
necessarily susceptible to partial analysis or summary description. In arriving
at its opinion, Morgan Stanley considered the results of all of its analyses as
a whole and did not attribute any particular weight to any analysis or factor
considered by it. Furthermore, selecting any portion of its analyses, without
considering all analyses, would create an incomplete view of the process
underlying its opinion. In addition, Morgan Stanley may have given various
analyses and factors more or less weight than other analyses and factors, and
may have deemed various assumptions more or less probable than other
assumptions, so that the ranges of valuations resulting from any particular
analysis described above should not be taken to be Morgan Stanley's view of the
actual value of Frontier or Global Crossing. In performing its analyses, Morgan
Stanley made numerous assumptions with respect to industry performance, general
business and economic conditions and other matters, many of which are beyond
the control of Frontier and Global Crossing. Any estimates contained herein are
not necessarily indicative of future results or actual values, which may be
significantly more or less favorable than those suggested by such estimates.
The analyses performed were prepared solely as part of Morgan Stanley's
analysis of the fairness of the exchange ratio pursuant to the merger agreement
from a financial point of view to the holders of Frontier common stock and
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<PAGE>
were conducted in connection with the delivery of its opinion. The analyses are
not intended to be appraisals or to reflect the prices at which Frontier or
Global Crossing might actually be sold or the price at which their securities
may trade.
The merger consideration was determined through arm's-length negotiations
between Frontier and Global Crossing and was approved by the Frontier board of
directors. Morgan Stanley did not recommend any specific merger consideration
to Frontier or that any specific merger consideration constituted the only
appropriate merger consideration for the merger. Morgan Stanley's opinion to
the Frontier board of directors was one of many factors taken into
consideration by the Frontier board of directors in making its determination to
approve the merger. Consequently, the Morgan Stanley analyses described above
should not be viewed as determinative of the opinion of the Frontier board of
directors with respect to the value of Frontier or whether the Frontier board
of directors would have been willing to agree to different merger
considerations.
The Frontier board of directors retained Morgan Stanley based upon Morgan
Stanley's qualifications, experience and expertise. Morgan Stanley is an
internationally recognized investment banking and advisory firm. Morgan
Stanley, as part of its investment banking business, is continuously engaged in
the valuation of businesses and securities in connection with mergers and
acquisitions, negotiated underwritings, competitive biddings, secondary
distributions of listed and unlisted securities, private placements and
valuations for corporate and other purposes. In the ordinary course of Morgan
Stanley's trading, brokerage and financing activities, Morgan Stanley or its
affiliates may at any time hold long or short positions, may trade, make a
market or otherwise effect transactions, for its own account or for the
accounts of customers, in the securities of Frontier or Global Crossing. In the
past, Morgan Stanley and its affiliates have provided financing services for
Frontier and Global Crossing and have received fees for the rendering of these
services. In addition to acting as Frontier's financial advisor in connection
with the merger, Morgan Stanley has within the past two years participated in
the commercial paper syndicate for Frontier and has acted as co-manager in
Frontier's May 21, 1997 $300 million senior note offering.
Under the letter agreement dated as of January 6, 1999, as amended on June 2,
1999, Morgan Stanley has provided advisory services and a financial opinion in
connection with the merger and Frontier has agreed to pay a transaction fee to
Morgan Stanley in an amount equal to .275% of the aggregate value of the Global
Crossing--Frontier transaction. In addition, Frontier has agreed to indemnify
Morgan Stanley and its affiliates, their respective directors, officers, agents
and employees and each person, if any, controlling Morgan Stanley or any of its
affiliates against certain liabilities and expenses, including the fees of its
legal counsel and certain liabilities under the federal securities laws,
arising out of Morgan Stanley's engagement and the transactions in connection
therewith. Morgan Stanley is also providing services relating to various
financing or refinancing transactions subsequent to the date of the merger
agreement for which Frontier has agreed to pay a customary fee.
Interests of members of Frontier's board of directors and management in the
merger
When you consider the recommendation of the Frontier board of directors that
you vote for the adoption of the merger agreement, you should be aware that
certain directors and executive officers of Frontier have interests in the
merger in addition to their interests solely as Frontier shareholders, as
described below. These interests may create potential conflicts of interest.
The Frontier board of directors was aware of these interests when it considered
and adopted and approved the merger agreement and the merger.
Employment Agreements
In connection with the merger agreement, Frontier amended its employment
agreements with eighteen of its executives, including Messrs. Clayton and Huff.
These agreements include change of control provisions. Each of the employment
agreements will provide the executives with enhanced severance benefits in
specified situations. The executives are entitled to receive enhanced severance
benefits if, following a change in control:
. they voluntarily terminate their employment for any reason within one
year, or
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<PAGE>
. Frontier terminates the executive's employment without cause or the
executive terminates his or her employment for good reason.
Pursuant to the employment agreements and the merger agreement, the merger
will constitute a change of control of Frontier.
The enhanced severance benefits that an executive would receive under the
circumstances described above are:
. payment of all accrued compensation plus a pro rata bonus equal to the
greatest of (1) the premier bonus for the fiscal year of the termination
of employment, but no lower than the premier bonus level established and
in effect before March 16, 1999, (2) the bonus paid or payable in
respect of the year before the year of the termination of employment or
(3) the bonus paid with respect to the fiscal year before the year of
the change of control;
. payment of an amount equal to three times, in the case of Messrs.
Clayton, Huff and six other executives, or, in the case of ten other
executives, two times or one times, the sum of (a) the executive's base
salary, (b) the executive's bonus, except in one agreement, (c) the
annual value of the perquisites received by the executive, (d) payment
of the annual Frontier contributions which would have been made on the
executive's behalf to the 401(k) retirement savings plan, and (e) the
value of the annual allocation which would have been made to Frontier's
Supplemental Retirement Savings Plan; and
. a continuation of general employee benefits, including life insurance,
medical and dental plans, vision and hospitalization benefits for 36
months, or, in some cases, 24 months or 12 months, following the date of
termination.
The employment agreements also contain restrictive covenants, including non-
compete and non-solicitation covenants, which are in effect during an
executive's employment. The employment agreements, as amended, provide that,
following a change of control, these restrictive covenants will no longer be
effective following a termination of the executive's employment. In addition,
thirteen executives may be entitled to receive "gross-up" payments to offset
taxes that may be imposed on the payments and other benefits the executives
receive under the employment agreements, and three executives will be entitled
to age and service credits under Frontier's pension and retirement plans.
Effects of the merger under Frontier stock option plans
The merger agreement provides that, at the effective time of the merger, all
stock options then held by the employees will vest and become immediately
exercisable. In addition, each of the Frontier Corporation Employees' Stock
Option Plan, the Frontier Corporation Management Stock Incentive Plan, the
Frontier Corporation Directors Stock Incentive Plan and the Frontier Omnibus
Incentive Plan provide that upon a change of control, all stock options will
become immediately exercisable and all restrictions on restricted stock will
immediately lapse. The merger will result in a change of control for purposes
of the option plans. See "The Merger Agreement--Stock options and warrants."
Although not required under the merger agreement, Global Crossing may
purchase or withhold from some executive officers of Frontier that own
restricted stock under the Frontier Corporation Management Stock Incentive Plan
either some of those shares or the shares of Global Crossing common stock that
they will receive in the merger in an amount, estimated at approximately $20
million in the aggregate, sufficient to fund anticipated income tax liabilities
that will result from the removal of restrictions on their restricted stock
awards.
Effects of the merger under other Frontier plans
Following a change of control, the participants in the Frontier Corporation
Directors Common Stock Deferred Growth Plan and the Frontier Corporation Plan
For The Deferral of Directors Fees will have the
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<PAGE>
choice whether to receive their payouts in cash or in stock of the successor.
Participants who join the Global Crossing board of directors may continue their
accounts in these two plans.
The merger will result in a change of control for purposes of both of these
plans.
Board of directors and officers of Global Crossing
Under the merger agreement, Global Crossing has agreed that, at or before the
effective time of the merger, the Global Crossing board of directors will take
all action necessary to:
. elect four individuals to be designated by Frontier as members of the
Global Crossing board of directors to serve in specified classes of
directors with staggered terms,
. elect Joseph P. Clayton as Vice Chairman of Global Crossing, and
. elect Rolla P. Huff as President and Chief Operating Officer of North
American Operations of Global Crossing.
Indemnification and insurance
Under the merger agreement and subject to specified limitations, the
surviving corporation of the merger will maintain the current provisions
regarding indemnification of officers, directors and employees of Frontier as
provided in Frontier's certificate of incorporation or by-laws for a period of
six years from the effective time of the merger. In addition, the merger
agreement provides that the surviving corporation of the merger will maintain,
with specified limitations, the current directors' and officers' liability
insurance and fiduciary liability insurance policies of Frontier, or policies
no less advantageous to the insured, for a period of six years from the
effective time. See "The Merger Agreement--Indemnification and insurance."
Certain federal income tax and Bermuda tax consequences
Federal income tax consequences
The following discussion is a summary of the material U.S. federal income tax
consequences to U.S. persons of the exchange of Frontier common stock for
Global Crossing common stock in the merger and the ownership of Global Crossing
common stock. The discussion which follows is based on the U.S. Internal
Revenue Code, applicable Treasury regulations, administrative rulings and
pronouncements and judicial decisions as of the date of this document, all of
which could change. Any change, which may be retroactive, could alter the tax
consequences we discuss in this document. Our discussion of tax consequences is
also based on representations made by Global Crossing, Frontier and the
acquisition subsidiary of Global Crossing. If any of these representations is
inaccurate, the tax consequences of the merger could differ from those
described in this document.
The discussion below, except where specifically noted, does not address the
effects of any state, local or non-United States tax laws. In addition, the
discussion below relates to persons who hold Frontier common stock and will
hold Global Crossing common stock as capital assets. The tax treatment of a
Frontier shareholder may vary depending upon the shareholder's particular
situation, and some shareholders may be subject to special rules not discussed
below. These shareholders would include, for example
. insurance companies,
. tax-exempt organizations,
. financial institutions,
. broker-dealers,
. shareholders who are foreign persons and
. individuals who received Frontier common stock pursuant to the exercise
of employee stock options or otherwise as compensation.
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<PAGE>
In addition, this discussion does not address all of the tax consequences to
any Frontier shareholder who will own 5% or more of either the total voting
power or the total value of the outstanding Global Crossing common stock after
the merger, determined after we take into account ownership under the
applicable attribution rules of the U.S. Internal Revenue Code and applicable
Treasury regulations. We will refer to these shareholders as "5% transferee
shareholders."
Consequences of the merger
The obligations of Global Crossing and Frontier to complete the merger are
conditioned on the receipt of opinions from their respective counsel, Skadden,
Arps, Slate, Meagher & Flom LLP for Global Crossing and Simpson Thacher &
Bartlett for Frontier. These opinions, which will be based on facts,
representations and assumptions as counsel may reasonably deem relevant, will
be to the effect that
. the merger will be treated for federal income tax purposes as a
reorganization with the meaning of Section 368 of the Internal Revenue
Code;
. Global Crossing, Frontier and the acquisition subsidiary will each be a
party to that reorganization; and
. no gain or loss will be recognized by a shareholder of Frontier as a
result of the merger, except with respect to any cash received in the
merger; provided, that, in the case of any 5% transferee shareholder,
the 5% transferee shareholder enters into a "gain recognition agreement"
in accordance with applicable Treasury regulations.
Based on those conclusions, the following additional federal income tax
consequences would arise:
. Receipt of Cash. If, in addition to Global Crossing common stock, a
Frontier shareholder receives cash in the merger, other than cash
received in payment for a fractional share, a Frontier shareholder will
realize gain measured by the excess, if any, of (1) the sum of the
amount of that cash and the fair market value of the Global Crossing
shares received in the merger over (2) the shareholder's tax basis in
the Frontier shares. However, any gain realized will be taxable only to
the extent of the cash received. Any gain recognized by a Frontier
shareholder generally will be capital gain and will be treated as long-
term capital gain if the Frontier shares have been held for more than
one year. However, the gain could be treated as ordinary dividend income
if, taking into account applicable constructive ownership rules, a
Frontier shareholder's percentage interest in Global Crossing after the
merger is not less than what that Frontier shareholder's percentage
interest in Global Crossing would have been had the shareholder received
only Global Crossing shares instead of cash in the merger. This could
happen, for example, because of a purchase of additional Global Crossing
shares by the Frontier shareholder or a related person or because of a
share repurchase by Global Crossing from other Global Crossing
shareholders.
. Tax basis. The tax basis to a Frontier shareholder of the Global
Crossing common stock received in exchange for Frontier common stock
pursuant to the merger, including any fractional share interest in
Global Crossing common stock for which cash is received, will equal the
Frontier shareholder's tax basis in the Frontier common stock
surrendered in exchange therefor, increased by the amount of taxable
gain, if any, on the exchange and decreased by the amount of any cash
received, other than cash received in payment for a fractional share.
. Holding period. The holding period of a Frontier shareholder for the
Global Crossing common stock received pursuant to the merger will
include the holding period of the Frontier common stock surrendered in
exchange for the Global Crossing shares.
. Fractional shares. A Frontier shareholder who receives cash in payment
for a fractional share interest in Global Crossing common stock pursuant
to the merger will be treated as having received the cash in exchange
for the fractional share interest and generally will recognize capital
gain or loss
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<PAGE>
on the deemed exchange in an amount equal to the difference between the
amount of cash received and the basis of the Frontier stock allocable to
that fractional share.
Ownership of Global Crossing common stock
Distributions. Distributions made to shareholders on or with respect to
Global Crossing common stock will be treated as dividends and be taxable as
ordinary income to the extent that those distributions are made out of Global
Crossing's current or accumulated earnings and profits as determined for U.S.
federal income tax purposes. Subject to the passive foreign investment company
rules discussed below, to the extent that the amount of any distribution
exceeds Global Crossing's accumulated earnings and profits for a taxable year,
the excess will be treated as a tax-free return of capital which reduces the
Global Crossing shareholders' tax basis in the Global Crossing common stock to
the extent of the tax basis, and thereafter as capital gain from the sale or
exchange of property. Global Crossing shareholders that are corporations
generally will not be entitled to claim a dividends received deduction with
respect to distributions by Global Crossing because Global Crossing is a
foreign corporation. Global Crossing does not currently pay dividends on its
common stock and does not anticipate paying dividends in the foreseeable
future. See "Summary--Market prices and dividends."
For so long as Global Crossing is a "United States-owned foreign
corporation," distributions with respect to the common stock that are taxable
as dividends generally will be treated for United States foreign tax credit
purposes as either (1) foreign source "passive income" or, in the case of some
Global Crossing shareholders, foreign source "financial services income" or
(2) United States source income, in proportion to the earnings and profits of
Global Crossing in the year of the distribution allocable to foreign and
United States sources, respectively. For this purpose, Global Crossing will be
treated as a United States-owned foreign corporation so long as stock
representing 50% or more of the voting power or value of Global Crossing is
owned, directly or indirectly, by U.S. persons.
Disposition. Subject to the passive foreign investment company and
controlled foreign corporations rules discussed below, gain or loss realized
by a Global Crossing shareholder on the sale, exchange or other taxable
disposition of Global Crossing common stock will be subject to U.S. federal
income taxation as capital gain or loss in an amount equal to the difference
between the amount realized on that sale, exchange or other disposition and
the shareholder's adjusted tax basis in the Global Crossing common stock
surrendered. The gain or loss will be long term capital gain or loss if the
shareholder's holding period for its Global Crossing common stock is more than
one year. Any gain or loss so realized generally will be United States source.
Passive Foreign Investment Company. In general, Global Crossing will be
classified as a "passive foreign investment company" for any taxable year if
either (1) at least 75% of Global Crossing's gross income is passive income or
(2) at least 50% of the value (determined on the basis of a quarterly average)
of Global Crossing's assets produce or are held for the production of passive
income. Global Crossing believes that it is not a passive foreign investment
company and does not expect to become a passive foreign investment company in
the future for U.S. federal income tax purposes, although Global Crossing
cannot assure you in this regard. See "Risk Factors--Global Crossing
shareholders may be subject to Foreign Personal Holding Company, Passive
Foreign Investment Company, Controlled Foreign Corporation and Personal
Holding Company rules." This conclusion is a factual determination made
annually and is subject to change. In addition, it is based, in part, on
interpretations of existing law that Global Crossing believes are reasonable,
but which have not been approved by any taxing authority.
If Global Crossing is classified as a passive foreign investment company in
any year with respect to which a United States person is a shareholder, Global
Crossing generally will continue to be treated as a passive foreign investment
company with respect to that shareholder in all succeeding years, regardless
of whether it continues to meet the income or asset test described above,
subject to certain possible shareholder elections that may apply in some
circumstances.
If Global Crossing is treated as a passive foreign investment company:
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. Distributions made by Global Crossing during a taxable year to a
shareholder with respect to Global Crossing stock that are "excess
distributions", which are defined generally as the excess of the amount
received with respect to that stock in any taxable year over 125% of the
average received in the shorter of either the three previous years or
the shareholder's holding period before the taxable year, must be
allocated ratably to each day of the shareholder's holding period. The
amounts allocated to the current taxable year and to taxable years
before the first year in which Global Crossing was classified as a
passive foreign investment company are included as ordinary income in
the shareholder's gross income for that current year. The amount
allocated to each other prior taxable year is taxed as ordinary income
at the highest rate in effect for the shareholder in that prior year and
the tax is subject to an interest charge at the rate applicable to
deficiencies in income taxes.
. The entire amount of any gain realized upon the sale or other
disposition, including for these purposes, a pledge of Global Crossing
stock will be treated as an excess distribution made in the year of sale
or other disposition. As a result, that gain will be treated as ordinary
income and, to the extent allocated to years before the year of sale or
disposition, will be subject to the interest charge described above. In
addition, shareholders who acquire their Global Crossing stock from
decedents generally will not receive a "stepped up" basis in the stock.
Instead, these shareholders will have a tax basis equal to the lower of
the fair market value of the stock or the decedent's basis.
The special passive foreign investment company tax rules described above will
not apply to a Global Crossing shareholder if
1. The Global Crossing shareholder elects to have Global Crossing treated as
a "qualified electing fund," which we refer to as a "qualified electing fund
election," and Global Crossing provides certain information to its
shareholders. If Global Crossing is treated as a passive foreign investment
company, it intends to notify its shareholders and to provide to its
shareholders all information that may be required to make the qualified
electing fund election effective.
A shareholder that makes a qualified electing fund election will be taxable
currently on its pro rata share of Global Crossing's ordinary earnings and net
capital gain, at ordinary income and capital gain rates, respectively, for each
taxable year of Global Crossing during which it is treated as a passive foreign
investment company, regardless of whether or not distributions were received.
The shareholder's basis in the Global Crossing stock will be increased to
reflect taxed but undistributed income. Distributions of income that had
previously been taxed will result in a corresponding reduction of basis in the
Global Crossing stock and will not be taxed again as a distribution to the
shareholder.
2. The shareholder makes a mark to market election. The mark to market
election is only available with respect to stock that is regularly traded on
specified United States exchanges and other exchanges designated by the United
States Treasury. The meaning of the term "regularly traded," for purposes of
the mark to market election, is unclear.
In general, an electing shareholder will include in each year as ordinary
income the excess, if any, of the fair market value of that stock at the end of
the taxable year over its adjusted basis and will be permitted an ordinary loss
in respect of the excess, if any, of the adjusted basis of that stock over its
fair market value at the end of the taxable year, but only to the extent of the
net amount previously included in income as a result of the mark to market
election. The electing shareholder's basis in the stock will be adjusted to
reflect any of these income or loss amounts. Any gain or loss on the sale of
the Global Crossing stock will be ordinary income or loss, except that a loss
will be ordinary loss only to the extent of the previously included net mark to
market gain.
A shareholder who owns Global Crossing stock during any year that Global
Crossing is a passive foreign investment company must file IRS Form 8621.
Shareholders are urged to consult their tax advisors concerning
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<PAGE>
the U.S. federal income tax consequences of holding stock of Global Crossing if
it is a passive foreign investment company, including the advisability and
availability of making any of the elections described above.
Foreign Personal Holding Company. A foreign corporation will be classified as
a foreign personal holding company if
. at any time during the corporation's taxable year, five or fewer
individuals, who are United States citizens or residents, directly or
indirectly own more than 50% of the corporation's stock by either voting
power or value; we refer to this as the "shareholder test" and
. the corporation receives at least 60% of its gross income (50% after the
initial year of qualification), as adjusted, for the taxable year from
certain passive sources; we refer to this as the "income test."
It is possible that Global Crossing or one of its non-United States
subsidiaries will meet the income test in a given year. However, Global
Crossing does not expect that the shareholder test will be met after the
merger. Accordingly, it is not expected that Global Crossing or any of its non-
United States subsidiaries will be treated as a foreign personal holding
company, although we cannot assure you in this regard. Global Crossing intends
to manage its affairs so as to attempt to avoid or minimize having income
imputed to its shareholders under these rules, to the extent this management of
its affairs is consistent with its business goals.
If Global Crossing or one of its non-United States subsidiaries were
classified as a foreign personal holding company, all shareholders, including
certain indirect holders, regardless of their percentage ownership, would be
required to include in income, as a dividend, their pro rata share of Global
Crossing's or its relevant non-United States subsidiary's undistributed foreign
personal holding company income if they were holders on the last day of Global
Crossing's taxable year or, if earlier, the last day on which Global Crossing
satisfied the shareholder test. Foreign personal holding company income is
generally equal to taxable income with certain adjustments. In addition, if
Global Crossing were classified as a foreign personal holding company,
shareholders who acquire their Global Crossing stock from decedents would not
receive a "stepped-up" basis in that stock. Instead, these shareholders would
have a tax basis equal to the lower of the fair market value of the stock or
the decedent's basis.
Personal Holding Company. A corporation classified as a personal holding
company is subject to a 39.6% tax on its undistributed personal holding company
income. Foreign corporations like Global Crossing determine their liability for
personal holding company tax by considering only (1) gross income derived from
United States sources and (2) gross income that is effectively connected with a
United States trade or business. A corporation will be classified as a personal
holding company if
. at any time during the last half of the corporation's taxable year, five
or fewer individuals own more than 50% of the corporation's stock
measured by value, directly or indirectly and
. the corporation receives at least 60% of its adjusted gross income from
certain passive sources.
However, if a corporation is a foreign personal holding company or a passive
foreign investment company, it cannot be a personal holding company. It is
possible that Global Crossing or one of its non-United States subsidiaries will
meet the income test in a given year. However, it is not expected that the
shareholder test will be met after the merger. Accordingly, it is not expected
that Global Crossing or any of its non-United States subsidiaries will be
treated as a personal holding company, although we cannot assure you in this
regard. Global Crossing intends to manage its affairs so as to attempt to avoid
or minimize the imposition of the personal holding company tax, to the extent
this management of its affairs is consistent with its business goals.
Controlled Foreign Corporations. For purposes of this discussion, when we use
the term "10% U.S. Shareholders," we mean United States persons who
individually own or are deemed for U.S. federal income tax purposes to own,
pursuant to complex attribution and constructive ownership rules 10% or more of
the voting stock of Global Crossing or any of its non-United States
subsidiaries.
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If 10% U.S. Shareholders own, in the aggregate, more than 50%, measured by
voting power or value, of the shares of Global Crossing or any of its non-
United States corporate subsidiaries, directly, indirectly, or by attribution,
Global Crossing or any of its non-United States subsidiaries would be a
controlled foreign corporation. If characterized as controlled foreign
corporations, then a portion of the undistributed income of Global Crossing and
its non-United States subsidiaries may be includible in the taxable income of
10% U.S. Shareholders of those entities, and a portion of the gain recognized
by 10% U.S. Shareholders on the disposition of their shares in Global Crossing,
which could otherwise qualify for capital gains treatment, may be converted
into ordinary dividend income. It is possible that Global Crossing and its non-
United States subsidiaries may be controlled foreign corporations or may become
controlled foreign corporations in the future. However, as discussed above,
controlled foreign corporation status generally only has potentially adverse
consequences to 10% U.S. Shareholders.
In order to attempt to prevent any United States person from being a 10% U.S.
Shareholder of Global Crossing, the bye-laws of Global Crossing generally
provide, among other things, that no holder of Global Crossing common stock or
any group of holders through whom ownership may be attributed to another holder
by the constructive ownership or attribution rules of Section 958 of the
Internal Revenue Code will be allowed to cast votes with respect to more than
9.5% of the common stock, and some restrictions have been placed on the
transferability of shares. See "Description of Global Crossing Capital Stock--
Voting and transfer restrictions." We cannot assure you that these limitations
will prevent the characterization of Global Crossing or any of its non-United
States subsidiaries as a controlled foreign corporation or of any shareholder
as a 10% U.S. Shareholder. However, a shareholder that owns directly less than
10% of the common stock generally will not be treated as a 10% U.S. Shareholder
unless it is attributed common stock owned by other shareholders.
Information Reporting and Backup Withholding. In general, information
reporting requirements will apply to dividends in respect of the Global
Crossing common stock or the proceeds received on the sale, exchange, or
redemption of the Global Crossing common stock paid within the United States,
and in some cases, outside of the United States, to shareholders other than
certain exempt recipients, such as corporations, and a 31% backup withholding
may apply to the amounts if the shareholder fails to provide an accurate
taxpayer identification number or to report dividends required to be shown on
its U.S. federal income tax returns. The amount of any backup withholding from
a payment to a shareholder will be allowable as a refund or credit against the
shareholder's U.S. federal income tax liability, provided that the required
information or appropriate claim for refund is furnished to the Internal
Revenue Service.
Bermuda tax consequences
In the opinions of Conyers Dill & Pearman, special Bermuda tax counsel for
Frontier, and Appleby, Spurling & Kempe, Bermuda tax counsel for Global
Crossing, there will be no Bermuda
. income, corporation or profits tax,
. withholding tax,
. capital gains tax,
. capital transfer tax,
. estate duty or
. inheritance tax
payable in respect of an exchange of Frontier common stock for Global Crossing
common stock pursuant to the merger. In addition, as of the date of this
document, there is no Bermuda income, corporation or profits tax, withholding
tax, capital gains tax, capital transfer tax, estate duty or inheritance tax
payable in respect of capital gains realized on a disposition of Global
Crossing common stock or in respect of distributions by Global Crossing with
respect to Global Crossing common stock. Under current Bermuda law, Global
Crossing is not subject to tax on income or capital gains. Furthermore, Global
Crossing has obtained from the Minister of Finance of Bermuda under the
Exempted Undertakings Tax Protection Act 1966 an undertaking that, in the
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event that Bermuda enacts any legislation imposing tax computed on profits,
income, any capital asset, gain or appreciation, or any tax in the nature of
estate duty or inheritance tax, then the imposition of that tax will not be
applicable to Global Crossing or to any of its operations or the shares,
debentures or other obligations of Global Crossing, until March 28, 2016. This
undertaking does not, however, 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 of Bermuda or otherwise payable in relation to land leased to
Global Crossing.
Anticipated accounting treatment
For accounting and financial reporting purposes, the merger is intended to be
treated as a purchase by Global Crossing under generally accepted accounting
principles. Under the purchase method of accounting, Frontier's assets and
liabilities, as of the effective date of the merger, will be recorded at their
respective fair values and added to those of Global Crossing. For purposes of
preparing Global Crossing's consolidated financial statements, Global Crossing
will establish a new accounting basis for Frontier's assets and liabilities
based upon the fair values thereof, the merger consideration and the costs of
the transactions. Global Crossing's management believes that any excess of cost
over the fair value of the net assets of Frontier will be recorded as goodwill.
A final determination of the intangible asset lives and required purchase
accounting adjustments, including the allocation of the purchase price to the
assets acquired and liabilities assumed based on their respective fair values,
has not yet been made. Accordingly, the purchase accounting adjustments made in
connection with the development of the unaudited pro forma financial
information appearing elsewhere in this document are preliminary and have been
made solely for purposes of developing the unaudited pro forma financial
information. Global Crossing has undertaken a study to determine the fair value
of some of Frontier's assets and liabilities and will make appropriate purchase
accounting adjustments upon completion of that study. For financial reporting
purposes, the results of operations of Frontier will be included in the Global
Crossing consolidated statement of operations following the effective time of
the merger and Global Crossing's historical consolidated statements of
operations will not be restated. See "Unaudited Pro Forma Condensed Combined
Financial Statements."
Regulatory approvals
Hart-Scott-Rodino Act
We cannot complete the merger until we give notification and furnish
information to the Federal Trade Commission and the Antitrust Division of the
Department of Justice and the specified waiting period requirements have been
satisfied. We filed the required notification and report forms with the Federal
Trade Commission and the Antitrust Division on April 29, 1999 and the waiting
period was terminated on May 11, 1999. At any time before or after the
effective time of the merger, and notwithstanding that the waiting period has
terminated or the merger may have been consummated, the Federal Trade
Commission, the Antitrust Division or any state could take any action under the
applicable antitrust or competition laws as it deems necessary or desirable.
This action could include seeking to enjoin the completion of the merger.
Private parties may also institute legal actions under the antitrust laws under
some circumstances.
Subsequent to the May 11, 1999 early termination of the waiting period, U S
WEST acquired approximately 9.49% of the outstanding common stock of Global
Crossing, the acquisition of which the Antitrust Division of the Department of
Justice is currently investigating. We do not expect that this investigation
will delay the completion of the Global Crossing--Frontier merger.
FCC and Public Utility Commission approvals
It is a condition to the merger that
. the approval of the Federal Communications Commission and
. approvals of public utility commissions of the states
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be obtained without the imposition of conditions reasonably expected to have a
material adverse effect on Global Crossing and some of its subsidiaries,
including, following the merger, Frontier, unless the failure to obtain any
public utility commission approval would not reasonably be expected to have a
material adverse effect on Global Crossing and some of its subsidiaries,
including, following the merger, Frontier.
See "The Merger Agreement--Conditions to the completion of the merger."
Bermuda Monetary Authority
The issuance of Global Crossing shares in the merger and the subsequent free
transferability of the corresponding shares between non-residents of Bermuda
for exchange control purposes must be approved by the Bermuda Monetary
Authority. Global Crossing obtained that approval on July 1, 1999.
The approval of the Bermuda Monetary Authority is required for the issuance
of shares by any Bermuda company to a non-resident of Bermuda for exchange
control purposes.
Approvals or permissions received from the Bermuda Monetary Authority in
connection with this document do not constitute a guarantee by the Bermuda
Monetary Authority as to the creditworthiness of Global Crossing. Furthermore,
in giving those approvals, the Bermuda Monetary Authority will not be liable
for the performance or default of Global Crossing or of the correctness of any
opinions or statements expressed in this document.
No appraisal rights
Since Global Crossing is not party to the merger between Frontier and Global
Crossing's wholly owned subsidiary, under Bermuda law, Global Crossing
shareholders are not entitled to dissenters' rights of appraisal in connection
with the merger.
Under the New York Business Corporation Law, Frontier shareholders are not
entitled to dissenters' appraisal rights in connection with the merger because
the Frontier common stock was listed on the New York Stock Exchange on the
record date for the Frontier special meeting.
Quotation on the Nasdaq National Market
It is a condition to the merger that the shares of Global Crossing common
stock to be issued in the merger and the other shares to be reserved for
issuance in connection with the merger be approved for trading on the Nasdaq
National Market upon official notice of issuance. The merger agreement provides
that Global Crossing will use its reasonable best efforts to cause the shares
of Global Crossing common stock to be issued in the merger and the shares of
Global Crossing common stock to be reserved for issuance in connection with the
merger to be approved for trading on the Nasdaq National Market.
Litigation
On June 18, June 23, July 7 and July 13, 1999, four purported shareholder
class action suits were filed in New York State Supreme Court against Frontier,
the members of its board and others. These complaints allege, among other
things, that the defendants have breached their fiduciary duties in connection
with the unsolicited bid by Qwest. These complaints variously seek, among other
things, a court order enjoining any proposed transaction with U S WEST or
requiring the defendants to take certain actions with respect to a merger or
acquisition of Frontier, including, but not limited to, engaging in
negotiations with Qwest. Frontier believes that these complaints are without
merit and intends to defend them vigorously.
Resales of Global Crossing common stock
All shares of Global Crossing common stock received by Frontier shareholders
in the merger will be registered under the Securities Act of 1933 and will be
freely tradeable without restriction by people who will
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not be affiliates of Global Crossing after the merger or who were not
affiliates of Frontier on the date of the Frontier special meeting. Any of
those people may resell the Global Crossing common stock received by him or her
in the merger only if the shares are registered for resale under the Securities
Act or an exemption from such registration under the Securities Act is
available. Those people may be permitted to effect resales under the safe
harbor provisions of Rule 145 under the Securities Act, or Rule 144 in the case
of persons who become affiliates of Global Crossing, or as otherwise permitted
under the Securities Act. People who may be deemed to be affiliates of Frontier
or Global Crossing generally include individuals or entities that control, are
controlled by, or are under common control with, Frontier or Global Crossing,
as applicable, and may include some officers and all directors of that party as
well as principal shareholders of Frontier or Global Crossing, as applicable.
We recommend that any of those people obtain advice of securities counsel
before making any resale.
The merger agreement provides that,
. on or before the date of the Frontier special meeting, Frontier will
deliver to Global Crossing a letter identifying all people who may be
deemed to be affiliates of Frontier for purposes of Rule 145 under the
Securities Act and
. on or before the closing date, Frontier will use all reasonable efforts
to cause each of its affiliates to deliver a written agreement to the
effect that the affiliate will not offer or sell or otherwise dispose of
any shares of Global Crossing common stock received in the merger in
violation of the Securities Act or the rules and regulations thereunder.
This document does not cover resales of Global Crossing common stock received
by any person who may be deemed to be an affiliate of Global Crossing or
Frontier.
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The Merger Agreement
This section is a summary of the material terms of the merger agreement, as
amended, a copy of which is attached as Annex A to this document. The following
description does not purport to be complete and is qualified in its entirety by
reference to the merger agreement. You should refer to the full text of the
merger agreement for details of the merger and the terms and conditions of the
merger agreement.
The merger
When the merger occurs, GCF Acquisition Corp., a direct wholly owned
subsidiary of Global Crossing, will be merged with and into Frontier in
accordance with the New York Business Corporation Law. As a result of the
merger, Frontier will be a wholly owned subsidiary of Global Crossing.
Each share of Frontier common stock issued and outstanding immediately before
the merger, other than shares owned or held directly or indirectly by Global
Crossing or directly by Frontier, which will be canceled, will be converted
into the right to receive a number of shares of Global Crossing common stock
equal to the exchange ratio. See "The Merger--What you will receive in the
merger." Each holder of a certificate representing any shares of Frontier
common stock will no longer have any rights with respect to the shares of
Frontier common stock, except the right to receive Global Crossing common stock
and any cash included in the merger consideration. Global Crossing common stock
is described beginning on page 135.
Under the terms of the merger agreement, at the effective time of the merger:
. the certificate of incorporation of the surviving corporation will be
amended so that its provisions will be the same as the certificate of
incorporation of GCF Acquisition Corp., the acquisition subsidiary,
. the by-laws of GCF Acquisition Corp. will be the by-laws of the
surviving corporation, and
. the officers of Frontier as of the effective time will be the officers
of the surviving corporation and the directors of GCF Acquisition Corp.
as of the effective time will be the directors of the surviving
corporation.
Effective time of the merger
The merger will become effective when we file a certificate of merger with
the New York Department of State. However, we may agree to a later effective
time, and specify that time in the certificate of merger. We will file the
certificate of merger on the second business day after the satisfaction or
waiver of all conditions in the merger agreement, other than conditions that
cannot be satisfied until the closing date. See "--Conditions to the completion
of the merger."
Exchange procedures
After the effective time of the merger, EquiServe, as the exchange agent,
will mail to each person who held shares of Frontier common stock at the time
of the merger a letter of transmittal. Frontier shareholders should use this
letter of transmittal in forwarding Frontier stock certificates. This letter
will include instructions for the exchange of Frontier stock certificates for
Global Crossing stock certificates. After surrendering a Frontier stock
certificate together with the letter of transmittal, and any other documents
the exchange agent reasonably requires, the holder of a Frontier stock
certificate will be entitled to receive a Global Crossing stock certificate.
Frontier shareholders should not send in their Frontier common stock
certificates until they receive a letter of transmittal.
In addition to a certificate representing Global Crossing common stock, the
holder of a surrendered Frontier stock certificate will receive a check in the
amount of cash the holder is entitled to receive, including
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. cash paid instead of fractional shares,
. any dividends or other distributions on the shares of Global Crossing
common stock that have a record date after the merger, and a payment
date before the holder surrenders the Frontier common stock certificate
and
. any cash payable as a result of the cash top-up described under "--
Termination; Possible exchange ratio increase."
However, no cash will be paid until the holder of the Frontier common stock
certificate surrenders that certificate. The holder will also receive any
dividends or other distributions with a record date after the merger but before
the surrender, and a payment date after the surrender. In each case, taxes will
be withheld as required.
After the merger, there will be no transfers on the transfer books of
Frontier of shares of Frontier common stock that were outstanding immediately
before the merger.
Any Global Crossing stock certificates and any cash deposited by Global
Crossing with the exchange agent that remain unclaimed by former Frontier
shareholders twelve months after the merger will be delivered to the surviving
corporation. Any former Frontier shareholders who have not complied with the
exchange procedures before the first anniversary of the merger may look only to
Global Crossing and the surviving corporation for payment of the merger
consideration and any cash instead of fractional shares and unpaid dividends or
distributions on the shares of Global Crossing common stock. Neither Global
Crossing, GCF Acquisition Corp., Frontier or the exchange agent will be liable
to you for any amount delivered to a public official pursuant to any applicable
abandoned property, escheat or similar law.
No interest will be paid or accrued on any cash payable instead of fractional
shares, as unpaid dividends and distributions with respect to unexchanged
shares or otherwise as merger consideration.
If your Frontier stock certificates have been lost, stolen or destroyed, you
will only be entitled to obtain shares of Global Crossing common stock by
making an affidavit and, if required by the surviving corporation, by posting a
bond in an amount sufficient to protect the surviving corporation against
claims related to your Frontier stock certificate.
Frontier preferred stock
In the merger agreement, Frontier agreed to redeem all of its outstanding
preferred stock before the date of the Frontier special meeting. On July 1,
1999, Frontier redeemed all of its outstanding preferred stock.
Stock options and warrants
In the merger, each option and warrant to buy shares of Frontier common stock
will become an immediately exercisable option or warrant to buy, on the same
terms and conditions, the number of shares of Global Crossing common stock as
the holder of the option or warrant would have been entitled to receive in the
merger if the holder would have exercised the option or warrant in full
immediately before the merger. The price per share subject to each option and
warrant will be equal to the exercise price for the option or warrant divided
by the number of shares of Global Crossing common stock deemed purchasable
under the option or warrant, which will not include fractional shares.
Representations and warranties
The merger agreement contains essentially reciprocal representations and
warranties made by each of us to the other, including representations and
warranties relating to:
. organization, standing and power,
. capitalization,
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. power and authority to enter into and consummate the transactions under
the merger agreement,
. absence of conflicts between organizational documents, laws and
agreements and the transactions under the merger agreement,
. governmental consents in connection with the transactions under the
merger agreement,
. filings with the Securities and Exchange Commission, financial
statements and incurrence of liabilities since December 31, 1998,
. information supplied for this document,
. board of directors approval and required shareholder vote,
. rights agreement, in the case of Frontier only,
. brokers and finders fees with respect to the merger,
. receipt of fairness opinions,
. litigation,
. compliance with applicable laws,
. tax matters, and
. employee benefit plans.
The merger agreement also contains representations and warranties relating to
GCF Acquisition Corp.'s organization and corporate power, power and authority
to enter into and consummate the transactions under the merger agreement,
absence of conflicts between its organizational documents and the transactions
under the merger agreement and the absence of business activities of GCF
Acquisition Corp. other than in connection with the completion of the
transactions contemplated by the merger agreement.
All representations and warranties of Global Crossing, Frontier and GCF
Acquisition Corp. expire at the effective time of the merger.
Covenants
Conduct of business of Frontier pending the completion of the merger
Frontier has agreed that, until the completion of the merger, except as
otherwise permitted by the merger agreement or if Global Crossing consents in
writing, which consent will not be unreasonably withheld or delayed, it and its
subsidiaries will
. carry on its business in the usual, regular and ordinary course in all
material respects and use all reasonable efforts to preserve intact its
present lines of business, maintain its rights, franchises and licenses
and preserve its relationships with customers, suppliers and others
having business dealings with it to the end that its ongoing business
will not be impaired in any material respect,
. not (1) enter a new material line of business or (2) incur capital
expenditures other than those incurred or committed to in the ordinary
course of business consistent with past practice, which together with
all expenditures incurred or committed for fiscal year 1999, do not
exceed $900 million,
. not declare any dividends on its common stock, other than the regular
quarterly dividend in the amount of $.05 per share,
. not split, combine or reclassify its capital stock or repurchase its
capital stock, other than specified permitted exceptions,
. not issue additional capital stock or securities convertible into or
exercisable for, or any rights, warrants or options to acquire any
capital stock, with specified permitted exceptions, including upon the
exercise of stock options,
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. not amend (in the case of subsidiaries, in any material respect) its
organizational documents,
. not make any acquisitions, except that Frontier may make acquisitions
related to the communications or internet business providing for
consideration not in excess of $500 million and Frontier Internet
Ventures Inc. may make up to $30 million of acquisitions,
. not make any material dispositions of its assets, other than in the
ordinary course of business and other specified permitted exceptions,
. except in the ordinary course of business consistent with past practice,
not make any investments,
. not incur any indebtedness except under existing facilities or
refinancings of existing facilities,
. not take any action that would adversely affect the tax-free nature of
the merger,
. not (1) increase the compensation of its senior executive officers,
except in the ordinary course of business consistent with past practice,
or as required by an existing agreement or (2) make any increase in
employee benefits,
. not take specified other actions that could reasonably be expected to
prevent the satisfaction of any of the conditions to the merger,
. not change its methods of accounting or income tax elections, except as
required by generally accepted accounting principles, and
. not modify the rights agreement, other than as expressly provided in the
merger agreement.
Conduct of business of Global Crossing pending completion of the merger
Global Crossing has agreed that, until the completion of the merger or as
provided below, except as otherwise permitted by the merger agreement or if
Frontier consents in writing, which consent will not be unreasonably withheld
or delayed, it and its subsidiaries will
. carry on its business in the usual, regular and ordinary course in all
material respects and use all reasonable efforts to preserve intact its
present lines of business, maintain its rights, franchises and licenses
and preserve its relationships with customers, suppliers and others
having business dealings with it to the end that its ongoing business
will not be impaired in any material respect,
. not enter a new material line of business that is not related to the
communications business other than incidentally as part of a larger
acquisition within an existing line of business,
. not declare any dividends on its common stock,
. not repurchase its capital stock, subject to specified permitted
exceptions,
. not issue additional capital stock or securities convertible into or
exercisable for, or any rights, warrants or options to acquire any
capital stock, except (1) upon the exercise of stock options, (2)
issuance of stock options and (3) other issuances so long as the
issuances do not cause the shares of Global Crossing common stock
subject to the voting agreement described below to constitute less than
51% of the voting power of Global Crossing,
. not amend its organizational documents, except for the increase in its
authorized share capital and the bye-law amendments discussed in this
document,
. not make any acquisitions, except that Global Crossing may make
acquisitions that provide for consideration of no more than $2.5 billion
per acquisition and $8.5 billion in the aggregate, of which no more than
$7.5 billion in the aggregate can consist of voting equity securities,
and except that Global Crossing may not issue Global Crossing common
stock in acquisitions if it would cause the voting power of the shares
subject to the voting agreement to constitute less than 51% of the
voting power of Global Crossing,
. not make any material dispositions of its assets, other than in the
ordinary course of business and other specified permitted exceptions,
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. other than in the ordinary course of business, not make any investments,
. not take any action that would adversely affect the tax-free nature of
the merger, including in connection with structuring or completing the U
S WEST merger and the transactions contemplated by that merger,
. not take specified other actions that could reasonably be expected to
prevent the satisfaction of any of the conditions to the merger,
. not change its methods of accounting or income tax elections, except as
required by generally accepted accounting principles, and
. not enter into any merger or similar agreement under which Global
Crossing shareholders would receive consideration for their shares
unless (1) the transaction will be completed after the merger, (2) the
consideration to be received by Global Crossing shareholders would be no
less than $34.5625 and (3) the transaction would not result in the
merger failing to be tax-free.
Global Crossing has also agreed that during the measurement period for
determining the exchange ratio, it will not and will not announce an intention
to:
. acquire Global Crossing common stock in the open market,
. sell, issue or redeem any shares of Global Crossing common stock subject
to specified exceptions, or take action prohibited by Regulation M under
the Securities Act of 1933,
. enter into any material acquisition or disposition, or
. make any announcement, except as required by applicable law or rules of
the Nasdaq National Market, which would reasonably be expected to have
the effect of resulting in a change in the trading price of the Global
Crossing common stock.
No solicitation of transactions
In the merger agreement, Frontier has agreed that neither it nor any of its
subsidiaries nor any of the officers and directors of it or its subsidiaries
will, and that it will direct and use its best efforts to cause its and its
subsidiaries' employees, agents and representatives (including any investment
banker, attorney or accountant retained by it or any of its subsidiaries) not
to, directly or indirectly:
. initiate, solicit, encourage or knowingly facilitate, including by way
of furnishing information, any inquiries or the making of any proposal
or offer with respect to:
--a merger, consolidation, business combination, recapitalization,
liquidation, dissolution or similar transaction involving Frontier or
any of its subsidiaries, or
--any purchase or sale of all or any significant portion of the assets
or more than 20% of Frontier or its subsidiaries' common stock,
. have any discussion with or provide any confidential information or data
to any person relating to any proposals or offers described above which
we will refer to as an "acquisition proposal," or
. engage in any negotiations concerning any acquisition proposal or accept
an acquisition proposal.
However, if Frontier receives an unsolicited bona fide written acquisition
proposal and the Frontier special meeting has not occurred, the Frontier board
of directors may
. withdraw or modify in any adverse manner the approval of the merger
agreement and the merger or
. engage in discussions or negotiations with, or provide any information
to, the person making the acquisition proposal,
if the Frontier board of directors concludes in good faith that the acquisition
proposal, in the case of the first bullet point above would, if completed,
constitute a superior proposal or in the case of the second bullet point above,
could reasonably be expected to constitute a superior proposal.
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We refer to a "superior proposal" as a bona fide written proposal with
respect to:
. a merger, consolidation, business combination, recapitalization,
liquidation, dissolution or similar transaction involving Frontier, or
. any purchase or sale of all or any significant portion of the assets of
Frontier and its subsidiaries, taken as a whole, or more than 50% of
Frontier's common stock,
which the Frontier board of directors concludes in good faith, after
consultation with its financial advisors and legal counsel, taking into account
all legal, financial, regulatory and other aspects of the proposal and the
person making the proposal,
. would, if completed, result in a transaction that is more favorable to
the Frontier shareholders, in their capacities as shareholders, from a
financial point of view, than the transactions contemplated by the
merger agreement and
. is reasonably capable of being completed.
In addition, before providing any information or data to any person making an
acquisition proposal, the Frontier board of directors must receive an executed
confidentiality agreement from that person on terms substantially similar to
those contained in the confidentiality agreement between Frontier and Global
Crossing, except as to standstill provisions, in which case Global Crossing
will get the benefit of any favorable changes to the standstill provisions.
Frontier has also agreed that it will notify Global Crossing of any inquiry,
proposal or offer before providing any information or data to any person or
entering into discussions or negotiations with any person making the inquiry,
proposal or offer and to keep Global Crossing informed, on a current basis, of
the status and terms of any proposals, offers, discussions or negotiations.
Frontier has also agreed to terminate any existing activities, discussions or
negotiations with any parties conducted before the date of the merger agreement
with respect to any acquisition proposal.
Board of directors' covenant to recommend
Subject to the provisions described above under "--No solicitation of
transactions" and the right of Frontier to terminate the merger agreement to
accept a superior proposal described under "--Termination; Possible exchange
ratio increase," Frontier has agreed that its board of directors will recommend
adoption of the merger agreement by Frontier shareholders.
Global Crossing has agreed that its board of directors will recommend
approval of the transactions contemplated by the merger agreement by the
shareholders of Global Crossing.
Transition planning; Continued operations of Frontier
We have agreed to create a committee that will be responsible for
coordinating transition planning and implementation relating to the merger. The
initial representatives of Global Crossing are Jack M. Scanlon, David L. Lee,
Abbott L. Brown and James C. Gorton, and the initial representatives of
Frontier are Robert L. Barrett, James G. Dole, Rolla P. Huff and R. Charles
Mancini. We have also agreed to maintain the headquarters of Frontier Telephone
of Rochester, Inc. in Rochester, New York.
Services agreement
Frontier and Global Crossing agreed to use reasonable good faith efforts as
soon as practicable after the execution of the merger agreement to negotiate a
services agreement whereby each party will provide specified services to the
other party. Frontier and Global Crossing entered into such an agreement on May
6, 1999, which was amended on May 25, 1999.
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Reasonable best efforts
We have agreed to use our reasonable best efforts to take, or cause to be
taken, all actions and to do, or cause to be done, all things necessary, proper
or advisable under applicable laws and regulations, including the Hart-Scott-
Rodino Antitrust Act and the laws and regulations of the FCC, public utility
commissions and local franchising authorities, to complete the merger and the
other transactions contemplated by the merger agreement as soon as practicable
after the date of the merger agreement. Global Crossing is not required to sell
or otherwise dispose of, or permit the sale or other disposition of, any assets
of Global Crossing, Frontier or any of their subsidiaries, whether as a
condition to obtaining any approval from a governmental entity or any other
person or for any other reason, if Global Crossing reasonably determines that
the sale or other disposition would have or is likely to have a material
adverse effect on Global Crossing and its subsidiaries, including the surviving
corporation and its subsidiaries, taken together, after the merger.
Employee benefits
After the merger, Global Crossing has agreed to cause the surviving
corporation and its subsidiaries to, for at least two years after the effective
time, provide benefits which, in the aggregate, are no less favorable than the
benefits provided, in the aggregate, under the Frontier benefit plans before
the merger, but Global Crossing will not be required to continue any particular
benefit plan or prevent the amendment or termination of any plan other than the
Employee Telecommunications Benefit program, the Educational Assistance Fund,
the Educational Assistance Program, the Executive Perquisite program and the
Change in Control Severance Plan for Salary Band Levels 25 and Above for a
period of two years after the effective time.
The parties have also agreed that the transition committee described above
will also jointly determine how a retention program of $35 million in the
aggregate to Frontier employees will be administered.
Indemnification and insurance
After the merger, the surviving corporation will maintain for a period of six
years after the effective time of the merger:
. the current provisions regarding elimination of liability of directors
and indemnification of officers, directors and employees contained in
the certificate of incorporation and by-laws of Frontier, and
. the current policies of directors' and officers' liability insurance and
fiduciary liability insurance for acts and omissions occurring before
the merger maintained by Frontier; provided, that the surviving
corporation may substitute policies of at least the same coverage and
amounts containing terms and conditions which are, in the aggregate, no
less advantageous to the covered persons, but if the annual premium is
more than 200% of the last annual premiums currently paid by Frontier,
Global Crossing must obtain a policy with the greatest coverage
available for a cost not exceeding that amount.
Frontier may satisfy the obligations in the second bullet point above by
buying a "tail" policy before the closing covering those matters for a premium
that is not more than the total premium stated above.
Conditions to the completion of the merger
We may complete the merger only if each of the following conditions is met:
. the holders of two-thirds of the outstanding shares of Frontier common
stock adopt the merger agreement and the holders of a simple majority of
the votes of all outstanding shares of Global Crossing common stock
approve the increase in authorized shares and the share issuance,
. there is no law, order or injunction issued by a court or other
governmental entity of competent jurisdiction making the merger illegal
or otherwise prohibiting completion of the merger, except that this will
not be a condition for any party whose failure to fulfill its
obligations described above under "--Reasonable best efforts" is the
cause of, or results in, that order or injunction,
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. all approvals for the merger from the FCC and from the public utility
commissions are obtained without the imposition of conditions that would
reasonably be expected to have a material adverse effect on Global
Crossing and its subsidiaries, including the surviving corporation and
its subsidiaries, other than those approvals the failure of which to be
obtained would not reasonably be expected to have a material adverse
effect on Global Crossing and its subsidiaries, including the surviving
corporation and its subsidiaries,
. the waiting period applicable to the merger under the Hart-Scott-Rodino
Antitrust Improvements Act of 1976 terminates or expires, which waiting
period was terminated on May 11, 1999,
. the registration statement on Form S-4 of which this document is a part
continues to be effective under the Securities Act and the shares of
Global Crossing common stock to be issued and reserved for issuance in
the merger are approved upon official notice of issuance for quotation
on the Nasdaq National Market,
. the Bermuda Monetary Authority approves the share issuance and the
subsequent free transferability of the corresponding shares between
nonresident persons for exchange control purposes, which the Bermuda
Monetary Authority did on July 1, 1999,
. the representations and warranties of the other party in the merger
agreement that are qualified as to material adverse effect were true and
correct on the date of the merger agreement and as of the closing date,
except to the extent they speak as of a specified date,
. the representations and warranties of the other party that are not
qualified as to material adverse effect were true and correct in all
material respects on the date of the merger agreement and on the closing
date, except (1) to the extent they speak as of a specified date and (2)
this condition will be satisfied so long as all failures to be true and
correct, taken together, would not reasonably be expected to have a
material adverse effect on that party,
. the other party has complied with its agreements and covenants under the
merger agreement at or before the closing date that are qualified as to
materiality and has complied in all material respects with all its other
agreements and covenants that are not so qualified as to materiality,
and
. each party receives from its counsel a written opinion dated as of the
closing date with respect to the tax-free nature of the merger.
Global Crossing's obligation to complete the merger is also subject to Frontier
redeeming its preferred stock, which Frontier did on July 1, 1999.
For purposes of the merger agreement, a "material adverse effect" means any
adverse change, circumstance or effect that is or is reasonably likely to be
materially adverse to the business, financial condition or results of
operations of a person and its subsidiaries, taken as a whole, other than any
change, circumstance or effect relating to the economy or securities markets in
general or the industries in which Global Crossing or Frontier operate and not
specifically relating to them.
Termination; Possible exchange ratio increase
(1) We may terminate the merger agreement and abandon the merger at any time
before we complete the merger by our mutual written consent.
(2) Either of us may also terminate the merger agreement if:
. the merger does not occur before March 16, 2000, except as described
below under "--Alternative Merger," but that the right to terminate the
merger agreement will not be available (a) if the party desiring to
terminate has failed to fulfill any obligation that has been the cause
of, or resulted in, the failure of the merger to occur on or before
March 16, 2000 and (b) to Global Crossing if all of the conditions to
completing the merger have been satisfied or waived other than (1) those
that cannot be satisfied until the closing date so long as it is
reasonably apparent that those conditions will be able to
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be satisfied and (2) the condition relating to FCC and public utility
commission approvals described in the third bullet under "--Conditions
to the completion of the merger,"
. any governmental entity either (1) issues a final and nonappealable
order, decree or ruling or takes any other action permanently
restraining, enjoining or otherwise prohibiting the transactions
contemplated by the merger agreement or (2) fails to issue an order,
decree or ruling or to take any other action, in each case which is
necessary to fulfill the conditions contained in the third and fourth
bullets under "--Conditions to the completion of the merger" above, and
the denial of a request to issue the order, decree or ruling or take
such other action is final and nonappealable; but the right to terminate
the merger agreement will not be available if the party desiring to
terminate has failed to comply with its obligations described above
under "--Reasonable best efforts" that has been the cause of the action
or inaction, or
. the shareholders of the other party fail to approve the matters required
to be approved by them.
(3) Global Crossing may terminate the merger agreement if the Frontier board
of directors, before the Frontier special meeting, withdraws or modifies in
any adverse manner its approval and recommendation of the merger or approves
or recommends a superior proposal pursuant to the provisions described under
"--No solicitation of transactions."
(4) Frontier may terminate the merger agreement if:
(a) at any time before the Frontier special meeting, the Frontier board
of directors, approves a superior proposal; provided that
. Frontier has complied with the provisions described under "--No
solicitation of transactions,"
. the Frontier board of directors concludes in good faith, after
considering any changes to the terms of the merger agreement which
are offered by Global Crossing during the period described in the
next bullet point, on the basis of the advice of its financial
advisors and outside counsel, that the proposal is a superior
proposal, and
. before terminating the merger agreement, Frontier complies with
specified notice and waiting periods which give Global Crossing a
chance to negotiate with Frontier to adjust the terms of the merger
agreement.
Frontier may exercise this termination right only if it has paid Global
Crossing the $270 million termination fee described below under "--
Termination fees," or
(b) the Frontier board of directors so determines by a vote of the
majority of the members of the entire Frontier board of directors, at any
time during the three business day period beginning on the date before all
closing conditions have been satisfied or waived, other than conditions
that cannot be satisfied or waived until the closing, if the average
trading price of the Global Crossing common stock during the measurement
period is less than $34.5625, provided that
. Frontier must give Global Crossing written notice of its intention to
terminate, which will be effective three business days after delivery
and which can be withdrawn by Frontier at any time before it becomes
effective
. during the two business day period beginning with the delivery of
that notice, Global Crossing will have the option of providing
additional merger consideration to ensure that Frontier shareholders
receive $63.00 in value, based on the average Global Crossing trading
price, by either:
1. adjusting the exchange ratio to equal $63.00 divided by the
average price during the measurement period, rounded to the nearest
1/10,000,
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2. paying merger consideration equal to the exchange ratio as in
effect and paying cash to make up the difference between $63.00 and
the value based on the average trading price, of the Global Crossing
shares to be delivered or
3. using any combination of cash and Global Crossing shares to
provide $63.00 of value, based on the average trading price of the
Global Crossing common stock during the measurement period.
However, Global Crossing can only use cash consideration if the use of
the cash will not cause the merger to fail to qualify as a tax-free
reorganization.
Global Crossing can exercise this option by delivering written notice to
Frontier at any time during the two business day period. If Global Crossing
elects to adjust the exchange ratio as described above, then the merger
agreement will not terminate.
It is not possible to know until the date on which we calculate the exchange
ratio if the average trading price of the Global Crossing common stock during
the measurement period will be less than $34.5625. The Frontier board of
directors has not decided whether it would exercise its right to terminate the
merger agreement if the average trading price of the Global Crossing common
stock were less than $34.5625. The Global Crossing board of directors has not
decided whether it would exercise its related right to increase the merger
consideration in the event Frontier chooses to terminate the merger agreement.
We cannot assure you that the Frontier board of directors would exercise its
right to terminate the merger agreement if the average trading price of the
Global Crossing common stock were less than $34.5625 and, if the Frontier board
of directors does elect to terminate the merger agreement, we cannot assure you
that Global Crossing will elect to increase the merger consideration.
Since the date of the merger agreement, the Global Crossing common stock has
traded within a range from $32.94 to $64.25. Frontier shareholders should be
aware that the average trading price will be calculated on the date before the
satisfaction and waiver of all of the closing conditions, other than those that
cannot be satisfied or waived until the closing date, based on the average of
the volume weighted averages of the trading prices of Global Crossing common
stock for 15 randomly selected trading days during the 30 trading days ended on
the trading day before the date before the satisfaction and waiver of all of
the closing conditions, other than those that cannot be satisfied or waived
until the closing date. Accordingly, because the market price of Global
Crossing common stock will fluctuate and may increase or decrease during the
period from the end of the measurement period to the effective time of the
merger as well as during the period from the effective time of the merger until
the date certificates representing shares of Global Crossing common stock are
delivered to Frontier shareholders in exchange for shares of Frontier common
stock after the completion of the merger, the value of the Global Crossing
common stock actually received by holders of Frontier common stock may be more
or less than the average trading price or the value of the Global Crossing
common stock at the effective time of the merger resulting from the exchange
ratio, including as the exchange ratio may be adjusted as described above. This
means that the stated value of $63.00 per share of Frontier common stock may
not be the actual value of the shares on the closing date or when you receive
the shares.
Adoption of the merger agreement by the Frontier shareholders at the Frontier
special meeting and approval of the share issuance and the increase in
authorized shares by the Global Crossing shareholders at the Global Crossing
annual meeting will give the Frontier board of directors and the Global
Crossing board of directors, respectively, the power to elect to
. complete the merger in the event the average price is less than
$34.5625, in the case of the Frontier board of directors, or
. increase the exchange ratio in the event Frontier elects to exercise its
termination right, in the case of the Global Crossing board of
directors,
without any further action by, or resolicitation of, the Frontier shareholders
or the Global Crossing shareholders, as the case may be.
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Termination fees
The merger agreement obligates Frontier to pay Global Crossing a termination
fee of $270 million if:
. Frontier terminates the merger agreement because its board of directors
approves a superior proposal under the circumstances described in clause
(a) of paragraph (4) under "--Termination; Possible exchange ratio
increase,"
. Frontier or Global Crossing terminate the merger agreement because of
the failure of Frontier shareholders to adopt the merger agreement by
the required vote and all of the following occur:
1. any time after the date of the merger agreement and before this
termination, an acquisition proposal is made with respect to
Frontier, and
2. within 12 months of this termination, Frontier enters into a
definitive agreement with any third party relating to an acquisition
proposal or an acquisition proposal is completed,
. Global Crossing terminates the merger agreement because the Frontier
board of directors, before the Frontier special meeting, withdraws or
modifies in any adverse manner its approval and recommendation of the
merger or approves or recommends a superior proposal, or
. Global Crossing terminates the merger agreement because the merger does
not occur by March 16, 2000 under the terms described in the first
bullet point under paragraph (2) under "--Termination; Possible exchange
ratio increase" or Frontier or Global Crossing terminate the merger
agreement because any governmental entity does not allow the merger as
described in the second bullet point under paragraph (2) under "--
Termination; Possible exchange ratio increase" and all of the following
occur:
1. at any time after the date of the merger agreement and before
this termination, an acquisition proposal is made with respect to
Frontier,
2. following the existence of that acquisition proposal and before
this termination, Frontier intentionally breaches (and does not cure
after notice of the breach) any of its material covenants or
agreements in the merger agreement in any material respect and
3. within 12 months of this termination, Frontier enters into a
definitive agreement with any third party with respect to an
acquisition proposal or an acquisition proposal is completed.
Other expenses
All expenses incurred in connection with the merger agreement and the
transactions contemplated by the merger agreement will be paid by the party
incurring the expense.
The merger agreement provides that expenses incurred in connection with the
filing, printing and mailing of this document will be shared equally by us and
that if the merger is completed, the surviving corporation will pay, or cause
to be paid, any and all property or transfer taxes imposed on Frontier or its
subsidiaries and any real property transfer tax imposed on any holder of shares
of capital stock of Frontier resulting from the merger.
Amendments and waivers
The parties may amend the merger agreement before the merger, if the
amendment is in writing signed by the parties. After the shareholder approvals
of Frontier and Global Crossing are obtained, the parties cannot make any
amendment to the merger agreement which would require further shareholder
approval without further approval. The conditions to each party's obligation to
complete the merger may be waived by the other party in whole or in part to the
extent permitted by applicable law.
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Alternative merger structure
The merger agreement provides for an alternative merger structure to be used
to effect the merger under the circumstances described below. The alternative
merger structure provides for the creation of a new United States holding
company with two subsidiaries. Frontier would become a wholly owned subsidiary
of the new United States holding company by merging with one of the new United
States holding company's subsidiaries and Global Crossing would become a wholly
owned subsidiary of the new United States holding company through a merger or
scheme of arrangement. In connection with the alternative merger structure,
each share of Frontier common stock would be converted into a number of shares
of the new holding company's common stock equal to the exchange ratio. Each
share of Global Crossing common stock would be converted into one share of the
new holding company's common stock. The implementation of the alternative
merger structure would therefore result in current Frontier shareholders owning
the same percentage of the new company as they would own of Global Crossing
under the existing structure except that the new company will be incorporated
under the laws of a state in the United States rather than Bermuda.
The merger will be completed in accordance with the structure described
elsewhere throughout this document as long as a trigger event occurs and
remains in effect. Under the merger agreement, a trigger event occurs when the
following conditions have occurred and remain satisfied: (1) Global Crossing
has completed a qualifying acquisition and (2) counsel to Frontier and Global
Crossing each confirm that they could render legal opinions as to the tax-free
nature of the merger. On July 2, 1999, a trigger event occurred. Based on
existing circumstances, we do not currently believe that the alternative merger
structure will be required to be effected.
If, however, the alternative merger structure is required to be effected, we
intend to take any action required by law to effect such structure, including,
if necessary, providing you with additional information regarding the
alternative merger structure.
If we were required to implement the alternative merger structure because the
trigger event was no longer in effect, the date described in the second bullet
point of paragraph (2) under "--Termination; Possible exchange ratio increase"
will be 180 days after the date on which the trigger event is no longer in
effect instead of March 16, 2000.
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Related Agreements
Stock option agreement
General
Frontier and Global Crossing have entered into a stock option agreement
giving Global Crossing the right to acquire shares of Frontier. The stock
option agreement may prevent a third party from completing a pooling of
interests transaction with Frontier and would make alternative transactions,
including a merger with another company, significantly more expensive than
would otherwise be the case. Accordingly, the stock option agreement may
discourage third parties from proposing alternative transactions that may be
more advantageous than the merger for Frontier shareholders.
The stock option agreement gives Global Crossing an option to purchase
shares of Frontier common stock at an exercise price of $62.00 per share. The
maximum number of shares that Global Crossing may purchase under the option is
19.9% of the shares of Frontier common stock outstanding at the time of
exercise. Based on the number of shares outstanding on the date of the merger
agreement, the option allows Global Crossing to purchase 34,291,944 shares.
We have attached the stock option agreement to this document as Annex B. We
urge you to read the full text of the stock option agreement.
When the option may be exercised
The option will become exercisable if the merger agreement is terminated in
a circumstance under which Global Crossing would or could be entitled to
receive a termination fee from Frontier. These circumstances are described
under "The Merger Agreement--Termination fees." If the merger agreement is
terminated under circumstances which could result in Global Crossing becoming
entitled to receive a termination fee described in the second or fourth bullet
points under "The Merger Agreement--Termination fees," the option will not
become exercisable unless Frontier enters into a definitive agreement with a
third party with respect to an acquisition proposal or completes an
acquisition proposal during the twelve months after termination of the merger
agreement.
Events terminating the right to exercise
The right to exercise the option terminates if we complete the merger. The
right to exercise the option also terminates in three other circumstances:
1. 15 months after the option first becomes exercisable,
2. termination of the merger agreement under circumstances which do not
result in Global Crossing becoming entitled to receive a termination fee from
Frontier, and
3. 12 months after termination of the merger agreement under circumstances
which would result in Global Crossing becoming entitled to receive a
termination fee under the second or fourth bullet points under "The Merger
Agreement--Termination fees" unless, during that period, the option becomes
exercisable.
Repurchase
. At the option of Global Crossing. At any time after the termination fee
is paid or becomes due and payable from Frontier under the merger
agreement, at Global Crossing's request, Frontier will repurchase the
option and all, but not less than all, of the shares of Frontier common
stock issued upon the exercise of the option.
. At the option of Frontier. At any time after the option becomes
exercisable, Frontier may, at its election, repurchase the option or
all, but not less than all, of the shares of Frontier common stock
issued upon the exercise of the option.
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The repurchase will be made at a price per share equal to the highest of:
. the highest price per share at which a tender or exchange offer for
Frontier has been completed,
. the highest price per share to be paid by a third party under an
agreement with Frontier for an acquisition proposal, and
. the highest closing price per Frontier share as reported on the New York
Stock Exchange during the 60 business days before the date of
repurchase.
In each case, the exercise price for the repurchased options will be deducted
from the total repurchase price paid. The value of any noncash consideration
will be determined in good faith by an independent nationally recognized
investment banking firm selected by Global Crossing and reasonably acceptable
to Frontier.
Limitation on total profit
The total profit that Global Crossing can realize from the stock option
agreement would be equal to the sum of the following amounts received from:
. the sale of shares purchased under the option, less the purchase price
for those shares,
. the repurchase of the option by Frontier, and
. any termination fee received under the merger agreement.
The stock option agreement limits Global Crossing's total profit from the
option and the termination fee to $275 million.
Registration rights
Global Crossing may demand on two occasions that Frontier file a registration
statement, including a shelf registration statement, to register the shares of
Frontier common stock that it may acquire upon the exercise of the option. The
registration rights terminate two years after the first exercise of the option.
Adjustments
The type and number of option securities will be adjusted appropriately if
any change in Frontier's common stock occurs involving reclassifications,
recapitalizations, stock dividends, dividends, split-ups, combinations,
subdivisions, exchanges or similar events.
Transfer
Global Crossing may not transfer the exercise of rights or the option to any
person without Frontier's prior written consent.
Voting agreement
Principal shareholders of Global Crossing representing over a majority of the
voting power of Global Crossing common stock have agreed with Frontier to be
present, in person or by proxy, and vote all of the voting securities of Global
Crossing which are beneficially owned by them or which these shareholders have,
directly or indirectly, the right to vote, in favor of the increase in the
number of authorized shares and the share issuance and any action required in
furtherance of these matters and the merger and, if applicable, the alternative
merger. These shareholders have also agreed to vote against any action or
agreement that would reasonably be expected to result in a failure of the
conditions relating to representations, warranties and covenants of Global
Crossing to be satisfied. In connection with the execution of the U S WEST
merger agreement and the amendment to the merger agreement, the shareholders
reaffirmed these obligations under the Global Crossing voting agreement.
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As of the date of the Global Crossing voting agreement, these shareholders
beneficially owned 319,063,570 shares of Global Crossing common stock,
representing approximately 72% of the voting power of the outstanding Global
Crossing common stock after giving effect to the voting limitations on 9.5% or
larger shareholders contained in the Global Crossing bye-laws. The Global
Crossing voting agreement permits the shareholders to transfer beneficial or
record ownership of the shares subject to the agreement, so long as the
transfer does not result in less than 51% of the voting power of the Global
Crossing shares to be subject to the Global Crossing voting agreement. In that
case, shareholders can only transfer their shares if the transferee agrees to
be bound by the Global Crossing voting agreement with respect to the
transferred shares.
Each shareholder also agreed in the Global Crossing voting agreement that
during the period during which the average price of the Global Crossing stock
will be determined for purposes of calculating the exchange ratio, the
shareholder will not, and will not announce an intention to:
. acquire any shares of Global Crossing common stock in the open market,
. sell any shares of Global Crossing common stock,
. take any other action prohibited by Regulation M under the Securities
Act of 1933, or
. make any announcement which would reasonably be expected to have the
effect of resulting in a change in the trading prices of the Global
Crossing common stock.
The Global Crossing voting agreement will terminate on the earliest of
. the completion of the merger,
. the termination of the merger agreement in accordance with its terms,
and
. the full and irrevocable approval of the increase of authorized shares,
the share issuance and the alternative merger.
Shareholders that are parties to the Global Crossing voting agreement who
together beneficially own approximately 67.57% of the outstanding voting power
of the Global Crossing common stock as of July 29, 1999 separately agreed with
Global Crossing not to sell any shares of Global Crossing common stock until
the earlier of the closing of the Frontier merger and the termination of the
merger agreement without Global Crossing's consent which shall not be
unreasonably withheld.
In addition, U S WEST agreed to vote the 39,259,305 shares it acquired in the
tender offer for Global Crossing shares, which was completed on June 18, 1999,
in favor of the proposals relating to the merger. U S WEST has since returned
to Global Crossing 2,231,076 shares of Global Crossing common stock in
connection with the termination of the proposed Global Crossing--U S WEST
merger. However, U S WEST remains bound to vote the remaining shares of Global
Crossing common stock it acquired in the tender offer in favor of the proposals
relating to the merger.
As of July 29, 1999, the shareholders that are parties to the Global Crossing
voting agreement together beneficially owned 293,995,036 shares of Global
Crossing common stock, representing approximately 67.57% of the outstanding
voting power of the Global Crossing common stock as of that date (after giving
effect to the voting limitations of large shareholders). In addition, as of
July 29, 1999, U S WEST owned 37,028,229 shares of Global Crossing common
stock, representing approximately 8.97% of the outstanding voting power of the
Global Crossing common stock as of that date.
Because the shares subject to these voting agreements represent more than a
simple majority of the votes of all outstanding shares of Global Crossing
common stock, we expect that the proposals relating to the share issuance and
the increase in the number of authorized shares will be approved at the Global
Crossing annual meeting, even if no other shareholder votes to approve those
proposals. The Global Crossing voting agreement is attached as Annex C to this
document. You should read it entirely.
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Unaudited Pro Forma Condensed Combined Financial Statements
The following unaudited pro forma condensed combined financial information of
Global Crossing, Global Marine and Frontier, which we refer to as "Pro Forma
Global Crossing," has been prepared to demonstrate how these companies or
businesses might have looked if the merger and merger related transactions had
been completed as of the dates or at the beginning of the periods presented.
We have prepared the pro forma financial information using the purchase
method of accounting. We expect that we will have reorganization and
restructuring expenses and potential synergies relating to our long distance
business as a result of combining our companies. The unaudited pro forma
information does not reflect these expenses and synergies.
The pro forma information, while helpful in illustrating the financial
characteristics of the combined company under one set of assumptions, does not
attempt to predict or suggest future results. The pro forma information also
does not attempt to show how the combined company would actually have performed
had the companies been combined throughout these periods.
Pursuant to the purchase agreement of Global Marine, Global Crossing acquired
the net assets of Global Marine for approximately $868 million. The unaudited
translations of Global Marine's sterling amounts into U.S. dollars have been
translated using convenience translation rates. The convenience translations
should not be construed as representations that the sterling amounts have been,
could have been, or could in the future be, converted into U.S. dollars at this
rate or any other rate of exchange.
Pursuant to the terms of the Global Crossing-Frontier merger, each holder of
Frontier common stock will be entitled to receive that number of shares of
Global Crossing common stock equal to the exchange ratio. The unaudited Pro
Forma Global Crossing financial statements have been prepared assuming an
exchange ratio of 1.5750 shares of Global Crossing common stock for each share
of Frontier common stock outstanding or an estimated purchase price of $11.3
billion assuming a Global Crossing share price of $40.00 per share, the closing
price of Global Crossing common stock on August 2, 1999. Fees and expenses
related to the merger and merger related transactions totaling $95 million are
included in the Pro Forma Global Crossing information. The actual exchange
ratio may vary as described in this document. These unaudited pro forma
condensed combined financial statements are preliminary and subject to change
based on the review of a final study to determine the fair values of Frontier's
and Global Marine's net assets.
These unaudited pro forma condensed combined financial statements should be
read in conjunction with the historical financial statements of Global
Crossing, Global Marine and Frontier which, in the case of Global Crossing and
Global Marine, are included in this document and, in the case of Frontier, are
incorporated by reference in this document.
The unaudited pro forma condensed combined financial statements are presented
for comparative purposes only and are not intended to be indicative of actual
results had the transactions occurred as of the dates indicated above nor do
they purport to indicate results which may be attained in the future.
92
<PAGE>
Pro Forma Global Crossing
Unaudited Pro Forma Condensed Combined Balance Sheet
as of June 30, 1999
(in thousands)
<TABLE>
<CAPTION>
Total
Global Crossing Pro Forma
Global Crossing Global Pro Forma with Global Frontier Pro Forma Global
Historical (1) Marine (1) Adjustments Marine Historical (1) Adjustments Crossing
--------------- ---------- ----------- --------------- -------------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Current Assets:
Cash and cash
equivalents......... $ 721,342 $ -- $(268,400)(2) $ 412,942 $ 99,453 $ (18,477)(5) $ 318, 918
(35,000)(13) (90,000)(4)
(5,000)(4) (85,000)(8)
Accounts receivable,
net................. 132,652 67,572 -- 200,224 430,576 -- 630,800
Inventories and
supplies............ -- 11,756 -- 11,756 7,243 -- 18,999
Deferred directory
costs............... -- -- -- -- -- -- --
Deferred tax assets.. -- -- -- -- 13,105 -- 13,105
Prepaid and other.... 51,475 38,284 -- 89,759 27,260 -- 117,019
---------- -------- --------- ---------- ---------- ---------- -----------
Total current
assets.............. 905,469 117,612 (308,400) 714,681 577,637 (193,477) 1,098,841
Restricted cash and
cash equivalents..... 367,387 -- -- 367,387 -- -- 367,387
Accounts receivable... 63,128 -- -- 63,128 -- -- 63,128
Capacity available for
sale................. 503,878 -- -- 503,878 -- -- 503,878
Property, plant and
equipment, net....... 59,853 362,141 -- 421,994 2,038,457 -- 2,460,451
Construction in
process.............. 842,439 -- -- 842,439 -- -- 842,439
Goodwill and other
intangibles, net..... -- 36,150 (36,150)(2) 829, 330 466,851 (466,851)(3) 11,480,897
829,330 (2) 10,651,567 (3)
Other assets, net..... 111,767 155,864 (155,864)(13) 111,767 391,493 -- 503,260
Investment in
affiliates........... 184,676 40,357 -- 225,033 -- -- 225,033
---------- -------- --------- ---------- ---------- ---------- -----------
Total Assets......... $3,038,597 $712,124 $328,916 $4,079,637 $3,474,438 $9,991,239 $17,545,314
========== ======== ========= ========== ========== ========== ===========
LIABILITIES AND
SHAREHOLDERS' EQUITY
Current Liabilities
Short-term debt...... $ -- $155,386 $ -- $ 155,386 $ 10,508 $ -- $ 165,894
Accrued construction
costs............... 158,304 -- -- 158,304 16,761 -- 175,065
Accounts payable and
accrued expenses.... 95,875 82,396 -- 178,271 498,380 -- 676,651
Other current
liabilities......... 47,903 45,371 -- 93,274 42,341 -- 135,615
---------- -------- --------- ---------- ---------- ---------- -----------
Total current
liabilities......... 302,082 283,153 -- 585,235 567,990 -- 1,153,225
Long term debt........ 559,707 -- 600,000 (2) 1,159,707 1,631,199 -- 2,790,906
Senior notes.......... 796,682 -- -- 796,682 -- -- 796,682
Deferred income
taxes................ 24,167 41,338 -- 65,505 50,462 (237,599)(6) (121,632)
Postretirement and
other postemployment
benefit obligations.. -- -- -- -- 92,049 -- 92,049
Deferred credits and
other................ 75,377 272,413 (155,864)(13) 191,926 -- -- 191,926
---------- -------- --------- ---------- ---------- ---------- -----------
Total Liabilities.... 1,758,015 596,904 444,136 2,799,055 2,341,700 (237,599) 4,903,156
---------- -------- --------- ---------- ---------- ---------- -----------
Manditorily Redeemable
Preferred Stock...... 484,958 -- -- 484,958 -- -- 484,958
---------- -------- --------- ---------- ---------- ---------- -----------
Shareholders' equity:
Preferred stock...... -- -- -- -- 18,294 (18,294)(5) --
Common stock......... 4,361 89,000 (89,000)(2) 4,361 173,270 (170,541)(3) 7,090
Other shareholders'
equity.............. 1,154,816 -- -- 1,154,816 640,409 (608,635)(3) 12,513,663
10,912,591 (3)
(31,774)(7)
446,256 (8)
Unearned
compensation........ (74,145) -- -- (74,145) (31,774) 31,774 (7) (74,145)
Treasury stock....... (209,415) -- -- (209,415) (231) 231 (3) (209,415)
Retained earnings
(accumulated
deficit)............ (79,993) 26,220 (26,220)(2) (79,993) 334,325 (183)(5) (79,993)
(304,142)(3)
(30,000)(4)
Accumulated other
comprehensive
income.............. -- -- -- -- (1,555) 1,555 --
---------- -------- --------- ---------- ---------- ---------- -----------
Total shareholders'
equity.............. 795,624 115,220 (115,220) 795,624 1,132,738 10,228,838 12,157,200
---------- -------- --------- ---------- ---------- ---------- -----------
Total liabilities
and shareholders'
equity............. $3,038,597 $712,124 $ 328,916 $4,079,637 $3,474,438 $9,991,239 $17,545,314
========== ======== ========= ========== ========== ========== ===========
</TABLE>
93
<PAGE>
Pro Forma Global Crossing
Unaudited Pro Forma Condensed Combined Statement of Operations
for the Six Months Ended June 30, 1999
(in thousands, except share and per share information)
<TABLE>
<CAPTION>
Global Crossing
Global Crossing Global Pro Forma with Global Frontier Pro Forma
Historical(1) Marine(1) Adjustments Marine Historical(1) Adjustments
--------------- --------- ----------- --------------- ------------- -----------
<S> <C> <C> <C> <C> <C> <C>
OPERATING REVENUES...... $ 368,461 $173,498 $ -- $ 541,959 $ 1,321,597 $ --
----------- -------- -------- ----------- ----------- ---------
OPERATING EXPENSES:
Operating, selling,
general and
administrative........ 257,356 127,165 -- 384,521 1,045,999 --
Stock related
expense............... 26,074 -- -- 26,074 -- --
Depreciation and
amortization.......... 4,200 13,629 (539)(2) 27,657 128,056 (17,279)(3)
10,367 (2) 177,526 (3)
----------- -------- -------- ----------- ----------- ---------
287,630 140,794 9,828 438,252 1,174,055 160,247
----------- -------- -------- ----------- ----------- ---------
OPERATING INCOME
(LOSS)................. 80,831 32,704 (9,828) 103,707 147,542 (160,247)
EQUITY IN INCOME (LOSS)
OF AFFILIATES.......... (5,542) 4,539 -- (1,003) 9,687 --
Other income (expense):
Interest expense....... (46,454) (6,869) (24,000)(9) (77,323) (29,850) --
Interest income........ 31,666 511 -- 32,177 3,134 --
Other income
(expense)............. (7,683) 143 -- (7,540) 2,173 --
----------- -------- -------- ----------- ----------- ---------
Income (loss) before
taxes and cumulative
effect of change in
accounting principle... 52,818 31,028 (33,828) 50,018 132,686 (160,247)
Provision (benefit)
for income taxes...... (30,038) (11,885) 10,128 (14) (31,795) (55,411) --
----------- -------- -------- ----------- ----------- ---------
Income (loss) before
cumulative effect of
change in accounting
principle.............. 22,780 19,143 (23,700) 18,223 77,275 (160,247)
Preferred stock
dividends............. (27,241) -- -- (27,241) (506) 506 (10)
Redemption of
preferred stock....... -- -- -- -- -- (183)(5)
----------- -------- -------- ----------- ----------- ---------
Income (loss) applicable
to common shareholders
before cumulative
change in accounting
principle (Basic)...... (4,461) 19,143 (23,700) (9,018) 76,769 (159,924)
Diluted earnings
adjustment............ -- -- -- -- 180 (180)(11)
----------- -------- -------- ----------- ----------- ---------
Income (loss) applicable
to common shareholders
before cumulative
change in accounting
principle (Diluted).... $ (4,461) $ 19,143 $(23,700) $ (9,018) $ 76,949 $(160,104)
=========== ======== ======== =========== =========== =========
Income (loss) per common
share:
Income (loss)
applicable to common
shareholders before
cumulative effect of
change in accounting
principle
Basic................ $ (0.01) $ (0.02) $ 0.45
=========== =========== ===========
Diluted.............. $ (0.01) $ (0.02) $ 0.43
=========== =========== ===========
Shares used in
computing information
applicable to common
shareholders
Basic................ 412,000,658 412,000,658 172,047,956
=========== =========== ===========
Diluted.............. 412,000,658 412,000,658 177,273,442
=========== =========== ===========
<CAPTION>
Total Pro
Forma
Global
Crossing
----------------
<S> <C>
OPERATING REVENUES...... $ 1,863,556
----------------
OPERATING EXPENSES:
Operating, selling,
general and
administrative........ 1,430,520
Stock related
expense............... 26,074
Depreciation and
amortization.......... 315,960
----------------
1,772,554
----------------
OPERATING INCOME
(LOSS)................. 91,002
EQUITY IN INCOME (LOSS)
OF AFFILIATES.......... 8,684
Other income (expense):
Interest expense....... (107,173)
Interest income........ 35,311
Other income
(expense)............. (5,367)
----------------
Income (loss) before
taxes and cumulative
effect of change in
accounting principle... 22,457
Provision (benefit)
for income taxes...... (87,206)
----------------
Income (loss) before
cumulative effect of
change in accounting
principle.............. (64,749)
Preferred stock
dividends............. (27,241)
Redemption of
preferred stock....... (183)
----------------
Income (loss) applicable
to common shareholders
before cumulative
change in accounting
principle (Basic)...... (92,173)
Diluted earnings
adjustment............ --
----------------
Income (loss) applicable
to common shareholders
before cumulative
change in accounting
principle (Diluted).... $ (92,173)
================
Income (loss) per common
share:
Income (loss)
applicable to common
shareholders before
cumulative effect of
change in accounting
principle
Basic................ $ (0.13)
================
Diluted.............. $ (0.13)
================
Shares used in
computing information
applicable to common
shareholders
Basic................ 684,883,385 (12)
================
Diluted.............. 684,883,385 (12)
================
</TABLE>
94
<PAGE>
Pro Forma Global Crossing
Unaudited Pro Forma Condensed Combined Statement of Operations
for the Year Ended December 31, 1998
(in thousands, except share and per share information)
<TABLE>
<CAPTION>
Total
Global Global Pro Forma
Crossing Global Pro Forma Crossing with Frontier Pro Forma Global
Historical (1) Marine (1) Adjustments Global Marine Historical (1) Adjustments Crossing
-------------- ---------- ----------- ------------- -------------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
OPERATING REVENUES..... $ 424,099 $347,335 $ -- $ 771,434 $ 2,593,558 $ -- $ 3,364,992
----------- -------- -------- ----------- ----------- --------- -----------
OPERATING EXPENSES:
Operating, selling,
general and
administrative....... 264,781 233,209 -- 497,990 2,050,356 -- 2,548,346
Termination of
Advisory
Services Agreement... 139,669 -- -- 139,669 -- -- 139,669
Stock related
expense.............. 39,374 -- -- 39,374 -- -- 39,374
Depreciation and
amortization......... -- 38,730 (1,318)(2) 58,145 225,806 (36,002)(3) 603,001
20,733 (2) 355,052 (3)
----------- -------- -------- ----------- ----------- --------- -----------
443,824 271,939 19,415 735,178 2,276,162 319,050 3,330,390
----------- -------- -------- ----------- ----------- --------- -----------
OPERATING INCOME
(LOSS)................ (19,725) 75,396 (19,415) 36,256 317,396 (319,050) 34,602
EQUITY IN INCOME (LOSS)
OF AFFILIATES......... (2,508) 4,732 -- 2,224 16,711 -- 18,935
Other income (expense):
Interest expense...... (42,880) (11,176) (48,000)(9) (102,056) (55,318) -- (157,374)
Interest income....... 29,986 3,793 -- 33,779 5,084 -- 38,863
Other income
(expense)............ -- -- -- -- 23,230 -- 23,230
----------- -------- -------- ----------- ----------- --------- -----------
Income (loss) before
taxes, extraordinary
item and cumulative
effect of change in
accounting principle.. (35,127) 72,745 (67,415) (29,797) 307,103 (319,050) (41,744)
Provision (benefit)
for income taxes..... (33,067) (25,693) 20,256 (14) (38,504) (129,560) -- (168,064)
----------- -------- -------- ----------- ----------- --------- -----------
Income (loss) before
extraordinary item and
cumulative effect of
change in accounting
principle............. (68,194) 47,052 (47,159) (68,301) 177,543 (319,050) (209,808)
Preferred stock
dividends............ (12,681) -- -- (12,681) (1,005) 1,005 (10) (12,681)
Redemption of
preferred stock...... (34,140) -- -- (34,140) -- (183)(5) (34,323)
----------- -------- -------- ----------- ----------- --------- -----------
Income (loss)
applicable to common
shareholders before
extraordinary item and
cumulative change in
accounting principle
(Basic)............... (115,015) 47,052 (47,159) (115,122) 176,538 (318,228) (256,812)
Diluted earnings
adjustment........... -- -- -- -- 360 (360)(11) --
----------- -------- -------- ----------- ----------- --------- -----------
Income (loss)
applicable to common
shareholders before
extraordinary item and
cumulative change in
accounting principle
(Diluted)............. $ (115,015) $ 47,052 $(47,159) $ (115,122) $ 176,898 $(318,588) $ (256,812)
=========== ======== ======== =========== =========== ========= ===========
Income (loss) per
common share:
Income (loss)
applicable to common
shareholders before
extraordinary item
and cumulative effect
of change in
accounting
principle............
Basic................. $ (0.32) $ (0.32) $ 1.03 $ (0.41)
=========== =========== =========== ===========
Diluted............... $ (0.32) $ (0.32) $ 1.02 $ (0.41)
=========== =========== =========== ===========
Shares used in
computing information
applicable to
common shareholders
Basic................. 358,735,340 358,735,340 170,625,733 631,618,067 (12)
=========== =========== =========== ===========
Diluted............... 358,735,340 358,735,340 173,940,531 631,618,067 (12)
=========== =========== =========== ===========
</TABLE>
95
<PAGE>
Pro Forma Global Crossing
Notes to Unaudited Pro Forma Condensed Combined Financial Statements
1. These columns represent the historical results of operations and financial
position. With respect to the information included in the Unaudited Pro
Forma Condensed Combined Statement of Operations for the year ended
December 31, 1998, the Global Marine information is for the twelve months
ended March 31, 1999.
2. These adjustments reflect the elimination of Global Marine's shareholder's
equity accounts, the excess consideration over the net assets acquired
(goodwill) and the related amortization expense. The preliminary goodwill
is calculated as follows (in thousands):
<TABLE>
<S> <C> <C>
Purchase price........................................ $868,400
Lease termination fees................................ 35,000
Estimated Global Crossing transaction costs........... 5,000
--------
Estimated total consideration......................... 908,400
Historical net tangible book value of Global Marine:
Historical Global Marine net assets at June 30,
1999............................................... $(115,220)
Historical goodwill and other intangibles, net...... 36,150
---------
(79,070)
--------
Preliminary goodwill.................................. $829,330
========
</TABLE>
Global Crossing paid (Pounds)550 million (approximately $868 million) in
connection with the transaction. The Company partially financed the
acquisition of Global Marine through the incurrence of debt in the amount
of $600 million with an interest rate of approximately 8%. Global Crossing
has tentatively considered the carrying value of the acquired assets to
approximate fair value, with all excess of such acquisition costs being
attributable to goodwill. Global Crossing is in the process of fully
evaluating the assets acquired and, as a result, the purchase price
allocation among the tangible and intangible (and their related useful
lives) assets acquired may change. Goodwill associated with the transaction
is currently anticipated to be amortized over a 40-year life.
3. These adjustments reflect the elimination of Frontier's shareholders'
equity accounts, the excess consideration over the net assets acquired
(goodwill) and the related amortization expense. The preliminary goodwill
is calculated as follows (in thousands, except per share amounts):
<TABLE>
<S> <C> <C>
Shares of Frontier common stock outstanding at
June 30, 1999................................... 173,270
Less: Treasury shares............................ (11)
-----------
Shares of Frontier to be exchanged............... 173,259
Frontier exchange ratio.......................... 1.5750
-----------
Shares of Global Crossing to be issued........... 272,883
Assumed Global Crossing market price at exchange
date............................................ $ 40.00
-----------
10,915,320
Acceleration of stock option vesting and other
compensation.................................... 531,256
Tax benefit related to the acceleration of
unearned compensation and vesting of stock
options......................................... (237,599)
Estimated Global Crossing transaction costs...... 60,000
-----------
Estimated total consideration.................... 11,268,977
Historical net tangible book value of Frontier
Historical Frontier net assets at June 30,
1999.......................................... $(1,132,738)
Historical goodwill and other intangibles,
net........................................... 466,851
Estimated Frontier transactions costs.......... 30,000
Preferred stock redemption..................... 18,477
-----------
(617,410)
-----------
Preliminary goodwill............................. $10,651,567
===========
</TABLE>
96
<PAGE>
Pro Forma Global Crossing
Notes to Unaudited Pro Forma Condensed Combined Financial Statements--
(Continued)
Global Crossing will issue 272,883,000 shares of its common stock at an
assumed ratio of 1.5750 shares of Global Crossing common stock for each
share of Frontier common stock outstanding assuming a market price of
Global Crossing common stock of $40.00 per share. The actual exchange ratio
may vary as described in this document. Global Crossing has tentatively
considered the carrying value of the acquired assets to approximate their
fair value, with all of the excess of such acquisition costs being
attributable to goodwill. Global Crossing is in the process of fully
evaluating the assets to be acquired and, as a result, the purchase price
allocation among the tangible and intangible (and their related useful
lives) assets acquired may change. Goodwill associated with the transaction
is currently anticipated to be amortized over a 40-year life. Based upon a
preliminary valuation, the Company estimates that the purchase price
allocation among the tangible and intangible assets will result in a
composite useful life of approximately 30 years.
4. The pro forma financial statements give effect to an estimated $60 million
and $30 million in direct transaction costs on behalf of Global Crossing
and Frontier, respectively, in connection with the merger. Also, Global
Crossing incurred approximately $5 million of direct transaction costs in
connection with the Global Marine acquisition.
5. These adjustments represent the redemption of Frontier's 5.00%, 5.65%,
4.60% and 5.50% Series redeemable preferred stock prior to completion of
the merger at their respective premiums of the total amount outstanding.
The preferred stock was redeemed on July 1, 1999.
6. This adjustment represents the deferred tax benefit relating to Frontier's
unearned compensation and the acceleration of Frontier's stock options
based upon Global Crossing's effective tax rate for the year ended December
31, 1998.
7. This adjustment represents the effect of the accelerated vesting of
Frontier's unearned compensation as a result of the merger.
8. This adjustment records the excess fair value of vested stock options
issued by Global Crossing in exchange for vested and unvested outstanding
options of Frontier and other compensation.
9. This amount reflects the assumed interest expense, assuming an 8% interest
rate, incurred on the $600 million debt assumed issued as of the earliest
date presented in connection with the acquisition of Global Marine.
10. This adjustment assumes that Frontier's preferred stock dividends would not
have been incurred, as Frontier's preferred stock would have been redeemed
as of the earliest date presented.
11. To eliminate diluted earnings adjustment due to the combined net loss
position.
12. Pro forma per share data are based on the number of Global Crossing common
shares that would have been outstanding had the merger occurred at the
earliest date presented.
13. This adjustment represents the termination of certain lease arrangements
due to change of control provisions and related costs.
14. These adjustments represent the tax benefit resulting from the interest
expense assumed in connection with the debt issued for the acquisition of
Global Marine.
97
<PAGE>
THE COMPANIES
Global Crossing Ltd.
The following briefly describes the business of Global Crossing. Additional
information regarding Global Crossing is contained in its filings with the
Securities and Exchange Commission pursuant to the Securities Exchange Act of
1934. See "Where You Can Find More Information" on page 171.
Overview
Global Crossing is building the world's first independent global network of
state-of-the-art Internet and long distance telecommunications facilities
utilizing a combination of undersea and terrestrial digital fiber optic cable
systems (the "Global Crossing network"). Global Crossing offers "one-stop
shopping" for its customers to multiple destinations worldwide and currently
operates as a "carriers' carrier", providing tiered pricing and segmented
products to licensed providers of international telecommunications services.
Capacity on the Global Crossing network is offered to all customers on an open,
equal access basis. The systems completed or under development will form a
state-of-the-art interconnected worldwide high capacity fiber optic network:
Atlantic Crossing ("AC-1") and Atlantic Crossing-2 ("AC-2"), undersea systems
connecting the United States and Europe; Pacific Crossing ("PC-1"), an undersea
system connecting the United States and Asia; Mid-Atlantic Crossing ("MAC"), an
undersea system connecting the eastern United States and the Caribbean; Pan
American Crossing ("PAC"), a primarily undersea system connecting the western
United States, Mexico, Panama, Venezuela and the Caribbean; South American
Crossing ("SAC"), an undersea and terrestrial system connecting the major
cities of South America to MAC, PAC and the rest of the Global Crossing
network; Pan European Crossing ("PEC"), a primarily terrestrial system
connecting 25 European cities to AC-1; and a terrestrial system to be operated
by Global Access Ltd. connecting certain cities in Japan to PC-1 ("GAL"). The
undersea component of this initial portion of the Global Crossing network
totals 74,700 km, and the terrestrial component adds 17,800 km, for a total of
92,500 km. In addition to the Global Crossing--Frontier merger, Global Crossing
is in the process of developing several new undersea and terrestrial cable
systems and evaluating other business development opportunities which will
complement the Global Crossing network.
Recent developments
On May 16, 1999, Global Crossing entered into an agreement to merge with U S
WEST. As part of the transaction, U S WEST made a cash tender offer for
approximately 9.49% of Global Crossing common stock. The tender offer was
completed, with U S WEST acquiring 39,259,305 shares, on June 18, 1999. On July
18, 1999, Global Crossing and U S WEST agreed to terminate their merger
agreement, and U S WEST agreed to merge with Qwest. As a result, U S WEST paid
Global Crossing a termination fee of $140 million in cash and returned
2,231,075 shares of Global Crossing common stock purchased in the tender offer,
and Qwest committed to purchase capacity on the Global Crossing network at
established market unit prices for delivery over the next four years and
committed to make purchase price payments to Global Crossing for this capacity
of $140 million over the next two years.
On July 5, 1999, Global Crossing announced an agreement with the government
of the Republic of Ireland to build an undersea fiber optic cable system that
will link two telehouses in Dublin, via two diverse fiber cables, to cities in
Europe and North America through the Global Crossing network. The Irish
government will be the system's anchor customer under an $80-million capacity
purchase agreement. Global Crossing expects to provide installation and
maintenance for the undersea portion of the Irish system, which will form part
of PEC, through its recently acquired Global Marine subsidiary.
On July 2, 1999, Global Crossing acquired the Global Marine business of Cable
& Wireless in a transaction valued at approximately $868 million, consisting of
a combination of cash and assumed indebtedness. Global Marine currently
provides services, including maintenance under a number of long-term contracts,
to cables built by more than 100 carriers and is the world's largest undersea
cable installation and maintenance company with a fleet of 13 cable ships,
representing approximately 33 percent of the world's total, 21 submersible
vehicles and 1,200 employees servicing approximately 35 percent of the world's
undersea cable miles. Global Crossing initially financed the acquisition with
committed bank financing in the amount of approximately $600 million and the
remainder with cash on hand.
98
<PAGE>
Also on July 2, 1999, Global Crossing entered into a $3 billion senior
secured corporate credit facility with a group of several lenders and The Chase
Manhattan Bank as administrative agent. The facility will be utilized to
finance or refinance construction of some of Global Crossing's cable systems
previously anticipated to be financed on a per-system basis, to fund future
growth of Global Crossing and for general corporate purposes. On July 7, 1999,
Global Crossing, through Global Crossing Holdings, borrowed amounts under this
facility sufficient to retire the existing credit facilities for the AC-1 and
MAC systems and the facility provided by Lucent relating to the PEC and SAC
systems, as well as to replace the initial debt incurred in connection with the
acquisition of Global Marine.
On June 4, 1999, Global Crossing announced that it had been selected to
provide marine operations and to act as project manager of Africa ONE, an
estimated $1.6 billion cable system consisting of a self-healing ring around
the continent of Africa connecting more than two dozen coastal-country landing
points and, through terrestrial fiber, microwave or satellite facilities,
additional countries without landing points, including interior countries.
Global Crossing will provide marine operations through its new Global Marine
subsidiary. Although Global Crossing does not intend to make an equity
investment in this system, it expects to receive more than $100 million in
revenue for its services.
Business activity
The business of Global Crossing is designed to meet the varying needs of the
global telecommunications market. Global Crossing offers customers the ability
to purchase capacity on demand and by doing so (1) eliminating their need to
commit the substantial capital which would be required to build cable capacity
and (2) decreasing the risks associated with forecasting their future capacity
requirements. Compared with traditional cable systems, Global Crossing offers
more comprehensive, flexible and low-cost purchasing alternatives designed to
meet current market requirements of international carriers and Internet Service
Providers ("ISPs"), including direct international city-to-city connectivity,
the ability to purchase capacity periodically and discounts based upon
aggregate volume purchased on the Global Crossing network.
Each of the systems completed or under development is upgradable through the
addition of optical and electronic equipment to capacities significantly beyond
its initial capacity at a fraction of the original system cost. These upgrades
are expected to lead to lower unit cost of capacity and lower prices, resulting
in significant growth in market demand for telecommunications capacity. In
addition, Global Crossing is currently evaluating other undersea and
terrestrial cable projects intended to further its strategy of developing an
integrated global network to serve more than 100 of the world's largest
metropolitan communications markets. Global Crossing's announced network,
including Frontier, will connect 160 cities worldwide.
Global Crossing anticipates that future revenues, beyond those obtained from
the sale of the initial capacity on its first eight cable systems, from its
Global Marine operations and through its merger with Frontier, will come from
several sources. First, since each of the systems Global Crossing is building
is upgradable, this additional capacity can be sold. Global Crossing also
expects to build new systems providing service to additional geographic areas.
In addition, if the full upgradable capacity of its initial systems is reached,
Global Crossing expects to build or acquire additional systems to meet future
demand.
As its global network is developed, Global Crossing expects to generate
additional revenues by broadening its product line to include many forms of
services. For example, Global Crossing anticipates that additional revenue
opportunities will be generated by expansion into the U.S. long-distance
market, development of a global toll-free calling and calling card market,
commencement of web hosting and IP application services and growth of city-to-
city connectivity services and local building-to-building services to key
customers.
Global Crossing's predecessor, Global Crossing Ltd., LDC, which has been
renamed as Global Crossing (Cayman) Ltd. ("Old Global Crossing"), was formed in
March 1997 to capitalize on the accelerating growth of international voice and
data telecommunications traffic. The significant increase in Internet usage and
other bandwidth-intensive applications and the growing use of corporate
networks have substantially increased the
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demand for international fiber optic cable capacity. The proliferation of
telecommunications service providers due, in large part, to industry
deregulation and privatization of foreign telecommunications companies has
further contributed to increased demand for such international cable capacity.
Additionally, Global Crossing believes other technological developments, such
as improvements in "last mile" access technology, including xDSL, cable modems,
broadband wireless technology and the increasing video content of Internet
applications, will result in further capacity demand growth.
Global Crossing started development of the Global Crossing network in March
1997, when Global Crossing contracted for the construction of AC-1, a 14,300 km
digital fiber optic undersea cable system that links New York, the United
Kingdom, the Netherlands and Germany. This system offered 40 gigabytes per
second ("Gbps") of initial service capacity, upgradable to a minimum of 80
Gbps. AC-1 started service on its United States to United Kingdom segment in
May 1998, and the full system, consisting of a four fiber pair self-healing
ring, was completed in February 1999.
In April 1998, Global Crossing entered into a joint venture which contracted
for the construction of PC-1, a 21,000 km digital fiber optic undersea cable
system that will link the United States and Japan and will initially offer 80
Gbps of service capacity, upgradable to a minimum of 160 Gbps. PC-1, consisting
of a four fiber pair self-healing ring, is scheduled to start initial service
in December 1999. In June 1998, Global Crossing contracted for the construction
of MAC, a 7,500 km digital fiber optic undersea cable system consisting of a
two fiber pair self-healing ring that will connect New York, Florida and the
Caribbean and will initially offer 20 Gbps of service capacity, upgradable to a
minimum of 40 Gbps. In addition, in July 1998, Global Crossing contracted for
the construction of PAC, an 8,900 km two fiber pair digital undersea cable that
will connect California, Mexico, Panama, Venezuela and the Caribbean and will
initially offer 20 Gbps of service capacity, upgradable to a minimum of 40
Gbps. In March 1999, Global Crossing announced SAC, a 16,000 km, four fiber
pair self-healing ring undersea cable and 2,000 km four fiber pair terrestrial
system that upon completion will link the major cities of South America to the
rest of the Global Crossing network through MAC and PAC and will initially
offer 40 Gbps of service capacity upgradable to a minimum of 80 Gbps. In
connection with PAC, Global Crossing owns a 49% interest in a joint venture
company that will provide approximately 3,000 km of terrestrial connectivity in
Mexico. Global Crossing is also developing PEC, an 11,000 km primarily
terrestrial system with 24 to 72 fiber pairs that, upon completion, will
consist of five self-healing rings linking 25 European cities with AC-1. Global
Crossing also obtained a 49% economic interest in Global Access Ltd., which is
constructing GAL, a 1,300 km fiber optic terrestrial system that will connect
PC-1 at its Japanese landing points in Shima and Ajigaura with Tokyo, Osaka and
Nagoya. Finally, in March 1999, Global Crossing announced its intention to
develop and construct AC-2, an additional 7,000 km eight fiber pair cable
connecting the United States to Europe. AC-2 will be integrated with the two
cables of AC-1, adding a third high-capacity cable across the Atlantic for the
Global Crossing network and providing AC-2 with self-healing capabilities.
Once completed, the undersea and terrestrial segments of the Global Crossing
network will form an integrated worldwide network with multiple access points
offering low-cost capacity. In addition to the announced segments of the Global
Crossing network, Global Crossing has made, and expects to continue to make,
acquisitions of fiber capacity which complement the Global Crossing fiber optic
network and which address customer demands for global city-to-city
connectivity.
The Global Crossing network
As part of Global Crossing's mission to create an independent, global, state-
of-the-art fiber optic cable network, connecting major cities worldwide, the
Global Crossing network is being engineered and constructed as an integrated
network along the most heavily trafficked international corridors in the world
with undersea networks, including AC-1 and AC-2 (United States to Europe) and
PC-1 (United States to Asia). Furthermore, Global Crossing plans to build and
integrate terrestrial networks into this global network structure, including
PEC (trans-Europe), GAL (trans-Japan), SAC (South America) and a terrestrial
system in Mexico. MAC, SAC and PAC will directly connect the Caribbean, South
America and Central America to the network. Of the fiber optic cable systems
currently operational or under development, AC-1, AC-2, MAC, PAC and PEC are
wholly-owned projects, while PC-1 and GAL are being developed through joint
ventures with one or more partners, principally Marubeni. Global Crossing has a
58% economic interest in PC-1 and a 49% economic interest in
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Global Access Ltd., which is constructing GAL. Marubeni will manage the
development, sales and operations associated with GAL. The undersea portion of
SAC is currently planned to be wholly owned, while parts of the terrestrial
portion are expected to be constructed through joint-venture arrangements.
Terrestrial connectivity to PAC in Mexico will also be developed through a
joint venture.
Global Crossing has successfully marketed capacity on its systems to licensed
telecommunications providers, including post, telephone and telegraph companies
("PTTs"), ISPs and established and emerging telecommunications companies.
Global Crossing customers now total more than 44 international
telecommunications carriers, including AT&T, MCI Worldcom Inc., Deutsche
Telekom AG, GTE, Cable & Wireless, Equant NV, Qwest, Teleglobe Canada Inc.,
Swisscom AG, PTT Telecom BV, Telia AB, Level 3 Communications, Inc. and a
number of emerging telecommunications companies.
The following table contains information regarding the system cost, initial
ready for service ("RFS") date and ownership structure of the Global Crossing
systems. Information relating to AC-1 is based upon historical results, while
information for all other systems is estimated.
<TABLE>
<CAPTION>
System Cost(1)
System (millions) RFS Date(1) Ownership Structure
- ------ -------------- -------------------------------------------- -------------------------------
<S> <C> <C> <C>
AC-1 $ 975 February 1999 (Complete) Wholly Owned
AC-2 750 March 2001 (Complete) Wholly Owned
PC-1 1,200 December 1999 (Phase I) Joint Venture
March 2000 (Complete)
MAC 295 December 1999 (Phase I--New York to Florida) Wholly Owned
May 2000 (Complete)
PAC 580 February 2000 (Phase I) Wholly Owned (undersea)
Joint Venture (some terrestrial
portions)
SAC 1,130 December 2000 (Phase I) Wholly Owned (undersea)
March 2001 (Complete) Joint Venture (some terrestrial
portions)
PEC 950 December 1999 (Phase I) Wholly Owned
December 2000 (Complete)
GAL 190 December 1999 (Phase I) Joint Venture
------
$6,070
======
</TABLE>
- --------
(1) Total system costs include anticipated financing costs, but exclude the
costs of potential future upgrades (other than the initial AC-1 upgrades to
140 Gbps) and any amount capitalized with respect to the warrants issued in
exchange for the rights to some of these systems. See Note 10 to the Global
Crossing audited consolidated financial statements. Certain factors, such
as increases in interest rates and delays in construction, could result in
higher actual costs or later RFS dates than currently estimated.
Atlantic Crossing
AC-1, Global Crossing's first undersea fiber optic cable in the Atlantic
region, is a 14,300 km four fiber pair self-healing ring that connects the
United States and Europe with landing stations in the United States, the United
Kingdom, the Netherlands and Germany. AC-1 is equipped with state-of-the-art
DWDM, and the full ring initially offered 40 Gbps of service capacity,
upgradable to a minimum of 80 Gbps using DWDM technology. AC-1 started service
on its United States to United Kingdom segment during May 1998, and the full
system was completed during February 1999.
The total cost of AC-1 excluding upgrade payments was approximately $750
million. In October 1998, Global Crossing entered into a $50 million contract
with Tyco Submarine System Ltd. ("TSSL") to upgrade AC-1 capacity from 40 Gbps
to 80 Gbps, which upgrade is expected to be completed by the end of August
1999. In August 1999, Global Crossing entered into a second contract with TSSL
to further upgrade AC-1 capacity to 140 Gbps. In addition to the contracts with
TSSL for construction of the system, Global Crossing
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has entered into other agreements with TSSL for services and support associated
with operations, administration and maintenance of the system.
On March 24, 1999, Global Crossing announced its intention to develop and
construct AC-2, an additional eight fiber pair cable connecting the United
States to Europe. AC-2 will be integrated with the two cables of AC-1, adding a
third high-capacity cable across the Atlantic for the Global Crossing network
and providing AC-2 with self-healing capabilities. The new cable will cost
approximately $750 million and is expected to be in service in March 2001. AC-2
would significantly increase the capacity that Global Crossing would be able to
offer customers on the transatlantic route.
Pacific Crossing
PC-1, Global Crossing's first undersea fiber optic cable in the Pacific
region, is being developed as a 21,000 km, four fiber pair self-healing ring.
When completed, it will connect California and Washington in the western United
States with two landing sites in Japan. PC-1 is designed to operate initially
at 80 Gbps of service capacity, upgradable to a minimum of 160 Gbps, using DWDM
technology.
In April 1998, Global Crossing executed a construction contract with TSSL for
the construction of PC-1, which provides for a system completion date of July
2000 (now accelerated to March 2000) at a total cost of approximately $1,200
million, excluding potential future upgrades and amounts capitalized with
respect to warrants issued in exchange for the rights to construct PC-1. Equity
investments in PC-1 are currently estimated at $400 million of which Global
Crossing will provide approximately $231 million, with the remaining $800
million financed through incurrence of non-recourse project indebtedness. The
credit agreement for the financing of such indebtedness was executed in July
1998.
Mid-Atlantic Crossing
MAC is being developed as a 7,500 km two fiber pair self-healing ring that,
upon completion, will connect New York, the Caribbean and Florida. MAC will be
connected to AC-1 via its cable station in Brookhaven, New York and to SAC and
PAC via its cable station anticipated to be constructed in St. Croix, United
States Virgin Islands, providing connectivity between Europe, the eastern
United States, the Caribbean and South America. This system is being designed
to operate initially at 20 Gbps of service capacity, upgradable to a minimum of
40 Gbps using DWDM technology.
In June 1998 and November 1998, Global Crossing executed contracts with
Alcatel Submarine Networks and TSSL, respectively, for the construction of MAC,
which provides for an initial service date of December 1999 at a total cost of
approximately $295 million, excluding potential future upgrades and amounts
capitalized with respect to warrants issued in exchange for the rights to
construct MAC.
Pan American Crossing
PAC is being developed as an 8,900 km two fiber pair cable that, upon
completion, will connect California, Mexico, Panama, Venezuela and the
Caribbean. PAC is being designed to interconnect with PC-1 through our landing
station anticipated to be constructed in Grover Beach, California, with MAC
through our landing station anticipated to be constructed in St. Croix, United
States Virgin Islands and with SAC through our landing station anticipated to
be constructed in Fort Amador, Panama. PAC will also connect with approximately
3,000 km of terrestrial capacity in Mexico being developed through a joint
venture arrangement. Global Crossing anticipates that PAC will cross Panama via
an existing terrestrial right-of-way. PAC is being designed to operate
initially at 20 Gbps of service capacity, upgradable to a minimum of 40 Gbps
using DWDM technology.
In July 1998, Global Crossing executed a contract with TSSL for the
construction of PAC which provides for an initial service date of February 2000
at an estimated total cost of $580 million, including terrestrial capacity in
Mexico but excluding potential future upgrades and amounts capitalized with
respect to warrants issued in exchange for the rights to construct PAC.
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South American Crossing
On March 11, 1999, Global Crossing announced plans for the development of
SAC, a 16,000 km undersea and 2,000 km terrestrial fiber optic network directly
linking the major cities of South America through MAC and PAC to the United
States, Mexico, Central America, the Caribbean, Asia and Europe. Global
Crossing expects that SAC will cost over $1 billion to construct and will
commence service in 2000. Global Crossing plans to build SAC in three phases.
The first two phases, providing Argentina and Brazil with connectivity to the
Global Crossing Network, are scheduled to commence service in the fourth
quarter of 2000. The final phase, completing the loop around the continent, is
scheduled for completion in the first quarter of 2001. The undersea portion of
SAC is currently planned to be wholly owned, while parts of the terrestrial
portion are expected to be constructed through joint venture arrangements.
The undersea portion of SAC will constitute a state-of-the-art four-fiber
pair, self-healing ring, built using advanced DWDM technology. Undersea
portions of the ring are expected to connect to landing sites at St. Croix
(United States Virgin Islands), Fortaleza (Brazil), Rio de Janeiro (Brazil),
Santos (Brazil), Las Toninas (Argentina), Valparaiso (Chile), Lurin (Peru),
Buenaventura (Colombia) and Fort Amador (Panama). Terrestrial segments are
expected to connect to most major South American cities, including Rio de
Janeiro, Sao Paulo (Brazil), Buenos Aires (Argentina), Santiago (Chile), Lima
(Peru), Cali (Colombia) and Bogota (Colombia). The SAC ring is expected to be
completed on its southern-most end by a terrestrial link across the Andes
between Las Toninas and Valparaiso. The PAC system from Panama to St. Croix is
expected to complete the ring. Initially, SAC is expected to have a capacity of
40 Gbps and to be upgradable, using DWDM technology, to a minimum of 80 Gbps.
Terrestrial capacity
In addition to the undersea segments of the Global Crossing network, Global
Crossing has acquired or constructed, and expects to continue to acquire or
construct, including through its merger with Frontier, terrestrial fiber
capacity to complement its undersea cable systems and complete a global network
to meet customer demands for worldwide city-to-city connectivity.
Pan European Crossing. Global Crossing announced plans to build PEC which,
upon completion, will consist of five self-healing rings offering connectivity
between AC-1 and 25 European cities: London, Paris, Strasbourg, Amsterdam,
Rotterdam, Antwerp, Brussels, Berlin, Frankfurt, Munich, Stuttgart, Hamburg,
Hanover, Dusseldorf, Cologne, Copenhagen, Dublin, Dresden, Leipzig, Lyons,
Marseille, Milan, Nuremberg, Turin and Zurich. Global Crossing also plans to
connect additional European cities to this system. PEC is planned as an 11,000
km system with 24 to 72 fiber pairs as well as spare conduits. Global Crossing
has contracted with various parties for the acquisition of rights of way and
the acquisition or construction of conduits. Furthermore, Lucent Technologies,
Inc. will supply fiber and equipment as well as project management and
integration services. Based on these arrangements, Global Crossing believes
that the construction costs for the system will be approximately $950 million,
excluding potential future upgrades. Global Crossing will develop PEC in
several phases: Phase I, consisting of 13 cities, has an anticipated completion
date during December 1999, with the remaining phases anticipated to be
completed by the end of 2000.
Global Access Ltd. Global Crossing owns a 49% interest in Global Access Ltd.,
a company which will own and operate GAL, a fiber optic terrestrial system
being developed in Japan that, among other things, will connect the PC-1 cable
stations with three cities in Japan. Through GAL, Global Crossing intends to
offer terrestrial services to PC-1 customers. GAL is initially planned as a
1,300 km system. Global Access Ltd. is currently negotiating with various
parties for the construction of GAL and, based on those negotiations, Global
Crossing believes that the construction costs for GAL will be approximately
$190 million. The initial expected RFS date for the first phase of GAL's
development is December 1999.
Global Crossing Landing Mexicana. Global Crossing owns a 49% interest in
Global Crossing Landing Mexicana, S. De R.L. de C.V., a joint venture company
jointly owned with an affiliate of Bestel, S.A. de C.V.,
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that will provide approximately 3,000 km of terrestrial connectivity in Mexico,
connecting to the PAC system. Dark fiber utilized to complete this terrestrial
system will either be acquired or leased.
Purchased Capacity. Global Crossing has acquired terrestrial connectivity
between AC-1 landing stations in the United States and the United Kingdom to
provide city-to-city service from New York City to London and has also entered
into arrangements to ensure that its customers will receive terrestrial service
in Germany and the Netherlands.
Additional network expansion opportunities
Global Crossing is in the process of planning several new cable systems and
evaluating other business development opportunities which will complement the
Global Crossing network. There can be no assurance that Global Crossing will
ultimately elect to proceed with such opportunities or, if Global Crossing does
so, that such opportunities will help it achieve and sustain operating
profitability.
The demand for capacity on the routes served by the Global Crossing network
and other cable systems are projected to have substantial growth, greatly
exceeding current usage and available capacities. To address such demand,
Global Crossing plans to evaluate and, as appropriate, build or acquire
additional systems on such routes. It is anticipated that such systems, where
possible, will be restored on the existing systems and will achieve further
cost efficiencies through the use of existing landing stations.
Other activities
Neptune Acquisition. During November 1998, Global Crossing's indirect
subsidiary, GC Pacific Landing Corp., entered into an agreement and plan of
merger with Neptune Communications, L.L.C. and its wholly owned subsidiary,
Neptune Communications Corp. ("NCC"), whereby, in April 1999, GC Pacific
Landing merged with and into NCC in exchange for 2,239,642 shares of Global
Crossing common stock (of which 223,965 shares remain to be issued pending
transfer of licenses). Prior to its acquisition, Neptune was controlled by The
Carlyle Group, an international investment firm, and was formed to pursue
opportunities in the undersea cable business. Carlyle's managing director
William Conway serves on the Global Crossing board of directors.
Possible Investments. The Global Crossing board of directors has approved in
principle the making of minority investments in telecommunications companies
and ISPs that do not compete with Global Crossing in its core business and that
are current or prospective purchasers of capacity on the Global Crossing
network. Such investments may consist of purchases of equity securities for
either cash or exchanges of capacity on the Global Crossing network. Such
investments may be managed either by Global Crossing directly or, if the Global
Crossing board of directors deems advisable, by one or more third-party
investment advisers so as to minimize potential conflicts of interest and the
amount of time allocated by Global Crossing's senior management to such
investments.
Financing plan
On July 2, 1999, Global Crossing entered into a $3 billion senior secured
corporate credit facility with a group of several lenders and The Chase
Manhattan Bank as administrative agent. The initial proceeds under the facility
were used to refinance outstanding balances under the AC-1 and MAC project
finance facilities, to refinance balances under a vendor financing arrangement
with Lucent, to refinance debt used for the purchase of the Global Marine
business from Cable & Wireless and for general corporate purposes. Global
Crossing intends to finance the remainder of its announced systems, new
projects and working capital needs mainly through the new corporate facility
and other corporate financing.
As of June 30, 1999, the approximately $750 million initial cost of AC-1 had
been fully financed. The first contracted upgrade was funded through cash on
hand, as will the second contracted upgrade. All remaining
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amounts outstanding under the AC-1 non-recourse project finance credit facility
were refinanced in July 1999 through Global Crossing's new senior secured
corporate credit facility.
Global Crossing estimates the total cost of developing and deploying AC-2,
PC-1, MAC, PAC, SAC, PEC and GAL to be approximately $5,095 million, excluding
costs of potential future upgrades and the amounts capitalized with respect to
warrants issued in exchange for the rights to construct PC-1, MAC and PAC. This
total is comprised of $750 million for AC-2, $1,200 million for PC-1, $295
million for MAC, $580 million for PAC, $1,130 million for SAC, $950 million for
PEC and $190 million for GAL. PC-1 will be financed by total equity investments
of $400 million of which Global Crossing expects to provide approximately $231
million, with the remaining $800 million of estimated costs to be financed
through non-recourse project indebtedness at the PC-1 level. Global Crossing
has financed its 49% interest in GAL through cash on hand to date, and intends
to finance additional system costs through limited or non-recourse debt to be
raised at the GAL level. The remaining system costs for MAC and PAC will be
financed either through bank indebtedness under Global Crossing's new senior
secured corporate credit facility or through other corporate financing.
The construction costs for PEC (including costs of acquiring dark fiber) are
estimated to be $950 million, a portion of which was paid from the proceeds of
the December 1998 issuance by Global Crossing Holdings of 10% Senior
Exchangeable Preferred Stock (the "GCH Preferred Stock"). Global Crossing also
raised additional capital required to finance this system through a combination
of commercial bank borrowings, vendor financing and sales of dark fiber.
Financing to complete the system is expected to be obtained from the corporate
credit facility or other corporate financing.
Global Crossing initially financed the approximately $868 million Global
Marine acquisition, which was completed in July 1999, with approximately $600
million in committed bank financing and the remainder with cash on hand. This
initial indebtedness was refinanced through borrowings under Global Crossing's
new senior secured corporate credit facility.
System performance
AC-1, AC-2, PC-1, MAC, SAC, PEC and GAL are each designed to be installed
with self-healing ring technology to optimize system availability and
performance. Both span and ring switching protection are provided. Span
switching protects a system against failures which affect individual fibers.
Ring switching protects a system against complete failures between terminating
landing sites. Because such technology will protect any single system failure
in less than 300 milliseconds, no single system failure would have any material
effect on customer service. Accordingly, the estimated system availability on
any point-to-point link on such systems is 99.995%. The AC-1 system has
experienced a number of faults, generally resulting from commercial fishing
activity or shipping, causing the system to rely on its ring switching
protection capability. Because of the self-healing ring architecture of the AC-
1 system and the proper performance of its ring switching protection
capability, which protects and reroutes traffic from single failures, such
faults did not result in any loss of customer traffic. Although Global Crossing
intends to further enhance system reliability through either construction or
acquisition of backup restoration fibers, similar failures could occur in the
future and, in the event of simultaneous failures on two or more segments, loss
of customer traffic would occur.
As undersea and terrestrial cable systems achieve greater capacities, that is
as they carry more traffic along their transmission paths, it has become more
important to provide a "self-restoration solution" because existing systems do
not have enough capacity to provide restoration for these new high performance
cable systems. Single span systems must enter into reciprocal arrangements
either with other fiber-optic operators or with satellite carriers to pick up
and deliver a portion or all of the traffic if a system failure should occur.
Providing self-restoration through Global Crossing's ring design with the
switching techniques described above offers a distinguishing advantage over
single span systems with external restoration.
With respect to PAC, which does not employ self-healing ring technology,
Global Crossing is exploring options to enter into restoration arrangements
with terrestrial fiber optic cable operators to protect against traffic
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interruptions. Global Crossing intends to provide backup restoration for the
PAC system through utilization of terrestrial capacity in the United States.
Global Crossing may enter into similar arrangements to protect against
catastrophic system malfunction on its other cable systems.
Sales and marketing
Global Crossing markets capacity on its systems to telecommunications
providers, including PTTs, ISPs and established and emerging telecommunications
companies. Its current customers represent a broad array of telecommunications
companies.
Global Crossing's initial sales strategy has emphasized the sale of capacity
on an Indefeasible Right of Use ("IRU") basis, whereby the customer purchases a
unit of capacity for the remaining design life of a particular cable system. On
AC-1, Global Crossing has sold capacity in an increment of 155 megabits per
second (Mbps), known as an STM-1, for the 25-year design life of the system.
For the other Global Crossing cable systems, Global Crossing expects to sell
capacity to customers at the STM-1 level, as well as in smaller increments,
based upon the demand levels along some routes. Global Crossing has instituted
a tiered pricing schedule for all of its systems which provides for volume
discounts, as well as allowing customers to reduce their average circuit cost
as more circuits are purchased.
As Global Crossing continues to build and expand its global network, it
expects to begin offering to its customers capacity services other than
pursuant to IRU capacity sales discussed above. Capacity made available under
these service contracts may be offered on either Global Crossing's undersea
systems or as point to point capacity between cities connected on the Global
Crossing network, once terrestrial capacity in the United States, Europe and
Japan becomes available. Global Crossing believes that it will commence
offering service contracts to its customers prior to the end of 1999.
Global Crossing has made selective wholesale acquisitions of terrestrial
capacity, enabling customers to achieve city-to-city connectivity through the
Global Crossing network at prices significantly lower than if such customers
had attempted to purchase such terrestrial capacity independently. For AC-1
customers, Global Crossing enters into contractual arrangements providing
terrestrial capacity between its landing stations in the United States and the
United Kingdom, and New York City and London, respectively. In addition,
Deutsche Telekom and Royal PTT Nederland ("KPN") provide terrestrial capacity
directly to Global Crossing's AC-1 customers in Germany and the Netherlands,
respectively. Furthermore, through SAC, PAC, GAL and PEC, Global Crossing plans
to provide terrestrial connectivity directly on its own network to cities in
South America, Mexico, Japan and Europe.
To facilitate sales of capacity on the Global Crossing network as well as to
increase market awareness and name recognition, Global Crossing has established
regional sales and marketing companies in the United States, the United Kingdom
and Asia. Customers are able to purchase capacity anywhere on the Global
Crossing network by signing a single capacity purchase agreement with any of
the regional sales and marketing companies. Global Crossing has been able to
recruit and train a full-service sales and marketing team of professionals who
had previously worked at traditional telecommunications companies, emerging
telecommunications companies and submarine cable design and construction
companies. In total, Global Crossing employed 21 marketing professionals as of
December 31, 1998, with offices in: Hamilton, Bermuda; Los Angeles and San
Francisco, California; Morristown, New Jersey; Miami, Florida; London, England;
Huizen, the Netherlands; Tokyo, Japan; and Buenos Aires, Argentina.
During the pre-operational period for AC-1, in which Global Crossing
generated significant pre-sales of capacity, Global Crossing held project
information meetings, otherwise known as data gathering meetings, in order to
better educate potential customers about AC-1 and its other planned cable
systems. Attendees of such meetings were affiliated with both existing and
prospective customers and represented a variety of sectors of the
telecommunications industry. Global Crossing expects to continue to organize at
least one major
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international conference per year in order to provide customers with updated
information on the Global Crossing network. Global Crossing will also continue
to host regional project information meetings focusing on specific regions as
Global Crossing expands coverage in new geographic areas.
Global Crossing plans to reinforce customer awareness through a variety of
marketing campaigns, including international conferences and regional marketing
events, participation in key industry and user group conferences, trade shows,
speaking engagements, press conferences and promotional campaigns. In addition,
Global Crossing's marketing team engages in regular visits to current and
prospective customers to obtain a greater understanding of their individual
needs and promote the advantages of the Global Crossing network.
Due to the breadth of the Global Crossing network, Global Crossing is
uniquely positioned to offer worldwide capacity to its customers. Many
customers acknowledge that their need for large bandwidth is increasing, but
they are often doubtful with regard to the precise routes where their
particular growth will take place. In order to stimulate customer loyalty and
leverage this uncertainty, Global Crossing has developed the Global Crossing
Network Offer, which allows customers who can make a multi-year dollar
denominated commitment to Global Crossing's network the flexibility to activate
capacity where they need it in a "just-in-time" manner in return for volume
discounted pricing. As Global Crossing's network continues to expand, Global
Crossing is exploring other marketing programs that will provide further
benefits to its customers and position Global Crossing as the broadband
infrastructure provider of choice.
Summary of principal terms of standard contractual documentation
Capacity Purchase Agreements (CPAs)
In general, a CPA provides for the sale of capacity on an IRU basis, whereby
the purchaser acquires a unit of capacity for the remaining design life of a
particular system, generally 25 years from the RFS date of the system. Upon
execution of a CPA Global Crossing generally receives cash for 10% of the
purchase price immediately, with the balance of the purchase price due upon
activation of the capacity, which is required to occur by a specified date.
Some CPAs provide for payment of the purchase price in installments over two to
four years. Performance under CPAs is conditioned upon achieving the RFS date
for a system and upon the obtaining of certain approvals, consents,
governmental authorizations, licenses and permits.
In general, neither party is liable to the other under a CPA for
consequential, incidental, indirect or special damages sustained by reason of
(1) any failure in or breakdown on the system or the facilities associated with
the system, (2) the failure of any inland carrier to perform the terms and
conditions of any agreement to which it and the purchaser are parties or (3)
any interruption of service, whatever the cause and however long it lasts. CPAs
are generally subject to an arbitration clause.
Inland Services Agreements (ISAs)
Global Crossing has entered into agreements with some terrestrial fiber cable
providers to purchase terrestrial capacity for resale to its AC-1 customers. In
general, the term of each ISA is 25 years starting in 1998 or until the system
is retired, whichever occurs first. In some cases, Global Crossing has the
option to extend the term of each ISA for an additional five years. Neither
party to an ISA is responsible for any loss, damage, delay or failure of
performance resulting from an event of "force majeure."
Operations, administration and maintenance support
Global Crossing is developing its own worldwide operations, administration
and maintenance ("OA&M") support center to serve each of its cable systems.
Such support will be handled through three work centers: a Customer Care Center
("CCC"), a Network Operations Center ("NOC") and a Technical Support Center
("TSC"). The CCC is located in Bermuda and the NOC is located in the United
Kingdom, which will also be the location of the TSC.
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Customer Care Center. The CCC provides capacity purchasers with a single
point of contact for service provisioning, interconnect coordination support,
billing and billing inquiries and adjustments.
Network Operations Center. The NOC handles operations, administrative and
maintenance activities for each of the Global Crossing cable systems, including
new services provisioning, network performance, repair and restoration
activities. Capacity provisioning which relates to activation of overall
capacity on our systems, or allocation of capacity to large users, is also
performed by the NOC. Management of network performance entails detection and
response to system degradation and other performance parameters, as well as
preventative activities.
Technical Support Center. The TSC will be a 24-hour center managed by highly-
trained experts to handle technical inquiries from purchasers regarding project
management, status of services provisioning, system performance and
interconnection arrangements.
Pursuant to the AC-1 Operations, Administration & Maintenance agreement, TSSL
will provide OA&M support on behalf of AC-1 for a term of eight years following
the commencement of commercial operations. As of December 31, 1998, Global
Crossing was committed under the AC-1 OA&M agreement to make payments totaling
approximately $247 million. This agreement is extendable at Global Crossing's
option for two additional periods of 8 1/2 years each.
As a result of Global Crossing's acquisition of Global Marine, Global
Crossing expects to be able to provide installation and maintenance services to
its own undersea cable systems. Global Marine operates a fleet of 13 cable
ships and 21 submersible vehicles and has approximately 1,200 employees in the
field. Acquisition of additional marine equipment will be required to enable
Global Crossing to fully install and maintain its undersea cable systems.
Competition
Global Bandwidth Competition
In addition to direct competition on Global Crossing's specific undersea
cable routes, Global Crossing more generally faces competition in its mission
to provide bandwidth to customers worldwide. Competitors, including Qwest,
Level 3 and MCI Worldcom, are increasingly expanding their service and product
offerings to provide customers with global bandwidth. To the extent that these
competitors satisfy global bandwidth demand on competing networks, demand for
capacity on the Global Crossing network will be reduced as a result.
Existing and Planned Cable Systems
The routes addressed by Global Crossing's systems are currently served by
several cable systems as well as satellites. Currently, there are several fiber
optic transatlantic cable systems, each of which competes directly with AC-1
and AC-2. Primary future sources of transatlantic competition for Global
Crossing may result from, among others, (1) TAT-14, a transatlantic cable
system which is being developed by its consortium members, including British
Telecom, AT&T, France Telecom and Deutsche Telekom, (2) Flag Atlantic-1, a
transatlantic system which is being developed by Flag Telecom and Global
Telesystems Group Inc., (3) Gemini, a transatlantic cable system being operated
and marketed by MCI WorldCom, Inc. and Cable & Wireless, (4) a transatlantic
cable system being developed by Level 3 and (5) Hibernia, a transatlantic cable
system being developed by Worldwide Fiber Inc. Global Crossing believes that
such other cable systems, if completed, will compete directly with Global
Crossing's Atlantic capacity and the commitments of the developers and other
carriers on these systems could substantially reduce estimated demand for
capacity on its systems.
Similarly, there are several cable systems currently operating between the
United States and Asia, the route to be served by PC-1. PC-1 may face
competition in the transpacific market from, among others, (1) the
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China-U.S. Cable Network, a transpacific system being developed as a "private
cable system" by fourteen large carriers, including SBC Communications Inc.,
MCI WorldCom Inc., AT&T and Sprint, most of which have traditionally sponsored
consortium cables and (2) the Japan-U.S. Cable Network, a transpacific system
being developed by a consortium of major telecommunications carriers, including
MCI WorldCom Inc., AT&T, Kokusai Denshin Denwa Co. Ltd., Nippon Telegraph and
Telephone Corp., Cable & Wireless and GTE. Although Global Crossing believes
that such other cable systems will not satisfy the demand for capacity between
the United States and Japan and that there is currently enough demand projected
to accommodate all such systems, such other cable systems will receive
commitments for capacity that PC-1 could have received in their absence.
Moreover, while a number of the participants in these cable systems have
purchased capacity on the other Global Crossing systems, it is likely that
these participants will seek to satisfy their capacity requirements for traffic
between the United States and Asia with the systems they are sponsoring and not
with PC-1.
In addition, Global Crossing will face competition on PEC, its trans-European
network. There are several carriers, including Viatel, KPN-Qwest, MCI WorldCom,
Inc., a joint venture between Deutsche Telekom and France Telecom, British
Telecom, Hermes and a joint venture between Level 3 and COLT Telecom Group plc,
which are currently planning or building trans-European network assets.
Global Crossing also faces competition for its SAC network in South America.
At least six other systems are planned to be completed in the region by the
third quarter of 2001, including two consortia cables (Americas-2 and Atlantis-
2); Atlantica-1, a ring network being constructed by GlobeNet connecting
Venezuela, Brazil and (through terrestrial cables) Argentina to North America;
and SAm-1, a ring system being constructed by Telefonica S.A. and TSSL
connecting Brazil, Argentina, Chile, Peru and Colombia to the United States.
Other regional and global systems are being considered by developers,
including Project Oxygen, a global system being evaluated by the CTR Group,
Ltd. In addition, Global Crossing may face competition from existing and
planned regional systems and satellites on its MAC and PAC routes, where
entrants are vying for purchases from a small but rapidly growing customer
base.
Satellite Transmission
When comparing cable transmission against satellite transmission, Global
Crossing believes that cable has a distinct advantage with respect to latency
(i.e., transmission delay) bandwidth and voice quality. Cable transmission has
a lower cost per circuit, attributable in part to higher capacity and longer
expected equipment life than satellite transmission. Satellite transmission is
generally considered to have a comparative advantage versus cable transmission
only in the area of 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. As newer
generation broadband satellite transmission services enter the market, these
services will likely complement fiber optic transmission rather than compete
against it, due to the comparative economic advantage of optical fiber in
delivering broadband services to densely populated metropolitan areas and,
conversely, the comparative economic advantage of satellite transmission in
sparsely populated rural areas.
In early 1997, the FCC granted Ka-band licenses and orbital locations to 13
companies. The firms developing future satellite technology envision a network
of satellites that will provide broadband data transmission with data rates of
2 Mbps, 20 Mbps and even 155 Mbps. Potential participants in the field include
Astrolink, Skybridge, Teledesic, CyberStar and SpaceWay, which are seeking to
provide high bandwidth transmission networks. Due to (1) the significant
initial costs related to these systems, (2) the risks relating to satellite
launch systems and (3) the significantly lower transmission capacity versus
current fiber optic systems, Global Crossing believes that the new satellite
systems will not be able to offer competitive cost per unit of transmission
capacity in the dense metropolitan markets Global Crossing is targeting.
Further, Global Crossing believes it will have at least four years lead time to
help it solidify a sustainable competitive market position before true
broadband satellite service commences.
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Suppliers
In addition to Global Marine, there are currently three major supply
companies in the undersea cable industry: TSSL, Alcatel and Kokusai Denshin
Denwa-Submarine Cable Systems ("KDD-SCS"). Pirelli also has a presence in the
industry and there are a number of smaller suppliers which have focused
primarily on regional routes or non-repeatered systems. TSSL completed
construction of AC-1, is responsible for the design and installation of PAC
and, together with KDD-SCS (as a subcontractor), is responsible for design and
installation of PC-1. Alcatel and TSSL are responsible for the design and
construction of MAC. There are multiple suppliers available for terrestrial
systems. As a result of Global Crossing's acquisition of Global Marine, Global
Crossing will be a major supplier of installation and maintenance services for
its undersea cable systems.
Regulation
In the ordinary course of development, construction and operation of our
fiber optic cable systems, Global Crossing will be required to obtain and
maintain various permits, licenses and other authorizations both in the United
States and in international jurisdictions where its cables land or in the
territories in which terrestrial fiber optic systems are being constructed, and
Global Crossing will be subject to applicable telecommunications regulations in
such jurisdictions. In particular, submarine cable landing or similar licenses
as well as other infrastructure construction authorizations will be required in
many of the jurisdictions where Global Crossing's planned undersea cable
systems will land or terrestrial segments will be constructed. Global Crossing
is both filing applications for cable landing licenses with the FCC and, where
necessary, regulatory agencies in other countries, and, where available, is
seeking private carriage status for these systems. These licenses are typically
issued for a term of years, in the case of the FCC-issued cable landing
licenses, 25 years, and are subject to renewal. The law of several
international jurisdictions limits foreign ownership, direct or indirect, of
entities holding cable landing licenses, or building terrestrial
infrastructures. In connection with the implementation of the World Trade
Organization ("WTO") Basic Telecommunications Agreement, the FCC adopted
regulations establishing an open entry standard for applicants from WTO member
countries, including a rebuttable presumption that applications from carriers
from WTO member countries do not pose concerns that would justify denial of an
application on competitive grounds. In addition, Global Crossing and, in some
cases, its joint venture partners, are obtaining licenses from a number of
jurisdictions to construct, operate, and sell capacity on terrestrial fiber
optic cable systems.
Construction of each of Global Crossing's cable systems also requires the
acquisition and maintenance of various environmental and other construction
related permits and licenses in the ordinary course of business. Global
Crossing's undersea construction contracts are generally "turnkey"
arrangements, whereby the contractor is obligated to obtain and maintain all
such licenses and permits. Although Global Crossing expects that the
construction contracts for each of its other planned undersea cable systems
will impose the burden of acquiring and maintaining construction licenses and
permits on the contractor for each of such systems, there can be no assurance
that such contractor will successfully obtain such permits and licenses.
Employees
As of June 30, 1999, Global Crossing had approximately 350 employees, with an
additional 1,200 employees added following its July 1999 acquisition of Global
Marine. Global Crossing considers its relations with its employees to be good.
Financial information by business segment and geographic area
See Note 6 of Global Crossing's condensed consolidated financial statements
on page F-7 and Note 3 of Global Crossing's consolidated financial statements
on page F-22 for information regarding Global Crossing's revenues and assets by
business segment and geographic region.
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Frontier Corporation
Frontier provides integrated telecommunications services including Internet,
Internet Protocol ("IP") and data applications, long distance, local telephone
and enhanced services to business, carrier, web-centric and targeted
residential customers nationwide and in some international countries. Although
a predecessor company dates to 1899, Frontier was incorporated in 1920 under
the laws of New York State to take over and unify the properties of a
predecessor company and some properties of the New York Telephone Company which
were located in the same general territory. Frontier is headquartered in
Rochester, New York.
Through its integrated services business, Frontier is one of the nation's
largest long distance companies. Frontier provides domestic and international
voice, data products, video and audio conferencing, digital distribution
services, Internet service and other communications products. Frontier's
customers for these services are primarily small to mid-size business
customers, carrier customers, web-centric customers and targeted consumer
markets.
Frontier's local communications services business consists of 34 local
telephone companies that, as of December 31, 1998, serve over one million
access lines in thirteen states. Frontier is one of the largest local exchange
service providers in the United States.
Frontier also owns a 50% interest in the Upstate Cellular Network, a wireless
joint venture with Bell Atlantic Mobile in upstate New York and Pennsylvania
that is managed by Frontier and is accounted for using the equity method of
accounting. On July 20, 1999, Bell Atlantic Mobile entered into an agreement
with Frontier pursuant to which Bell Atlantic Mobile will acquire Frontier's
interest in Upstate Cellular Network, together with its 55% interest in New
York RSA No. 3 Cellular Partnership and its 15% interest in Orange County-
Poughkeepsie MSA Limited Partnership. This transaction is expected to be
completed before the end of 1999.
Strategy
Frontier's strategy is to be the premier provider of integrated
telecommunications solutions in its target markets. Frontier markets itself to
customers as a single source provider of integrated communications services,
such as long distance, local, cellular, paging, data, Internet and enhanced
services. Frontier anticipates that public policy will continue to evolve in
favor of greater competition and, as a result, Frontier has been positioning
itself to compete aggressively in a marketplace with numerous new competitors.
Construction of the initial 13,000-mile segment of the Frontier Optronics
Network SM, as originally announced in 1996, is expected to be completed on or
around August 15, 1999. Frontier made a commitment to extend this network in
1998, and that extension is expected to be completed in late 1999. Through swap
agreements with Enron Communications and WTCI, Frontier will add approximately
4,000 additional route miles in the western half of the United States. These
agreements will also permit Frontier to establish additional redundant SONET
rings, further enhancing the reliability and performance of the network. In
addition, in July 1998, Frontier entered into an agreement with Williams
Communications, Inc. to construct an extension of the network into the
southeastern United States. In aggregate, the Frontier Optronics Network SM
will have approximately 20,000 route miles. As of December 31, 1998,
approximately 74% of the fiber miles on the original 13,000 route mile network
were in service.
Continuing network integration efforts involving Frontier subsidiaries are
expected to further reduce future network costs as well as provide new revenue
opportunities for Frontier. The combined technology of the Frontier Optronics
NetworkSM and the Nortel DMS-500 switches installed at strategic locations
along the network will enable Frontier to expand its ability to provide
integrated local and long distance services nationwide. In 1998, Frontier added
ATM and IP capabilities to the network which will provide greater speed and
service for data products. In the fourth quarter of 1997, Frontier also
introduced a nationwide frame relay product. This product complements
Frontier's voice services business with a portfolio of additional data services
products. This technology makes Frontier a nationwide facilities-based provider
of integrated local, long distance and data services.
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Integrated services
General
Frontier is one of the nation's largest long distance companies. Frontier's
integrated services segment provides domestic and international voice, data
products, video and audio conferencing, digital distribution services, Internet
service and other communications products to primarily small to mid-size
business customers, carrier customers and targeted consumer markets. CLEC
services are currently available in two-thirds of the United States, plus
Washington D.C., providing Frontier with the ability to offer integrated data,
local and long distance services to approximately 72% of the United States
population. In February 1998, Frontier acquired GlobalCenter, Inc., a leading
provider in digital distribution, Internet and data services headquartered in
Sunnyvale, California. The acquisition of GlobalCenter and subsequent
development and integrative work has assisted Frontier in responding to changes
in the nature of calling, expanded use of the Internet and growth of data
transmission.
Frontier operates its own switches, develops and implements its own products,
monitors and deploys its transmission facilities and prepares and designs its
own billing and reporting systems. Frontier focuses primarily on commercial
accounts and some targeted consumer markets. In this segment, calling volume
consists primarily of calls made during normal business hours, which command
peak-hour pricing. Frontier's residential subscribers tend to make most of
their calls in the evening and on weekends, when business usage is lowest.
Products and services
Frontier provides a variety of integrated telecommunications products and
services to commercial and residential subscribers nationwide designed to meet
the customer's total communications needs. The bulk of Frontier's revenue is
derived from outbound and inbound long distance services which are generally
marketed under the Frontier name. Many of Frontier's integrated products,
however, differ from those of competitors due to the level of value-added
services Frontier offers and the flexibility of product pricing to maintain
competitiveness.
The variety of products and services developed and offered are based upon
market driven requirements of the customer including an expectation that
services can be integrated. They include: digital distribution and data
services, CLEC services, and voice and other value-added services.
Digital Distribution and Data Services. Frontier's data services products
target small to mid-sized businesses and web-centric businesses. Data services
currently include digital private lines, frame relay, dial-up Internet,
dedicated Internet and web-hosting. The acquisition of GlobalCenter has
accelerated Frontier's ability to provide an expanded line of data services.
During 1998, after the acquisition of GlobalCenter, Inc., Frontier expanded
its data services product set that can be segmented into three product lines:
Transport, IP and Application Services. Transport is the means to transfer data
from one location to another. Product offerings within this service category
include dedicated private lines, frame relay, and managed services. Within the
IP product line, Frontier provides the customer with the cost efficiencies of a
public Internet network and the security of a private network. Applications
Services are outsourced applications hosted by the service provider and
integrated into both public and private networks which enable the customer to
access the application at all times. Product offerings within this category
include digital distribution, integrated messaging, and web site hosting.
Digital distribution involves a combination of transport services, consulting
services and professional expertise aimed at providing customers with
customized Web-based data services.
CLEC services. Frontier provides competitive local telephone service bundled
with Frontier's other integrated services through its CLEC product offering.
The CLEC offering is provided either using Frontier's local switching equipment
in locations where it is available or on a resale basis. As of December 31,
1998,
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Frontier was providing local services as a CLEC, together with a complete range
of long distance products, in 32 states plus Washington, D.C. Most of that
coverage was provided via resale of services of incumbent local exchange
carriers. Within that footprint, CLEC service was also provided initially from
Frontier's own switches in New York, Boston and Minneapolis.
Since then, Frontier expanded its coverage to approximately two-thirds of the
United States and turned up facilities-based service in a total of thirteen
metropolitan areas by the end of 1998. Facilities-based service is being
offered in cities that are on the Frontier Optronics Network SM, which will
provide Frontier with the opportunity to expand its offerings of combined local
and long distance services into additional markets, control access costs, and
leverage the network. The number of CLEC lines currently provided by Frontier
makes it one of the largest CLEC's in the United States.
Value-added services. Frontier's value-added services are aimed primarily at
the business subscriber, although Frontier also offers products for residential
customers. Value-added services provide cost-effective solutions for both
simple and complex communications applications and include calling cards,
teleconferencing, broadcast fax, voice mail and cellular and paging services.
The calling card is a personal communication tool that can provide access to
teleconferencing, voice mail, information services such as stock quotes and
weather information, Flexible call routing of toll-free service, call delivery
for immediate or future message delivery, directory assistance and travel
connections to hotel, car and airline reservation systems. Using a calling
card, customers can call to any domestic and most international locations from
the U.S. or numerous international locations. In addition, the calling card
product enables customers to dial 100 frequently called numbers using their own
toll free number and a four-digit preprogrammed PIN.
Frontier conferencing provides a way for three or more people at different
locations to participate in a joint discussion. Several options are available:
800 meet-me, dial-out or dial-in via a Frontier calling card. Frontier's
broadcast fax product enables the user to fax a single document to multiple
locations at the same time and is designed for the larger fax user who
regularly sends information to an established list.
Frontier's Voice Mail Plus with fax mail provides an efficient means of
always being accessible, through the use of outcall or pager notification, and
never missing important calls. With an individual toll-free number, a customer
can save, delete or forward fax and voice messages to other Voice Mail Plus
users or change greetings all on one call. Customers can also store a fax or
automatically print it at a designated fax machine.
Frontier offers nationwide numeric paging through personal toll-free numbers.
When coupled with the flexible call routing feature, nationwide paging creates
a robust travel application. Local paging service is also available in selected
local franchise markets.
Frontier's toll-free services are offered primarily to business customers on
a single invoice, although several residential products are available. In
addition to basic 800/888 toll-free applications, Frontier offers MultiPoint,
which allows customers to terminate calls in different locations based on the
four-digit personal identification number the caller enters; GlobalPoint
international service, which completes calls originating in over 40 countries;
and Flex Connect 800, a fractional service which allows multiple residential
customers to reach different terminating locations utilizing a four-digit
security personal identification number. Frontier also provides a robust line
of routing features such as flexible call routing, which allows customers to
change where calls terminate based on their need; routing and blocking
enhancements determined by the area code, area code and exchange or full ten-
digit telephone number of the caller; time of day and day of week routing; and
percent call allocation.
Toll-free services also include interactive voice response services,
including TargetLine, a call prompter that routes callers either by menu
options or prompting them to enter digits for extension routing; InstaLink, a
dealer locator routing callers based upon their area code and exchange or zip
code; and PassPort, a network based host interface interactive voice response
solution.
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Pricing. Customers subscribe to various products. The nature of the products
determines the price per minute that they pay on their outbound or inbound long
distance calls. Rates typically vary by the volume of usage, the distance of
the calls, the time of day that calls are made, the region that originates the
call and whether or not the product is being provided on a promotional basis.
Reporting services. Frontier offers a variety of billing options and media
aimed primarily at business customers. When a new commercial account is opened,
the customer is offered the opportunity to custom design the format of its
reports. Frontier also offers customers graphic reports of traffic patterns on
a nationwide basis by state, within state by area of dominant influence and
within area of dominant influence by zip code. Frontier believes these services
are useful to some customers for direct response advertising and customer
service applications. Frontier also offers its proprietary personal computer
reporting service, known as uCommand, which allows customers to design their
own reports, prepare separate itemized bills, do mark-up reporting and generate
numerous other customer reports.
800 services. These services include area code blocking and routing; time of
day routing; Home Connection 800, a fractional 800 service which allows
residential customers to access 800 service utilizing a four-digit security
PIN; Multi-Point 800 service, which allows customers to use accounting codes on
an 800 number or route a single 800 number to numerous locations
simultaneously; Follow-Me 800, which allows customers to change call routing
and TargetLine 800, which routes calls to the closest location a customer
identifies and provides custom prompts based upon a customer specific database.
Transmission
Frontier endeavors to have sufficient switching capacity, local access
circuits, and integrated services circuits at and between its network switching
centers to permit subscribers to obtain access to the switching centers and its
integrated services circuits on a basis which exceeds industry standards
regarding clarity, busy signals or delays.
The network currently utilizes a variety of transmission circuits to complete
long distance calls. The Frontier Optronics Network SM will reduce the number
of transmission facilities leased and provide for a more dependable and cost-
effective transmission system. Currently, Frontier Optronics Network SM
facilities have been completed in Texas, California, Nevada, Utah, Colorado,
Kansas, Missouri, Ohio, Pennsylvania, New York, Illinois, Wisconsin, New
Mexico, Arizona, Oregon, Washington, Nebraska, Iowa, Indiana, Michigan, New
Jersey, Maryland, Kentucky, Tennessee, Oklahoma and Massachusetts. Completion
of the expanded Frontier Optronics Network SM is expected in late 1999.
In addition to the Optronics transmission circuits, the network is comprised
of digital microwave systems located in California, New York and Pennsylvania
for which Frontier holds FCC licenses, and facilities that have been leased on
a fixed price basis under primarily short-term contracts. While Frontier still
has a number of longer term lease contracts, a substantial number of these
contracts have annual "mark-to-market," "circuit portability," and "commitment
buy-out" clauses and Frontier renegotiates contracts when it is appropriate to
do so. These provisions function to keep the price Frontier pays at or near
current market rates. An important aspect of Frontier's operation is planning
the mix of the types of circuits and transmission capacity to be used for each
network switching center so that calls are completed on a basis which is cost
effective for Frontier without compromising prompt service and high quality to
subscribers.
Frontier's network switching centers house equipment with varying capacities
to meet the anticipated needs of the service origination region or regions
served by the center. The equipment used by Frontier is, for the most part,
designed to permit expansion of its capacity by the addition of standard
components. If the maximum capacity of the equipment in any center is reached,
Frontier upgrades it with higher capacity switching equipment in an effort to
scale the equipment for growth. Frontier is dependent upon local telephone
companies for installing local access circuits and providing related service
when establishing a network switching center. International service is provided
through both Company owned direct circuits and through contracts with several
international long distance companies to provide high quality international
service at competitive rates.
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It is anticipated that the Frontier Optronics Network SM will continue to
lower Frontier's current cost structure and expand Frontier's transmission
capabilities. However, Frontier cannot definitively project the change in its
cost structure nor assure that the network will be fully completed as
scheduled.
Local communications services
Frontier's local communications services segment comprises one of the largest
local exchange service providers in the United States. This segment consists of
34 regulated telephone operating subsidiaries in 13 states, serving in excess
of one million access lines. The local exchange carriers provide local, toll,
access and resale services, sell, install and maintain customer premises
equipment and provide directory services.
Over the last decade, Frontier has invested heavily to install advanced
digital switching platforms throughout all of its switching network, making
Frontier one of the first in the industry to be served by an entirely digital
network for its local exchange companies. Frontier has achieved substantial
cost reductions through the elimination of duplicative services and procedures
and the consolidation of administrative functions. Frontier believes that
additional cost reductions may be obtainable from advanced switching platforms
and outside plant delivery systems. Frontier intends to pursue additional gains
in productivity by investing in these technologies where feasible, and through
reengineering customer service processes.
Of the approximately 1,024,726 access lines in service on December 31, 1998,
721,039 were residential lines and 303,687 were business lines. Long distance
network service to and from points outside of the telephone companies'
operating territories is provided by interconnection with the facilities of
interexchange carriers.
Frontier is pursuing several alternatives to provide expanded broadband
capabilities to its customers. To date, Frontier has installed over 31,000
fiber miles of fiber based network facilities, totaling more than 930 sheath
miles, in the Rochester, New York area to provide its customers with enhanced
capacity and to position Frontier to offer new products. Frontier provides
expanded broadband services to select customers, including video-distance
learning arrangements for educational institutions, and access to SONET based
fiber rings for major business customers.
In connection with its integration strategy, Frontier has developed a program
known as "Frontier Long Distance," whereby Frontier's local exchange companies
resell Frontier's integrated services. Frontier believes that many customers
prefer the convenience of obtaining their long distance service through their
local telephone company and receiving a single bill. Frontier Long Distance is
currently offered in the product lines of most of Frontier's local telephone
exchange companies.
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Global Crossing's Management Discussion
and Analysis of Financial Condition and
Results of Operations
Overview
Global Crossing is an independent provider of global Internet and long
distance telecommunication facilities and related services utilizing a network
of undersea and terrestrial digital fiber optic cable systems. Global Crossing
started development in March 1997, when it entered into a contract with TSSL
for the design, development, construction and installation of AC-1 and obtained
commitments for its initial financing. AC-1, Global Crossing's first fiber
optic cable system, is a four fiber pair self-healing ring connecting (1) the
United States to the United Kingdom, (2) the United Kingdom to the Netherlands
and Germany, (3) the Netherlands to Germany and (4) Germany to the United
States. The first segment of AC-1, the United States to United Kingdom route,
was completed and commenced operations in May 1998, and the entire AC-1 system
commenced operations in February 1999.
Until May 1998, when the United States to United Kingdom segment of AC-1
reached RFS, Global Crossing was a development stage company and since
inception has been involved in the planning, financing, marketing,
organization, development, design and construction of the AC-1 system and seven
other planned systems, which are AC-2, PC-1, MAC, PAC, SAC, PEC and GAL. See
"The Companies--Global Crossing Ltd." beginning on page 98. During 1998, Global
Crossing achieved a number of significant milestones, including (1) the
recruitment of experienced professionals in undersea cable and
telecommunications operations, (2) the signing of construction contracts on AC-
1, PC-1, MAC and PAC, (3) the execution of the AC-1, PC-1 and MAC credit
facilities and the execution of a financing commitment with respect to PAC, (4)
completion of the AC-1 ring, (5) the issuance by Global Crossing Holdings of
$800 million in principal amount of senior notes ("GCH Senior Notes"), (6) the
initial public offering of Global Crossing common stock, (7) the issuance by
Global Crossing Holdings of $500 million in principal amount of preferred stock
("GCH Preferred Stock") and (8) the execution of $1,052 million of CPAs for
undersea and terrestrial capacity and dark fiber sales.
Revenues and deferred revenues
Sales revenue and deferred revenue
Customers may enter into CPAs to purchase an IRU in units of capacity on any
of Global Crossing's fiber optic cable systems. The purchase price for such
capacity is non-refundable once the applicable segment purchased is RFS. The
IRU purchased entitles the customer to all rights and obligations of ownership
of the capacity for a period of 25 years after the system RFS date. Where
available on a specific system, Global Crossing's CPAs generally provide that
the system will have self-healing ring capability, which means that, in the
event of interruption, capacity on any segment of a system will be
instantaneously restored either on another system segment or within the same
segment so that the same point-to-point connectivity is maintained.
Revenues from the sale of capacity are recognized in the period that the
rights and obligations of ownership transfer to the purchaser, which occurs
when (1) the purchaser obtains the right to use the capacity, which can only be
suspended if the purchaser fails to pay the full purchase price or fulfill its
contractual obligations, (2) the purchaser is obligated to pay OA&M costs and
(3) the segment of the system related to the capacity purchased is available
for service. Customers who have entered into CPAs for capacity have paid
deposits toward the purchase price, and such amounts have been included as
deferred revenue in the consolidated financial statements. In some CPAs,
customers who have purchased capacity on systems prior to the date the system
has self-healing ring capacity have contractually required full self-healing
ring capability as a legal condition which, if not satisfied, would enable them
to terminate the CPA and requires Global Crossing to refund capacity payments.
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Operating lease revenue and deferred revenue
In addition to sales type leases, Global Crossing may enter into operating
lease agreements to lease capacity on its systems. These agreements may grant
the customer a right to use capacity for periods of time which may be
substantially less than the design life of the capacity, generally 25 years.
Global Crossing will amortize revenues from these operating lease agreements
over the lives of the agreements, with cash received but not yet recognized as
operating revenues, recorded in the consolidated financial statements as
deferred revenue.
OA&M revenue
Pursuant to the terms of its existing CPAs, Global Crossing is obliged to use
commercially reasonable efforts to cause the AC-1 system to be maintained in
efficient working order and in accordance with industry standards. In exchange
for the operating, administration and maintenance services provided by Atlantic
Crossing Ltd. ("ACL"), customers are obligated for the term of their IRU to pay
for their allocable share of the costs for operating and maintaining the
system. Customers appoint members to a system advisory committee, which is
charged with the responsibility of directing the operations and maintenance of
AC-1. Customers pay 110% of ACL's cost to operate and maintain the system based
on their pro rata share of total capacity subject to annual maximum amounts per
circuit purchased of $250,000 per transatlantic circuit and $50,000 per
European circuit. Each customer's pro rata share is effectively calculated by
taking the weighted average of their purchased capacity over total capacity
sold multiplied by 110% of actual costs incurred to customers quarterly in
advance based on the prior year's actual costs. These amounts are non-
refundable, and should a customer fail to make an OA&M payment, ACL may suspend
all rights to capacity granted under the IRU. Undersea OA&M revenues are
recognized in the period that the related services are provided. On an annual
basis, the actual OA&M costs Global Crossing incurs are accumulated and an
adjustment is made to true up actual OA&M revenues so that they equal 110% of
actual costs incurred, provided specified contractual limits have not been
reached.
Construction in progress; capacity available for sale; cost of capacity sold
Construction costs incurred with respect to each segment of a cable system
are reflected as "Construction in Progress" in Global Crossing's consolidated
balance sheets until a segment becomes operational, at which time such costs
are reflected as Capacity Available for Sale. Capacity Available for Sale is
recorded at the lower of cost or fair value less cost to sell and is charged to
Cost of Capacity Sold in the period the related revenues are recognized. Fair
value of capacity is derived from a third party consultant's market study of
expected sales of capacity.
Global Crossing records the cost of acquiring terrestrial capacity in
Capacity Available for Sale in amounts equal to the present value of future
payment obligations associated with the acquisition of such terrestrial
capacity, excluding from such payments amounts attributable to operations and
maintenance costs.
Construction in Progress includes direct expenditures for construction of
systems, including advisory, consulting and legal fees, interest during
construction and amortized debt issuance costs incurred during the construction
phase.
Cost of sales
Cost of undersea sales in any period is calculated based on the ratio of
capacity revenues recognized in the period to total expected capacity revenues
over the life of the systems multiplied by the total costs incurred to
construct the system. This calculation of the cost of sales amount matches
costs with the value of each sale relative to total expected revenues. Until
the entire system is completed, for purposes of calculating cost of sales, the
total system costs incurred will include an estimate of remaining costs to be
incurred to complete the entire system. The calculation of cost of undersea
sales is based on total system cost including both the initial
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system cost and the cost of system upgrades that management has the intent and
ability to complete, provided the need for such upgrades is supported by an
independent consultant's revenue forecast. Changes in management's estimate of
the total expected revenues to be derived from sales of capacity will result in
adjustments to the calculation of cost of sales. These adjustments will be
recorded on a prospective basis over future periods commencing with the period
during which management revises its estimate. The cost of terrestrial capacity
directly related to undersea sales is charged to cost of sales in the period
that the related revenue is recognized.
Operating type lease cost of sales
Costs relating to operating type lease revenue will be classified as a
depreciable asset and depreciated over the estimated useful life of the
capacity.
Operating expenses
In addition to cost of capacity sold, Global Crossing's operating expenses
principally comprise of sales and marketing, operations and maintenance,
general and administrative and network development costs. Costs relating to the
evaluation of possible additional systems are expensed as incurred.
Results of operations for the three months ended June 30, 1999 and June 30,
1998
Revenues. Global Crossing's revenues on sales of capacity relating to AC-1
increased $82 million (81 percent) to $183 million during the three months
ended June 30, 1999 from $101 million during the three months ended June 30,
1998. During the three months ended June 30, 1999 and 1998, operation and
maintenance services revenue was $7 million and none, respectively.
Cost of capacity sold. For the three months ended June 30, 1999 and 1998,
Global Crossing recognized $81 million and $41 million, respectively, in cost
of capacity sold, resulting in a gross margin on capacity sales of 56% and 59%,
respectively. Non-cash cost of undersea capacity sold was $61 million and $32
million during the three months ended June 30, 1999 and 1998, respectively.
Cost of capacity sold also includes the cost of terrestrial capacity sold, a
cash expense, during the three months ended June 30, 1999 and 1998, of $20
million and $9 million, respectively. During the three months ended June 30,
1999, Global Crossing calculated costs of undersea capacity sold for AC-1 based
on the ratio of the period's actual revenue to total expected future revenues
given a minimum projected sales capacity of 1024 circuits times the
construction cost of the system. This calculation of cost of sales matches
costs with the relative value of each sale. During the three months ended June
30, 1998, Global Crossing calculated costs of undersea capacity sold for AC-1
based upon a minimum projected sales capacity of 512 circuits.
Service Contracts. Since the AC-1 system became operational, Global Crossing
has offered its capacity pursuant to sales agreements that qualify for sales
type lease accounting. Under this method, revenues and cost of capacity sold
are recognized in the period the rights and obligations of ownership transfer
to the purchaser and the cost of the AC-1 system has been recorded as Capacity
Available for Sale. See notes to Global Crossing's consolidated financial
statements beginning on page F-6.
As Global Crossing continues to build and expand its global subsea and
terrestrial network, it expects that it will begin to offer to its customers
capacity services that will not qualify as sales-type leases as discussed
above. Capacity made available under such contracts (Service Contracts) may be
offered on AC-1 (or other subsea systems as they become operational) or as
point to point capacity connecting cities in Global Crossing's global network,
once terrestrial capacity in the U.S. (i.e., upon completion of the Frontier
merger), Europe and Japan become available.
Upon the commencement of offering Service Contracts, which Global Crossing
believes will occur prior to the end of 1999, the carrying value of the AC-1
system (and the other sub-sea systems as they become
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operational) will be depreciated over their remaining economic useful lives and
revenues related to these Service Contracts will be recognized as the services
are rendered over the terms of the contracts. For capacity sales contracts that
meet the requirements of sales-type-lease accounting, revenues will be
recognized as described above and cost of capacity sold will be based upon the
net book value of the remaining committed to capacity. If Global Crossing had
offered Service Contracts beginning on January 1, 1999, it would have incurred
additional depreciation expense, offset by reduced cost of capacity sold on
sales type leases recorded. During the six months ended June 30, 1999, the
impact on results of operations would not have been significant.
Operations, administration and maintenance (OA&M). Global Crossing incurred
OA&M costs on AC-1 of $14 million and $2 million during the three months ended
June 30, 1999 and 1998, respectively. Global Crossing has entered into an
agreement with Tyco Submarine Systems Limited (TSSL) relating to operations,
administration and maintenance of AC-1 which limits Global Crossing's total
OA&M expense for the system. Global Crossing anticipates that its OA&M costs
associated with AC-1 will be largely recovered through charges to its customers
under the terms of Capacity Purchase Agreements (CPAs). OA&M costs associated
with systems under construction are expensed as incurred.
General and administrative. General and administrative expenses totaled $22
million and $7 million during the three months ended June 30, 1999 and 1998,
respectively, and was comprised principally of salaries, employee benefits and
recruiting fees reflecting Global Crossing's staffing for multiple systems,
travel, professional fees, insurance costs and occupancy costs.
Network development. Global Crossing incurred network development costs
during the three months ended June 30, 1999 and 1998 of $5 million and $4
million, respectively. These amounts are comprised principally of salaries and
professional fees.
Sales and marketing. During the three months ended June 30, 1999, Global
Crossing incurred sales and marketing expenses of $13 million, including
commissions to TSSL of $7 million incurred on revenues recognized during this
period. During the three months ended June 30, 1998, Global Crossing incurred
sales and marketing costs of $7 million, including commissions to TSSL of $3
million incurred on revenues recognized during this period. The increase from
1998 was due to additions in headcount, occupancy costs, plus marketing costs,
commissions paid and other promotional expenses to support Global Crossing's
rapid growth.
Stock related expense. Global Crossing recognized $9 million and $23 million
of stock compensation expense during the three months ended June 30, 1999 and
1998, respectively, relating to options issued under its Stock Incentive Plan,
plus certain stock related expense related to stock options awarded to
consultants, accounted for under SFAS No. 123.
Depreciation and amortization. For the three months ended June 30, 1999 and
1998, Global Crossing incurred depreciation and amortization of $4 million and
$0.4 million, respectively.
Provision for doubtful accounts. For the three months ended June 30, 1999 and
1998, Global Crossing recorded a provision for doubtful accounts of $2 million
and $1 million, respectively.
Termination of advisory services agreement. In connection with the
development and construction of AC-1, Global Crossing entered into an advisory
services agreement with PCG Telecom Services LLC, an affiliate, providing for
the payment by Global Crossing of an advisory fee of 2% of the gross revenues
of ACL over a 25 year term. Global Crossing's board of directors also approved
similar advisory fees and authorized Global Crossing to enter into similar
agreements with respect to other cable systems under development by Global
Crossing. In June 1998, Global Crossing acquired the rights of the persons
entitled to the fees payable under these agreements in consideration for the
issuance to those persons of shares of Global Crossing's common stock, which
had an aggregate value of $135 million, and the cancellation of approximately
$3 million owed Global Crossing under a related advance agreement. In addition,
Global Crossing recognized approximately $2 million of advisory fees incurred
prior to termination of the contract.
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Equity in loss of affiliates. In April 1998, Global Crossing entered into a
joint venture to construct an undersea cable system, PC-1. PC-1 is owned and
operated by Pacific Crossing Ltd. (PCL). Global Crossing has an economic
interest in PCL represented by a 50% direct voting interest and, through one of
the joint venture partners, owns a further 8% economic non-voting interest. In
December 1998, a wholly-owned subsidiary of Global Crossing entered into a
joint venture to construct and operate GAL. The $3 million loss is comprised of
a loss of $1 million representing Global Crossing's 58% equity in the loss of
PCL and a loss of $2 million representing Global Crossing's 49% equity in
Global Access Ltd. for the three months ended June 30, 1999.
Interest income. Global Crossing earned interest income of $17 million and $4
million in the three months ended June 30, 1999 and 1998, respectively. Such
interest income represents earnings on cash raised from financings and on CPA
deposits.
Interest expense. During the three months ended June 30, 1999, Global
Crossing incurred $32 million in interest costs, including the amortization of
finance costs and debt discount. Of this amount, Global Crossing capitalized to
construction in progress interest of $9 million, and expensed $23 million.
During the three months ended June 30, 1998, Global Crossing incurred $21
million in interest costs, including the amortization of finance costs and debt
discount. Of this amount, Global Crossing capitalized to construction in
progress interest of $14 million, and expensed $7 million.
Other expense, net. During the three months ended June 30, 1999, other
expense, net was comprised primarily of a $10 million loss on a foreign
currency forward contract in connection with the Global Marine acquisition and
$2 million in professional fees associated with the senior notes consent
solicitation, offset partially by a $4 million gain on sale of securities
available for sale.
Provision for income taxes. The income tax provision of $14 million and $9
million for the three months ended June 30, 1999 and 1998, respectively,
provides for taxes on profits earned from capacity sales and OA&M revenues
where subsidiaries of Global Crossing have a presence in taxable jurisdictions.
Extraordinary loss on retirement of senior notes. During May 1998, Global
Crossing recognized an extraordinary loss of $20 million in connection with the
repurchase of Global Telesystems Holdings' outstanding senior notes, comprising
of a premium of $10 million and a write-off of $10 million of unamortized
deferred financing costs.
Net income (loss). During the three months ended June 30, 1999, Global
Crossing reported net income of $10 million compared to a net loss of $155
million in the three months ended June 30, 1998.
Preferred stock dividends. Preferred stock dividends for the three months
ended June 30, 1999 and 1998 were $14 million and $4 million, respectively.
Redemption of preferred stock. The redemption of Global Telesystems Holdings'
outstanding preferred stock occurred in June 1998 and resulted in a $34 million
charge against equity. This amount was comprised of a $16 million redemption
premium and a write-off of $18 million of unamortized discount and issuance
costs. The redemption premium and write-off of unamortized discount and
issuance costs are treated as a deduction to arrive at net loss applicable to
common shareholders in the consolidated statements of operations.
Net loss applicable to common shareholders. During the three months ended
June 30, 1999, Global Crossing reported a net loss applicable to common
shareholders of $4 million, resulting in large part from $14 million of
dividends on preferred stock. During the three months ended June 30, 1998,
Global Crossing reported a net loss applicable to common shareholders of $193
million, resulting in a large part from $140 million in costs associated with
the termination of the advisory service agreement, $34 million redemption of
preferred stock, $20 million extraordinary loss on retirement of senior notes
and $4 million of preferred stock dividends.
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Results of operations for the six months ended June 30, 1999 and June 30, 1998
Revenues. Global Crossing's revenues on sales of capacity relating to AC-1
increased to $356 million during the six months ended June 30, 1999 from $101
million during the six months ended June 30, 1998. During the six months ended
June 30, 1999 and 1998, operation and maintenance services revenue was $12
million and none, respectively. The increase is primarily due to no sales or
related costs recognized in the three months ended March 31, 1998, as Global
Crossing was in its development stage.
Cost of capacity sold. For the six months ended June 30, 1999 and 1998, the
Company recognized $150 million and $41 million, respectively, in cost of
capacity sold, resulting in a gross margin on capacity sales of 59%,
respectively. Non-cash cost of undersea capacity sold was $114 million and $32
million during the six months ended June 30, 1999 and 1998, respectively. Cost
of capacity sold also includes the cost of terrestrial capacity sold, a cash
expense, during the six months ended June 30, 1999 and 1998, of $36 million and
$9 million, respectively.
Operations, administration and maintenance (OA&M). Global Crossing incurred
OA&M costs on AC-1 of $26 million and $2 million during the six months ended
June 30, 1999 and 1998, respectively. Global Crossing has entered into an
agreement with TSSL relating to operations, administration and maintenance of
AC-1 which limits Global Crossing's total OA&M expense for the system. Global
Crossing anticipates that its recurring OA&M costs will be largely recovered
through charges to its customers under the terms of CPAs.
General and administrative. General and administrative expenses totaled $45
million during the six months ended June 30, 1999 and were comprised
principally of salaries, employee benefits and recruiting fees reflecting
Global Crossing's staffing for multiple systems, travel, professional fees,
insurance costs and occupancy costs. During the six months ended June 30, 1998,
Global Crossing incurred general and administrative expenses of $9 million.
Sales and marketing. During the six months ended June 30, 1999, Global
Crossing incurred sales and marketing expenses of $23 million, including
commissions to TSSL of $15 million incurred on revenues recognized during this
period. During the six months ended June 30, 1998, Global Crossing incurred
sales and marketing costs of $7 million, including commissions to TSSL of $3
million incurred on revenues recognized during this period. The increase from
1998 was due to additions in headcount, occupancy costs, plus marketing costs,
commissions paid and other promotional expenses to support Global Crossing's
rapid growth.
Network development. Global Crossing incurred network development costs
during the six months ended June 30, 1999 and 1998 of $10 million and $4
million, respectively. These amounts are comprised principally of salaries and
professional fees.
Stock related expense. Global Crossing recognized $26 million and $23 million
of stock compensation expense during the six months ended June 30, 1999 and
1998, respectively, relating to options issued under its Stock Incentive Plan,
plus certain stock related expense related to stock options awarded to
consultants, accounted for under SFAS No. 123.
Depreciation and amortization. For the six months ended June 30, 1999 and
1998, Global Crossing incurred depreciation and amortization of $4 million and
$0.4 million, respectively.
Provision for doubtful accounts. For the six months ended June 30, 1999 and
1998, Global Crossing recorded a provision for doubtful accounts of $4 million
and $1 million, respectively.
Termination of advisory services agreement. In connection with the
development and construction of AC-1, Global Crossing entered into an advisory
services agreement with PCG Telecom Services LLC, an affiliate, providing for
the payment by Global Crossing of an advisory fee of 2% of the gross revenues
of ACL over a 25 year term. Global Crossing's board of directors also approved
similar advisory fees and authorized Global Crossing to enter into similar
agreements with respect to other cable systems under development by
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Global Crossing. In June 1998, Global Crossing acquired the rights of the
persons entitled to the fees payable under these agreements in consideration
for the issuance to those persons of shares of Global Crossing's common stock,
which had an aggregate value of $135 million, and the cancellation of
approximately $3 million owed Global Crossing under a related advance
agreement. In addition, Global Crossing recognized approximately $2 million of
advisory fees incurred prior to termination of the contract.
Equity in loss of affiliates. In April 1998, Global Crossing entered into a
joint venture to construct an undersea cable system, PC-1. PC-1 is owned and
operated by PCL. Global Crossing has an economic interest in PCL represented by
a 50% direct voting interest and, through one of the joint venture partners,
owns a further 8% economic non-voting interest. In December 1998, a wholly-
owned subsidiary of Global Crossing entered into a joint venture to construct
and operate GAL. The $6 million loss is comprised of a loss of $2 million
representing Global Crossing's 58% equity in the loss of PCL and a loss of $4
million representing Global Crossing's 49% equity in Global Access Ltd. for the
six months ended June 30, 1999.
Interest income. Global Crossing earned interest income of $32 million and $4
million in the six months ended June 30, 1999 and 1998, respectively. This
interest income represents earnings on cash raised from financings and on CPA
deposits.
Interest expense. During the six months ended June 30, 1999, Global Crossing
incurred $61 million in interest costs, including the amortization of finance
costs and debt discount. Of this amount, Global Crossing capitalized to
construction in progress interest of $15 million, and expensed $46 million.
During the six months ended June 30, 1998, Global Crossing incurred $32 million
in interest costs, including the amortization of finance costs and debt
discount. Of this amount, Global Crossing capitalized to construction in
progress interest of $25 million, and expensed $7 million.
Other expense, net. During the six months ended June 30, 1999, other expense,
net was comprised primarily of a $10 million loss on a foreign currency forward
contract in connection with the Global Marine acquisition and $2 million in
professional fees associated with the senior notes consent solicitation, offset
partially by a $4 million gain on sale of securities available for sale.
Provision for income taxes. The income tax provision of $30 million and $9
million for the six months ended June 30, 1999 and 1998, respectively, provides
for taxes on profits earned from capacity sales and OA&M revenues where
subsidiaries of Global Crossing have a presence in taxable jurisdictions.
Cumulative effect of change in accounting principle. Global Crossing adopted
Statement of Position 98-5 (SOP 98-5), "Reporting on the Cost of Start-Up
Activities," issued by the American Institute of Certified Public Accountants,
during the three months ended March 31, 1999. SOP 98-5 requires that certain
start-up expenditures previously capitalized during system development must now
be expensed. Global Crossing incurred a one-time charge during the three months
ended March 31, 1999 of $15 million (net of tax benefit) that represents start-
up costs incurred and capitalized during previous periods.
Extraordinary loss on retirement of senior notes. During May 1998, Global
Crossing recognized an extraordinary loss of $20 million in connection with the
repurchase of Global Telesystems Holdings' outstanding senior notes, comprising
of a premium of $10 million and a write-off of $10 million of unamortized
deferred financing costs.
Net income (loss). During the six months ended June 30, 1999 Global Crossing
reported net income of $8 million compared to a net loss of $159 million in the
six months ended June 30, 1998.
Preferred stock dividends. Preferred stock dividends for the six months ended
June 30, 1999 and 1998, were $27 million and $8 million, respectively.
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Redemption of preferred stock. The redemption of Global Telesystems Holdings'
outstanding preferred stock occurred in June 1998 and resulted in a $34 million
charge against equity. This amount was comprised of a $16 million redemption
premium and a write-off of $18 million of unamortized discount and issuance
costs. The redemption premium and write-off of unamortized discount and
issuance costs are treated as a deduction to arrive at net loss applicable to
common shareholders in the consolidated statements of operations.
Net loss applicable to common shareholders. During the six months ended June
30, 1999, Global Crossing reported a net loss applicable to common shareholders
of $19 million, resulting in large part from $27 million of dividends on
preferred stock and $15 million resulting from a cumulative effect of change in
accounting principle. During the six months ended June 30, 1998, Global
Crossing reported a net loss applicable to common shareholders of $202 million,
resulting in a large part from $140 million in costs associated with the
termination of the advisory service agreement and $42 million of dividends on
preferred stock.
Results of operations for the year ended December 31, 1998 and the period from
March 19, 1997 (date of inception) to December 31, 1997
Revenues
During the year ended December 31, 1998, Global Crossing executed commitments
with its customers to purchase capacity on its systems plus the sale of dark
fiber on PEC totaling $911 million, bringing the total since inception to
$1,052 million. Of this amount, Global Crossing recognized revenues of $418
million on sales of capacity relating to AC-1 for the year ended December 31,
1998, in addition to revenues from operations and maintenance services of $6
million. The remaining $634 million of capacity sales has not yet been
reflected as revenue in the consolidated financial statements because either
the segment has not reached RFS or the purchaser has not obtained the right to
use the capacity. During the year ended December 31, 1998, Global Crossing
entered into CPAs with 33 international telecommunications carriers and sold
approximately 35% of the sales capacity of 512 circuits on the AC-1 system.
Expenses
Cost of capacity sold. For the year ended December 31, 1998, Global Crossing
recognized $178 million in cost of capacity sold, resulting in a gross margin
on capacity sales of 57%. Cost of capacity sold for the year ended December 31,
1998 also includes $38 million relating to terrestrial capacity sold which
Global Crossing had purchased from third parties. Global Crossing calculates
undersea cost of capacity sold for AC-1 based on the ratio of the period's
actual revenue to total expected revenues, assuming minimum projected sales
capacity of 512 circuits, multiplied by the construction cost of the system.
This calculation of cost of sales matches costs with the relative value of each
sale. There were no sales or related costs recognized during the period from
March 19, 1997 (date of inception) to December 31, 1997, as Global Crossing was
in its development stage.
Operations, administration and maintenance. Global Crossing incurred OA&M
costs of $18 million during the year ended December 31, 1998. Global Crossing
entered into an agreement with TSSL relating to operations, administration and
maintenance of AC-1, which limits Global Crossings total OA&M expense for the
system. Global Crossing anticipates that its OA&M costs will be largely
recovered through charges to its customers under the terms of CPAs. There were
no OA&M costs during the period from March 19, 1997 (date of inception) to
December 31, 1997, as Global Crossing was in its development stage.
Sales and marketing. During the year ended December 31, 1998, Global Crossing
incurred sales and marketing expenses of $26 million, including selling
commissions of $20 million incurred on capacity sales recognized during this
period. During the period from March 19, 1997 (date of inception) to December
31, 1997, Global Crossing incurred sales and marketing costs of approximately
$1 million. The increase from 1997 was due to additions in personnel and
occupancy costs, plus marketing, commissions paid and other promotional
expenses to support our rapid growth.
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Network development. Global Crossing incurred network development costs
during the year ended December 31, 1998 of $11 million relating to the
development of systems. During the period from March 19, 1997 (date of
inception) to December 31, 1997, these costs were $0.1 million. The increase
from 1997 was due to additional personnel, and costs to explore new projects.
General and administrative. General and administrative expenses totaled $27
million during the year ended December 31, 1998 and were comprised principally
of salaries, employee benefits and recruiting fees for staffing of multiple
systems, travel, insurance costs and rent expenses, plus depreciation and
amortization. During the period from March 19, 1997 (date of inception) to
December 31, 1997, Global Crossing incurred general and administrative costs of
$2 million.
Termination of advisory services agreement with PCG Telecom Services LLC. In
connection with the development and construction of AC-1, Global Crossing
entered into an advisory services agreement with PCG Telecom Services LLC, an
affiliate, providing for the payment by Global Crossing of an advisory fee of
2% of the gross revenues of ACL over a 25 year term. Global Crossing's board of
directors also approved similar advisory fees and authorized Global Crossing to
enter into similar agreements with respect to other cable systems under
development by Global Crossing. Global Crossing has acquired the rights of the
persons entitled to the fees payable under these agreements in consideration
for the issuance to such persons of shares of Global Crossing common stock,
which had at the time of issuance an aggregate value of $135 million, and the
cancellation of approximately $3 million owed to Global Crossing under a
related advance agreement. In addition, Global Crossing recognized
approximately $2 million of advisory fees incurred prior to termination of the
contract.
Stock related expense. Through December 31, 1998, Global Crossing recorded as
a charge to paid-in capital $94 million of unearned compensation relating to
awards under Global Crossing's stock incentive plan plus the grant of certain
economic rights and options to purchase common stock granted to a senior
executive. The unearned compensation is being recognized as an expense over the
vesting period of these options and economic rights.
For the year ended December 31, 1998, Global Crossing recognized as an
expense $31 million of stock related compensation relating to Global Crossing's
stock incentive plan and $6 million for the vested economic rights to purchase
common stock and $2 million in respect of shares of common stock issued during
the year. The remaining $57 million of unearned compensation will be recognized
as follows: $28 million in 1999, $21 million in 2000 and $8 million in 2001.
Global Crossing's stock incentive plan commenced in January 1998, and therefore
no issuances were made during the period from March 19, 1997 (date of
inception) to December 31, 1997.
Equity in loss of affiliates. During 1998, Global Crossing entered into joint
venture agreements to construct and operate PC-1 and GAL. PC-1 is owned and
operated by Pacific Crossing Ltd. ("PCL"). Global Crossing has an economic
interest in PCL represented by a 50% direct voting interest and, through one of
the joint venture partners, a further 8% economic non-voting interest. Global
Crossing has a 49% interest in Global Access Ltd., which operates GAL. Global
Crossing's equity in the loss of PC-1 for the year ended December 31, 1998 was
$3 million.
Interest income and interest expense
Interest income. Global Crossing reported interest income of $30 million
during the year ended December 31, 1998 and $3 million during the period from
March 19, 1997 (date of inception) to December 31, 1997. Such interest income
represents earnings on cash raised from financings, the IPO, the issuance of
the GCH Preferred Stock, operations and CPA deposits.
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Interest expense. During the year ended December 31, 1998, Global Crossing
incurred $93 million in interest costs, including the amortization of finance
costs and debt discount. Of this amount, Global Crossing capitalized to
construction in progress interest of $50 million and expensed $43 million.
During the period from March 19, 1997 (date of inception) to December 31, 1997,
Global Crossing incurred interest expense of $10 million, which was capitalized
to construction in progress.
Provision for income taxes
The income tax provision of $33 million for the year ended December 31, 1998
provides for taxes on profits earned from capacity sales and OA&M revenues
where Global Crossing's subsidiaries have a presence in taxable jurisdictions.
During the period from March 19, 1997 (date of inception) to December 31, 1997,
Global Crossing incurred operating losses, which relate to non-taxable
jurisdictions and therefore cannot be applied against future taxable earnings.
Accordingly, no tax provision or deferred tax benefit was recorded as of
December 31, 1997.
Extraordinary item
During May 1998, Global Crossing recognized an extraordinary loss of $20
million in connection with the repurchase of outstanding Global Telesystems
Holdings senior notes (the "GTH Senior Notes"), comprising of a premium of $10
million and a write-off of $10 million of unamortized deferred financing costs.
Preferred stock dividends
During the year ended December 31, 1998, Global Crossing recorded preferred
stock dividends of approximately $13 million. Preferred stock dividends for the
period from March 19, 1997 (date of inception) to December 31, 1997 were $13
million. Of the $13 million recorded in 1998, $4 million relates to the GCH
Preferred Stock issued during December 1998.
Redemption of preferred stock
The redemption of Global Telesystems Holdings outstanding preferred stock
(the "GTH Preferred Stock") occurred in June 1998 and resulted in a $34 million
charge against equity. This amount was comprised of a $16 million redemption
premium and a write-off of $18 million of unamortized discount and issuance
costs. The redemption premium and write-off of unamortized discount and
issuance costs are treated as a deduction to arrive at net loss applicable to
common shareholders in the consolidated statements of operations.
Net loss and net loss applicable to common shareholders
Global Crossing incurred a net loss of $88 million for the year ended
December 31, 1998, compared to a net loss of $0.2 million in the period from
March 19, 1997 (date of inception) to December 31, 1997. The net loss for the
year ended December 31, 1998 reflects an extraordinary loss on retirement of
the GTH Senior Notes of $20 million and a non-recurring charge of $140 million
relating to the termination of the advisory services agreement with PCG Telecom
Services. Global Crossing's net income before these items was $72 million.
During the year ended December 31, 1998, Global Crossing reported a net loss
applicable to common shareholders of $135 million. This loss reflects preferred
stock dividends of $13 million and the redemption cost of GTH Preferred Stock
of $34 million. During the period from March 19, 1997 (date of inception) to
December 31, 1997, Global Crossing incurred a net loss applicable to common
shareholders of $13 million after GTH Preferred Stock dividends of $13 million.
Balance sheet as of December 31, 1998
Restricted cash and cash equivalents, both current and long term. At December
31, 1998, current and long-term restricted cash and cash equivalents included:
(1) $231 million restricted for PC-1 construction, (2)
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<PAGE>
$89 million received pursuant to CPAs on AC-1 which may be used only in
accordance with the terms of the AC-1 Credit Facility, (3) $66 million
restricted for MAC construction, (4) $38 million reserved for funding future
interest payable on the GCH Senior Notes and (5) $21 million restricted for
miscellaneous items.
Capacity available for sale, construction in progress and investment in
affiliates. Global Crossing's investment in capacity available for sale,
construction in progress and investment in affiliates totaled approximately
$1,180 million as of December 31, 1998. This amount includes the value of
system development contributed to Global Crossing by Pacific Capital Group.
Upon Global Crossing's IPO, each PCG Warrant then outstanding was converted
into a fraction of Global Crossing common stock based upon the ratio of the per
share valuation at the time of conversion less the per share exercise price of
the warrants, divided by the per share valuation at the time of conversion,
together with a new warrant (the "New PCG Warrants") to purchase the remaining
fraction of shares at an exercise price equal to $9.50, the price to public per
share of the IPO. These amounts increased additional paid-in capital by $275
million and was allocated on a pro rata basis to PCL, PAC and MAC according to
the estimated cost of each system. Accordingly, Global Crossing recorded $163
million as an investment in PCL and $64 million and $48 million as Construction
in Progress for PAC and MAC, respectively.
Long term debt and senior notes. The long term debt of $270 million as of
December 31, 1998 represents primarily the long term portion of our outstanding
balance on the AC-1 Credit Facility. The senior notes balance of $796 million
represents the net proceeds from the issuance of the GCH Senior Notes, adjusted
for the unamortized amount of the debt discount.
Mandatorily redeemable preferred stock. The mandatorily redeemable preferred
stock of $487 million as of December 31, 1998 represents the net proceeds
received from the $500 million offering of GCH Preferred Stock during December
1998, less $17 million in fees and issuance costs plus $4 million in accrued
dividends. These fees and issuance costs are being amortized over the term of
the obligation.
During the year ended December 31, 1998, Global Crossing reimbursed an amount
of $7 million to Pacific Capital Group, a shareholder, relating to system
evaluation costs incurred by Pacific Capital Group. This amount was treated as
a dividend and charged against additional paid-in capital.
Liquidity and capital resources
Restricted cash and investments. At June 30, 1999, restricted cash and
investments includes: $231 million for PC-1 construction, $61 million for PEC
construction, $10 million for MAC construction and $110 million received
pursuant to CPAs restricted under the terms of the AC-1 credit facility. In
connection with the Senior Secured Credit Facility, all restrictions under
refinanced debt on cash and investments have been removed.
On July 2, 1999, Global Crossing entered into a $3 billion senior secured
corporate credit facility with a group of several lenders and The Chase
Manhattan Bank as administrative agent. The initial proceeds under the facility
were used to refinance outstanding balances under the AC-1 and MAC project
finance facilities, to refinance balances under a vendor financing arrangement
with Lucent, to refinance debt used for the purchase of the Global Marine
business from Cable & Wireless and for general corporate purposes. Global
Crossing intends to finance the remainder of its announced systems, new
projects and working capital needs mainly through the new corporate facility
and other corporate financing.
As of June 30, 1999, the approximately $750 million initial cost of AC-1 had
been fully financed. The first contracted upgrade was funded through cash on
hand, as will the second contracted upgrade. All remaining amounts outstanding
under the AC-1 non-recourse project finance credit facility were refinanced in
July 1999 through Global Crossing's new senior secured corporate credit
facility.
Global Crossing estimates the total cost of developing and deploying AC-2,
PC-1, MAC, PAC, SAC, PEC and GAL to be approximately $5,095 million, excluding
costs of potential future upgrades and the amounts
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<PAGE>
capitalized with respect to warrants issued in exchange for the rights to
construct PC-1, MAC and PAC. This total is comprised of $750 million for AC-2,
$1,200 million for PC-1, $295 million for MAC, $580 million for PAC, $1,130
million for SAC, $950 million for PEC and $190 million for GAL. PC-1 will be
financed by total equity investments of $400 million of which Global Crossing
expects to provide approximately $231 million, with the remaining $800 million
of estimated costs to be financed through non-recourse project indebtedness at
the PC-1 level. Global Crossing has financed its 49% interest in GAL through
cash on hand to date, and intends to finance additional system costs through
limited or non-recourse debt to be raised at the GAL level. The remaining
system costs for MAC and PAC will be financed either through bank indebtedness
under Global Crossing's new senior secured corporate credit facility or through
other corporate financing.
The construction costs for PEC (including costs of acquiring dark fiber) are
estimated to be $950 million, a portion of which was paid from the proceeds of
the December 1998 issuance by Global Crossing Holdings of 10 1/2% Senior
Exchangeable Preferred Stock (the "GCH Preferred Stock"). Global Crossing also
raised capital required to finance this system through a combination of
commercial bank borrowings, vendor financing and sales of dark fiber. Financing
to complete the system is expected to be obtained from the corporate credit
facility or other corporate financing.
Global Crossing initially financed the approximately $868 million Global
Marine acquisition, which was completed in July 1999, with approximately $600
million in committed bank financing and the remainder with cash on hand. This
initial indebtedness was refinanced through borrowings under Global Crossing's
new senior secured corporate credit facility.
The Company has extended financing to customers in connection with certain
CPAs. The financing terms provide for installment payments of up to four years.
The Company believes that its extension of financing to its customers will not
have a material effect on the Company's liquidity.
Cash provided by operating activities was $64 million for the six months
ended June 30, 1999 and $37 million for the six months ended June 30, 1998, and
principally represents cash received from deposits and payments for activated
capacity pursuant to signed CPAs, plus interest income received, less sales and
marketing, network development and general and administrative expenses paid.
Cash provided by operating activities was $209 million for the year ended
December 31, 1998 and $5 million for the period from March 19, 1997 (date of
inception) to December 31, 1997, which principally represents cash received
from deposits and payments for activated capacity pursuant to signed CPAs, plus
interest income, less sales and marketing, network development and general and
administrative expenses paid.
Cash provided by financing activities was $292 million for the six months
ended June 30, 1999 and primarily represents borrowings under the Lucent
facility, partially offset by repayments of borrowings under long term debt.
Cash provided by financing activities was $456 million for the six months ended
June 30, 1998 and primarily relates to proceeds from the issuance of senior
notes and borrowings under long term debt, less the increase in the restricted
cash and cash equivalents, retirement of old senior notes and redemption of
preference shares.
Cash provided by financing activities was $1,027 million for the year ended
December 31, 1998 and primarily represents borrowings under the AC-1 and MAC
credit facilities, proceeds from the issuance of GCH Senior Notes, the GCH
Preferred Stock and Global Crossing's IPO, less amounts paid for finance and
organization costs, the issuance of common and preferred stock, the repayment
of long term debt, the redemption of the GTH Preferred Stock, the retirement of
the GTH Senior Notes and the increase in amounts held in restricted cash and
cash equivalents. At December 31, 1998, Global Crossing's working capital
amounted to $750 million.
During May 1998, Global Crossing obtained $796 million in net proceeds from
the issuance of the GCH Senior Notes due 2008. These proceeds were used (1) to
purchase all of the $150 million aggregate principal
127
<PAGE>
amount of outstanding GTH Senior Notes, (2) to redeem all of the $100 million
aggregate principal amount of outstanding GTH Preferred Stock, (3) to repay in
full the $67 million then outstanding under a bridge credit facility, (4) to
make approximately $315 million of equity investments in PC-1, MAC and PAC and
(5) for general corporate purposes, including $74 million to fund a one-year
interest reserve on the GCH Senior Notes. In August 1998, Global Crossing
completed its IPO, from which it received net proceeds of $391 million, and
during December 1998, the GCH Preferred Stock was issued, from which net
proceeds of approximately $483 million were received. Global Crossing has used
these proceeds for (1) construction of the Global Crossing Network, (2)
investment in telecommunications companies and ISPs, (3) investments in GAL and
(4) general corporate purposes.
Cash provided by financing activities of $425 million for the period from
March 19, 1997 (date of inception) to December 31, 1997, relates to net
proceeds from the issuance of common stock, GTH Preferred Stock and GTH Senior
Notes and borrowings under the AC-1 credit facility, less finance and
organization costs related to the issuance of common and preferred stock and
the increase in proceeds held in restricted cash and cash equivalents. At
December 31, 1997, Global Crossing's working capital deficit was $63 million.
Cash used in investing activities was $486 million and $191 million for the
six months ended June 30, 1999 and 1998, respectively, and represents cash paid
for construction in progress, purchases of property, plant and equipment and
cash investments in affiliates.
Cash used in investing activities was approximately $431 million and $429
million for the year ended December 31, 1998 and the period from March 19, 1997
(date of inception) to December 31, 1997, respectively, and represents cash
paid for construction in progress, capacity available for sale and investments
in affiliates.
Global Crossing has extended financing to a small number of customers in
connection with certain CPAs. The financing terms provide for installment
payments over a period of up to four years. Global Crossing believes that its
extension of financing to its customers will not have a material effect on its
liquidity.
Global Crossing believes that its current cash and cash equivalents, credit
facilities and cash generated from operations will satisfy its expected working
capital and capital expenditure requirements through December 31, 1999.
Inflation
Management does not believe that Global Crossing's business is impacted by
inflation to a significantly different extent than the general economy.
Year 2000 compliance
Global Crossing believes that its computer information systems are Year 2000
("Y2K") compliant. Global Crossing has established a Y2K compliance task force.
The task force has identified no potential material adverse effect on the two
core components of it services: (1) transmission of capacity and (2) management
and maintenance of the transmission paths. Global Crossing's anticipated worst
case scenario is failure of its Network Operations Center. In the event the
worst case scenario occurs, management of the network can be performed at the
terminal stations with the network element managers or at the equipment bays
with the craft interface terminal. No or minimal additional cost would be
incurred as Global Crossing has already included the cost for back-up
management of the network into the AC-1 business case analysis.
Global Crossing is also subject to external forces that generally affect
industry and commerce, such as utility, transportation or other infrastructure
failures and interruptions. In addition to reviewing its own systems, Global
Crossing is submitting requests to third party service providers to obtain
information as to their compliance efforts. Global Crossing has received
assurances from its major suppliers, TSSL and Lucent, stating
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<PAGE>
Y2K compliance status of their respective systems regarding AC-1, Global
Crossing's only active system at this time. In addition, Global Crossing
received assurance from Alcatel, a supplier to MAC, that Alcatel is also Y2K
compliant. In the event that any of its material third party service providers
do not successfully and timely achieve Y2K compliance, Global Crossing's
business or operations could be adversely affected. Global Crossing is
developing contingency plans to address any potential Y2K compliance failure
due to significant third party failures, although no such failure is expected.
To date, response from material third party service providers has not shown any
of them to be non-compliant with Y2K readiness plans.
Global Crossing believes that costs of addressing its Y2K compliance will not
have a material adverse impact on its financial condition or results of
operations.
Euro conversion
On January 1, 1999, a single currency called the Euro was introduced in
Europe. Eleven of the fifteen member countries of the European Union agreed to
adopt the Euro as their common legal currency on that date. Fixed conversion
rates between these countries' existing currencies, called legacy currencies,
and the Euro were established as of that date. The legacy currencies are
scheduled to remain legal tender in these participating countries between
January 1, 1999 and January 1, 2002, but not later than July 1, 2002. During
this transition period, parties may settle transactions using either the Euro
or a participating country's legacy currency.
As most of Global Crossing's sales and expenditures are denominated in United
States dollars, management does not believe that the Euro conversion will have
a material adverse impact on its business or financial condition. Global
Crossing does not expect the cost of system modifications to be material, and
it will continue to evaluate the impact of the Euro conversion.
Quantitative and qualitative disclosures about market risk
Interest Rate Risk
The table below provides information about Global Crossing's market sensitive
financial instruments and constitutes a "forward-looking statement." Global
Crossing's major market risk exposure is changing interest rates. Global
Crossing's policy is to manage interest rates through use of a combination of
fixed and floating rate debt. Interest rate swaps may be used to adjust
interest rate exposures when appropriate, based upon market condition.
<TABLE>
<CAPTION>
Fair Value
June 30,
Expected maturity dates 1999 2000 2001 2002 2003 Thereafter Total 1999
----------------------- -------- ------- -------- ---- ---- ---------- -------- ----------
(in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
DEBT
Non Current--US$
denominated
AC-1 Credit Facility.... $ 9,137 $14,298 $127,080 -- -- -- $150,515 $150,515
Average interest
rates--variable....... (1) (1) (1)
MAC Credit Facility..... -- 9,192 -- -- -- -- 9,192 9,192
Average interest
rates--variable....... (2)
Lucent Financing........ 400,000 -- -- -- -- -- 400,000 400,000
Average interest
rates--variable....... (3)
Senior notes............ -- -- -- -- -- 800,000 800,000 836,000
Average interest
rates--fixed.......... 9.6%
Mandatorily Redeemable
Preferred Stock........ -- -- -- -- -- 500,000 500,000 522,500
Average interest
rates--fixed.......... 10.5%
Obligations under ISAs
and capital lease
obligations:
</TABLE>
129
<PAGE>
<TABLE>
<CAPTION>
Fair Value
June 30,
Expected maturity dates 1999 2000 2001 2002 2003 Thereafter Total 1999
----------------------- ------- ------ ----- ----- ----- ---------- ------- ----------
(in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
US$ denominated......... 27,371 18,174 1,080 1,081 1,081 20,112 68,899 68,899
Average interest
rates--fixed.......... 10.5% 10.5% 10.5% 10.5% 10.5% 10.5%
Sterling, German Mark
and Dutch Guilder
denominated............ 8,223 4,000 4,155 4,316 4,483 134,194 159,371 159,371
Average interest
rates--fixed.......... 12.2% 12.2% 12.2% 12.2% 12.2% 12.2%
DERIVATIVE INSTRUMENTS
Foreign currency
forward--Sterling
denominated
Contract notional
amount................ 877,058 -- -- -- -- -- 877,058 (9,653)
Fixed conversion
rate................ 1.5947
</TABLE>
- --------
(1) The interest rate is two-week LIBOR plus 2.00%, which was 7.30% as of June
30, 1999.
(2) The interest rate is one month LIBOR plus 3.00%, which was 8.00% as of June
30, 1999.
(3) The interest rate is one month LIBOR plus 0.25%, which was 5.25% as of June
30, 1999.
Foreign Currency Risk
For those subsidiaries using the U.S. dollar as their functional currency,
translation adjustments are recorded in the accompanying condensed consolidated
statements of operations. None of Global Crossing's translation adjustments
were material as of and for the three months ended June 30, 1999 and 1998.
For those subsidiaries not using the U.S. dollar as their functional
currency, assets and liabilities are translated at exchange rates in effect at
the balance sheet date and income and expense accounts at average exchange
rates during the period. Resulting translation adjustments are recorded
directly to a separate component of shareholders' equity. As of and for the
three and six months ended June 30, 1999, Global Crossing incurred a foreign
currency translation loss of $4 million and $9 million, respectively. As of and
for the three and six months ended June 30, 1998, Global Crossing incurred no
foreign currency translation gain or loss.
130
<PAGE>
Stock Ownership Of Management, Directors and
5% Shareholders of Global Crossing
The following table sets forth, as of July 29, 1999, information regarding
the beneficial ownership of Global Crossing common stock by (1) each person or
entity who is known to Global Crossing to own beneficially 5% or more voting
common stock of Global Crossing, (2) each director and executive officer of
Global Crossing and (3) all directors and executive officers of Global Crossing
as a group. To Global Crossing's knowledge, each such shareholder has sole
voting and investment power with respect to the shares shown, unless otherwise
noted. Amounts appearing in the table below include (1) all shares of common
stock outstanding as of July 29, 1999, (2) all shares of common stock issuable
upon the exercise of options within 60 days of July 29, 1999 and (3) all shares
of common stock issuable upon the exercise of warrants within 60 days of July
29, 1999. The warrants described below as "New PCG Warrants" and "Global
Crossing Warrants" each represent the right to immediately purchase shares of
Global Crossing common stock at an exercise price of $9.50 per share.
<TABLE>
<CAPTION>
Beneficial Ownership of Common Stock
-------------------------------------------------------------
Shares
Subject
Shares Subject to to Shares
Number of New PCG New GCL Subject to Percentage
Shares(1) Warrants Warrants Options of Class
----------- ----------------- --------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Pacific Capital Group, 87,591,172 6,050,004 2,515,788 0 21.69%
Inc.(2)................
150 El Camino Drive,
Suite 204
Beverly Hills,
California 90212
Canadian Imperial Bank
of Commerce(3)......... 88,198,248 0 0 375,000 19.98%
161 Bay Street,
8th Floor -- BCE Place
P.P. Box 500
M5J258, Toronto, Canada
U S WEST, Inc. ......... 37,028,229 0 0 0 8.35%
7800 East Orchard Road
Englewood, Colorado
80111
Continental Casualty 36,442,735 0 0 0 8.22%
Company................
CNA Plaza, Floor 23
South
Chicago, Illinois 60685
MRCo, Inc............... 30,109,522 0 697,934 0 6.95%
111 Massachusetts
Avenue NW Washington,
DC 20001
Gary Winnick(4)......... 87,591,172 6,050,004 2,515,788 1,200,000 21.96%
Lodwrick M. Cook........ 3,324,169 950,002 0 482,000 1.07%
Jack M. Scanlon......... 239,520 0 0 1,462,588 *
Thomas J. Casey(5)...... 630,412 0 0 0 *
Robert Annunziata....... 0 0 0 918,424 *
William B. Carter....... 119,760 0 0 1,825,856 *
Dan J. Cohrs............ 10,000 0 0 708,668 *
David L. Lee(6)......... 18,559,028 1,825,002 663,456 600,000 4.88%
Abbott L. Brown(7)...... 10,460,679 1,450,002 367,666 600,000 2.91%
Barry Porter(8)......... 17,063,809 1,825,002 610,266 600,000 4.53%
James C. Gorton......... 0 0 0 729,606 *
Jack Finlayson.......... 59,968 0 0 635,060 *
Robert Sheh............. 0 0 0 283,685 *
Hillel Weinberger(9).... 38,688,409 0 0 75,000 8.74%
Jay R. Bloom(10)........ 88,198,248 0 0 375,000 19.98%
Dean C. Kehler(10)...... 88,198,248 0 0 375,000 19.98%
Jay R. Levine(10)(11)... 88,198,248 0 0 375,000 19.98%
William P.
Phoenix(10)(11)........ 88,198,248 0 0 375,000 19.98%
Bruce Raben(10)(11)..... 88,198,248 0 0 375,000 19.98%
Michael R. Steed(12).... 30,109,522 0 697,934 75,000 6.97%
William E. Conway(13)... 2,023,677 0 0 75,000 *
Geoffrey J.W. Kent...... 0 0 0 75,000 *
All Directors and
Executive Officers as a
Group.................. 297,023,256 12,100,012 4,855,110 10,720,887 73.25%
</TABLE>
131
<PAGE>
- --------
* Percentage of shares beneficially owned does not exceed one percent.
(1) As of July 29, 1999, 412,732,100 shares of common stock were issued and
outstanding. An additional 12,946,366 shares of common stock would have
been issuable upon the exercise of options within 60 days of July 29,
1999; an additional 12,500,012 shares of common stock would have been
issuable upon the exercise of New PCG Warrants within 60 days of July 29,
1999 and an additional 5,108,358 shares of common stock would have been
issuable upon the exercise of Global Crossing Warrants within 60 days of
July 29, 1999.
(2) Includes shares of common stock and common stock warrants owned by GKW
Unified Holdings, a company formed for the benefit of Gary Winnick and
members of his family and managed by Pacific Capital Group.
(3) Includes shares of common stock issuable upon the exercise of options
granted to Global Crossing directors employed by an affiliate of Canadian
Imperial Bank of Commerce.
(4) Includes (a) all shares of common stock and shares of common stock
issuable upon the exercise of warrants owned by GKW Unified Holdings, of
which Pacific Capital Group is manager, (b) all shares of common stock
and shares of common stock issuable upon the exercise of warrants owned
by Pacific Capital Group, of which Mr. Winnick is Chairman and Chief
Executive Officer and (c) all shares of common stock held by Casey
Pacific Holdings LLC, which Pacific Capital Group controls for purposes
of voting.
(5) Includes (a) all shares of common stock owned by Casey Pacific Holdings
LLC, which is beneficially owned by Mr. Casey and (b) all shares of
common stock owned by Casey Global Holdings LLC, which is beneficially
owned by Mr. Casey.
(6) Includes (a) all shares of common stock and shares of common stock
issuable upon the exercise of warrants owned by San Pasqual Corp., of
which Mr. Lee and his family are the sole shareholders and (b) all shares
of common stock and shares of common stock issuable upon the exercise of
warrants owned by the David and Ellen Lee Family Trust, of which Mr. Lee
is a trustee.
(7) Includes (a) all shares of common stock and shares of common stock
issuable upon the exercise of warrants owned by Ridgestone Corp., of
which members of Mr. Brown's family are the sole shareholders and (b) all
shares of common stock and shares of common stock issuable upon the
exercise of warrants owned by the Brown Living Trust, of which Mr. Brown
is a trustee.
(8) Includes all shares of common stock and shares of common stock issuable
upon the exercise of warrants owned by Galenight Corp., of which Mr.
Porter is the sole shareholder.
(9) Includes all shares of common stock owned by Continental Casualty
Company, an affiliate of Loews/CNA Holdings Corp. Mr. Weinberger is an
officer of Loews/CNA Holdings Corp. Includes shares of common stock held
by Global Crossing Trust 1998, with respect to which Mr. Weinberger
serves as trustee, and shares of common stock held by Global Crossing
Partners, of which Mr. Weinberger is a managing partner.
(10) Includes all shares of common stock beneficially owned by Canadian
Imperial Bank of Commerce. Each of Messrs. Bloom, Kehler, Levine, Phoenix
and Raben is employed by an affiliate of Canadian Imperial Bank of
Commerce.
(11) Beneficial ownership of all shares of common stock indicated is
disclaimed.
(12) Includes all shares of common stock owned by MRCo, Inc. Mr. Steed is the
Senior Vice President of ULLICO and the President of MRCo, Inc., which is
a wholly owned subsidiary of ULLICO.
(13) Includes all shares of common stock beneficially owned by The Carlyle
Group, of which Mr. Conway is managing director.
132
<PAGE>
Stock Ownership of Management, Directors and
5% Shareholders of Frontier
The following table sets forth the number of shares of Frontier common stock
beneficially owned by each director, by each of the named executive officers
and by directors and officers of Frontier as a group as of June 30, 1999. No
director or officer beneficially owns more than 1% of Frontier's outstanding
shares of common stock. The group's aggregate beneficial holdings constitute
approximately 1.7% of Frontier's issued and outstanding common stock.
Management and Directors Stock Ownership Table as of June 30, 1999
<TABLE>
<CAPTION>
Total
Common Stock Beneficial
Name Stock(1) Options(2) Ownership
- ---- --------- ---------- ----------
<S> <C> <C> <C>
Directors:
Patricia C. Barron............................ 14,907 19,399 34,306
Raul E. Cesan................................. 10,557 11,999 22,556
Joseph P. Clayton............................. 485,897 399,999 885,896
Brenda E. Edgerton............................ 14,034 18,449 32,483
Jairo A. Estrada.............................. 30,771 19,999 50,770
Michael E. Faherty............................ 100,519 30,833 131,352
Alan C. Hasselwander (3)...................... 41,298 17,265 58,563
Eric Hippeau.................................. 17,321 0 17,321
Robert Holland, Jr............................ 11,256 11,666 22,922
Douglas H. McCorkindale....................... 18,753 19,999 38,752
James F. McDonald............................. 2,608 0 2,608
Dr. Leo J. Thomas............................. 35,994 19,999 55,993
Named Executive Officers:
Robert L. Barrett............................. 100,274 258,333 358,607
Joseph P. Clayton............................. 485,897 399,999 885,896
Jeremiah T. Carr.............................. 51,963 266,066 318,029
Rolla P. Huff................................. 154,124 83,332 237,456
Donna L. Reeves-Collins....................... 10,250 108,566 118,816
Directors and Executive Officers as a Group
(25 persons)................................. 1,191,893 1,834,101 3,025,994
</TABLE>
- --------
(1) Includes all shares which each director or officer directly, or through any
contract, arrangement, understanding, relationship or otherwise, has or
shares the power to vote or to direct the voting of such shares or to
dispose or to direct the disposition of such shares. Amounts in this column
include both vested and unvested restricted stock granted to selected
executive officers. However, these amounts do not include shares which each
such person has the right to acquire pursuant to options or other rights.
(2) Includes all shares which such persons have the right to acquire within the
sixty days following June 30, 1999, pursuant to options or other rights.
These amounts do not include shares which such persons have the right to
acquire more than sixty days after that date.
(3) Includes 1,480 shares owned by Mr. Hasselwander's spouse. Mr. Hasselwander
disclaims beneficial ownership of these shares.
133
<PAGE>
Set forth below is the name, address and stock ownership of the only persons
or groups of persons known by Frontier to own beneficially more than 5% of the
outstanding shares of common stock.
5% Shareholders Stock Ownership Table as of June 30, 1999
<TABLE>
<CAPTION>
Number of
Shares of Percent
Name and Address Common of
of Beneficial Owners Stock Class
-------------------- ---------- -------
<S> <C> <C>
Scudder Kemper Investments, Inc. (1)....................... 10,379,385 6.10%
345 Park Avenue
New York, New York 10154
</TABLE>
- --------
(1) Scudder Kemper Investments, Inc. filed with the Securities and Exchange
Commission a Schedule 13G, dated February 12, 1999, stating that it
beneficially owned as of December 31, 1998 in the aggregate 10,379,385
shares of Frontier's common stock. In its Schedule 13G filing, Scudder
Kemper Investments, Inc. also disclosed that, with respect to the shares it
beneficially owns, it has sole voting power with respect to 4,207,085
shares, shared voting power with respect to 5,706,000 shares, sole
dispositive power with respect to 10,270,285 shares and shared dispositive
power with respect to 109,100 shares.
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<PAGE>
Description of Global Crossing Capital Stock
The following summary is a description of the material terms of Global
Crossing common stock, does not purport to be complete and is subject in all
respects to the applicable provisions of Bermuda law and of the constituent
documents of Global Crossing and each of its subsidiaries. The Global Crossing
memorandum of association and bye-laws are filed as exhibits to the
registration statement of which this document is a part.
Please note that some of the material terms of the Global Crossing common
stock described in this section will change if the proposed amendments to the
Global Crossing bye-laws are adopted at the annual meeting. See "Proposals to
Global Crossing Shareholders To Be Voted on at the Global Crossing Annual
Meeting--Proposals Nos. 3 and 4."
General
Pursuant to its memorandum of association, the authorized share capital of
Global Crossing is $6,000,000, divided into 600,000,000 shares of common stock
par value $.01 per share.
Voting and transfer restrictions
Voting restriction. Each share of Global Crossing common stock has one vote,
except that if any shareholder owns, directly, indirectly or constructively
under Section 958 of the Internal Revenue Code or beneficially directly or
indirectly as a result of the possession of sole or shared voting power within
the meaning of Section 13(d) of the Securities Exchange Act of 1934 and the
rules and regulations promulgated under that act, more than 9.5% of the voting
power of the common stock, or, in the case of Canadian Imperial Bank of
Commerce and its affiliates, collectively, more than 35% of the total voting
power of the Global Crossing capital stock, the number of votes of that
shareholder will be limited to 9.5% of the aggregate voting power of the Global
Crossing common stock, or, in the case of Canadian Imperial Bank of Commerce
and its affiliates, collectively, to 35% of the aggregate voting power of the
Global Crossing capital stock, based on a formula contained in the bye-laws.
The additional votes that could be cast by that shareholder but for the
restrictions on voting rights will be allocated to the other shareholders, pro
rata based on their number of shares of common stock. Shareholders that have
been allocated additional votes may not exceed the voting limitation as a
result of that allocation.
Transfer restriction. The bye-laws also provide that any transfer of shares
of common stock or any interest in those shares that results in a shareholder,
other than Pacific Capital Group, GKW Unified Holdings, Canadian Imperial Bank
of Commerce, Continental Casualty Company or MRCo or their affiliates or
certain lenders to any of them, beneficially owning within the meaning of
Section 13(d) of the Exchange Act, directly or indirectly, 5% of the
outstanding shares of common stock, if that shareholder is a natural person, or
otherwise 9.5% of the outstanding shares of common stock, without the approval
of a majority of the members of the board of directors and of shareholders
representing at least 75% of the votes of all outstanding shares of common
stock will not be registered in the share register and will be void and of no
effect.
Amendments to the voting reallocation and transfer restriction provisions of
the bye-laws require the approval of the Global Crossing board of directors and
shareholders holding at least 75% of the votes of all outstanding shares of
common stock. In the event of any amendment to these bye-laws, under certain
circumstances, Global Crossing has the obligation to indemnify and hold
harmless any shareholder who, as a result of that amendment, becomes subject to
treatment as a "U.S. Shareholder" for purposes of Section 951 et seq. of the
Internal Revenue Code from and against all losses, costs, damages, liabilities
and expenses directly or indirectly arising out of that treatment.
These voting reallocation and transfer restrictions could make it difficult
for any person or group of persons acting in concert, other than certain
existing owners, to acquire control of Global Crossing.
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Distributions
Holders of common stock are treated equally with respect to all distributions
to shareholders of Global Crossing.
Global Crossing stockholders agreement and registration rights agreement
Global Crossing, Pacific Capital Group, GKW Unified Holdings, affiliates of
Canadian Imperial Bank of Commerce, Continental Casualty Company, MRCo and some
other shareholders of Global Crossing, including some of Global Crossing's
officers and directors and their affiliates, have entered into a stockholders
agreement and a registration rights agreement, each incorporated by reference
as an exhibit to the registration statement of which this document is a part.
Under the stockholders agreement, Global Crossing has been granted a right of
first refusal on specified private transfers by these shareholders during the
first two years after the consummation of Global Crossing's initial public
offering on August 14, 1998. In addition, subject to the exceptions in the
stockholders agreement, some of these shareholders have rights, which are
referred to as "tag-along rights," permitting these shareholders to
participate, on the same terms and conditions, in some transfers of shares by
any other of these shareholders as follows: (1) Pacific Capital Group, GKW
Unified Holdings and Canadian Imperial Bank of Commerce and their affiliates
and permitted transferees have the right to participate in any transaction
initiated by any of them to transfer 5% or more of the outstanding securities
of Global Crossing and (2) Pacific Capital Group, GKW Unified Holdings,
Canadian Imperial Bank of Commerce, Continental Casualty Company and MRCo and
their affiliates and permitted transferees have the right to participate in any
transaction initiated by any of them to transfer any securities of Global
Crossing if that transaction would result in a change of control of Global
Crossing.
In addition, so long as Gary Winnick, Pacific Capital Group and GKW Unified
Holdings and certain of their transferees collectively beneficially own, within
the meaning of Section 13(d) of the Securities Exchange Act of 1934, at least
15% of the outstanding shares of Global Crossing common stock, they are
entitled to seek appraisal of the fair value of the Global Crossing common
stock that they beneficially own and the payment of the fair value in cash in
connection with any merger or consolidation of Global Crossing or the sale,
lease or transfer of all or substantially all of the assets of Global Crossing,
if they, in their capacity as shareholders of Global Crossing, did not vote in
favor of or consent to that transaction and beneficially own the Global
Crossing common stock as to which appraisal is sought immediately before the
transaction.
Under the registration rights agreement, the Global Crossing shareholders who
are parties to that agreement and a number of their transferees have demand and
piggyback registration rights and receive indemnification and, in some
circumstances, expense reimbursement from Global Crossing in connection with an
applicable registration.
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Some Differences Between Rights of Shareholders of Frontier
and Rights of Shareholders of Global Crossing
Upon completion of the merger, holders of Frontier common stock will become
entitled to receive Global Crossing common stock. Global Crossing is a company
formed under the laws of Bermuda, and Frontier is a corporation incorporated
under the laws of New York. The Companies Act 1981 is the statute that governs
Bermuda companies, and the New York Business Corporation Law is the statute
that governs New York corporations.
The following is a summary of some material differences between the rights of
holders of Frontier common stock and the holders of Global Crossing common
stock. These differences arise from differences between the corporate laws of
the State of New York and Bermuda, as well as differences between the Frontier
restated certificate of incorporation and the Frontier by-laws, on the one
hand, and the Global Crossing memorandum of association and the Global Crossing
bye-laws, on the other hand. See "Description of Global Crossing Capital
Stock." This discussion is not a complete statement of all differences between
rights of holders of Global Crossing common stock and Frontier common stock.
This summary discusses material differences between the laws of Bermuda and
those of New York. It also discusses material differences between the Global
Crossing memorandum of association and bye-laws and the Frontier restated
certificate of incorporation and by-laws. This summary is qualified by the full
text of each document and the Companies Act and the New York Business
Corporation Law. For information as to how to get those documents, see "Where
You Can Find More Information" beginning on page 171.
Size and classification of the board of directors
Global Crossing. Bermuda law permits a company's board of directors to be
divided into classes with staggered terms of office. The Global Crossing bye-
laws provide for three classes of directors with staggered terms. The Global
Crossing bye-laws mandate that Global Crossing have not less than eleven
directors and not more than eighteen. The board of directors currently consists
of seventeen directors. If the proposed amendments to the Global Crossing bye-
laws are adopted, the size of the Global Crossing board of directors will be
increased to a maximum of twenty.
Frontier. The New York Business Corporation Law provides that a
corporations's board of directors may be divided into classes with staggered
terms of offices. Neither the Frontier restated certificate of incorporation
nor the Frontier by-laws provide for a staggered board of directors. The
Frontier certificate of incorporation mandates that Frontier have not less than
nine directors. The Frontier by-laws currently provide for twelve directors.
Removal of directors; vacancies; alternate directors
Global Crossing. The Global Crossing bye-laws provide that shareholders may
in a special meeting called for that purpose remove a director, provided notice
of the meeting is given to the director not less than 14 days before the
meeting, and the director is entitled to be heard at the meeting. Any vacancy
created by the removal of a director at a special meeting may be filled at the
meeting by the election of another director or, in the absence of an election,
by the board of directors. The Global Crossing bye-laws also provide that any
director will be removed from office (A) upon resolution of the board, if the
director or the director's alternate was absent from board meetings for more
than six consecutive months without permission of the board or (B) if, after
the initial term, that is, the term for any director commencing on August 13,
1998, no less than three-quarters of the directors request the director to
resign.
Under Global Crossing's bye-laws, any director may appoint any other
director, or any other person approved by resolution of the Global Crossing
board of directors, to act as an alternate director to represent that director.
A director may remove an alternate director appointed by that director.
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Frontier. The New York Business Corporation Law provides that any or all of
the directors of a corporation may be removed for cause by a vote of the
shareholders and that the certificate of incorporation or by-laws may provide
for removal without cause by a vote of the shareholders. Frontier's charter and
by-laws do not permit removal without cause.
New York law provides that vacancies occurring for any reason other than
removal without cause may be filled by vote of the board of directors. If the
number of directors then in office is less than a quorum, those vacancies may
be filled by vote of a majority of the directors then in office. Under the
Frontier by-laws, a director elected to fill a vacancy will hold office until
the next annual meeting of the shareholders and until his or her successor has
been elected and qualified.
Frontier directors are not permitted to appoint alternate directors.
Meetings of shareholders
Global Crossing. Under Bermuda law, an annual meeting must be held once every
calendar year. A special meeting of shareholders may be convened by a majority
of the directors at any time and must be convened upon the request of
shareholders holding not less than one-tenth of the paid up capital of the
company carrying the right to vote at general meetings. In addition, the
proposed amendments to the Global Crossing bye-laws, if adopted, will grant
authority to the chairman or co-chairman of the board of directors to convene a
special shareholder meeting at any time.
Frontier. Under New York law, special meetings may be called by the board of
directors and by any other person or persons authorized to do so by the
corporation's certificate of incorporation or by-laws. The Frontier by-laws
provide that a special meeting may be called only by the board of directors. At
any special meeting, only business related to the purpose or purposes stated in
the notice to shareholders may be transacted.
Action by written consent of shareholders; shareholder resolutions
Global Crossing. Action by written consent of shareholders is permitted in
Bermuda, except for the purpose of removing an auditor or director before the
expiration of his or her term of office. A written resolution must be signed by
all shareholders entitled to attend and vote at a meeting. In addition, the
Global Crossing bye-laws provide that, unless a greater percentage is required
by the Companies Act or by a specific bye-law provision, any matter proposed
for consideration at any general meeting requires the affirmative vote of a
majority of votes that may be cast by all shareholders to be approved. If the
proposed amendments to the bye-laws are approved, ordinary shareholder
resolutions will require the affirmative vote of a majority of the votes cast
at a shareholders' meeting to be adopted.
Frontier. The New York Business Corporation Law provides that shareholders
may take any action without a meeting by written consent only if the consent is
signed by the holders of all the outstanding shares entitled to vote on that
action, unless otherwise provided in the certificate of incorporation. The
Frontierby-laws also provide that with respect to any corporate action, other
than the election of directors, required to be taken by a vote of the
shareholders, the action shall, except as otherwise required by law or by the
Frontier restated certificate of incorporation, be authorized by a majority of
the votes cast at the applicable meeting.
Vote required for extraordinary corporate transaction
Global Crossing. Bermuda law permits an amalgamation between two or more
Bermuda companies or between one or more Bermuda exempted companies and one or
more foreign corporations subject, unless the bye-laws otherwise provide, to
obtaining a majority vote of three-fourths of the shareholders of each company
present and voting in person or by proxy at a meeting called for that purpose
at which the quorum shall be two persons holding more than one-third of the
issued shares. Short form amalgamations are permitted between a holding company
and one or more of its wholly owned subsidiary companies or between two or more
wholly
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owned subsidiary companies of the same holding company subject to approval of
the amalgamation by a resolution of the directors of each amalgamating company.
The Global Crossing bye-laws provide that an amalgamation requires the approval
of a simple majority of votes cast at any shareholder's meeting, subject to
specified quorum requirements.
Frontier. The New York Business Corporation Law requires the affirmative vote
of two-thirds of all outstanding shares entitled to vote thereon to effect a
merger, a consolidation, a share exchange or the sale, lease or disposition of
all or substantially all of a corporation's assets. In addition, under some
circumstances, holders of shares of a class or series of a class are entitled
to vote together and to vote as a separate class on the transaction.
Interested director transactions
Global Crossing. The Global Crossing bye-laws provide that a director may be
a party to, or otherwise interested in, any transaction or arrangement with
Global Crossing or in which Global Crossing is otherwise interested. So long as
the director declares the nature of his or her interest in writing as required
by the bye-laws and the Companies Act, he or she will not be accountable to
Global Crossing for any benefit which he or she derives from a similar
transaction or arrangement. For the purposes of the bye-laws, a director is
deemed to have an interest in a transaction or arrangement with Global Crossing
if he or she is the holder of or is beneficially interested in 5% or more of
any class of stock of a company, or of the voting rights available to
shareholders of a company, with which Global Crossing is proposing to enter
into a transaction or arrangement.
Frontier. The New York Business Corporation Law provides that no transaction
between a corporation and one or more of its directors or an entity in which
one or more of its directors are directors or officers or have a financial
interest shall be void or voidable solely for that reason. In addition, no such
transaction shall be void or voidable solely because the director is present at
or votes at the meeting of the board of directors or committee which authorizes
the transaction. In order to avoid such a transaction being void or voidable,
it must, after disclosure of material facts (unless those facts were known),
(1) be approved by the disinterested directors or a committee of disinterested
directors by a vote sufficient for such purpose without counting the vote of
any interested director, or, if the vote of disinterested directors is
insufficient to constitute an act of the board under New York law, by the
unanimous vote of the disinterested directors or (2) be approved by a vote of
the shareholders. Alternatively, the transaction will not be void or voidable
if it is shown to have been fair to the corporation at the time it was approved
by the board, a committee or the shareholders.
Transfer restrictions
Global Crossing. The Global Crossing bye-laws also provide that transfers to
a shareholder that result in the shareholder beneficially owning more than a
specified percentage of Global Crossing stock will not be registered in the
share register of Global Crossing and shall be void and of no effect unless the
transfer is duly approved. See "Description of Global Crossing Capital Stock--
Voting and transfer restrictions."
Frontier. There are no similar restrictions on transfers of shares under New
York law or Frontier's restated certificate of incorporation or by-laws.
Business combination statutes
Global Crossing. The Companies Act does not contain any business combination
statute similar to the New York statue described below.
Frontier. Under New York law, a corporation is generally prohibited from
engaging in specified business combinations, including specified mergers and
consolidations, dispositions of assets and issuances of securities as well as a
number of other transactions, with an interested shareholder, unless the
business combination, or the purchase of stock by means of which the interested
shareholder became an interested person, is either (1) approved by the
corporation's board of directors in advance, (2) approved by the affirmative
vote of the
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holders of a majority of the outstanding voting stock not beneficially owned by
the interested shareholder at a meeting called for that purpose no earlier than
five years after the interested person's stock acquisition date or (3) a
business combination that meets specified conditions. An interested shareholder
generally includes holders of 20% or more of the outstanding voting stock of
the corporation.
Shareholder suits
Global Crossing. The Bermuda courts would permit a shareholder to begin a
derivative action in the name of the company to remedy a wrong done to the
company only (1) where the act complained of is alleged to be beyond the
corporate power of the company or illegal; (2) where the act complained of is
alleged to constitute a fraud against the minority shareholders by those
controlling the company; provided that the majority shareholders have used
their controlling position to prevent the company from taking action against
the wrongdoers; (3) where an act requires approval by a greater percentage of
the company's shareholders than actually approved it; or (4) where there is an
absolute necessity to waive the general rule that a shareholder may not bring
such an action in order that there not be a violation of the company's
memorandum of association or bye-laws.
There is also a statutory remedy under Section 111 of the Companies Act,
which provides that a shareholder may seek redress of the court as long as he
or she can establish that the company's affairs are being conducted, or have
been conducted, in a manner oppressive or prejudicial to the interests of some
of the shareholders, including himself.
Frontier. Under New York law, a shareholder may institute a lawsuit against
one or more directors, either on his or her own behalf, or derivatively on
behalf of the corporation. The New York Business Corporation Law enables a
corporation to eliminate or limit, and the Frontier restated certificate of
incorporation does so limit, a director's personal liability to the corporation
or the holders of its capital stock for monetary damages for violations of the
director's fiduciary duty to the full extent permitted under the New York
Business Corporation Law.
Dissenters' rights
Global Crossing. Under Bermuda law a dissenting shareholder of a company
participating in an amalgamation, other than an amalgamation between a company
and its wholly owned subsidiary or between two or more wholly owned
subsidiaries of the same holding company, may, in specified circumstances,
receive cash or other consideration in the amount of the fair value of the
shareholder's shares as determined by a court, instead of the consideration he
or she would otherwise receive in that amalgamation.
Frontier. The New York Business Corporation Law grants dissenters' rights to
shareholders, which are rights to receive payment of the fair value of one's
shares determined by judicial appraisal, in the case of specified mergers or
consolidations, a sale of all or substantially all of the corporation's assets
and, in the case of a shareholder whose shares would be adversely affected,
specified amendments to the certificate of incorporation. The right to receive
payment of the fair value is not available, however,
(1) to a shareholder of the surviving corporation in a merger, unless (A)
the certificate of amendment alters or abolishes any preferential rights of
the shares having preferences; or (B) creates, alters or abolishes any
provision or right in respect of the redemption of the shares or any
sinking fund for the redemption or purchase of the shares; or (C) alters or
abolishes any preemptive right of the holder to acquire shares or other
securities; or (D) excludes or limits the right of the holder to vote on
any matter, except as that right may be limited by the voting rights given
to new shares then being authorized of any existing or new class;
(2) to a shareholder of the parent corporation in a merger between the
parent and subsidiary corporation of which the parent owns at least 90% of
the outstanding shares; or
(3) to a shareholder for the shares that were listed on a national
securities exchange or designated as a national market system security by
the National Association of Securities Dealers, Inc. on the record date for
the related meeting.
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The New York Business Corporation Law also provides that, in determining the
fair value for payment of shares, the court consider the nature of the
transaction and its effect on the corporation and its shareholders and the
concepts and methods of valuation then customary in the relevant financial and
securities markets.
Dividends
Global Crossing. The Global Crossing bye-laws provide that the board of
directors may from time to time declare dividends or distributions out of
contributed surplus to be paid to the shareholders according to their rights
and interests including any interim dividends that appear to the board of
directors to be justified. The board of directors must be satisfied on
reasonable grounds that at the time when the dividends are declared and at the
time when the dividends are paid, Global Crossing is, and would after the
payment be, able to pay its debts as they fall due and that the realizable
value of Global Crossing's assets would not be less than the aggregate of its
liabilities and its issued share capital and share premium accounts.
Frontier. Under the New York Business Corporation Law, a corporation may
declare and pay dividends on its outstanding shares except when currently the
corporation is insolvent or would be made insolvent upon payment of the
dividends or when the declaration, payment or distribution would be contrary to
any restrictions contained in the certificate of incorporation. In general,
dividends may be declared or paid out of surplus only.
Voting
Global Crossing. The Global Crossing bye-laws contain restrictions on voting
shares if a holder owns more than a specified percentage of the voting power.
See "Description of Global Crossing Capital Stock--Voting and transfer
restrictions."
Frontier. The Frontier restated certificate of incorporation and by-laws
contain no similar restriction.
Preemptive rights
Global Crossing. Bermuda law does not require that preemptive rights be
provided for in the bye-laws of the company. Preemptive rights may exist by
contractual arrangement or pursuant to the terms of issue of the shares. The
Global Crossing bye-laws do not contain any provision concerning preemptive
rights, nor has Global Crossing entered into any agreement or arrangement
granting preemptive rights.
Frontier. The New York Business Corporation Law provides, subject to
specified exceptions, preemptive rights to shareholders upon an issuance of
securities which would adversely affect specified interests of the
shareholders; however, the certificate of incorporation of a corporation may
provide otherwise. The Frontier restated certificate of incorporation states
that no holders of shares of Frontier of any class or series, now authorized or
authorized in the future, will have any preemptive rights.
Amendments to corporate governance documents
Global Crossing. Amendments to the memorandum of association of a Bermuda
company must be submitted to a general meeting of the shareholders and will be
effective only to the extent approved by the shareholders at that meeting and,
in respect of certain amendments to a company's objects, by the Bermuda
Minister of Finance. The Global Crossing bye-laws provide that the bye-laws may
be amended by resolution of the board of directors, subject to approval by
shareholder resolution at a general meeting. In some circumstances, the vote or
consent of the holders of 75% of the outstanding shares of capital stock of
Global Crossing and the approval of the majority of the Global Crossing board
of directors are required.
Frontier. Under New York law, amendments to a certificate of incorporation
may be authorized by the vote of a majority of outstanding shares entitled to
vote thereon. New York law also provides for approval by vote of the holders of
a majority of outstanding shares of a particular class of stock in some
circumstances. The
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by-laws of Frontier may be amended by a vote of the holders of the shares at
the time entitled to vote in the election of any directors. They may also be
amended by the board of directors of Frontier, but any by-law adopted by the
board of directors may be amended or repealed by the shareholders entitled to
vote in the election of any directors.
Limitations on directors' liability
Global Crossing. Under Bermuda law, a director must observe the statutory
duty of care which requires the director to act honestly and in good faith with
a view to the best interests of the company and exercise the care, diligence
and skill that a reasonably prudent person would exercise in comparable
circumstances. Directors are also subject to common law fiduciary duties which
require directors to act in what they reasonably believe to be the best
interests of the company and for a proper purpose. Bermuda law renders void any
provision in the bye-laws or any contract between a company and any director
exempting him or her from or indemnifying him or her against any liability in
respect of any fraud or dishonesty of which he or she may be guilty in relation
to the company. The Global Crossing bye-laws contain a number of provisions
limiting the liability of directors as permitted under Bermuda law.
The Global Crossing bye-laws provide that each shareholder agrees to waive
any claim or right of action he or she may have, whether individually or by or
in the right of Global Crossing, against any director of Global Crossing on
account of any action taken by any director, or the failure of any director to
take any action in the performance of his or her duties with or for Global
Crossing; provided, however, that this waiver does not apply to any claims or
rights of action arising out of the fraud or dishonesty of a director.
Frontier. The New York Business Corporation Law permits a corporation to
limit or eliminate a director's personal liability to the corporation or the
holders of its capital stock for breach of duty. This limitation is generally
unavailable for acts or omissions by a director which (1) were in bad faith,
(2) involved intentional misconduct or a knowing violation of law, or (3)
involved a financial profit or other advantage to which such director was not
legally entitled. The New York Business Corporation Law also prohibits
limitations on director liability for acts or omissions which resulted in a
violation of a statute prohibiting specified dividend declarations, specified
payments to shareholders after dissolution and particular types of loans.
The Frontier restated certificate of incorporation provides for limitations
on directors' liability as permitted by New York law.
Rights of inspection
Global Crossing. Bermuda law provides the public with a right of inspection
of a Bermuda company's public documents at the office of the Registrar of
Companies in Bermuda and provides a Bermuda company's shareholders with a right
of inspection of the company's bye-laws, minutes of general shareholder
meetings and audited financial statements. The register of shareholders is also
open to inspection by shareholders free of charge and, upon payment of a small
fee, by any other person. A Bermuda company is required to maintain its share
register in Bermuda, but if it is a public company, it may establish a branch
register outside Bermuda. A Bermuda company is required to keep at its
registered office a register of its directors and officers which is open for
inspection 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.
Frontier. Under the New York Business Corporation Law, any person who has
been a shareholder of record of a corporation, upon at least five days' written
demand, has the right to examine, in person or by agent or attorney, the
corporations minutes of the proceedings of its shareholders and a record of its
shareholders and to make extracts from those records for any purpose reasonably
related to the person's interest as a shareholder. Upon the written request of
any shareholder, the corporation must give or mail to that shareholder an
annual balance sheet and profit and loss statement for the preceding fiscal
year, and, if any interim balance sheet or profit and loss statement has been
distributed to its shareholders or otherwise made available to the public, the
most recent such interim balance sheet or profit and loss statement.
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Repurchase of untraced shares
Global Crossing. The Global Crossing bye-laws provide that Global Crossing
will be entitled to sell at the best price reasonably obtainable, or if the
shares are listed on a stock exchange, to purchase at the trading price as of
the date of purchase, the shares of a shareholder or the shares that a person
is entitled to as a result of death, bankruptcy or otherwise by operation of
law if: (1) during a period of twelve years, at least three dividends have been
declared and all dividends that have been sent in the manner authorized by the
bye-laws remained uncashed; (2) after twelve years, advertisements are placed
both in a national daily newspaper and a newspaper circulating in the area of
the last known address of that shareholder or other person giving notice of
Global Crossing's intention to purchase or sell the shares; (3) for three
months after the advertisements are placed, no information regarding that
shareholder is received; and (4) if the shares are listed on a stock exchange,
notice is given to the stock exchange of Global Crossing's intention to sell or
purchase those shares prior to the publication of the advertisements.
Global Crossing will hold the proceeds of any such sale for a period of six
years, during which period the applicable shareholder will be a creditor of
Global Crossing and will be entitled, upon request, to payment of the proceeds
from the sale of those shares without interest. After the six-year period ends,
any unclaimed proceeds will become the property of Global Crossing.
Frontier. The Frontier by-laws do not contain any provision regarding
untraced shares.
Indemnification of Global Crossing by shareholders for some taxes and other
impositions
Global Crossing. The Global Crossing bye-laws provide that if any law imposes
or purports to impose any immediate, future or possible liability on Global
Crossing to make any payment in respect of shares held by or distributions
payable or paid to any shareholder, then Global Crossing shall be fully
indemnified by that shareholder or that shareholder's executor or administrator
from that liability. In addition, Global Crossing will have a lien on all
dividends and other money payable in respect of the shares held by that
shareholder until the applicable liability is paid, plus interest, and may
recover as a debt due from that shareholder or his or her administrator any
money paid by Global Crossing as a result of that liability. Global Crossing
may also refuse to register a transfer of any shares until such money and
interest is repaid or set off.
Frontier. Frontier does not have similar indemnification rights under its
corporate governance documents.
Indemnification of officers and directors
Global Crossing. Under Bermuda law, a company is permitted to indemnify any
officer or director out of the funds of the company against (1) any liability
incurred by him or her in defending any proceedings, whether civil or criminal,
in which judgment is given in his or her favor, or in which he or she is
acquitted, or in connection with any application under relevant Bermuda
legislation in which relief from liability is granted to him or her by the
court and (2) any loss or liability resulting from negligence, default, breach
of duty or breach of trust, save for fraud and dishonesty. The Global Crossing
bye-laws contain provisions regarding the indemnification of officers and
directors. The Global Crossing bye-laws generally provide for indemnification
to the extent permitted under Bermuda law.
Frontier. Under the New York Business Corporation Law, indemnification of
directors and officers may be provided to whatever extent is authorized by a
corporation's certificate of incorporation or a by-law or vote adopted by the
shareholders. The New York Business Corporation Law does not permit
indemnification with respect to any matter as to which the director or officer
has been adjudicated not to have acted in good faith in the reasonable belief
that the action taken was in the best interest of the corporation.
The Frontier by-laws currently provide for indemnification of directors and
officers and advancement of indemnified expenses to the fullest extent
permitted under the New York Business Corporation Law.
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Indemnification of shareholders by Global Crossing for some taxes
Global Crossing. The Global Crossing bye-laws provide that, if the existing
voting and transfer restrictions in the bye-laws are amended or the board of
directors and shareholders approve a restricted transfer of shares, Global
Crossing will indemnify each shareholder that is treated as a "United States
Shareholder" under Section 951 et. seq. of the Internal Revenue Code as a
result of that amendment from and against all losses, costs, damages,
liabilities and expenses arising out of, directly or indirectly, that
treatment.
Frontier. Frontier does not have similar indemnification obligations under
its corporate governance documents because it is a United States corporation.
Rights agreement
Global Crossing. Global Crossing has not adopted a shareholder rights plan.
Frontier. Frontier has adopted a rights agreement, dated April 9, 1995,
between Frontier and The First National Bank of Boston which contains
provisions that may delay, defer or prevent a takeover of Frontier. In
connection with the merger agreement, Frontier and Bank of Boston entered into
an amendment to the rights agreement, which provides that the rights would not
become exercisable as a result of the approval, execution, delivery or
performance of the merger agreement or the stock option agreement. Immediately
before the completion of the proposed merger, the rights under the rights
agreement will expire.
"Anti-Greenmail"
Global Crossing. Bermuda law does not contain an anti-greenmail statute.
Frontier. The New York Business Corporation Law provides that no domestic
corporation may purchase more than 10% of its stock from a shareholder who has
held the shares for less than two years at any price which is higher than the
market price unless the transaction is approved by both the corporation's board
of directors and a majority of the shares entitled to vote or the corporation
offers to purchase shares from all the holders on the same terms.
Listing
Global Crossing. Global Crossing common stock trades on both the Nasdaq
National Market and the Bermuda Stock Exchange.
Frontier. Frontier common stock is listed on the New York Stock Exchange.
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Proposals to Global Crossing Shareholders
To Be Voted on at the Global Crossing Annual Meeting
Please refer to Annex G to this joint proxy statement/prospectus for the
complete text of each proposal to Global Crossing shareholders to be voted on
at the Global Crossing annual meeting.
Proposal No. 1: Increase in Global Crossing's authorized share capital
On June 18, 1999, the Global Crossing board of directors unanimously adopted
a resolution approving an increase in Global Crossing's authorized share
capital from $6,000,000 to $30,200,000 for the purpose of:
. increasing the number of authorized shares of Global Crossing common
stock, par value $0.01 per share, from 600,000,000 shares to
3,000,000,000 shares; and
. authorizing the future issuance of 20,000,000 shares of Global Crossing
preferred stock, par value $0.01 per share.
The Global Crossing board of directors is asking shareholders to approve the
resolution, which is included in Annex G to this document, at the Global
Crossing annual meeting. The Global Crossing bye-laws require that the
resolution be approved by a majority of the aggregate votes of all issued and
outstanding shares of capital stock of Global Crossing.
The merger is conditioned on approval by Global Crossing shareholders of the
increase in the authorized share capital of Global Crossing to create shares
of Global Crossing common stock, which will be issued in the merger to
Frontier shareholders in exchange for shares of Frontier common stock in a
number equal to the exchange ratio. See "The Merger--What you will receive in
the merger." Without this amendment, Global Crossing will not have enough
authorized shares of common stock to issue to Frontier shareholders in the
merger. The Global Crossing board of directors has unanimously determined that
the merger and the increase in Global Crossing's authorized share capital to
effectuate the merger are in the best interests of Global Crossing and its
shareholders. See "The Merger--Recommendation of the Global Crossing board of
directors; Reasons for the merger." Shareholders who beneficially own shares
of Global Crossing common stock representing over a majority of the voting
power of Global Crossing have agreed to vote in favor of proposal no. 1. As a
result, the vote of these shareholders will be sufficient to approve this
proposal without any further vote by any other Global Crossing shareholder.
In addition, the Global Crossing board of directors believes that it is
desirable to have additional authorized shares of common and preferred stock
available for possible future financing and acquisition transactions, stock
dividends or splits, employee benefit plans and other general corporate
purposes. Having authorized shares of common and preferred stock available for
issuance in the future will allow Global Crossing to issue those shares
without the expense and delay of a special shareholder meeting.
Common stock
Of the 2,400,000,000 additional shares of Global Crossing common stock, if
authorized:
. up to approximately 316,315,144 shares will be issued upon closing of
the merger to Frontier shareholders in exchange for their shares of
Frontier common stock, with each Frontier shareholder receiving that
number of shares of Global Crossing common stock equal to the exchange
ratio. See "The Merger--What you will receive in the merger;"
. approximately 17,000,000 shares will be reserved for issuance under
Frontier stock options and warrants which, in the merger, will become
options or warrants to purchase Global Crossing common stock;
. 56,784,270 additional shares will be reserved for issuance under the
1998 Global Crossing Ltd. Stock Incentive Plan (the "1998 Plan"); and
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. approximately 2,009,900,586 shares will remain available for possible
future financing and acquisition transactions, stock dividends or
splits, employee benefit plans and other general corporate purposes.
The additional authorized but unissued shares of Global Crossing common stock
could be issued at the discretion of the Global Crossing board of directors
without any further action by the shareholders, except as required by
applicable law or regulation, in connection with acquisitions, efforts to raise
additional capital for Global Crossing and other corporate purposes. The Global
Crossing board of directors has no present plan or intention to issue any
shares of Global Crossing common stock authorized by this proposal, other than
in connection with the merger and the 1998 Plan.
As of July 29, 1999, the total amount of authorized shares of Global Crossing
common stock was 600,000,000 shares, and 412,732,100 shares of Global Crossing
common stock were issued and outstanding.
Preferred stock
The preferred stock, if authorized, could be issued at the discretion of the
Global Crossing board of directors without any further action by the
shareholders, except as required by applicable law or regulation, in connection
with acquisitions, efforts to raise additional capital for Global Crossing and
other corporate purposes. The Global Crossing board of directors has no present
plan or intention to issue any shares of preferred stock authorized by this
proposal.
This proposal would authorize the Global Crossing board of directors, from
time to time, to divide the preferred stock into classes or series, to
designate each class or series and to determine for each class or series its
respective rights and preferences, including, without limitation, any of the
following: (1) the rate of dividends and whether dividends were cumulative or
had a preference over the common stock in right of payment; (2) the terms and
conditions upon which shares may be redeemed and the redemption price; (3)
sinking fund provisions for the redemption of shares; (4) the amount payable in
respect of each share upon a voluntary or involuntary liquidation of Global
Crossing; (5) the terms and conditions upon which shares may be converted into
other securities of Global Crossing, including common stock; (6) limitations
and restrictions on payment of dividends or other distributions on, or
redemptions of, other classes of Global Crossing capital stock junior to such
series, including the common stock; (7) conditions and restrictions on the
creation of indebtedness or the issuance of other senior classes of capital
stock; (8) the terms on which shares may be redeemed, if any, and (9) voting
rights. Any series or class of preferred stock could, as determined by the
Global Crossing board of directors at the time of issuance, rank, with respect
to dividends, voting rights, redemption and liquidation rights, senior to the
Global Crossing common stock. The preferred stock to be authorized is of the
type commonly known as "blank-check" preferred stock.
The creation and issuance of preferred stock may constitute a variation of
certain rights of the Global Crossing common stock. It is not possible to state
the precise effects of the authorization of the preferred stock upon the rights
of the holders of Global Crossing common stock until the Global Crossing board
of directors determines the respective preferences, limitations and relative
rights of the holders of the class as a whole or of any series or class of the
preferred stock. These effects might include, without limitation: (1) reduction
of the amount otherwise available for the payment of dividends on common stock
to the extent dividends are payable on any issued preferred stock; (2)
restrictions on dividends on the common stock; (3) rights of any series or
class of preferred stock to vote separately or to vote with the common stock;
(4) conversion of the preferred stock into common stock at such prices as the
Global Crossing board of directors determines, which could include issuance at
below fair market value or original issue price of the common stock, diluting
the book value or per share value of the outstanding common stock; and (5) the
holders of common stock not being entitled to share in Global Crossing's assets
upon liquidation until satisfaction of any liquidation preference granted to
holders of the preferred stock. Holders of Global Crossing common stock do not
have preemptive rights to purchase shares in future issuances.
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Potential antitakeover effect
This proposal may have an anti-takeover effect. The flexibility vested in the
Global Crossing board of directors to authorize the issuance of common stock
and preferred stock in one or more classes or series could enhance the Global
Crossing board of directors' bargaining capability on behalf of Global Crossing
shareholders in a takeover situation and could, under certain circumstances, be
used to render more difficult or discourage a merger, tender offer or proxy
contest, the assumption of control by a holder of a large block of Global
Crossing securities or the removal of incumbent management, even if such a
transaction were favored by the holders of the requisite number of the then
outstanding shares of capital stock. For example, the Global Crossing board of
directors could issue preferred stock having terms that could discourage an
acquisition attempt or other transaction that some, or a majority, of the
shareholders might believe to be in their best interests or in which
shareholders might receive a premium for their stock over market price.
Accordingly, shareholders might be deprived of an opportunity to consider a
takeover proposal which a third party might consider if Global Crossing did not
have authorized but unissued shares of capital stock.
The Global Crossing board of directors recommends a vote FOR proposal no. 1
Proposal No. 2: Issuance of shares of Global Crossing common stock in the
merger
On June 18, 1999, the Global Crossing board of directors unanimously adopted
a resolution approving the issuance of shares of Global Crossing common stock,
par value $0.01 per share, in the merger, subject to completion of the merger.
These shares will not be issued unless the merger is completed. This share
issuance is being submitted for the approval of the shareholders of Global
Crossing pursuant to the requirements of the National Association of Securities
Dealers applicable to companies with securities quoted on the Nasdaq National
Market. The NASD requirements provide that this share issuance must be approved
by a majority of all outstanding shares of Global Crossing common stock, voting
as a single class, at the Global Crossing annual meeting.
The merger cannot be completed unless Global Crossing shareholders approve
the issuance of these shares in the merger. Shareholders who beneficially own
shares of Global Crossing common stock representing over a majority of the
voting power of Global Crossing have agreed to vote in favor of proposal no. 2.
As a result, the vote of these shareholders will be sufficient to approve this
proposal without any further vote by any other Global Crossing shareholder.
These shares will be issued to Frontier shareholders in exchange for their
Frontier common stock in a number per Frontier common stock share equal to the
exchange ratio described in this document. See "The Merger--What you will
receive in the merger" and "The Merger Agreement--Termination; Possible
exchange ratio increase."
The Global Crossing board of directors recommends a vote FOR proposal no. 2
Proposals Nos. 3 and 4: Amendment and restatement of Global Crossing bye-laws
The Global Crossing board of directors has approved the amendment and
restatement of the Global Crossing bye-laws. The existing bye-laws have not
been amended since Global Crossing became a public company. The proposed
amendments aim to make the Global Crossing bye-laws more suitable for a public
company and reflect common corporate practice among United States public
companies and public companies that, like Global Crossing, list or trade their
equity shares on a United States securities exchange or the Nasdaq National
Market. Accordingly, the Global Crossing board of directors is asking
shareholders to approve these amendments, which the Global Crossing board has
adopted by resolution included in Annex G.
Proposal No. 3: Amendment and restatement of Global Crossing bye-laws (other
than bye-laws 34(2), 63, 130 and 148)
The following discussion of the proposed amendments is qualified in its
entirety by the full text of the amended bye-laws set forth in Annex G. You
should read Annex G carefully. Under the existing Global
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Crossing bye-laws, these amendments require the vote of shares of common stock
representing at least a majority of all outstanding shares of common stock.
Reducing the minimum shareholder voting requirements for certain corporate
actions
The existing bye-laws require the approval of a majority of the votes of all
outstanding shares of capital stock to:
. adopt ordinary shareholder resolutions,
. increase or decrease the authorized capital stock,
. alter the capital stock, including the creation of several classes of
stock, the increase or decrease in par value of capital stock, the
authorization and issuance of non-voting capital stock, the cancellation
of shares of capital stock not previously allocated and the change of
the currency in which the capital stock is denominated,
. alter or abrogate the special rights of a class of shares of capital
stock by (1) reducing the capital paid up on those shares, (2) creating
another class of stock ranking in priority for payment of dividends or
in respect of capital over those shares or (3) creating a class of stock
with more favorable voting rights than those shares; however, the bye-
laws require the approval of at least 75% of the votes of all
outstanding shares of capital stock to alter or abrogate the special
rights of a class by written consent rather than by shareholder vote,
. elect directors, and
. amend the bye-laws with some exceptions that require the approval of at
least 75% of all outstanding shares of capital stock to be amended.
The proposed amendments reduce the minimum shareholder voting requirement to
approve the corporate actions specified above to a majority of all votes cast
at the shareholder meeting at which these corporate actions are being voted on.
These amendments, if adopted, will become effective only if and when the merger
is completed.
Manner of voting
The existing bye-laws provide that shareholders may vote at meetings either
on a poll with one vote per share or by a show of hands with one vote per
shareholder. The proposed amendments provide that voting by shareholders may be
conducted only on a poll.
Notice of special meetings and shareholder director nominations
The existing bye-laws provide that a special shareholders' meeting may be
called by not less than 30 days' notice by the board of directors or by
shareholders representing at least 10% of the paid in capital of Global
Crossing. In addition, the existing bye-laws provide that notice of shareholder
director nominations must be given to Global Crossing not less than 60 nor more
than 90 days before the date of the annual or special shareholder meeting at
which these nominations will be voted on.
The proposed amendments provide that a special shareholders' meeting may be
called by not less than 10 days' notice by the chairman or co-chairman of the
board of directors, in addition to the board of directors and by shareholders
representing at least 10% of the paid in capital of Global Crossing. In
addition, the proposed amendments provide that notice of shareholder director
nominations in connection with an annual shareholder meeting must be received
by Global Crossing not less than 120 nor more than 150 days before the date of
the release of Global Crossing's proxy statement in connection with the prior
year's annual shareholder meeting. The proposed amendments do not provide for
shareholder director nominations in connection with special meetings.
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Notice period to shareholders
Under the existing bye-laws, when counting the period of any notice to
shareholders, the date when the notice is sent, on the one hand, and the date
when the notice is received or, if the notice relates to a shareholder meeting,
the date of that meeting, on the other hand, are excluded from the period of
that notice.
The proposed amendments expressly provide that those dates will be counted in
the period of any notice to shareholders.
Number of directors and casual vacancies
The existing bye-laws provide that, at each annual meeting, shareholders will
by resolution determine the minimum and maximum number of directors on the
Global Crossing board of directors. The bye-laws currently provide that the
minimum number of directors is 11 and the maximum number of directors may not
exceed 18. In addition, the existing bye-laws provide that the Global Crossing
board of directors will have a fixed number of class A, B and C directors.
Also, the existing bye-laws provide that the number of casual vacancies, that
is vacancies that may be filled by the board, will be determined by shareholder
resolution.
The proposed amendments fix the maximum number of directors at 20 and the
minimum number at 11, until another shareholder resolution is adopted amending
those numbers. In addition, the proposed amendments provide that all vacancies
on the board of directors will be casual vacancies and that the board of
directors will have the authority to determine by resolution the number of
class A, B, and C directors that will serve on the board from time to time.
Staggered terms
Under the existing bye-laws, class A directors elected at the annual meeting
will serve until the annual meeting in 2002, class B directors will serve until
the annual meeting in 2000 and class C directors will serve until the annual
meeting in 2001. If the proposed amendments are adopted, class A directors
elected at the annual meeting will serve until the annual meeting in 2000,
class B directors elected at the annual meeting will serve until the annual
meeting in 2001 and class C directors elected at the annual meeting will serve
until the annual meeting in 2002.
Outside directors' compensation
The existing bye-laws provide that the compensation of Global Crossing's
outside directors will be determined by shareholder resolution. The proposed
amendments provide that the compensation of outside directors will be
determined by the Global Crossing board of directors from time to time.
Potential antitakeover effect
Some of the proposed amendments in proposal no. 3 may have an antitakeover
effect, although this was not the intent of the Global Crossing board of
directors in adopting these amendments. In particular, the proposed amendment
to remove the ability of shareholders to nominate directors at special meetings
may have the effect of delaying consideration of a shareholder director
nomination until the next annual meeting. In addition, the proposed amendment
granting authority to the board of directors to determine the number of class
A, B and C directors from time to time may limit the number of director
nominations that shareholders may make or vote on at shareholder meetings. The
proposed amendment to the notice requirement for director nominations at annual
meetings may have the effect of precluding a director nomination if the proper
notice requirement has not been met.
The Global Crossing board of directors recommends a vote FOR proposal no. 3
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Proposal No. 4: Amendment and restatement of Global Crossing bye-laws 34(2),
63, 130 and 148
The following discussion of the proposed amendments is qualified in its
entirety by the full text of the amended bye-laws set forth in Annex G. You
should read Annex G carefully. Under the existing Global Crossing bye-laws,
these amendments require the vote of shares of common stock representing at
least 75% of all outstanding shares of common stock.
Record date for shareholder votes
The existing bye-laws do not provide for the establishment of a record date
for shareholders entitled to vote at shareholder meetings or by written
resolution. As a result, under the current bye-laws, shareholders of record at
the close of business on the date of a shareholder meeting or on the date when
a shareholder resolution is passed by written consent are entitled to vote.
The proposed amendments grant authority to the Global Crossing board of
directors to establish a record date for shareholders entitled to vote at
shareholder meetings and take action by written resolution.
Restrictions on transfers of shares
The existing bye-laws provide that a transfer of shares to any shareholder
that results in a shareholder that is a natural person owning 5% or more of the
outstanding shares of common stock or in any other shareholder owning 9.5% or
more of the outstanding shares of common stock may not be recorded in the share
register unless that transfer is approved by a majority of the directors and by
at least 75% of the votes of all outstanding shares of common stock. Pacific
Capital Group, GKW Unified Holdings, Canadian Imperial Bank of Commerce,
Continental, MRCo and their affiliates are not subject to this restriction on
transfers.
The proposed amendments reduce the minimum shareholder voting requirement to
approve any transfer resulting in any shareholder owning 5% or more, if the
shareholder is a natural person, or otherwise 9.5% or more of the outstanding
shares of common stock to a majority of the votes cast at the shareholder
meeting called to approve that transfer. These amendments, if adopted, will
become effective only if and when the merger is completed.
Limitation on voting rights
The existing bye-laws limit the voting power of large shareholders to 9.5% of
the total voting power of the Global Crossing common stock. Any additional
votes which these large shareholders would be entitled to cast but for this
limitation in the bye-laws are allocated to other shareholders, pro rata based
on their number of shares. Canadian Imperial Bank of Commerce and its
affiliates are the only shareholders exempt from this limitation on voting
rights. Their aggregate voting power is capped under the existing bye-laws at
35% of the total voting power of the Global Crossing capital stock.
The proposed amendments limit the voting power of large shareholders to 9.5%
of the total votes cast in connection with any shareholder action. In addition,
the proposed amendments decrease the cap on the voting power of Canadian
Imperial Bank of Commerce and its affiliates to 20% of the total votes cast in
connection with any shareholder action. These amendments, if adopted, will
become effective only if and when the merger is completed.
Correction of typographical error
In existing bye-law 34(2)(ii), the reference to "maximum percentage" should
read "Maximum Percentage." The proposed amendment makes this correction.
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Potential Antitakeover effect
The Global Crossing board of directors does not believe that any of the
foregoing proposed amendments to the bye-laws in proposal no. 4 have an
antitakeover effect.
The Global Crossing board of directors recommends a vote FOR proposal no. 4
Proposal No. 5: Election of directors
The Global Crossing board of directors has made the following director
nominations:
. Abbott L. Brown, Thomas J. Casey, William E. Conway and Barry Porter to
be elected as class A directors with terms expiring in 2000. Messers.
Brown, Casey, Conway and Porter currently serve as directors of Global
Crossing;
. Robert Annunziata, Lodwrick M. Cook, Geoffrey J.W. Kent, David L. Lee,
Bruce Raben and Jack M. Scanlon to be elected as class B directors with
terms expiring in 2001. Messers. Annunziata, Cook, Kent, Lee and Raben
currently serve as directors of Global Crossing; and
. Jay R. Bloom, Dean C. Kehler, Michael R. Steed, Hillel Weinberger and
Gary Winnick to be elected as class C directors with terms expiring in
2002. Messers. Bloom, Kehler, Steed, Weinberger and Winnick currently
serve as directors of Global Crossing.
In addition, the Global Crossing board of directors has made the following
director nominations, subject to the closing of the merger and with effect
immediately after the closing of the merger:
. James F. McDonald to be elected as class A director with a term expiring
in 2000;
. Eric Hippeau to be elected as class B director with a term expiring in
2001; and
. Joseph P. Clayton and Douglas H. McCorkindale to be elected as class C
directors with terms expiring in 2002.
Messers. Clayton, Hippeau, McCorkindale and McDonald are currently serving as
directors of Frontier.
The Global Crossing board of directors recommends the election of the nominees
Director Nominees
Gary Winnick--Mr. Winnick, 51, founder of Global Crossing, has been Co-
Chairman of the Global Crossing board of directors since January 1998 and,
prior to that date, was Chairman of the Global Crossing board of directors
since March 1997. Mr. Winnick is the founder and has been the Chairman and
Chief Executive Officer of Pacific Capital Group since 1985, having been in the
principal equity investment and merchant banking business since that time.
Lodwrick M. Cook--Mr. Cook, 70, has been Co-Chairman of the Global Crossing
board of directors since January 1998 and Vice Chairman and Managing Director
of Pacific Capital Group since 1997. Prior to joining Pacific Capital Group,
Mr. Cook spent 39 years at Atlantic Richfield Co., serving as President and
Chief Executive Officer from 1985 to 1995 and as Chairman of the board of
directors from 1986 to 1995, when he became Chairman Emeritus. Mr. Cook is also
a member of the board of directors of Castle and Cooke, Litex and Ocean Energy,
Inc.
Thomas J. Casey--Mr. Casey, 46, was elected Vice Chairman of the Global
Crossing board of directors in December 1998 and was appointed Managing
Director of Global Crossing in September 1998. Prior to
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joining Global Crossing, Mr. Casey was co-head of Merrill Lynch & Co.'s Global
Communications Investment Banking Group for three years. From 1990 to 1995, Mr.
Casey was a partner and co-head of the telecommunications and media group of
the law firm of Skadden, Arps, Slate, Meagher and Flom.
Jack M. Scanlon--Mr. Scanlon, 57, has been Vice Chairman of the Global
Crossing board of directors since February 1999 and has been a director of
Global Crossing since April 1998. Mr. Scanlon was Chief Executive Officer of
Global Crossing from April 1998 to February 1999. Prior to joining Global
Crossing, Mr. Scanlon was President and General Manager of the Cellular
Networks and Space Sector of Motorola Inc. and had been affiliated with
Motorola Inc. since 1990. Mr. Scanlon was Chief Operating Officer of Cambridge
Technology Group from 1988 to 1990 and, prior thereto, spent 24 years with AT&T
and Bell Laboratories, rising to Group Vice President at AT&T.
Robert Annunziata--Mr. Annunziata, 50, has been Chief Executive Officer of
Global Crossing since February 1999 and a director of Global Crossing since
March 1999. From September 1998 to February 1999, Mr. Annunziata was President
of AT&T's $22 billion business services group, responsible for the AT&T global
network. Prior thereto, Mr. Annunziata was Chairman and Chief Executive Officer
of the Teleport Communications Group from 1983 to 1998. Prior to joining
Teleport, Mr. Annunziata served 17 years at AT&T in a variety of increasingly
senior operations, sales and marketing positions.
David L. Lee--Mr. Lee, 49, has been President and Chief Operating Officer and
a director of Global Crossing since March 1997. He has also been a managing
director of Pacific Capital Group since 1989. Prior to joining Pacific Capital
Group, Mr. Lee was Group Vice President of Finance and Acquisitions at TRW
Information Systems Group.
Barry Porter--Mr. Porter, 41, is Senior Vice President, Corporate Development
and a director of Global Crossing. Mr. Porter has been a director of Global
Crossing since 1997 and has also been a Managing Director of Pacific Capital
Group since 1993. From 1986 to 1993, Mr. Porter was affiliated with Bear,
Stearns & Co. Inc., rising to Senior Managing Director in the investment
banking department.
Abbott L. Brown--Mr. Brown, 55, is Senior Vice President, Corporate Affairs
and a director of Global Crossing. Mr. Brown has been a director of Global
Crossing since 1997 and was a Managing Director and Chief Financial Officer of
Pacific Capital Group from 1994 to 1998. From 1990 through 1994, Mr. Brown was
Executive Vice President, Chief Financial Officer and a member of the board of
directors of Sony Pictures Entertainment Inc., a wholly-owned subsidiary of
Sony Corporation. Prior thereto, Mr. Brown was a partner in the international
accounting firm of Price Waterhouse LLP.
Jay R. Bloom--Mr. Bloom, 43, a director of Global Crossing since March 1997,
is a Managing Director of CIBC World Markets Corp., co-head of its High Yield
Group and co-head of CIBC World Markets High Yield Merchant Banking Funds. Mr.
Bloom also serves on the board of directors of Heating Oil Partners, L.P.,
Consolidated Advisers Limited, L.L.C. and Morris Material Handling, Inc. Prior
to joining CIBC Oppenheimer in August 1995, Mr. Bloom was a founder and
Managing Director of The Argosy Group L.P. From 1984 to 1990, Mr. Bloom was a
Managing Director in the Mergers and Acquisitions Group of Drexel Burnham
Lambert Incorporated. Mr. Bloom was an investment banker associated with Lehman
Brothers Kuhn Loeb Incorporated from 1982 to 1984 and, from 1981 to 1982,
practiced law at Paul Weiss Rifkind Wharton & Garrison in New York.
William E. Conway--Mr. Conway, 49, became a director of Global Crossing in
August 1998. Mr. Conway has been a managing director of The Carlyle Group since
1987. Mr. Conway was Senior Vice President and Chief Financial Officer of MCI
Communications Corporation from 1984, until he jointly founded The Carlyle
Group in August 1987. Mr. Conway serves as director to GTS Duratek, Inc.,
Nextel Communications, Inc. and Hownet International Corporation.
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Dean C. Kehler--Mr. Kehler, 42, a director of Global Crossing since March
1997, is a Managing Director of CIBC World Markets Corp. and co-head of its
High Yield Group. In addition, Mr. Kehler is a member of CIBC's Investment
Committee and co-head of CIBC World Markets High Yield Merchant Banking Funds.
Prior to joining CIBC World Markets Corp. in 1995, Mr. Kehler was a founder and
managing director of The Argosy Group. From 1985 to 1990, Mr. Kehler was a
managing director in the Mergers and Acquisitions Group, Co-Head of Merchant
Banking and a member of the Corporate Finance Executive Committee of Drexel
Burnham Lambert Incorporated. From 1979 to 1985, Mr. Kehler was an investment
banker at Lehman Brothers. Mr. Kehler serves on the board of directors of Booth
Creek Group, Inc., Telebanc Financial Corporation and Heating Oil Partners,
L.P.
Geoffrey J.W. Kent--Mr. Kent, 56, a director of Global Crossing since August
1998, is Chairman and Chief Executive Officer of the Abercrombie & Kent Group
of companies and has been associated with these companies since 1967.
Bruce Raben--Mr. Raben, 45, a director of Global Crossing since March 1997,
is a Managing Director of CIBC World Markets Corp. Prior to joining CIBC World
Markets Corp. in January 1996, Mr. Raben was a founder, managing director and
co-head of the Corporate Finance Department of Jefferies & Co., Inc. since
1990. Mr. Raben serves as a director of Optical Security, Inc., Evercom, Inc.,
Terex Corporation and Equity Marketing, Inc.
Michael R. Steed--Mr. Steed, 49, a director of Global Crossing since March
1997, is Senior Vice President of Investments for the Union Labor Life
Insurance Company, ULLICO Inc. and its family of companies and President of
Trust Fund Advisors, ULLICO's investment management subsidiary. Mr. Steed
joined ULLICO in November 1992 after serving seven years as President and
Founder of A.F.I.C. Group, Ltd., a financial and investment consulting firm.
From 1983 to 1985, Mr. Steed was the Executive Director of the Democratic
National Committee. Mr. Steed serves as a director of The Lewis & Clark Snake
River Beverage Company.
Hillel Weinberger--Mr. Weinberger, 45, a director of Global Crossing since
June 1997, has been a Senior Vice President of Loews/CNA Holdings Corp. since
1988. Prior thereto, Mr. Weinberger was a Senior Vice President of Presidential
Life from 1982 to 1988.
Joseph P. Clayton--Mr. Clayton, 49, is Chief Executive Officer of Frontier
and has held this position since March 1999. He also served as Frontier's
President from June 1997 to March 1999 and its Chief Operating Officer from
June 1997 to August 1997. From March 1992 until December 1996, he was Executive
Vice President, Marketing and Sales--Americas and Asia, Thomson Consumer
Electronics, a worldwide leader in the consumer electronics industry. He has
been a director of Frontier since 1997.
Eric Hippeau--Mr. Hippeau, 47, is Chairman and Chief Executive Officer of
Ziff-Davis Inc., a publicly-listed company whose majority shareholder is
Softbank, Corp. Ziff-Davis Inc. is a leading integrated media and marketing
company focused on computing and internet-related technology. Mr. Hippeau has
held this position since December 1993. Prior to that he held other senior
executive positions within Ziff-Davis. He is a director of Ziff-Davis Inc.,
Yahoo!, Inc., Herring Communications, Inc. and Starwood Hotels and Resorts
Worldwide, Inc. He has been a director of Frontier since 1998.
Douglas H. McCorkindale--Mr. McCorkindale, 60, is Vice Chairman and President
of Gannett Co., Inc., a nationwide diversified communications company, and has
held that position since September 1997. Prior to that he held the position of
Vice Chairman and Chief Financial and Administrative Officer. He is a director
of Gannett Co., Inc. and Continental Airlines and a director or trustee of a
number of investment companies in the family of Prudential Mutual Funds. He has
been a director of Frontier since 1980.
James F. McDonald--Mr. McDonald, 59, is President and Chief Executive Officer
of Scientific-Atlanta, Inc., a leading supplier of broadband communications
systems, satellite-based video, voice and data
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communications networks and world-wide customer service and support. Mr.
McDonald has held that position since July 1993. He is a director of
Scientific-Atlanta, Inc., Burlington Resources, Inc. and American Business
Products, Inc. He has been a director of Frontier since 1998.
Some additional executive officers of Global Crossing
In addition to the executive officers who are also directors and are
described above, Global Crossing has the following executive officers:
Dan J. Cohrs--Mr. Cohrs, 46, has been Senior Vice President and Chief
Financial Officer of Global Crossing since May 1998. From 1993 to 1998, Mr.
Cohrs was affiliated with GTE Corporation, rising to the position of Vice
President and Chief Planning and Development Officer in 1997. From 1990 to
1993, he was at Northwest Airlines and served as Vice President of
International Finance (Tokyo, Japan); from 1986 to 1990, he was at the Marriott
Corporation and served in such capacities as Vice President of Financial
Planning and Acquisitions and Vice President of Project Finance; and from 1983
to 1986, he was a Strategy and Financial Consultant at Marakon Associates.
James C. Gorton--Mr. Gorton, 37, became Senior Vice President and General
Counsel of Global Crossing in July 1998 and Secretary of Global Crossing in
August 1998. From 1994 to 1998, Mr. Gorton was a partner in the New York law
firm of Simpson Thacher & Bartlett and had been associated with the firm since
1986. Mr. Gorton received a J.D. degree from New York University Law School.
Robert B. Sheh--Mr. Sheh, 59, has been Executive Vice President--Construction
& Operations since February 1999. From 1998 to 1999, Mr. Sheh was Chief
Executive Officer of Stone & Webster Engineering Ltd. From 1992 to 1998, Mr.
Sheh served as President and Chief Executive Officer of International
Technology Corporation and as Chairman and Chief Executive of Air & Water
Technologies from 1996 to 1997. From 1989 to 1992, Mr. Sheh served as President
of The Ralph M. Parsons Company, a worldwide engineering and construction
company. Mr. Sheh was associated with The Ralph M. Parsons Company for over 20
years.
Board meetings and committees
12 meetings, including regularly scheduled and special meetings, of the
Global Crossing board of directors were held during 1998. During this period,
Mr. Phoenix attended 66 2/3% of all meetings of the board of directors. Each
other director attended 75% or more of all meetings of the board of directors
and of the committees on which that director served.
The audit committee and the compensation committee are the standing
committees of the Global Crossing board of directors.
Audit Committee
The audit committee, currently composed of directors Weinberger, Conway and
Kent, met four times during 1998. The principal functions of the audit
committee are to (1) make recommendations concerning the engagement of
independent public accountants; (2) review with the Global Crossing management
and the independent public accountants the plans for, and scope of, the audit
procedures to be utilized and results of audits; (3) approve the professional
services provided by the independent public accountants; (4) review the
adequacy and effectiveness of Global Crossing's internal accounting controls;
(5) review Global Crossing's insurance program; and (6) perform any other
duties and functions required by any organization under which Global Crossing's
securities may be listed.
Compensation Committee
The compensation committee, currently composed of directors Cook, Steed and
Levine, met six times during 1998. The purpose of the compensation committee is
to establish and submit to the Global Crossing
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board of directors recommendations with respect to (1) compensation of officers
and other key employees of Global Crossing and (2) awards to be made under the
1998 Plan.
Proposal No. 6: Amendment of the 1998 Global Crossing Ltd. Stock Incentive Plan
On June 18, 1999, the Global Crossing board of directors unanimously adopted
a resolution to amend the 1998 Plan for the purpose of increasing the number of
authorized shares of Global Crossing common stock, par value $0.01 per share,
reserved for issuance under the 1998 Plan from 33,215,730 shares to 90,000,000
shares. The Global Crossing board of directors is asking shareholders to
approve the resolution, which is included in Annex G to this proxy statement.
Below is a summary of certain important features of the 1998 Plan. This summary
is qualified in its entirety by reference to the full text of the 1998 Plan in
Annex H.
Description of the 1998 Plan
The 1998 Plan is administered by the Global Crossing board of directors,
which may delegate its duties in whole or in part to any subcommittee solely
consisting of at least two individuals who are "non-employee" directors within
the meaning of Rule 16b-3 under the Exchange Act and "outside directors" within
the meaning of Section 162(m) of the Code. The 1998 Plan allows the board of
directors to make awards of stock options, stock appreciation rights, which can
be granted either in conjunction with, or independent of, stock options, and
other stock based awards to any individual who is selected by the board of
directors to participate in the 1998 Plan.
The board of directors has the authority to interpret the 1998 Plan, to
establish, amend and rescind any rules and regulations relating to the 1998
Plan and to make any other determinations that the board of directors deems
necessary or desirable for the administration of the 1998 Plan. The board of
directors may also correct any defect or supply any omission or reconcile any
inconsistency in the 1998 Plan in the manner and to the extent the board of
directors deems necessary or desirable. Any decision of the board of directors
in the interpretation and administration of the 1998 Plan lies within its sole
and absolute discretion and is final, conclusive and binding on all parties
concerned, including participants in the 1998 Plan and their beneficiaries or
successors.
An aggregate of 33,215,730 shares of Global Crossing common stock is
currently authorized for issuance under the 1998 Plan. As of June 3, 1999,
1,310,511 shares of Global Crossing common stock had been issued under the 1998
Plan, 31,826,621 shares were subject to outstanding options granted under the
1998 Plan and no shares were available for additional stock option grants or
other stock-based awards.
The maximum number of shares for which awards may be granted during a
calendar year is determined by the board of directors from time to time. No
award may be granted under the 1998 Plan after the tenth anniversary of July 1,
1998, but awards granted prior to that date may extend beyond that date.
Stock options. Stock options granted under the 1998 Plan may be non-qualified
or incentive stock options for federal income tax purposes. The board of
directors will set option exercise prices and terms and will determine the time
at which stock options will be exercisable. However, the term of a stock option
may not exceed 10 years.
The board of directors may also grant stock options that are intended to be
incentive stock options, which comply with Section 422 of the Internal Revenue
Code. No incentive stock options may be granted to any participant who, at the
time of the purported grant, owns more than 10% of the total combined voting
power of all classes of capital stock of Global Crossing or any of its
subsidiaries, unless (1) the option price for such stock option is at least
110% of the "fair market value," as described below, of a share on the date of
the grant and (2) the term of that stock option does not exceed the day
preceding the fifth anniversary of the grant date. "Fair market value" is
defined as the mean of the per share closing bid price and the per share
closing asked
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price on that grant date as quoted on the National Association of Securities
Dealers Automated Quotation System.
Stock appreciation rights. Stock appreciation rights may be granted by the
board of directors to participants as a right in conjunction with the number of
shares underlying stock options granted to participants under the 1998 Plan or
on a stand-alone basis with respect to a number of shares for which a stock
option has not been granted. Stock appreciation rights constitute the right to
receive payment for each share of the stock appreciation rights exercised in
stock or in cash equal to the excess of that share's fair market value on the
date of exercise over the exercise price per share, multiplied by the number of
shares covered (1) in the case of a stock appreciation right independent of an
option, by the stock appreciation right and (2) in the case of a stock
appreciation right granted in conjunction with an option, by the option. The
board of directors will determine the exercise price per share of stock
appreciation rights; however, that price may not be less than the greater of
(1) the fair market value, in the case of a stock appreciation right
independent of an option, of a share of common stock on the grant date and, in
the case of an applicable stock appreciation right granted in conjunction with
an option, of the price of that option and (2) an amount permitted by
applicable laws, rules, by-laws or policies of regulatory authorities or stock
exchanges. The board of directors may also impose, in its discretion,
conditions on the exercisability or transferability of stock appreciation
rights.
The board of directors may also grant limited stock appreciation rights that
are exercisable upon the occurrence of special contingent events. Limited stock
appreciation rights may provide for a different method of determining
appreciation, may specify that payment will be made only in cash and may
provide that any related awards are not exercisable while the limited stock
appreciation rights are exercisable.
Other stock-based awards. The board of directors has the authority to grant
other stock-based awards, which may consist of awards of common stock,
restricted stock and awards that are valued in whole or in part by reference
to, or are otherwise based on the fair market value of, shares of common stock.
Other stock-based awards may be granted on a stand-alone basis or in addition
to any other awards granted under the 1998 Plan. The board of directors will
determine the form of other stock-based awards and the conditions on which they
may be dependent, such as the right to receive one or more shares of common
stock or the equivalent value in cash upon the completion of a specified period
of service or the occurrence of an event or the attainment of performance
objectives. The board of directors will also determine the participants to whom
other stock-based awards may be made, the timing thereof, the number of shares
to be awarded, whether such other stock-based awards will be settled in cash,
stock or a combination of cash and stock and all other terms of such awards.
General. Stock options, stock appreciation rights and restricted stock awards
are not transferable or assignable. Global Crossing may deduct sufficient sums
to pay withholding required for federal, state and local taxes or other taxes
as a result of the exercise of a stock award.
In the event of any stock dividend or split, reorganization,
recapitalization, merger, consolidation, spin-off, combination or exchange of
stock or other corporate exchange or any distribution to shareholders other
than regular cash dividends, the board of directors may, in its sole
discretion, make a substitution or adjustment, as the board of directors deems
to be equitable, to the number or kind of stock issued or reserved for issuance
under the 1998 Plan pursuant to outstanding awards and the term, including
option price, of such awards.
Except as otherwise provided in a stock award agreement, in the event of a
change in control with respect to Global Crossing, the board of directors may,
in its sole discretion, accelerate a stock award, cause Global Crossing to make
a cash payment in exchange for a stock award or require the issuance of a
substitute stock award.
Certain income tax consequences
Global Crossing has been advised by counsel that the material federal income
tax consequences to Global Crossing and the participants in the 1998 Plan of
the grant and exercise of options and stock appreciation rights
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under existing and applicable provisions of the Internal Revenue Code of 1986
and regulations will generally be as follows:
Incentive stock options. A participant will not realize any taxable income at
the time an incentive stock option is granted or exercised, and Global Crossing
will not receive an income tax deduction at the time of grant or exercise. If a
participant does not sell stock acquired upon the exercise of an incentive
stock option within (1) two years after the date of the grant or (2) one year
after the date of exercise, then a subsequent sale of such stock generally will
be taxed as capital gain or loss. If a participant disposes of shares acquired
upon the exercise of an incentive stock option within the period set forth in
clause (1) or (2) above, then that participant will generally realize ordinary
income in an amount equal to the lesser of (a) the gain realized by that
participant upon such disposition and (b) the excess of the fair market value
of the stock on the date of exercise over the exercise price. In that event,
Global Crossing would generally be entitled to an income tax deduction equal to
the amount recognized as ordinary income by the applicable participant. Any
gain in excess of the amount recognized by the participant as ordinary income
would be taxed as short-term or long-term capital gain, depending on the
holding period.
Non-qualified stock options. A participant will not realize taxable income
upon the grant of a non-qualified stock option, and Global Crossing will not
receive an income tax deduction at such time. Upon exercise of a non-qualified
stock option, the applicable participant will realize ordinary income in an
amount equal to the excess of the fair market value of the stock on the date of
exercise over the exercise price. Upon a subsequent sale of such stock, the
participant will recognize short-term or long-term capital gain depending on
his or her holding period for the shares. Global Crossing is generally allowed
an income tax deduction at the same time and in the same amount recognized as
ordinary income by the participant.
Stock appreciation rights. Amounts received upon the exercise of a stock
appreciation right are taxed at ordinary rates when received. Global Crossing
is generally allowed an income tax deduction equal to the amount recognized as
ordinary income by the participant.
Other stock-based awards. Amounts received by the participant upon the grant
of other stock-based awards are ordinarily taxed at ordinary rates when
received. However, if such other stock-based awards consist of property subject
to restrictions, the amounts generally will not be taxed until the restrictions
lapse or until the participant makes an election under Section 83(b) of the
Internal Revenue Code. Global Crossing is generally allowed an income tax
deduction at the same time and in the same amount recognized as ordinary income
by the participant.
The Global Crossing board of directors recommends a vote FOR proposal no. 6
Proposal No. 7: Ratification of outside directors' compensation
The Global Crossing board of directors is asking shareholders to ratify the
Global Crossing compensation plan for outside directors, which was adopted by
resolution of the Global Crossing Board of directors on June 12, 1998 and is
included in Annex G. Each director who is not an employee of Global Crossing
receives cash compensation of $2,500 for each meeting of the Global Crossing
board of directors that that director attended after February 28, 1998. In
addition, each of directors Bloom, Kehler, Levine, Phoenix, Raben, Steed and
Weinberger received options to purchase 120,000 shares of Global Crossing
common stock. The exercise price of the options is $0.83 per share, and each
such option has a term of 10 years. Each director's first 30,000 options became
immediately exercisable, the next 45,000 options became exercisable on April 3,
1999 and the remaining 45,000 options will become exercisable on April 3, 2000,
in each case so long as that director continues to be a director of Global
Crossing on that date. On August 13, 1998, each of directors Conway, Kent and
Ogasawara also received options to purchase 120,000 shares of Global Crossing
common stock. The exercise price of the options is $3.33 per share, and each
such option has a term of 10 years. Each such director's first 30,000 options
became immediately exercisable, the next 45,000 options will become exercisable
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on August 13, 1999 and the remaining 45,000 options will become exercisable on
August 13, 2000, in each case so long as that director continues to be a
director of Global Crossing on that date.
The Global Crossing board of directors recommends a vote FOR proposal no. 7
Proposal No. 8: Ratification of Arthur Andersen & Co. as Global Crossing's
independent auditors for 1999 and approval of the board of directors'
authority to determine their remuneration
Under Section 89 of the Companies Act, 1981 of Bermuda, Global Crossing
shareholders have the authority to appoint the independent auditors of Global
Crossing and to authorize the Global Crossing Board of directors to determine
the auditors' remuneration. The Global Crossing board of directors is asking
shareholders to ratify the appointment by the Global Crossing board of
directors of Arthur Andersen & Co. to audit the accounts of Global Crossing for
the fiscal year ending December 31, 1999 and the authority of the Global
Crossing board of directors to determine their remuneration.
The board of directors recommends a vote FOR proposal no. 8
Receipt of financial statements
Under Section 84 of the Companies Act, 1981 of Bermuda, the audited financial
statements of Global Crossing for the year ended December 31, 1998 will be
presented at the annual meeting. These statements have been approved by the
directors of Global Crossing. There is no requirement under Bermuda law that
these statements be approved by shareholders, and no such approval will be
sought at the meeting.
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Global Crossing Executive Compensation
Compensation committee report
Compensation Philosophy
Global Crossing's compensation philosophy is to relate the compensation of
Global Crossing's executive officers to measures of company performance that
contribute to increased value for Global Crossing's shareholders.
To assure that compensation policies are appropriately aligned with the value
Global Crossing creates for shareholders, Global Crossing's compensation
philosophy for executive officers takes into account the following goals:
. enhancing shareholder value;
. representing a competitive and performance-oriented environment that
motivates executive officers to achieve a high level of individual,
business unit and corporate results in the business environment in which
they operate;
. relating incentive-based compensation to the performance of each
executive officer, as measured by financial and strategic performance
goals; and
. enabling Global Crossing to attract and retain top quality management.
The Compensation Committee of the board of directors, which we will refer to
as the "Committee", periodically reviews the components of compensation for
Global Crossing's executive officers on the basis of this philosophy and
periodically evaluates the competitiveness of its executive officer
compensation program relative to comparable companies. When the Committee
determines that executive officer compensation adjustments or bonus awards are
necessary or appropriate, it makes recommendations to the board of directors.
The board of directors has sole authority to modify executive officer
compensation and award annual bonuses.
Section 162(m) of the Internal Revenue Code of 1986 limits the deductibility
of certain annual compensation payments in excess of $1 million to its
executive officers. It is the objective of the Compensation Committee to
administer compensation plans in compliance with the provisions of Section
162(m) where feasible and where consistent with Global Crossing's compensation
philosophy as stated above.
Executive Compensation Components
The major components of compensation for executive officers, including the
Chief Executive Officer (the "CEO"), are base salary, annual bonuses and stock
option grants. Each component of the total executive officer compensation
package emphasizes a different aspect of Global Crossing's compensation
philosophy.
. Base Salary. Base salaries for executive officers, including the CEO,
are initially set upon hiring by the Co-Chairman and the CEO, based on
recruiting requirements (i.e., market demand), competitive pay
practices, individual experience and breadth of knowledge, internal
equity considerations and other objective and subjective factors.
Increases to base salary are determined by the board of directors upon
the recommendation of the CEO and the Compensation Committee. Increases
are determined primarily on an evaluation of competitive data, the
individual's performance and contribution to Global Crossing and Global
Crossing's overall performance. Base salaries are periodically reviewed
by the Compensation Committee.
. Target Annual Bonuses. Global Crossing relies to a large degree on
annual bonus compensation to attract, retain and reward executives of
outstanding abilities and to motivate them to perform to the full extent
of their abilities. Target bonuses for executive officers, including the
CEO are determined on the basis of competitive bonus levels, level of
responsibility, ability to influence results on a corporate or business
unit level and, on occasion, subjective factors. Annual bonuses for
executive officers are determined by the board of directors upon
recommendations by the CEO and the Compensation Committee.
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. Stock Option Grants. The only current long-term incentive opportunity
for executive officers, including the CEO, is the award of stock option
grants awarded under the 1998 Global Crossing Stock Incentive Plan. In
contrast to bonuses that are paid for prior year accomplishments, stock
option grants represent incentives tied to future stock appreciation.
They are intended to provide executive officers with a direct incentive
to enhance shareholder value. Options are awarded at the discretion of
the board of directors, based on recommendations of the CEO and
Compensation Committee, to persons holding key management positions.
Options vest over a three-year period with a maximum term of ten years.
Option grants are determined primarily based on an evaluation of
competitive data and the anticipated contribution that the executive
officer will make to Global Crossing.
The Committee conducts annually a full review of the performance of Global
Crossing and its executive officers in assessing compensation levels. The
Committee considers various qualitative and quantitative indicators of both
Global Crossing and the individual performance of its executive officers. This
review evaluates Global Crossing's performance both on a short- and long-term
basis. The Committee may consider such future quantitative measures as Total
Shareholder Return ("TSR"), Return on Shareholder's Equity ("ROSE"), Return on
Capital Employed ("ROCE") and percent change in operating and net income. The
Committee may also consider qualitative measures such as leadership,
experience, strategic direction and overall contribution to Global Crossing.
In addition, the Committee evaluates compensation in light of the
compensation practices of other companies in the telecommunications industry
and peer group companies as may be determined by the Committee. These companies
are used as a reference standard for establishing levels of base salary, bonus
and stock options. For 1998, executive officer compensation was targeted at the
75th percentile relative to peer group companies in the telecom industry.
1999 Executive Compensation Review
Based on the factors set forth above, the Committee recommended that the
board of directors approve salary increases and 1998 bonus awards for all
executive officers, except in the case of Mr. Casey who had recently joined
Global Crossing. The CEO and Co-Chairman recommended against additional stock
option grants to executive officers at this time. The Committee agreed with
that recommendation.
Jack Scanlon held the position of CEO from April 1998 through February 1999.
In determining Mr. Scanlon's salary increase and 1998 bonus award, the
Committee reviewed the performance of Global Crossing against its goals. During
1998, Global Crossing began operation of the first leg of its global fiber
optic network, held its initial public offering and executed capacity purchase
agreements totaling more than one billion dollars. The Committee believes that
Mr. Scanlon was instrumental in leading Global Crossing to achieve these
milestones.
THE COMPENSATION COMMITTEE
Lodwrick M. Cook
Michael R. Steed
Jay R. Levine
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Summary compensation table
The table below sets forth information concerning compensation paid to the
specified executive officers of Global Crossing during the last fiscal year.
<TABLE>
<CAPTION>
Annual Compensation Long Term Compensation
------------------------------------- ---------------------------------------------
Securities
Other Restricted Underlying
Annual Stock Options/ LTIP All Other
Year Salary Bonus(1) Compensation Award(s) SARs Payouts Compensation(2)
---- -------- ---------- ------------ ---------- ---------- ------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Jack M. Scanlon*........ 1998 $450,000 $ 480,000 $213,569 -- 3,600,000 -- --
Chief Executive Officer
Thomas J. Casey......... 1998 266,667 533,333 -- -- 2,000,000 -- --
Managing Director
William B. Carter....... 1998 600,000 1,050,000 -- -- 3,000 -- $5,000
President, Global 1997 200,000 750,000 -- -- -- -- --
Crossing Development
Co.
James C. Gorton......... 1998 147,179 710,000 -- -- 1,500,000 -- --
Senior Vice President
and General Counsel
Jack Finlayson.......... 1998 156,923 841,667 -- -- 1,470,000 -- --
President, Global
Crossing International,
Ltd.
</TABLE>
- --------
(1) These amounts reflect a combination of signing bonuses and annual bonuses.
(2) Represents Global Crossing's matching 401(k) contributions.
* Mr. Scanlon resigned as Chief Executive Officer in February 1999 to become
Vice Chairman of Global Crossing.
Certain compensation arrangements
The 1998 Plan provides that, unless otherwise provided in the specific award
agreement, upon a "change in control," certain awards granted under the 1998
Plan may, in the sole discretion of Global Crossing's board of directors, be
deemed to vest immediately. A "change in control" is defined under the 1998
Plan as the occurrence of any of the following: (1) any person or entity, other
than a person or entity holding securities representing 10% or more of the
combined voting power of Global Crossing's outstanding securities as of July
15, 1998, Global Crossing, any trustee or other fiduciary holding securities
under an employee benefit plan of Global Crossing, or any company owned,
directly or indirectly, by the shareholders of Global Crossing in substantially
the same proportions as their ownership of stock of Global Crossing, becomes
the beneficial owner, as defined under Rule 13d-3 promulgated under the
Securities Exchange Act, of securities of Global Crossing (a) in excess of the
interest held by the existing shareholders of Global Crossing as of July 15,
1998 and (b) representing 30% or more of the combined voting power of Global
Crossing's then outstanding securities; (2) during any period of 24 months,
individuals who at the beginning of such period constituted the board of
directors and any new director, other than any directors who meet certain
exceptions specified in the 1998 Plan, whose election was approved in advance
by a vote of at least two-thirds of the directors then still in office cease
for any reason to constitute at least a majority of the board of directors; (3)
the shareholders of Global Crossing approve any transaction pursuant to which
Global Crossing is merged or consolidated with any other company, other than a
merger or consolidation which would result in shareholders of Global Crossing
immediately prior thereto continuing to own more than 65% of the combined
voting power of the voting securities of Global Crossing or such surviving
entity, outstanding after such merger or consolidation; or (4) the shareholders
of Global Crossing approve a plan of complete liquidation of Global Crossing or
an agreement for the sale or disposition by Global Crossing of all or
substantially all of Global Crossing's assets, other than the liquidation of
Global Crossing into a wholly owned subsidiary.
Global Crossing has entered into an employment agreement with Mr. Robert
Annunziata, which provides that Mr. Annunziata will be employed as Chief
Executive Officer of Global Crossing for an initial term of three
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years until February 22, 2002 and for successive one-year terms after that
date, unless either Global Crossing or Mr. Annunziata provides at least six
months' advance notice of termination. In connection with his employment, Mr.
Annunziata received stock options to purchase an aggregate of 4,000,000 shares
of Global Crossing common stock at an exercise price of $19.81 per share. These
stock options vest in 25% increments starting on February 19, 1999 and on
February 22 of each of the first three years of Mr. Annunziata's employment
with Global Crossing, beginning on February 22, 2000. Mr. Annunziata's
employment agreement also provides for additional stock options to purchase an
aggregate of 500,000 shares of Global Crossing common stock, subject to the
Global Crossing board of directors' approval of these additional options. The
exercise price for these additional options is $24.81 per share and became
vested on Mr. Annunziata's first day of employment. Upon a "change in control"
of Global Crossing, as defined in the 1998 Plan, vesting of Mr. Annunziata's
stock options to purchase 4,000,000 shares of Global Crossing common stock will
occur immediately, and Mr. Annunziata will be entitled to terminate his
employment agreement and receive a lump sum payment equal to the sum of two
times Mr. Annunziata's then annual base salary and bonus.
Global Crossing entered into an employment agreement, dated as of April 1,
1998, with Mr. Jack Scanlon, providing for Mr. Scanlon's employment as Global
Crossing's Chief Executive Officer for a term of two years and continuing
thereafter for successive two-year terms, unless either Global Crossing or Mr.
Scanlon provides at least three months' notice in advance of the expiration of
the then current term. Mr. Scanlon voluntarily resigned as Chief Executive
Officer of Global Crossing in February 1999 to become Vice Chairman of Global
Crossing. In connection with his employment agreement, Mr. Scanlon was issued
an option to purchase a total of 3,600,000 shares of Global Crossing common
stock at an exercise price of $0.83 per share. These options vest in 25%
increments upon the first day of employment and at the end of each of the first
three years of Mr. Scanlon's employment with Global Crossing. Upon a "change in
control" of Global Crossing, as defined in the 1998 Plan, vesting of all these
options will immediately occur, and Mr. Scanlon will be entitled to terminate
the agreement and receive a lump sum payment equal to the sum of two times Mr.
Scanlon's then annual base salary and bonus.
Global Crossing has entered into an employment arrangement with Mr. Jack
Finlayson, which grants Mr. Finlayson the option to sell 300,000 shares of
common stock to Global Crossing at $6.66 per share after two years of
employment.
In September 1998, Mr. Thomas Casey was hired by Pacific Capital Group as its
President. At such time, it was also agreed among Pacific Capital Group, Global
Crossing and Mr. Casey that, in addition to Mr. Casey's role as President of
Pacific Capital Group, Mr. Casey would also serve as Managing Director of
Global Crossing. In connection with such employment, Mr. Casey received
economic rights to 2,000,000 shares of Global Crossing common stock at an
effective price of $2.00 per share. Such rights vest in 33% increments on the
first day of Mr. Casey's employment and on each of the first and second
anniversaries of the first day of Mr. Casey's employment. In connection with
Mr. Casey's dual employment, Global Crossing and Pacific Capital Group
established an arrangement whereby each entity would be responsible for a
portion of Mr. Casey's salary and long-term compensation based upon the
relative amount of time spent by Mr. Casey on matters pertaining to such
entity. Initially, 80% of Mr. Casey's salary and long-term compensation was
allocated to Global Crossing and 20% of such amounts was allocated to Pacific
Capital Group, subject to adjustment and re-allocation on an annual basis. On
March 18, 1999, in recognition of the time spent by Mr. Casey on Global
Crossing matters to such date and his expected ongoing responsibilities with
Global Crossing, the Global Crossing board of directors elected to assume the
full amount of Mr. Casey's salary and long-term compensation, with Mr. Casey
serving full time in his role with Global Crossing as Managing Director and
Vice Chairman of the board of directors.
Compensation of outside directors
Each director who is not an employee of Global Crossing receives cash
compensation of $2,500 for each meeting of the board of directors that such
director attended after February 28, 1998. In addition, each of
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directors Bloom, Kehler, Levine, Phoenix, Raben, Steed and Weinberger received
options to purchase 120,000 shares of Global Crossing common stock. The
exercise price of the options is $0.83 per share, and each such option has a
term of 10 years. Each directors first 30,000 options became immediately
exercisable, the next 45,000 options became exercisable on April 3, 1999 and
the remaining 45,000 options will become exercisable on April 3, 2000, in each
case so long as such director continues to be a director of Global Crossing on
such date. On August 13, 1998, each of directors Conway, Kent and Ogasawara
also received options to purchase 120,000 shares of Global Crossing common
stock. The exercise price of the options is $3.33 per share, and each such
option has a term of 10 years. Each of such directors first 30,000 options
became immediately exercisable, the next 45,000 options will become exercisable
on August 13, 1999 and the remaining 45,000 options will become exercisable on
August 13, 2000, in each case so long as such director continues to be a
director of Global Crossing on such date.
Option grants in last fiscal year
The table below sets forth information concerning options granted to the
specified executive officers during the last fiscal year. As of December 31,
1998, options representing a total of 17,386,667 shares of common stock had
been issued to officers or directors of Global Crossing at exercise prices
ranging from $0.83 per share to $9.50 per share.
<TABLE>
<CAPTION>
Potential Realizable Value At
Assorted Annual Rates of Stock
Price
Individual Grants Appreciation for Option Term
--------------------------------------------- -----------------------------------
Number of % of Total
Securities Options Exercise
Underlying Granted to or
Options Employees in Base Expiration
Name Granted Fiscal Year Price Date 0% 5% 10%
- ---- ---------- ------------ -------- ---------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Jack M. Scanlon*........ 3,600,000 13.09% $0.83(1) 04/01/08 $ -- $ 1,890,457 $ 4,790,790
Chief Executive Officer
Thomas J. Casey......... 2,000,000 (2) 2.00(3) 09/24/08 18,250,000 32,242,905 53,710,770
Managing Director
William B. Carter....... 3,000,000 10.91 0.83(1) 09/02/07 -- 1,575,381 3,992,325
President, Global
Crossing Development
Co.
James C. Gorton......... 1,500,000 5.45 3.33(1) 06/12/08 -- 3,146,045 7,972,697
Senior Vice President
and General Counsel
Jack Finlayson.......... 1,170,000 4.25 3.33(1) 06/12/08 -- 2,453,915 6,218,703
President, Global 300,000 1.09 9.50(4) 06/12/08 -- 1,792,350 4,542,166
Crossing International,
Ltd.
</TABLE>
- --------
(1) Market price on the grant date prior to the date of Global Crossing's
initial public offering of its common stock as determined by the board of
directors.
(2) Thomas J. Casey has been granted economic rights to 2,000,000 shares of
common stock at an effective price of $2.00 per share.
(3) The closing market price per share of common stock on the grant date was
$11.13.
(4) A portion of Mr. Finlaysons options were granted at $9.50 (the initial
public offering price of Global Crossing's common stock). For the purpose
of calculating the 5% and 10% potential realizable values, a price of
$9.50 was used.
* Mr. Scanlon resigned as Chief Executive Officer in February 1999 to become
Vice Chairman of Global Crossing.
163
<PAGE>
Aggregated option exercises in last fiscal year and fiscal year-end option
values
The table below sets forth information concerning exercises of stock options
by some executive officers during the last fiscal year and the fiscal year-end
value of such executive officer's unexercised options.
<TABLE>
<CAPTION>
Number of Securities Value of Unexercised
Underlying Unexercised In-The-Money
Options Options(2)
Shares Acquired Value ------------------------- -------------------------
on Exercise Realized(1) Exercisable Unexercisable Exercisable Unexercisable
--------------- ----------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Jack M. Scanlon*........ 119,760 $2,115,560 780,240 2,700,000 $16,952,665 $58,664,250
Chief Executive Officer
Thomas J. Casey......... -- -- 666,668 1,333,332 13,708,361 27,416,639
Managing Director
William B. Carter....... 119,760 2,115,560 880,240 2,000,000 19,125,415 43,455,000
President, Global
Crossing Development
Co.
James C. Gorton......... -- -- 375,000 1,125,000 7,210,313 21,630,938
Senior Vice President
and General Counsel
Jack Finlayson.......... 29,984 521,234 555,016 885,000 10,671,570 15,166,838
President, Global
Crossing International,
Ltd.
</TABLE>
- --------
(1) Amounts indicated are based upon the difference between the exercise price
and the closing market price on the exercise date.
(2) Amounts indicated are based upon the difference between the exercise price
and the closing market price per share of common stock of $22.56 on
December 31, 1998.
(3) Amounts indicated are with respect to the economic rights of Mr. Casey to
2,000,000 shares of Global Crossing common stock as referenced above.
* Mr. Scanlon resigned as Chief Executive Officer in February 1999 to become
Vice Chairman of Global Crossing.
Compensation committee interlocks and insider participation
The Compensation committee of the Global Crossing board of directors consists
of Messrs. Cook, Steed and Levine. Messrs. Cook, Steed and Levine were involved
in certain transactions described under "Some Global Crossing Transactions"
below.
Compliance with Section 16 of the Exchange Act
Under the federal securities laws, Global Crossing's directors, officers and
10% shareholders are required to report to the Securities and Exchange
Commission, by specific dates, transactions and holdings in Global Crossing's
common stock. Based solely on its review of the copies of such forms received
by it or written representations from certain reporting persons that no annual
corrective filings were required for those persons, Global Crossing believes
that during fiscal year 1998 all these filing requirements were timely
satisfied.
164
<PAGE>
Comparison of cumulative total returns
The graph below compares the cumulative total shareholder return on Global
Crossing common stock for the period from August 14, 1998, the initial date of
trading of Global Crossing common stock, to December 31, 1998 with the
cumulative total return on each of the Nasdaq National Market Composite Index
and a peer group of other fiber optic cable providers, which includes Qwest,
Level 3 Communications, Inc., Metromedia Fiber Network, Inc., IXC
Communications, Inc. and Equant NV, over the same period. We refer to the
cumulative return of the peer group as the Fiber Index. The graph assumes $100
invested on August 14, 1998 in Global Crossing common stock and $100 invested
on such date in each of the Nasdaq National Market Composite Index and the
Fiber Index.
STOCK PERFORMANCE
<TABLE>
<CAPTION>
Fiber Index NASDAQ National
GBLX (QWST, LVLT, MFNX, IIXC, ENT) Market Composite Index
<S> <C> <C> <C>
8/14/98 100 100 100
8/31/98 88.82 69.06 83.17
9/30/98 109.87 84.97 93.97
10/31/98 151.32 96.2 98.27
11/30/98 199.34 105.41 108.16
12/31/98 237.5 131.68 121.61
</TABLE>
At 12/31/98, a $100 initial investment is worth: GBLX $237.50
Fiber Index $131.68
Nasdaq Index $121.61
165
<PAGE>
Some Global Crossing Transactions
During 1998, Global Crossing entered into the transactions described below
with affiliates and some of its officers and directors.
Transactions with Pacific Capital Group and its affiliates
Global Crossing entered into certain transactions with Pacific Capital Group
and its affiliates, including PCG Telecom Services LLC ("PCG Telecom") and
Ocean Systems International LLC ("OSI"), in connection with the development by
Pacific Capital Group and its affiliates of several of its systems, including
AC-1, PC-1, PAC and MAC. In January 1998, the Global Crossing board of
directors elected to assume the ongoing development of systems from OSI.
Pacific Capital Group and its affiliates are controlled by Mr. Gary Winnick,
the Co-Chairman of the Global Crossing board of directors and some other
officers and directors of Global Crossing either currently are or at one time
were affiliated with Pacific Capital Group, including Messrs. Cook, Casey, Lee,
Porter and Brown.
Advisory Services Agreements. In August 1998, Global Crossing acquired the
rights to advisory fees payable under certain advisory services agreements with
PCG Telecom in consideration for the issuance, through PCG Telecom, to the
persons entitled to receive such fees of shares of Global Crossing common stock
with an aggregate value at such time of $135 million and the cancellation of $3
million owed to Global Crossing under a related advance agreement. All of the
obligations of Global Crossing in respect of the advisory services agreements
were terminated. Global Crossing obtained a fairness opinion from an
independent financial advisor in connection with this transaction. Global
Crossing incurred approximately $2 million of advisory fees under the advisory
services agreements prior to their termination. As a result of this
transaction, Global Crossing incurred a charge of approximately $138 million,
which has been reflected in its statement of operations for the year ended
December 31, 1998. Of this amount, $135 million was determined by applying the
2% advisory fee to projected revenues for Global Crossing's systems. The
present value of the aggregate advisory fees was then calculated at $155.5
million, using a discount rate of 12% in respect of AC-1 and 15% in respect of
other systems. This amount was subsequently reduced to $135 million. Both the
discount rates and the ultimate valuation were determined as a result of a
negotiation process, including a disinterested director of Global Crossing and
the various persons entitled to fees under the advisory services agreements.
The shares of Global Crossing common stock issued in connection with the
termination of Global Crossing's obligations under the advisory services
agreements were received by the following persons in the following amounts:
<TABLE>
<CAPTION>
Shares of
Recipient Common Stock
--------- ------------
<S> <C>
Gary Winnick (including Pacific Capital Group and PCG
Telecom).................................................. 6,515,154
Canadian Imperial Bank of Commerce......................... 1,340,000
ULLICO..................................................... 733,158
Lodwrick M. Cook........................................... 609,948
Abbott L. Brown............................................ 1,367,422
David L. Lee............................................... 1,822,422
Barry Porter............................................... 1,822,422
----------
Total.................................................... 14,210,526
==========
</TABLE>
PCG Warrants. Old Global Crossing and Pacific Capital Group entered into a
warrant agreement, dated as of January 21, 1998 (the "PCG Warrant Agreement"),
pursuant to which Old Global Crossing issued Pacific Capital Group three
separate warrants (collectively, the "PCG Warrants") providing Pacific Capital
Group with the right to purchase (1) 18,453,184 of Old Global Crossing's Class
B shares of common stock for an aggregate purchase price of $50,000,000; (2) an
additional 9,226,594 of Old Global Crossing's Class B shares of common stock
for an aggregate purchase price of $31,250,000; and (3) an additional 9,226,594
of Old Global Crossing's Class B shares for an aggregate purchase price of
$37,500,000. Such PCG Warrants would
166
<PAGE>
entitle Pacific Capital Group to acquire an additional 10% of the capital stock
of Old Global Crossing (as of the date of issuance of the PCG Warrants), with
the exercise price of each PCG Warrant based upon a different market valuation
of Global Crossing. In connection with the issuance of the PCG Warrants, PC-1,
MAC and PAC (then under development) were acquired by Global Crossing, as was
the development team that had been assembled by Pacific Capital Group. Rights
under each of the PCG Warrants were divided among Messrs. Winnick, Cook, Brown,
Lee and Porter in the following percentages: 50%, 8%, 12%, 15% and 15%,
respectively.
The board of directors of Old Global Crossing amended the terms of the PCG
Warrants to give each holder the option to convert each share under warrant
into a fraction of a Class B share of common stock of Old Global Crossing based
upon the ratio of the current per share valuation at the time of conversion
less the per share exercise price of the warrant divided by the current per
share valuation at the time of conversion multiplied by the number of warrants
to be converted, together with a new warrant (collectively, the "New PCG
Warrants") to purchase the remaining fraction of such Class B share at an
exercise price equal to $9.50, which was the price per share of Global Crossing
common stock on the date of Global Crossing's initial public offering in August
1998. The New PCG Warrants will terminate on August 13, 2003, five years from
the date of issuance. Prior to Global Crossing's initial public offering,
Pacific Capital Group converted the PCG Warrants in such manner into Class B
shares of common stock of Old Global Crossing and New PCG Warrants, utilizing
the anticipated price per share of Global Crossing common stock at Global
Crossing's initial public offering as the current per share valuation for such
purposes, with Global Crossing assuming the obligations of Old Global Crossing
under the New PCG Warrants (the "PCG Warrant Conversion"). Upon the PCG Warrant
Conversion, Messrs. Winnick, Cook, Brown, Lee and Porter transferred 200,000,
50,000, 50,000, 50,000 and 50,000 New PCG Warrants, respectively, to Nelson S.
Zand, an employee of Pacific Capital Group at the time.
Following such transactions, shares of common stock of Old Global Crossing
and New PCG Warrants issued in connection with the conversion of the PCG
Warrants were issued to the following persons in the following amounts:
<TABLE>
<CAPTION>
Shares of
Common Stock
of
Old Global New PCG
Name Crossing Warrants
---- ------------ ----------
<S> <C> <C>
Gary Winnick...................................... 12,203,178 6,050,004
David L. Lee...................................... 3,660,950 1,825,002
Barry Porter...................................... 3,660,950 1,825,002
Abbott L. Brown................................... 2,928,758 1,450,002
Lodwrick M. Cook.................................. 1,952,504 950,002
Nelson S. Zand.................................... 0 400,000
---------- ----------
Total........................................... 24,406,340 12,500,012
========== ==========
</TABLE>
Advance Agreements. Global Crossing entered into an advance agreement, dated
as of March 24, 1998, with PCG Telecom, pursuant to which Global Crossing
agreed to make advances to PCG Telecom in respect of fees owed to PCG Telecom
under the advisory services agreement relating to AC-1 in an amount not to
exceed 1% of the amounts payable under capacity purchase agreements executed by
an affiliate of Global Crossing. This advance agreement was terminated and the
obligation of PCG Telecom to repay $3 million to Global Crossing thereunder
canceled in connection with the termination of the advisory service agreements
discussed above.
167
<PAGE>
Of the $4,669,340 advanced to PCG Telecom under this advance agreement, the
following amounts were paid to directors, executive officers and shareholders
of Global Crossing:
<TABLE>
<CAPTION>
Name Amount
---- ----------
<S> <C>
Gary Winnick................................................ $3,191,630(1)
David L. Lee................................................ 481,130
Barry Porter................................................ 481,130
Abbott L. Brown............................................. 320,754
MRCo, Inc................................................... 194,696
----------
Total..................................................... $4,669,340
==========
</TABLE>
- --------
(1) Includes amounts received by Pacific Capital Group, including reimbursement
of Pacific Capital Group expenses of $1,987,914.
Assignment of Rights. As part of the consideration for the assumption by
Global Crossing of the rights of OSI to the ongoing development of cable
systems, in the first quarter of 1998 Global Crossing paid Pacific Capital
Group $7.0 million for costs incurred by Pacific Capital Group to such date in
connection with such development.
Thomas Casey Employment Arrangements. For a description of Mr. Casey's
employment agreement, see "Global Crossings Executive Compensation--Certain
compensation arrangements."
Transactions with Canadian Imperial Bank of Commerce and its affiliates
During 1998, Canadian Imperial Bank of Commerce and its affiliates entered
into certain financing transactions with Global Crossing in connection with the
development and construction of our systems. In particular, Canadian Imperial
Bank of Commerce or one of its affiliates: (1) arranged and was the initial
lender under a $200 million bridge facility, which was repaid and terminated on
May 18, 1998; (2) is one of the lead agents under a $482 million credit
facility for AC-1; (3) was an initial purchaser in connection with the May 1998
issuance by GCH of its $800 million senior notes; (4) together with other
lenders, entered into a credit agreement with an affiliate of Global Crossing,
effective July 30, 1998, for the $850 million non-recourse project debt
financing of PC-1; (5) together with other lenders, issued a $104 million loan
to Pacific Crossing Ltd. to make the initial payments with respect to the
construction contract for PC-1, which was repaid and terminated on July 30,
1998; (6) was an underwriter in the August 1998 initial public offering of
common stock of Global Crossing; (7) was an initial purchaser in the December
1998 offering of Global Crossing Holding's 10 1/2% senior exchangeable
preferred stock due 2008; and (8) together with other lenders, entered into a
credit agreement with MACL, effective November 25, 1998, for the $260 million
non-recourse project debt financing of MAC. During 1998, Global Crossing paid
Canadian Imperial Bank of Commerce and its affiliates approximately $19 million
(plus $6 million from a joint venture of Global Crossing) in fees in connection
with these transactions. Canadian Imperial Bank of Commerce has substantial
beneficial ownership in Global Crossing, and certain members of the board of
directors of Global Crossing are employees of an affiliate of Canadian Imperial
Bank of Commerce, including Messrs. Bloom, Kehler, Phoenix, Raben and Levine.
Transactions with Worldport
During 1998, Global Crossing and Worldport Communications, Inc. entered into
a capacity purchase agreement, pursuant to which Worldport will acquire a total
of seven STM-1s of capacity on AC-1 in a transaction that occurred in the
ordinary course of business of Global Crossing and on terms and conditions no
less favorable to Global Crossing than those contained in its other capacity
purchase agreements. Worldport also executed a memorandum of understanding to
purchase capacity on other systems on the Global Crossing Network. Certain
officers and directors of Global Crossing, including Mr. Winnick, Mr. Cook, Mr.
Scanlon,
168
<PAGE>
Mr. Lee, Mr. Porter, Mr. Brown, Mr. Raben, Mr. Bloom, Mr. Kehler and Mr. Steed,
have direct or indirect equity ownership positions in Worldport, aggregating
less than 10% of the current common stock of Worldport. In addition,
Continental Casualty Corporation, with which Mr. Weinberger is affiliated,
holds warrants to purchase common stock in Worldport, aggregating less than 1%
of the current common stock of Worldport and has also engaged in certain debt
financing transactions with Worldport.
Transactions with Telecommunications Development Corporation
Prior to Global Crossing's initial public offering of common stock,
Telecommunications Development Corporation, a Cayman Islands corporation
("TDC"), owned 22,033,758 shares of Global Crossing common stock, as well as
warrants to purchase an additional 582,954 shares of Global Crossing common
stock. TDC was formed in 1996 for the purpose of making investments in start-up
telecommunications companies and one of the companies in which TDC invested was
Global Crossing. Mr. Lee was the Chairman, and Mr. Winnick was a director of
TDC. Messrs. Lee, Winnick, Brown and Porter beneficially owned a majority of
the outstanding common stock of TDC and approximately 29% of the outstanding
preferred stock of TDC. The balance of such stock was owned by persons not
affiliated with Global Crossing (the "Unaffiliated Shareholders"). TDC informed
Global Crossing that, in connection with the August 1998 initial public
offering of Global Crossing common stock, it was undergoing a reorganization to
facilitate the ability of Unaffiliated Shareholders to sell Global Crossing
common stock in the open market following the initial public offering. In
connection with this reorganization, TDC proposed a transaction, which we refer
to as the "TDC Exchange," pursuant to which Global Crossing acquired the
22,033,758 shares of common stock owned by TDC in exchange for 21,733,758
newly-issued shares of Global Crossing common stock, based on a $9.50 price per
share. The TDC Exchange was intended to enable TDC to achieve the
reorganization without the incurrence of gain for tax purposes. Following the
TDC Exchange, TDC distributed all shares of common stock and warrants for
shares of Global Crossing common stock owned by it to the holders of its
preferred and common stock and then liquidated, which we refer to as the "TDC
Liquidation." The TDC Exchange was approved by a committee of disinterested
members of Global Crossing's board of directors. The benefit to Global Crossing
from the TDC Exchange was that it effectively acquired 300,000 shares of common
stock for no cost. Following the TDC Exchange and TDC Liquidation, shares of
Global Crossing common stock and the warrants originally held by TDC were
issued to the following persons in the following amounts:
<TABLE>
<CAPTION>
Shares of
Common Stock
Underlying
Shares of Global Crossing
Name Common Stock Warrants
---- ------------ ---------------
<S> <C> <C>
Gary Winnick................................. 4,797,080 131,428
David L. Lee................................. 5,433,234 150,300
Barry Porter................................. 1,625,816 44,634
Abbott L. Brown.............................. 541,940 14,878
Non-affiliates............................... 9,335,688 241,714
---------- -------
Total...................................... 21,733,758 582,954
========== =======
</TABLE>
169
<PAGE>
Legal Matters
The validity of the Global Crossing common stock to be issued to Frontier
shareholders pursuant to the merger will be passed upon by Global Crossing's
counsel, Appleby Spurling & Kempe, Hamilton, Bermuda. Skadden, Arps, Slate,
Meagher & Flom LLP, Los Angeles, California, special counsel to Global
Crossing, and Simpson Thacher & Bartlett, New York, New York, special counsel
to Frontier, will be delivering opinions concerning U.S. federal income tax
consequences of the merger. Appleby, Spurling & Kempe, and Conyers Dill &
Pearman, Hamilton, Bermuda, special counsel to Frontier, will be delivering
opinions concerning Bermuda income tax consequences of the merger. As of July
29, 1999, lawyers of Simpson Thacher & Bartlett who have participated in the
preparation of this document beneficially owned approximately 65,000 shares of
Global Crossing common stock. As of July 29, 1999, lawyers of Appleby, Spurling
& Kempe who have participated in the preparation of this document beneficially
owned approximately 3,220 shares of Global Crossing common stock.
Experts
The consolidated financial statements of Global Crossing and its subsidiaries
included in the registration statement of which this joint proxy
statement/prospectus is a part have been audited by Arthur Andersen & Co.,
independent public accountants, as indicated in their reports with respect
thereto and are included in this joint proxy statement/prospectus in reliance
upon the authority of said firm as experts in accounting and auditing in giving
said reports.
The consolidated financial statements of Frontier and subsidiaries
incorporated in the registration statement of which this joint proxy
statement/prospectus is a part by reference to the Annual Report on Form 10-K
for the year ended December 31, 1998 and the Form 8-K dated January 26, 1999,
have been so incorporated in reliance on the report of PricewaterhouseCoopers
LLP, independent accountants, given on the authority of said firm as experts in
accounting and auditing.
The financial statements of Global Marine included in the registration
statement of which this joint proxy statement/prospectus is a part have been
audited by KPMG Audit Plc, chartered accountants, in reliance upon the
authority of said company as experts in accounting and auditing.
Service of Process and Enforcement of Liabilities
Global Crossing is organized under the laws of Bermuda. In addition, some
directors and officers of Global Crossing reside outside the United States and
a substantial portion of the assets of Global Crossing are located outside the
United States. As a result, it may be difficult for investors to effect service
of process within the United States upon those persons or to realize against
them in courts of the United States upon judgments of courts of the United
States predicated upon civil liabilities under the United States federal
securities laws. Global Crossing has been advised by its legal counsel in
Bermuda, Appleby, Spurling & Kempe, 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 United States federal
securities laws, although Bermuda courts will enforce foreign judgments for
liquidated amounts in civil matters subject to certain conditions and
exceptions.
Submission of Future Shareholder Proposals
Global Crossing
All proposals of shareholders who wish to bring business before Global
Crossing's 2000 Annual General Meeting of Shareholders must be received by
Global Crossing at its principal executive offices at Wessex House, 45 Reid
Street, Hamilton HM12 Bermuda, not later than December 31, 1999, for inclusion
in the Company's proxy statement and form of proxy relating to such annual
meeting. Upon timely receipt of any such proposal, Global Crossing will
determine whether or not to include such proposal in the proxy statement and
proxy in accordance with applicable regulations and provisions governing the
solicitation of proxies.
170
<PAGE>
Under the Companies Act, any shareholders who represent not less than 5% of
the total voting power of shareholders having the right to vote at the meeting
or who are 100 or more in number may requisition any resolution which may
properly be moved at an annual shareholders' meeting. A shareholder wishing to
move a resolution at an annual meeting is generally required to give notice to
Global Crossing of the resolution at its registered office at least six weeks
before the meeting.
Frontier
In the event we do not complete the merger, there will be an Annual Meeting
of the Frontier shareholders in 2000. In order to be eligible for inclusion in
the proxy materials for Frontier's 2000 Annual Meeting of Common Shareholders,
any shareholder proposal to take action at that meeting must be received at
Frontier's principal executive offices by November 12, 1999. Any such proposal
should be addressed to 180 South Clinton Avenue, Rochester, New York 14646,
Attention: Josephine S. Trubek, Corporate Secretary.
In addition, Frontier's by-laws establish an advance notice procedure with
regard to specified matters, including shareholder proposals not included in
Frontier's proxy statement, to be brought before an annual meeting of
shareholders. In general, in order to bring a matter before the meeting, notice
must be received by the Corporate Secretary of Frontier not less than 60 days
nor more than 90 days prior to the anniversary of the immediately preceding
annual meeting.
The notice must contain information as specified in the by-laws concerning
the matters to be brought before that meeting and concerning the shareholder
proposing those matters. If the date of the annual meeting is more than 30 days
earlier or more than 60 days later than the anniversary date, notice must be
received not earlier than the 90th day before the annual meeting and not later
than the close of business on the later of the 60th day before the annual
meeting or the 10th day following the day on which the public announcement of
the date of the meeting is first made. However, if a shareholder complies with
the requirements to have a proposal included in the proxy materials, he or she
is deemed to have complied with this advance notice procedure. If a shareholder
who has notified Frontier of his or her intention to present a proposal at an
annual meeting does not appear or send a qualified representative to present
that proposal at the meeting, Frontier need not present the proposal for a vote
at the meeting. In order to provide an admission card, Frontier asks that if a
proposal is to be presented by a qualified representative, the shareholder
advise Frontier of the identity of the person who will be presenting the
proposal.
Where You Can Find More Information
Global Crossing and Frontier file annual, quarterly and other reports, proxy
statements and other information with the Securities and Exchange Commission.
You may read and copy any reports, statements or other information we file at
the Securities and Exchange Commission's public reference rooms in Washington,
D.C., New York, New York and Chicago, Illinois. Please call the Securities and
Exchange Commission at 1-800-SEC-0330 for further information on the public
reference rooms. Our Securities and Exchange Commission filings are also
available to the public from commercial document retrieval services and at the
web site maintained by the Securities and Exchange Commission at
"http://www.sec.gov." You may also visit Global Crossing at
http://www.globalcrossing.com or Frontier at http://www.frontiercorp.com.
Global Crossing filed a registration statement on Form S-4 to register with
the Securities and Exchange Commission the Global Crossing common stock to be
issued to Frontier shareholders in the merger. This document is a part of that
registration statement and constitutes a prospectus of Global Crossing in
addition to being a joint proxy statement of Global Crossing and Frontier for
the Global Crossing and Frontier meetings. As allowed by Securities and
Exchange Commission rules, this document does not contain all the information
you can find in the registration statement or the exhibits to the registration
statement.
171
<PAGE>
The Securities and Exchange Commission allows Frontier to "incorporate by
reference" information into this joint proxy statement/prospectus, which means
that Frontier can disclose important information to you by referring you to
another document filed separately with the Securities and Exchange Commission.
The information incorporated by reference is deemed to be part of this joint
proxy statement/prospectus, except for any information superseded by
information in this proxy statement/prospectus. This joint proxy
statement/prospectus incorporates by reference the documents set forth below
that Frontier has previously filed with the Securities and Exchange Commission.
These documents contain important information about Frontier and its finances.
<TABLE>
<CAPTION>
Frontier SEC Filings Period
- -------------------- ------
<S> <C>
Annual Report on Form
10-K Year Ended December 31, 1998
Quarterly Report on Form
10-Q Quarters Ended June 30, 1999 and March 31, 1999
Current Reports on Form
8-K Filed January 26, 1999, March 19, 1999, May 18, 1999 and July 21, 1999
</TABLE>
Frontier is also incorporating by reference additional documents that it
files with the Securities and Exchange Commission between the date of this
document and the date of the Frontier meeting.
Global Crossing has supplied all information contained in this joint proxy
statement/prospectus relating to Global Crossing, and Frontier has supplied all
such information contained or incorporated by reference relating to Frontier.
If you are a shareholder of Global Crossing, you may obtain, without charge,
a copy of Global Crossing's Annual Report on Form 10-K for the year ended
December 31, 1998, excluding exhibits, by requesting it in writing from:
Global Crossing Ltd.
150 El Camino Drive
Suite 204
Beverly Hills, CA 90212
Attn: Jensen Chow, Investor Relations
If you are a shareholder of Frontier, Frontier may have sent you some of the
documents incorporated by reference, but you can obtain any of them through
Frontier or the Securities and Exchange Commission or the Securities and
Exchange Commission's Internet World Wide Web site described above. Documents
incorporated by reference are available from Frontier without charge, excluding
all exhibits unless Frontier has specifically incorporated by reference an
exhibit in this joint proxy statement/prospectus. Shareholders may obtain
documents incorporated by reference in this document by requesting them in
writing or by telephone from Frontier at the following addresses:
Frontier Corporation
180 South Clinton Avenue
Rochester, New York 14646-0700
1-800-573-2473
Attn: Judi Kramer
If you would like to request documents from us, please do so by September 16,
1999 to receive them before the Frontier meeting.
You should rely only on the information contained or incorporated by
reference in this document to vote on the Global Crossing proposals and
Frontier's merger proposal. We have not authorized anyone to provide you with
information that is different from what is contained in this document. This
document is dated August 5, 1999. You should not assume that the information
contained in this document is accurate as of any date other than such date, and
neither the mailing of this document to shareholders nor the issuance of Global
Crossing common stock in the merger shall create any implication to the
contrary.
172
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
----
GLOBAL CROSSING LTD. AND SUBSIDIARIES
<S> <C>
Condensed Consolidated Balance Sheets as of June 30, 1999 and December 31,
1998..................................................................... F-1
Condensed Consolidated Statements of Operations for the three and six
months ended June 30, 1999 and 1998...................................... F-2
Condensed Consolidated Statements of Cash Flows for the six months ended
June 30, 1999 and 1998................................................... F-3
Condensed Consolidated Statements of Comprehensive Income for the three
and six months ended June 30, 1999 and 1998.............................. F-5
Notes to Condensed Consolidated Financial Statements...................... F-6
Report of Independent Public Accountants.................................. F-10
Consolidated Balance Sheets as of December 31, 1998 and 1997.............. F-11
Consolidated Statements of Operations for the year ended December 31, 1998
and for the period from March 19, 1997 (Date of Inception) to December
31, 1997................................................................. F-12
Consolidated Statements of Shareholders' Equity for the year ended
December 31, 1998 and for the period from March 19, 1997 (Date of
Inception) to December 31, 1997.......................................... F-13
Consolidated Statements of Cash Flows for the year ended December 31, 1998
and for the period from March 19, 1997 (Date of Inception) to December
31, 1997................................................................. F-14
Notes to Consolidated Financial Statements................................ F-15
CABLE & WIRELESS GLOBAL MARINE
Condensed Combined Profit and Loss Account for the three months ended June
30, 1999 and 1998........................................................ F-45
Condensed Combined Balance Sheet as of June 30, 1999 and March 31, 1998... F-46
Combined Statement of Total Recognised Gains and Losses for the three
months ended
June 30, 1999 and 1998................................................... F-47
Reconciliations of Movements in Net Assets for the three months ended June
30, 1999 and 1998........................................................ F-48
Condensed Combined Cash Flow Statement for the three months ended June 30,
1999 and 1998 ........................................................... F-49
Notes to financial statements............................................. F-50
Report of the Auditors.................................................... F-52
Combined Profit and Loss Account for the three years ended March 31, 1999,
1998 and 1997............................................................ F-53
Combined Balance Sheet as of March 31, 1999 and 1998...................... F-54
Combined Statement of Total Recognized Gains and Losses for the three
years ended March 31, 1999, 1998 and 1997................................ F-55
Reconciliations of Movements in Net Assets for the three years ended March
31, 1999, 1998
and 1997................................................................. F-56
Combined Cash Flow Statement for the three years ended March 31, 1999,
1998 and 1997............................................................ F-57
Notes to financial statements............................................. F-58
</TABLE>
<PAGE>
GLOBAL CROSSING LTD. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
As of June 30, 1999 and December 31, 1998
(In thousands, except share and per share amounts)
<TABLE>
<CAPTION>
June 30, 1999 December 31, 1998
------------- -----------------
(Unaudited)
<S> <C> <C>
ASSETS
Current Assets:
Cash and investments....................... $ 676,082 $ 806,593
Restricted cash and investments............ 45,260 77,190
Accounts receivable, net of allowance for
doubtful accounts of $7,916 as of June 30,
1999
and $4,233 as of December 31, 1998........ 132,652 71,195
Other assets and prepaid costs............. 51,475 21,637
---------- ----------
Total current assets....................... 905,469 976,615
Restricted cash and investments.............. 367,387 367,600
Accounts receivable.......................... 63,128 43,315
Capacity available for sale.................. 503,878 574,849
Property, plant and equipment, net........... 59,853 5,500
Construction in progress..................... 842,439 428,207
Investment in affiliates..................... 184,676 177,334
Other assets................................. 111,767 65,757
---------- ----------
Total assets............................... $3,038,597 $2,639,177
========== ==========
LIABILITIES:
Current liabilities:
Accrued construction costs................. $ 158,304 $ 129,081
Accounts payable and accrued liabilities... 59,560 31,990
Accrued interest and preferred dividends... 15,968 14,428
Deferred revenue........................... 35,322 44,197
Income taxes payable....................... 20,347 15,604
Current portion of long term debt.......... -- 6,393
Current portion of obligations under inland
services agreements and capital leases.... 12,581 14,572
---------- ----------
Total current liabilities.................. 302,082 256,265
Long term debt............................... 559,707 269,598
Senior notes................................. 796,682 796,495
Deferred revenue............................. 60,140 25,325
Obligations under inland services agreements
and capital leases.......................... 15,237 24,520
Deferred income taxes........................ 24,167 9,654
---------- ----------
Total liabilities.......................... 1,758,015 1,381,857
---------- ----------
MANDATORILY REDEEMABLE PREFERRED STOCK:
5,000,000 shares issued and outstanding, $100
liquidation preference per share (net of
unamortized issuance costs of $15,042 as of
June 30, 1999 and
$17,000 as of December 31, 1998)............ 484,958 483,000
---------- ----------
SHAREHOLDERS' EQUITY:
Common stock, 600,000,000 shares authorized,
par
value $.01, 436,167,061 and 432,776,246
shares
issued as of June 30, 1999 and December 31,
1998, respectively.......................... 4,361 4,328
Treasury stock, 22,033,758 shares............ (209,415) (209,415)
Other shareholders' equity................... 1,080,671 1,067,470
Accumulated deficit.......................... (79,993) (88,063)
---------- ----------
795,624 774,320
---------- ----------
Total liabilities and shareholders'
equity.................................... $3,038,597 $2,639,177
========== ==========
</TABLE>
See accompanying notes to these unaudited condensed consolidated balance
sheets.
F-1
<PAGE>
GLOBAL CROSSING LTD. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
For the Three and Six Months Ended June 30, 1999 and 1998
(In thousands, except share and per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended June Six Months Ended June
30, 30,
------------------------ ------------------------
1999 1998 1999 1998
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Revenues................... $ 190,278 $ 101,256 $ 368,461 $ 101,256
----------- ----------- ----------- -----------
Expenses:
Cost of capacity sold.... 80,905 41,200 150,292 41,200
Operations,
administration and
maintenance............. 14,008 2,470 25,869 2,470
General and
administrative.......... 22,089 6,508 44,503 8,850
Sales and marketing...... 13,498 6,529 23,256 7,313
Network development...... 4,848 4,314 9,753 4,314
Stock related expense.... 9,358 22,760 26,074 23,398
Depreciation and
amortization............ 3,989 443 4,200 473
Provision for doubtful
accounts................ 1,819 1,012 3,683 1,012
Termination of advisory
services agreement...... -- 139,669 -- 139,669
----------- ----------- ----------- -----------
150,514 224,905 287,630 228,699
----------- ----------- ----------- -----------
Operating Income (Loss).... 39,764 (123,649) 80,831 (127,443)
Equity in Loss of
Affiliates................ (2,806) -- (5,542) --
Other Income (Expense):
Interest income.......... 17,274 4,327 31,666 4,422
Interest expense......... (22,675) (7,403) (46,454) (7,426)
Other expense, net....... (7,683) -- (7,683) --
----------- ----------- ----------- -----------
Income (Loss) Before
Provision for Income
Taxes, Cumulative Effect
of Change in Accounting
Principle and
Extraordinary Item........ 23,874 (126,725) 52,818 (130,447)
Provision for income
taxes................... (13,896) (9,000) (30,038) (9,000)
----------- ----------- ----------- -----------
Income (Loss) Before
Cumulative Effect of
Change In Accounting
Principle and
Extraordinary Item........ 9,978 (135,725) 22,780 (139,447)
Cumulative effect of
change in accounting
principle, net of income
tax benefit............. -- -- (14,710) --
----------- ----------- ----------- -----------
Income (Loss) Before
Extraordinary Item........ 9,978 (135,725) 8,070 (139,447)
Extraordinary loss on
retirement of senior
notes................... -- (19,709) -- (19,709)
----------- ----------- ----------- -----------
Net Income (Loss).......... 9,978 (155,434) 8,070 (159,156)
Preferred stock
dividends............... (14,197) (3,899) (27,241) (8,306)
Redemption of preferred
stock................... -- (34,140) -- (34,140)
----------- ----------- ----------- -----------
Net Loss Applicable to
Common Shareholders....... $ (4,219) $ (193,473) $ (19,171) $ (201,602)
=========== =========== =========== ===========
Net Loss Per Common Share:
Loss applicable to common
shareholders before
cumulative effect of
change in accounting
principle and
extraordinary item
Basic and Diluted...... $ (0.01) $ (0.52) $ (0.01) $ (0.55)
=========== =========== =========== ===========
Cumulative effect of
change in accounting
principle
Basic and Diluted...... $ -- $ -- $ (0.04) $ --
=========== =========== =========== ===========
Extraordinary loss on
retirement of senior
notes
Basic and Diluted...... $ -- $ (0.06) $ -- $ (0.06)
=========== =========== =========== ===========
Net loss applicable to
common shareholders
Basic and Diluted...... $ (0.01) $ (0.58) $ (0.05) $ (0.61)
=========== =========== =========== ===========
Shares used in computing
loss per share
Basic and Diluted...... 413,204,243 332,388,070 412,000,658 332,125,394
=========== =========== =========== ===========
</TABLE>
See accompanying notes to these unaudited condensed consolidated financial
statements.
F-2
<PAGE>
GLOBAL CROSSING LTD. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Six Months Ended June 30, 1999 and 1998
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
1999 1998
--------- ---------
<S> <C> <C>
Cash Flows Provided by Operating Activities:
Net income (loss)...................................... $ 8,070 $(159,156)
Adjustments to reconcile net income (loss) to net cash
provided by
operating activities:
Cumulative effect of change in accounting principle.. 14,710 --
Equity in loss of affiliates......................... 5,542 --
Depreciation and amortization........................ 4,200 473
Termination of Advisory Services Agreement........... -- 135,000
Stock related expenses............................... 26,074 23,398
Extraordinary loss on retirement of senior notes..... -- 19,709
Deferred income taxes................................ 14,513 --
Provision for doubtful accounts...................... 3,683 1,012
Other adjustments.................................... (7,079) --
Changes in operating assets and liabilities............ (5,911) 16,985
--------- ---------
Net cash provided by operating activities.......... 63,802 37,421
--------- ---------
Cash Flows Used in Investing Activities:
Cash paid for construction in progress and capacity
available for sale.................................... (454,347) (191,072)
Investment in affiliates............................... (12,884) (6)
Purchases of property, plant and equipment............. (19,223) --
--------- ---------
Net cash used in investing activities.............. (486,454) (191,078)
--------- ---------
Cash Flows Provided by (used in) Financing Activities:
Proceeds from issuance of common stock, net............ 5,624 525
Proceeds from issuance of senior notes................. -- 796,233
Proceeds from long term debt........................... 409,083 204,723
Repayment of long term debt............................ (125,367) --
Retirement of 1997 issued senior notes................. -- (159,750)
Redemption of 1997 issued preferred stock.............. -- (134,372)
Preferred dividends.................................... (26,104) --
Financing costs........................................ (3,238) (31,773)
Cash reimbursement to certain shareholders............. -- (7,047)
(Increase) decrease in restricted cash and cash
equivalents........................................... 32,143 (212,210)
--------- ---------
Net cash provided by (used in) financing
activities........................................ 292,141 456,329
--------- ---------
Net Increase (Decrease) in Cash and Cash Equivalents..... (130,511) 302,672
Cash and Cash Equivalents, beginning of period........... 806,593 1,453
--------- ---------
Cash and Cash Equivalents, end of period................. $ 676,082 $ 304,125
========= =========
</TABLE>
See accompanying notes to these unaudited condensed consolidated financial
statements.
F-3
<PAGE>
GLOBAL CROSSING LTD. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Six Months Ended June 30, 1999 and 1998
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
1999 1998
--------- ---------
<S> <C> <C>
Supplemental Information on Non-Cash Investing
Activities:
Costs incurred for construction in progress and
capacity available for sale........................... $(489,906) $(259,872)
Change in accrued construction costs................... 29,223 (30,315)
Change in accrued interest............................. -- 7,721
Amortization of deferred finance costs................. 7,089 2,981
Change in obligations under capital leases............. (753) 1,479
PCG Warrants........................................... -- 86,934
--------- ---------
Cash paid for construction in progress and capacity
available for sale.................................... $(454,347) $(191,072)
========= =========
Purchases of property, plant and equipment............. $ (38,300) $ --
========= =========
Supplemental Disclosure of Cash Flow Information:
Interest paid and capitalized.......................... $ 40,569 $ 18,060
========= =========
Interest paid (net of capitalized interest)............ $ 14,832 $ 23
========= =========
Cash paid for taxes.................................... $ 9,381 $ --
========= =========
Changes in operating assets and liabilities:
Accounts receivable.................................. $ (84,953) $ (44,723)
Capacity available for sale.......................... 131,934 (1,256)
Other assets and prepaid costs....................... (63,865) (27,454)
Deferred revenue..................................... (12,360) 44,339
Accounts payable and accrued liabilities............. 29,110 6,862
Income taxes payable................................. 4,743 9,000
Obligations under inland services agreements......... (10,520) 30,217
--------- ---------
$ (5,911) $ 16,985
========= =========
</TABLE>
See accompanying notes to these unaudited condensed consolidated financial
statements.
F-4
<PAGE>
GLOBAL CROSSING LTD. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
For the Three and Six Months Ended June 30, 1999 and 1998
(In thousands, except share and per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
Three Months
Ended Six Months Ended
------------------ ------------------
1999 1998 1999 1998
------- --------- ------- ---------
<S> <C> <C> <C> <C>
Net Income (Loss)...................... $ 9,978 $(155,434) $ 8,070 $(159,156)
Foreign Currency Translation Loss...... (4,294) -- (9,224) --
------- --------- ------- ---------
Comprehensive Income (Loss)............ $ 5,684 $(155,434) $(1,154) $(159,156)
======= ========= ======= =========
</TABLE>
See accompanying notes to these unaudited condensed consolidated financial
statements.
F-5
<PAGE>
GLOBAL CROSSING LTD. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1999
(Unaudited)
(1) ORGANIZATION AND BACKGROUND
Global Crossing Ltd. (together with its consolidated subsidiaries, the
Company) is an independent provider of global Internet and long distance
telecommunications facilities and services utilizing a network of undersea and
terrestrial digital fiber optic cable systems (the Global Crossing Network).
The Company operates as a "carriers' carrier", providing tiered pricing and
segmented products to licensed providers of international telecommunications
services. Capacity on the Global Crossing Network is offered to all customers
on an open, equal access basis. The systems completed or under development by
the Company will form a state-of-the-art interconnected worldwide high capacity
fiber optic network including: Atlantic Crossing-1 (AC-1) and Atlantic
Crossing-2 (AC-2), undersea systems connecting the United States and Europe;
Pacific Crossing (PC-1), an undersea system connecting the United States and
Asia; Mid Atlantic Crossing (MAC), an undersea system connecting the eastern
United States and the Caribbean; Pan American Crossing (PAC), an undersea
system connecting the western United States, Mexico, Panama, Venezuela and the
Caribbean; South American Crossing (SAC), an undersea and terrestrial system
connecting the major cities of South America to MAC, PAC and the rest of the
Global Crossing Network; Pan European Crossing (PEC), a terrestrial system
connecting 24 European cities to AC-1; and a terrestrial system (GAL) to be
operated by Global Access Ltd., connecting certain cities in Japan to PC-1. The
undersea component of this initial portion of the Global Crossing Network
totals 74,700 km and the terrestrial component adds 17,800 km for a total of
92,500 km. The Company is in the process of developing several new undersea and
terrestrial cable systems and evaluating other business development
opportunities which will complement the Global Crossing Network.
(2) BASIS OF PRESENTATION
The accompanying unaudited interim condensed consolidated financial
statements as of June 30, 1999 and for the three and six months ended June 30,
1999 and 1998, include the accounts of Global Crossing Ltd. and its
subsidiaries. All material inter-company balances and transactions have been
eliminated. The unaudited interim condensed consolidated financial statements
reflect all adjustments, consisting of normal recurring items, which are, in
the opinion of management, necessary to present a fair statement of the results
of the interim period presented. The results of operations for any interim
period are not necessarily indicative of results for the full year.
These condensed consolidated financial statements have been prepared in
accordance with generally accepted accounting principles in the United States.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements, as
well as the reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
The accompanying unaudited condensed consolidated financial statements do not
include all footnotes and certain financial presentation normally required
under generally accepted accounting principles. Therefore, these financial
statements should be read in conjunction with the financial statements and
notes thereto included in the Company's Annual Report on Form 10-K, for the
fiscal year ended December 31, 1998.
(3) NEW ACCOUNTING STANDARDS
In June 1999, the Financial Accounting Standards Board (FASB) issued
Interpretation No. 43, "Real Estate Sales, an interpretation of FASB Statement
No. 66" (FIN 43) which is effective July 1, 1999. Under
F-6
<PAGE>
GLOBAL CROSSING LTD. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
FIN 43 fiber optic cable system sales are required to be accounted for under
SFAS 66. Management does not expect the adoption of FIN 43 to have a material
impact on the Company's financial position or results of operations.
The FASB has recently issued Statement of Financial Accounting Standards No.
137, "Accounting for Derivative Instruments and Hedging Activities--Deferral of
the Effective Date of FASB Statement No. 133 (SFAS 133)" (SFAS 137) which
amended SFAS 133 to be effective for periods beginning after June 15, 2000.
Management does not expect the adoption of SFAS 133 to have a material impact
on the Company's financial position or results of operations.
(4) NET LOSS APPLICABLE TO COMMON SHAREHOLDERS
Basic Earnings Per Share (EPS) is computed by dividing net loss available to
common shareholders by the weighted average number of common shares outstanding
for the period. The weighted average number of common shares outstanding
totaled 413,204,243 and 332,388,070 for the three months ended June 30, 1999
and 1998, respectively. The weighted average number of common shares
outstanding totaled 412,000,658 and 332,125,394 for the six months ended June
30, 1999 and 1998, respectively. Diluted EPS reflects the potential dilution
that could occur if securities or other contracts to issue common stock were
exercised or converted. The dilutive effect of the assumed exercise of stock
options and convertible securities were anti-dilutive for the three and six
months ended June 30, 1999 and 1998, respectively.
(5) SHAREHOLDERS' EQUITY
Stock Option Plan. During the three months ended June 30, 1999, the Company
granted stock options for an aggregate of 1,457,500 shares of common stock
under the Company's 1998 Stock Incentive Plan. On June 30, 1999, stock options
covering 34,115,830 shares of common stock were outstanding. Details of the
Company's 1998 Stock Incentive Plan are included in the Company's Annual Report
on Form 10-K, for the fiscal year ended December 31, 1998.
The Company recognized $9 million and $23 million of stock compensation
expense during the three months ended June 30, 1999 and 1998, respectively,
relating to options issued under its Stock Incentive Plan, plus certain stock
related expense related to stock options awarded to consultants, accounted for
under SFAS No. 123. The Company records the excess of the fair market value of
the rights over the purchase price as unearned stock compensation. The unearned
stock compensation is being recognized as an expense over the vesting period of
the rights.
During November 1998, Global Crossing's indirect subsidiary, GC Pacific
Landing Corp., entered into an agreement and plan of merger with Neptune
Communications, L.L.C. and its wholly owned subsidiary, Neptune Communications
Corp. ("NCC"), whereby, in April 1999, GC Pacific Landing merged with and into
NCC in exchange for 2,239,642 shares of Global Crossing common stock (of which
223,965 shares remain to be issued pending transfer of licenses).
(6) SEGMENT INFORMATION
The Company is a provider of Internet and long distance telecommunications
facilities and related services supplying its customers with global "point-to-
point" connectivity. As such, the Company is engaged in only one business
segment worldwide and derives its revenues from customers located in the
following geographic regions: the Americas, Europe and Asia Pacific. The
Company also maintains long-lived assets in these regions; however, the
majority of these assets are in international waters. In addition, the Company
derives all of its revenues from companies in the Internet and long distance
telecommunications industry and, as a result, has concentration of credit risk
in this industry.
F-7
<PAGE>
GLOBAL CROSSING LTD. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(7) CONCENTRATION OF RISKS
During the three months ended June 30, 1999, there were four customers that
accounted for 18%, 16%, 13% and 11% of total revenues, respectively.
As of June 30, 1999, the Company had one customer representing 15% of
outstanding receivables.
(8) RECLASSIFICATIONS
Certain prior year amounts have been reclassified in the condensed
consolidated financial statements for consistent presentation.
(9) SIGNIFICANT EVENTS
Termination of the U S WEST Merger Agreement
On May 16, 1999, the Company entered into a definitive agreement to merge
with U S WEST, Inc., a Delaware corporation (U S WEST). The new company would
have been 50% owned by Global Crossing/ Frontier shareholders and 50% owned by
U S WEST shareholders. As part of the transaction U S WEST made a cash tender
offer for approximately 9.49% of Global Crossing common stock. The tender offer
was completed, with U S WEST acquiring 39,259,305 shares, on June 21, 1999. On
July 18, 1999, Global Crossing and U S WEST agreed to terminate their merger
agreement, and U S WEST agreed to merge with Qwest Communications International
Inc. (Qwest). As a result, U S WEST paid Global Crossing a termination fee of
$140 million in cash and returned 2,231,076 shares of Global Crossing common
stock purchased in the tender offer, and Qwest committed to purchase capacity
on the Global Crossing Network at established market unit prices for delivery
over the next four years and committed to make purchase price payments to
Global Crossing for this capacity of $140 million over the next two years. The
Company will record in the third quarter of 1999 the receipt of the termination
fee and Global Crossing common stock, net of expenses in the statement of
operations as other income, net.
Republic of Ireland Agreement
On July 5, 1999, Global Crossing announced an agreement with the government
of the Republic of Ireland to build and maintain an undersea fiber optic cable
system that will link two telehouses in Dublin, via two diverse fiber cables,
to cities in Europe and North America through the Global Crossing Network. The
Irish government will be the system's anchor customer under an $80 million
capacity purchase agreement. This agreement will add an additional city to PEC.
Global Marine Acquisition
On July 2, 1999, the Company acquired the Global Marine business of Cable &
Wireless plc for approximately $868 million. Global Marine currently provides
services, including maintenance under a number of long-term contracts, to
cables built by more than 100 carriers and is the world's largest undersea
cable installation and maintenance company with a fleet of 13 cable ships,
representing approximately 33 percent of the world's total, 21 submersible
vehicles and 1,200 employees servicing approximately 35 percent of the world's
undersea cable miles. Global Crossing initially financed the acquisition with
committed bank financing in the amount of $600 million and the remainder with
cash on hand. The acquisition will be accounted for using the purchase method
of accounting.
Senior Secured Credit Facility
On July 2, 1999, Global Crossing Holdings Ltd. (GCH), the direct wholly owned
subsidiary of Global Crossing Ltd., entered into a $3 billion Senior Secured
Credit Facility. The Senior Secured Credit Facility is comprised of a $1
billion 5-year Revolving Credit Facility with an initial interest rate of LIBOR
plus 2.25%, a
F-8
<PAGE>
GLOBAL CROSSING LTD. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
$1 billion 5-year Multi-Draw Term Loan A with an initial interest rate of LIBOR
plus 2.25% and a $1 billion 8-year Term Loan B with an initial interest rate of
LIBOR plus 2.75%. The initial commitment fee on undrawn funds is 0.75%. The
purpose of the Senior Secured Credit Facility is to finance or refinance
construction of certain Global Crossing cable systems previously anticipated to
be financed on a per-system basis, to partially finance the Global Marine
acquisition, to fund future growth of Global Crossing and for general corporate
purposes. In connection with the transaction, the Senior Secured Credit
Facility became structurally senior to the Senior Notes for a consent fee of
approximately $32 million, paid directly to the Senior Note holders.
On July 7, 1999, GCH borrowed approximately $1.5 billion under the Senior
Secured Credit Facility ($1 billion under the 8-year Term Loan B and $500
million under the 5-year Multi-Draw Term Loan A), sufficient to retire the
outstanding obligations under the AC-1 Credit Facility, the MAC Credit Facility
and the financing provided under the Lucent Agreement relating to the PEC and
SAC systems, to refinance the debt incurred in connection with the Global
Marine acquisition as well as to provide for current working capital
requirements. As a result of the Senior Secured Credit Facility, the Company
has classified all refinanced debt in the condensed consolidated balance sheet
as of June 30, 1999 as long term debt.
F-9
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Global Crossing Ltd.:
We have audited the accompanying consolidated balance sheets of Global
Crossing Ltd. (a Bermuda company) and subsidiaries as of December 31, 1998 and
1997, and the related consolidated statements of operations, shareholders'
equity and cash flows for the year ended December 31, 1998 and for the period
from March 19, 1997 (Date of Inception) to December 31, 1997. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Global Crossing Ltd. and
subsidiaries as of December 31, 1998 and 1997, and the results of their
operations and their cash flows for the year ended December 31, 1998 and for
the period from March 19, 1997 (Date of Inception) to December 31, 1997, in
conformity with accounting principles generally accepted in the United States.
Arthur Andersen & Co.
Hamilton, Bermuda
February 1, 1999
(Except with respect to the matters
discussed in Note 16, as to which
the dates are March 9, 1999, March 16, 1999 and May 16, 1999)
F-10
<PAGE>
GLOBAL CROSSING LTD. AND SUBSIDIARIES
(Formerly Global Crossing Ltd., LDC)
CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share information)
<TABLE>
<CAPTION>
December 31, 1998 December 31, 1997
----------------- -----------------
<S> <C> <C>
ASSETS:
Current assets:
Cash and cash equivalents............... $ 806,593 $ 1,453
Restricted cash and cash equivalents.... 77,190 25,275
Accounts receivable, net of allowance
for doubtful accounts of $4,233........ 71,195 --
Other assets and prepaid costs.......... 47,137 1,016
---------- --------
Total current assets.................... 1,002,115 27,744
Restricted cash and cash equivalents...... 367,600 --
Accounts receivable....................... 43,315 --
Capacity available for sale............... 574,849 21,200
Construction in progress.................. 428,207 497,319
Deferred finance and organization costs,
net of accumulated amortization of
$10,130
as of December 31, 1998 and $2,247 as of
December 31, 1997........................ 45,757 25,934
Investment in affiliates.................. 177,334 --
---------- --------
Total assets............................ $2,639,177 $572,197
========== ========
LIABILITIES:
Current liabilities:
Accrued construction costs.............. $ 129,081 $ 52,004
Accounts payable and accrued
liabilities............................ 31,990 1,658
Accrued interest........................ 10,053 1,641
Deferred revenue........................ 44,197 5,325
Income taxes payable.................... 15,604 --
Current portion of long term debt....... 6,393 --
Current portion of obligations under
inland services agreements and capital
leases................................. 14,572 30,189
---------- --------
Total current liabilities............... 251,890 90,817
Long term debt............................ 269,598 162,325
Senior notes.............................. 796,495 150,000
Deferred revenue.......................... 25,325 --
Obligations under inland services
agreements and capital leases............ 24,520 3,009
Deferred income taxes..................... 9,654 --
---------- --------
Total liabilities....................... 1,377,482 406,151
---------- --------
MANDATORILY REDEEMABLE PREFERRED STOCK
(5,000,000 shares issued and outstanding
as of December 31, 1998, $100 liquidation
preference per share (including $4,375 in
accrued dividends and net of unamortized
issuance costs of $17,000))............... 487,375 --
---------- --------
MANDATORILY REDEEMABLE PREFERRED STOCK
(109,830 shares issued and outstanding as
of December 31, 1997, $1,000 liquidation
preference per share (including $1,281 in
accrued dividends and net of unamortized
discount and issuance costs of $12,224 and
$6,962, respectively)).................... -- 91,925
---------- --------
SHAREHOLDERS' EQUITY:
Common stock, 600,000,000 shares
authorized, par value $.01,
432,776,246 shares issued as of December
31, 1998 and
325,773,934 shares issued and
outstanding as of December 31, 1997...... 4,328 3,258
Treasury stock, 22,033,758 shares......... (209,415) --
Other shareholders' equity................ 1,067,470 71,023
Accumulated deficit....................... (88,063) (160)
---------- --------
774,320 74,121
---------- --------
Total liabilities and shareholders'
equity................................. $2,639,177 $572,197
========== ========
</TABLE>
See accompanying notes.
F-11
<PAGE>
GLOBAL CROSSING LTD. AND SUBSIDIARIES
(Formerly Global Crossing Ltd., LDC)
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except share and per share information)
<TABLE>
<CAPTION>
Period from
March 19, 1997
Year Ended (Date of Inception)
December 31, 1998 to December 31, 1997
----------------- --------------------
<S> <C> <C>
REVENUES............................... $ 424,099 $ --
----------- -----------
EXPENSES:
Cost of capacity sold................ 178,492 --
Operations, administration and
maintenance......................... 18,056 --
Sales and marketing.................. 26,194 1,366
Network development.................. 10,962 78
General and administrative........... 26,844 1,657
Stock related expense................ 39,374 --
Provision for doubtful accounts...... 4,233 --
Termination of Advisory Services
Agreement........................... 139,669 --
----------- -----------
443,824 3,101
----------- -----------
OPERATING LOSS......................... (19,725) (3,101)
EQUITY IN LOSS OF AFFILIATES........... (2,508) --
INTEREST INCOME (EXPENSE):
Interest income...................... 29,986 2,941
Interest expense..................... (42,880) --
----------- -----------
LOSS BEFORE PROVISION FOR INCOME TAXES
AND EXTRAORDINARY ITEM................ (35,127) (160)
Provision for income taxes........... (33,067) --
----------- -----------
LOSS BEFORE EXTRAORDINARY ITEM......... (68,194) (160)
Extraordinary loss on retirement of
senior notes........................ (19,709) --
----------- -----------
NET LOSS............................... (87,903) (160)
Preferred stock dividends............ (12,681) (12,690)
Redemption of preferred stock ....... (34,140) --
----------- -----------
NET LOSS APPLICABLE TO COMMON
SHAREHOLDERS.......................... $ (134,724) $ (12,850)
=========== ===========
NET LOSS PER COMMON SHARE
Loss applicable to common shareholders
before extraordinary item
Basic and diluted.................... $ (0.32) $ (0.04)
=========== ===========
Extraordinary item
Basic and diluted.................... $ (0.06) $ --
=========== ===========
Net loss applicable to common
shareholders
Basic and diluted.................... $ (0.38) $ (0.04)
=========== ===========
Shares used in computing basic and
diluted loss per share................ 358,735,340 325,773,934
=========== ===========
</TABLE>
See accompanying notes.
F-12
<PAGE>
GLOBAL CROSSING LTD. AND SUBSIDIARIES
(Formerly Global Crossing Ltd., LDC)
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(In thousands, except share information)
<TABLE>
<CAPTION>
Other Shareholders'
Common Stock Treasury Stock Equity
------------------ -------------------- ------------------------
Additional Total
Paid-in Unearned Accumulated Shareholders'
Shares Amount Shares Amount Capital(a) Compensation Deficit Equity
----------- ------ ---------- --------- ---------- ------------ ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Issuance of common stock
for cash in March 1997
(Date of Inception),
net of $1,264 issuance
costs.................. 325,773,934 $3,258 -- $ -- $ 83,713 $ -- $ -- $ 86,971
Preferred stock
dividends.............. -- -- -- -- (12,690) -- -- (12,690)
Net loss for the
period................. -- -- -- -- -- -- (160) (160)
----------- ------ ---------- --------- ---------- -------- -------- --------
Balance, December 31,
1997................... 325,773,934 3,258 -- -- 71,023 -- (160) 74,121
Issuance of common stock
for cash............... 1,575,000 16 -- -- 2,772 -- -- 2,788
Cash reimbursement to
certain shareholders... -- -- -- -- (7,047) -- -- (7,047)
Unearned compensation... -- -- -- -- 93,758 (93,758) -- --
Amortization of
compensation expense... -- -- -- -- 37,111 -- 37,111
PCG Warrants............ 24,406,340 244 -- -- 275,054 -- -- 275,298
Issuance of common stock
in exchange for
termination of Advisory
Services Agreement..... 14,210,526 142 -- -- 134,858 -- -- 135,000
Preferred stock
dividends.............. -- -- -- -- (12,681) -- -- (12,681)
Premium on redemption of
preferred stock........ -- -- -- -- (34,140) -- -- (34,140)
Common stock
transactions with
certain shareholders... 21,733,758 217 22,033,758 (209,415) 209,198 -- -- --
Issuance of common stock
in connection with
initial public
offering, net of
$30,916 issuance
costs.................. 44,420,000 444 -- -- 390,630 -- -- 391,074
Issuance of common stock
from exercise of stock
options................ 656,688 7 -- -- 692 -- -- 699
Net loss................ -- -- -- -- -- -- (87,903) (87,903)
----------- ------ ---------- --------- ---------- -------- -------- --------
Balance, December 31,
1998................... 432,776,246 $4,328 22,033,758 $(209,415) $1,124,117 $(56,647) $(88,063) $774,320
=========== ====== ========== ========= ========== ======== ======== ========
</TABLE>
- --------
(a) Additional Paid-in Capital has been charged retroactively for the par value
of the shares issued as a result of the 2-for-1 stock split effected in the
form of a stock dividend effective on March 9, 1999.
See accompanying notes.
F-13
<PAGE>
GLOBAL CROSSING LTD. AND SUBSIDIARIES
(Formerly Global Crossing Ltd., LDC)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
Period From
March 19, 1997
Year Ended (Date of Inception)
December 31, 1998 to December 31, 1997
----------------- --------------------
<S> <C> <C>
CASH FLOWS PROVIDED BY OPERATING
ACTIVITIES:
Net loss applicable to common
shareholders......................... $(134,724) $(12,850)
Adjustments to reconcile net loss to
net cash provided by operating
activities:
Equity in loss of affiliates.......... 2,508 --
Depreciation and amortization......... 541 39
Provision for doubtful accounts....... 4,233 --
Termination of Advisory Services
Agreement ........................... 135,000 --
Stock related expenses................ 39,374 --
Preferred stock dividends............. 12,681 12,690
Redemption of preferred stock......... 34,140 --
Extraordinary loss on retirement of
senior notes......................... 19,709 --
Capacity available for sale excluding
cash expenditures for investing
activities........................... 123,329 (21,200)
Provision for deferred income taxes... 9,654 --
Changes in operating assets and
liabilities:
Increase in accounts receivable...... (118,743) --
Increase in other assets and prepaid
costs............................... (46,662) (1,032)
Increase in deferred revenue......... 64,197 5,325
Increase in income taxes payable .... 15,604 --
Increase in accounts payable and
accrued liabilities................. 30,332 1,249
Increase in obligations under inland
services agreements................. 17,554 20,900
--------- --------
Net cash provided by operating
activities.......................... 208,727 5,121
--------- --------
CASH FLOWS PROVIDED BY FINANCING
ACTIVITIES:
Proceeds from issuance of common
stock, net........................... 392,298 73,736
Proceeds from issuance of preferred
stock, net........................... 483,000 92,470
Proceeds from issuance of senior
notes................................ 796,495 150,000
Proceeds from long term debt.......... 290,556 162,325
Repayment of long term debt........... (176,890) --
Retirement of 1997 issued senior
notes................................ (159,750) --
Redemption of 1997 issued preferred
stock................................ (134,372) --
Finance and organization costs
incurred............................. (37,665) (28,181)
Cash reimbursement to certain
shareholders......................... (7,047) --
Increase in restricted cash and cash
equivalents.......................... (419,515) (25,275)
--------- --------
Net cash provided by financing
activities.......................... 1,027,110 425,075
--------- --------
CASH FLOWS USED IN INVESTING
ACTIVITIES:
Cash paid for construction in progress
and capacity available for sale...... (413,996) (428,743)
Investment in affiliates.............. (16,701) --
--------- --------
Net cash used in investing
activities.......................... (430,697) (428,743)
--------- --------
NET INCREASE IN CASH AND CASH
EQUIVALENTS........................... 805,140 1,453
CASH AND CASH EQUIVALENTS, beginning of
period................................ 1,453 --
--------- --------
CASH AND CASH EQUIVALENTS, end of peri-
od.................................... $ 806,593 $ 1,453
========= ========
SUPPLEMENTAL INFORMATION ON NON-CASH
FINANCING ACTIVITIES:
Common stock distributed to holders of
preferred stock...................... $ -- $ 13,235
========= ========
SUPPLEMENTAL INFORMATION ON NON-CASH
INVESTING ACTIVITIES
Costs incurred for construction in
progress and capacity available for
sale................................. $ 607,865 $497,319
Increase in accrued construction
costs................................ (77,077) (52,004)
Increase in accrued interest.......... (8,412) (1,641)
Amortization of deferred finance and
organization costs................... (7,883) (2,223)
(Increase) decrease in obligations
under capital leases................. 11,660 (12,298)
PCG Warrants.......................... (112,157) --
Increase in accrued liabilities....... -- (410)
--------- --------
Cash paid for construction in progress
and capacity available for sale $ 413,996 $428,743
========= ========
SUPPLEMENTAL INFORMATION ON NON-CASH
INVESTING ACTIVITIES:
Cost of investments in affiliates..... $(179,842) $ --
PCG Warrants.......................... 163,141 $ --
--------- --------
$ (16,701) $ --
========= ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Interest paid and capitalized......... $ 39,424 $ 8,136
========= ========
Interest paid (net of capitalized
interest)............................ $ 33,854 $ --
========= ========
Cash paid for taxes................... $ 7,809 $ --
========= ========
</TABLE>
See accompanying notes.
F-14
<PAGE>
GLOBAL CROSSING LTD. AND SUBSIDIARIES
(Formerly Global Crossing Ltd., LDC)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Throughout these consolidated financial statements, references to "dollars" and
"$"
are to United States dollars.
1. BACKGROUND AND ORGANIZATION
Global Crossing Ltd. (together with its consolidated subsidiaries, "GCL" or
the "Company") is an independent provider of global Internet and long distance
telecommunications facilities and services utilizing a network of undersea and
terrestrial digital fiber optic cable systems (the "Global Crossing Network").
The Company operates as a "carriers' carrier", providing tiered pricing and
segmented products to licensed providers of international telecommunications
services. Capacity on the Global Crossing Network is offered to all customers
on an open, equal access basis. The systems under development by the Company
will form a state-of-the-art interconnected worldwide high capacity fiber optic
network.
During March 1997, Global Crossing Ltd., LDC ("Old GCL"), formerly GT Parent
Holdings LDC, was incorporated as an exempted limited duration company in the
Cayman Islands. In March 1998, GCL, a Bermuda company, was formed as a wholly-
owned subsidiary of Old GCL. At that time, Old GCL contributed its investment
in Global Telesystems Holdings Ltd. ("GTH") to GCL. During April 1998, GCL
formed a wholly-owned subsidiary, Global Crossing Holdings Ltd. ("GCH"), a
Bermuda company, and contributed its investment in GTH to GCH upon its
formation.
In January 1998, Old GCL effected a 100-for-1 stock split of each of its
Class A, B, C and D common stock and undesignated stock and amended the par
value of each share of common stock from $.0001 per share to $.000001 per
share. Prior to GCL's Initial Public Offering ("IPO") in August 1998, GCL
declared a stock dividend to Old GCL resulting in Old GCL holding 1.5 shares of
common stock of GCL for each share of common stock of Old GCL outstanding.
Pursuant to the terms of the Articles of Association of Old GCL and prior to
the Company's IPO, each holder of Class D shares of Old GCL converted such
shares into a fraction of a Class E share of Old GCL based upon a valuation at
the time of such conversion, together with a warrant to purchase the remaining
fraction of such Class E share at an exercise price based upon such market
valuation. In addition, each holder of Class E shares of Old GCL had such Class
E shares converted into Class B shares of Old GCL. Accordingly, each holder of
Class D and Class E shares ultimately received Class B shares, with the
warrants to purchase Class E shares received by former Class D shareholders
then cancelled in exchange for warrants ("New GCL Warrants") to purchase shares
of Common Stock of GCL at an exercise price equal to the IPO price of $9.50 per
share.
Subsequent to the above transaction and prior to the Company's IPO, each
shareholder of Old GCL (other than Canadian Imperial Bank of Commerce ("CIBC"),
a major shareholder) exchanged their interests in Old GCL for shares of common
stock of GCL held by Old GCL at a rate of 1.5 shares of common stock of GCL for
each share of common stock of Old GCL ("Old GCL Exchange"). CIBC did not
participate in the above mentioned transaction and continues to maintain such
ownership of GCL through Old GCL, which is now a wholly owned subsidiary of
CIBC.
Because Old GCL, GCL and GCH were entities under common control, the
transfers by Old GCL to GCL and GCL to GCH and the Old GCL Exchange were
accounted for similar to a pooling of interests. The consolidated financial
statements presented have been retroactively restated to reflect these
transactions as if they had occurred as of March 19, 1997 (Date of Inception).
In February 1999, the Board of Directors declared a 2-for-1 split of the
Company's common stock in the form of a stock dividend which was effective on
March 9, 1999. All share information presented in these consolidated financial
statements gives retroactive effect to the 100-for-1 stock split in January
1998, 1.5-for-1 stock dividend in August 1998 and 2-for-1 stock dividend on
March 9, 1999.
F-15
<PAGE>
GLOBAL CROSSING LTD. AND SUBSIDIARIES
(Formerly Global Crossing Ltd., LDC)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
2. SIGNIFICANT ACCOUNTING POLICIES
These consolidated financial statements have been prepared in accordance with
accounting principles generally accepted in the United States. The preparation
of financial statements in conformity with generally accepted accounting
principles requires management to make estimates and assumptions that affect
the reported amounts of assets and liabilities and disclosure of contingent
assets and liabilities at the date of the financial statements, as well as the
reported amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates. The significant accounting policies
are summarized as follows:
a) Principles of Consolidation
The consolidated financial statements include the accounts of GCL and its
wholly owned subsidiaries. All significant intercompany transactions have been
eliminated. Investments in affiliates, in which GCL has significant influence
but does not exercise control, are accounted for using the equity method.
b) Development Stage Company
The Company was in its development stage until May 1998 when the United
States to United Kingdom segment of the AC-1 system was placed into service and
the Company began generating significant revenues.
Successful future operations are subject to several risks, including the
ability of the Company to ensure the successful, timely and cost-effective
completion of fiber optic cable systems as well as to successfully market and
generate significant revenue from the sale of capacity of the systems. GCL may
encounter problems, delays and expenses, many of which may be beyond its
control. There can be no assurance that the cable systems will be completed
within the time frame and that capacity sales will meet expectations, or that
substantial delays would not adversely affect GCL's achievement of profitable
operations.
c) Cash and Cash Equivalents, Restricted Cash and Cash Equivalents (Current
and Long Term)
The Company considers cash in banks and short term highly liquid investments
with an original maturity of three months or less at the date of purchase to be
cash equivalents.
Current and long term restricted cash and cash equivalents includes the
following:
<TABLE>
<CAPTION>
December 31,
-------------
1998 1997
------ ------
(in
millions)
<S> <C> <C>
Funds restricted for PC-1 construction.................... $ 231 $ --
Funds restricted under the AC-1 Credit Facility........... 89 5
Funds restricted for MAC construction..................... 66 --
Funding for future interest on senior notes............... 38 20
Other..................................................... 21 --
----- ------
Total..................................................... 445 25
Less: Current portion of restricted cash and cash
equivalents.............................................. (77) (25)
----- ------
Long term restricted cash and cash equivalents............ $ 368 $ --
===== ======
</TABLE>
F-16
<PAGE>
GLOBAL CROSSING LTD. AND SUBSIDIARIES
(Formerly Global Crossing Ltd., LDC)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
d) Revenue and Deferred Revenue, Cost of Sales and Maintenance Costs
i) Revenue and Deferred Revenue
Sales Type Lease Revenue and Deferred Revenue
Customers of the Company can enter into Capacity Purchase Agreements ("CPAs")
to purchase an Indefeasible Right of Use ("IRU") in units of capacity on any of
the Company's fiber optic cable systems ("Systems") described in Note 3. The
purchase price for capacity on a System is non-refundable once the applicable
segment purchased on a System is Ready For Service ("RFS"). The IRU purchased
entitles the customer to all rights and obligations of ownership of the
capacity for a period of 25 years after the System RFS date. The Company's CPAs
generally provide that the System will have self-healing ring capability, which
means capacity on any segment of a System will be instantaneously restored
either on another System segment or within the same segment in the event of
interruption so that the same point-to-point connectivity is maintained.
Revenues from the sale of capacity are recognized in the period that the
rights and obligations of ownership transfer to the purchaser, which occurs
when (i) the purchaser obtains the right to use the capacity, which can only be
suspended if the purchaser fails to pay the full purchase price or fulfill its
contractual obligations, (ii) the purchaser is obligated to pay Operations,
Administration and Maintenance ("OA&M") costs and (iii) the segment of a System
related to the capacity purchased is available for service. Customers who have
entered into CPAs for capacity have paid deposits toward the purchase price and
such amounts have been included as deferred revenue in the accompanying
consolidated balance sheets. In some CPAs, customers who have purchased
capacity on a System prior to the date the System has self-healing ring
capacity have contractually required full self-healing ring capability as a
legal condition which, if not satisfied, would enable them to terminate the CPA
and require the Company to refund capacity payments. Payments received relating
to such CPAs on AC-1 are included in deferred revenue in the accompanying
consolidated balance sheets.
The Company has entered into contracts, called Inland Services Agreements
("ISAs"), to obtain IRUs for terrestrial capacity. The Company in turn sells
this third party terrestrial capacity under separate CPAs to certain customers
for the purpose of extending capacity from certain System landing stations to
major telecommunication cities. The purchase price for terrestrial capacity is
non-refundable and grants the customer an IRU, which entitles the customer to
all rights and obligations of ownership for terms of 25 years after the RFS
date of the related System.
Operating Type Lease Revenue and Deferred Revenue
In addition to sales type leases, the Company may enter into operating lease
agreements to lease capacity on its Systems. These agreements may grant the
customer a right to use capacity for periods of time which may be substantially
less than the design life of the capacity (generally 25 years). The Company
will amortize revenues from these operating lease agreements over the lives of
the agreements, with cash received but not yet recognized as operating revenue,
recorded in the accompanying consolidated balance sheets as deferred revenue.
OA&M Revenue
Pursuant to the terms of its existing CPAs, the Company is obliged to use
commercially reasonable efforts to cause AC-1 to be maintained in efficient
working order and in accordance with industry standards. In exchange for the
OA&M services provided by Atlantic Crossing Ltd. ("ACL") through the OA&M
agreement with Tyco Submarine Systems Ltd. ("TSSL"), customers are obligated
for the term of the IRU to pay for their allocable share of the costs for
operating and maintaining the System. Customers appoint members to a System
Advisory Committee, which is charged with the responsibility of directing the
operations and maintenance of the System.
F-17
<PAGE>
GLOBAL CROSSING LTD. AND SUBSIDIARIES
(Formerly Global Crossing Ltd., LDC)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Customers pay for 110% of ACL's cost to operate and maintain AC-1 based on
their pro-rata share of total capacity subject to annual maximum amounts per
circuit purchased of $250,000 per transatlantic circuit and $50,000 per
European circuit. Their pro-rata share is effectively calculated by taking the
weighted average of purchased capacity over total capacity multiplied by 110%
of actual costs incurred. These OA&M costs are billed to customers quarterly in
advance based on the prior year's actual costs. Payments are non-refundable,
and should a customer fail to make an OA&M payment, ACL may suspend all rights
to capacity granted under the IRU. Undersea OA&M revenues are recognized in the
period the services are provided. On an annual basis, the actual OA&M costs
incurred by the Company are accumulated and an adjustment is made to true up
actual OA&M revenues so that they equal 110% of actual costs incurred, provided
specified contractual limits have not been reached.
ii) Cost of Sales
Sales Type Lease Cost of Sales
Cost of undersea sales in any period is calculated based on the ratio of
capacity revenues recognized in the period to total expected capacity revenues
over the life of the System multiplied by the total costs incurred to construct
the System. This calculation of cost of sales matches costs with the value of
each sale relative to total expected revenues. Until the entire System is
completed, for purposes of calculating cost of sales, the total System costs
incurred will include an estimate of remaining costs to be incurred to complete
the entire System plus the cost of System upgrades that management has the
intent and ability to complete, provided the need for such upgrades is
supported by a third party consultant's independent revenue forecast.
During 1998, the Company entered into ISAs to obtain IRUs for terrestrial
capacity for terms of 25 years. Under the IRUs, the Company is required to pay
an up-front non-recurring charge plus, in certain cases, monthly recurring
charges over a 25 year period and, in exchange, obtains all rights and
obligations of ownership. The Company has accounted for the IRUs as capital
leases. The cost of acquiring this terrestrial capacity is charged to cost of
sales in the period that the related revenue is recognized. The Company
capitalized the present value of total future payments (excluding OA&M costs)
in capacity available for sale and recorded an equal amount as an obligation
under ISAs in the accompanying consolidated balance sheets.
Customers who purchased AC-1 capacity prior to February 22, 1999 ("AC-1 RFS
date") were granted 80% of the unsold capacity ("residual capacity"), if any,
12 1/2 years after the AC-1 RFS date. However, based on sales projections
provided by a third party consultant, management believes it is highly unlikely
that there will be a material amount of unsold capacity on AC-1 at such time.
The Company has no constraints on the pricing or structure of sales of residual
capacity and the Company would expect that if such capacity had any remaining
value, it would enter into one or more transactions to dispose of such capacity
prior to such date to realize such remaining value. As a result, the right to
residual capacity is not a substantive right.
In the period in which management has the intent and ability to complete a
System upgrade, the total expected System capacity revenues and cost of the
System used in the cost of sales calculation will change to take into account
the further increase in System cost and in System capacity. The intent and
ability of management to complete a System upgrade is demonstrated by the fact
that (i) the Board of Directors has authorized the purchase of the upgrade,
(ii) the Company has the financial ability to purchase the upgrade and (iii)
there are no regulatory or technology hurdles preventing the completion of the
upgrade. The total expected System capacity revenues used by the Company in its
cost of sales calculation will always be limited by total sales forecasted by a
third party consultant which is updated on an annual basis. The AC-1 System was
designed to be upgradable so as to increase the initial design capacity of 256
circuits available for sale. The Company has contracted with TSSL to upgrade
capacity on AC-1 to 512 circuits. Based on the current third party consultant's
sales forecast, the Company expects to sell all 512 circuits available for
sale.
F-18
<PAGE>
GLOBAL CROSSING LTD. AND SUBSIDIARIES
(Formerly Global Crossing Ltd., LDC)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
In addition to capacity upgrades, management's estimate of future expected
capacity revenues may change due to a number of factors, including possible
variances in actual sales prices and volume from management's estimates.
Management will continually evaluate these factors in conjunction with the
updated third party consultant's sales forecast and, as necessary, revise its
estimate of the total expected revenues to be derived over the life of a
System. Changes in management's estimate of the total expected revenues to be
derived from sales of capacity result in adjustments to the calculations of
cost of sales which are recorded on a prospective basis over future periods
commencing in the period management revises its estimate.
Under their respective CPAs, certain customers have been provided options to
purchase additional capacity at specified prices for specified future periods
as well as the option to purchase additional capacity should the Company
upgrade the AC-1 capacity in the future. In many cases, prices under the
options to purchase capacity during these specified periods are lower than the
current price for capacity charged to the customer. Management's estimate of
future revenues for purposes of calculating cost of sales takes into
consideration prices under these options.
Operating Type Lease Cost of Capacity
Costs relating to operating type lease revenues will be classified as a
depreciable asset and depreciated over the estimated useful life of the
capacity.
iii) Maintenance Costs
The Company has entered into an OA&M agreement with TSSL whereby TSSL is
obligated to provide operating, administration and maintenance functions to AC-
1, which include management and maintenance of a Network Operating Center,
assumption of vessel costs, obtaining and renewing all operating permits,
providing repair equipment, providing cable protection and ordering and
restocking equipment spares. The OA&M agreement is for an initial term of eight
years with two renewal periods of eight and one half years each at the
Company's option. The OA&M costs related to this agreement are expensed as
incurred.
OA&M costs relating to ISAs are expensed as incurred and the related revenue
is recognized in the period the services are provided.
e) Commissions and Advisory Services Fees
The Company's policy is to record sales commissions and advisory fee expenses
and related payable upon the recognition of revenue so as to appropriately
match these costs with the related revenue. Under the Advisory Services
Agreement ("ASA"), which was terminated by December 31, 1998, the Company paid
PCG Telecom Services LLC ("PCG Telecom") and its affiliates 2% of revenues for
advisory services performed. Under the Sales Agency Agreement ("SAA") the
Company pays TSSL a commission based on a percentage of capacity revenues.
f) Construction in Progress
Costs incurred prior to a segment's completion are reflected as construction
in progress in the accompanying consolidated balance sheets and recorded as
capacity available for sale at the date each segment of the System becomes
operational. Capacity available for sale is recorded at the lower of cost or
fair value less costs to sell and is charged to costs of sales in the period
the related revenues are recognized. Fair value of capacity is derived from a
third party consultant's market study of expected sales of capacity.
Construction in progress includes direct expenditures for construction of a
System and is stated at cost. Capitalized costs include costs incurred under
the construction contract; advisory, consulting and legal fees;
F-19
<PAGE>
GLOBAL CROSSING LTD. AND SUBSIDIARIES
(Formerly Global Crossing Ltd., LDC)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
interest; and amortized finance costs incurred during the construction phase.
Once it is probable that a cable system will be constructed, costs directly
identifiable with the cable system under development are capitalized. Costs
relating to the evaluation of new projects incurred prior to the date the
development of the System becomes probable are expensed as incurred.
Interest incurred, which includes the amortization of deferred finance fees
and issuance discount ("interest cost"), are capitalized to construction in
progress in accordance with Statement of Financial Accounting Standards No. 34,
"Capitalization of Interest Costs" ("SFAS 34"). Total interest cost incurred
and interest capitalized to construction in progress during the periods were:
<TABLE>
<CAPTION>
Period from
March 19, 1997
(Date of
Year Ended Inception) to
December 31, 1998 December 31, 1997
----------------- -----------------
(In thousands)
<S> <C> <C>
Interest cost incurred.................... $92,813 $9,777
======= ======
Interest cost capitalized to construction
in progress.............................. $49,933 $9,777
======= ======
</TABLE>
g) Deferred Finance and Organization Costs
Costs incurred to obtain financing through the issuance of senior notes and
long term debt have been reflected as an asset in the accompanying consolidated
balance sheets. Costs incurred to obtain financing through the issuance of
preferred stock have been reflected as a reduction in the carrying value of the
issued preferred stock. The financing costs relating to the debt are amortized
over the shorter of the stated long term or, where the terms of the loan
require earlier repayment, the expected period over which the debt obligation
will be repaid. In 1998, certain preferred stock was redeemed at which time the
remaining balance of unamortized discount and offering costs was charged
against additional paid-in capital. During the construction period, the
amortized portion of deferred financing costs relating to the senior notes and
the long term debt are included in construction in progress as a component of
interest capitalized or recorded as interest expense in accordance with SFAS
34. The amortized portion of the deferred financing costs relating to the
preferred stock is included as a component of preferred stock dividends.
h) Translation of Foreign Currencies
Substantially all of the Company's international subsidiaries use their local
currency as their functional currency. For those subsidiaries using the local
currency as their functional currency, assets and liabilities are translated at
exchange rates in effect at the balance sheet date, and income and expense
accounts at average exchange rates during the period. Resulting translation
adjustments are recorded directly to a separate component of shareholders'
equity. Where the U.S. dollar is the functional currency, translation
adjustments are recorded in the accompanying consolidated statements of
operations. None of the Company's translation adjustments were material as of
and for the year ended December 31, 1998 and as of and for the period from
March 19, 1997 (Date of Inception) to December 31, 1997.
i) Stock Option Plan
As permitted by Statement of Financial Accounting Standards No. 123,
"Accounting for Stock-Based Compensation" (SFAS No. 123), the Company has
chosen to account for employee stock options under Accounting Principles Board
Opinion No. 25, "Accounting for Stock Issued to Employees" ("APB 25"), and,
accordingly, recognizes compensation expense for stock option grants to the
extent that the estimated fair value of the stock exceeds the exercise price of
the option at the measurement date. The compensation expense is
F-20
<PAGE>
GLOBAL CROSSING LTD. AND SUBSIDIARIES
(Formerly Global Crossing Ltd., LDC)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
charged against operations ratably over the vesting period of the options. In
addition, the Company records compensation expense for options granted to
individuals other than employees using the fair value approach consistent with
SFAS No. 123.
j) Interest Rate Derivatives
The Company uses a derivative financial instrument for the purpose of
reducing its exposure to adverse fluctuations in interest rates. The
counterparty to the only derivative financial instrument in effect as of
December 31, 1998 is CIBC. The Company is exposed to credit loss in the event
of nonperformance by CIBC. As of December 31, 1998 the Company does not utilize
derivative financial instruments for trading or other speculative purposes.
For interest rate derivatives to qualify for hedge accounting, the debt
instrument being hedged must expose the Company to interest rate risk and, at
the inception of the derivative instrument and throughout the period the
derivative is held, there must be a high correlation of changes in the market
value of the derivative and interest expense of the hedged item. Gains and
losses on interest rate derivatives and other derivative instruments which do
not meet this criteria would be recorded in the statement of operations.
As discussed in Note 5, the Company has entered into an interest rate swap
agreement to hedge its exposure to interest rates on its long term debt. Since
this agreement qualifies for hedge accounting, the net cash amounts paid or
received on the agreement are accrued and recognized as an adjustment to
interest expense on the related debt.
k) Net Loss Per Share
Losses per share are calculated in accordance with Statement of Financial
Accounting Standards No. 128 "Earnings Per Share." Share and per share data
presented reflects all stock dividends and stock splits.
The following is a reconciliation of the numerators and the denominators of
the basic and diluted loss per share:
<TABLE>
<CAPTION>
Period from
March 19, 1997
Year Ended (Date of Inception)
December 31, 1998 to December 31, 1997
----------------- --------------------
(In thousands, except share
and per share information)
<S> <C> <C>
Basic and Diluted
Loss before extraordinary item......... $ (68,194) $ (160)
Preferred stock dividends.............. (12,681) (12,690)
Redemption of preferred stock.......... (34,140) --
----------- -----------
Loss applicable to common shareholders
before extraordinary item............. $ (115,015) $ (12,850)
=========== ===========
Weighted average share outstanding:
Basic and diluted...................... 358,735,340 325,773,934
----------- -----------
Loss applicable to common shareholders
before extraordinary item:
Basic and diluted...................... $ (0.32) $ (0.04)
=========== ===========
</TABLE>
Dilutive options and warrants did not have an effect on the computation of
diluted loss per share in 1998 and 1997 since they were anti-dilutive.
F-21
<PAGE>
GLOBAL CROSSING LTD. AND SUBSIDIARIES
(Formerly Global Crossing Ltd., LDC)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
l) Income Taxes
The Company recognizes current and deferred income tax assets and liabilities
based upon all events that have been recognized in the consolidated financial
statements as measured by the provision of the enacted tax laws.
m) Recently Adopted and New Accounting Standards
The Financial Accounting Standards Board has recently issued Statement of
Financial Accounting Standards No. 130, "Reporting Comprehensive Income" ("SFAS
130"). SFAS 130 is effective for periods beginning after December 15, 1997.
There was no impact to the consolidated financial statements due to the
adoption of SFAS 130 in 1998. The Financial Accounting Standards Board has also
issued Statement of Financial Accounting Standards No. 133, "Accounting for
Derivative Instruments and Hedging Activities" ("SFAS 133"), which is effective
for periods beginning after June 15, 1999. Management does not expect the
impact of the adoption of SFAS 133 on the Company's consolidated financial
position or results of operations to be material.
The American Institute of Certified Public Accountants recently issued
Statement of Position 98-5, "Reporting on the Cost of Start-Up Activities"
("SOP 98-5"). The Company is required to adopt SOP 98-5 during January, 1999.
The adoption of SOP 98-5 will result in a charge against net income in the
statement of operations of the first quarter of 1999 which management estimates
will be approximately $15 million. This charge is comprised primarily of costs
incurred for System startup activities that were previously capitalized to
Systems not yet ready for service. The $15 million charge represents less than
1% of the projected total costs of the Systems currently under development by
the Company.
n) Reclassifications
Certain prior year amounts have been reclassified in the consolidated
financial statements for consistent presentation.
3. GLOBAL CROSSING NETWORK
GCL is a provider of Internet and long distance telecommunications facilities
and related services supplying its customers with global "point-to-point"
connectivity. As such, the Company is engaged in only one business segment
worldwide, and derives its revenues from customers located in the following
geographic regions: the Americas, Europe and Asia Pacific. The Company also
maintains long-lived assets in these regions; however, the majority of these
assets are in international waters. In addition, the Company derives all of its
revenues from companies in the Internet and long distance telecommunications
industry and, as a result, has concentration of credit risk in this industry.
F-22
<PAGE>
GLOBAL CROSSING LTD. AND SUBSIDIARIES
(Formerly Global Crossing Ltd., LDC)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Financial information relating to the Company's consolidated operations by
geographic area was as follows:
<TABLE>
<CAPTION>
1998 1997
---------------------- -------------------
Long-Lived Long-Lived
Revenues(a) Assets(b) Revenues Assets(b)
----------- ---------- -------- ----------
(In thousands)
<S> <C> <C> <C> <C>
North America
United States...................... $200,489 $ 70,555 $ -- $ 50,169
Canada............................. 68,351 -- -- --
----------------------------------------
268,840 70,555 -- 50,169
----------------------------------------
Europe
The Netherlands.................... 46,832 --
Germany............................ 35,933 --
Other.............................. 72,494 --
----------------------------------------
155,259 161,535 -- 107,412
----------------------------------------
Asia Pacific......................... -- -- -- --
International waters................. -- 770,966 -- 360,937
----------------------------------------
Consolidated......................... $424,099 $1,003,056 $ -- $518,518
======== ========== ======== ========
</TABLE>
- --------
(a) Revenues for the year ended December 31, 1998 by region are classified
according to the location of the customer. During 1998, there was one customer
located in the United States that accounted for 16% of consolidated revenue,
another customer located in Canada that accounted for 16% of consolidated
revenue, and one customer located in the Netherlands that accounted for 11% of
consolidated revenue.
(b) Long-lived assets include capacity available for sale and construction in
progress as of December 31.
Atlantic Crossing ("AC-1")
ACL, formerly Global Telesystems Ltd., an indirect wholly-owned subsidiary of
GCL, entered into a fixed price contract with TSSL for the construction of AC-
1, an upgradeable undersea fiber optic cable ring, connecting New York, the
United Kingdom, the Netherlands and Germany. AT&T Corp. provided ACL with a
guarantee in respect of TSSL's obligations under the contract. Certain segments
of AC-1 were accepted by ACL and made available for commercial service during
1998. TSSL retains title ownership of segment assets in United States territory
until GT Landing Corp., a United States wholly-owned subsidiary of ACL,
exercises its $10,000 bargain purchase option to purchase title. Pursuant to
the contract, TSSL granted GT Landing Corp. an IRU for the estimated 25 year
life of the system. GT Landing Corp. accounted for the IRU as a capital lease,
since the IRU transfers the risks and rewards of ownership to GT Landing Corp.
The United States assets governed by this IRU includes all landing station
assets (with the exception of the building and land, to which GT Landing Corp.
has title), fiber optic cable located in the United States and the landing
license. The Company entered into a capital lease for the landing station
building and conduit in both Germany and the Netherlands. ACL entered into a
$482 million credit facility to finance, in part, the construction and
financing of AC-1.
Mid-Atlantic Crossing ("MAC")
Mid-Atlantic Crossing Ltd. ("MACL"), an indirect wholly-owned subsidiary of
GCL, entered into fixed price contracts with Alcatel Submarine Networks in June
1998 and TSSL in October 1998 for the construction of MAC, an upgradeable
undersea fiber optic cable ring connecting New York, the Caribbean and Florida.
The
F-23
<PAGE>
GLOBAL CROSSING LTD. AND SUBSIDIARIES
(Formerly Global Crossing Ltd., LDC)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
estimated cost of the System is $330 million and is expected to be ready for
service in December 1999 ("MAC RFS date"). Companies have been incorporated in
each country in which the cable will land in order to own the portion of the
System located in each country and the related territorial waters. MACL entered
into a $260 million credit facility to finance, in part, the construction and
financing of MAC. See Note 5.
Pan American Crossing ("PAC")
In July 1998, the Company, through its indirect wholly-owned subsidiary, Pan
American Crossing Ltd. ("PACL"), entered into a fixed price contract with TSSL
for the construction of PAC, an upgradeable undersea fiber optic cable System
connecting California, Mexico and Panama and the Caribbean. The estimated cost
of the System is $495 million. PACL signed a commitment letter to obtain up to
$300 million of non-recourse indebtedness to finance, in part, the construction
and financing of PAC.
Pan European Crossing ("PEC")
The Company is also developing PEC, a 10,000 km upgradeable terrestrial fiber
optic system connecting 24 European cities to each other and to AC-1. The
construction costs of PEC are estimated to be $850 million. In October 1998,
the Company entered into an agreement with VersaTel Telecom Europe B.V.
("VersaTel") whereby the Company will secure ownership of optical fiber
conduits on VersaTel's routes connecting Amsterdam, Brussels and the French
border by March 1999 in exchange for capacity and dark fiber on PEC. In
addition, in October 1998, the Company executed an agreement with Cable &
Wireless PLC for the sale of dark fiber on PEC for a purchase price of over
$100 million. Furthermore, in November 1998, the Company executed an agreement
with GasLINE for the construction of a portion of PEC located in Germany. The
Company is currently negotiating with other parties for the acquisition of
rights of way and the acquisition or construction of conduits. Lucent will
supply fiber and equipment for PEC as well as project management and
integration services.
4. INVESTMENT IN AFFILIATES
In addition to the wholly-owned Systems discussed in Note 3, GCL has invested
in Pacific Crossing Ltd. and Global Access Ltd. (together "affiliates") which
are developing Pacific Crossing ("PC-1") and GAL respectively, which are also
part of the Global Crossing Network.
Investment in Pacific Crossing Ltd. ("PCL")
In April 1998, a wholly-owned subsidiary of GCL entered into a joint venture
to construct PC-1 which is owned and operated by PCL. The Company has an
economic interest in PCL represented by a 50% direct voting interest and,
through one of the joint venture partners, owns a further 8% economic non-
voting interest. PCL entered into a contract in April 1998 with TSSL to
construct PC-1 for a total price of approximately $1,200 million, which will be
financed through a $400 million equity contribution by the joint venture
partners and an $850 million credit facility. In July 1998, an $850 million
aggregate senior secured non-recourse loan facility (the "PCL Credit Facility")
was executed for the construction and financing costs of PC-1. The PCL Credit
Facility is comprised of an $840 million multiple drawdown term loan facility
and a $10 million working capital facility. In July 1998, an initial drawdown
was made on the term loan facility to repay a $104 million promissory note used
for initial construction costs on PC-1 as well as fees incurred to secure the
credit facility. The Company also placed $231 million into a restricted cash
collateral account to satisfy its equity funding commitment for its 58% joint
venture economic interest in PCL.
F-24
<PAGE>
GLOBAL CROSSING LTD. AND SUBSIDIARIES
(Formerly Global Crossing Ltd., LDC)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Investment in Global Access Ltd.
In December 1998, a wholly-owned subsidiary of GCL entered into a joint
venture, Global Access Ltd., to construct and operate GAL, a terrestrial cable
system connecting Tokyo, Osaka and Nagoya with PC-1. The Company has a 49%
interest in Global Access Ltd.
The investment in affiliates as of December 31, 1998 consists of the following
items:
<TABLE>
<S> <C>
(In thousands)
Carrying value of investment in PCL...................... $ (2,502)
PC-1 development costs................................... 163,141
Carrying value of investment in Global Access Ltd. ...... 16,695
--------------
Investment in affiliates................................. $ 177,334
==============
</TABLE>
The PC-1 development costs represent the estimated unamortized value of the
PCG Warrants as of December 31, 1998 which were granted to Pacific Capital
Group ("PCG") in exchange for the PC-1 system and related rights. In connection
with the formation of PCL, the Company agreed to make available to PCL the
consideration received by the Company in connection with the grant of the PCG
Warrants in addition to the $231 million cash investment to be made by the
Company. See Note 10 for a description of PCG Warrants.
5. LONG TERM DEBT, OBLIGATIONS UNDER INLAND SERVICES AGREEMENTS AND CAPITAL
LEASES
AC-1 Credit Facility
During 1997, ACL entered into a $410 million aggregate senior secured non-
recourse loan facility (the "AC-1 Credit Facility") with a group of banks led
by an affiliate of CIBC and Deutsche Bank AG, for the construction and
financing costs of AC-1. During 1997, the AC-1 Credit Facility was amended to
increase it to $482 million, comprised of a $472 million multiple draw down
term loan facility (the "Term Facility") and a $10 million working capital
facility (the "Working Capital Facility"), to extend AC-1 to include, among
other things, a Netherlands landing site. The AC-1 Credit Facility is secured
by pledges of the stock of ACL and its subsidiaries and security interests in
its assets and revenues. The unused portion of the AC-1 Credit Facility as of
December 31, 1998 was approximately $38 million. Any amounts repaid to the
lenders cannot be re-borrowed, and are effectively permanent reductions in the
AC-1 Credit Facility.
Under the AC-1 Credit Facility, ACL may select loan arrangements as either a
Eurodollar loan or an Alternative Base Rate ("ABR") Loan. The Eurodollar
interest rate is LIBOR plus 2.0% and the ABR interest rate is the greatest of
(a) the Prime Rate, (b) the Base CD Rate plus 1% and (c) the Federal Funds
Effective Rate plus 0.5%, plus 1.0%. As of December 31, 1998, all outstanding
loans were Eurodollar loans. ACL pays a commitment fee of 0.5% per annum on the
unused portion of the AC-1 Credit Facility. The AC-1 Credit Facility contains
various covenants that (i) limit further indebtedness by ACL and its
subsidiaries, (ii) limit the ability of ACL to pay dividends, (iii) require ACL
to meet certain minimum capacity sales levels and (iv) require ACL to meet a
minimum interest coverage ratio for the years 1999 through to maturity of the
AC-1 Credit Facility. The AC-1 Credit Facility is repayable in eight semi-
annual installments ("Mandatory Repayment"). All revenues received as of
December 31, 1998 have been used to fund reserve accounts (see Note 2c), and
thereafter were applied against the borrowings. The amount repaid prior to the
AC-1 RFS date was used to reduce the Mandatory Repayment for 1999 to $7
million. The remaining balance is repayable through installments of $100
million in 2000, $141 million in 2001 and $19 million in 2002. Furthermore, ACL
is required to apply against the borrowings 50% of excess cash flows received
after the AC-1 RFS date. If any
F-25
<PAGE>
GLOBAL CROSSING LTD. AND SUBSIDIARIES
(Formerly Global Crossing Ltd., LDC)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Mandatory Repayment amount exceeds the outstanding loan balance, then the
outstanding loan balance will be repaid. Excess cash flow is defined under the
terms of the AC-1 Credit Facility as all cash received from revenues during the
period reduced by the payment of OA&M expenses, commissions under the Sales
Agency Agreement, and transfers to certain reserve accounts.
Effective December 31, 1997, ACL entered into an interest rate swap
transaction based on one month LIBOR to minimize its exposure to increases in
interest rates on its borrowings. The swap transaction was amended on February
2, 1998 and currently fixes ACL's floating interest rate at 5.7825% on a
notional amount of borrowings ranging between $200 million and $310 million
until January 31, 1999.
MAC Credit Facility
During November 1998, MACL entered into a $260 million aggregate senior
secured non-recourse loan facility (the "MAC Credit Facility") with a group of
banks led by CIBC and Deutsche Bank AG, for the construction and financing
costs of MAC. The MAC Credit Facility is comprised of a $250 million multiple
draw down term loan facility (the "MAC Term Facility") and a $10 million
working capital facility (the "MAC Working Capital Facility"). Of the $250
million MAC Term Facility, $31 million is restricted for purposes of funding
the first System upgrade. The MAC Credit Facility is secured by pledges of the
stock of MACL and its subsidiaries and security interests in its assets and
revenues.
Under the MAC Credit Facility, MACL may select loan arrangements as either a
Eurodollar loan or an Alternative Base Rate ("ABR") Loan. The Eurodollar
interest rate is LIBOR plus 3.0% and the ABR interest rate is the greater of
(a) the Prime Rate and (b) the Federal Funds Effective Rate plus 0.5%, plus
2.0%. As of December 31, 1998, all outstanding loans were Eurodollar loans. MAC
Credit Facility contains various covenants that (i) limit further indebtedness
by MACL and its subsidiaries, (ii) limit the ability of MACL to pay dividends,
(iii) require MACL to meet certain minimum capacity sales levels and (iv)
require MACL to meet a minimum interest coverage ratio for the years 2000
through to the maturity of the MAC Credit Facility. The MAC Credit Facility is
repayable in ten semi-annual installments commencing on the first August 31,
November 30, February 28, or May 31 occurring 165 days after the MAC RFS date,
with $38 million of the principal amount due in the initial year, $45 million
due in the second year, and $59 million due in each of the third, fourth, and
fifth years. If at any semi-annual installment date the outstanding loan
balance is lower than the installment amounts noted in the previous sentence,
then the outstanding loan balance amount will be repaid.
F-26
<PAGE>
GLOBAL CROSSING LTD. AND SUBSIDIARIES
(Formerly Global Crossing Ltd., LDC)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Long Term Debt
Long term debt consists of the following:
<TABLE>
<CAPTION>
December 31,
-------------------
1998 1997
--------- ---------
(In thousands)
<S> <C> <C>
AC-1 Credit Facility.................................... $ 266,799 $ 162,325
MAC Credit Facility..................................... 9,192 --
--------- ---------
Total debt.............................................. 275,991 162,325
Less: current portion of long term debt................. (6,393) --
--------- ---------
Long term debt.......................................... $ 269,598 $ 162,325
========= =========
Maturities of long term debt are as follows:
<CAPTION>
Year Ending December 31, (In thousands)
<S> <C> <C>
1999.................................................... $ 6,393
2000.................................................... 99,555
2001.................................................... 150,792
2002.................................................... 19,251
---------
Total................................................... $ 275,991
=========
</TABLE>
Capital Leases and Obligations under Inland Service Agreements
As described in Note 3, the Company has capitalized the minimum lease
payments of the IRU held by GT Landing Corp. on AC-1 assets held in the United
States. The Company has been granted a bargain purchase option to purchase for
$10,000 all rights and title to these assets at any time during the term of
this contract which is 25 years from the AC-1 RFS date. The Company has also
capitalized to construction in progress in the accompanying balance sheets
building and conduit leases in the Netherlands and Germany. As of December 31,
1998, the present value of the payments under these capital leases is $8
million ($12 million as of December 31, 1997).
Contracts to purchase terrestrial capacity have a duration of 25 years which
represents more than 75 percent of the economic life of the asset being
purchased. Certain of these contracts require payments over the 25 year period.
As of December 31, 1998, the present value of the payments under these
contracts (excluding amounts attributable to operations and maintenance) has
been recorded as obligations under ISAs in the accompanying consolidated
balance sheets in the amount of $31 million ($21 million as of December 31,
1997).
F-27
<PAGE>
GLOBAL CROSSING LTD. AND SUBSIDIARIES
(Formerly Global Crossing Ltd., LDC)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
At December 31, 1998 future minimum payments under these ISAs and capital
leases are as follows:
<TABLE>
<S> <C>
Year Ending December 31, (In thousands)
1999............................................................ $ 18,301
2000............................................................ 13,628
2001............................................................ 5,513
2002............................................................ 5,677
2003............................................................ 5,848
Thereafter until 2023........................................... 163,941
--------------
Total minimum lease payments.................................... 212,908
Less: Amount representing maintenance payments.................. (131,515)
--------------
81,393
Less: Amount representing interest.............................. (42,301)
--------------
Present value of net minimum lease payments..................... $ 39,092
==============
</TABLE>
6. SENIOR NOTES
New Senior Notes
The 9 5/8% senior notes due May 15, 2008 issued by GCH, with a face value of
$800 million ("New Senior Notes"), are general unsecured obligations of GCH and
rank senior to any future subordinated indebtedness of GCH and are equal in
right of payment with any future unsecured senior indebtedness of GCH. GCL and
several of GCH's subsidiaries have issued guarantees in respect of these New
Senior Notes, see Note 14. The first interest payment of $38 million on the New
Senior Notes was paid during November 1998. The Company has set aside $38
million to fund the second interest payment due May 15, 1999. Interest is
payable semi-annually in arrears on each May 15 and November 15. The New Senior
Notes are redeemable at the option of GCH on May 15, 2003 at 104.813%, May 15,
2004 at 103.208%, on May 15, 2005 at 101.604% and on May 15, 2006 and
thereafter at par. The New Senior Notes are redeemable at the option of the
holders thereof only upon the occurrence of a change in control in GCL. The
indenture governing the New Senior Notes imposes certain limitations on the
ability of GCH and its subsidiaries to, among other things, (i) incur
additional indebtedness (including senior indebtedness) and (ii) pay certain
dividends and make certain other restricted payments and investments.
Old Senior Notes
The 12% senior notes issued by GTH with a face value of $150 million, due
March 31, 2004, were repurchased in May 1998 with the proceeds from the
issuance of the New Senior Notes. The Company recognized an extraordinary loss
of $20 million on repurchase comprising a premium of approximately $10 million
and a write-off of approximately $10 million of unamortized deferred financing
costs.
7. MANDATORILY REDEEMABLE PREFERRED STOCK
10 1/2% Mandatorily Redeemable Preferred Stock
In December 1998, GCH authorized the issuance of 7,500,000 shares of
preferred stock at a liquidation preference of $100.00 per share plus
accumulated and unpaid dividends. In December 1998, 5,000,000 shares
F-28
<PAGE>
GLOBAL CROSSING LTD. AND SUBSIDIARIES
(Formerly Global Crossing Ltd., LDC)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
of GCH Preferred Stock were issued for $500 million in cash and as of December
31, 1998, 5,000,000 shares were issued and outstanding. The Company reserved
for future issuances up to 2,500,000 shares to pay dividends.
The holders of the preferred stock are entitled to receive cumulative, semi-
annual compounding dividends at an annual rate of 10 1/2% of the $100
liquidation preference per share. At the Company's option, accrued dividends
may be paid in cash or paid by issuing additional preferred stock (i.e. pay-in-
kind) until June 1, 2002, at which time they must be paid in cash. Dividends
are payable semi-annually in arrears on each June 1 and December 1. The
preferred stock ranks senior to all common stock of GCH with respect to
dividend rights, rights of redemption or rights on liquidation and on priority
with any future preferred stock of GCH. The preferred stock is junior in right
of payment of all indebtedness of GCH and its subsidiaries. The preferred stock
is non-voting unless the accumulation of unpaid dividends (or if, beginning on
June 1, 2002, such dividends are not paid in cash) on the outstanding preferred
stock is an amount equal to three semi-annual dividend payments.
The preferred stock has a mandatory redemption on December 1, 2008 at a price
in cash equal to the then effective liquidation preference thereof, plus all
accumulated and unpaid dividends thereon to the date of redemption. The
preferred stock can be redeemed, in whole or in part, at the Company's option
at redemption prices starting at 105.25% of the liquidation preference in 2003,
declining to 103.5% in 2004, 101.75% in 2005 and 100% thereafter. During the
period ended December 31, 1998, no dividends were paid and $4 million in
cumulative dividends were accrued and included in preferred stock as of
December 31, 1998.
The certificate of designation governing the preferred stock imposes certain
limitations on the ability of the Company to, among other things, (i) incur
additional indebtedness and (ii) pay certain dividends and make certain other
restricted payments and investments.
14% Mandatorily Redeemable Preferred Stock
In March 1997, GTH authorized 500,000 shares of preferred stock at a
liquidation preference of $1,000 per share. Effective March 25, 1997, 100,000
shares were issued by GTH and there were 109,830 shares as of December 31, 1997
issued and outstanding.
In connection with the issuance of the preferred stock, the holders thereof
purchased an aggregate of 22,500,000 shares of Old GCL's Class A common stock
for total proceeds of $8 million. Additionally, in connection with the issuance
of the preferred stock, the initial purchaser of the preferred stock received
39,705,900 shares of Old GCL's Class A common stock for no additional
consideration representing 15% of the aggregate number of Old GCL's Class A, B
and C shares outstanding, after giving effect to the issuance. The initial
purchaser had the right to distribute these Class A shares to purchasers of the
preferred stock.
The fair value of the 39,705,900 shares of Old GCL's Class A common stock
distributed to preferred shareholders was based on the $.33 per share paid by
the holders of preferred stock for the 22,500,000 Old GCL's Class A shares
purchased for cash. The Company recorded the $13 million estimated fair value
of the Old GCL's Class A common stock issued to the purchasers as a discount in
the carrying value of the preferred stock as of December 31, 1997.
F-29
<PAGE>
GLOBAL CROSSING LTD. AND SUBSIDIARIES
(Formerly Global Crossing Ltd., LDC)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
In June 1998, proceeds from the issuance of the New Senior Notes were used to
redeem this preferred stock. The redemption resulted in a $34 million charge
against additional paid-in capital comprised of a $16 million redemption
premium and $18 million of unamortized discount and issuance cost on the
preferred stock on the date of the redemption. The redemption premium and
write-off of unamortized discount and issuance costs on the preferred stock
were treated as a deduction to arrive at the net loss applicable to common
shareholders in the consolidated statement of operations.
Preferred stock dividends included the following:
<TABLE>
<CAPTION>
Period from
March 19,
1997 (Date of
Year Ended Inception) to
December 31, 1998 December 31, 1997
----------------- -----------------
(In thousands)
<S> <C> <C>
Preferred stock dividends................. $11,712 $11,112
Amortization of discount on preferred
stock.................................... 618 1,011
Amortization of preferred stock issuance
costs.................................... 351 567
------- -------
$12,681 $12,690
======= =======
</TABLE>
8. EMPLOYEE BENEFIT PLANS
During 1998, the Company adopted a stock option plan under which options to
acquire up to 33,215,730 shares may be granted to directors, officers,
employees and consultants of the Company. The Company accounts for this plan
under APB Opinion No. 25, under which compensation cost is recognized only to
the extent that the market price of the stock exceeds the exercise price. Terms
and conditions of the Company's options, including exercise price and the
period in which options are excisable, generally are at the discretion of the
Compensation and Stock Option Committee of the Board of Directors; however, no
options are exercisable more than ten years after date of grant.
Additional information regarding options granted and outstanding for the year
ended December 31, 1998 is summarized below:
<TABLE>
<CAPTION>
Weighted
Options Average
Available Number of Exercise
For Grant Options Price
----------- ---------- --------
<S> <C> <C> <C>
Balances as of December 31, 1997......... -- -- --
Authorized ............................. 33,215,730
Granted................................. (30,762,466) 30,762,466 $2.85
Exercised............................... (656,688) 1.06
Cancelled............................... 3,253,000 (3,253,000) 1.11
----------- ---------- -----
Options outstanding as of December 31,
1998.................................... 5,706,264 26,852,778 $3.11
</TABLE>
F-30
<PAGE>
GLOBAL CROSSING LTD. AND SUBSIDIARIES
(Formerly Global Crossing Ltd., LDC)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The following tables summarize information concerning outstanding and
exercisable options at December 31, 1998.
<TABLE>
<S> <C> <C> <C> <C> <C>
Options Outstanding Options Exercisable
-------------------------------------------------- ----------------------------
Weighted Average Weighted Average Weighted Average
Range of Number Remaining Contractual Exercise Price Number Exercise Price
Exercise Prices Outstanding Life (in years) per Share Exercisable per Share
---------------- ----------- --------------------- ---------------- ----------- ----------------
$0.83 15,717,280 9.2 $ 0.83 4,803,833 $ 0.83
2.00 to 3.33 6,844,598 9.5 3.13 1,625,000 3.33
9.50 to 13.26 4,290,900 9.7 11.44 302,834 11.34
---------------- ----------- --------------------- ---------------- ----------- ----------------
Total 26,852,778 9.3 $ 3.11 6,731,667 $ 1.91
=========== ===================== ================ =========== ================
</TABLE>
During 1998, the Company entered into an employment arrangement with a key
executive, and granted him economic rights to purchase 533,334 shares of common
stock and options to purchase 1,066,667 shares of common stock, in each case at
$2.00 per share. The economic rights vested immediately and the options will
vest over two years. The Company recorded the excess of the fair market value
of these options and rights over the purchase price as unearned stock
compensation in the amount of $15 million during the year ended December 31,
1998. The unearned compensation is being recognized as an expense over the
vesting period of the rights and options.
Through December 31, 1998, the Company recorded in additional paid-in capital
$94 million of unearned compensation, relating to awards under the stock
incentive plan plus the grant of certain economic rights and options to
purchase common stock granted to a senior executive as discussed above. During
the year the Company recognized expense of $31 million of stock related
compensation relating to the stock incentive plan and $6 million for the vested
economic rights to purchase common stock. The remaining $57 million of unearned
compensation will be recognized as follows: $28 million in 1999, $21 million in
2000 and $8 million in 2001. In addition, the Company recognized $2 million in
stock related expense for shares issued during the year.
As permitted by SFAS No. 123, the Company accounted for employee stock
options under APB 25 and is recognizing compensation expense over the vesting
period to the extent that the fair value of the stock on the date the options
were granted exceeded the exercise price. Had compensation cost for the
Company's stock-based compensation plans been determined consistent with the
SFAS No. 123 fair value approach, the impact on the Company's loss applicable
to common shareholders and loss per share would be as follows:
<TABLE>
<CAPTION>
Period from
March 19, 1997
Year Ended (Date of Inception) to
December 31, 1998 December 31, 1997
----------------- ----------------------
(In thousands, except per
share information)
<S> <C> <C>
Net loss applicable to common
shareholders:
As reported.................. $(134,724) $(12,850)
Pro forma.................... $(141,585) $(12,850)
Basic and diluted net loss per
share:
As reported.................. $(0.38) $(0.04)
Pro forma.................... $(0.39) $(0.04)
</TABLE>
F-31
<PAGE>
GLOBAL CROSSING LTD. AND SUBSIDIARIES
(Formerly Global Crossing Ltd., LDC)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Under SFAS No. 123, the fair value of each option is estimated on the date of
grant using the Black-Scholes option-pricing model assuming a four year
expected life with the following assumption:
<TABLE>
<CAPTION>
Weighted
Expected Expected Risk Free Average Estimated
Date Granted Dividend Yield Volatility Interest Rate Fair Value
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1998
January 21 * 0% 0% 5.45% $0.16
April 03 * 0% 0% 5.45% 3.77
June 12 * 0% 0% 5.45% 4.92
August 09 0% 32% 5.45% 3.19
September 14 0% 32% 5.45% 9.51
September 18 0% 32% 5.45% 3.44
December 01 0% 42% 5.45% 9.77
</TABLE>
- --------------------------------------------------------------------------------
* Option granted prior to the Company's IPO
During 1998, the weighted average fair value of options issued at market value
was $0.88 and those issued less than market value was $5.33.
The Black-Scholes option valuation model was developed for use in estimating
the fair value of traded options that have no vesting restrictions and are
fully transferable. In addition, option valuation models require the input of
highly subjective assumptions including the expected stock price volatility.
Because the Company's employee stock options have characteristics significantly
different from those of traded options, and because changes in the subjective
input assumptions can materially affect the fair value estimate, in
management's opinion the existing models do not necessarily provide a reliable
single measure of the fair value of the Company's options.
401(k) Plan
The Company offers its qualified employees the opportunity to participate in
a defined contribution retirement plan qualifying under the provisions of
Section 401(k) of the Internal Revenue Code. Each eligible employee may
contribute on a tax-deferred basis a portion of their annual earnings not to
exceed certain limits. The Company matches one-half of individual employee
contributions up to a maximum level not exceeding 7.5% of the employee's
compensation. The Company's contributions to the plan vest immediately.
Expenses recorded by the Company relating to its 401(k) plan were
approximately $0.2 million for the year ended December 31, 1998, the first year
of the 401(k) plan.
F-32
<PAGE>
GLOBAL CROSSING LTD. AND SUBSIDIARIES
(Formerly Global Crossing Ltd., LDC)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
9. FINANCIAL INSTRUMENTS
The carrying amounts for cash and cash equivalents, restricted cash and cash
equivalents, accounts receivable, accrued construction costs, accounts payable
and accrued liabilities, accrued interest, obligations under inland services
agreements and capital leases and long term debt approximate their fair value.
The fair value of the senior notes, mandatorily redeemable preferred stock and
the interest rate swap are based on market quotes and the fair values are as
follows:
<TABLE>
<CAPTION>
December 31, 1998 December 31, 1997
-------------------------- --------------------------
Carrying Amount Fair Value Carrying Amount Fair Value
--------------- ---------- --------------- ----------
(In thousands) (In thousands) ---
<S> <C> <C> <C> <C> <C>
Senior notes............ $(796,495) $(834,000) $(150,000) $(150,000)
Mandatorily redeemable
preferred stock........ (487,375) (484,375) (91,925) (91,925)
Interest rate swap...... -- (26) -- (115)
</TABLE>
10. RELATED PARTY TRANSACTIONS
Advisory Services Agreement ("ASA")
ACL entered into the ASA with PCG Telecom, an affiliate of PCG which is a
shareholder of GCL. Under the ASA, PCG Telecom provided ACL with advice in
respect of the development and maintenance of AC-1, development and
implementation of marketing and pricing strategies and the preparation of
business plans and budgets. As compensation for its advisory services, PCG
Telecom received a 2% fee on the gross revenues of the Company over a 25 year
term, subject to certain restrictions, with the first such payment to occur at
the AC-1 RFS date. Advances on fees payable under the ASA were being paid to
PCG Telecom at a rate of 1% on signed CPAs until the ASA was terminated, as
described below. Fees paid under the ASA to PCG Telecom were shared amongst
Union Labor Life Insurance Company ("ULLICO"), PCG, CIBC, and Messrs. Winnick,
Cook, Brown, Lee and Porter, all of whom are shareholders of GCL. Effective
June 1998, GCL acquired the rights under the ASA for common stock and
contributed such rights to the Company as the ASA was terminated. This
transaction was recorded in the consolidated financial statements as an
increase in additional paid-in capital of $135 million and a charge against
operations in the amount of $138 million. The $138 million is comprised of a
$135 million settlement of the fees that would have been payable and the
cancellation of $3 million owed to the Company under a related advance
agreement. The $135 million amount was calculated by applying the 2% advisory
services fee to projected future revenues and discounting the amount relating
to AC-1 revenues by 12% and the amount relating to all other system's revenues
by 15%. The result of this calculation was $156 million, which amount was
subsequently reduced to $135 million. Both the discount rates and the ultimate
valuation were determined as a result of a negotiation process including a non
management director of the Company and the various persons entitled to fees
under the ASA. The Company obtained a fairness opinion from an independent
financial advisor in connection with this transaction. In addition, the Company
incurred approximately $2 million of advisory fees prior to termination of the
contract, for a total expense of $140 million for the year ended December 31,
1998.
PCG Warrants
Prior to January 21, 1998, PCG and its affiliates began development of
systems other than AC-1, namely PC-1, MAC and PAC. Through January 21, 1998,
such development included assembling a management team, negotiating with
potential suppliers, partners, financing sources, obtaining preliminary market
and feasibility studies and developing technical requirements. During January
1998, the Board determined that it was in the Company's best interests to
pursue these new systems, obtain the results of the work and the employees then
F-33
<PAGE>
GLOBAL CROSSING LTD. AND SUBSIDIARIES
(Formerly Global Crossing Ltd., LDC)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
within the scope of activity of PCG and broaden the goals, objectives and
business plan of the Company. In consideration of PCG transferring the results
of its activities and becoming limited in its future activities in fiber optic
telecommunications other than through GCL, the Board approved and the
shareholders subsequently ratified a transaction whereby PCG received
approximately $7 million (representing PCG's costs related thereto) and Old GCL
entered into a warrant agreement ("PCG Warrants") under which PCG was issued
three separate warrants permitting PCG to purchase (i) 18,453,184 of Old GCL's
Class B shares for an aggregate price of $50 million; (ii) an additional
9,226,594 of Old GCL's Class B shares for an aggregate price of $31 million;
and (iii) an additional 9,226,594 of Old GCL's Class B shares for an aggregate
price of $38 million. The PCG Warrants were granted in exchange for the rights
to commence the development of the new projects that previously had been under
development by an affiliate of PCG.
PCG Warrants became exercisable upon the completion of the IPO. The PCG
Warrants give each holder the option to convert each share under warrant into a
fraction of a Class B share based upon the ratio of the current per share
valuation at the time of conversion less the per share exercise price of the
warrant divided by the current per share valuation at the time of conversion
multiplied by the 36,906,372 shares available under the PCG Warrants, together
with a new warrant ("New PCG Warrants") to purchase the remaining fraction of
such Class B share at an exercise price equal to the then current per share
valuation. Prior to the IPO, the holders of the PCG Warrants exercised their
warrants to acquire Class B shares by way of the cashless conversion and the
New PCG Warrants were issued with an exercise price based on the per share
valuation at the conversion date.
The Company accounted for the cashless conversion of the PCG Warrants, which
occurred as of June 1998, using the current estimated per share valuation at
the expected conversion date, multiplied by the number of Class B shares
estimated to be converted in exchange for the PCG Warrants. The resulting value
under this calculation is approximately $213 million, which was allocated to
the new systems in exchange for the PCG Warrants. In connection with the
formation of PCL, the Company agreed to make available to PCL the consideration
received by the Company in connection with the grant of the PCG Warrants, in
addition to the $231 million cash investment made by the Company. Therefore,
the Company recorded an increase in its investment in PCL in the amount of
approximately $127 million and an increase in construction in progress for PAC
and MAC in the amounts of approximately $50 million and $36 million,
respectively, with a corresponding increase of $213 million in additional paid-
in capital. The $213 million was allocated on a pro rata basis to the three
projects according to the estimated cost of each system. The Company's
accounting for the PCG Warrants is pursuant to Emerging Issues Task Force 96-
18, "Accounting for Equity Instruments with Variable Terms that are Issued for
Consideration other than Employee Services under FASB Statement No. 123" ("EITF
96-18"). Under EITF 96-18, the fair value of equity instruments issued for
consideration other than employee services should be measured using the stock
price or other measurement assumptions as of the date at which a firm
commitment for performance level has been reached. The Company has recorded the
estimated value of the PCG Warrants as of June 1998, since the IPO was probable
at that date. The $213 million value attributed to the PCG Warrants as of June
1998 was adjusted to the actual value of $275 million on the date of the IPO
based upon the $9.50 price per share of the IPO.
The Company gave accounting recognition for the New PCG Warrants on the date
these warrants were issued, which was the date of the IPO. The Company valued
each of the New PCG Warrants at $3.48 based on an independent valuation based
on the IPO price of $9.50 per share. The New PCG Warrants had a total value of
approximately $43 million. The Company recorded the actual value of the New PCG
Warrants in a manner similar to that described above whereby the total value
was allocated to the investment in PC-1, MAC and PAC based on their relative
total contract costs.
F-34
<PAGE>
GLOBAL CROSSING LTD. AND SUBSIDIARIES
(Formerly Global Crossing Ltd., LDC)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Other transactions
In 1998, an affiliate of CIBC was one of the initial purchasers of the New
Senior Notes and preferred stock, a member of the PC-1 and MAC credit facility
syndicates, and was also one of the underwriters of the IPO. CIBC and its
affiliates were paid $19 million in fees and credit facility interest during
the year ended December 31, 1998. In 1997, GCL paid an affiliate of CIBC
approximately $25 million in fees related to the financing obtained under the
Old Senior Notes, the AC-1 Credit Facility, and the issuance of the GCH
Preferred Stock. Of the fees incurred, approximately $6 million related to
underwriting and commitment fees pertaining to the issuance of the GTH
Preferred Stock and was recorded as a reduction in the carrying value of the
GTH Preferred Stock, approximately $9 million related to underwriting,
commitment and advisory fees in connection with the issuance of the Old Senior
Notes and approximately $10 million related to fees associated with obtaining
the AC-1 Credit Facility which was recorded as deferred finance costs.
In 1998, the Company signed a CPA with Worldport Communications, Inc.
("Worldport"), to acquire capacity on AC-1. Certain officers and directors of
the Company have direct or indirect equity ownership positions in Worldport,
aggregating less than 10% of the current common stock of Worldport. This
transaction occurred in the ordinary course of business of the Company and on
terms and conditions no less favorable to the Company than in its other CPAs.
The Company recognized $8 million in revenue from their CPAs with the remaining
$50 million to be recognized in future periods.
In 1998, GCL purchased all common shares owned by Telecommunications
Development Corporation ("TDC") in the Company in exchange for 300,000 fewer
newly issued shares of common stock based upon the per share value at the
repurchase date. The transaction benefited GCL since 300,000 fewer shares were
outstanding after the repurchase without any cost to GCL. This transaction was
accounted for as the acquisition of treasury stock and was recorded as $209
million, the fair value of the consideration given. Certain officers and
directors of the Company, held direct or indirect equity ownership positions in
TDC, resulting in these officers and directors having a majority of the
outstanding common stock of TDC. Following this transaction, TDC distributed
all of its shares of common stock and GCL warrants to the holders of its common
stock and was then liquidated.
In 1997, the Company paid $7 million in fees to PCG and certain of its key
executives, who are shareholders of GCL, and another shareholder for services
provided in respect of obtaining the AC-1 Credit Facility, Old Senior Notes and
the GTH Preferred Stock financing. Of the fees paid, $5 million was allocated
to the AC-1 Credit Facility and Old Senior Notes and recorded as deferred
finance costs, $1 million was allocated to the GCH Preferred Stock and recorded
as a reduction in the carrying value of the preferred stock and $1 million was
recorded as common stock issuance costs.
11. TAXES
The Company accounts for income taxes in accordance with Statement of
Accounting Standards No. 109, "Accounting for Income Taxes" ("SFAS 109"). The
provision for income taxes is composed of the following:
<TABLE>
<CAPTION>
Period from
March 19, 1997
Year Ended (Date of Inception) to
December 31, 1998 December 31, 1997
----------------- ----------------------
(In thousands)
<S> <C> <C>
Current............................. $23,413 $ --
Deferred............................ 9,654 --
------- -------
Total income tax expense............ $33,067 $ --
======= =======
</TABLE>
F-35
<PAGE>
GLOBAL CROSSING LTD. AND SUBSIDIARIES
(Formerly Global Crossing Ltd., LDC)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Deferred income taxes reflect the net tax effect of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and amounts used for income tax purposes.
Bermuda does not impose a statutory income tax and consequently the provision
for income taxes recorded relates to income earned by certain subsidiaries of
the Company which are located in jurisdictions which impose income taxes.
Since the Company did not recognize any income for the period March 19, 1997
(Date of Inception) to December 31, 1997, no tax provision was reflected in
earlier periods.
The following is a summary of the significant items giving rise to components
of the Company's deferred tax assets and liabilities:
<TABLE>
<CAPTION>
December 31,
---------------------------------------
1998 1997
------------------- -------------------
Assets Liabilities Assets Liabilities
------- ----------- ------- -----------
(In thousands) (In thousands)
<S> <C> <C> <C> <C>
Revenue recognition..................... $ -- $ 6,116 $ -- $ --
Fixed assets............................ -- 4,042 -- --
Stock related compensation.............. 504 -- -- --
------- ------- ------- -------
$ 504 $10,158 $ -- $ --
======= ======= ======= =======
</TABLE>
12. COMMITMENTS
As of December 31, 1998, ACL was committed under contracts with TSSL for
remaining construction costs of AC-1 and its upgrades totaling approximately
$75 million and is committed under the OA&M contract with TSSL to quarterly
payments, over the next eight years, totaling approximately $247 million which
will be borne by the Company's customers.
ACL is committed to paying TSSL commissions ranging from 3% to 7% on revenues
received until 2002, subject to certain reductions. The Company also has a
commission sharing agreement with TSSL whereby GCL has primary responsibility
for the marketing and sale of capacity of AC-1 and PC-1 and will share a
percentage of commissions payable to TSSL as consideration for assuming primary
responsibility for the sales effort and marketing of the Company's projects.
The SAA with TSSL will terminate in March 2002 with an option by the Company to
extend it until March 2005.
As of December 31, 1998, MACL was committed under its contracts with Alcatel
Submarine Networks and TSSL for future construction costs totaling
approximately $204 million and as of December 31, 1998 and PACL was committed
under its contract with TSSL for future construction costs totaling
approximately $218 million.
GCL and its subsidiaries have commitments under various operating leases.
Estimated future minimum lease payments on operating leases are approximately
as follows:
<TABLE>
<CAPTION>
Year Ending December 31, (In thousands)
<S> <C>
1999..................................................... $ 4,137
2000..................................................... 4,261
2001..................................................... 3,897
2002..................................................... 3,581
2003..................................................... 3,380
Thereafter............................................... 19,911
-------
Total................................................. $39,167
=======
</TABLE>
F-36
<PAGE>
GLOBAL CROSSING LTD. AND SUBSIDIARIES
(Formerly Global Crossing Ltd., LDC)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
13. QUARTERLY FINANCIAL DATA (UNAUDITED)
The Company's unaudited quarterly results are as follows:
<TABLE>
<CAPTION>
1998 Quarter Ended
--------------------------------------------------------
March 31 June 30 September 30 December 31
------------------- ---------- ------------ -----------
(In thousands, except per share data)
<S> <C> <C> <C> <C> <C>
Revenues................ $ -- $ 101,256 $117,693 $205,150
Operating income
(loss)................. (3,794) (123,649) 31,994 75,724
Income (loss) before
extraordinary loss..... (3,722) (135,725) 15,229 56,024
Net income (loss)....... (3,722) (155,434) 15,229 56,024
Net income (loss)
applicable to common
shareholders........... $ (8,129) $ (193,473) $ 15,229 $ 51,649
======== ========== ======== ========
Income (loss) per common
share before
extraordinary item,
basic.................. $ (0.02) $ (0.52) $ 0.04 $ 0.13
======== ========== ======== ========
Net income (loss) per
common share, basic.... $ (0.02) $ (0.58) $ 0.04 $ 0.13
======== ========== ======== ========
Income (loss) per common
share before
extraordinary item,
diluted................ $ (0.02) $ (0.52) $ 0.04 $ 0.12
======== ========== ======== ========
Net income (loss) per
common share, diluted.. $ (0.02) $ (0.58) $ 0.04 $ 0.12
======== ========== ======== ========
<CAPTION>
Period from
March 19, 1997 1997 Quarter Ended
(Date of Inception) ----------------------------------------
to March 31, 1997 June 30 September 30 December 31
------------------- ---------- ------------ -----------
(In thousands, except per share data)
<S> <C> <C> <C> <C> <C>
Revenues................ $ -- $ -- $ -- $ --
Operating loss.......... -- (142) (669) (2,290)
Income (loss) before
extraordinary loss..... -- 1,205 485 (1,850)
Net income (loss)....... -- 1,205 485 (1,850)
Net loss applicable to
common shareholders.... $ (195) $ (2,836) $ (3,692) $ (6,127)
======== ========== ======== ========
Net loss per common
share, basic and
diluted................ $ -- $ (0.01) $ (0.01) $ (0.02)
======== ========== ======== ========
</TABLE>
F-37
<PAGE>
GLOBAL CROSSING LTD. AND SUBSIDIARIES
(Formerly Global Crossing Ltd., LDC)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
14. SUMMARIZED FINANCIAL INFORMATION FOR GUARANTOR SUBSIDIARIES AND
NON-GUARANTOR SUBSIDIARIES
As described in Note 1, because Old GCL, GCL and GCH were entities under
common control, the transfers by Old GCL to GCL and GCL to GCH and the Old GCL
Exchange were accounted for similar to a pooling of interests. Old GCL, GCL and
GTH each provide a guarantee of the New Senior Notes described in Note 6.
Additionally, Global Crossing International, Inc. ("GCI"), a wholly owned
subsidiary of GCH that provides marketing and development services to GCL,
along with its wholly owned subsidiaries, also provide guarantees of the New
Senior Notes. All guarantees are full, unconditional, joint and several. To the
extent companies providing a guarantee have excess cash, dividends or loans of
this cash can be made to GCH without restriction. Two of the Company's non-
guarantor subsidiaries are restricted under long term debt agreements from
making any dividends or loans to GCH effectively for the duration of such long
term debt agreements. Separate financial statements of each subsidiary
guarantor have not been provided because they would not be meaningful to
investors. As of and for the year ended December 31, 1998, the Company has not
included summarized financial information with respect to Old GCL as it was no
longer an entity under common control with the Company and its subsidiaries.
<TABLE>
<CAPTION>
Elimination
(In thousands) GCL GCH Guarantors Non-guarantors Entries Consolidated
- ------------------------ -------- ---------- ---------- -------------- ----------- ------------
Balance Sheet as of
December 31, 1998
<S> <C> <C> <C> <C> <C> <C>
Current assets.......... $ 5,270 $ 828,279 $ 17,266 $ 156,431 $ (5,131) $1,002,115
Restricted cash and cash
equivalents............ -- -- 3,590 364,010 -- 367,600
Accounts receivable,
net.................... -- -- -- 43,315 -- 43,315
Capacity available for
sale................... -- 6,175 11,771 556,903 -- 574,849
Construction in
progress............... -- 2,139 3,134 423,889 (955) 428,207
Deferred finance and
organization costs,
net.................... -- 30,922 -- 17,434 (2,599) 45,757
Investments in and
advances to
subsidiaries........... 772,685 1,211,795 460,728 372,104 (2,817,312) --
Investment in
affiliates............. -- -- -- 177,334 -- 177,334
-------- ---------- -------- ---------- ----------- ----------
Total assets............ $777,955 $2,079,310 $496,489 $2,111,420 $(2,825,997) $2,639,177
======== ========== ======== ========== =========== ==========
Current liabilities..... $ 3,635 $ 11,760 $ 5,965 $ 224,730 $ 5,800 $ 251,890
Long term debt.......... -- -- -- 269,598 -- 269,598
Senior notes............ -- 796,495 -- -- -- 796,495
Deferred revenue........ -- -- -- 25,325 -- 25,325
Obligations under inland
services agreements and
capital leases......... -- -- -- 24,520 -- 24,520
Deferred income taxes... -- -- -- 9,654 -- 9,654
Mandatorily redeemable
preferred stock........ -- 487,375 -- -- -- 487,375
Shareholders' equity.... 774,320 783,680 490,524 1,557,593 (2,831,797) 774,320
-------- ---------- -------- ---------- ----------- ----------
Total liabilities and
shareholders' equity... $777,955 $2,079,310 $496,489 $2,111,420 $(2,825,997) $2,639,177
======== ========== ======== ========== =========== ==========
- -------------------------------------------------------------------------------------------------
</TABLE>
F-38
<PAGE>
GLOBAL CROSSING LTD. AND SUBSIDIARIES
(Formerly Global Crossing Ltd., LDC)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
<TABLE>
<CAPTION>
Elimination
(In thousands) GCL GCH Guarantors Non-guarantors Entries Consolidated
- ----------------------- --------- -------- ---------- -------------- ----------- ------------
Statement of Operations
For the Year Ended
December 31, 1998
<S> <C> <C> <C> <C> <C> <C>
Revenues............... $ -- $ 45 $ 14,004 $423,356 $ (13,306) $ 424,099
--------- -------- --------- -------- --------- ---------
Cost of capacity sold.. -- 552 3,110 174,830 -- 178,492
Operations,
administration and
maintenance........... -- -- -- 18,056 -- 18,056
Termination of Advisory
Services Agreement.... -- 82,194 -- 57,475 -- 139,669
Stock related expense.. 29,033 59 4,851 2,179 3,252 39,374
Selling, general and
administrative........ 11,126 1,161 18,169 40,810 (3,033) 68,233
--------- -------- --------- -------- --------- ---------
40,159 83,966 26,130 293,350 219 443,824
--------- -------- --------- -------- --------- ---------
Operating income
(loss)................ (40,159) (83,921) (12,126) 130,006 (13,525) (19,725)
Other income (expense),
net................... 1,371 (16,834) (6,723) 7,743 (959) (15,402)
Provision for income
taxes................. -- -- (1,132) (31,935) -- (33,067)
Extraordinary loss on
retirement of senior
notes................. -- (9,750) (9,959) -- -- (19,709)
--------- -------- --------- -------- --------- ---------
Net income (loss)
before equity income
(loss) of
subsidiaries.......... (38,788) (110,505) (29,940) 105,814 (14,484) (87,903)
Equity in income (loss)
of subsidiaries....... (49,115) 61,390 107,389 -- (119,664) --
--------- -------- --------- -------- --------- ---------
Net income (loss)...... (87,903) (49,115) 77,449 105,814 (134,148) (87,903)
Preferred stock
dividends............. -- (12,681) -- -- -- (12,681)
Redemption of preferred
stock................. -- -- (34,140) -- -- (34,140)
--------- -------- --------- -------- --------- ---------
Net income (loss)
applicable to common
shareholders $ (87,903) $(61,796) $ 43,309 $105,814 $(134,148) $(134,724)
========= ======== ========= ======== ========= =========
<CAPTION>
Elimination GCL
(In thousands) GCL GCH Guarantors Non-guarantors Entries Consolidated
- ----------------------- --------- -------- ---------- -------------- ----------- ------------
Statement of Cash Flow
<S> <C> <C> <C> <C> <C> <C>
For the Year Ended
December 31, 1998
Cash flows from
operating activities.. $ (22) $(19,991) $ (19,159) $247,125 $ 774 $ 208,727
--------- -------- --------- -------- --------- ---------
Cash flows from
financing activities:
Finance and
organization costs
incurred............. -- (32,232) -- (5,433) -- (37,665)
Investment in and
advances from (to)
subsidiaries......... (382,063) (224,765) 150,815 471,710 (15,697) --
Proceeds from issuance
of common stock,
net.................. 392,298 12 24 96 (132) 392,298
Proceeds from issuance
of preferred stock,
net.................. -- 483,000 -- -- -- 483,000
Cash reimbursement to
certain
shareholders......... (7,047) -- -- -- -- (7,047)
Redemption of
preferred stock...... -- -- (134,372) -- -- (134,372)
Proceeds from long
term debt............ -- -- -- 290,556 -- 290,556
Repayment of long term
debt................. -- -- -- (176,890) -- (176,890)
Proceeds from issuance
of senior notes...... -- 796,495 -- -- -- 796,495
Retirement of senior
notes................ -- (159,750) -- -- -- (159,750)
Repayment of debt..... -- (15,055) -- -- 15,055 --
(Increase) decrease in
restricted cash and
cash equivalents,
current and long
term................. -- (37,861) 16,242 (397,896) -- (419,515)
--------- -------- --------- -------- --------- ---------
Net cash provided by
financing
activities.......... 3,188 809,844 32,709 182,143 (774) 1,027,110
--------- -------- --------- -------- --------- ---------
Cash flows from
investing activities:
Cash paid for
construction in
progress and capacity
available for sale .. -- -- (7,205) (406,791) -- (413,996)
Investment in
affiliates........... -- -- -- (16,701) -- (16,701)
--------- -------- --------- -------- --------- ---------
Net cash used in
investing
activities.......... -- -- (7,205) (423,492) -- (430,697)
--------- -------- --------- -------- --------- ---------
Net increase in cash
and cash equivalents.. 3,166 789,853 6,345 5,776 -- 805,140
Cash and cash
equivalents, beginning
of year............... -- -- 1,299 154 -- 1,453
--------- -------- --------- -------- --------- ---------
Cash and cash
equivalents, end of
year.................. $ 3,166 $789,853 $ 7,644 $ 5,930 $ -- $ 806,593
========= ======== ========= ======== ========= =========
</TABLE>
- --------------------------------------------------------------------------------
F-39
<PAGE>
GLOBAL CROSSING LTD. AND SUBSIDIARIES
(Formerly Global Crossing Ltd., LDC)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
<TABLE>
<CAPTION>
Old Non- Elimination
(In thousands) GCL GCL GCH Guarantors Guarantors Entries Consolidated
- ----------------------- -------- -------- -------- ---------- ---------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance Sheet as of
December 31, 1997
Current assets......... $ 33 $ 12 $ 12 $ 21,307 $ 6,597 $ (217) $ 27,744
Capacity available for
sale.................. -- -- -- 21,200 -- 21,200
Construction in
progress.............. -- -- -- 9,014 488,305 -- 497,319
Investments in and
advances to
subsidiaries.......... 73,964 73,952 73,940 276,897 -- (498,753) --
Deferred finance and
organization costs,
net................... 208 -- 169 10,619 15,107 (169) 25,934
-------- -------- -------- --------- -------- --------- ---------
Total assets........... $ 74,205 $ 73,964 $ 74,121 $ 317,837 $531,209 $(499,139) $ 572,197
======== ======== ======== ========= ======== ========= =========
Current liabilities.... $ 72 $ -- $ -- $ 1,972 $ 88,978 $ (205) $ 90,817
Long term debt......... -- -- -- -- 162,325 -- 162,325
Senior notes........... -- -- -- 150,000 -- -- 150,000
Obligations under
inland service
agreements and capital
leases................ -- -- -- -- 3,009 -- 3,009
Mandatorily redeemable
preferred stock....... -- -- -- 91,925 -- -- 91,925
Shareholders' equity... 74,133 73,964 74,121 73,940 276,897 (498,934) 74,121
-------- -------- -------- --------- -------- --------- ---------
Total liabilities and
shareholders' equity.. $ 74,205 $ 73,964 $ 74,121 $ 317,837 $531,209 $(499,139) $ 572,197
======== ======== ======== ========= ======== ========= =========
Statement of Operation
Period from March 19,
1997 (Date of
Inception) to December
31, 1997
Interest income........ $ -- $ -- $ -- $ 556 $ 2,385 $ -- $ 2,941
Selling, general and
administrative........ 42 -- -- 200 2,859 -- 3,101
-------- -------- -------- --------- -------- --------- ---------
Net income (loss)
before equity income
(loss) of
subsidiaries.......... (42) -- -- 356 (474) -- (160)
Equity in loss of
subsidiaries.......... (118) (118) (118) (474) -- 828 --
-------- -------- -------- --------- -------- --------- ---------
Net loss............... (160) (118) (118) (118) (474) 828 (160)
Preferred stock
dividends............. -- -- -- (12,690) -- -- (12,690)
-------- -------- -------- --------- -------- --------- ---------
Net loss applicable to
common shareholders... $ (160) $ (118) $ (118) $ (12,808) $ (474) $ 828 $ (12,850)
======== ======== ======== ========= ======== ========= =========
<CAPTION>
Old Non- Elimination
(In thousands) GCL GCL GCH Guarantors Guarantors Entries Consolidated
- ----------------------- -------- -------- -------- ---------- ---------- ----------- ------------
Statement of Cash Flows
For the Period from
March 19, 1997
(Date of Inception) to
December 31, 1997
<S> <C> <C> <C> <C> <C> <C> <C>
Cash flows from
operating activities.. $ -- $ -- $ -- $ 528 $ 4,593 $ -- $ 5,121
-------- -------- -------- --------- -------- --------- ---------
Cash flows provided by
financing activities:
Finance and
organization costs
incurred............. -- -- -- (16,456) (11,725) -- (28,181)
Investment in and
advances to
subsidiaries......... (75,000) (75,000) (75,000) (272,468) -- 497,468 --
Proceeds from issuance
of common stock and
additional paid-in
capital.............. 75,000 75,000 75,000 73,736 272,468 (497,468) 73,736
Proceeds from issuance
of preferred stock... -- -- -- 92,470 -- -- 92,470
Proceeds from long
term debt............ -- -- -- -- 162,325 -- 162,325
Proceeds from issuance
of senior notes...... -- -- -- 150,000 -- -- 150,000
Increase in restricted
cash and cash
equivalents, current
and long term ....... -- -- -- (19,851) (5,424) -- (25,275)
-------- -------- -------- --------- -------- --------- ---------
Net cash provided by
financing
activities.......... -- -- -- 7,431 417,644 -- 425,075
-------- -------- -------- --------- -------- --------- ---------
Cash flows from
investing activities:
Cash paid for
construction in
progress and capacity
available for sale... -- -- -- (6,660) (422,083) -- (428,743)
-------- -------- -------- --------- -------- --------- ---------
Net cash used in
investing
activities.......... -- -- -- (6,660) (422,083) -- (428,743)
-------- -------- -------- --------- -------- --------- ---------
Net increase in cash
and cash equivalents.. -- -- -- 1,299 154 -- 1,453
Cash and cash
equivalents, beginning
of period............. -- -- -- -- -- -- --
-------- -------- -------- --------- -------- --------- ---------
Cash and cash
equivalents, end of
period................ $ -- $ -- $ -- $ 1,299 $ 154 $ -- $ 1,453
======== ======== ======== ========= ======== ========= =========
</TABLE>
F-40
<PAGE>
GLOBAL CROSSING LTD. AND SUBSIDIARIES
(Formerly Global Crossing Ltd., LDC)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
15. OLD GCL COMMON STOCK AND ADDITIONAL PAID-IN CAPITAL
Information with respect to Old GCL common stock and additional paid-in
capital prior to the Old GCL Exchange is as follows:
Common Stock:
Authorized:
1,000,000,000 Class A common stock of $.00000067 par value
1,000,000,000 Class B common stock of $.00000067 par value
1,000,000,000 Class C common stock of $.00000067 par value
3,000,000,000 Class D common stock of $.00000067 par value
1,000,000,000 Class E common stock of $.00000067 par value
43,000,000,000 undesignated common stock of $.00000067 par value
As discussed in Note 1, in January 1998, Old GCL effected a 100 for 1 stock
split of each of the Class A, B, C and D common stock and undesignated stock
and amended the par value of each share of common stock from $.0001 per share
to $.000001 per share. Shares of common stock of Old GCL outstanding have been
retroactively restated to reflect the equivalent number of shares of GCL that
were issued in the Old GCL Exchange as discussed in Note 1. Class A shares,
Class B shares and Class C shares all had voting rights. On March 25, 1997, Old
GCL issued 22,500,000 Class A shares, 101,250,000 Class B shares, 101,250,000
Class C shares for $.33 per share, resulting in aggregate proceeds of $75
million. In addition to the 22,500,000 Class A shares issued to the preference
shareholders for cash in connection with the issuance of the preference shares,
a total of 39,705,900 Class A shares were distributed to the initial preference
shareholder representing 15% of the aggregate number of Class A, B and C shares
outstanding. In addition, warrants to acquire a maximum of 92,880 shares of
common stock of Old GCL were issued into escrow for the benefit of the holders
of preferred stock. Effective January 21, 1998, Old GCL authorized
1,000,000,000 new Class E non-voting shares.
Certain of the Class B shareholders were issued a total of 66,176,400 Class D
shares on March 25, 1997. Of the $34 million of proceeds received from the
issuance of Class B shares, $3 million was allocated to the Class D shares
representing the estimated fair value of the Class D shares based on an
independent valuation. Class D shares were non-voting shares which carried
special preference rights on the cash distributions made by Old GCL. Class D
shareholders were to receive 10% of cash distributions to common shareholders
once the internal rate of return to Class C shareholders exceeded 10%, and then
increasing to 20% of cash distributions to common shareholders once the
internal rate of return to Class C shareholders exceeded 30%. Effective January
1998, Class D share rights were amended such that Class D shareholders received
the option to convert each Class D share into one Class E share upon payment to
Old GCL of $.74 per share or to a fraction of a Class E share based upon a
valuation at the time of such conversion, together with a warrant to purchase
the remaining fraction of such Class E share at an exercise price based upon
such market valuation. By granting to holders of the Class D shares an option
to convert such shares into Class E shares, the Company obtained effective
assurance that it could effect a change to a corporate structure in the event
of a major equity event, such as a merger or other business combination or in
the event of an IPO by GCL, of its common stock, since the holders of the Class
D shares would need to exercise their options in order to participate directly
in benefits of a merger or acquisition of the Company or in order to obtain the
benefits of any trading market for the common stock of the Company; no trading
market was expected to develop for the Class D shares. The grant of the options
to Class D shareholders represents an equity transaction since the Company
granted these shareholders amended share rights in the form of options with new
warrants. Since the Company had an
F-41
<PAGE>
GLOBAL CROSSING LTD. AND SUBSIDIARIES
(Formerly Global Crossing Ltd., LDC)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
accumulated deficit, the charge was made against additional paid in capital,
which had no impact on the consolidated financial statements. The Company
accounted for the new warrants as an equity transaction on the date the
warrants were issued, which was the IPO date of August 13, 1998.
In 1998, the Company issued, at a price of $0.33 per share, 900,000 Class B
shares and 675,000 Class E shares. Since the estimated fair value of shares
exceeded the issue price, the Company increased stock related expense and
shareholders' equity by $2 million in 1998.
16. SUBSEQUENT EVENTS
Lucent Agreement
On January 26, 1999, GCL signed a technology agreement with Lucent
Technologies Inc. that will give the Company access to Lucent's terrestrial and
undersea fiber optic technology. In addition, the Company entered into a supply
contract with Lucent to provide fiber and equipment for PEC. As part of the
supply contract, Lucent will provide certain financing for PEC. The agreement
with Lucent also provides for financing of future systems if they are selected
as the contractor.
Stock dividend
On February 3, 1999 the Board of Directors declared a 2-for-1 stock split in
the form of a stock dividend to shareholders of record on February 16, 1999
effective March 9, 1999. All share information presented in these consolidated
financial statements gives retroactive effect to this transaction.
South American Crossing
On March 11, 1999, GCL announced plans for the development of South American
Crossing ("SAC"), an 18,000 km undersea and terrestrial fiber optic network
directly linking the major cities of South America through MAC and PAC to the
United States, Mexico, Central America, the Carribean, Asia and Europe. GCL
expects that SAC will cost approximately $1,130 million to construct. Service
is scheduled to commence in the fourth quarter of 2000, with full ring
completion expected in the first quarter of 2001. The Company plans to build
SAC in three phases. The first two phases, providing Argentina and Brazil with
connectivity to the Global Crossing Network, are scheduled to commence service
in the fourth quarter of 2000. The final phase, completing the loop around the
continent, is scheduled for completion in the first quarter of 2001. The
undersea portion of SAC is currently planned to be wholly-owned, while the
terrestrial portion is expected to be constructed through joint-venture
arrangements.
Frontier Acquisition
On March 16, 1999, GCL entered into a definitive agreement and plan of merger
with Frontier Corporation, a New York corporation ("Frontier"), that will
result in Frontier becoming a wholly-owned subsidiary of GCL or of a new parent
holding company of GCL. Frontier is one of the leading providers of facilities-
based integrated communications and Internet services in the United States. The
board of directors of each company has approved the merger. Completion of the
transaction is anticipated to occur during the third quarter of 1999. The
transaction is subject to approval by the shareholders of GCL and Frontier and
to other customary conditions, such as receipt of regulatory approvals. The
Company expects the merger will be accounted for using the purchase method of
accounting.
F-42
<PAGE>
GLOBAL CROSSING LTD. AND SUBSIDIARIES
(Formerly Global Crossing Ltd., LDC)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Atlantic Crossing-2
On March 24, 1999, GCL announced its intention to develop and construct
Atlantic Crossing-2 ("AC-2"), an additional eight fiber pair cable connecting
the United States to Europe. AC-2 will be integrated with the two cables of AC-
1, adding a third high-capacity cable across the Atlantic for the Global
Crossing Network and providing AC-2 with self-healing capabilities. The new
cable will cost approximately $750 million and is expected to be in service in
the first quarter of 2001.
Global Marine Acquisition
On July 2, 1999, the Company acquired the Global Marine business of Cable &
Wireless plc for approximately $868 million. Global Marine currently provides
services, including maintenance under a number of long-term contracts, to
cables built by more than 100 carriers and is the world's largest undersea
cable installation and maintenance company with a fleet of 13 cable ships,
representing approximately 33 percent of the world's total, 21 submersible
vehicles and 1,200 employees servicing approximately 35 percent of the world's
undersea cable miles. Global Crossing initially financed the acquisition with
committed bank financing in the amount of $600 million and the remainder with
cash on hand. The acquisition will be accounted for using the purchase method
of accounting.
Termination of the U S WEST Merger Agreement
On May 16, 1999, the Company entered into a definitive agreement to merge
with U S WEST, Inc., a Delaware corporation (U S WEST). The new company would
have been 50% owned by Global Crossing/ Frontier shareholders and 50% owned by
U S WEST shareholders. As part of the transaction U S WEST made a cash tender
offer for approximately 9.49% of Global Crossing common stock. The tender offer
was completed, with U S WEST acquiring 39,259,305 shares, on June 21, 1999. On
July 18, 1999, Global Crossing and U S WEST agreed to terminate their merger
agreement, and U S WEST agreed to merge with Qwest Communications International
Inc. (Qwest). As a result, U S WEST paid Global Crossing a termination fee of
$140 million in cash and returned 2,231,076 shares of Global Crossing common
stock purchased in the tender offer, and Qwest committed to purchase capacity
on the Global Crossing Network at established market unit prices for delivery
over the next four years and committed to make purchase price payments to
Global Crossing for this capacity of $140 million over the next two years. The
Company will record in the third quarter of 1999 the receipt of the termination
fee and Global Crossing common stock, net of expenses in the statement of
operations as other income, net.
Senior Secured Credit Facility
On July 2, 1999, Global Crossing Holdings Ltd. (GCH), the direct wholly owned
subsidiary of Global Crossing Ltd., entered into a $3 billion Senior Secured
Credit Facility. The Senior Secured Credit Facility is comprised of a $1
billion 5-year Revolving Credit Facility with an initial interest rate of LIBOR
plus 2.25%, a $1 billion 5-year Multi-Draw Term Loan A with an initial interest
rate of LIBOR plus 2.25% and a $1 billion 8-year Term Loan B with an initial
interest rate of LIBOR plus 2.75%. The initial commitment fee on undrawn funds
is 0.75%. The purpose of the Senior Secured Credit Facility is to finance or
refinance construction of certain Global Crossing cable systems previously
anticipated to be financed on a per-system basis, to partially finance the
Global Marine acquisition, to fund future growth of Global Crossing and for
general corporate purposes. In connection with the transaction, the Senior
Secured Credit Facility became structurally senior to the Senior Notes for a
consent fee of approximately $32 million, paid directly to the Senior Note
holders.
On July 7, 1999, GCH borrowed approximately $1.5 billion under the Senior
Secured Credit Facility ($1 billion under the 8-year Term Loan B and $500
million under the 5-year Multi-Draw Term Loan A), sufficient
F-43
<PAGE>
GLOBAL CROSSING LTD. AND SUBSIDIARIES
(Formerly Global Crossing Ltd., LDC)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
to retire the outstanding obligations under the AC-1 Credit Facility, the MAC
Credit Facility and the financing provided under the Lucent Agreement relating
to the PEC and SAC systems, to refinance the debt incurred in connection with
the Global Marine acquisition as well as to provide for current working capital
requirements. As a result of the Senior Secured Credit Facility, the Company
has classified all refinanced debt in the condensed consolidated balance sheet
as of June 30, 1999 as long term debt.
Republic of Ireland Agreement
On July 5, 1999, Global Crossing announced an agreement with the government
of the Republic of Ireland to build and maintain an undersea fiber optic cable
system that will link two telehouses in Dublin, via two diverse fiber cables,
to cities in Europe and North America through the Global Crossing Network. The
Irish government will be the system's anchor customer under an $80 million
capacity purchase agreement. This agreement will add an additional city to PEC.
F-44
<PAGE>
CABLE & WIRELESS GLOBAL MARINE
CONDENSED COMBINED PROFIT AND LOSS ACCOUNT
for the three months ended 30 June
<TABLE>
<CAPTION>
1999 1998
------------ ------------
(Pounds)'000 (Pounds)'000
(unaudited) (unaudited)
<S> <C> <C>
Turnover: group and share of joint ventures......... 55,277 33,382
Less: share of joint ventures' turnover............. (8,116) (1,678)
-------- -------
Group turnover...................................... 47,161 31,704
Operating costs..................................... (39,162) (24,327)
-------- -------
Group operating profit.............................. 7,999 7,377
Share of operating profit in joint ventures......... 2,409 771
-------- -------
10,408 8,148
Profit on sale of fixed assets...................... 2 346
Interest receivable and similar income.............. 164 229
Interest payable and similar charges--group......... (2,464) (1,748)
Interest payable and similar charges--joint
ventures........................................... (237) (320)
-------- -------
Profit on ordinary activities before taxation....... 7,873 6,655
Tax on profit on ordinary activities................ (2,441) (2,007)
-------- -------
Profit on ordinary activities after taxation........ 5,432 4,648
Dividends paid...................................... (117,700) --
-------- -------
Retained profit for the financial period............ (112,268) 4,648
======== =======
</TABLE>
See accompanying notes to condensed combined financial statements.
F-45
<PAGE>
CABLE & WIRELESS GLOBAL MARINE
CONDENSED COMBINED BALANCE SHEET
<TABLE>
<CAPTION>
30 June 1999 31 March 1999
------------------------- -------------------------
(Pounds)'000 (Pounds)'000 (Pounds)'000 (Pounds)'000
(unaudited) (unaudited)
<S> <C> <C> <C> <C>
Fixed assets
Tangible assets........... 214,878 210,523
Investments in joint
ventures:
Share of gross assets... 63,570 58,628
Share of gross
liabilities............ (38,566) (35,506)
-------- -------
25,004 23,122
------- -------
239,882 233,645
Current assets
Stocks.................... 7,284 8,498
Debtors................... 59,342 93,811
Cash at bank and in hand.. -- 2,708
-------- -------
66,626 105,017
Creditors: amounts falling
due within one year...... (153,865) (74,405)
-------- -------
Net current
(liabilities)/assets..... (87,239) 30,612
------- -------
Total assets less current
liabilities.............. 152,643 264,257
Creditors: amounts falling
due after more than one
year..................... (70,858) (71,652)
Provisions for liabilities
and charges:
Deferred taxation....... (3,600) (2,038)
Other provisions........ (1,353) (1,378)
-------- -------
(4,953) (3,416)
------- -------
Net assets................ 76,832 189,189
======= =======
</TABLE>
See accompanying notes to condensed combined financial statements.
F-46
<PAGE>
CABLE & WIRELESS GLOBAL MARINE
COMBINED STATEMENT OF TOTAL RECOGNISED GAINS AND LOSSES
for the three months ended 30 June
<TABLE>
<CAPTION>
1999 1998
------------ ------------
(Pounds)'000 (Pounds)'000
(unaudited) (unaudited)
<S> <C> <C>
(Loss)/profit for the financial period.............. (112,268) 4,648
Exchange differences on the retranslation of net
investments........................................ (89) (183)
-------- -----
Total recognised gains and losses relating to the
financial period................................... (112,357) 4,465
======== =====
</TABLE>
See accompanying notes to condensed combined financial statements.
F-47
<PAGE>
CABLE & WIRELESS GLOBAL MARINE
RECONCILIATIONS OF MOVEMENTS IN NET ASSETS
for the three months ended 30 June
<TABLE>
<CAPTION>
1999 1998
------------ ------------
(Pounds)'000 (Pounds)'000
(unaudited) (unaudited)
<S> <C> <C>
Profit for the financial period..................... 5,432 4,648
Dividends paid...................................... (117,700) --
Other recognised gains and losses relating to the
period............................................. (89) (183)
-------- -------
Net (reduction) / addition to net assets............ (112,357) 4,465
Opening net assets.................................. 189,189 157,993
-------- -------
Closing net assets.................................. 76,832 162,458
======== =======
</TABLE>
See accompanying notes to condensed combined financial statements.
F-48
<PAGE>
CABLE & WIRELESS GLOBAL MARINE
CONDENSED COMBINED CASH FLOW STATEMENT
FOR THE THREE MONTHS ENDED 30 JUNE
<TABLE>
<CAPTION>
1999 1998
------------ ------------
(Pounds)'000 (Pounds)'000
(unaudited) (unaudited)
<S> <C> <C>
CASH FLOW STATEMENT
Cash flow from operating activities................. 30,364 1,000
Dividends from joint ventures....................... -- --
Returns on investments and servicing of finance..... (2,300) (1,519)
Taxation............................................ -- --
Capital expenditure and financial investment........ (8,981) (1,375)
Equity dividends paid............................... (117,700) --
-------- -------
Cash (outflow) before financing..................... (98,617) (1,894)
Financing........................................... (275) (288)
-------- -------
(Decrease) in cash in the period.................... (98,892) (2,182)
======== =======
Reconciliation of net cash flow to movement in net
debt
(Decrease) in cash in the period.................... (98,892) (2,182)
Cash outflow from decrease in debt and lease
financing.......................................... 275 288
-------- -------
Change in net debt resulting from cash flows........ (98,617) (1,894)
Exchange movement................................... 410 647
-------- -------
Movement in net debt in the period.................. (98,207) (1,247)
Net debt at the start of the period................. (69,899) (66,915)
-------- -------
Net debt at the end of the period................... (168,106) (68,162)
======== =======
Reconciliation of operating profit to operating cash
flows
Operating profit.................................... 7,999 7,377
Depreciation and amortisation....................... 4,718 4,514
Decrease/(Increase) in stocks....................... 1,214 (8,699)
Decrease in debtors................................. 34,467 21,578
(Decrease) in creditors............................. (18,034) (23,770)
-------- -------
Net cash flow from operating activities............. 30,364 1,000
======== =======
</TABLE>
See accompanying notes to condensed combined financial statements.
F-49
<PAGE>
CABLE & WIRELESS GLOBAL MARINE
NOTES TO FINANCIAL STATEMENTS
(unaudited)
1. Basis of preparation
The financial statements have been prepared in accordance with applicable
accounting standards and under the historical cost accounting rules.
The condensed combined financial statements include the financial statements
of Cable & Wireless Marine Limited ("the Company') and its subsidiary
undertakings, together with the ship owning division of Cable & Wireless plc
and two joint ventures indirectly owned by Cable & Wireless plc (Sino-British
Submarine Systems and NTT World Engineering Marine) which together constitute
the Cable & Wireless Global Marine business ("the Group').
The unaudited interim condensed combined financial statements reflect all
adjustments, consisting of normal recurring items, which are, in the opinion of
management, necessary to present a fair statement of the results of the interim
period presented. The results of any interim period are not necessarily
indicative of results for the full year or any other interim period.
These condensed combined financial statements have been prepared in
accordance with accounting principles generally accepted in the United Kingdom
and on a consistent basis with the financial statements for the year ended 31
March 1999. The accompanying unaudited condensed combined financial statements
do not include all notes and financial presentation normally required under
generally accepted accounting principles. Therefore, these financial statements
should be read in conjunction with the financial statements for the year ended
31 March 1999.
2. Significant events during the period
Dividend
On 23 April 1999 an interim dividend in respect of the year ended 31 March
2000 of (Pounds)117,700,000 was paid by the Company, which was financed by a
new bank facility and collection of amounts owed by group undertakings. This
had the effect of reducing net current assets and increasing short term debt by
a corresponding amount.
Maintenance Vessels
During the period the Company acquired two further vessels for a total of
(Pounds)6.2m and it has committed to convert these to cable maintenance ships.
The total cost of purchase and conversion of these vessels is expected to be
approximately (Pounds)30m. The expenditure currently committed is covered by a
letter of intent for a cable maintenance agreement from Global Crossing.
F-50
<PAGE>
CABLE & WIRELESS GLOBAL MARINE
NOTES TO FINANCIAL STATEMENTS--(Continued)
(unaudited)
3. Summary of differences between United Kingdom and United States Generally
Accepted Accounting Principles
The Group prepares its combined accounts in accordance with generally
accepted accounting principles in the United Kingdom (UK GAAP), which differ in
certain material respects from US GAAP. The adjustments necessary to restate
net income and net assets in accordance with US GAAP are shown below:
<TABLE>
<CAPTION>
Three months Three months
ended 30 June ended 30 June
1999 1998
------------- -------------
(Pounds)'000 (Pounds)'000
<S> <C> <C>
Net income as reported under UK GAAP............... 5,432 4,648
US GAAP adjustments:
Amortisation of goodwill........................... (209) (209)
Deferred tax--full provision....................... (236) (251)
- --tax effect of other US GAAP reconciling items.... (55) 79
Pension costs...................................... -- (133)
Amortisation of gain on cross border leasing....... 86 86
Consultancy fees capitalised....................... 90 (181)
------- -------
Net income under US GAAP........................... 5,108 4,039
======= =======
<CAPTION>
30 June 1999 31 March 1999
------------- -------------
(Pounds)'000 (Pounds)'000
<S> <C> <C>
Net assets as reported under UK GAAP............... 76,832 189,189
US GAAP adjustments:
Goodwill........................................... 22,398 22,606
Deferred tax--full provision....................... (23,820) (23,584)
- --tax effect of other US GAAP reconciling items.... 1,808 1,861
Pension costs...................................... (398) (398)
Vessels under construction......................... 17,100 16,300
Financing of vessels under construction............ (17,100) (16,300)
Cross border leasing deposits...................... 96,570 90,630
Cross border leasing liabilities................... (96,570) (90,630)
Unrecognised gain on cross border leasing.......... (4,072) (4,157)
Consultancy fees capitalised....................... (1,359) (1,449)
------- -------
Net assets under US GAAP........................... 71,389 184,068
======= =======
</TABLE>
4. Post balance sheet events
a) Issue of share capital
On 1 July 1999, the Company issued 3,293,906 new shares to Cable & Wireless
plc for consideration of (Pounds)23,782,000. The proceeds were applied for
repayment of intercompany balances and additional working capital.
b) Acquisition by Global Crossing
On 2 July 1999, the Group was acquired by Global Crossing and was renamed
Global Marine Systems Limited. The bank facility which financed the dividend on
23 April 1999 was repaid by Global Crossing. The cross border leasing agreement
for three cableships was terminated and a termination payment of approximately
$35 million was paid by Global Crossing.
F-51
<PAGE>
Report of the Auditors
To the Directors of Cable & Wireless Marine Limited
We have audited the accompanying combined balance sheets of Cable & Wireless
Global Marine at 31 March 1999 and 31 March 1998, and the related combined
profit and loss accounts, reconciliations of movements in net assets and cash
flow statements for each of the years in the three-year period ended 31 March
1999. These combined financial statements are the responsibility of the
management of Cable & Wireless Global Marine. Our responsibility is to express
an opinion on these combined financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United Kingdom, which are substantially consistent with those
of the United States of America. Those standards require that we plan and
perform the audits to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the financial position of Cable & Wireless
Global Marine at 31 March 1999 and 31 March 1998, and the results of their
operations and their cash flows for each of the years in the three-year period
ended 31 March 1999, in conformity with generally accepted accounting
principles in the United Kingdom.
Accounting principles generally accepted in the United Kingdom vary in
certain significant respects from accounting principles generally accepted in
the United States of America. Application of accounting principles generally
accepted in the United States would have affected net income for the two years
ended 31 March 1999 and net assets at 31 March 1999 and 31 March 1998, to the
extent summarised in Note 27 to the combined financial statements.
/s/ KPMG Audit Plc
Chartered Accountants
Registered Auditor
Ipswich, England
26 May 1999
F-52
<PAGE>
CABLE & WIRELESS GLOBAL MARINE
COMBINED PROFIT AND LOSS ACCOUNT
for the years ended 31 March
<TABLE>
<CAPTION>
Note 1999 1998 1997
---- ------------ ------------ ------------
(Pounds)'000 (Pounds)'000 (Pounds)'000
<S> <C> <C> <C> <C>
Turnover: group and share of joint
ventures......................... 221,092 193,495 202,895
Less: share of joint ventures'
turnover......................... (11,095) (22,542) (20,908)
-------- -------- --------
Group turnover.................... 2 209,997 170,953 181,987
Operating costs................... 3 (162,600) (148,689) (151,042)
-------- -------- --------
Group operating profit............ 47,397 22,264 30,945
Share of operating profit in joint
ventures......................... 3,994 3,165 3,421
-------- -------- --------
51,391 25,429 34,366
(Loss)/profit on sale of fixed
assets........................... (61) 733 27
Profit on disposal of joint
venture.......................... -- 812 --
Interest receivable and similar
income........................... 6 2,293 886 979
Interest payable and similar
charges--group................... 7 (6,757) (3,905) (6,119)
Interest payable and similar
charges--joint ventures.......... (1,133) (808) (2,249)
-------- -------- --------
Profit on ordinary activities
before taxation.................. 2-5 45,733 23,147 27,004
Tax on profit on ordinary
activities....................... 8 (14,292) (8,487) (83)
-------- -------- --------
Retained profit for the financial
year............................. 31,441 14,660 26,921
======== ======== ========
</TABLE>
See accompanying notes to combined financial statements.
F-53
<PAGE>
CABLE & WIRELESS GLOBAL MARINE
COMBINED BALANCE SHEET
at 31 March
<TABLE>
<CAPTION>
Note 1999 1999 1998 1998
---- ------------ ------------ ------------ ------------
(Pounds)'000 (Pounds)'000 (Pounds)'000 (Pounds)'000
<S> <C> <C> <C> <C> <C>
Fixed assets
Tangible assets......... 9 210,523 211,257
Investments in joint
ventures: 10
Share of gross
assets............... 58,628 39,474
Share of gross
liabilities.......... (35,506) (24,940)
------- -------
23,122 14,534
------- --------
233,645 225,791
Current assets
Stocks.................. 11 8,498 16,252
Debtors................. 12 93,811 77,381
Cash at bank and in
hand................... 2,708 8,877
------- -------
105,017 102,510
Creditors: amounts
falling due within one
year................... 13 (74,405) (59,051)
------- -------
Net current assets...... 30,612 43,459
------- --------
Total assets less
current liabilities.... 264,257 269,250
Creditors: amounts
falling due after more
than one year.......... 14 (71,652) (107,175)
Provisions for
liabilities and
charges:
Deferred taxation....... 15 (2,038) (3,578)
Other provisions........ 16 (1,378) (504)
------- -------
(3,416) (4,082)
------- --------
Net assets.............. 189,189 157,993
======= ========
</TABLE>
These financial statements were approved by the directors on 26 May 1999 and
were signed on its behalf by:
/s/ B. Shine
Director
See accompanying notes to combined financial statements.
F-54
<PAGE>
CABLE & WIRELESS GLOBAL MARINE
COMBINED STATEMENT OF TOTAL RECOGNISED GAINS AND LOSSES
for the years ended 31 March
<TABLE>
<CAPTION>
1999 1998 1997
------------ ------------ ------------
(Pounds)'000 (Pounds)'000 (Pounds)'000
<S> <C> <C> <C>
Profit for the financial year.......... 31,441 14,660 26,921
Exchange differences on the
retranslation of net investments...... (245) 250 (340)
------ ------ ------
Total recognised gains and losses
relating to the financial year........ 31,196 14,910 26,581
====== ====== ======
</TABLE>
See accompanying notes to combined financial statements.
F-55
<PAGE>
CABLE & WIRELESS GLOBAL MARINE
RECONCILIATIONS OF MOVEMENTS IN NET ASSETS
for the years ended 31 March
<TABLE>
<CAPTION>
1999 1998 1997
------------ ------------ ------------
(Pounds)'000 (Pounds)'000 (Pounds)'000
<S> <C> <C> <C>
Profit for the financial year.......... 31,441 14,660 26,921
Other recognised gains and losses
relating to the year.................. (245) 250 (340)
Goodwill arising on acquisition written
off................................... -- (3,583) --
------- ------- -------
Net addition to net assets............. 31,196 11,327 26,581
Opening net assets..................... 157,993 146,666 120,085
------- ------- -------
Closing net assets..................... 189,189 157,993 146,666
======= ======= =======
</TABLE>
See accompanying notes to combined financial statements.
F-56
<PAGE>
CABLE & WIRELESS GLOBAL MARINE
COMBINED CASH FLOW STATEMENT
for the years ended 31 March
<TABLE>
<CAPTION>
Note 1999 1998 1997
---- ------------ ------------ ------------
(Pounds)'000 (Pounds)'000 (Pounds)'000
<S> <C> <C> <C> <C>
CASH FLOW STATEMENT
Cash flow from operating
activities....................... 18 31,247 30,876 20,223
Dividends from joint ventures..... 431 133 189
Returns on investments and
servicing of finance............. 19 (4,464) (3,019) (5,140)
Taxation.......................... (5,741) (8,713) (8,093)
Capital expenditure and financial
investment....................... 19 (19,948) (9,876) (6,479)
Acquisitions and disposals........ 19 (6,700) (1,541) --
------- ------- -------
Cash (outflow)/inflow before
financing........................ (5,175) 7,860 700
Financing......................... 19 (885) (758) (760)
------- ------- -------
(Decrease)/increase in cash in the
period........................... (6,060) 7,102 (60)
======= ======= =======
Reconciliation of net cash flow to
movement in net debt............. 20
(Decrease)/Increase in cash in the
period........................... (6,060) 7,102 (60)
Cash outflow from decrease in debt
and lease financing.............. 885 758 760
------- ------- -------
Change in net debt resulting from
cash flows....................... (5,175) 7,860 700
New finance leases................ -- (57,300) --
Exchange movement................. 2,191 106 (185)
------- ------- -------
Movement in net debt in the
period........................... (2,984) (49,334) 515
Net debt at the start of the
period........................... (66,915) (17,581) (18,096)
------- ------- -------
Net debt at the end of the
period........................... (69,899) (66,915) (17,581)
======= ======= =======
</TABLE>
See accompanying notes to combined financial statements.
F-57
<PAGE>
CABLE & WIRELESS GLOBAL MARINE
NOTES TO FINANCIAL STATEMENTS
(1) Accounting policies
The following accounting policies have been applied consistently in dealing
with items which are considered material in relation to the Cable & Wireless
Global Marine's financial statements.
Basis of preparation
The financial statements have been prepared in accordance with applicable
accounting standards and under the historical cost accounting rules.
The combined financial statements include the financial statements of Cable &
Wireless Marine Limited (the Company) and its subsidiary undertakings, together
with the ship owning division of Cable & Wireless plc and two joint ventures
indirectly owned by Cable & Wireless plc (Sino-British Submarine Systems and
NTT World Engineering Marine) which together constitute the Cable & Wireless
Global Marine business (the Group). The combined financial statements are made
up to 31 March 1999. The acquisition method of accounting has been adopted.
Under this method, the results of subsidiary undertakings acquired or disposed
of in the year are included in the combined profit and loss account from the
date of acquisition or up to the date of disposal.
An associate is an undertaking in which the Group has a long term interest,
usually from 20% to 50% of the equity voting rights, and over which it
exercises significant influence. A joint venture is an undertaking in which the
Group has a long-term interest and over which it exercises joint control. The
Group's share of the profits less losses of associates and of joint ventures is
included in the combined profit and loss account and its interest in their net
assets is included in investments in the combined balance sheet.
In respect of those parts of the business which are not owned by Cable &
Wireless Marine Limited, the investment has been included in the combined
balance sheet at historical cost by crediting the Group's intercompany account
with Cable & Wireless plc with (Pounds)14.8m in 1999 and (Pounds)8.3m in 1998.
Although the Group is not a separate legal entity, the majority of the
businesses included within the combined financial statements are separate legal
entities. These companies are subject to full taxation on their results. In
respect of those parts of the Group which are not separate legal entities a
notional tax charge has been made, based upon results for the period and the
prevailing tax rate. The Group tax provision is therefore prepared on a stand-
alone basis.
The Group is principally financed by inter-company current accounts with
Cable & Wireless plc. A number of individual operations participate in a cash
sweep arrangement operated by the Cable & Wireless plc Group, under which cash
balances are cleared regularly to a central account held by Cable & Wireless
plc. These operations receive or pay interest on their net balance at rates
charged by the Group to approximate their cost of borrowing. The cash position
and financing charges shown in the combined financial statements are therefore
not necessarily representative of the cash position or financing charges under
separate ownership.
The pension cost attributable to the Group has been based upon the
contributions paid to the Cable & Wireless plc pension scheme in respect of the
Group's employees. The charges included in the combined financial statements
reflect the pension arrangements of the Cable & Wireless plc group and are
therefore not necessarily representative of the pension cost of the group under
separate ownership.
Central management and similar costs have been directly attributed to the
individual companies included in the combined financial statements, based upon
charges made by Cable & Wireless plc for those services. The Group was charged
(Pounds)1.5million in the year ended 31 March 1999 in respect of employee
benefits and its allocation of central finance, administration costs,
information systems costs and central management.
F-58
<PAGE>
CABLE & WIRELESS GLOBAL MARINE
NOTES TO FINANCIAL STATEMENTS--(Continued)
Under Financial Reporting Standard 8, the Group is exempt from the
requirement to disclose transactions between companies which are wholly owned
by Cable & Wireless plc.
Goodwill and negative goodwill
Purchased goodwill (both positive and negative) arising on consolidation in
respect of acquisitions before 1 April 1998, when Financial Reporting Standard
10, Goodwill and intangible assets, was adopted, was written off to reserves in
the year of acquisition. When a subsequent disposal occurs any related goodwill
previously written off to reserves is written back through the profit and loss
account as part of the profit or loss on disposal.
Purchased goodwill (representing the excess of the fair value of the
consideration given over the fair value of the separable net assets acquired)
arising on consolidation in respect of acquisitions since 1 April 1998 is
capitalised. Positive goodwill is amortised to nil by equal annual instalments
over its estimated useful life.
Negative goodwill arising on consolidation in respect of acquisitions since 1
April 1998 is included within fixed assets and released to the profit and loss
account in the periods in which the fair values of the non-monetary assets
purchased on the same acquisition are recovered, whether through depreciation
or sale.
On the subsequent disposal or termination of a business acquired since 1
April 1998, the profit or loss on disposal or termination is calculated after
charging (crediting) the unamortised amount of any related goodwill (negative
goodwill).
Provisions and contingent liabilities
Financial Reporting Standard 12, Provisions, Contingent liabilities and
contingent assets, is mandatory in respect of accounting periods ending after
23 March 1999. This standard requires that provisions must be recognised when
there is a present legal or constructive obligation at the balance sheet date.
These combined financial statements have been prepared in accordance with FRS
12, and as such the results and balances for the years ended 31 March 1997 and
1998 of certain companies included within the combined financial statements
have been adjusted to be consistent with FRS 12.
Fixed assets and depreciation
Depreciation is provided to write off the cost less the estimated residual
value of tangible fixed assets by equal instalments over their estimated useful
economic lives as follows:
<TABLE>
<S> <C>
Cableships -- up to 30 years or as committed to agreements, whichever is the longer
Ship refits -- 2 1/2 years
Submersibles -- up to 5 years
Plant -- 2 1/2 to 20 years
Leasehold buildings -- up to 25 years
Motor vehicles -- up to 4 years
</TABLE>
Foreign currencies
Transactions in foreign currencies are recorded using the rate of exchange
ruling at the date of the transaction. Monetary assets and liabilities
denominated in foreign currencies are translated using the rate of exchange
ruling at the balance sheet date and the gains or losses on translation are
included in the profit and loss account.
F-59
<PAGE>
CABLE & WIRELESS GLOBAL MARINE
NOTES TO FINANCIAL STATEMENTS--(Continued)
Leases
Where the Group enters into a lease which entails taking substantially all
the risks and rewards of ownership of an asset, the lease is treated as a
"finance lease". The asset is recorded in the balance sheet as a tangible fixed
asset and is depreciated over its estimated useful life or the term of the
lease whichever is shorter. Future instalments under such leases, net of
finance charges, are included within creditors. Rentals payable are apportioned
between the finance element, which is charged to the profit and loss account,
and the capital element which reduces the outstanding obligation for future
instalments.
All other leases are accounted for as operating leases' and the rental
charges are charged to the profit and loss account on a straight-line basis
over the life of the lease.
Pensions
The Group participates in group pension schemes operated by Cable & Wireless
plc. The regular cost of providing benefits is charged to operating profit over
the service lives of the members of the schemes on the basis of a constant
percentage of pensionable pay. Variations from regular cost arising from
periodic actuarial valuations are allocated to operating profit over the
expected remaining service lives of the members.
Stocks and work in progress
Stocks are valued at cost less provision for deterioration and obsolescence.
Work in progress on contracts is stated at cost less foreseeable losses less
progress payments received and receivable. Any excess of losses and progress
payments received and receivable over work in progress are included in
creditors.
Long term contracts
Where the outcome of long term contracts can be assessed with reasonable
certainty turnover and profit are recognised in the accounts in appropriate
proportions which reflect the state of completion reached during the year. The
amount by which recorded turnover is in excess of payments received from
customers is included in debtors. Full provision is made for anticipated
losses.
Taxation
The charge for taxation is based on the profit for the year and takes into
account taxation deferred because of timing differences between the treatment
of certain items for taxation and accounting purposes. Provision is made for
deferred tax only to the extent that it is probable that an actual liability
will crystallise in the foreseeable future. Where deferred taxation is
provided, the liability method is used.
(2) TURNOVER
Turnover is principally derived from the installation and maintenance of
submarine telecommunications cables under agreements with cable owners,
including transactions with group companies, and manufacturers.
Details of turnover by geographical market supplied have not been provided
since, in the opinion of the directors, such disclosure would be seriously
prejudicial to the interests of the group.
F-60
<PAGE>
CABLE & WIRELESS GLOBAL MARINE
NOTES TO FINANCIAL STATEMENTS--(Continued)
(3) OPERATING COSTS
<TABLE>
<CAPTION>
1999 1998 1997
------------ ------------ ------------
(Pounds)'000 (Pounds)'000 (Pounds)'000
<S> <C> <C> <C>
Employee costs.......................... 43,071 37,406 37,070
Pension costs........................... 2,117 2,218 2,579
Hire of plant and machinery............. 30,578 40,905 45,180
Other operating costs................... 66,133 50,270 49,676
Depreciation of tangible fixed assets... 20,621 17,750 16,438
Auditors' remuneration
Statutory audit....................... 56 43 42
Other services........................ 24 97 57
------- ------- -------
162,600 148,689 151,042
======= ======= =======
</TABLE>
In 1999 systems development fees payable to the auditors of (Pounds)1.1m
(1998: (Pounds)0.7m) were capitalised.
Having regard to the special nature of the group's business an analysis of
operating costs in the manner prescribed by the Companies Act 1985 is not
meaningful. In the circumstances, therefore, the directors have as required by
paragraph 3(3) of Schedule 4 to the Companies Act 1985, adapted the prescribed
format to the requirements of the group's business.
(4) REMUNERATION OF DIRECTORS OF THE COMPANY
There are no directors of Cable & Wireless Global Marine as it is not a
separate legal entity. Information regarding the remuneration of the directors
of Cable & Wireless Marine Limited is as follows:
<TABLE>
<CAPTION>
1999 1998 1997
------------ ------------ ------------
(Pounds)'000 (Pounds)'000 (Pounds)'000
<S> <C> <C> <C>
Directors' emoluments:
As directors........................... 590 556 586
--- --- ---
590 556 586
=== === ===
</TABLE>
The aggregate of emoluments and amounts receivable under long term incentive
schemes of the highest paid director was (Pounds)237,131 (1998:
(Pounds)188,240, 1997: (Pounds)156,000). He is a member of a defined benefit
scheme, under which his accrued pension at 31 March 1999 was (Pounds)83,177,
and his accrued lump sum was (Pounds)178,219.
<TABLE>
<CAPTION>
Number of
directors
----------------
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Retirement benefits are accruing to the following number of
directors under:
Defined benefit schemes................................... 6 7 6
---- ---- ----
The number of directors who exercised share options was:.... 6 5 6
==== ==== ====
</TABLE>
Information relating to directors' share options may be found in note 26.
F-61
<PAGE>
CABLE & WIRELESS GLOBAL MARINE
NOTES TO FINANCIAL STATEMENTS--(Continued)
(5) STAFF NUMBERS AND COSTS
The average number of persons employed by the Group (including directors)
during the period, analysed by category, was as follows:
<TABLE>
<CAPTION>
Number of
employees
-----------------
1999 1998 1997
----- ----- -----
<S> <C> <C> <C>
United Kingdom staff.......................................... 383 316 342
Marine staff.................................................. 835 813 830
----- ----- -----
1,218 1,129 1,172
===== ===== =====
</TABLE>
The aggregate payroll costs of these persons were as follows:
<TABLE>
<CAPTION>
1999 1998 1997
------------ ------------ ------------
(Pounds)'000 (Pounds)'000 (Pounds)'000
<S> <C> <C> <C>
Wages and salaries..................... 41,309 35,711 35,149
Social security costs.................. 1,762 1,695 1,921
Pension and other similar costs (see
note 23).............................. 2,117 2,218 2,579
------ ------ ------
45,188 39,624 39,649
====== ====== ======
</TABLE>
(6) INTEREST RECEIVABLE AND SIMILAR INCOME
<TABLE>
<CAPTION>
1999 1998 1997
------------ ------------ ------------
(Pounds)'000 (Pounds)'000 (Pounds)'000
<S> <C> <C> <C>
On amounts owed by group undertakings... 1,861 -- --
Other interest receiveable.............. 432 886 979
----- --- ---
2,293 886 979
===== === ===
</TABLE>
(7) INTEREST PAYABLE AND SIMILAR CHARGES
<TABLE>
<CAPTION>
1999 1998 1997
------------ ------------ ------------
(Pounds)'000 (Pounds)'000 (Pounds)'000
<S> <C> <C> <C>
Amounts payable on loans and
overdrafts............................ 163 -- --
On amounts owed to group undertakings.. -- 2,201 4,441
Finance charges payable in respect of
finance leases and hire purchase
contracts............................. 6,594 1,704 1,678
----- ----- -----
6,757 3,905 6,119
===== ===== =====
</TABLE>
(8) TAXATION
<TABLE>
<CAPTION>
1999 1998 1997
------------ ------------ ------------
(Pounds)'000 (Pounds)'000 (Pounds)'000
<S> <C> <C> <C>
UK corporation tax...................... 14,098 7,597 6,690
Deferred taxation (note 15)............. (1,540) (25) (6,650)
Double taxation relief.................. (112) (95) (609)
------ ----- ------
12,446 7,477 (569)
Overseas taxation....................... 8 95 560
Adjustments in respect of prior years... 1,628 -- (143)
Share of joint ventures tax............. 210 915 235
------ ----- ------
14,292 8,487 83
====== ===== ======
</TABLE>
F-62
<PAGE>
CABLE & WIRELESS GLOBAL MARINE
NOTES TO FINANCIAL STATEMENTS--(Continued)
(9) TANGIBLE FIXED ASSETS
<TABLE>
<CAPTION>
Land and
Cableships and Motor Vehicles Buildings
Submersibles And Plant Short leasehold Total
-------------- -------------- --------------- ------------
(Pounds)'000 (Pounds)'000 (Pounds)'000 (Pounds)'000
<S> <C> <C> <C> <C>
Cost
At 1 April 1998......... 272,097 41,189 5,835 319,121
Additions............... 11,342 5,604 2,987 19,933
Disposals............... (11,499) (284) -- (11,783)
------- ------ ----- -------
At 31 March 1999........ 271,940 46,509 8,822 327,271
------- ------ ----- -------
Depreciation and
diminution in value
At 1 April 1998......... 85,201 20,417 2,246 107,864
Charge for period....... 14,276 5,611 734 20,621
On disposals............ (11,499) (238) -- (11,737)
------- ------ ----- -------
At 31 March 1999........ 87,978 25,790 2,980 116,748
------- ------ ----- -------
Net book value
At 31 March 1999........ 183,962 20,719 5,842 210,523
======= ====== ===== =======
At 31 March 1998........ 186,896 20,772 3,589 211,257
======= ====== ===== =======
</TABLE>
Cost includes (Pounds)13,550,228 (1998: (Pounds)5,543,719) in respect of
assets not yet in service.
Included in the total net book value of cableships and submersibles is
(Pounds)81,326,000 (1998: (Pounds)84,984,000) in respect of assets held under
finance leases. Depreciation for the year on these assets was (Pounds)3,657,000
(1998: (Pounds)1,567,000, 1997: (Pounds)1,499,000).
(10) FIXED ASSET INVESTMENTS
<TABLE>
<CAPTION>
Goodwill on
Joint acquisition of
Ventures joint ventures Total
------------ -------------- ------------
(Pounds)'000 (Pounds)'000 (Pounds)'000
<S> <C> <C> <C>
Cost and net book value
At 1 April 1998...................... 14,534 -- 14,534
Additions............................ 3,100 3,600 6,700
Disposals............................ (149) -- (149)
Income from interests in joint
ventures (before taxation).......... 2,861 -- 2,861
Taxation............................. (210) -- (210)
Dividends received................... (431) -- (431)
Exchange differences................. (183) -- (183)
------ ----- ------
At 31 March 1999..................... 19,522 3,600 23,122
====== ===== ======
</TABLE>
F-63
<PAGE>
CABLE & WIRELESS GLOBAL MARINE
NOTES TO FINANCIAL STATEMENTS--(Continued)
Additional information in respect of the group's joint ventures in aggregate
is shown below:
<TABLE>
<CAPTION>
1999 1998
------------ ------------
(Pounds)'000 (Pounds)'000
<S> <C> <C>
Fixed assets.......................................... 41,694 31,372
Current assets........................................ 13,334 8,102
Liabilities due within one year....................... (6,269) (2,340)
Liabilities due after more than one year.............. (29,237) (22,600)
------- -------
19,522 14,534
======= =======
</TABLE>
The principal companies included within these financial statements are as
follows:
<TABLE>
<CAPTION>
Percentage Country of
holding and registration or
class incorporation Nature of Business
------------ ----------------- ----------------------------
<S> <C> <C> <C>
Subsidiary undertakings
Cable & Wireless Marine
Limited................ 100 ordinary England and Wales Submarine Telecommunications
General Offshore (UK)
Limited*............... 100 ordinary England and Wales Submarine Telecommunications
Vibro-Einspultechnik
Duker und Wasserbau
GmbH*.................. 100 ordinary Germany Submarine Telecommunications
Cable & Wireless Global
Marine Singapore
Limited*............... 100 ordinary Singapore Submarine Telecommunications
General Offshore
Specialized Services
Inc*................... 100 ordinary USA Submarine Telecommunications
Joint ventures
Sembawang Cable Depot
Pte Limited............ 40 ordinary Singapore Cable storage
International Cableship
Pte Limited............ 30 ordinary Singapore Ship operator
Sino-British Submarine
Systems Company
Limited................ 49 ordinary China Submarine Telecommunications
NTT World Engineering
Marine Corporation
(acquired 11 February
1999).................. 25 ordinary Japan Submarine Telecommunications
General Offshore
Corporation Inc
(disposed 29 February
1998).................. 40 ordinary USA Telecommunications Services
</TABLE>
- --------
* Prior to 29 February 1998, the Group had an indirect 40% interest in these
companies through its investment in General Offshore Corporation. On 29
February 1998, the Group acquired the remaining 60% interest in these
companies. The consideration was satisfied by disposing of its interest in
General Offshore Corporation together with an additional cash payment, as
set out in note 21.
F-64
<PAGE>
CABLE & WIRELESS GLOBAL MARINE
NOTES TO FINANCIAL STATEMENTS--(Continued)
(11) STOCKS
<TABLE>
<CAPTION>
1999 1998
------------ ------------
(Pounds)'000 (Pounds)'000
<S> <C> <C>
Raw materials and consumables....................... 3,006 3,998
Work in progress.................................... 5,492 12,254
------ ------
8,498 16,252
====== ======
Work in progress relates to long-term contract
balances and comprises:
<CAPTION>
1999 1998
------------ ------------
(Pounds)'000 (Pounds)'000
<S> <C> <C>
Net costs........................................... 10,094 18,656
Applicable payments on account...................... (4,602) (6,402)
------ ------
5,492 12,254
====== ======
</TABLE>
(12) DEBTORS
<TABLE>
<CAPTION>
1999 1998
------------ ------------
(Pounds)'000 (Pounds)'000
<S> <C> <C>
Amounts falling due within one year
Trade debtors......................................... 44,843 41,571
Amounts owed by group undertakings.................... 25,820 5,559
Amounts owed by joint ventures........................ 1,218 2,369
Other debtors......................................... 11,951 14,533
Corporation tax....................................... 2 1,471
Prepayments and accrued income........................ 9,977 11,878
------ ------
93,811 77,381
====== ======
</TABLE>
(13) CREDITORS: AMOUNTS FALLING DUE WITHIN ONE YEAR
<TABLE>
<CAPTION>
1999 1998
------------ ------------
(Pounds)'000 (Pounds)'000
<S> <C> <C>
Obligations under finance leases...................... 955 885
Trade creditors....................................... 13,253 2,999
Amounts owed to group undertakings.................... 13,148 2,836
Amounts owed to joint ventures........................ -- 884
Other creditors including taxation and
social security:
Corporation tax................................... 16,283 8,970
Other taxes and social security................... 351 52
Other creditors................................... 8,707 8,810
Accruals and deferred income.......................... 21,708 33,615
------ ------
74,405 59,051
====== ======
</TABLE>
(14) CREDITORS: AMOUNTS FALLING DUE AFTER MORE THAN ONE YEAR
<TABLE>
<CAPTION>
1999 1998
------------ ------------
(Pounds)'000 (Pounds)'000
<S> <C> <C>
Obligations under finance leases...................... 71,652 74,907
Amounts owed to group undertakings.................... -- 32,268
------ -------
71,652 107,175
====== =======
</TABLE>
F-65
<PAGE>
CABLE & WIRELESS GLOBAL MARINE
NOTES TO FINANCIAL STATEMENTS--(Continued)
The maturity of obligations under finance leases and hire purchase contracts
is as follows:
<TABLE>
<CAPTION>
1999 1998
------------ ------------
(Pounds)'000 (Pounds)'000
<S> <C> <C>
Within one year....................................... 955 885
In the second to fifth years.......................... 5,690 3,894
Over five years....................................... 65,962 71,013
------ ------
72,607 75,792
====== ======
</TABLE>
(15) DEFERRED TAXATION
<TABLE>
<S> <C>
(Pounds)'000
At 1 April 1998................................................... 3,578
Utilised during the year.......................................... (1,540)
------------
At 31 March 1999.................................................. 2,038
============
</TABLE>
Deferred taxation provided in the accounts and the potential liability,
including amounts for which provision has been made, are as follows:
<TABLE>
<CAPTION>
Amounts provided Total potential liability
---------------- -------------------------
1999 1998 1999 1998
------------ ------------ ------------ ------------
(Pounds)'000 (Pounds)'000 (Pounds)'000 (Pounds)'000
<S> <C> <C> <C> <C>
Accelerated capital
allowances............... 2,038 3,578 25,622 25,636
----- ----- ------ ------
2,038 3,578 25,622 25,636
===== ===== ====== ======
</TABLE>
(16) OTHER PROVISIONS
<TABLE>
<S> <C>
(Pounds)'000
At 1 April 1998................................................... 504
Provided in year.................................................. 1,265
Utilised in year.................................................. (391)
------------
At 31 March 1999.................................................. 1,378
============
</TABLE>
A provision of (Pounds)1,265,000 has been recognised for remodification costs
on the decommissioning of two charter vessels.
(17) COMMITMENTS
Capital commitments at the end of the financial year for which no provision
has been made.
<TABLE>
<CAPTION>
1999 1998
------------ ------------
(Pounds)'000 (Pounds)'000
<S> <C> <C>
Commitments in respect of contracts placed............ 1,283 1,357
===== =====
</TABLE>
F-66
<PAGE>
CABLE & WIRELESS GLOBAL MARINE
NOTES TO FINANCIAL STATEMENTS--(Continued)
Annual commitments under non-cancellable operating leases are as follows:
<TABLE>
<CAPTION>
1999 1998
------------------------- -------------------------
Land and Land and
buildings Other buildings Other
------------ ------------ ------------ ------------
(Pounds)'000 (Pounds)'000 (Pounds)'000 (Pounds)'000
<S> <C> <C> <C> <C>
Operating leases which
expire:
Within one year.......... 63 1 97 32
In the second to fifth
years inclusive......... 71 12,620 37 13,451
Over five years.......... 1,223 3,573 1,641 21
----- ------ ----- ------
1,357 16,194 1,775 13,504
===== ====== ===== ======
</TABLE>
(18) RECONCILIATION OF OPERATING PROFIT TO OPERATING CASH FLOWS
<TABLE>
<CAPTION>
1999 1998 1997
------------ ------------ ------------
(Pounds)'000 (Pounds)'000 (Pounds)'000
<S> <C> <C> <C>
Operating profit....................... 47,397 22,264 30,945
Depreciation........................... 20,621 17,750 16,438
Decrease/(Increase) in stocks.......... 7,754 (638) 5,693
(Increase)/decrease in debtors......... (17,899) 4,796 (35,360)
(Decrease)/Increase in creditors....... (26,626) (13,296) 2,507
------- ------- -------
Net cash inflow from operating
activities............................ 31,247 30,876 20,223
======= ======= =======
</TABLE>
(19) ANALYSIS OF CASH FLOWS
<TABLE>
<CAPTION>
Notes 1999 1998 1997
----- ------------ ------------ ------------
(Pounds)'000 (Pounds)'000 (Pounds)'000
<S> <C> <C> <C> <C>
Returns on investment and
servicing of finance
Interest received................ 2,293 886 979
Interest paid.................... (163) (2,201) (4,441)
Interest element of finance lease
rental payments................. (6,594) (1,704) (1,678)
------- ------- -------
(4,464) (3,019) (5,140)
======= ======= =======
Capital expenditure and financial
investment
Purchase of tangible fixed
assets.......................... (19,963) (10,616) (10,650)
Sale of tangible fixed assets.... 15 740 4,171
------- ------- -------
(19,948) (9,876) (6,479)
======= ======= =======
Acquisitions and disposals
Purchase of subsidiary
undertaking..................... 21 -- (3,676) --
Net cash acquired with
subsidiaries.................... -- 2,135 --
Purchase of interest in joint
venture......................... 10 (6,700) -- --
------- ------- -------
(6,700) (1,541) --
======= ======= =======
Financing
Capital element of finance lease
rental payments................. (885) (758) (760)
======= ======= =======
</TABLE>
F-67
<PAGE>
CABLE & WIRELESS GLOBAL MARINE
NOTES TO FINANCIAL STATEMENTS--(Continued)
(20) ANALYSIS OF NET DEBT
<TABLE>
<CAPTION>
At 1 April Other Exchange 31 March
1998 Cash Flow movements translation 1999
------------ ------------ ------------ ------------ ------------
(Pounds)'000 (Pounds)'000 (Pounds)'000 (Pounds)'000 (Pounds)'000
<S> <C> <C> <C> <C> <C>
Cash in hand, at bank... 8,877 (6,060) -- (109) 2,708
Finance leases--due
within one year........ (885) 885 (955) -- (955)
Finance leases--due
after one year......... (74,907) -- 955 2,300 (71,652)
------- ------ ---- ----- -------
Total................... (66,915) (5,175) -- 2,191 (69,899)
======= ====== ==== ===== =======
</TABLE>
(21) PURCHASE OF SUBSIDIARY UNDERTAKINGS
In February 1998 the group acquired the shore-end cabling business of General
Offshore Corporation. The net assets acquired, which were equivalent to their
fair values were as follows:
<TABLE>
<CAPTION>
(Pounds)'000
<S> <C>
Net assets acquired
Tangible fixed assets.............................................. 4,390
Stocks............................................................. 2,658
Debtors............................................................ 5,949
Cash at bank and in hand........................................... 2,135
Creditors.......................................................... (11,065)
Deferred taxation.................................................. (312)
-------
3,755
Goodwill........................................................... 3,583
-------
7,338
=======
Satisfied by
Cash............................................................... 3,676
Disposal of 40% interest in General Offshore Corporation........... 3,662
-------
7,338
=======
</TABLE>
(22) CONTINGENT LIABILITIES
Guarantees have been given by the Group on behalf of a former subsidiary
totalling (Pounds)NIL (1998: (Pounds)2,789,000). Guarantees have been given by
the Group in respect of projects totalling (Pounds)303,000 (1998: (Pounds)NIL)
(23) PENSION SCHEME
The Group participates in pension schemes operated by Cable & Wireless plc.
The principal scheme is a defined benefit scheme whereby retirement benefits
are based on employees final remuneration and length of services and is funded
through a separate trustee administered scheme. Contributions to the scheme are
based on pension costs across participating employers as a whole and are made
in accordance with the recommendations of independent actuaries who value the
scheme at regular triennial intervals.
Full details relating to the pension scheme are disclosed in the financial
statements of Cable & Wireless plc.
An actuarial valuation of the scheme was prepared at 31 March 1996 which
disclosed an increased surplus. In view of this, on the actuaries
recommendation, Cable & Wireless plc has reduced its contributions
F-68
<PAGE>
CABLE & WIRELESS GLOBAL MARINE
NOTES TO FINANCIAL STATEMENTS--(Continued)
to the scheme with effect from 1 April 1996. The surplus has been spread over
the remaining service lives of the employees.
The pension cost in the year was (Pounds)2,117,000 (1998: (Pounds)2,218,000).
(24) ULTIMATE PARENT COMPANY AND CONTROLLING PARTY
The Company is a subsidiary undertaking of Cable & Wireless plc, which is the
ultimate parent company and controlling party. Cable & Wireless plc is
registered in England and Wales.
The only group in which the results of the company are consolidated is that
headed by Cable & Wireless plc. The consolidated accounts of this group are
available to the public and may be obtained from 124 Theobalds Road, London
WC1X 8RX.
(25) RELATED PARTY TRANSACTIONS
During the year ended 31 March 1999, a vessel was chartered from
International Cableships Pte Limited, an associated company, under a finance
lease. Repayments of (Pounds)5,452,000 were due during the year ended 31 March
1999, of which a creditor of (Pounds)28,000 was outstanding at 31 March 1999.
Shareholder loans of (Pounds)3,388,000 were outstanding at 31 March 1999.
F-69
<PAGE>
CABLE & WIRELESS GLOBAL MARINE
NOTES TO FINANCIAL STATEMENTS--(Continued)
(26) DIRECTORS' SHAREHOLDINGS
The beneficial interests of the directors of the Company who held office at
the end of the financial year and of their families in the shares of Cable and
Wireless plc are as follows:
<TABLE>
<CAPTION>
Balance at
1 April Shares Shares
1998 (or acquired disposed
date of or or Balance at
appointment options options 31 March
if later) granted exercised 1999
----------- -------- --------- ----------
<S> <C> <C> <C> <C>
David G Foot....................... 1,577 8,795 3,000 7,372
7,449(a) -- 4,044 3,405(a)
130,124(b) 23,500 -- 153,624(b)
8,147(c) -- -- 8,147(c)
-- (d) 7,515 -- 7,515(d)
8,147(e) -- -- 8,147(e)
Alistair R Grieve.................. -- 54,525 43,690 10,835
5,639(a) 1,208 -- 6,847(a)
103,690(b) 5,000 43,690 65,000(b)
11,405(c) -- -- 11,405(c)
-- (d) 8,417 -- 8,417(d)
11,405(e) -- -- 11,405(e)
Barry C Shine...................... 4,411 1,205 4,384 1,232
2,807(a) 762 1,205 2,364(a)
24,000(b) 9,500 -- 33,500(b)
-- (d) 3,479 -- 3,479(d)
David I Wickham.................... 2,098 73,773 72,898 2,973
3,022(a) -- 875 2,147(a)
123,898(b) 21,500 72,898 72,500(b)
-- (d) 10,521 -- 10,521(d)
Dave C Skentelbery................. -- 8,544 8,282 262
3,239(a) 689 262 3,666(a)
36,000(b) 4,500 6,000 34,500(b)
Stephen R Pettit................... 9,251 111,989 111,986 9,254
5,093(a) -- -- 5,093(a)
310,304(b) 20,000 85,000 245,304(b)
30,550(c) -- -- 30,550(c)
-- (d) 21,844 -- 21,844(d)
30,550(e) -- -- 30,550(e)
</TABLE>
All interests are in fully paid ordinary 25p shares of Cable and Wireless
plc, unless marked (a) which are options to purchase ordinary shares under the
Savings Related Share Option Scheme for employees or (b) which are options to
purchase ordinary shares under the Discretionary Share Option schemes or (c)
C&W Long Term Incentive Plan (LTIP) (notional) or (d) C&W Long Term Incentive
Plan (LTIP) (notional) and (e) C&W Long Term Incentive Plan Transitional
(LTIPTS99) (notional).
F-70
<PAGE>
CABLE & WIRELESS GLOBAL MARINE
NOTES TO FINANCIAL STATEMENTS--(Continued)
The notional award figures granted during the year are based on the maximum
award under the plan. The actual award of shares in the LTIP will be in the
form of a share option, which is exercisable at any point following the end of
the three year performance period to which the grant of the options relate
within seven years of the date of the grant, while the individual remains in
the employment in the group. The LTIPTS99 will be awarded in shares. The plan
has been constituted by written rules and will be operated in conjunction with
an Employee Share Ownership Trust.
(27) SUMMARY OF DIFFERENCES BETWEEN UNITED KINGDOM AND UNITED STATES GENERALLY
ACCEPTED ACCOUNTING PRINCIPLES
The Group prepares its combined accounts in accordance with generally
accepted accounting principles in the United Kingdom (UK GAAP), which differ in
certain material respects from US GAAP. The significant differences relate
principally to the following items and the adjustments necessary to restate net
income and net assets in accordance with US GAAP are shown below.
a) Goodwill
Under UK GAAP goodwill arising on acquisition is eliminated directly against
reserves, prior to the adoption of FRS 10 on 1 April 1998. Amounts are
transferred from reserves and charged through the profit and loss account when
the related investments are sold or written down as a result of permanent
diminutions in value. Under US GAAP goodwill is capitalised and amortised by
charges against income over the period, not exceeding 40 years, over which the
benefit arises. For US GAAP, goodwill has been amortised by the Group over 10-
40 years.
Under UK GAAP the profit or loss on the disposal of all or part of a
previously acquired business is calculated after taking account of the gross
amount of any goodwill previously eliminated directly against reserves and not
already charged to profit. Under US GAAP an adjustment to profit or loss on
disposal is required in respect of the unamortised portion of goodwill.
b) Deferred tax
Under UK GAAP provision is made for deferred taxation only when there is a
reasonable probability that the liability will arise in the foreseeable future.
US GAAP requires full provision for deferred income taxes under the liability
method on all temporary differences and, if required, a valuation allowance is
established to reduce gross deferred tax assets to the amount which is likely
to be realised.
Deferred tax also arises in relation to the tax effect of other US GAAP
differences.
c) Pension costs
Under UK GAAP the expected cost of pensions is charged to the profit and loss
account so as to spread the cost of pensions over the expected services lives
of employees. Surpluses arising from actuarial valuations are similarly spread.
Under US GAAP costs and surpluses are similarly spread but based on prescribed
actuarial assumptions which differ in certain respects from those for UK GAAP.
d) Asset under construction
In March 1999 a cableship under construction was subject to a sale and
leaseback arrangement. Under UK GAAP the advances from the lessor have been
netted off the cost of the asset at 31 March 1999, as the construction contract
had been legally novated to the lessor.
F-71
<PAGE>
CABLE & WIRELESS GLOBAL MARINE
NOTES TO FINANCIAL STATEMENTS--(Continued)
Under US GAAP the construction cost of the asset at the balance sheet date
and the related advances from the lessor have been included in assets and
liabilities as the lessee is deemed to be the owner of the asset until the
construction is complete.
e) Cross border leasing arrangements
In February 1996, the Group entered into cross border leasing arrangements
with a Special Purpose Entity (SPE) in respect of three owned cableships. Under
UK GAAP the assets and liabilities of the SPE are netted off in the group's
balance sheet and a gain on the transaction is recognised on receipt of a cash
payment.
Under US GAAP the assets and liabilities of the SPE are shown separately
within assets and liabilities as the secondary obligation of the SPE to make
lease payments is not considered to be sufficiently remote to justify netting
off its assets and liabilities. In addition under US GAAP, the gain on the
transaction is deferred and amortised over the primary lease periods of the
cableships.
f) Profit on disposal of joint venture
In February 1998, the Group acquired the remaining 60% of the shore-end
cabling business of General Offshore Corporation. Part of the consideration for
the acquisition was the disposal by the group of its 40% interest in General
Offshore Corporation, the holding company of this business and another
unrelated business. Under UK GAAP a profit of (Pounds)812,000 has been
recognised on this disposal by allocating the deemed consideration between the
two businesses.
Under US GAAP this transaction has been treated as a step-acquisition and the
gain has been reversed with a corresponding reduction in goodwill.
g) Capitalised consultancy fees
Under UK GAAP the Group has capitalised consultancy fees incurred as part of
the selection and installation of a new computer system. Under US GAAP these
costs are expensed as incurred.
h) Cash flows
The Cash Flow Statement is prepared in accordance with the UK Financial
Reporting Standard No 1 Revised, Cash Flow Statements (FRS 1 Revised) for UK
GAAP reporting. Its objective and principles are similar to those set out in
Statement of Financial Accounting Standards (SFAS 95 "Statement of Cash Flows).
The principal difference between the standards is in respect of classification.
Under FRS1 Revised, the group presents its cash flows for: operating
activities; returns on investments and servicing of finance; taxation; capital
expenditure and financial investment; acquisitions and disposals; equity
dividends paid; management of liquid resources; and financing. SFAS 95 requires
only three categories of cash flow activity: operating; investing and
financing.
Cash flows arising from taxation and returns on investments and servicing of
finance under FRS1 Revised would, with the exception of dividends paid, be
included as operating activities under SFAS 95; dividend payments would be
included as a financing activity under SFAS 95. Under FRS1 Revised, cash is
defined as cash in hand and deposits repayable on demand, short term deposits
which are readily convertible into known amounts of cash at or close to their
carrying value are classified as liquid resources. SFAS 95 defines cash and
cash equivalents as cash in hand and short term highly liquid investments with
original maturities of three months or less. Cash flows in respect of short
term deposits with original maturities exceeding three months are
F-72
<PAGE>
CABLE & WIRELESS GLOBAL MARINE
NOTES TO FINANCIAL STATEMENTS--(Continued)
included in investing activities under SFAS 95 and are included in capital
expenditure and financial investment under FRS1 Revised.
The effect of these different accounting principles are as follows:
<TABLE>
<CAPTION>
1999 1998
------------ ------------
(Pounds)'000 (Pounds)'000
<S> <C> <C>
Net income as reported under UK GAAP................. 31,441 14,660
US GAAP adjustments:
Amortisation of goodwill............................. (835) (588)
Deferred tax--full provision......................... (1,526) 727
- --tax effect of other US GAAP reconciling items...... 284 64
Pension costs........................................ (533) 173
Amortisation of gain on cross border leasing......... 342 342
Reversal of profit on disposal of joint venture...... -- (812)
Consultancy fees capitalised......................... (726) (723)
------- -------
Net income under US GAAP............................. 28,447 13,843
======= =======
The effect on net assets of the differences between UK GAAP and US GAAP is as
follows:
<CAPTION>
1999 1998
------------ ------------
(Pounds)'000 (Pounds)'000
<S> <C> <C>
Net assets as reported under UK GAAP................. 189,189 157,993
US GAAP adjustments:
Goodwill............................................. 22,606 23,441
Deferred tax--full provision......................... (23,584) (22,058)
- --tax effect of other US GAAP reconciling items...... 1,861 1,577
Pension costs........................................ (398) 135
Vessels under construction........................... 16,300 --
Financing of vessels under construction.............. (16,300) --
Cross border leasing deposits........................ 90,630 90,880
Cross border leasing liabilities..................... (90,630) (90,880)
Unrecognised gain on cross border leasing............ (4,157) (4,499)
Consultancy fees capitalised......................... (1,449) (723)
------- -------
Net assets under US GAAP............................. 184,068 155,866
======= =======
</TABLE>
(28) POST BALANCE SHEET EVENTS
a) Dividend
On 23 April 1999, an interim dividend in respect of the year ended 31 March
2000 of (Pounds)117,700,000 was paid by the Company, which was financed by a
new bank facility and collection of amounts owed by group undertakings.
b) Issue of share capital (unaudited)
On 1 July 1999, the Company issued 3,293,906 new shares to Cable & Wireless
plc for consideration of (Pounds)23,782,000. The proceeds are intended to be
applied for repayment of intercompany balances and additional working capital.
c) Acquisition by Global Crossing (unaudited)
On 2 July 1999, the Group was acquired by Global Crossing and was renamed
Global Marine Systems Limited. The bank facility which financed the dividend on
23 April was repaid by Global Crossing. The cross border leasing agreement for
three cableships was terminated and a termination payment of approximately $35
million was paid by Global Crossing.
F-73
<PAGE>
ANNEX A
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
AGREEMENT AND PLAN OF MERGER
DATED AS OF MARCH 16, 1999
AMONG
GLOBAL CROSSING LTD.,
GCF ACQUISITION CORP.
AND
FRONTIER CORPORATION
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
ARTICLE I THE MERGER
<TABLE>
<CAPTION>
Page
----
<C> <S> <C>
1.1 THE MERGER......................................................... A-1
1.2 CLOSING............................................................ A-1
1.3 EFFECTIVE TIME..................................................... A-2
1.4 EFFECTS OF THE MERGER.............................................. A-2
1.5 CERTIFICATE OF INCORPORATION....................................... A-2
1.6 BY-LAWS............................................................ A-2
1.7 OFFICERS AND DIRECTORS OF SURVIVING CORPORATION.................... A-2
1.8 EFFECT ON CAPITAL STOCK............................................ A-2
1.9 VOTING AGREEMENT................................................... A-3
1.10 ALTERNATIVE TRANSACTION STRUCTURE.................................. A-3
ARTICLE II EXCHANGE OF CERTIFICATES
2.1 EXCHANGE FUND...................................................... A-8
2.2 EXCHANGE PROCEDURES................................................ A-8
2.3 DISTRIBUTIONS WITH RESPECT TO UNEXCHANGED SHARES................... A-8
2.4 NO FURTHER OWNERSHIP RIGHTS IN FRONTIER COMMON STOCK............... A-9
2.5 NO FRACTIONAL SHARES OF GLOBAL COMMON STOCK........................ A-9
2.6 TERMINATION OF EXCHANGE FUND....................................... A-9
2.7 NO LIABILITY....................................................... A-9
2.8 INVESTMENT OF THE EXCHANGE FUND.................................... A-9
2.9 LOST CERTIFICATES.................................................. A-10
2.10 WITHHOLDING RIGHTS................................................. A-10
2.11 FURTHER ASSURANCES................................................. A-10
2.12 STOCK TRANSFER BOOKS............................................... A-10
ARTICLE III REPRESENTATIONS AND WARRANTIES
3.1 REPRESENTATIONS AND WARRANTIES OF FRONTIER......................... A-10
3.2 REPRESENTATIONS AND WARRANTIES OF GLOBAL........................... A-16
3.3 REPRESENTATIONS AND WARRANTIES OF GLOBAL AND MERGER SUB............ A-20
ARTICLE IV COVENANTS RELATING TO CONDUCT OF BUSINESS
4.1 COVENANTS OF FRONTIER.............................................. A-20
4.2 COVENANTS OF GLOBAL................................................ A-23
4.3 ADVICE OF CHANGES; GOVERNMENTAL FILINGS............................ A-25
4.4 TRANSITION PLANNING; CONTINUED OPERATIONS OF FRONTIER.............. A-25
4.5 SERVICES AGREEMENT................................................. A-25
4.6 CONTROL OF OTHER PARTY'S BUSINESS.................................. A-26
</TABLE>
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<PAGE>
ARTICLE V ADDITIONAL AGREEMENTS
<TABLE>
<CAPTION>
Page
----
<C> <S> <C>
5.1 PREPARATION OF PROXY STATEMENT; SHAREHOLDERS MEETINGS............. A-26
5.2 GLOBAL BOARD OF DIRECTORS; OFFICERS; HEADQUARTERS................. A-27
5.3 ACCESS TO INFORMATION............................................. A-27
5.4 REASONABLE BEST EFFORTS........................................... A-28
5.5 ACQUISITION PROPOSALS............................................. A-29
5.6 ASSUMPTION OF FRONTIER STOCK OPTIONS AND WARRANTS; OTHER STOCK
PLANS; EMPLOYEE BENEFITS MATTERS ................................. A-30
5.7 FEES AND EXPENSES................................................. A-31
5.8 DIRECTORS' AND OFFICERS' INDEMNIFICATION AND INSURANCE ........... A-31
5.9 REDEMPTION OF FRONTIER PREFERRED STOCK............................ A-31
5.10 PUBLIC ANNOUNCEMENTS.............................................. A-32
5.11 ACCOUNTANTS' LETTERS.............................................. A-32
5.12 LISTING OF SHARES OF GLOBAL COMMON STOCK.......................... A-32
5.13 VOTING TRUST ..................................................... A-32
ARTICLE VI CONDITIONS PRECEDENT
6.1 CONDITIONS TO EACH PARTY'S OBLIGATION TO EFFECT THE MERGER........ A-32
6.2 ADDITIONAL CONDITIONS TO OBLIGATIONS OF GLOBAL AND MERGER SUB..... A-33
6.3 ADDITIONAL CONDITIONS TO OBLIGATIONS OF FRONTIER.................. A-34
ARTICLE VII TERMINATION AND AMENDMENT
7.1 TERMINATION....................................................... A-34
7.2 EFFECT OF TERMINATION............................................. A-36
7.3 AMENDMENT......................................................... A-36
7.4 EXTENSION; WAIVER................................................. A-36
ARTICLE VIII GENERAL PROVISIONS
8.1 NON-SURVIVAL OF REPRESENTATIONS, WARRANTIES AND AGREEMENTS........ A-37
8.2 NOTICES........................................................... A-37
8.3 INTERPRETATION.................................................... A-38
8.4 COUNTERPARTS...................................................... A-38
8.5 ENTIRE AGREEMENT; NO THIRD PARTY BENEFICIARIES.................... A-38
8.6 GOVERNING LAW..................................................... A-38
8.7 SEVERABILITY...................................................... A-38
8.8 ASSIGNMENT........................................................ A-38
8.9 SUBMISSION TO JURISDICTION; WAIVERS............................... A-39
8.10 ENFORCEMENT....................................................... A-39
8.11 DEFINITIONS....................................................... A-39
8.12 OTHER AGREEMENTS.................................................. A-40
</TABLE>
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<PAGE>
LIST OF EXHIBITS
<TABLE>
<CAPTION>
Exhibit Title
------- -----
<C> <S>
A Form of Stock Option Agreement
1.9 Form of Voting Agreement
3.1(k) Form of Affiliate Agreement
4.5 Services Agreement Term Sheet
5.2 Classification of Directors
5.6 Assumption of Frontier Stock Options and Frontier Warrants
</TABLE>
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<PAGE>
GLOSSARY OF DEFINED TERMS
Definition Location
of
Definition
Acquisition Proposal................................................ Section 5.5
Affiliate Agreement.............................................. Section 3.1(k)
Agreement.............................................................. Preamble
Alternative Merger.............................................. Section 1.10(a)
Alternative Merger Notice....................................... Section 1.10(a)
Alternative Merger Notice Date.................................. Section 1.10(a)
Amalgamation Agreement..................................... Section 1.10(j)(iii)
Applicable Closing Conditions................................... Section 8.11(a)
Average Price.................................................... Section 1.8(a)
Blue Sky Laws............................................... Section 3.1(c)(iii)
Board of Directors.............................................. Section 8.11(b)
Business Day.................................................... Section 8.11(c)
Cash Top-Up...................................................... Section 7.1(g)
Cash Top-Up Election............................................. Section 7.1(g)
Certificate...................................................... Section 1.8(b)
Closing............................................................. Section 1.2
Closing Date........................................................ Section 1.2
Code................................................................... Recitals
Combination Election............................................. Section 7.1(g)
Combined Voting Power........................................... Section 8.11(d)
Communications Act.......................................... Section 3.1(c)(iii)
Confidentiality Agreement........................................... Section 5.3
Determination Date............................................... Section 1.8(a)
DOJ.............................................................. Section 5.4(b)
Effective Time...................................................... Section 1.3
Employees.................................................... Section 1.10(f)(i)
ERISA......................................................... Section 3.1(o)(i)
ERISA Affiliate............................................... Section 3.1(o)(i)
Exchange Act................................................ Section 3.1(c)(iii)
Exchange Agent...................................................... Section 2.1
Exchange Fund....................................................... Section 2.1
Exchange Ratio................................................... Section 1.8(a)
Expenses............................................................ Section 5.7
FCC......................................................... Section 3.1(c)(iii)
Form S-4......................................................... Section 5.1(a)
Frontier............................................................... Preamble
Frontier Affiliate Letter ........................................Section 3.1(k)
Frontier Benefit Plans .......................................Section 3.1(o)(i)
Frontier Board Approval.......................................... Section 3.1(f)
Frontier Common Stock.................................................. Recitals
Frontier Disclosure Schedule........................................ Section 3.1
Frontier Employees........................................... Section 1.10(f)(i)
Frontier Evaluation Period....................................... Section 7.1(g)
Frontier Financial Advisor....................................... Section 3.1(i)
Frontier Merger Sub............................................. Section 1.10(b)
Frontier Preferred Stock...................................... Section 3.1(b)(i)
Frontier SEC Reports.......................................... Section 3.1(d)(i)
Frontier Shareholders Meeting.................................... Section 5.1(b)
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<PAGE>
Frontier Stock Option Plans................................... Section 3.1(b)(i)
Frontier Stock Options........................................ Section 3.1(b)(i)
Frontier Sub.................................................. Section 3.1(d)(i)
Frontier Voting Debt......................................... Section 3.1(b)(ii)
Frontier Warrants............................................. Section 3.1(b)(i)
GAAP.......................................................... Section 3.1(d)(i)
Global .................................................................Preamble
Global Adjustment Election....................................... Section 7.1(g)
Global Benefit Plans............................................. Section 3.2(m)
Global Charter Amendment...................................... Section 3.2(c)(i)
Global Common Stock.................................................... Recitals
Global Disclosure Schedule.......................................... Section 3.2
Global Draft Disclosures..................................... Section 3.2(d)(ii)
Global Election Period........................................... Section 7.1(g)
Global Employees............................................. Section 1.10(f)(i)
Global Financial Advisor......................................... Section 3.2(h)
Global Holdings............................................... Section 3.2(d)(i)
Global Merger Sub............................................... Section 1.10(b)
Global SEC Reports............................................ Section 3.2(d)(i)
Global Shareholders Meeting...................................... Section 5.1(c)
Global Stock Option Plan...................................... Section 3.2(b)(i)
Global Transaction Information............................... Section 3.2(d)(ii)
Global Voting Debt........................................... Section 3.2(b)(ii)
Global Warrants............................................... Section 3.2(b)(i)
Governmental Entity ........................................ Section 3.1(c)(iii)
HSR Act..................................................... Section 3.1(c)(iii)
Joint Proxy Statement/Prospectus ................................ Section 5.1(a)
Material Adverse Effect ........................................ Section 8.11(e)
Material Network Contract ...................................... Section 8.11(f)
Merger ................................................................ Recitals
Merger Consideration ............................................ Section 1.8(a)
Merger Sub ............................................................ Preamble
NASDAQ .......................................................... Section 1.8(a)
New Global ..................................................... Section 1.10(b)
New Global Common Stock ..................................... Section 1.10(c)(i)
New Global Share Issuance .................................. Section 1.10(h)(ii)
New York Certificate of Merger ..................................... Section 1.3
NYBCL .............................................................. Section 1.1
NYSE ....................................................... Section 3.1(c)(iii)
Person ......................................................... Section 8.11(g)
Plans ....................................................... Section 1.10(f)(i)
Principal Shareholders ................................................ Recitals
PUCs ....................................................... Section 3.1(c)(iii)
Regulatory Law .................................................. Section 5.4(b)
Required Consents .......................................... Section 3.1(c)(iii)
Required Frontier Vote .......................................... Section 3.1(g)
Required Global Vote ............................................ Section 3.2(g)
Rights ....................................................... Section 3.1(b)(i)
Rights Agreement ............................................. Section 3.1(b)(i)
Rule 145 ........................................................ Section 3.1(k)
SAS 72 ............................................................ Section 5.11
SEC .......................................................... Section 3.1(d)(i)
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<PAGE>
Securities Act ............................................. Section 3.1(c)(iii)
Share Issuance ............................................... Section 3.2(c)(i)
Stock Option Agreement ................................................ Recitals
Subsidiary ..................................................... Section 8.11(h)
Superior Proposal .............................................. Section 8.11(i)
Surviving Corporation .............................................. Section 1.1
Termination Date ................................................ Section 7.1(b)
Termination Fee ................................................. Section 7.2(b)
Termination Notice .............................................. Section 7.1(g)
The Other Party ................................................ Section 8.11(j)
The Trigger Event .............................................. Section 8.11(k)
Violation ................................................... Section 3.1(c)(ii)
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<PAGE>
AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER, dated as of March 16, 1999 (this "Agreement"),
among Global Crossing Ltd., a company formed under the laws of Bermuda
("Global"), GCF Acquisition Corp., a New York corporation and a direct wholly-
owned subsidiary of Global ("Merger Sub"), and Frontier Corporation, a New York
corporation ("Frontier").
W I T N E S S E T H
WHEREAS, the respective Boards of Directors of Global, Merger Sub and
Frontier have each determined that the merger of Merger Sub with and into
Frontier (the "Merger") is in the best interests of their respective
shareholders, and such Boards of Directors have approved such Merger and the
Alternative Merger (as defined in Section 1.10), upon the terms and subject to
the conditions set forth in this Agreement, pursuant to which each outstanding
share of common stock, par value $1.00 per share, of Frontier ("Frontier Common
Stock") issued and out standing immediately prior to the Effective Time (as
defined in Section 1.3), other than shares owned or held directly or indirectly
by Global or directly by Frontier will be converted into the right to receive
shares of common stock, par value $.01 per share, of Global ("Global Common
Stock") as set forth in Section 1.8 or as otherwise provided in Section 1.10
hereof;
WHEREAS, Global, Merger Sub and Frontier desire to make certain
representations, warranties, covenants and agreements in connection with the
transactions contemplated hereby and also to prescribe various conditions to
the transactions contemplated hereby;
WHEREAS, Global, Merger Sub and Frontier intend, by approving resolutions
authorizing this Agreement, to adopt this Agreement as a plan of reorganization
within the meaning of Section 368(a) of the Internal Revenue Code of 1986, as
amended (the "Code"), and the regulations promulgated thereunder;
WHEREAS, the Boards of Directors of Frontier and Global have approved and
concurrently with the execution of this Agreement Frontier and Global will
execute an Agreement in the form attached hereto as Exhibit A (the "Stock
Option Agreement") whereby Frontier will grant Global an option to purchase
shares of Frontier Common Stock upon the terms and conditions provided in such
agreement;
WHEREAS, concurrently herewith certain shareholders of Global (collectively,
the "Principal Shareholders") have agreed to vote their shares in favor of the
transactions contemplated hereby pursuant to the Voting Agreement (as defined
in Section 1.9); and
NOW, THEREFORE in consideration of the foregoing and the respective
representations, warranties, covenants and agreements set forth herein, and
intending to be legally bound hereby, the parties hereto agree as follows:
ARTICLE I
THE MERGER
1.1 The Merger. Upon the terms and subject to the conditions set forth in
this Agreement, and in accordance with the New York Business Corporation Law
(the "NYBCL"), Merger Sub shall be merged with and into Frontier at the
Effective Time. Following the Merger, the separate corporate existence of
Merger Sub shall cease and Frontier shall continue as the surviving corporation
(the "Surviving Corporation").
1.2 Closing. The closing of the Merger (the "Closing") will take place on the
second Business Day after the satisfaction or waiver (subject to applicable
law) of the conditions (excluding conditions that, by their terms, cannot be
satisfied until the Closing Date) set forth in Article VI (the "Closing Date");
provided,
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<PAGE>
however, that if the Average Price is less than $34.5625, then the Closing
shall not occur prior to (i) if Frontier shall not deliver a Termination Notice
(as defined in Section 7.1(g)) to Global in accordance with Section 7.1(g), the
second Business Day following the expiration of the Frontier Evaluation Period
(as defined in Section 7.1(g)), or (ii) if Frontier shall deliver a Termination
Notice to Global in accordance with Section 7.1(g), the second Business Day
following the earlier of (A) Global's delivery of a Global Adjustment Election,
a Cash Top-Up Election or a Combination Election (in each case, as defined in
Section 7(g)) and (B) the expiration of the Global Election Period, in all
cases, unless another time or date is agreed to by the parties hereto. The
Closing shall be held at the offices of Skadden, Arps, Slate, Meagher & Flom
LLP, 919 Third Avenue, New York, New York 10022, unless another place is agreed
to by the parties hereto.
1.3 Effective Time. As soon as practicable following the Closing, the parties
shall (i) file a certificate of merger (the "New York Certificate of Merger")
in such form as is required by and executed in accordance with the relevant
provisions of the NYBCL and (ii) make all other filings or record required
under the NYBCL. The Merger shall become effective at such time as the New York
Certificate of Merger is duly filed with the New York Department of State in
accordance with Section 904 of the NYBCL or at such subsequent time as Global
and Frontier shall agree and as shall be specified in the New York Certificate
of Merger (the date and time the Merger becomes effective being the "Effective
Time").
1.4 Effects of the Merger. At and after the Effective Time, the Merger will
have the effects set forth in Section 906 of the NYBCL. Without limiting the
generality of the foregoing, and subject thereto, at the Effective Time all the
property, rights, privileges, powers and franchises of Frontier and Merger Sub
shall be vested in the Surviving Corporation, and all debts, liabilities and
duties of Frontier and Merger Sub shall become the debts, liabilities and
duties of the Surviving Corporation.
1.5 Certificate of Incorporation. At the Effective Time, the certificate of
incorporation of the Surviving Corporation shall be amended in accordance with
the NYBCL such that the certificate of incorporation of the Surviving
Corporation shall consist of the provisions of the certificate of incorporation
of Merger Sub.
1.6 By-Laws. The by-laws of Merger Sub as in effect at the Effective Time
shall be the by-laws of the Surviving Corporation until thereafter changed or
amended as provided therein or by applicable law.
1.7 Officers and Directors of Surviving Corporation. The officers of Frontier
as of the Effective Time shall be the officers of the Surviving Corporation,
until the earlier of their resignation or removal or otherwise ceasing to be an
officer or until their respective successors are duly elected and qualified, as
the case may be. The directors of Merger Sub as of the Effective Time shall be
the directors of the Surviving Corporation until the earlier of their
resignation or removal or otherwise ceasing to be a director or until their
respective successors are duly elected and qualified.
1.8 Effect on Capital Stock.
(a) At the Effective Time by virtue of the Merger and without any action on
the part of the holder thereof, each share of Frontier Common Stock issued and
outstanding immediately prior to the Effective Time (other than shares of
Frontier Common Stock owned or held directly or indirectly by Global or
directly by Frontier, all of which shall be canceled as provided in Section
1.8(c)) shall, except as provided in Section 7.1(g), be converted into the
right to receive that number of shares of Global Common Stock equal to the
Exchange Ratio (as defined below) (the "Merger Consideration"). "Exchange
Ratio" means the quotient (rounded to the nearest 1/10,000) determined by
dividing $62.00 by the Average Price as defined below. "Average Price" means
the average (rounded to the nearest 1/10,000) of the volume weighted averages
(rounded to the nearest 1/10,000) of the trading prices of Global Common Stock
on the Nasdaq National Market ("NASDAQ"), as reported by Bloomberg Financial
Markets (or such other source as the parties shall agree in writing), for the
15 trading days randomly selected by lot by Frontier and Global together from
the 30 consecutive trading days ending on the trading day immediately preceding
the date on which all the conditions to Closing (other than conditions that, by
their terms, cannot be satisfied until the Closing Date so long as it is
reasonably apparent
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<PAGE>
that such conditions will be able to be satisfied on the Closing Date) set
forth in Article VI shall have been satisfied or waived (the "Determination
Date"); provided, that the Exchange Ratio shall not be less than 1.0919, or,
unless Global shall have exercised its rights to make a Global Adjustment
Election or a Combination Election under Section 7.1(g), greater than 1.7939.
If prior to the Effective Time, Global should split or combine the shares of
Global Common Stock, or pay a stock dividend or other stock distribution in
shares of Global Common Stock, or otherwise change the shares of Global Common
Stock into any other securities, or make any other dividend or distribution on
the shares of Global Common Stock, then the Exchange Ratio will be
appropriately adjusted to reflect such split, combination, dividend or other
distribution or change.
(b) As a result of the Merger and without any action on the part of the
holders thereof, at the Effective Time, all shares of Frontier Common Stock
shall cease to be outstanding and shall be canceled and retired and shall cease
to exist, and each holder of a certificate which immediately prior to the
Effective Time represented any such shares of Frontier Common Stock (a
"Certificate") (other than Merger Sub, Global and Frontier) shall thereafter
cease to have any rights with respect to such shares of Frontier Common Stock,
except the right to receive the applicable Merger Consideration in accordance
with Article II upon the surrender of such certificate.
(c) Each share of Frontier Common Stock issued and owned or held directly or
indirectly by Global or directly by Frontier at the Effective time shall, by
virtue of the Merger, cease to be outstanding and shall be canceled and retired
and no stock of Global or other consideration shall be delivered in exchange
therefor.
(d) Each share of common stock, par value $1.00 per share, of Merger Sub
issued and outstanding immediately prior to the Effective Time shall forthwith
cease to exist and shall be converted into one validly issued, fully paid and
non-assessable share of common stock, par value $1.00 per share, of the
Surviving Corporation as of the Effective Time.
1.9 Voting Agreement. Concurrently with the execution and delivery of this
Agreement, Frontier and the Principal Shareholders are executing and delivering
an agreement substantially in the form of Exhibit 1.9 hereto, pursuant to
which, among other things, the Principal Shareholders are agreeing to vote all
of the shares of Global Common Stock owned, beneficially or of record, by them
to approve the Share Issuance and the Global Charter Amendment (in each case,
as defined in Section 3.2(c)(i)) and such shares in the aggregate constitute,
and at the record date for the Global Shareholders Meeting (as defined in
Section 5.1(d)), will constitute at least 51% of the Combined Voting Power (as
defined in Section 8.11).
1.10 Alternative Transaction Structure.
(a) Alternative Merger Notice. Frontier shall be entitled to give Global a
notice to adopt the alternative merger structure (the "Alternative Merger") as
described in Section 1.10(b) (the "Alternative Merger Notice") if (i) the
Applicable Closing Conditions (as defined in Section 8.11) have been satisfied,
(ii) a Trigger Event (as defined in Section 8.11) has not occurred or is no
longer in effect for any reason, and (iii) at least 180 days have passed since
the date of this Agreement; provided, however, that if a Trigger Event occurs
between 180 days and 240 days after the date of this Agreement, the Alternative
Merger Structure Notice shall be deemed terminated if the Form S-4 which
contains the Joint Proxy Statement/Prospectus (as defined in Section 5.1)
relating to the Merger could be declared effective by the SEC under the
Securities Act at an earlier time than the Form S-4 which contains the Joint
Proxy Statement/Prospectus relating to the Alternative Merger. Unless the
parties otherwise agree, without action on the part of either Global or
Frontier, an Alternative Merger Notice shall be deemed to have been given on
the date that is 240 days after the date of this Agreement, provided that if a
Trigger Event has not occurred or is no longer in effect for any reason, or, if
a Trigger Event had occurred, on the later date that such Trigger Event is no
longer in effect for any reason. In the event an Alternative Merger Notice is
given or deemed to have been given (the "Alternative Merger Notice Date"), the
Merger contemplated by Section 1.1 of this Agreement shall be restructured in
the manner set forth in this Section 1.10. In such event, all references to the
term "Merger" in this Agreement shall be deemed references
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<PAGE>
to the transactions contemplated by this Section 1.10, all references to the
term "Effective Time" in this Agreement shall be deemed references to the time
at which (i) the certificate of merger is duly filed with the New York
Department of State in accordance with Section 904 of the NYBCL and (ii) the
registration of an amalgamated company and such other documents as are required
by the Companies Act 1981 Bermuda in connection with the merger are duly filed
with the Registrar of Companies Bermuda (or at such later time as is specified
in the certificate of merger) with respect to the Merger as restructured in the
manner contemplated by this Section 1.10 and except as provided below, Sections
1.8 and 2.5 shall no longer be of any force or effect and the provisions of
this Section 1.10 shall govern the terms of the Merger. In the event that the
Alternative Merger Notice is given or deemed to be given, references to the
term Merger shall be deemed to be a reference to the Alternative Merger.
(b) The Alternative Merger. In the event an Alternative Merger Notice is
given or deemed to have been given, New Global corporation, a Delaware
corporation ("New Global"), will promptly be formed by and owned equally by
Global and Frontier. Global and Frontier will cause New Global to become a
party to this Agreement. Prior to the Effective Time of the Alternative Merger,
Global and Frontier will cause New Global to incorporate two wholly owned
subsidiaries ("Global Merger Sub", a Bermuda company and "Frontier Merger Sub",
a New York corporation). At the Effective Time of the Alternative Merger,
(i) Global Merger Sub shall be amalgamated with and into Global in accordance
with the Companies Act of 1981 of Bermuda whereupon the separate existence of
Global Merger Sub shall cease, and Global shall continue in the form of the
amalgamated company, and (ii) Frontier Merger Sub shall be merged with and into
Frontier in accordance with New York Law, whereupon the separate existence of
Frontier Merger Sub shall cease, and Frontier shall be the surviving
corporation. Frontier and Global are sometimes referred to herein as the
"Surviving Corporations".
(c) Effect of Alternative Merger on Capital Stock.
(i) At the Effective Time of the Alternative Merger, (A) each share of
Frontier Common Stock outstanding immediately prior to such Effective Time
shall, except as otherwise provided below, be converted into the right to
receive that number of shares of New Global Common Stock, par value $.01 per
share (the "New Global Common Stock"), equal to the Exchange Ratio (as defined
in section 1.8(a)) and (B) each share of Global Common Stock outstanding
immediately prior to such Effective Time shall be converted into the right to
receive 1.0 share of New Global Common Stock. For purposes of the immediately
preceding sentence, any cash transferred to the Frontier shareholders pursuant
to the Cash Top-Up Election or the Combination Election shall be paid by New
Global.
(ii) As a result of the Alternative Merger and without any action on the part
of the holders thereof, at the Effective Time, all shares of Frontier Common
Stock and Global Common Stock shall cease to be outstanding and shall be
canceled and retired and shall cease to exist, and each holder of a certificate
which immediately prior to the Effective Time represented any such shares of
Frontier Common Stock or Global Common Stock (a "Certificate") (other than New
Global, Global Merger Sub, Frontier Merger Sub, Global and Frontier) shall
thereafter cease to have any rights with respect to such shares of Frontier
Common Stock or Global Common Stock, except the right to receive the applicable
Merger Consideration upon the surrender of such certificate.
(iii) Each share of Frontier Common Stock issued and owned or held directly
or indirectly by Global or directly by Frontier at the Effective Time and each
Share of Global Common Stock issued and owned or held directly or indirectly by
Frontier or directly by Global at the Effective Time shall, by virtue of the
Alternative Merger, cease to be outstanding and shall be canceled and retired
and no stock of New Global or other consideration shall be delivered in
exchange therefor.
(iv) Each share of common stock of Global Merger Sub or Frontier Merger Sub
issued and outstanding immediately prior to the Effective Time shall forthwith
cease to exist and shall be converted into one validly issued, fully paid and
non-assessable share of common stock of the respective surviving corporation as
of the Effective Time.
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<PAGE>
(d) Merger Consideration. The New Global Common Stock to be received as
consideration in the Alternative Merger by holders of Global Common Stock or
Frontier Common Stock is referred to herein as the "Merger Consideration".
(e) Assumption of Stock Options and Warrants. New Global shall assume the
Frontier Stock Options and Frontier Warrants (as defined in Section 3.1(b)) and
the Global Stock Options and Global Warrants (as defined in Section 3.2(b)) on
the terms set forth in Exhibits 5.6(i) and (ii) hereto respectively. Frontier
and Global agree that each of the company's other stock plans and treatment of
each of the company's officers and employees shall be as set forth in the
respective exhibits. Frontier and Global shall take all such steps as may be
required to cause the transactions contemplated by this Section 1.10(e) and any
other dispositions of Frontier and Global equity securities (including
derivative securities) or acquisitions of New Global equity securities
(including derivative securities) in connection with this Agreement by each
individual who (x) is a director or officer of Frontier or Global or (y) at the
Effective Time, will become a director or officer of New Global, to be exempt
under Rule 16b-3 promulgated under the Securities Exchange Act of 1934, as
amended, such steps to be taken in accordance with the No-Action Letter dated
January 12, 1999, issued by the SEC to Skadden, Arps, Slate, Meagher & Flom
LLP.
(f) Employee Benefits.
(i) Obligations of New Global; Comparability of Benefits. Each Frontier
and Global Benefit Plan as to which Frontier or Global or any of their
respective Subsidiaries has any obligation with respect to any current or
former employee (the "Frontier Employees" and the "Global Employees"
together the "Employees") shall, as of the Effective Time, be the
obligations of New Global and the respective Surviving Corporations. At the
Effective Time and for at least two years thereafter, New Global shall, or
shall cause the respective Surviving Corporations to, provide benefits, in
the aggregate, that are no less favorable than the benefits provided, in
the aggregate, under Frontier's and Global's respective Benefit Plans (the
"Plans") to the Employees immediately prior to the Effective Time.
Notwithstanding the foregoing, nothing herein shall require (A) the
continuation of any particular Plan or prevent the amendment or termination
thereof (subject to the maintenance, in the aggregate, of the benefits as
provided in the preceding sentence) or (B) New Global or the respective
Surviving Corporations to continue or maintain any stock purchase or other
equity plan related to the equity of Frontier or Global or the respective
Surviving Corporations.
(ii) Pre-Existing Limitations; Deductible; Service Credit. With respect
to any New Global Benefit Plans in which the Employees participate
effective as of the Closing Date or thereafter, New Global shall, or shall
cause each of the Surviving Corporations to: (A) not impose any limitations
more onerous than those currently in effect as to pre-existing conditions,
exclusions and waiting periods with respect to participation and coverage
requirements applicable to the Employees under any welfare New Global
Benefit Plan in which such Employees may be eligible to participate after
the Effective Time, (B) provide each Employee with credit for any co-
payments and deductibles paid prior to the Effective Time in satisfying any
applicable deductible or out-of-pocket requirements under any welfare New
Global Benefit Plan in which such employees may be eligible to participate
after the Effective Time, and (C) recognize all service of the Employees
with Frontier and Global respectively for all purposes (including, without
limitation, purposes of eligibility to participate, vesting credit,
entitlement for benefits, and benefit accrual) in any New Global Benefit
Plan in which such employees may be eligible to participate after the
Effective Time, to the same extent taken into account under a comparable
Frontier or Global Plan immediately prior to the Closing Date.
(g) No Fractional Shares of New Global Common Stock.
(i) No certificates or scrip for shares of New Global Common Stock
representing fractional shares of New Global Common Stock shall be issued
upon the surrender for exchange of Certificates and such fractional share
interests will not entitle the owner thereof to vote or to have any rights
of a share holder of New Global or a holder of shares of New Global Common
Stock.
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(ii) Notwithstanding any other provision of this Agreement, each holder
of shares of Frontier Common Stock exchanged pursuant to the Alternative
Merger who would otherwise have been entitled to receive a fraction of a
share of New Global Common Stock (after taking into account all
Certificates delivered by such holder) shall receive, in lieu thereof, cash
(without interest) in an amount equal to the product of (A) such fractional
part of a share of New Global Common Stock multiplied by (B) the last sales
price per share of Global Common Stock reported on NASDAQ as reported in
The Wall Street JournaL, Eastern edition, on the Closing Date. As promptly
as practicable after the determination of the amount of cash, if any, to be
paid to holders of fractional interests, the Exchange Agent shall notify
New Global, and New Global shall cause the surviving corporation to deposit
such amount with the Exchange Agent and shall cause the Exchange Agent to
forward payments to such holders of fractional interests subject to and in
accordance with the terms hereof.
(h) Representations and Warranties of New Global. Immediately prior to the
Effective Time of the Alternative Merger, New Global will become a party to
this Agreement and make the following representa tions and warranties to each
of Global and Frontier:
(i) Organization, Standing and Power. At the Effective Time, New Global
will be a corporation duly organized, validly existing and in good standing
under the laws of its jurisdiction of incorporation or organization, and
will have all requisite power and authority to own, lease and operate its
properties and to carry on its business as now being conducted by Frontier
and Global and will be duly qualified and in good standing to do business
in each jurisdiction in which the nature of its business or the ownership
or leasing of its properties makes such qualification necessary other than
in such jurisdictions where the failure so to qualify or to be in good
standing would not, either individually or in the aggregate, reasonably be
expected to have a Material Adverse Effect on New Global.
(ii) Authority; No Conflicts
(A) At the Effective Time, New Global will have all requisite
corporate power and authority to enter into this Agreement and to
consummate the transactions contemplated hereby, subject, in the case
of the issuance of the shares of New Global Common Stock to be issued
in the Merger (the "New Global Share Issuance") and the New Global
certificate of incorporation will provide for authorized shares of New
Global Common Stock of not less than 2 billion shares. The execution
and delivery of this Agreement and the consum mation of the
transactions contemplated hereby will be duly authorized by all
necessary corporate action on the part of New Global. This Agreement
will be duly executed and delivered by New Global and will constitute a
valid and binding agreement of New Global, enforceable against it in
accordance with its terms, except as such enforceability may be limited
by bankruptcy, insolvency, reorganization, moratorium and similar laws
relating to or affecting creditors generally, by general equity
principles (regardless of whether such enforceability is considered in
a proceeding in equity or at law) or by an implied covenant of good
faith and fair dealing.
(B) At the Effective Time, the execution and delivery of this
Agreement by New Global will not, and the consummation by New Global of
the Alternative Merger and the other transactions contemplated hereby
will not, conflict with, or result in a Violation (as defined in
Section 3.1(c)(ii)) pursuant to: (x) any provision of the certificate
of incorporation or by-laws of New Global or any charter document of
any Subsidiary of New Global, or (y) except as would not, individually
or in the aggregate, reasonably be expected to have a Material Adverse
Effect on New Global, subject to obtaining or making the consents,
approvals, orders, authorizations, registrations, declarations and
filings referred to in paragraph (C) below, any loan or credit
agreement, note, mortgage, bond, indenture, lease, benefit plan or
other agreement, obligation, instrument, permit, concession, franchise,
license, judgment, order, decree, statute, law, ordinance, rule or
regulation applicable to New Global or any Subsidiary of New Global or
their respective properties or assets.
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(C) At the Effective Time, no consent, approval, order or
authorization of, or registration, declaration or filing with, any
Governmental Entity will be required by or with respect to New Global
or any Subsidiary of New Global in connection with the execution and
delivery of this Agreement by New Global or the consummation of the
Alternative Merger and the other transactions contemplated hereby,
except for the Required Consents, and such consents, approvals, orders,
authorizations, registrations, declarations and filings the failure of
which to make or obtain would not, individually or in the aggregate,
reasonably be expected to have a Material Adverse Effect on New Global.
(iii) Board Approval. At the Effective Time, the Board of Directors of
New Global, by resolutions duly adopted at a meeting duly called and held
and not subsequently rescinded or modified in any way, will duly (A)
determine that this Agreement and the Alternative Merger are in the best
interests of New Global and its shareholders, and (B) approve this
Agreement, the Alternative Merger and the issuance of shares of New Global
Common Stock, and (C) recommend that the shareholders of New Global approve
this Agreement and the issuance of shares of New Global Common Stock in the
Alternative Merger.
(iv) Shareholder Vote. Global and Frontier as the holders of all of the
outstanding shares of New Global Common Stock shall vote to approve this
Agreement and the issuance of shares of New Global Common Stock in the
Alternative Merger.
(i) Covenants of Global and Frontier. Prior to the Effective Time of the
Alternative Merger, Global and Frontier shall ensure that New Global, Global
Merger Sub and Frontier Merger Sub take no actions and undertake no operations
except as may be necessary in connection with the consummation of the Merger
and the transactions contemplated hereby.
(j) Modifications to Agreement.
(i) At the time of the Alternative Merger Notice Date, and without any
further action on the part of either Frontier or Global, a new Section
6.2(e) and 6.3(d) to this Agreement will be added as follows:
"New Global shall have performed in all material respects all of its
obligations hereunder required to be performed by it at or prior to the
Effective Time, and the representations and warranties of New Global
shall be accurate in all material respects at and as of the Effective
Time."
and a new Section 6.1(h) will be added as follows:
"The shares of New Global Common Stock to be issued in the
Alternative Merger and such other shares to be reserved for issuance in
the Alterna tive Merger shall have been approved upon official notice
of issuance for quotation on NASDAQ."
(ii) Global and Frontier agree that in the event of the Alternative
Merger Notice, any and all other appropriate adjustments shall be made to
the other terms and conditions of this Agreement to reflect the
transactions contemplated by this Section 1.10.
(iii) For the purposes of implementing the Alternative Merger, Global and
Global Merger Sub shall enter into an Amalgamation Agreement (the
"Amalgamation Agreement") in accordance with the laws of Bermuda for
presentation to and approval of the shareholders of Global and Global
Merger Sub.
(k) Listing of Shares of New Global Common Stock. New Global shall use its
best efforts to cause the shares of New Global Common Stock to be issued in the
Alternative Merger, and the shares of New Global Common Stock to be reserved
for issuance upon exercise of the Frontier Stock Options, the Frontier
Warrants, the Frontier Convertible Debt (as defined in Section 3.1(b)), and the
Global Stock Options and Warrants, to be approved for quotation, upon official
notice of issuance, on NASDAQ.
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ARTICLE II
EXCHANGE OF CERTIFICATES
2.1 Exchange Fund. Prior to the Effective Time, Global shall appoint First
Chicago Trust Company of New York or another commercial bank or trust company
having net capital of not less than $100,000,000, or a subsidiary thereof, to
act as exchange agent hereunder for the purpose of exchanging Certificates for
the Merger Consideration (the "Exchange Agent"). At or prior to the Effective
Time, Global shall deposit with the Exchange Agent, in trust for the benefit of
holders of shares of Frontier Common Stock, certificates representing the
Global Common Stock issuable pursuant to Section 1.8 in exchange for
outstanding shares of Frontier Common stock and, if applicable, cash to be paid
as a result of the Cash Top-Up pursuant to Section 7.1(g). Global agrees to
make available to the Exchange Agent from time to time as needed, cash
sufficient to pay cash in lieu of fractional shares pursuant to Section 2.5,
and any dividends and other distributions pursuant to Section 2.3. Any cash and
certificates of Global Common Stock deposited with the Exchange Agent shall
hereinafter be referred to as the "Exchange Fund."
2.2 Exchange Procedures. As soon as reasonably practicable after the
Effective Time, the Surviving Corporation shall cause the Exchange Agent to
mail to each holder of a Certificate (i) a letter of transmittal which shall
specify that delivery shall be effected, and risk of loss and title to the
Certificates shall pass, only upon delivery of the Certificates to the Exchange
Agent, and which letter shall be in customary form and have such other
provisions as Global may reasonably specify and (ii) instructions for effecting
the surrender of such Certificates in exchange for the applicable Merger
Consideration. Upon surrender of a Certificate to the Exchange Agent together
with such letter of transmittal, duly executed and completed in accordance with
the instructions thereto, and such other documents as may reasonably be
required by the Exchange Agent, the holder of such Certificate shall be
entitled to receive in exchange therefor (A) one or more certificates for
Global Common Stock representing, in the aggregate, the whole number of shares
that such holder has the right to receive pursuant to Section 1.8 (after taking
into account all shares of Frontier Common Stock then held by such holder) and
(B) a check in the amount equal to the cash that such holder has the right to
receive pursuant to the provisions of this Article II, including cash in lieu
of any fractional shares of Global Common Stock pursuant to Section 2.5, any
dividends and other distributions pursuant to Section 2.3 and any cash to be
paid as a result of a Cash Top-Up pursuant to Section 7.1(g). No interest will
be paid or will accrue on any cash payable pursuant to Section 2.3, Section 2.5
or as a result of a Cash Top-Up pursuant to Section 7.1(g). In the event of a
transfer of ownership of Frontier Common Stock which is not registered in the
transfer records of Frontier, certificates for one or more shares of Global
Common Stock evidencing, in the aggregate, the proper number of shares of
Global Common Stock and a check in the proper amount of cash in lieu of any
fractional shares of Global Common Stock pursuant to Section 2.5, any dividends
or other distributions to which such holder is entitled pursuant to Section
2.3, and as a result of a Cash Top-Up pursuant to Section 7.1(g) may be issued
with respect to such Frontier Common Stock to such a transferee if the
Certificate representing such shares of Frontier Common Stock is presented to
the Exchange Agent, accompanied by all documents required to evidence and
effect such transfer and to evidence that any applicable stock transfer taxes
have been paid.
2.3 Distributions with Respect to Unexchanged Shares. No dividends or other
distributions declared or made with respect to shares of Global Common Stock
with a record date after the Effective Time (if any) shall be paid to the
holder of an unsurrendered Certificate with respect to the shares of Global
Common Stock that such holder would be entitled to receive upon surrender of
such Certificate, no cash payment in lieu of fractional shares of Global Common
Stock shall be paid to any such holder pursuant to Section 2.5 and no cash
payment as a result of a Cash Top-Up pursuant to Section 7.1(g) shall be paid
to any such holder, until such holder shall surrender such Certificate in
accordance with Section 2.2. Subject to the effect of applicable laws,
following surrender of any such Certificate, there shall be paid to such holder
of shares of Global Common Stock issuable in exchange therefor, without
interest, (a) promptly after the time of such surrender, the amount of any cash
payable in lieu of fractional shares of Global Common Stock to which such
holder is entitled pursuant to Section 2.5, the amount of any dividends or
other distributions with a record date after the Effective Time theretofore
paid with respect to such whole shares of Global Common Stock and any cash
payment as a
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result of a Cash Top-Up pursuant to Section 7.1(g), and (b) at the appropriate
payment date, the amount of any dividends or other distributions with a record
date after the Effective Time but prior to such surrender and a payment date
subsequent to such surrender payable with respect to such shares of Global
Common Stock.
2.4 No Further Ownership Rights in Frontier Common Stock. All shares of
Global Common Stock issued and cash paid upon conversion of shares of Frontier
Common Stock in accordance with the terms of Article I and this Article II
(including any cash paid pursuant to Section 2.3, 2.5 or as a result of a Cash
Top-Up pursuant to Section 7.1(g)) shall be deemed to have been issued or paid
in full satisfaction of all rights pertaining to the shares of Frontier Common
Stock.
2.5 No Fractional Shares of Global Common Stock.
(a) No certificates or scrip for shares of Global Common Stock representing
fractional shares of Global Common Stock shall be issued upon the surrender for
exchange of Certificates and such fractional share interests will not entitle
the owner thereof to vote or to have any rights of a shareholder of Global or a
holder of shares of Global Common Stock.
(b) Notwithstanding any other provision of this Agreement, each holder of
shares of Frontier Common Stock exchanged pursuant to the Merger who would
otherwise have been entitled to receive a fraction of a share of Global Common
Stock (after taking into account all Certificates delivered by such holder)
shall receive, in lieu thereof, cash (without interest) in an amount equal to
the product of (i) such fractional part of a share of Global Common Stock
multiplied by (ii) the last sales price per share of Global Common Stock
reported on NASDAQ as reported in The Wall Street Journal, Eastern edition, on
the Closing Date. As promptly as practicable after the determination of the
amount of cash, if any, to be paid to holders of fractional interests, the
Exchange Agent shall notify Global, and Global shall cause the Surviving
Corporation to deposit such amount with the Exchange Agent and shall cause the
Exchange Agent to forward payments to such holders of fractional interests
subject to and in accordance with the terms hereof.
2.6 Termination of Exchange Fund. Any portion of the Exchange Fund which
remains undistributed to the holders of Certificates for twelve months after
the Effective Time shall be delivered to the Surviving Corporation or otherwise
on the instruction of the Surviving Corporation, and any holders of the
Certificates who have not theretofore complied with this Article II shall
thereafter look only to the Surviving Corporation and Global for the Merger
Consideration with respect to the shares of Frontier Common Stock formerly
represented thereby to which such holders are entitled pursuant to Section 1.8
and Section 2.2, any cash in lieu of fractional shares of Global Common Stock
to which such holders are entitled pursuant to Section 2.5, any dividends or
distributions with respect to shares of Global Common Stock to which such
holders are entitled pursuant to Section 2.3 and any cash payment as a result
of a Cash Top-Up pursuant to Section 7.1(g).
2.7 No Liability. None of Global, Merger Sub, Frontier, the Surviving
Corporation or the Exchange Agent shall be liable to any Person in respect of
any Merger Consideration from the Exchange Fund delivered to a public official
pursuant to any applicable abandoned property, escheat or similar law.
2.8 Investment of the Exchange Fund. Except as provided below, the Exchange
Agent shall invest any cash included in the Exchange Fund as directed by the
Surviving Corporation on a daily basis. If Global exercises the Cash Top-Up
Election pursuant to Section 7.1(g), then the Exchange Agent shall invest the
cash included in the Exchange Fund only in one or more of the following
investments as directed by the Surviving Corporation from time to time in (a)
obligations of the United States government maturing not more than 180 days
after the date of purchase; (b) certificates of deposit maturing not more than
180 days after the date of purchase issued by a bank organized under the laws
of the United States or any state thereof having combined capital and surplus
of at least $500,000,000; (c) a money market fund having assets of at least
$3,000,000,000; or (d) tax-exempt or corporate debt obligations maturing not
more than 180 days after the date of purchase given the highest investment
grade rating by Standard & Poor's and Moody's Investor Service. Any interest
and other income resulting from such investments shall promptly be paid to the
Surviving Corporation.
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2.9 Lost Certificates. If any Certificate shall have been lost, stolen or
destroyed, upon the making of an affidavit of that fact by the Person claiming
such Certificate to be lost, stolen or destroyed and, if required by the
Surviving Corporation, the posting by such Person of a bond in such reasonable
amount as the Surviving Corporation may direct as indemnity against any claim
that may be made against it with respect to such Certificate, the Exchange
Agent will deliver in exchange for such lost, stolen or destroyed Certificate
the applicable Merger Consideration with respect to the shares of Frontier
Common Stock formerly represented thereby, any cash in lieu of fractional
shares of Global Common Stock, and unpaid dividends and distributions on shares
of Global Common Stock deliverable in respect thereof, pursuant to this
Agreement.
2.10 Withholding Rights. Each of the Surviving Corporation and Global shall
be entitled to deduct and withhold from the consideration otherwise payable
pursuant to this Agreement to any holder of shares of Frontier Common Stock
such amounts as it is required to deduct and withhold with respect to the
making of such payment under the Code and the rules and regulations promulgated
thereunder, or any provision of state, local or foreign tax law. To the extent
that amounts are so withheld by the Surviving Corporation or Global, as the
case may be, such withheld amounts shall be treated for all purposes of this
Agreement as having been paid to the holder of the shares of Frontier Common
Stock in respect of which such deduction and withholding was made by the
Surviving Corporation or Global, as the case may be.
2.11 Further Assurances. At and after the Effective Time, the officers and
directors of the Surviving Corporation will be authorized to execute and
deliver, in the name and on behalf of Frontier or Merger Sub, any deeds, bills
of sale, assignments or assurances and to take and do, in the name and on
behalf of Frontier or Merger Sub, any other actions and things to vest, perfect
or confirm of record or otherwise in the Surviving Corporation any and all
right, title and interest in, to and under any of the rights, properties or
assets acquired or to be acquired by the Surviving Corporation as a result of,
or in connection with, the Merger.
2.12 Stock Transfer Books. At the close of business, New York City time, on
the day the Effective Time occurs, the stock transfer books of Frontier shall
be closed and there shall be no further registration of transfers of shares of
Frontier Common Stock thereafter on the records of Frontier. From and after the
Effective Time, the holders of Certificates shall cease to have any rights with
respect to such shares of Frontier Common Stock formerly represented thereby,
except as otherwise provided herein or by law. On or after the Effective Time,
any Certificates presented to the Exchange Agent, the Surviving Corporation or
Global for any reason shall be converted into the Merger Consideration with
respect to the shares of Frontier Common Stock formerly represented thereby,
any cash in lieu of fractional shares of Global Common Stock to which the
holders thereof are entitled pursuant to Section 2.5, any dividends or other
distributions to which the holders thereof are entitled pursuant to Section 2.3
and any cash payment as a result of a Cash Top-Up pursuant to Section 7.1(g).
ARTICLE III
REPRESENTATIONS AND WARRANTIES
3.1 Representations and Warranties of Frontier. Except as set forth in the
Frontier Disclosure Schedule delivered by Frontier to Global prior to the
execution of this Agreement (the "Frontier Disclosure Schedule"), Frontier
represents and warrants to Global as follows:
(a) Organization, Standing and Power. Each of Frontier and each of its
Subsidiaries is a corporation duly organized, validly existing and in good
standing under the laws of its jurisdiction of incorporation or organization,
has all requisite power and authority to own, lease and operate its properties
and to carry on its business as now being conducted and is duly qualified and
in good standing to do business in each jurisdiction in which the nature of its
business or the ownership or leasing of its properties makes such qualification
necessary other than in such jurisdictions where the failure so to qualify or
to be in good standing would not, individually or in the aggregate, reasonably
be expected to have a Material Adverse Effect (as defined in Section 8.11) on
Frontier. The copies of the restated certificate of incorporation and by-laws
of Frontier which
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were previously furnished to Global are true, complete and correct copies of
such documents as in effect on the date of this Agreement.
(b) Capital Structure.
(i) As of March 12, 1999, the authorized capital stock of Frontier
consisted of (A) 300,000,000 shares of Frontier Common Stock, of which
172,321,329 shares were outstanding, (B) 850,000 shares of Cumulative
Preferred Stock, par value $100 per share, of which 53,067 shares of
Cumulative Preferred Stock, 5% Series, 38,492 shares of Cumulative
Preferred Stock, Second 5% Series, 48,044 shares of Cumulative Preferred
Stock, 5.65% Series, 41,514 shares of Cumulative Preferred Stock, 4.60%
Series (collectively, the "Frontier Preferred Stock") and no shares of
Convertible Preferred Stock, 5% Series were outstanding, (C) 4,000,000
shares of Class A Preferred Stock, par value $100 per share, of which no
shares were outstanding, and (D) 3,000,000 shares of Junior Participating
Class A Preferred Stock which were reserved for issuance upon exercise of
the rights (the "Rights") distributed to the holders of Frontier Common
Stock pursuant to the Rights Agreement, dated as of April 9, 1995, between
Frontier and First National Bank of Boston, as Rights Agent, as amended
(the "Rights Agreement"). Since March 12, 1999 to the date of this
Agreement, there have been no issuances of shares of the capital stock of
Frontier or any other securities of Frontier other than issuances of shares
(and accompanying Rights) pursuant to options or rights outstanding as of
March 12, 1999 under the Frontier Benefit Plans (as defined in Section
3.1(o)). All issued and outstanding shares of the capital stock of Frontier
are duly authorized, validly issued, fully paid and non-assessable, and no
class of capital stock is entitled to preemptive rights. There were
outstanding as of March 12, 1999 no options, warrants or other rights to
acquire capital stock from Frontier other than (w) the Rights, (x) options
representing in the aggregate the right to purchase 14,902,015 shares of
Frontier Common Stock (collectively, the "Frontier Stock Options") under
the Directors' Stock Incentive Plan, the Employees' Stock Option Plan, the
Management Stock Incentive Plan, the ALC Communications Corporation 1994
Non-Employee Director Stock Option Plan, the ALC Communications Corporation
1990 Stock Option Plan, the ALC Communications Corporation 1986 Stock
Option Plan, the GlobalCenter, Inc. 1997 Stock Plan Stock Option Agreement
and the (GlobalCenter) Primenet Services for the Internet, Inc. 1995 Stock
Option Plan (collectively, the "Frontier Stock Option Plans"), (y) warrants
to purchase up to 27,699 shares of Frontier Common Stock (the "Frontier
Warrants"), and (z) 10.46% convertible debenture due October 27, 2008 with
the Walters Trust (Canandaigua National Bank) which are Convertible into
Frontier Common Stock at $10.5375 per share (the "Frontier Convertible
Debt"). As of March 12, 1999, Frontier had further reserved 17,857,123
shares of Frontier Common Stock for purchase pursuant to the Frontier Stock
Option Plans, Convertible Debentures and the Frontier Warrants. Other than
pursuant to the Stock Option Agreement, the associated Rights issued with
the shares issued as described above, no options or warrants or other
rights to acquire capital stock from Frontier have been issued or granted
since March 12, 1999 to the date of this Agreement.
(ii) As of the date of this Agreement, no bonds, debentures, notes or
other indebtedness of Frontier having the right to vote on any matters on
which shareholders may vote ("Frontier Voting Debt") are issued or
outstanding.
(iii) Except as otherwise set forth in this Section 3.1(b) and the Stock
Option Agreement and as contemplated by Section 5.6, as of the date of this
Agreement, there are no securities, options, warrants, calls, rights,
commitments, agreements, arrangements or undertakings of any kind to which
Frontier or any of its Subsidiaries is a party or by which any of them is
bound obligating Frontier or any of its Subsidiaries to issue, deliver or
sell, or cause to be issued, delivered or sold, additional shares of
capital stock or other voting securities of Frontier or any of its
Subsidiaries or obligating Frontier or any of its Subsidiaries to issue,
grant, extend or enter into any such security, option, warrant, call,
right, commitment, agreement, arrangement or undertaking. As of the date of
this Agreement, and except as contemplated by Section 5.9, there are no
outstanding obligations of Frontier or any of its Subsidiaries to
repurchase, redeem or otherwise acquire any shares of capital stock of
Frontier or any of its Subsidiaries.
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(c) Authority; No Conflicts.
(i) Frontier has all requisite corporate power and authority to enter
into this Agreement and the Stock Option Agreement and to consummate the
transactions contemplated hereby and thereby, subject in the case of the
consummation of the Merger to the adoption of this Agreement by the
Required Frontier Vote (as defined in Section 3.1(g)). The execution and
delivery of this Agreement and the Stock Option Agreement and the
consummation of the transactions contemplated hereby and thereby have been
duly authorized by all necessary corporate action on the part of Frontier,
subject in the case of the consummation of the Merger to the adoption of
this Agreement by the Required Frontier Vote. This Agreement and the Stock
Option Agreement have been duly executed and delivered by Frontier and each
constitutes a valid and binding agreement of Frontier, enforceable against
it in accordance with its terms, except as such enforceability may be
limited by bankruptcy, insolvency, reorganization, moratorium and similar
laws relating to or affecting creditors generally, by general equity
principles (regardless of whether such enforceability is considered in a
proceeding in equity or at law) or by an implied covenant of good faith and
fair dealing.
(ii) The execution and delivery of this Agreement and the Stock Option
Agreement by Frontier does not and the consummation of the Merger by
Frontier and the other transactions contemplated hereby or thereby will
not, conflict with, or result in any violation of, or constitute a default
(with or without notice or lapse of time, or both) under, or give rise to a
right of termination, amendment, cancellation or acceleration of any
obligation or the loss of a material benefit under, or the creation of a
lien, pledge, security interest, charge or other encumbrance on any assets
(any such conflict, violation, default, right of termination, amendment,
cancellation or acceleration, loss or creation, a "Violation") pursuant to:
(A) any provision of the certificate of incorporation or by-laws of
Frontier or any Subsidiary of Frontier, or (B) except as would not,
individually or in the aggregate, reasonably be expected to have a Material
Adverse Effect on Frontier, subject to obtaining or making the consents,
approvals, orders, authorizations, registrations, declarations and filings
referred to in paragraph (iii) below, any loan or credit agreement, note,
mortgage, bond, indenture, lease, benefit plan or other agreement, Material
Network Contract (as defined in Section 8.11), obligation, instrument,
permit, concession, franchise, license, judgment, order, decree, statute,
law, ordinance, rule or regulation applicable to Frontier or any Subsidiary
of Frontier or their respective properties or assets.
(iii) No consent, approval, order or authorization of, or registration,
declaration or filing with, any supranational, national, state, municipal
or local government, any instrumentality, subdivision, court,
administrative agency or commission or other authority thereof, or any
quasi-governmental or private body exercising any regulatory, taxing,
importing or other governmental or quasi-governmental authority (a
"Governmental Entity"), is required by or with respect to Frontier or any
Subsidiary of Frontier in connection with the execution and delivery of
this Agreement and the Stock Option Agreement by Frontier or the
consummation of the Merger and the other transactions contemplated hereby
or thereby, except for those required under or in relation to (A) the Hart-
Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR
Act"), (B) the Communications Act of 1934, as amended (the "Communications
Act"), and any rules and regulations promulgated by the Federal
Communications Commission ("FCC"), (C) state securities or "blue sky" laws
(the "Blue Sky Laws"), (D) the Securities Act of 1933, as amended (the
"Securities Act"), (E) the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), (F) the NYBCL with respect to the filing of the New York
Certificate of Merger, (G) laws, rules, regulations, practices and orders
of any state or state public service commissions ("PUCS"), local
franchising authorities, foreign telecommunications regulatory agencies or
similar state or foreign regulatory bodies, (H) rules and regulations of
NASDAQ and the New York Stock Exchange, Inc. (the "NYSE"), (I) antitrust or
other competition laws of other jurisdictions, and (J) such consents,
approvals, orders, authorizations, registrations, declarations and filings
the failure of which to make or obtain would not, individually or in the
aggregate, reasonably be expected to have a Material Adverse Effect on
Frontier. Consents, approvals, orders, authorizations, registrations,
declarations and filings
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required under or in relation to any of the foregoing clauses (A) through
(I) are hereinafter referred to as "Required Consents."
(d) Reports and Financial Statements.
(i) Frontier and Frontier Telephone of Rochester, Inc., a New York
corporation ("Frontier Sub"), have filed all required reports, schedules,
forms, statements and other documents required to be filed by it with the
Securities and Exchange Commission (the "SEC") since January 1, 1998
including Frontier's Current Report on Form 8-K, dated January 26, 1999,
containing Frontier's audited financial statements for the year ended
December 31, 1998 and its proxy statement with respect to the proposed 1999
annual meeting of shareholders of Frontier (collectively, including all
exhibits thereto, the "Frontier Sec Reports"). Other than Frontier Sub, no
Subsidiary of Frontier is required to file any form, report or other
document with the SEC. None of the Frontier SEC Reports, as of their
respective dates (and, if amended or superseded by a filing prior to the
date of this Agreement, then on the date of such filing), contained any
untrue statement of a material fact or omitted to state a material fact
required to be stated therein or necessary to make the statements therein,
in light of the circumstances under which they were made, not misleading.
Each of the financial statements (including the related notes) included in
the Frontier SEC Reports presents fairly, in all material respects, the
consolidated financial position and consolidated results of operations and
cash flows of Frontier and its Subsidiaries as of the respective dates or
for the respective periods set forth therein, all in conformity with United
States generally accepted accounting principles ("GAAP") consistently
applied during the periods involved except as otherwise noted therein, and
subject, in the case of the unaudited interim financial statements, to
normal and recurring year-end adjustments that have not been and are not
expected to be material in amount. All of such Frontier SEC Reports, as of
their respective dates, complied as to form in all material respects with
the applicable requirements of the Securities Act and the Exchange Act and
the rules and regulations promulgated thereunder.
(ii) From December 31, 1998 until the date of this Agreement, Frontier
and its Subsidiaries have not incurred any liabilities that are of a nature
that would be required to be disclosed on a balance sheet of Frontier and
its Subsidiaries or the footnotes thereto prepared in conformity with GAAP,
other than (A) liabilities incurred in the ordinary course of business or
(B) liabilities that would not, individually or in the aggregate,
reasonably be expected to have a Material Adverse Effect on Frontier.
(e) Information supplied.
(i) None of the information supplied or to be supplied by Frontier for
inclusion or incorporation by reference in (A) the registration statement
on Form S-4 (as defined in Section 5.1) to be filed with the SEC by Global
in connection with the issuance of the Global Common Stock in the Merger
will, at the time it becomes effective under the Securities Act, contain
any untrue statement of a material fact or omit to state any material fact
required to be stated therein or necessary to make the statements therein
not misleading and (B) the Joint Proxy Statement/Prospectus (as defined in
Section 5.1) included in the Form S-4 relating to the Frontier Shareholders
Meeting and the Global Shareholders Meeting (each, as defined in Section
5.1) and the Global Common Stock to be issued in the Merger will, on the
date it is first mailed to Frontier shareholders or Global shareholders or
at the time of the Frontier Shareholders Meeting or the Global Shareholders
Meeting, contain any untrue statement of a material fact or omit to state
any material fact required to be stated therein or necessary in order to
make the statements therein, in light of the circumstances under which they
were made, not misleading.
(ii) Notwithstanding the foregoing provisions of this Section 3.1(e), no
representation or warranty is made by Frontier with respect to statements
made or incorporated by reference in the Form S-4 or the Joint Proxy
Statement/Prospectus based on information supplied by Global for inclusion
or incorporation by reference therein.
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(f) Board Approval. The Board of Directors of Frontier, by resolutions duly
adopted at a meeting duly called and held and not subsequently rescinded or
modified in any way (the "Frontier Board Approval"), has duly (i) determined
that this Agreement, the Stock Option Agreement, the Merger and the Alternative
Merger are in the best interests of Frontier and its shareholders, (ii) adopted
this Agreement and approved the Stock Option Agreement, the Merger and the
Alternative Merger and (iii) recommended that the shareholders of Frontier
adopt this Agreement and approve the Merger or, if applicable, the Alternative
Merger. The Frontier Board Approval constitutes approval of this Agreement, the
Stock Option Agreement, the Merger and the Alternative Merger for purposes of
Section 912 of the NYBCL (assuming that Global is not an "interested
shareholder" under Section 912 of the NYBCL immediately before the execution
and delivery of this Agreement and the Stock Option Agreement and does not take
any other actions to become an "interested shareholder" thereunder).
(g) Vote Required. The affirmative vote of the holders of two-thirds of the
outstanding shares of Frontier Common Stock (the "Required Frontier Vote") is
the only vote of the holders of any class or series of Frontier capital stock
necessary to adopt this Agreement and approve the transactions contemplated
hereby (assuming that Global is not an "interested shareholder" under Section
912 of the NYBCL immediately before the execution and delivery of this
Agreement and the Stock Option Agreement and does not take any other actions to
become an "interested shareholder" thereunder); provided that the redemption
notice described in Frontier's restated certificate of incorporation is given
and all funds necessary for such redemption are set aside prior to the Frontier
Shareholders Meeting. No vote of the shareholders of Frontier is required to
approve the Stock Option Agreement.
(h) Rights Agreement. The Board of Directors of Frontier has approved an
amendment to the Rights Agreement to the effect that none of Global or its
affiliates or associates shall become an "Acquiring Person" (as defined in the
Rights Agreement) by reason of the execution of this Agreement or the Stock
Option Agreement, the exercise of the option granted thereby or the
consummation of the Merger or the Alternative Merger.
(i) Brokers or Finders. No agent, broker, investment banker, financial
advisor or other firm or Person is or will be entitled to any broker's or
finder's fee or any other similar commission or fee in connection with any of
the transactions contemplated by this Agreement, except Morgan Stanley & Co.
Incorporated (the "Frontier Financial Advisor"), whose fees and expenses will
be paid by Frontier in accordance with Frontier's agreement with such firm,
based upon arrangements made by or on behalf of Frontier and previously
disclosed to Global.
(j) Opinion of Frontier Financial Advisor. Frontier has received the opinion
of the Frontier Financial Advisor, dated the date of this Agreement, to the
effect that, as of such date, the Exchange Ratio is fair, from a financial
point of view, to the holders of Frontier Common Stock, a copy of which opinion
has been made available to Global.
(k) Affiliate Letter and Agreements. On or prior to the date of the Frontier
Shareholders Meeting, Frontier will deliver to Global a letter (the "Frontier
Affiliate Letter") identifying all persons who may, at the time this Agreement
is submitted for adoption by the shareholders of Frontier, be deemed to be
"affiliates" of Frontier for purposes of Rule 145 under the Securities Act
("Rule 145"). On or prior to the Closing Date, Frontier will use all reasonable
efforts to cause each person identified as an "affiliate" in the Frontier
Affiliate Letter to deliver a written agreement (an "Affiliate Agreement") in
substantially the form of Exhibit 3.1(k) attached hereto in connection with
restrictions on affiliates under Rule 145.
(l) Litigation. Except as disclosed in the Frontier SEC Reports and except
for claims, actions, suits, proceedings or investigations which would not,
individually or in the aggregate, reasonably be expected to have a Material
Adverse Effect on Frontier, there are no claims, actions, suits, proceedings or
investigations pending or, to Frontier's knowledge, threatened against Frontier
or any of its Subsidiaries, or any properties or rights of Frontier or any of
its Subsidiaries, before any Governmental Entity.
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(m) No Violation of Law. The business of Frontier and its Subsidiaries is not
being conducted in violation of any statute, law, ordinance, regulation,
judgment, order or decree of any Governmental Entity (including any stock
exchange or other self-regulatory body), or in violation of any permits,
franchises, licenses, authorizations or consents that are granted by any
Governmental Entity (including any stock exchange or other self-regulatory
body), except for possible violations which would not, individually or in the
aggregate, reasonably be expected to have a Material Adverse Effect on
Frontier, and except as disclosed in the Frontier SEC Reports. Except as
disclosed in the Frontier SEC Reports and except as would not, individually or
in the aggregate, reasonably be expected to have a Material Adverse Effect on
Frontier, no investigation or review by any Governmental Entity (including any
stock exchange or other self-regulatory body) with respect to Frontier or its
Subsidiaries in relation to any alleged violation of law or regulation is
pending or, to Frontier's knowledge, threatened, nor has any Govern mental
Entity (including any stock exchange or other self-regulatory body) indicated
in writing an intention to conduct the same. Neither Frontier nor any of its
Subsidiaries is subject to any cease and desist or other order, judgment,
injunction or decree issued by, or is a party to any written agreement, consent
agreement or memorandum of understanding with, or is a party to any commitment
letter or similar undertaking to, or is subject to any order or directive by,
or has adopted any board resolutions at the request of, any Governmental Entity
that materially restricts the conduct of its business other than those which
would not, individually or in the aggregate, reason ably be expected to have a
Material Adverse Effect on Frontier, nor has Frontier or any of its
Subsidiaries been advised in writing that any Governmental Entity is
considering issuing or requesting any of the foregoing.
(n) Taxes. All material Federal, state, local, and foreign tax returns
required to be filed by Frontier and its Subsidiaries have been timely filed.
All material taxes shown on such returns as being due or claimed to be due from
Frontier and its Subsidiaries in a written statement have been paid other than
those (i) currently payable without penalty or interest or (ii) being contested
in good faith and by appropriate proceedings timely instituted and diligently
pursued and for which adequate reserves have been established on the books and
records of Frontier and its Subsidiaries, as the case may be, in accordance
with generally accepted accounting principles.
(o) Frontier Benefit Plans
(i) Each deferred compensation and each incentive compensation, equity
compensation plan, "welfare" plan, fund or program (within the meaning of
section 3(1) of the Employee Retirement Income Security Act of 1974, as
amended ("ERISA")); "pension" plan, fund or program (within the meaning of
section 3(2) of ERISA); each employment, consulting, continuation,
termination or severance agreement; and each other employee benefit plan,
fund, program, agreement or arrangement, in each case, that is sponsored,
maintained or contributed to or required to be contributed to by Frontier
or by any trade or business, whether or not incorporated (an "ERISA
Affiliate"), that together with Frontier would be deemed a "single
employer" within the meaning of section 4001(b) of ERISA, or to which
Frontier or an ERISA Affiliate is party, whether written or oral, for the
benefit of any employee or former employee of Frontier or any Subsidiary
(the "Frontier Benefit Plans") is in compliance with all applicable
provisions of ERISA and the Code, and neither Frontier nor any ERISA
Affiliates have any liabilities or obligations with respect to any such
Frontier Benefit Plans, whether or not accrued, contingent or otherwise,
except (x) as described in any of the Frontier SEC Reports or set forth in
Section 3.1(o)(i) of the Frontier Disclosure Schedule or (y) for in stances
of noncompliance or liabilities or obligations that would not, individually
or in the aggregate, reasonably be expected to have a Material Adverse
Effect on Frontier.
(ii) No amount in excess of $150 million, which amount relates to
"parachute payments" (as defined in the Code) to the nineteen executive
officers of Frontier under the change in control agreements to which each
such executive officer is a party or under the Frontier Benefit Plans in
which such executive officers participate, shall fail to be deductible for
federal income tax purposes by virtue of Section 280G of the Code.
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3.2 Representations and Warranties of Global. Except as set forth in the
Global Disclosure Schedule delivered by Global to Frontier prior to the
execution of this Agreement (the "Global Disclosure Schedule"), Global
represents and warrants to Frontier as follows:
(a) Organization, Standing and Power. Each of Global and each of its
Subsidiaries is a company, or a corporation duly organized, validly existing
and in good standing under the laws of its jurisdiction of incorporation or
organization, has all requisite power and authority to own, lease and operate
its properties and to carry on its business as now being conducted and is duly
qualified and in good standing to do business in each jurisdiction in which the
nature of its business or the ownership or leasing of its properties makes such
qualification necessary other than in such jurisdictions where the failure so
to qualify or to be in good standing would not, either individually or in the
aggregate, reasonably be expected to have a Material Adverse Effect on Global.
The copies of the memorandum of association and bye-laws of Global which were
previously furnished to Frontier are true, complete and correct copies of such
documents as in effect on the date of this Agreement.
(b) Capital Structure.
(i) As of March 12, 1999, the authorized capital stock of Global
consisted of 600,000,000 shares of Global Common Stock of which 411,357,572
shares were outstanding. Since March 12, 1999 to the date of this
Agreement, there have been no issuances of shares of the capital stock of
Global or any other securities of Global other than issuances of shares
pursuant to options or rights outstanding under the Global Benefit Plans
(as defined in Section 3.2(m)). All issued and outstanding shares of the
capital stock of Global are duly authorized, validly issued, fully paid and
non-assessable, and no class of capital stock is entitled to preemptive
rights. There were outstanding as of March 12, 1999 no options, warrants or
other rights to acquire capital stock from Global other than (A) options
representing in the aggregate the right to purchase 32,403,528 shares of
Global Common Stock issued to current or former employees and directors of
Global and its Subsidiaries pursuant to Global's 1998 Stock Incentive Plan
(the "Global Stock Option Plan") and (B) (i) 12,500,012 warrants expiring
August 13, 2003, exercisable at $9.50 per share of Global Common Stock, and
(ii) 5,108,358 warrants expiring August 13, 2008, exercisable at $9.50 per
share of Global Common Stock (collectively, the "Global Warrants"). No
options or warrants or other rights to acquire capital stock from Global
have been issued or granted since March 12, 1999 to the date of this
Agreement.
(ii) As of the date of this Agreement, no bonds, debentures, notes or
other indebtedness of Global having the right to vote on any matters on
which Shareholders may vote ("Global Voting Debt") are issued or
outstanding.
(iii) Except as otherwise set forth in this Section 3.2(b), as of the
date of this Agreement, there are no securities, options, warrants, calls,
rights, commitments, agreements, arrangements or undertakings of any kind
to which Global or any of its Subsidiaries is a party or by which any of
them is bound obligating Global or any of its Subsidiaries to issue,
deliver or sell, or cause to be issued, delivered or sold, additional
shares of capital stock or other voting securities of Global or any of its
Subsidiaries or obligating Global or any of its Subsidiaries to issue,
grant, extend or enter into any such security, option, warrant, call,
right, commitment, agreement, arrangement or undertaking. As of the date of
this Agreement, there are no outstanding obligations of Global or any of
its Subsidiaries to repurchase, redeem or otherwise acquire any shares of
capital stock of Global or any of its Subsidiaries.
(c) Authority; No Conflicts.
(i) Global has all requisite corporate power and authority to enter into
this Agreement and to consummate the transactions contemplated hereby,
subject, to the approval of the issuance of the shares of Global Common
Stock to be issued in the Merger (the "Share Issuance") and to the adoption
of an amendment to the memorandum of association of Global increasing the
number of authorized shares of Global Common Stock to not less than 2
billion shares (the "Global Charter Amendment") by the Required Global Vote
(as defined in Section 3.2(g)) and the filing of the requisite Memorandum
of
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Increase with the Registrar of Companies of Bermuda and the approval of the
Share Issuance (and the subsequent free transferability of the
corresponding shares between nonresident persons for exchange control
purposes) by the Bermuda Monetary Authority. The execution and delivery of
this Agreement and the consummation of the transactions contemplated hereby
have been duly authorized by all necessary corporate action on the part of
Global, subject to the approval by the shareholders of Global of the Share
Issuance and the Global Charter Amendment. This Agreement has been duly
executed and delivered by Global and constitutes a valid and binding
agreement of Global, enforceable against it in accordance with its terms,
except as such enforceability may be limited by bankruptcy, insolvency,
reorganization, moratorium and similar laws relating to or affecting
creditors generally, by general equity principles (regardless of whether
such enforceability is considered in a proceeding in equity or at law) or
by an implied covenant of good faith and fair dealing.
(ii) The execution and delivery of this Agreement by Global does not or
will not, as the case may be, and the consummation by Global of the Merger
and the other transactions contemplated hereby will not, conflict with, or
result in a Violation pursuant to: (A) any provision of the memorandum of
association or bye-laws of Global or any other constitient document of any
Subsidiary of Global, or (B) except as would not, individually or in the
aggregate, reasonably be expected to have a Material Adverse Effect on
Global, subject to obtaining or making the consents, approvals, orders,
authorizations, registrations, declarations and filings referred to in
paragraph (iii) below, any loan or credit agreement, note, mortgage, bond,
indenture, lease, benefit plan or other agreement, obligation, instrument,
permit, concession, franchise, license, judgment, order, decree, statute,
law, ordinance, rule or regulation applicable to Global or any Subsidiary
of Global or their respective properties or assets.
(iii) No consent, approval, order or authorization of, or registration,
declaration or filing with, any Governmental Entity is required by or with
respect to Global or any Subsidiary of Global in connection with the
execution and delivery of this Agreement by Global or the consummation of
the Merger and the other transactions contemplated hereby, except for the
Required Consents, filing of the requisite Memorandum of Increase with the
Registrar of Companies of Bermuda and the approval of the Share Issuance
(and of the subsequent free transferability of the corresponding shares
between nonresident persons for exchange control purposes) by the Bermuda
Monetary Authority and such consents, approvals, orders, authorizations,
registrations, declarations and filings the failure of which to make or
obtain would not, individually or in the aggregate, reasonably be expected
to have a Material Adverse Effect on Global.
(d) Reports and Financial Statements.
(i) Global and Global Crossing Holdings Ltd. ("Global Holdings") have
filed all required reports, schedules, forms, statements and other
documents required to be filed by it with the SEC since January 1, 1998
(collectively, including all exhibits thereto, the "Global Sec Reports").
No Subsidiary of Global other than Global Holdings is required to file any
form, report or other document with the SEC. None of the Global SEC
Reports, as of their respective dates (and, if amended or superseded by a
filing prior to the date of this Agreement, then on the date of such
filing), contained any untrue statement of a material fact or omitted to
state a material fact required to be stated therein or necessary to make
the statements therein, in light of the circumstances under which they were
made, not misleading. Each of the financial statements (including the
related notes) included in the Global SEC Reports presents fairly, in all
material respects, the consolidated financial position and consolidated
results of operations and cash flows of Global and its Subsidiaries as of
the respective dates or for the respective periods set forth therein, all
in conformity with GAAP consistently applied during the periods involved
except as otherwise noted therein, and subject, in the case of the
unaudited interim financial statements, to normal and recurring year-end
adjustments that have not been and are not expected to be material in
amount. All of such Global SEC Reports, as of their respective dates,
complied as to form in all material respects with the applicable
requirements of the Securities Act and the Exchange Act and the rules and
regulations promulgated thereunder.
(ii) Global has made available to Frontier drafts of the consolidated
financial statements of Global and its Subsidiaries at and for the year
ended December 31, 1998 of Global (in the respective form thereof
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as of the date of this Agreement, collectively, the "Global Draft
Disclosures"). To the knowledge of Global, each of the Global Draft
Disclosures, including the financial statements included therein, is in
substantially final form, except that the Global Draft Disclosures do not
disclose any information with respect to this Agreement, the transactions
contemplated hereby or the effect that this Agreement or such transactions
might have on the business, financial condition or results of operations
(actual, pro forma or projected) of Global and its Subsidiaries
(collectively, the "Global Transaction Information"). The Global Draft
Disclosures were not prepared for the purpose of providing to Frontier or
any other Person any Global Transaction Information. To the knowledge of
Global, except with respect to Global Transaction Information, (x) the
draft financial statements (including the related notes) included in the
Global Draft Disclosures present fairly, in all material respects, the
consolidated financial position and consolidated results of operations and
cash flows of Global and its Subsidiaries as of the respective dates or for
the respective periods set forth therein, all in conformity with GAAP
consistently applied during the periods involved except as otherwise noted
therein and (y) all of the Global Draft Disclosures comply as to form in
all material respects with the applicable requirements of the Exchange Act
and the rules and regulations promulgated thereunder.
(iii) From December 31, 1998 until the date of this Agreement, Global and
its Subsidiaries have not incurred any liabilities that are of a nature
that would be required to be disclosed on a balance sheet of Global and its
Subsidiaries or the footnotes thereto prepared in conformity with GAAP,
other than (A) liabilities incurred in the ordinary course of business or
(B) liabilities that would not, individually or in the aggregate,
reasonably be expected to have a Material Adverse Effect on Global.
(e) Information Supplied.
(i) None of the information supplied or to be supplied by Global for
inclusion or incorporation by reference in (A) the Form S-4 will, at the
time the Form S-4 becomes effective under the Securities Act, contain any
untrue statement of a material fact or omit to state any material fact
required to be stated therein or necessary to make the statements therein
not misleading, and (B) the Joint Proxy Statement/Prospectus will, on the
date it is first mailed to Frontier shareholders or Global shareholders or
at the time of the Frontier Shareholders Meeting or the Global Shareholders
Meeting, contain any untrue statement of a material fact or omit to state
any material fact required to be stated therein or necessary in order to
make the statements therein, in light of the circumstances under which they
were made, not misleading. The Form S-4 and the Joint Proxy
Statement/Prospectus will comply as to form in all material respects with
the requirements of the Exchange Act and the Securities Act and the rules
and regulations of the SEC thereunder.
(ii) Notwithstanding the foregoing provisions of this Section 3.2(e), no
representation or warranty is made by Global with respect to statements
made or incorporated by reference in the Form S-4 or the Joint Proxy
Statement/Prospectus based on information supplied by Frontier for
inclusion or incorporation by reference therein.
(f) Board Approval. The Board of Directors of Global, by resolutions duly
adopted at a meeting duly called and held and not subsequently rescinded or
modified in any way, has duly (i) determined that this Agreement, the Merger
and the Alternative Merger are in the best interests of Global and its share
holders, (ii) approved this Agreement, the Merger and the Alternative Merger,
(iii) approved the Global Charter Amendment and the Share Issuance and (iv)
recommended that the shareholders of Global approve the Global Charter
Amendment, the Share Issuance or, if applicable, the Alternative Merger.
(g) Vote Required. The affirmative vote of holders of shares of Global Common
Stock representing a simple majority of votes that may be cast by all holders
of shares of Global Common Stock (the "Required Global Vote") is the only vote
of the holders of any class or series of Global capital stock necessary to
approve the Global Charter Amendment, the Share Issuance and, if applicable,
the Alternative Merger. The Principal Shareholders hold, and as of the record
date for the Global Shareholders Meeting will hold, shares of
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Global Common Stock which are subject to the Voting Agreement and that, in the
aggregate, constitute at least 51% of the Combined Voting Power.
(h) Brokers or Finders. No agent, broker, investment banker, financial
advisor or other firm or Person is or will be entitled to any broker's or
finder's fee or any other similar commission or fee in connection with any of
the transactions contemplated by this Agreement based upon arrangements made by
or on behalf of Global, except Merrill Lynch, Pierce, Fenner & Smith
Incorporated and Salomon Smith Barney (collectively, the "Global Financial
Advisors") and Chase Securities Inc., whose fees and expenses will be paid by
Global in accordance with Global's agreement with such firms based upon
arrangements made by or on behalf of Global and previously disclosed to
Frontier.
(i) Opinions of Financial Advisors. Global has received the opinions of the
Global Financial Advisors, dated the date of this Agreement, to the effect
that, as of such date, the Exchange Ratio is fair, from a financial point of
view, to Global, a copy of which opinions have been made available to Frontier.
(j) Litigation. Except as disclosed in the Global SEC Reports and except for
claims, actions, suits, proceedings or investigations which would not,
individually or in the aggregate, reasonably be expected to have a Material
Adverse Effect on Global, there are no claims, actions, suits, proceedings or
investigations pending or, to Global's knowledge, threatened against Global or
any of its Subsidiaries, or any properties or rights of Global or any of its
Subsidiaries, before any Governmental Entity.
(k) No Violation of Law. The business of Global and its Subsidiaries is not
being conducted in violation of any statute, law, ordinance, regulation,
judgment, order or decree of any Governmental Entity (including any stock
exchange or other self-regulatory body), or in violation of any permits,
franchises, licenses, authorizations or consents that are granted by any
Governmental Entity (including any stock exchange or other self-regulatory
body), except for possible violations which would not, individually or in the
aggregate, reasonably be expected to have a Material Adverse Effect on Global.
Except as disclosed in the Global SEC Reports and except as would not,
individually or in the aggregate reasonably be expected to have a Material
Adverse Effect on Global, no investigation or review by any Governmental Entity
(including any stock exchange or other self-regulatory body) with respect to
Global or its Subsidiaries in relation to any alleged violation of law or
regulation is pending or, to Global's knowledge, threatened, nor has any
Governmental Entity (including any stock exchange or other self-regulatory
body) indicated in writing an intention to conduct the same. Neither Global nor
any of its Subsidiaries is subject to any cease and desist or other order,
judgment, injunction or decree issued by, or is a party to any written
agreement, consent agreement or memorandum of understanding with, or is a party
to any commitment letter or similar undertaking to, or is subject to any order
or directive by, or has adopted any board resolutions at the request of, any
Governmental Entity that materially restricts the conduct of its business other
than those which would not, individually or in the aggregate, reasonably be
expected to have a Material Adverse Effect on Global, nor has Global or any of
its Subsidiaries been advised in writing that any Governmental Entity is
considering issuing or requesting any of the foregoing.
(l) Taxes. All material Federal, state, local, and foreign tax returns
required to be filed by Global and its Subsidiaries have been filed. All
material taxes shown on such returns as being due or claimed to be due from
Global and its Subsidiaries in a written assessment have been paid other than
those (i) currently payable without penalty or interest or (ii) being contested
in good faith and by appropriate proceedings timely instituted and diligently
pursued and for which adequate reserves have been established on the books and
records of Global and its Subsidiaries, as the case may be, in accordance with
generally accepted accounting principles.
(m) Global Benefit Plans. Each deferred compensation and each incentive
compensation, equity compensation plan, "welfare" plan, fund or program (within
the meaning of Section 3(1) of the ERISA); "pension" plan, fund or program
(within the meaning of section 3(2) of ERISA); each employment, consulting,
continuation, termination or severance agreement; and each other employee
benefit plan, fund, program, agreement or arrangement, in each case, that is
sponsored, maintained or contributed to or required to be contributed to by
Global or by any trade or business, whether or not incorporated (an "Erisa
Affiliate"), that
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together with Global would be deemed a "single employer" within the meaning of
section 4001(b) of ERISA, or to which Global or an ERISA Affiliate is party,
whether written or oral, for the benefit of any employee or former employee of
Global or any Subsidiary (the "Global Benefit Plans") is in compliance with all
applicable provisions of ERISA and the Code, and neither Global nor any ERISA
Affiliates have any liabilities or obligations with respect to any such Global
Benefit Plans, whether or not accrued, contingent or otherwise, except (x) as
described in any of the Global SEC Reports or (y) for instances of
noncompliance or liabilities or obligations that would not, individually or in
the aggregate, have a Material Adverse Effect on Global. Except with respect to
awards granted under the Global Benefit Plans that are in effect on the date
hereof, no employee of Global will be entitled to any additional benefits or
any acceleration of the time of payment or vesting of any benefits under any
Global Benefit Plan as a result of the transactions contemplated by this
Agreement, either alone or in combination with another event.
3.3 Representations and Warranties of Global and Merger Sub. Global and
Merger Sub represent and warrant to Frontier as follows:
(a) Organization and Corporate Power. Merger Sub is a corporation duly
incorporated, validly existing and in good standing under the laws of New York.
Merger Sub is a direct wholly-owned subsidiary of Global.
(b) Corporate Authorization. Merger Sub has all requisite corporate power and
authority to enter into this Agreement and to consummate the transactions
contemplated hereby. The execution, delivery and performance by Merger Sub of
this Agreement and the consummation by Merger Sub of the transactions
contemplated hereby have been duly authorized by all necessary corporate action
on the part of Merger Sub. This Agreement has been duly executed and delivered
by Merger Sub and constitutes a valid and binding agreement of Merger Sub,
enforceable against it in accordance with its terms, except as such
enforceability may be limited by bankruptcy, insolvency, reorganization,
moratorium and other similar laws relating to or affecting creditors generally,
by general equity principles (regardless or whether such enforceability is
considered in a proceeding in equity or at law) or by an implied covenant of
good faith and fair dealing.
(c) Non-Contravention. The execution, delivery and performance by Merger Sub
of this Agreement and the consummation by Merger Sub of the transactions
contemplated hereby do not and will not contravene or conflict with the
certificate of incorporation or by-laws of Merger Sub.
(d) No Business Activities. Merger Sub has not conducted any activities other
than in connection with the organization of Merger Sub, the negotiation and
execution of this Agreement and the consummation of the transactions
contemplated hereby. Merger Sub has no Subsidiaries.
ARTICLE IV
COVENANTS RELATING TO CONDUCT OF BUSINESS
4.1 Covenants of Frontier. During the period from the date of this Agreement
and continuing until the Effective Time, Frontier agrees as to itself and its
Subsidiaries that (except as expressly contemplated or permitted by this
Agreement or as otherwise indicated on the Frontier Disclosure Schedule or as
required by a Governmental Entity of competent jurisdiction or to the extent
that Global shall otherwise consent in writing, which consent shall not be
unreasonably withheld or delayed):
(a) Ordinary Course.
(i) Frontier and its Subsidiaries shall carry on their respective
businesses in the usual, regular and ordinary course in all material
respects, in substantially the same manner as heretofore conducted, and
shall use all reasonable efforts to preserve intact their present lines of
business, maintain their rights, franchises and licenses and other
authorizations issued by Governmental Entities, and preserve their
relationships with customers, suppliers and others having business dealings
with them to the end that their
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ongoing businesses shall not be impaired in any material respect at the
Effective Time; provided, however, that no action by Frontier or its
Subsidiaries with respect to matters specifically addressed by any other
provision of this Section 4.1 shall be deemed a breach of this Section
4.1(a)(i) unless such action would constitute a breach of one or more of
such other provisions.
(ii) Frontier shall not, and shall not permit any of its Subsidiaries to,
(A) enter into any new material line of business or (B) incur or commit to
any capital expenditures other than capital expenditures incurred or
committed to in the ordinary course of business consistent with past
practice and which, together with all such expenditures incurred or
committed for fiscal year 1999, are not in excess of $900 million or, if
the Closing Date has not occurred prior to December 31, 1999, such
additional amounts for any subsequent period as may be consented to by
Global, such consent not to be unreasonably withheld or delayed, or, if
Global shall not have so consented, an amount not greater than an amount
equal to a pro rata portion of Frontier's 1999 capital expenditure budget
included in Section 4.1(a) of the Frontier Disclosure Schedule.
(b) Dividends; Changes in Share Capital. Frontier shall not, and shall not
permit any of its Subsidiaries to, and shall not propose to, (i) declare or pay
any dividends on or make other distributions in respect of any of its capital
stock, except (x) dividends by wholly owned Subsidiaries of Frontier, (y) the
regular dividends on Frontier Common Stock in the amount of $.05 per share of
Frontier Common Stock per quarter, and (z) regular dividends on Frontier
Preferred Stock, (ii) split, combine or reclassify any of its capital stock or
issue or authorize or propose the issuance of any other securities in respect
of, in lieu of or in substitution for, shares of its capital stock, except for
any such transaction by a wholly owned Subsidiary of Frontier which remains a
wholly owned Subsidiary after consummation of such transaction, or (iii) except
for the purchase from time to time by Frontier of Frontier Common Stock (and
the associated Rights) in the ordinary course of business consistent with past
practice in connection with the Frontier Benefit Plans, or as contemplated in
Section 5.9, repurchase, redeem or otherwise acquire any shares of its capital
stock or any securities convertible into or exercisable for any shares of its
capital stock.
(c) Issuance of Securities. Frontier shall not, and shall not permit any of
its Subsidiaries to, issue, deliver or sell, or authorize or propose the
issuance, delivery or sale of, any shares of its capital stock of any class, or
any securities convertible into or exercisable for, or any rights, warrants or
options to acquire, any such shares, or enter into any agreement with respect
to any of the foregoing, other than (i) the issuance of Frontier Common Stock
(and the associated Rights) upon the exercise of stock options or warrants or
in connection with other stock-based benefits plans outstanding on the date
hereof in accordance with their present terms, (ii) issuances by a wholly owned
Subsidiary of Frontier of capital stock to such Subsidiary's parent, (iii)
issuances in accordance with the Rights Agreement or (iv) issuances of shares,
options, rights or other awards in numbers not greater than those set forth in
Section 4.1(c) of the Frontier Disclosure Schedule.
(d) Governing Documents. Except to the extent required to comply with their
respective obligations hereunder, required by law or required by the rules and
regulations of the NYSE, Frontier and its Subsidiaries shall not amend, in the
case of Subsidiaries, in any material respect, or propose to so amend their
respective certificates of incorporation, by-laws or other governing documents.
(e) No Acquisitions. Except for (i) acquisitions that are part of, related to
or in support of the communications or internet business and provide for less
than $500 million of consideration (excluding assumption of debt) in the
aggregate and (ii) acquisitions or investments that are made by Frontier
Internet Ventures, Inc. that are not in excess of $30 million of consideration
(excluding assumption of debt), Frontier shall not, and shall not permit any of
its Subsidiaries to, acquire or agree to acquire by merging or consolidating
with, or by purchasing a substantial equity interest in or a substantial
portion of the assets of, or by any other manner, any business or any
corporation, partnership, association or other business organization or
division thereof or otherwise acquire or agree to acquire any assets (other
than the acquisition of assets used in the operations of the business of
Frontier and its Subsidiaries in the ordinary course); provided, however, that
the foregoing shall not prohibit (x) internal reorganizations or consolidations
involving existing Subsidiaries of
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Frontier or (y) the creation of new Subsidiaries of Frontier organized to
conduct or continue activities otherwise permitted by this Agreement.
(f) No Dispositions. Other than (i) internal reorganizations or
consolidations involving existing Subsidiaries of Frontier, (ii) dispositions
referred to in Frontier SEC Reports filed prior to the date of this Agreement,
(iii) as may be required by or in conformance with law or regulation in order
to permit or facilitate the consummation of the transactions contemplated
hereby or (iv) in the ordinary course of business, Frontier shall not, and
shall not permit any Subsidiary of Frontier to, sell, lease, encumber (other
than in connection with secured debt) or otherwise dispose of, or agree to
sell, lease, encumber or otherwise dispose of, any of its assets (including
capital stock of Subsidiaries of Frontier) which are material, individually or
in the aggregate, to Frontier.
(g) Investments; Indebtedness. Frontier shall not, and shall not permit any
of its Subsidiaries to, (i) other than in connection with actions permitted by
Section 4.1(e), make any loans, advances or capital contributions to, or
investments in, any other Person, other than by Frontier or an affiliate of
Frontier to or in Frontier or any affiliate of Frontier, (ii) pay, discharge or
satisfy any claims, liabilities or obligations (absolute, accrued, asserted or
unasserted, contingent or otherwise), other than loans, advances, capital
contributions, investments, payments, discharges or satisfactions incurred or
committed to in the ordinary course of business consistent with past practice
or (iii) other than in connection with actions permitted by Section 4.1(e),
create, incur, assume or suffer to exist any indebtedness, issuances of debt
securities, guarantees, loans or advances not in existence as of the date of
this Agreement except pursuant to the credit facilities, indentures and other
arrangements in existence on the date of this Agreement and in the ordinary
course of business, and any other indebtedness existing on the date of this
Agreement, in each case as such credit facilities, indentures, other
arrangements and other existing indebtedness may be amended, extended,
modified, refunded, renewed or refinanced after the date of this Agreement, but
only if the aggregate principal amount thereof is not increased thereby, the
term thereof is not extended thereby and the other terms and conditions
thereof, taken as a whole, are not less advantageous to Frontier and its
Subsidiaries than those in existence as of the date of this Agreement.
(h) Tax-Free Qualification. Frontier shall not, and shall not permit any of
its Subsidiaries to, take any action that would prevent or impede the Merger
from qualifying as a reorganization under Section 368 of the Code.
(i) Compensation. Other than as contemplated by Section 5.6 or by Section
4.1(i) of the Frontier Disclosure Schedule, Frontier shall not, and shall not
permit any of its Subsidiaries to, increase the amount of compensation of any
senior executive officer except in the ordinary course of business consistent
with past practice or as required by an existing agreement, make any increase
in or commitment to increase any employee benefits, issue any additional
Frontier Stock Options, adopt or make any commitment to adopt any additional
employee benefit plan or make any contribution, other than regularly scheduled
contributions, to any Frontier Benefit Plan.
(j) Other Actions. Frontier shall not, and shall not permit any of its
Subsidiaries to, take any action that would, or that would reasonably be
expected to, result in, except as otherwise permitted by Section 5.5, any of
the conditions to the Merger set forth in Article VI not being satisfied.
(k) Accounting Methods; Income Tax Elections. Except as disclosed in Frontier
SEC Reports filed prior to the date of this Agreement, or as required by a
Governmental Entity, Frontier shall not change its methods of accounting in
effect at December 31, 1998, except as required by GAAP or changes in GAAP as
concurred to by Frontier's independent auditors. Frontier shall not (i) change
its fiscal year or (ii) make any material tax election, other than in the
ordinary course of business consistent with past practice, without the prior
approval of Global, which approval shall not be unreasonably withheld.
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(l) Rights Agreement. Frontier shall not amend, modify or waive any provision
of the Rights Agreement, and shall not take any action to redeem the Rights or
render the Rights inapplicable to any transaction, other than to permit another
transaction that the Frontier Board has determined is a Superior Proposal (as
defined in Section 8.11), to be consummated after termination of this
Agreement.
4.2 Covenants of Global. During the period from the date of this Agreement
and continuing until the Effective Time, Global agrees as to itself and its
Subsidiaries that (except as expressly contemplated or permitted by this
Agreement or as otherwise indicated on the Global Disclosure Schedule or as
required by a Governmental Entity of competent jurisdiction or to the extent
that Frontier shall otherwise consent in writing, which consent shall not be
unreasonably withheld or delayed):
(a) Ordinary Course.
(i) Global and its Subsidiaries shall carry on their respective
businesses in the usual, regular and ordinary course in all material
respects, in substantially the same manner as heretofore conducted, and
shall use all reasonable efforts to preserve intact their present lines of
business, maintain their rights and franchises and preserve their
relationships with customers, suppliers and others having business dealings
with them to the end that their ongoing businesses shall not be impaired in
any material respect at the Effective Time; provided, however, that no
action by Global or its Subsidiaries with respect to matters specifically
addressed by any other provisions of this Section 4.2 shall be deemed a
breach of this Section 4.2(a)(i) unless such action would constitute a
breach of one or more of such other provisions.
(ii) Global shall not, and shall not permit any of its Subsidiaries to,
enter into any new material line of business that is not part of, related
to or in support of the communications business, other than incidentally as
part of a larger acquisition within an existing line of business.
(b) Dividends; Changes in Share Capital. Global shall not, and shall not
permit any of its Subsidiaries to, and shall not propose to, (i) declare or pay
any dividends on or make other distributions in respect of any of its capital
stock, except (x) dividends by wholly owned Subsidiaries of Global or Global
Holdings, or (y) dividends to joint venture parties or (ii) repurchase, redeem
or otherwise acquire any shares of its capital stock or any securities
convertible into or exercisable for any shares of its capital stock except for
(x) the purchase from time to time by Global of Global Common Stock in the
ordinary course of business required by any Global Benefit Plan on a non-
discretionary basis, or (y) regular purchases pursuant to a stock purchase plan
approved by the Global Board of Directors.
(c) Issuance of Securities. Global shall not, and shall not permit any of its
Subsidiaries to, issue, deliver or sell, or authorize or propose the issuance,
delivery or sale of, any shares of its capital stock of any class, any Global
Voting Debt or any securities convertible into or exercisable for, or any
rights, warrants or options to acquire, any such shares or Global Voting Debt,
or enter into any agreement with respect to any of the foregoing other than (i)
the issuance of Global Common Stock upon the exercise of stock options or
warrants or in connection with other stock-based benefit plans, (ii) issuances
by a wholly owned Subsidiary of Global of capital stock to such Subsidiary's
parent or another wholly owned Subsidiary of Global, (iii) issuances of
options, awards, and amendments to equity-related awards pursuant to Global
benefit plans as in effect from time to time, (iv) issuances made to newly
hired employees of Global or its Subsidiaries, (v) issuances in respect of any
acquisitions, mergers, share exchanges, consolidations, business combinations
or similar transactions by Global or its Subsidiaries permitted by Section
4.2(e), or (vi) any other issuance of any Global Common Stock; provided that,
with respect to clauses (v) and (vi), any such issuances prior to the
termination of the Voting Agreement would not cause the shares of Global Common
Stock that are subject to the Voting Agreement to constitute, in the aggregate,
less than 51% of the Combined Voting Power.
(d) Governing Documents. Except to the extent required to comply with their
respective obligations hereunder, required by law or required by the rules and
regulations of NASDAQ, Global and its material Subsidiaries shall not amend, in
the case of Subsidiaries, in any material respect, or propose to so amend their
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respective certificates of incorporation, bye-laws or other governing
documents, except for the Global Charter Amendment.
(e) No Acquisitions. Global shall not, and shall not permit any of its
Subsidiaries to, acquire or agree to acquire by merging or consolidating with,
or by purchasing a substantial equity interest in or a substantial portion of
the assets of, or by any other manner, any business or any corporation,
partnership, association or other business organization or division thereof or
otherwise acquire or agree to acquire any assets (other than the acquisition of
assets used in the operations of the business of Global and its Subsidiaries in
the ordinary course), except for acquisitions that are part of, related to or
in support of the communications business, which acquisitions Global may enter
into in its discretion, so long as (i) such acquisitions would not,
individually or in the aggregate, reasonably be expected to prevent or
materially delay the Merger, (ii) the issuance of any Global Common Stock in
such acquisitions prior to the termination of the Voting Agreement would not
cause the shares of Global Common Stock that are subject to the Voting
Agreement to constitute, in the aggregate, less than 51% of the Combined Voting
Power, (iii) such acquisitions provide less than $2.5 billion of consideration
(excluding assumption of debt) per acquisition and consideration (excluding
assumption of debt) no greater than $8.5 billion in the aggregate, and (iv) no
more than $7.5 billion, in the aggregate, of the consideration provided for
such acquisitions consists of Global Common Stock or other voting equity
securities; provided, however, that the foregoing shall not prohibit (x)
internal reorganizations or consolidations involving existing Subsidiaries of
Global or (y) the creation of new Subsidiaries of Global organized to conduct
or continue activities otherwise permitted by this Agreement.
(f) No Dispositions. Other than (i) internal reorganizations or
consolidations involving existing Subsidiaries of Global, (ii) dispositions
referred to in Global SEC Reports filed prior to the date of this Agreement,
(iii) as may be required by or in conformance with law or regulation in order
to permit or facilitate the consummation of the transactions contemplated
hereby or (iv) in the ordinary course of business, Global shall not, and shall
not permit any Subsidiary of Global to, sell, lease, encumber (other than in
connection with secured debt) or otherwise dispose of, or agree to sell, lease,
encumber or otherwise dispose of, any of its assets (including capital stock of
Subsidiaries of Global) which are material, individually or in the aggregate,
to Global.
(g) Investments. Other than in the ordinary course of business or as
permitted by Section 4.2(e), or as otherwise set forth in the Global SEC
Reports, Global shall not, and shall not permit any of its Subsidiaries to make
any loans, advances or capital contributions to, or investments in, any other
Person, other than by Global or an affiliate of Global (including Global
Holdings) to or in Global or any affiliate of Global.
(h) Tax-Free Qualification. Each of Global and Merger Sub shall not, and
shall not permit any of their Subsidiaries to, take any action that would
prevent or impede the Merger from qualifying as a reorganization under Section
368 of the Code.
(i) Other Actions. Global shall not, and shall not permit any of its
Subsidiaries to, take any action that would, or that would reasonably be
expected to, result in any of the conditions to the Merger set forth in Article
VI not being satisfied.
(j) Accounting Methods; Income Tax Elections. Except as disclosed in the
Global SEC Reports filed prior to the date of this Agreement, or as required by
a Governmental Entity, Global shall not change its methods of accounting in
effect at December 31, 1998, except as required by GAAP or changes in GAAP as
concurred to by Global's independent auditors. Global shall not (i) change its
fiscal year or (ii) make any material tax election, other than in the ordinary
course of business consistent with past practice, without the prior approval of
Frontier, which approval shall not be unreasonably withheld.
(k) Certain Transactions. Global agrees that prior to the Closing Date it
shall not, without the prior written consent of Frontier (which consent shall
not to be unreasonably withheld or delayed), agree to enter into any merger,
reorganization, share exchange, business combination or similar transaction
pursuant to which
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the shareholders of Global will receive any consideration (whether payable in
cash, securities, property or other consideration) in exchange for their shares
of Global Common Stock unless (i) such transaction is not to be consummated
until after the Effective Time or the termination of this Agreement pursuant to
Section 7.1, (ii) the consideration per share of Global Common Stock payable in
connection therewith has a value, as reasonably determined by, Global of not
less than $34.5625 and (iii) either (A) if the Merger is to be effected as
described herein, such transaction will not result in the Merger failing to
qualify as a reorganization under Section 368(a) of the Code or failing to
satisfy the requirements of Section 367 of the Code or (B) if the Alternative
Merger is to be effected pursuant to Section 1.10, such transaction will not
result in the Alternative Merger failing to qualify as a reorganization under
Section 368(a) of the Code, unless the Alternative Merger otherwise qualifies
for non-recognition treatment under Section 351 of the Code.
Notwithstanding anything set forth in this Agreement to the contrary, and in
addition to the restrictions set forth above, during the period during which
the Average Price is to be determined for purposes of calculating the Exchange
Ratio, Global shall not (and shall not announce an intention to) (1) acquire
any Global Common Stock in the open market, (2) sell or issue any shares of
Global Common Stock (other than pursuant to clause (i) of Section 4.2(c)), (3)
redeem or purchase any shares of Global Common Stock, (4) take any other action
prohibited under Regulation M promulgated under the Securities Act, (5) enter
into any material acquisition or disposition transaction or (6) except as
required by applicable law or by obligations pursuant to any listing agreement
with or rules of NASDAQ, make any announcement which would reasonably be
expected to have the effect of resulting in a change in the trading prices of
the Global Common Stock.
(l) Required Global Vote. Notwithstanding anything in this Agreement to the
contrary between the date of this Agreement and the termination of the Voting
Agreement, in no event shall Global take any actions that, taken together with
any transfers of shares by the Principal Shareholders under the Voting
Agreement, cause the shares subject to the Voting Agreement to constitute less
than the Required Global Vote.
4.3 Advice of Changes; Governmental Filings. Each party shall (a) confer on a
regular and frequent basis with the other and (b) report (to the extent
permitted by law or regulation or any applicable confidentiality agreement) on
operational matters. Frontier and Global shall file all reports required to be
filed by each of them with the SEC (and all other Governmental Entities)
between the date of this Agreement and the Effective Time and shall (to the
extent permitted by law or regulation or any applicable confidentiality
agreement) deliver to the other party copies of all such reports, announcements
and publications promptly after the same are filed. Subject to applicable laws
relating to the exchange of information, each of Frontier and Global shall have
the right to review in advance, and will consult with the other with respect
to, all the information relating to the other party and each of their
respective Subsidiaries, which appears in any filings, announcements or
publications made with, or written materials submitted to, any third party or
any Governmental Entity in connection with the transactions contemplated by
this Agreement. In exercising the foregoing right, each of the parties hereto
agrees to act reasonably and as promptly as practicable. Each party agrees
that, to the extent practicable and as timely as practicable, it will consult
with, and provide all appropriate and necessary assistance to, the other party
with respect to the obtaining of all permits, consents, approvals and
authorizations of all third parties and Governmental Entities necessary or
advisable to consummate the transactions contemplated by this Agreement and
each party will keep the other party informed of the status of matters relating
to completion of the transactions contemplated hereby.
4.4 Transition Planning; Continued Operations of Frontier. Frontier and
Global shall collectively appoint eight (8) officers, to be evenly divided
between Frontier and Global, to serve from time to time as their respective
representatives on a committee that will be responsible for coordinating
transition planning and implementation relating to the Merger.
4.5 Services Agreement. Frontier and Global will exercise reasonable good
faith efforts as soon as practicable after execution of this Agreement to
negotiate and finalize a Services Agreement pursuant to which each party shall
provide certain services to the other consistent with the terms included in the
Term Sheet attached as Exhibit 4.5 hereto.
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4.6 Control of Other Party's Business. Nothing contained in this Agreement
shall give Frontier, directly or indirectly, the right to control or direct
Global's operations prior to the effective time. nothing contained in this
agreement shall give Global, directly or indirectly, the right to control or
direct Frontier's operations prior to the Effective Time. Prior to the
Effective Time, each of Frontier and Global shall exercise, consistent with the
terms and conditions of this Agreement, complete control and supervision over
its respective operations.
ARTICLE V
ADDITIONAL AGREEMENTS
5.1 Preparation of Proxy Statement; Shareholders Meetings.
(a) As promptly as practicable following the date hereof, Global shall, in
cooperation with Frontier, prepare and file with the SEC preliminary proxy
materials which shall constitute the Joint Proxy Statement/Prospectus (such
proxy statement/prospectus, and any amendments or supplements thereto, the
"Joint Proxy Statement/Prospectus") and a registration statement on Form S-4
with respect to the issuance of Global Common Stock in the Merger (the "Form S-
4"). The Joint Proxy Statement/Prospectus will be included in the Form S-4 as
Global's prospectus. The Form S-4 and the Joint Proxy Statement/Prospectus
shall comply as to form in all material respects with the applicable provisions
of the Securities Act and the Exchange Act and the rules and regulations
thereunder. Each of Global and Frontier shall use all reasonable efforts to
have the Form S-4 cleared by the SEC as promptly as practicable after filing
with the SEC and to keep the Form S-4 effective as long as is necessary to
consummate the Merger. Global shall, as promptly as practicable after receipt
thereof, provide copies of any written comments received from the SEC with
respect to the Joint Proxy Statement/Prospectus to Frontier and advise Frontier
of any oral comments with respect to the Proxy Statement/Prospectus received
from the SEC. Global agrees that none of the information supplied or to be
supplied by Global for inclusion or incorporation by reference in the Joint
Proxy Statement/Prospectus and each amendment or supplement thereto, at the
time of mailing thereof and at the time of the Frontier Shareholders Meeting or
the Global Shareholders Meeting, will contain an untrue statement of a material
fact or omit to state a material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading. Frontier agrees that none of the
information supplied or to be supplied by Frontier for inclusion or
incorporation by reference in the Joint Proxy Statement/Prospectus and each
amendment or supplement thereto, at the time of mailing thereof and at the time
of the Frontier Shareholders Meeting or the Global Shareholders Meeting, will
contain an untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein, in
light of the circumstances under which they were made, not misleading. For
purposes of the foregoing, it is understood and agreed that information
concerning or related to Global and the Global Shareholders Meeting will be
deemed to have been supplied by Global and information concerning or related to
Frontier and the Frontier Shareholders Meeting shall be deemed to have been
supplied by Frontier. Global will provide Frontier with a reasonable
opportunity to review and comment on any amendment or supplement to the Joint
Proxy Statement/Prospectus prior to filing such with the SEC, and will provide
Frontier with a copy of all such filings made with the SEC. No amendment or
supplement to the information supplied by Frontier for inclusion in the Joint
Proxy Statement/Prospectus shall be made without the approval of Frontier,
which approval shall not be unreasonably withheld or delayed.
(b) Subject to Sections 5.1(c), 5.5 and 7.1(f), Frontier shall, as promptly
as practicable following the execution of this Agreement, duly call, give
notice of, convene and hold a meeting of its shareholders (the "Frontier
Shareholders Meeting") for the purpose of obtaining the Required Frontier Vote
with respect to the transactions contemplated by this Agreement, shall take all
lawful action to solicit the adoption of this Agreement by the Required
Frontier Vote and the Board of Directors of Frontier shall recommend adoption
of this Agreement by the Shareholders of Frontier. Without limiting the
generality of the foregoing but subject to its rights pursuant to Sections 5.5
and 7.1(f), Frontier agrees that its obligations pursuant to the first sentence
of
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this Section 5.1(b) shall not be affected by the commencement, public proposal,
public disclosure or communication to Frontier of any Acquisition Proposal.
(c) Notwithstanding Section 5.1(b) hereof, it is the intention of the parties
that the Frontier Shareholders Meeting be scheduled to the extent reasonably
practicable such that it shall occur reasonably proximate to the Effective
Time: provided that to the extent not prohibited by law, Frontier shall duly
call, give notice of, convene and hold the Frontier Shareholders Meeting within
120 days following the occurrence of a Trigger Event (as defined in Section
8.11); provided, however, that if a Trigger Event has occurred and the
Applicable Closing Conditions (as defined in Section 8.11) have been satisfied,
then Frontier shall, as promptly as practicable, duly call, give notice of,
convene and hold the Frontier Shareholders Meeting.
(d) Global shall, as promptly as practicable following the execution of this
Agreement, duly call, give notice of, convene and hold a meeting of its
Shareholders (the "Global Shareholders Meeting") for the purpose of obtaining
the Required Global Vote, shall take all lawful action to solicit the approval
of the Share Issuance and the Global Charter Amendment by the Required Global
Vote and the Board of Directors of Global shall recommend approval of the
transactions contemplated by this Agreement by the shareholders of Global. Not
withstanding the foregoing, Global shall not be obligated to duly call, give
notice of, convene and hold the Global Shareholders Meeting until such time as
Frontier is obligated to do the same with respect to the Frontier Shareholders
Meeting.
(e) Global may elect to duly call, give notice of, convene and hold the
Global Shareholders Meeting prior to the Frontier Shareholders Meeting (an
"Early Global Meeting") for the purposes of approving the Alternative Merger
(in addition to the Share Issuance and the Global Charter Amendment),
notwithstanding that no Alternative Merger Notice has been delivered to Global.
If Global elects to hold an Early Global Meeting, then Frontier shall (i)
cooperate in the formation of New Global and (ii) assist Global in the
preparation of an appropriate registration statement for the issuance of New
Global Common Stock that will accompany the proxy statement/prospectus for the
Early Global Meeting; provided that Global shall pay the SEC filing fee with
respect thereto. In the event that the Early Global Meeting is held and the
actions presented to Global Shareholders are approved at such meeting, then
subsequently Global shall not call, give notice of, convene or hold any meeting
of Global Shareholders at which action would be taken which would reasonably be
expected to cause the conditions set forth in Section 6.3 to fail to become
satisfied.
5.2 Global Board of Directors; Officers; Head Quarters of Frontier Sub. At or
prior to the Effective Time, the Board of Directors of Global will take all
action necessary to (i) elect four (4) individuals to be designated by Frontier
as members of the Board of Directors of Global to serve in the classes set
forth in Exhibit 5.2 hereto, (ii) elect Joseph P. Clayton as Vice Chairman of
Global and (iii) elect Rolla P. Huff as President and Chief Operating Officer
of North American Operations of Global. The headquarters of Frontier Sub shall
remain in Rochester, New York.
5.3 Access to Information. Upon reasonable notice, each party shall (and
shall cause its Subsidiaries to) afford to the officers, employees,
accountants, counsel, financial advisors and other representatives of the other
party reasonable access during normal business hours, during the period prior
to the Effective Time, to all its properties, books, contracts, commitments and
records and, during such period, such party shall (and shall cause its
Subsidiaries to) furnish promptly to the other party (a) a copy of each report,
schedule, registration statement and other document filed, published, announced
or received by it during such period pursuant to the requirements of Federal or
state securities laws, as applicable (other than documents which such party is
not permitted to disclose under applicable law), and (b) consistent with its
legal obligations, all other information concerning its business, properties
and personnel as such other party may reasonably request; provided, however,
that either party may restrict the foregoing access to the extent that (i) a
Governmental Entity requires such party or any of its Subsidiaries to restrict
access to any properties or information reasonably related to any such contract
on the basis of applicable laws and regulations with respect to national
security matters, (ii) any law, treaty, rule or regulation of any Governmental
Entity applicable to such party requires such party or its Subsidiaries to
restrict access to any properties or information or (iii) such party or its
Subsidiaries is bound by
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a confidentiality agreement that requires such party or its Subsidiaries to
restrict such access. The parties will hold any such information which is non-
public in confidence to the extent required by, and in accordance with, the
provisions of the letter dated November 30, 1998 between Frontier and Global
(the "Confidentiality Agreement"). Any investigation by Global or Frontier
shall not affect the representations and warranties of Frontier or Global, as
the case may be.
5.4 Reasonable Best Efforts.
(a) Subject to the terms and conditions of this Agreement, each party will
use its reasonable best efforts to take, or cause to be taken, all actions and
to do, or cause to be done, all things necessary, proper or advisable under
applicable laws and regulations to consummate the Merger (or the Alternative
Merger, as the case may be) and the other transactions contemplated by this
Agreement as soon as practicable after the date hereof. In furtherance and not
in limitation of the foregoing, each party hereto agrees (i) to make an
appropriate filing of a Notification and Report Form pursuant to the HSR Act
with respect to the transactions contemplated hereby as promptly as practicable
after the date hereof and to supply as promptly as practicable any additional
information and documentary material that may be requested pursuant to the HSR
Act and to take all other actions necessary to cause the expiration or
termination of the applicable waiting periods under the HSR Act as soon as
practicable and (ii) to file all necessary applications for Required Consents
at the FCC, PUCs and local franchising authorities with respect to the
transactions contemplated hereby as promptly as practical after the date
hereof. Nothing in this Section 5.4(a) shall require any of Global and its
Subsidiaries to sell or otherwise dispose of, or permit the sale or other
disposition of, any assets of Global, Frontier or their respective
Subsidiaries, whether as a condition to obtaining any approval from a
Governmental Entity or any other Person or for any other reason, if Global
reason ably determines that such sale or other disposition would reasonably be
expected to have a Material Adverse Effect on Global and its Subsidiaries
(including the Surviving Corporation and its Subsidiaries), taken together,
after giving effect to the Merger.
(b) Each of Global and Frontier shall, in connection with the efforts
referenced in Section 5.4(a) to obtain all requisite approvals and
authorizations for the transactions contemplated by this Merger Agreement under
the HSR Act or any other Regulatory Law (as defined below), use its reasonable
best efforts to (i) cooperate in all respects with each other in connection
with any filing or submission and in connection with any investigation or other
inquiry, including any proceeding initiated by a private party, (ii) promptly
inform the other party of any communication received by such party from, or
given by such party to, the FCC, PUCs, the Antitrust Division of the Department
of Justice (the "DOJ") or any other Govern mental Entity and of any material
communication received or given in connection with any proceeding by a private
party, in each case regarding any of the transactions contemplated hereby, and
(iii) permit the other party to review any communication given by it to, and
consult with each other in advance of any meeting or conference with, the FCC,
PUCs, the DOJ or any such other Governmental Entity or, in connection with any
proceeding by a private party, with any other Person, and to the extent
permitted by the FCC, PUCs, the DOJ or such other applicable Governmental
Entity or other Person, give the other party the opportunity to attend and
participate in such meetings and conferences. For purposes of this Agreement,
"Regulatory Law" means the Sherman Act, as amended, the Clayton Act, as
amended, the HSR Act, the Federal Trade Commission Act, as amended, the
Communications Act, Bermuda law (including the filing of the requisite
Memorandum of Increase with the Registrar of Companies in Bermuda and the
approval of the Share Issuance (and the subsequent free transferability of the
corresponding shares between nonresident persons for exchange control purposes)
by the Bermuda Monetary Authority), and all other federal, state and foreign,
if any, statutes, rules, regulations, orders, decrees, administrative and
judicial doctrines and other laws that are designed or intended to prohibit,
restrict or regulate actions having the purpose or effect of monopolization or
restraint of trade or lessening of competition, whether in the communications
industry or otherwise through merger or acquisition.
(c) In furtherance and not in limitation of the covenants of the parties
contained in Sections 5.4(a) and 5.4(b), if any administrative or judicial
action or proceeding, including any proceeding by a private party, is
instituted (or threatened to be instituted) challenging any transaction
contemplated by this Agreement as violative of any Regulatory Law, each of
Global and Frontier shall cooperate in all respects with each other and
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use its respective reasonable best efforts to contest and resist any such
action or proceeding and to have vacated, lifted, reversed or over turned any
decree, judgment, injunction or other order, whether temporary, preliminary or
permanent, that is in effect and that prohibits, prevents or restricts
consummation of the transactions contemplated by this Agreement.
Notwithstanding the foregoing or any other provision of this Agreement, nothing
in this Section 5.4 shall limit a party's right to terminate this Agreement
pursuant to Section 7.1(b) or 7.1(c) so long as such party has up to then
complied in all respects with its obligations under this Section 5.4.
(d) If any objections are asserted with respect to the transactions
contemplated hereby under any Regulatory Law or if any suit is instituted by
any Governmental Entity or any private party challenging any of the
transactions contemplated hereby as violative of any Regulatory Law, each of
Global and Frontier shall use its reasonable best efforts to resolve any such
objections or challenge as such Governmental Entity or private party may have
to such transactions under such Regulatory Law so as to permit consummation of
the transactions contemplated by this Agreement.
5.5 Acquisition Proposals. Frontier agrees that neither it nor any of its
Subsidiaries nor any of the officers and directors of it or its Subsidiaries
shall, and that it shall direct and use its best efforts to cause its and its
Subsidiaries' employees, agents and representatives (including any investment
banker, attorney or accountant retained by it or any of its Subsidiaries) not
to, directly or indirectly, initiate, solicit, encourage or knowingly
facilitate (including by way of furnishing information) any inquiries or the
making of any proposal or offer with respect to a merger, reorganization, share
exchange, consolidation, business combination, recapitalization, liquidation,
dissolution or similar transaction involving, or any purchase or sale of all or
any significant portion of the assets or more than 20% of the common stock of,
it or any of its Subsidiaries (any such proposal or offer (other than a
proposal or offer made by Global or an affiliate thereof) being hereinafter
referred to as an "Acquisition Proposal"). Frontier further agrees that neither
it nor any of its Subsidiaries nor any of the officers and directors of it or
its Subsidiaries shall, and that it shall direct and use its best efforts to
cause its and its Subsidiaries' employees, agents and representatives
(including any investment banker, attorney or accountant retained by it or any
of its Subsidiaries) not to, directly or indirectly, have any discussion with
or provide any confidential information or data to any Person relating to an
Acquisition Proposal, or engage in any negotiations concerning an Acquisition
Proposal, or knowingly facilitate any effort or attempt to make or implement an
Acquisition Proposal or accept an Acquisition Proposal. Notwithstanding the
foregoing, Frontier or its Board of Directors shall be permitted to (A) to the
extent applicable, comply with Rule 14d-9 and Rule 14e-2(a) promulgated under
the Exchange Act with regard to an Acquisition Proposal, (B) in response to an
unsolicited bona fide written Acquisition Proposal by any Person, recommend
approval of such an unsolicited bona fide written Acquisition Proposal to the
shareholders of Frontier or withdraw or modify in any adverse manner the
Frontier Board Approval, or (C) engage in any discussions or negotiations with,
or provide any information to, any Person in response to an unsolicited bona
fide written Acquisition Proposal by any such Person, if and only to the extent
that, in any such case as is referred to in clause (B) or (C), (i) the Frontier
Shareholders Meeting shall not have occurred, (ii) the Board of Directors of
Frontier concludes in good faith that such Acquisition Proposal (x) in the case
of clause (B) above would, if consummated, constitute a Superior Proposal (as
defined in Section 8.11) or (y) in the case of clause (C) above could
reasonably be expected to constitute a Superior Proposal, (iii) prior to
providing any information or data to any Person in connection with an
Acquisition Proposal by any such Person, the Board of Directors of Frontier
receives from such Person an executed confidentiality agreement on terms
substantially similar to those contained in the Confidentiality Agreement
(except as to the standstill provisions, provided that if under the
aforementioned circumstances Frontier enters into any such confidentiality
agreement without standstill provisions substantially similar to those
contained in the Confidentiality Agreement, then Global shall to the extent of
the difference be relieved of compliance with the Confidentiality Agreement's
standstill provisions), and (iv) prior to providing any information or data to
any Person or entering into discussions or negotiations with any Person, the
Board of Directors of Frontier notifies Global promptly of such inquiries,
proposals or offers received by, any such information requested from, or any
such discussions or negotiations sought to be initiated or continued with, any
of its representatives indicating, in connection with such notice, the name of
such Person and the material
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terms and conditions of any proposals or offers. Frontier agrees that it will
keep Global informed, on a current basis, of the status and terms of any such
proposals or offers and the status of any such discussions or negotiations.
Frontier agrees that it will immediately cease and cause to be terminated any
existing activities, discussions or negotiations with any parties conducted
heretofore with respect to any Acquisition Proposal. Frontier agrees that it
will take the necessary steps to promptly inform the individuals or entities
referred to in the first sentence of this Section 5.5 of the obligations
undertaken in this Section 5.5. Nothing in this Section 5.5 shall (x) permit
Frontier to terminate this Agreement (except as specifically provided in
Article VII hereof) or (y) affect any other obligation of Frontier under this
Agreement.
5.6 Assumption of Frontier Stock Options and Warrants; Other Stock Plans;
Employee Benefits Matters.
(a) Options and Warrants; Other Stock Plans. Global shall assume the Frontier
Stock Options and Warrants on the terms set forth in Exhibit 5.6 hereto.
Frontier and Global agree that Frontier's other stock plans and treatment of
Frontier's officers and employees shall be as set forth in Exhibit 5.6 hereto.
Frontier and Global shall take all such steps as may be required to cause the
transactions contemplated by this Section 5.6 and any other dispositions of
Frontier equity securities (including derivative securities) or acquisitions of
Global equity securities (including derivative securities) in connection with
this Agreement by each individual who (a) is a director or officer of Frontier
or (b) at the Effective Time, will become a director or officer of Global, to
be exempt under Rule 16b-3 promulgated under the Securities Exchange Act of
1934, as amended, including, without limitation, steps to be taken in
accordance with the No-Action Letter dated January 12, 1999, issued by the SEC
to Skadden, Arps, Slate, Meagher & Flom LLP.
(b) Employee Benefits.
(i) Obligations of Global; Comparability Of Benefits. Each Frontier
Benefit Plan as to which Frontier or any of its Subsidiaries has any
obligation with respect to any current or former employee (the "Frontier
Employees") shall, as of the Effective Time, be the obligations of Global
and the Surviving Corporation. At the Effective Time and for at least two
years thereafter, Global shall, or shall cause the Surviving Corporation
to, provide benefits, in the aggregate, that are no less favorable than the
benefits provided, in the aggregate, under such Frontier Benefit Plans to
the Frontier Employees immediately prior to the Effective Time.
Notwithstanding the foregoing, nothing herein shall require (A) the
continuation of any particular Frontier Plan or prevent the amendment or
termination thereof (subject to the maintenance, in the aggregate, of the
benefits as provided in the preceding sentence) or (B) require Global or
the Surviving Corporation to continue or maintain any stock purchase or
other equity plan related to the equity of Frontier or the Surviving
Corporation; provided, however, that the Surviving Company shall maintain,
for a period of two (2) years following the Effective Time, substantially
in the form in effect at the Effective Time (except for amendments required
by applicable law), the Employee Telecommunications Benefit program, the
Educational Assistance Fund, the Educational Assistance Program, the
Executive Perquisite program and the Change in Control Severance Plan for
Salary Band Levels 25 and Above. In the event of any sale, transfer or
other disposition of any of the businesses or operations of Frontier or the
Surviving Corporation (whether by merger, sale of stock or assets or
otherwise) prior to the second anniversary of the Effective Time, Global
shall cause any such purchaser to assume and perform all obligations of
Global under this Section 5.6(b) for not less than the balance of the
period ending on the second anniversary of the Effective Time.
(ii) Pre-Existing Limitations; Deductible; Service Credit. With respect
to any Global Benefit Plans in which the Frontier Employees participate
effective as of the Closing Date or thereafter, Global shall, or shall
cause the Surviving Corporation to: (A) not impose any limitations more
onerous than those currently in effect as to pre-existing conditions,
exclusions and waiting periods with respect to participation and coverage
requirements applicable to the Frontier Employees under any welfare Global
Benefit Plan in which such employees may be eligible to participate after
the Effective Time, (B) provide each Frontier Employee with credit for any
co-payments and deductibles paid prior to the Effective Time in satisfying
any applicable deductible or out-of-pocket requirements under any welfare
Global Benefit
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Plan in which such employees may be eligible to participate after the
Effective Time, and (C) recognize all service of the Frontier Employees
with Frontier for all purposes (including, without limitation, purposes of
eligibility to participate, vesting credit, entitlement for benefits, and
benefit accrual) in any Global Benefit Plan in which such employees may be
eligible to participate after the Effective Time, to the same extent taken
into account under a comparable Frontier Plan immediately prior to the
Closing Date.
(iii) Change In/Of Control. Frontier and Global agree that, for purposes
of the Frontier Benefit Plans, the consummation of the transactions
contemplated by this Agreement shall constitute a Change in Control or
Change of Control, as applicable under such Frontier Benefit Plans.
(iv) Retention Bonus Programs. The transition committee appointed
pursuant to Section 4.4 shall jointly administer how the retention bonus
programs of $35 million in the aggregate to employees of Frontier at the
level of VP-2 and below will be administered.
5.7 Fees And Expenses. Whether or not the Merger is consummated, all Expenses
incurred in connection with this Agreement and the transactions contemplated
hereby shall be paid by the party incurring such Expenses, except (a) if the
Merger is consummated, the Surviving Corporation shall pay, or cause to be
paid, any and all property or transfer taxes imposed on Frontier or its
Subsidiaries and any real property transfer tax imposed on any holder of shares
of capital stock of Frontier resulting from the Merger, (b) Expenses incurred
in connection with the filing, printing and mailing of the Joint Proxy
Statement/Prospectus, which shall be shared equally by Global and Frontier and
(c) as provided in Section 7.2. As used in this Agreement, "Expenses" includes
all out-of-pocket expenses (including, without limitation, all fees and
expenses of counsel, accountants, investment bankers, experts and consultants
to a party hereto and its affiliates) incurred by a party or on its behalf in
connection with or related to the authorization, preparation, negotiation,
execution and performance of this Agreement and the transactions contemplated
hereby, including the preparation, printing, filing and mailing of the Joint
Proxy Statement/Prospectus and the solicitation of shareholder approvals and
all other matters related to the transactions contemplated hereby.
5.8 Directors' and Officers' Indemnification and Insurance. The Surviving
Corporation shall cause to be maintained in effect in its certificate of
incorporation and by-laws (i) for a period of six years after the Effective
Time, the current provisions regarding elimination of liability of directors
and indemnification of officers, directors and employees contained in the
certificate of incorporation and by-laws of Frontier and (ii) for a period of
six years, the current policies of directors' and officers' liability insurance
and fiduciary liability insurance maintained by Frontier (provided that the
Surviving Corporation may substitute therefor policies of at least the same
coverage and amounts containing terms and conditions which are, in the
aggregate, no less advantageous to the insured) with respect to claims arising
from facts or events that occurred on or before the Effective Time; provided,
however, that in no event shall the Surviving Corporation be required to expend
in any one year an amount in excess of 200% of the annual premiums currently
paid by Frontier for such insurance; and, provided, further, that if the annual
premiums of such insurance coverage exceed such amount, the Surviving
Corporation shall be obligated to obtain a policy with the greatest coverage
available for a cost not exceeding such amount. The provisions of the
immediately preceding sentence shall be deemed to have been satisfied if
prepaid policies have been obtained by Frontier prior to the Closing for
purposes of this Section 5.8, which policies provide such directors and
officers with coverage for an aggregate period of six years with respect to
claims arising from facts or events that occurred on or before the Effective
Time, including, without limitation, in respect of the transactions
contemplated by this Agreement and for a premium not in excess of the aggregate
of the premiums set forth in the preceding sentence. If such prepaid policies
have been obtained by Frontier prior to the Closing, Global shall and shall
cause the Surviving Corporation to maintain such policies in full force and
effect, and continue to honor Frontier's obligations thereunder.
5.9 Redemption of Frontier Preferred Stock. At or prior to the mailing of the
Joint Proxy Statement/Prospectus by Frontier in accordance with Section 5.1,
Frontier shall mail a notice of redemption of the Frontier Preferred Stock to
all holders of the Frontier Preferred Stock and shall set aside all funds
necessary for such redemption prior to the Frontier Shareholders Meeting and
shall take all other actions as are necessary
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to redeem all the Frontier Preferred Stock then outstanding, using its own
cash, and in compliance with the applicable provisions as set forth in its
restated certificate of incorporation.
5.10 Public Announcements. Frontier and Global shall use all reasonable
efforts to develop a joint communications plan and each party shall use all
reasonable efforts (i) to ensure that all press releases and other public
statements with respect to the transactions contemplated hereby shall be
consistent with such joint communications plan, and (ii) unless otherwise
required by applicable law or by obligations pursuant to any listing agreement
with or rules of any securities exchange or NASDAQ, to consult with each other
before issuing any press release or otherwise making any public statement with
respect to this Agreement or the transactions contemplated hereby.
5.11 Accountants' Letters. Upon reasonable notice from the other, Frontier
and Global shall use their respective reasonable best efforts to cause
PricewaterhouseCoopers LLP and Arthur Andersen & Co., respectively, to deliver
to Frontier or Global, as the case may be, a letter, dated within two business
days of the Effective Time of the Form S-4 covering such matters as are
requested by Global or Frontier, as the case may be, and as are customarily
addressed in accountant's "comfort" letters. In connection with Frontier's
efforts to obtain such letter, if requested by PricewaterhouseCoopers LLP,
Global shall provide a representation letter to PricewaterhouseCoopers LLP
complying with the statement on Auditing Standards No. 72 ("SAS 72"), if then
required. In connection with Global's efforts to obtain such letter, if
requested by Arthur Andersen & Co., Frontier shall provide a representation
letter to Arthur Andersen & Co. complying with SAS 72, if then required.
5.12 Listing of Shares of Global Common Stock. Global shall use its best
efforts to cause the shares of Global Common Stock to be issued in the Merger
and the shares of Global Common Stock to be reserved for issuance upon exercise
of the Frontier Stock Options to be approved for quotation, upon official
notice of issuance, on NASDAQ.
5.13 Voting Trust. If at any time prior to the Frontier Share holders
Meeting, a third party shall make an unsolicited tender or exchange offer to
acquire control of Frontier, which offer is not recommended by Frontier's Board
of Directors, then Global and Frontier will use their reasonable best efforts
to consummate the transactions contemplated hereby by implementing a "voting
trust" or similar structure permitting consummation of the transactions
contemplated hereby prior to the receipt of final FCC and PUC approvals.
ARTICLE VI
CONDITIONS PRECEDENT
6.1 Conditions to Each Party's Obligation to Effect the Merger. The
obligations of Frontier, Global and Merger Sub to effect the Merger are subject
to the satisfaction or waiver of, on or prior to the Closing Date, of the
following conditions:
(a) Shareholder Approval. (i) Frontier shall have obtained the Required
Frontier Vote in connection with the adoption of this Agreement by the
shareholders of Frontier and (ii) (x) if the Merger is to be effected, Global
shall have obtained the Required Global Vote in connection with the approval of
the Share Issuance and the Global Charter Amendment by the shareholders of
Global, or (y) if the Alternative Merger is to be effected, Global shall have
obtained the required Global Vote in connection with the Alternative Merger.
(b) No Injunctions or Restraints, Illegality. No Laws shall have been adopted
or promulgated, and no temporary restraining order, preliminary or permanent
injunction or other order issued by a court or other Govern mental Entity of
competent jurisdiction shall be in effect, having the effect of making the
Merger illegal or otherwise prohibiting consummation of the Merger; provided,
however, that the provisions of this Section 6.1(b) shall not be available to
any party whose failure to fulfill its obligations pursuant to Section 5.4
shall have been the cause of, or shall have resulted in, such order or
injunction.
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(c) FCC and Public Utility Commission Approvals. All approvals for the Merger
from the FCC and PUCs shall have been obtained (i) other than those the failure
of which to be obtained would not reasonably be expected to have, individually
or in the aggregate, a Material Adverse Effect on Global and its Subsidiaries
(including following the Merger the Surviving Corporation and its
Subsidiaries), taken together, and (ii) without the imposition of conditions
that would individually or in the aggregate, reasonably be expected to have a
Material Adverse Effect on Global and its Subsidiaries (including following the
Merger, the Surviving Corporation and its Subsidiaries), taken together.
(d) HSR Act. The waiting period (and any extension thereof) applicable to the
Merger under the HSR Act shall have been terminated or shall have expired.
(e) NASDAQ Listing. The shares of Global Common Stock to be issued in the
Merger and such other shares to be reserved for issuance in connection with the
Merger shall have been approved upon official notice of issuance for quotation
on NASDAQ.
(f) Effectiveness of the Form S-4. The Form S-4 shall have been declared
effective by the SEC under the Securities Act. No stop order suspending the
effectiveness of the Form S-4 shall have been issued by the SEC and no
proceedings for that purpose shall have been initiated or threatened by the
SEC.
(g) Bermuda Approval. The Share Issuance (and the subsequent free
transferability of the corresponding shares between nonresident persons for
exchange control purposes) shall have been approved by the Bermuda Monetary
Authority.
6.2 Additional Conditions to Obligations of Global and Merger Sub. The
obligations of Global and Merger Sub to effect the Merger are subject to the
satisfaction of, on or waiver by Global, on or prior to the Closing Date, of
the following conditions:
(a) Representations and Warranties. (i) Each of the representations and
warranties of Frontier set forth in this Agreement that is qualified as to
Material Adverse Effect shall have been true and correct on the date of this
Agreement and (except to the extent such representations and warranties speak
as of a specified date) shall also be true and correct on and as of the Closing
Date, and (ii) each of the representations and warranties of Frontier that is
not so qualified shall have been true and correct in all material respects on
the date of this Agreement and (except to the extent such representations and
warranties speak as of a specified date) shall also be true and correct in all
material respects on and as of the Closing Date provided that clause (ii) of
this paragraph (a) shall be deemed satisfied so long as all failures of such
representations and warranties referred to therein to be so true and correct,
taken together, would not reasonably be expected to have a Material Adverse
Effect on Frontier; and Global shall have received a certificate of the chief
executive officer and the chief financial officer of Frontier to the effect of
the foregoing.
(b) Performance of Obligations of Frontier. Frontier shall have performed or
complied with all agreements and covenants required to be performed by it under
this Agreement at or prior to the Closing Date that are qualified as to
materiality and shall have performed or complied in all material respects with
all other agreements and covenants required to be performed by it under this
Agreement at or prior to the Closing Date that are not so qualified as to
materiality, and Global shall have received a certificate of the chief
executive officer and the chief financial officer of Frontier to such effect.
(c) Tax Opinion. Global shall have received from Skadden, Arps, Slate,
Meagher & Flom LLP, counsel to Global and Merger Sub, on the Closing Date, a
written opinion dated as of such date substantially in the form of (i) Section
6.2(c)(i) of the Global Disclosure Schedule with respect to the Merger or (ii)
Section 6.2(c)(ii) of the Global Disclosure Schedule with respect to the
Alternative Merger, as the case may be. In rendering such opinion, counsel to
Global shall be entitled to rely upon representations of officers of Global and
Frontier satisfactory to it and substantially in the form of Section 6.2(c)(1)
of the Global Disclosure
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Schedule or Section 6.2(c)(2) of the Frontier Disclosure Schedule, respectively
(allowing for such amendments to the representations as counsel to Global deems
necessary or appropriate).
(d) Redemption of Frontier Preferred Stock. Frontier shall have redeemed all
of the Frontier Preferred Stock.
6.3 Additional Conditions to Obligations of Frontier. The obligations of
Frontier to effect the Merger are subject to the satisfaction of, or waiver by
Frontier, on or prior to the Closing Date of the following additional
conditions:
(a) Representations And Warranties. (i) Each of the representations and
warranties of Global and Merger Sub set forth in this Agreement that is
qualified as to Material Adverse Effect shall have been true and correct on the
date of this Agreement and (except to the extent such representations and
warranties speak as of a specified date) shall also be true and correct on and
as of the Closing Date, and (ii) each of the representations and warranties of
each of Global and Merger Sub that is not so qualified shall have been true and
correct in all material respects on the date of this Agreement and (except to
the extent such representations and warranties speak as of a specified date)
shall also be true and correct in all material respects on and as of the
Closing Date provided that clause (ii) of this paragraph (a) shall be deemed
satisfied so long as all failures of such representations and warranties
referred to therein to be so true and correct, taken together, would not
reasonably be expected to have a Material Adverse Effect on Global; and
Frontier shall have received a certificate of the chief executive officer and
the chief financial officer of Global to the effect of the foregoing.
(b) Performance of Obligations of Global. Global shall have performed or
complied with all agreements and covenants required to be performed by it under
this Agreement at or prior to the Closing Date that are qualified as to
materiality and shall have performed or complied in all material respects with
all agreements and covenants required to be performed by it under this
Agreement at or prior to the Closing Date that are not so qualified as to
materiality, and Frontier shall have received a certificate of the chief
executive officer and the chief financial officer of Global to such effect.
(c) Tax Opinion. Frontier shall have received from Simpson Thacher &
Bartlett, counsel to Frontier, on the Closing Date, a written opinion dated as
of such date substantially in the form of (i) Section 6.3(c)(i) of the Frontier
Disclosure Schedule with respect to the Merger or (ii) Section 6.3(c)(ii) of
the Frontier Disclosure Schedule with respect to the Alternative Merger, as the
case may be. In rendering such opinion, counsel to Frontier shall be entitled
to rely upon representations of officers of Global and Frontier satisfactory to
it and substantially in the form of Section 6.2(c)(1) of the Global Disclosure
Schedule or 6.2(c)(2) of the Frontier Disclosure Schedule, respectively
(allowing for such amendments to the representations as counsel to Frontier
deems necessary or appropriate).
ARTICLE VII
TERMINATION AND AMENDMENT
7.1 Termination. This Agreement may be terminated at any time prior to the
Effective Time, by action taken or authorized by the Board of Directors of the
terminating party or parties, and except as provided below, whether before or
after approval of the matters presented in connection with the Merger by the
shareholders of Frontier or Global:
(a) By mutual written consent of Global and Frontier, by action of their
respective Boards of Directors;
(b) By either Frontier or Global if the Effective Time shall not have
occurred on or before the first anniversary date of this Agreement (the
"Termination Date"); provided, however, in the event that a Trigger Event had
occurred and is no longer in effect, the Termination Date shall be the later of
(i) the first anniversary date of this Agreement, or (ii) 180 days after the
date on which the Trigger Event is no longer in effect,
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provided further, that the right to terminate this Agreement under this Section
7.1(b) shall not be available to any party whose failure to fulfill any
obligation under this Agreement (including without limitation Section 5.4) has
to any extent been the cause of, or resulted in, the failure of the Effective
Time to occur on or before the Termination Date;
(c) By either Frontier or Global if any Governmental Entity (i) shall have
issued an order, decree or ruling or taken any other action (which the parties
shall have used their reasonable best efforts to resist, resolve or lift, as
applicable, in accordance with Section 5.4) permanently restraining, enjoining
or otherwise prohibiting the transactions contemplated by this Agreement, and
such order, decree, ruling or other action shall have become final and
nonappealable or (ii) shall have failed to issue an order, decree or ruling or
to take any other action (which order, decree, ruling or other action the
parties shall have used their reasonable best efforts to obtain, in accordance
with Section 5.4), in each case of (i) and (ii) which is necessary to fulfill
the conditions set forth in subsections 6.1(c) and (d), as applicable, and such
denial of a request to issue such order, decree, ruling or take such other
action shall have become final and nonappealable; provided, however, that the
right to terminate this Agreement under this Section 7.1(c) shall not be
available to any party whose failure to comply with Section 5.4 has to any
extent been the cause of such action or inaction;
(d) By either Frontier or Global if (i) the approval by the share holders of
Frontier required for the consummation of the Merger shall not have been
obtained by reason of the failure to obtain the Required Frontier Vote or (ii)
the approval by the shareholders of Global required for the consummation of the
Merger shall not have been obtained by reason of the failure to obtain the
Required Global Vote, in each case upon the taking of such vote at a duly held
meeting of shareholders of Frontier or Global, as the case may be, or at any
adjournment thereof;
(e) By Global if the Board of Directors of Frontier, prior to the Frontier
Shareholders Meeting (i) shall withdraw or modify in any adverse manner the
Frontier Board Approval, (ii) shall approve or recommend a Superior Proposal
pursuant to Section 5.5 or (iii) shall resolve to take any of the actions
specified in clauses (i) or (ii) above;
(f) By Frontier at any time prior to the Frontier Shareholders Meeting, upon
three Business Days' prior notice to Global, if the Board of Directors of
Frontier shall approve a Superior Proposal; provided, however, that (i)
Frontier shall have complied with Section 5.5, (ii) the Board of Directors of
Frontier shall have concluded in good faith, after giving effect to all
concessions which may be offered by Global pursuant to clause (iii) below, on
the basis of the advice of its financial advisors and outside counsel, that
such proposal is a Superior Proposal and (iii) prior to any such termination,
Frontier shall, and shall cause its financial and legal advisors to, negotiate
with Global to make such adjustments in the terms and conditions of this
Agreement as would enable Global to proceed with the transactions contemplated
hereby; provided, however, that it shall be a condition to termination by
Frontier pursuant to this Section 7.l(f) that Frontier shall have made the
payment of the Termination Fee to Global required by Section 7.2(b);
(g) By Frontier, if its Board of Directors so determines by a vote of the
majority of the members of its entire Board, at any time during the three-
Business Day period commencing on the Determination Date (the "Frontier
Evaluation Period"), if the Average Price is less than $34.5625, subject,
however, to the following: (A) if Frontier elects to exercise its termination
right pursuant to this Section 7.1(g), it shall give Global written notice of
its intention to terminate (the "Termination Notice"), which termination shall
be effective at the close of business on the third Business Day following the
delivery of the Termination Notice (which Termination Notice may be withdrawn
by Frontier at any time prior to the effectiveness of such termination), (B)
during the two-Business Day period commencing with the delivery of a
Termination Notice (the "Global Election Period"), Global shall have the option
of (x) adjusting the Exchange Ratio to equal the quotient determined by
dividing $62.00 by the Average Price (rounded to the nearest 1/10,000) by
delivering written notice to Frontier within such two-Business Day period of
its intention to so adjust the Exchange Ratio, (y) paying Merger Consideration
consisting of shares of Global Common Stock equal to the Exchange Ratio and
cash (the "Cash Top-Up") equal to the difference between $62.00 and the
Exchange Ratio multiplied by the Average Price or
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(z) any combination of an adjustment in the Exchange Ratio and a Cash Top-Up
provided that the sum of (i) the Cash Top-Up and (ii) the Exchange Ratio, as
adjusted, multiplied by the Average Price, equals $62.00 and (C) if Global
makes an election to adjust the Exchange Ratio pursuant to the preceding clause
(B)(x) (a "Global Adjustment Election"), or to pay Merger Consideration that
includes the Cash Top-Up (the "Cash Top-Up Election") pursuant to the preceding
clause (B)(y), or a combination of an adjustment to the Exchange Ratio and a
Cash Top-Up pursuant to Clause (B)(z) a ("Combination Election"), then this
Agreement shall not terminate pursuant to this Section 7.1(g) and this
Agreement shall remain in effect in accordance with its terms (except as the
Exchange Ratio shall have been so modified or the Merger Consideration so
modified), and any references in this Agreement to "Exchange Ratio" or "Merger
Consideration," as applicable, shall thereafter be deemed to refer to the
Exchange Ratio or Merger Consideration, as applicable, as adjusted pursuant to
this Section 7.1(g). Unless the Alternative Merger is consummated pursuant to
Section 1.10 hereof and such Alternative Merger qualifies for non-recognition
treatment under Section 351 of the Code, cash paid pursuant to the Cash Top-Up
Election or the Combination Election in accordance with Sections (B)(y) or
(B)(z) of the immediately preceding sentence, shall be less than the amount,
taken together with all other cash to be paid in the Merger or the Alternative
Merger, that would result in the Merger or the Alternative Merger failing to
qualify as a reorganization under Section 368 of the Code and any reduction in
the cash paid pursuant to a Cash Top-Up shall be compensated by an adjustment
in the Exchange Ratio.
7.2 Effect of Termination.
(a) In the event of termination of this Agreement by either Frontier or
Global as provided in Section 7.1, this Agreement shall forthwith become void
and there shall be no liability or obligation on the part of Global or Frontier
or their respective officers or directors except with respect to Section
3.1(i), Section 3.2(h), the second sentence of Section 5.3, Section 5.7, this
Section 7.2 and Article VIII.
(b) Global and Frontier agree that Frontier shall pay to Global the sum of
$270 million (the "Termination Fee") solely as follows: (i) if Frontier shall
terminate this Agreement pursuant to Section 7.1(f), (ii) if (A) Frontier or
Global shall terminate this Agreement pursuant to Section 7.1(d)(i) due to the
failure of Frontier's shareholders to approve and adopt this Agreement, (B) at
any time after the date of this Agreement and at or before the time of the
event giving rise to such termination there shall exist an Acquisition Proposal
and (C) within 12 months of the termination of this Agreement, Frontier enters
into a definitive agreement with any third party with respect to an Acquisition
Proposal or an Acquisition Proposal is consummated, (iii) if Global shall
terminate this Agreement pursuant to Section 7.1(e), or (iv) if (A) Global
shall terminate this Agreement pursuant to Section 7.1(b) or Frontier or Global
shall terminate this Agreement pursuant to Section 7.1(c), (B) at any time
after the date of this Agreement and at or before the time of the event giving
rise to such termination there shall exist an Acquisition Proposal with respect
to Frontier, (C) following the existence of such Acquisition Proposal and prior
to any such termination, Frontier shall have intentionally breached (and not
cured after notice thereof) any of its material covenants or agreements set
forth in this Agreement in any material respect and (D) within 12 months of any
such termination of this Agreement, Frontier shall enter into a definitive
agreement with any third party with respect to an Acquisition Proposal or an
Acquisition Proposal is consummated.
(c) The Termination Fee required to be paid pursuant to Section 7.2(b) shall
be made prior to, and shall be a pre-condition to the effectiveness of
termination of this Agreement by Frontier pursuant to Section 7.1(f). Any other
payment required to be made pursuant to Section 7.2(b) shall be made to Global
not later than two Business Days after the entering into of a definitive
agreement with respect to, or the consummation of, an Acquisition Proposal, as
applicable, or a termination pursuant to Section 7.1(e). All payments under
this Section 7.2 to Global shall be made by wire transfer of immediately
available funds to an account designated by Global.
7.3 Amendment. This Agreement may be amended by the parties hereto, by action
taken or authorized by their respective Boards of Directors, at any time before
or after approval of the matters presented in connection with the Merger by the
shareholders of Frontier and Global, but, after any such approval, no
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amendment shall be made which by law or in accordance with the rules of any
relevant stock exchange requires further approval by such shareholders without
such further approval. This Agreement may not be amended except by an
instrument in writing signed on behalf of each of the parties hereto.
7.4 Extension; Waiver. At any time prior to the Effective Time, the parties
hereto, by action taken or authorized by their respective Boards of Directors,
may, to the extent legally allowed, (i) extend the time for the performance of
any of the obligations or other acts of the other parties hereto, (ii) waive
any inaccuracies in the representations and warranties contained herein or in
any document delivered pursuant hereto and (iii) waive compliance with any of
the agreements or conditions contained herein. Any agreement on the part of a
party hereto to any such extension or waiver shall be valid only if set forth
in a written instrument signed on behalf of such party. The failure of any
party to this Agreement to assert any of its rights under this Agreement or
otherwise shall not constitute a waiver of those rights.
ARTICLE VIII
GENERAL PROVISIONS
8.1 Non-survival of Representations, Warranties and Agreements. None of the
representations, warranties, covenants and other agreements in this Agreement
or in any instrument delivered pursuant to this Agreement, including any rights
arising out of any breach of such representations, warranties, covenants and
other agreements, shall survive the Effective Time, except for those covenants
and agreements contained herein and therein that by their terms apply or are to
be performed in whole or in part after the Effective Time and this Article
VIII. Nothing in this Section 8.1 shall relieve any party for any breach of any
representation, warranty, covenant or other agreement in this Agreement
occurring prior to termination.
8.2 Notices. All notices and other communications hereunder shall be in
writing and shall be deemed duly given (a) on the date of delivery if delivered
personally, or by telecopy or telefacsimile, upon confirmation of receipt, (b)
on the first Business Day following the date of dispatch if delivered by a
recognized next-day courier service, or (c) on the tenth Business Day following
the date of mailing if delivered by registered or certified mail, return
receipt requested, postage prepaid. All notices hereunder shall be delivered as
set forth below, or pursuant to such other instructions as may be designated in
writing by the party to receive such notice:
(a) if to Global or Global Sub, to
Global Crossing Ltd.
45 Reid Street
Wessex House
Hamilton HM 12, Bermuda
Fax: (441) 296-8606
Attention: James C. Gorton
with a copy to
Skadden, Arps, Slate, Meagher & Flom LLP
300 South Grand Avenue, Suite 3400
Los Angeles, California 90071
Fax: (213) 687-5600
Attention: Brian J. McCarthy
and an additional copy to
Skadden, Arps, Slate, Meagher & Flom LLP
One Rodney Square
P.O. Box 636
Wilmington, Delaware 19899
Fax: (302) 651-3001
Attention: Richard L. Easton
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(b) if to Frontier to
Frontier Corporation
180 South Clinton Avenue
Rochester, New York 14646
Fax: (716) 546-7823
Attention: Martin T. McCue
with a copy to
Simpson Thacher & Bartlett
425 Lexington Avenue
New York, New York 10017-3954
Fax: (212) 455-2502
Attention: Robert E. Spatt
8.3 Interpretation. When a reference is made in this Agreement to Sections,
Exhibits or Schedules, such reference shall be to a Section of or Exhibit or
Schedule to this Agreement unless otherwise indicated. The table of contents,
glossary of defined terms and headings contained in this Agreement are for
reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement. Whenever the words "include", "includes" or
"including" are used in this Agreement, they shall be deemed to be followed by
the words "without limitation".
8.4 Counterparts. This Agreement may be executed in one or more counterparts,
all of which shall be considered one and the same agreement and shall become
effective when one or more counterparts have been signed by each of the parties
and delivered to the other party, it being understood that both parties need
not sign the same counterpart.
8.5 Entire Agreement; No Third Party Beneficiaries.
(a) This Agreement, the Stock Option Agreement and the agreements referred to
in Sections 1.9, 4.5 and 5.3 constitute the entire agreement and supersede all
prior agreements and understandings, both written and oral, among the parties
with respect to the subject matter hereof, other than the Confidentiality
Agreement, which shall survive the execution and delivery of this Agreement.
(b) This Agreement shall be binding upon and inure solely to the benefit of
each party hereto, and nothing in this Agreement, express or implied, is
intended to or shall confer upon any other Person any right, benefit or remedy
of any nature whatsoever under or by reason of this Agreement, other than
Section 5.8 (which is intended to be for the benefit of the Persons covered
thereby and may be enforced by such Persons).
8.6 Governing Law. This Agreement shall be governed and construed in
accordance with the laws of the State of New York.
8.7 Severability. If any term or other provision of this Agreement is
invalid, illegal or incapable of being enforced by any law or public policy,
all other terms and provisions of this Agreement shall nevertheless remain in
full force and effect so long as the economic or legal substance of the
transactions contemplated hereby is not affected in any manner materially
adverse to any party. Upon such determination that any term or other provision
is invalid, illegal or incapable of being enforced, the parties hereto shall
negotiate in good faith to modify this Agreement so as to effect the original
intent of the parties as closely as possible in an acceptable manner in order
that the transactions contemplated hereby are consummated as originally
contemplated to the greatest extent possible.
8.8 Assignment. Neither this Agreement nor any of the rights, interests or
obligations hereunder shall be assigned by any of the parties hereto, in whole
or in part (whether by operation of law or otherwise), without the prior
written consent of the other party, and any attempt to make any such assignment
without such
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consent shall be null and void, except that Merger Sub may assign, in its sole
discretion, any or all of its rights, interests and obligations under this
Agreement to any direct wholly owned Subsidiary of Global without the consent
of Frontier, but no such assignment shall relieve Merger Sub of any of its
obligations under this Agreement. Subject to the preceding sentence, this
Agreement will be binding upon, inure to the benefit of and be enforceable by
the parties and their respective successors and assigns.
8.9 Submission To Jurisdiction; Waivers. Each of Global and Frontier
irrevocably agrees that any legal action or proceeding with respect to this
Agreement or for recognition and enforcement of any judgment in respect hereof
brought by the other party hereto or its successors or assigns may be brought
and determined in the Courts of the State of New York, and each of Global and
Frontier hereby irrevocably submits with regard to any such action or
proceeding for itself and in respect to its property, generally and
unconditionally, to the nonexclusive jurisdiction of the aforesaid courts. Each
of Global and Frontier hereby irrevocably waives, and agrees not to assert, by
way of motion, as a defense, counter claim or otherwise, in any action or
proceeding with respect to this Agreement, (a) any claim that it is not
personally subject to the jurisdiction of the above-named courts for any reason
other than the failure to serve process in accordance with this Section 8.9,
(b) that it or its property is exempt or immune from jurisdiction of any such
court or from any legal process commenced in such courts (whether through
service of notice, attachment prior to judgment, attachment in aid of execution
of judgment, execution of judgment or otherwise), and (c) to the fullest extent
permitted by applicable law, that (i) the suit, action or proceeding in any
such court is brought in an inconvenient forum, (ii) the venue of such suit,
action or proceeding is improper and (iii) this Agreement, or the subject
matter hereof, may not be enforced in or by such courts. This Agreement does
not involve less than $250,000 and the parties intend that Section 5-1401 of
the New York General Obligations Law shall apply to this Agreement.
8.10 Enforcement. The parties agree that irreparable damage would occur in
the event that any of the provisions of this Agreement were not performed in
accordance with their specific terms. It is accordingly agreed that the parties
shall be entitled to specific performance of the terms hereof, this being in
addition to any other remedy to which they are entitled at law or in equity.
8.11 Definitions. As used in this Agreement:
(a) "Applicable Closing Conditions" means the conditions to Closing set forth
in Sections 6.1(b), 6.1(c) and 6.1(d) hereof.
(b) "Board of Directors" means the Board of Directors of any specified Person
and any committees thereof.
(c) "Business Day" means any day on which banks are not required or
authorized to close in the City of New York.
(d) "Combined Voting Power" means the combined voting power of Global Common
Stock on a fully diluted basis and for purposes of computing such "fully
diluted basis", the following shall be excluded: (i) any options, warrants or
other securities exchangeable or convertible into Global Common Stock
(collectively, "Convertible Voting Securities"), which are not and cannot
become exercisable prior to the earlier of (x) the Termination Date, or (y) the
date of the Global Shareholders Meeting, and (ii) any Convertible Voting
Securities that are held by a shareholder of Global who owns more than 200,000
shares of Global Common Stock that enters into an agreement with Global for the
benefit of Frontier and which gives Frontier the right of specific performance
thereunder, that is reasonably acceptable to Frontier, which provides that such
shareholder shall not exercise any of its Convertible Voting Securities prior
to the earlier of (x) the Termination Date or (y) the termination of the Voting
Agreement.
(e) "Material Adverse Effect" means, with respect to any entity, any adverse
change, circumstance or effect that is or is reasonably likely to be materially
adverse to the business, financial condition or results of operations of such
entity and its Subsidiaries taken as a whole, other than any change,
circumstance or effect
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relating to (i) the economy or securities markets in general or (ii) the
industries in which Global or Frontier operate and not specifically relating to
Global or Frontier.
(f) "Material Network Contract" means any material contract relating to the
construction, installation (including, but not limited to, any upgrade),
operation, maintenance, provision of capacity for, sale or use of capacity on
(including, but not limited to, the provision for web hosting services)
Frontier's fiber optic network.
(g) "Person" means an individual, corporation, company, limited liability
company, partnership, association, trust, unincorporated organization, other
entity or group (as defined in the Exchange Act).
(h) "Subsidiary" when used with respect to any party means any corporation or
other organization, whether incorporated or unincorporated, (i) of which such
party or any other Subsidiary of such party is a general partner (excluding
partnerships, the general partnership interests of which held by such party or
any Subsidiary of such party do not have a majority of the voting interests in
such partnership) or (ii) at least a majority of the securities or other
interests of which having by their terms ordinary voting power to elect a
majority of the Board of Directors or others performing similar functions with
respect to such corporation or other organization is directly or indirectly
owned or controlled by such party or by any one or more of its Subsidiaries, or
by such party and one or more of its Subsidiaries.
(i) "Superior Proposal" means a bona fide written Acquisition Proposal which
the Board of Directors of Frontier or Global, as applicable, concludes in good
faith (after consultation with its financial advisors and legal counsel),
taking into account all legal, financial, regulatory and other aspects of the
proposal and the Person making the proposal, (i) would, if consummated, result
in a transaction that is more favorable to Frontier's shareholders (in their
capacities as shareholders) from a financial point of view, than the
transactions contemplated by this Agreement and (ii) is reasonably capable of
being completed (provided that for purposes of this definition the term
Acquisition Proposal shall have the meaning assigned to such term in Section
5.5 except that the references to "20%" in the definition of "Acquisition
Proposal" shall be deemed to be a reference to "50%" and "Acquisition Proposal"
shall only be deemed to refer to a transaction involving Frontier, or with
respect to assets (including the shares of any Subsidiary of Frontier) of
Frontier and its Subsidiaries, taken as a whole, and not any of its
Subsidiaries alone).
(j) "The Other Party" means, with respect to Frontier, Global and means, with
respect to Global, Frontier.
(k) "Trigger Event" occurs when all of the following conditions are and
remain satisfied: (i) Global has consummated an acquisition of a trade or
business outside the United States consistent with its business plan and (ii)
counsel to Global and Frontier confirm that, based upon the facts and
circumstances of such acquisition, they each could render the respective
opinions required by Sections 6.2(c)(i) and 6.3(c)(i) hereof.
8.12 Other Agreements. The parties hereto acknowledge and agree that, except
as otherwise expressly set forth in this Agreement, the rights and obligations
of Frontier and Global under any other agreement between the parties shall not
be affected by any provision of this Agreement.
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IN WITNESS WHEREOF, Global, Merger Sub and Frontier have caused this
Agreement to be signed by their respective officers thereunto duly authorized,
all as of March 16, 1999.
Global Crosssing Ltd.
/s/ Thomas J. Casey
By: _________________________________
Name: Thomas J. Casey
Office:Vice Chairman
GCF Acquisition Corp.
/s/ Thomas J. Casey
By: _________________________________
Name : Thomas J. Casey
Office:Vice Chairman
Frontier Corporation
/s/ Joseph P. Clayton
By: _________________________________
Name: Joseph P. Clayton
Office:Chief Executive Officer
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CONSENT AND AMENDMENT NO. 1
Consent and Amendment No. 1, dated as of May 16, 1999 (this "Consent and
Amendment"), among Global Crossing Ltd., a Bermuda company ("Global"), GCF
Acquisition Corp., a New York corporation and a wholly owned subsidiary of
Global ("Merger Sub"), and Frontier Corporation, a New York corporation
("Frontier"), to the Agreement and Plan of Merger, dated as of March 16, 1999
(the "Original Agreement"), among Global, Merger Sub and Frontier. Capitalized
terms used but not defined herein shall have the meanings ascribed to such
terms in the Original Agreement.
WHEREAS, simultaneously with the execution hereof, Global is entering into an
Agreement and Plan of Merger (the "Second Agreement"), dated as of the date
hereof, between Global and US West, Inc. ("US West"), pursuant to which Global
and US West intend to enter into a business combination the primary economic
terms of which are summarized on a term sheet attached hereto as Schedule 1, a
Tender Offer and Purchase Agreement, dated as of the date hereof (the "Tender
Agreement"), between Global and US West, pursuant to which US West will
commence a tender offer for 9.5% of the shares of Global Common Stock at a
price of $62.75 per share and certain related agreements;
WHEREAS, Global has requested that Frontier consent to Global's entering into
the Second Agreement and the Tender Agreement, and Frontier has agreed to
consent thereto upon the terms and subject to the conditions specified in this
Consent and Amendment;
WHEREAS, in consideration for such consent, Frontier has requested and Global
has agreed to amend the Original Agreement on the terms provided herein; and
WHEREAS, the shareholders of Global who are party to the Voting Agreement
have reaffirmed the Voting Agreement in light of this Consent and Amendment,
which reaffirmation is attached hereto as Exhibit C.
NOW, THEREFORE, in consideration of the foregoing and other good and valuable
consideration, receipt of which is hereby acknowledged, the parties hereto
agree as follows:
1. Consent. Frontier hereby consents, pursuant to Sections 4.2(e), 4.2(g) and
4.2(k) and the first sentence of each of Sections 5.1(a) and 5.4 of the
Original Agreement, to the Second Agreement, on the terms contemplated by the
first recital hereof and reflected in the Second Agreement as it exists on the
date hereof in all material respects in the form attached hereto as Exhibit A,
and to the Tender Agreement, on the terms contemplated by and reflected in the
Tender Agreement as it exists on the date hereof in all material respects in
the form attached hereto as Exhibit B; provided that it is expressly understood
and agreed that Global is representing and covenanting hereby that (i) the
entering into of the Second Agreement and the Tender Agreement and the
consummation of the transactions contemplated thereby (in each case, as the
Second Agreement and the Tender Agreement exist on the date hereof or as such
agreements may be amended, modified or waived after the date hereof) do not and
will not constitute a breach by Global of any provision of the Original
Agreement, including Section 4.2(h) (other than possibly Sections 4.2(e),
4.2(g) and 4.2(k) and the first sentence of each of Sections 5.1(a) and 5.4),
either before or after this Consent and Amendment and regardless of the consent
of Frontier contained herein, (ii) Frontier's consent does not constitute a
consent to or waiver of any breach of any provision of the Original Agreement,
including Section 4.2(h), other than as set forth above with respect to
Sections 4.2(e), 4.2(g) and 4.2(k) and the first sentence of each of Sections
5.1(a) and 5.4, it being understood that Frontier's consent does not constitute
a waiver or amendment of the ongoing applicability of any such Sections, and
(iii) the record date for the shareholder vote required to be obtained by
Global under the terms of the Second Agreement, the record date for any
election to be made by shareholders under the Second Agreement and the
shareholder meeting to be held in connection therewith, shall each occur after
the Effective Time.
2. Amendment to Section 1.8(a) of the Original Agreement. Section 1.8(a) of
the Original Agreement is hereby amended by deleting such Section in its
entirety and inserting in lieu thereof the following:
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(a) At the Effective Time by virtue of the Merger and without any action
on the part of the holder thereof, each share of Frontier Common Stock
issued and outstanding immediately prior to the Effective Time (other than
shares of Frontier Common Stock owned or held directly or indirectly by
Global or directly by Frontier, all of which shall be canceled as provided
in Section 1.8(c)) shall, except as provided in Section 7.1(g), be
converted into the right to receive that number of shares of Global Common
Stock equal to the Exchange Ratio (as defined below) (the "Merger
Consideration"). "Exchange Ratio" means the quotient (rounded to the
nearest 1/10,000) determined by dividing $63.00 (or $62.00 in the event
that no shares of Global Common Stock are purchased pursuant to the tender
offer made under the terms of the Tender Agreement or any substitute or
similar offer) (in either case, as increased by 7% per annum, compounded
daily, from and after December 31, 1999 to and including the Effective
Time) (such amount, including such increase, if any, the "Specified Value")
by the Average Price as defined below. "Average Price" means the average
(rounded to the nearest 1/10,000) of the volume weighted averages (rounded
to the nearest 1/10,000) of the trading prices of Global Common Stock on
the Nasdaq National Market ("NASDAQ"), as reported by Bloomberg Financial
Markets (or such other source as the parties shall agree in writing), for
the 15 trading days randomly selected by lot by Frontier and Global
together from the 30 consecutive trading days ending on the trading day
immediately preceding the date on which all the conditions to Closing
(other than conditions that, by their terms, cannot be satisfied until the
Closing Date so long as it is reasonably apparent that such conditions will
be able to be satisfied on the Closing Date) set forth in Article VI shall
have been satisfied or waived (the "Determination Date"); Provided, that
the Exchange Ratio shall not be less than 1.1095 (or 1.0919 in the event
that no shares of Global Common Stock are purchased pursuant to the tender
offer made under the terms of the Tender Agreement or any substitute or
similar offer), or, unless Global shall have exercised its rights to make a
Global Adjustment Election or a Combination Election under Section 7.1(g),
greater than 1.8229 (or 1.7939 in the event that no shares of Global Common
stock are purchased pursuant to the tender offer made under the terms of
the Tender Agreement or any substitute or similar offer) (in the case of
the 1.8229 or the 1.7939, as increased by 7% per annum, compounded daily,
from and after December 31, 1999 to and including the Effective Time). If
prior to the Effective Time, Global should split or combine the shares of
Global Common Stock, or pay a stock dividend or other stock distribution in
shares of Global Common Stock, or otherwise change the shares of Global
Common Stock into any other securities, or make any other dividend or
distribution on the shares of Global Common Stock, then the Exchange Ratio
will be appropriately adjusted to reflect such split, combination, dividend
or other distribution or change.
3. Amendment to Section 1.10(b) of the Original Agreement. Section 1.10(b) of
the Original Agreement is hereby amended by adding the following sentence at
the end thereof:
Alternatively, Global stockholders shall exchange all of their shares
of Global capital stock for New Global capital stock pursuant to a
Scheme of Arrangement in accordance with Bermuda law.
4. Amendment to Section 4.2 of the Original Agreement. Section 4.2 of the
Original Agreement is hereby amended by inserting the words ", except as
otherwise provided herein" after the words "the Effective Time" and before the
words ", Global agrees" in the second line of the first paragraph thereof.
5. Amendment to Section 4.2(d) of the Original Agreement. Section 4.2(d) of
the Original Agreement is hereby amended by inserting the following words at
the end thereof:
; provided that, subject to the prior written consent of Frontier
(which consent shall not be unreasonably withheld or delayed), Global
shall be permitted to change its jurisdiction of incorporation by (i)
achieving a "discontinuance" under the laws of Bermuda and (ii)
continuing in, and being subject to the laws of, any other jurisdiction
6. Amendment to Section 4.2(h) of the Original Agreement. Section 4.2(h) of
the Original Agreement is hereby amended by deleting such Section in its
entirety and inserting in lieu thereof the following:
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(h) Tax-Free Qualification. Each of Global and Merger Sub shall not, and
shall not permit any of their Subsidiaries to, take any action, whether
before or after the Effective Time, that could prevent or impede the Merger
from qualifying as a reorganization under Section 368 of the Code,
including any action taken in connection with structuring or consummating
the transactions contemplated by the Second Agreement, the Tender Agreement
and any other agreements related thereto either before or after the date
hereof. Any payment of cash or other property to, or on behalf of, a
shareholder of Global in the merger contemplated by the Second Agreement
(including any payment in respect of dissenter's or appraisal rights but
excluding any cash paid in lieu of fractional shares) shall be paid by
Frontier.
7. Amendment to Section 5.2 of the Original Agreement. Section 5.2 of the
Original Agreement is hereby amended by inserting the following sentence at the
end thereof:
Global will cause at least two of the individuals designated by
Frontier pursuant to this Section 5.2 to be included as Global's
representatives on the board of directors of Parent (as defined in the
Second Agreement) pursuant to the Second Agreement.
8. Amendment to Add a New Section 5.14 to the Original Agreement. The
Original Agreement shall be amended by inserting the following new Section 5.14
immediately following Section 5.13 thereof:
5.14 Second Voting Agreement. Global represents that US West has entered
into a voting agreement, dated as of May 16, 1999 (the "Second Voting
Agreement"), with Global pursuant to which US West has agreed to vote any
shares of Global owned by it in favor of the transactions contemplated by
the Original Agreement and this Consent and Amendment and, other than in
specified circumstances, not to sell shares of Global Common Stock owned by
it prior to the consummation of the transactions contemplated in the Second
Agreement. Global agrees to enforce such provisions of the Second Voting
Agreement and that it will not waive any such provisions without the
consent of Frontier.
9. Amendment to Section 7.1(b) of the Original Agreement. Section 7.1(b) of
the Original Agreement is hereby amended by inserting the following words at
the end thereof "; provided, further, that if on the Termination Date all of
the conditions contained in Article VI have been satisfied or waived, other
than (i) conditions that, by their terms, cannot be satisfied until the Closing
Date so long as it is reasonably apparent that such conditions will be able to
be satisfied on the Closing Date and (ii) the condition specified in Section
6.1(c), then Global shall not have the right to terminate this Agreement under
this Section 7.1(b)."
10. Amendment to Section 7.1(g) of the Original Agreement. Section 7.1(g) of
the Original Agreement is hereby amended by:
a. deleting all references therein to "$62.00" and inserting in lieu thereof
the words "the Specified Value", and
b. adding the following sentence immediately preceding the last sentence:
Notwithstanding anything herein to the contrary if the Second Agreement has
not been terminated, Global shall not make the Cash Top-Up Election or the
Combination Election without the consent of Frontier, which consent shall
not be unreasonably withheld; provided that Frontier may withhold its
consent in its sole discretion if the making of either such election would
result in the conditions set forth in Section 6.2(c) or 6.3(c) of the
Original Agreement from failing to be satisfied (including by reason of the
consummation of the transactions contemplated by the Second Agreement and
the Tender Agreement).
11. Amendment to Section 8.5(b) of the Original Agreement. Section 8.5(b) of
the Original Agreement is hereby amended by deleting such section in its
entirety and inserting in lieu thereof the following:
(b) This Agreement shall be binding upon and inure solely to the benefit
of each party hereto, and nothing in this Agreement, express or implied, is
intended to or shall confer upon any other Person any right, benefit or
remedy of any nature whatsoever under or by reason of this Agreement other
than Section
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5.8 (which is intended to be for the benefit of the Persons covered thereby
("Section 5.8 Persons") and may be enforced directly or indirectly by, or
by a representative of, such Persons against Global and its successors,
assigns and parents) and other than Sections 4.2(h) and 5.2 (which are
intended to be for the benefit of Persons who, immediately prior to the
Effective Time, were Frontier shareholders ("Former Frontier Shareholders")
and may be enforced directly or indirectly by, or by a representative of, a
Former Frontier Shareholder following the Effective Time against Global and
its successors, assigns and parents). It is the intent of this Agreement
(a) to create a right to direct, indirect and representative action by
Former Frontier Shareholders against Global and its successors, assigns and
parents with respect to Sections 4.2(h) and 5.2 and Section 5.8 Persons
with respect to Section 5.8 and (b) that the Former Frontier Shareholders
are third party beneficiaries with respect to Section 4.2(h) and 5.2 and
Section 5.8 Persons are third party beneficiaries with respect to Section
5.8. Global agrees that its agreements contained in Section 8.9 of the
Agreement shall also cover any legal action or proceeding by a Former
Frontier Shareholder or a Section 5.8 Person under this Section 8.5(b).
12. Authorization, Execution and Delivery; No Conflicts. (a) This Consent and
Amendment has been duly authorized, executed and delivered by each party hereto
and constitutes a valid and binding agreement of each such party, enforceable
against such party in accordance with its terms, except as such enforceability
may be limited by bankruptcy, insolvency, reorganization, moratorium and
similar laws relating to or affecting creditors generally, by general equity
principles (regardless of whether such enforceability is considered in a
proceeding in equity or at law) or by an implied covenant of good faith and
fair dealing.
(b) The execution and delivery of this Consent and Amendment does not or will
not, as the case may be, and the consummation of the transactions contemplated
hereby will not, conflict with, or result in a Violation pursuant to: (A) any
provision of the constituent documents of each party hereto, or (B) except as
would not have a Material Adverse Effect on such party and, subject to
obtaining or making the consents, approvals orders, authorizations,
registrations, declarations and filings referred to in paragraph (c) below, any
loan or credit agreement, note, mortgage, bond, indenture, lease, benefit plan
or other agreement, obligation, instrument, permit, concession, franchise,
license, judgment, order, decree, statute, law, ordinance, rule or regulation
applicable to such party or any Subsidiary of such party or their respective
properties or assets.
(c) No consent, approval, order or authorization of, or registration,
declaration or filing with, any Governmental Entity is required by or with
respect to any party hereto or any Subsidiary of such party in connection with
the execution and delivery of this Consent and Amendment by such party or the
consummation of the transactions contemplated hereby, except for the Required
Consents and such consents, approvals, orders, authorizations, registrations,
declarations and filings the failure of which to make or obtain would not have
a Material Adverse Effect on such party.
13. Effective Date; No Other Consents or Amendments. Each of the parties
hereto agrees that the consent under and amendments to the Original Agreement
contained herein shall be effective upon execution of this Consent and
Amendment by each party hereto. Except as expressly amended hereby, the
provisions of the Original Agreement are and shall remain in full force and
effect. This Consent and Amendment shall not be deemed to constitute a waiver
of, or consent to, or a modification or amendment of, any other provision of
the Original Agreement except as expressly provided herein or to prejudice any
other right or rights which any party may now have or may have in the future
under or in connection with the Original Agreement. This Consent and Amendment
shall not constitute an agreement or obligation of any party to consent to,
waive, modify or amend any other term, condition, subsection or section of the
Original Agreement.
14. Governing Law. This Agreement shall be governed and construed in
accordance with the laws of the State of New York.
15. Counterparts. This Agreement may be executed in one or more counterparts,
and by the different parties hereto in separate counterparts, each of which
when executed shall be deemed to be an original but all of which taken together
shall constitute one and the same agreement.
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IN WITNESS WHEREOF, Global, Merger Sub and Frontier have caused this Consent
and Amendment to be executed as of the date first written above by their
respective officers thereunto duly authorized.
Global Crossing Ltd.
/s/ Thomas J. Casey
By: ________________________
Name:Thomas J. Casey
Title:Vice Chairman
GCF Acquisition Corp.
/s/ Thomas J. Casey
By: ________________________
Name:Thomas J. Casey
Title:Vice Chairman
Frontier Corporation
/s/ Joseph P. Clayton
By: ________________________
Name:Joseph P. Clayton
Title:Chief Executive
Officer
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<PAGE>
ANNEX B
STOCK OPTION AGREEMENT
STOCK OPTION AGREEMENT, dated as of March 16, 1999 (the "Agreement"), by and
between Frontier Corporation, a New York corporation ("Issuer"), and Global
Crossing Ltd., a company formed under the laws of Bermuda ("Grantee").
WHEREAS, Issuer, Grantee and GCF Acquisition Corp., a New York corporation
("Sub"), which is a direct wholly owned subsidiary of Grantee, propose to enter
into an Agreement and Plan of Merger, dated as of the date hereof (the "Merger
Agreement"; capitalized terms used but not defined herein shall have the
meanings set forth in the Merger Agreement), providing for, among other things,
a merger (the "Merger") of Sub with and into Issuer .
WHEREAS, as a condition and inducement to Grantee's willingness to enter into
the Merger Agreement, Grantee has requested that Issuer agree, and Issuer has
agreed, to grant Grantee the Option (as defined below).
NOW, THEREFORE, in consideration of the foregoing and the respective
representations, warranties, covenants and agreements set forth herein and in
the Merger Agreement, Issuer and Grantee agree as follows:
1. Grant of Option. Subject to the terms and conditions set forth herein,
Issuer hereby grants to Grantee an irrevocable option (the "Option") to
purchase up to 34,291,944 shares (the "Option Shares") of common stock, par
value $1.00 per share, of Issuer (the "Shares") (being 19.9% of the number of
Shares outstanding on the date hereof before such issuance), together with the
associated purchase rights (the "Rights") under the Rights Agreement, dated as
of April 9, 1995, as amended from time to time, between Issuer and First
National Bank of Boston, as Rights Agent (references to the Option Shares shall
be deemed to include the associated Rights), at a purchase price of $62.00 per
Option Share (such price, as adjusted if applicable, the "Purchase Price"). The
number of Option Shares that may be received upon the exercise of the Option
and the Purchase Price are subject to adjustment as set forth herein.
2. Exercise of Option. (a) If not in material breach of the Merger Agreement,
Grantee may exercise the Option, in whole or in part, at any time or from time
to time following the occurrence of a Purchase Event (as defined below);
provided that, except as otherwise provided herein, the Option shall terminate
and be of no further force and effect upon the earliest to occur of (i) the
Effective Time, (ii) 15 months after the first occurrence of a Purchase Event
(or if, at the expiration of such 15-months after the first occurrence of a
Purchase Event, the Option cannot be exercised by reason of any applicable
judgment, decree, order, law or regulation, 10 business days after such
impediment to exercise shall have been removed, but in no event under this
clause (ii) later than the second anniversary of the date hereof), (iii)
termination of the Merger Agreement under circumstances which do not and cannot
result in Grantee's becoming entitled to receive the Termination Fee from
Issuer pursuant to Section 7.2(b) of the Merger Agreement; or (iv) 12 months
after the termination of the Merger Agreement under circumstances which could
result in Grantee's becoming entitled to receive the Termination Fee from
Issuer pursuant to Section 7.2(b)(ii) or 7.2(b)(iv), unless during such 12-
month period, a Purchase Event shall occur. The termination of the Option shall
not affect any rights hereunder which by their terms extend beyond the date of
such termination.
(b) As used herein, a "Purchase Event" means the termination of the Merger
Agreement under any circumstance which would or could entitle Grantee to
receive the Termination Fee from Issuer pursuant to Section 7.2(b) of the
Merger Agreement; provided, that if the Merger Agreement is terminated under
circumstances which could result in Grantee's becoming entitled to receive the
Termination Fee from Issuer pursuant to Section 7.2(b)(ii) or 7.2(b)(iv) a
Purchase Event shall not occur unless and until Issuer shall have entered into
a definitive agreement with a third party with respect to an Acquisition
Proposal or an Acquisition Proposal shall have been consummated during the 12
months following such termination of the Merger Agreement.
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(c) In the event Grantee wishes to exercise the Option, it shall send to
Issuer a written notice (the date of which being herein referred to as the
"Notice Date") specifying (i) the total number of Option Shares it intends to
purchase pursuant to such exercise and (ii) a place and date not earlier than
three business days nor later than 20 business days from such Notice Date for
the closing of such purchase (a "Closing"; and the date of such Closing, a
"Closing Date"); provided that such closing shall be held only if (A) such
purchase would not otherwise violate or cause the violation of applicable law
(including the HSR Act), (B) no law, rule or regulation shall have been adopted
or promulgated, and no temporary restraining order, preliminary or permanent
injunction or other order, decree or ruling issued by a court or other
governmental authority of competent jurisdiction shall be in effect, which
prohibits delivery of such Option Shares (and the parties hereto shall use
their reasonable best efforts to have any such order, injunction, decree or
ruling vacated or reversed) and (C) any prior notification to or approval of
any other regulatory authority in the United States or elsewhere required in
connection with such purchase shall have been made or obtained. If the Closing
cannot be consummated by reason of a restriction set forth in clause (A), (B)
or (C) above, notwithstanding the provisions of Section 2(a), the Closing shall
be held within 10 business days following the elimination of such restriction.
3. Payment and Delivery of Certificates. On each Closing Date, Grantee shall
pay to Issuer in immediately available funds by wire transfer to a bank account
designated by Issuer an amount equal to the Purchase Price multiplied by the
Option Shares to be purchased on such Closing Date.
(b) At each Closing, simultaneously with the delivery of immediately
available funds as provided in Section 3(a), Issuer shall deliver to Grantee a
certificate or certificates representing the Option Shares to be purchased at
such Closing, which Option Shares shall be free and clear of all liens, charges
or encumbrances ("Liens"), and Grantee shall deliver to Issuer a letter
agreeing that Grantee shall not offer to sell or otherwise dispose of such
Option Shares in violation of applicable law or the provisions of this
Agreement.
(c) Certificates for the Option Shares delivered at each Closing shall be
endorsed with a restrictive legend which shall read substantially as follows:
THE TRANSFER OF THE STOCK REPRESENTED BY THIS CERTIFICATE IS SUBJECT TO
RESTRICTIONS ARISING UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND
PURSUANT TO THE TERMS OF A STOCK OPTION AGREEMENT DATED AS OF MARCH 16,
1999. A COPY OF SUCH AGREEMENT WILL BE PROVIDED TO THE HOLDER HEREOF
WITHOUT CHARGE UPON RECEIPT BY THE ISSUER OF A WRITTEN REQUEST THEREFOR.
It is understood and agreed that (i) the reference to restrictions arising
under the Securities Act in the above legend shall be removed by delivery of
substitute certificate(s) without such reference if Grantee shall have
delivered to Issuer a copy of a letter from the staff of the SEC, or an opinion
of counsel in form and substance reasonably satisfactory to Issuer and its
counsel, to the effect that such legend is not required for purposes of the
Securities Act and (ii) the reference to restrictions pursuant to this
Agreement in the above legend shall be removed by delivery of substitute
certificate(s) without such reference if the Option Shares evidenced by
certificate(s) containing such reference have been sold or transferred in
compliance with the provisions of this Agreement under circumstances that do
not require the retention of such reference.
4. Authorized Stock. Issuer hereby represents and warrants to Grantee that
Issuer has taken all necessary corporate and other action to authorize and
reserve and to permit it to issue, at all times from the date hereof until the
obligation to deliver Shares upon the exercise of the Option terminates, will
have reserved for issuance, upon exercise of the Option, Shares necessary for
Grantee to exercise the Option, and Issuer will take all necessary corporate
action to authorize and reserve for issuance all additional Shares or other
securities which may be issued pursuant to Section 6 upon exercise of the
Option. The Shares to be issued upon due exercise of the Option, including all
additional Shares or other securities which may be issuable upon exercise of
the Option pursuant to Section 6, upon issuance pursuant hereto, shall be duly
and validly issued, fully paid and nonassessable, and shall be delivered free
and clear of all Liens, including any preemptive rights of any shareholder of
Issuer.
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<PAGE>
5. Purchase Not for Distribution. Grantee hereby represents and warrants to
Issuer that any Option Shares or other securities acquired by Grantee upon
exercise of the Option will not be taken with a view to the public distribution
thereof and will not be transferred or otherwise disposed of except in a
transaction registered or exempt from registration under the Securities Act.
6. Adjustment upon Changes in Capitalization, etc. In the event of any change
in Shares by reason of reclassification, recapitalization, stock split, split-
up, combination, exchange of shares, stock dividend, dividend, dividend payable
in any other securities, or any similar event, the type and number of Shares or
securities subject to the Option, and the Purchase Price therefor (including
for purposes of repurchase thereof pursuant to Section 7), shall be adjusted
appropriately, and proper provision shall be made in the agreements governing
such transaction, so that Grantee shall receive upon exercise of the Option the
number and class of shares or other securities or property that Grantee would
have received in respect of Shares if the Option had been exercised immediately
prior to such event or the record date therefor, as applicable. If any
additional Shares are issued after the date of this Agreement (other than
pursuant to an event described in the immediately preceding sentence), the
number of Shares subject to the Option shall be adjusted so that immediately
prior to such issuance, it equals 19.9% of the number of Shares then issued and
outstanding.
7. Repurchase of Option and Option Shares. (a) Notwithstanding the provisions
of Section 2(a), at any time commencing upon the first occurrence of a
Repurchase Event (as defined below) and ending 12 months thereafter, Issuer (or
any successor entity thereof) shall:
(i) at the request of Grantee, repurchase from Grantee the Option (if and
to the extent not previously exercised or terminated) at a price equal to
the excess, if any, of (x) the Applicable Price (as defined below) as of
the Section 7 Request Date (as defined below) for a Share over (y) the
Purchase Price (subject to adjustment pursuant to Section 6), multiplied by
the number of Shares with respect to which the Option has not been
exercised (the "Option Repurchase Price"); and
(ii) at the request of an owner of Option Shares from time to time,
repurchase all but not less than all of the Option Shares owned directly or
indirectly by such owner at a price equal to the Applicable Price as of the
Section 7 Request Date multiplied by the number of Option Shares owned
directly or indirectly by such owner (the "Option Share Repurchase Price").
(b) Notwithstanding the provisions of Section 2(a), at any time following the
occurrence of a Purchase Event, Issuer (or any successor entity thereof) may,
at its election, repurchase the Option (if and to the extent not previously
exercised or terminated) or all but not less than all of the Option Shares at
the Option Repurchase Price or the Option Share Repurchase Price, as the case
may be.
(c) In connection with any exercise of rights under this Section 7, Issuer
shall, within 10 business days after the Section 7 Request Date, pay the Option
Repurchase Price or Option Share Repurchase Price, as the case may be, in
immediately available funds, and Grantee or such owner, as the case may be,
shall surrender to Issuer the Option or the Option Shares, as the case may be.
(d) For purposes of this Agreement, the following terms have the following
meanings:
(i) "Applicable Price", as of any date, means the highest of (A) the
highest price per Share paid pursuant to a tender offer or exchange offer
for Shares after the date hereof and on or prior to such date, (B) the
highest price per Share to be paid by any third party for Shares or the
consideration per Share to be received by holders of Shares, in each case
pursuant to an agreement for an Acquisition Proposal with Issuer entered
into on or prior to such date or (C) the highest closing price per Share as
reported on the New York Stock Exchange Inc. ("NYSE") Composite Tape or if
the Shares are not listed on the NYSE, the highest bid price per Share as
quoted on the National Association of Securities Dealers Automated
Quotations System or, if the Shares are not quoted thereon, on the
principal trading market on which such Shares are traded as reported by a
recognized source during the 60 business days preceding such date. If the
consideration to be offered, paid or received pursuant to either of the
foregoing clauses (A) or (B) shall
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<PAGE>
be other than in cash, the value of such consideration shall be determined
in good faith by an independent nationally recognized investment banking
firm selected by Grantee and reasonably acceptable to Issuer.
(ii) A "Repurchase Event" occurs when the Termination Fee is paid or
becomes due and payable to Grantee from Issuer pursuant to Section 7(b) of
the Merger Agreement.
(iii) "Section 7 Request Date" means the date on which Issuer, Grantee or
an owner of Option Shares, as the case may be, exercises its rights under
this Section.
8. Registration Rights. Issuer shall, if requested by Grantee or any owner
of: Option Shares (collectively with Grantee, the "Owners") at any time and
from time to time within two years of the first exercise of the Option, as
expeditiously as possible prepare and file up to two registration statements
under the Securities Act if such registration is necessary in order to permit
the sale or other disposition of any or all shares of securities that have been
acquired by or are issuable to such Owners upon exercise of the Option in
accordance with the intended method of sale or other disposition stated by such
Owners, including a "shelf" registration statement under Rule 415 under the
Securities Act or any successor provision, and Issuer shall use all reasonable
efforts to qualify such shares or other securities under any applicable state
securities laws. Issuer shall use all reasonable efforts to cause each such
registration statement to become effective, to obtain all consents or waivers
of other parties which are required therefor and to keep such registration
statement effective for such period not in excess of 180 days from the day such
registration statement first becomes effective as may be reasonably necessary
to effect such sale or other disposition. The obligations of Issuer hereunder
to file a registration statement and to maintain its effectiveness may be
suspended for one or more periods of time not exceeding 30 days in the
aggregate if the Board of Directors of Issuer shall have determined that the
filing of such registration statement or the maintenance of its effectiveness
would require disclosure of nonpublic information that would materially and
adversely affect Issuer. Any registration statement prepared and filed under
this Section 8, and any sale covered thereby, shall be at Issuer's expense
except for underwriting discounts or commissions, brokers' fees and the
reasonable fees and disbursements of Owners' counsel related thereto. The
Owners shall provide all information reasonably requested by Issuer for
inclusion in any registration statement to be filed hereunder. If during the
time period referred to in the first sentence of this Section 8 Issuer effects
a registration under the Securities Act of Shares for its own account or for
any other stockholders of Issuer (other than on Form S-4 or Form S-8, or any
successor form), it shall allow the Owners the right to participate in such
registration, and such participation shall not affect the obligation of Issuer
to effect two registration statements for the Owners under this Section 8;
provided that, if the managing underwriters of such offering advise Issuer in
writing that in their opinion the number of Shares requested to be included in
such registration exceeds the number which can be sold in such offering without
adversely affecting the offering price, Issuer and the Owners shall each reduce
on a pro rata basis the Shares to be included therein on their respective
behalf. In connection with any registration pursuant to this Section 8, Issuer
and the Owners shall provide each other and any underwriter of the offering
with customary repre sentations, warranties, covenants, indemnification and
contribution in connection with such registration.
9. Listing; Reasonable Best Efforts. (a) If Shares or any other securities to
be acquired upon exercise of the Option are then listed on the NYSE or any
other securities exchange or market, Issuer, upon the request of any Owner,
will promptly file an application to list the Shares or other securities to be
acquired upon exercise of the Options on the NYSE or such other securities
exchange or market and will use its reasonable best efforts to obtain approval
of such listing as soon as practicable.
(b) Issuer will use its reasonable best efforts to take, or cause to be
taken, all actions and to do, or cause to be done, all things necessary, proper
or advise under applicable laws and regulations to permit the exercise of the
Option or the Substitute Option in accordance with the terms and conditions
hereof, as soon as practicable after the date hereof, including making any
appropriate filing pursuant to the HSR Act and any other applicable law,
supplying as promptly as practicable any additional information and documentary
material that may be requested pursuant to the HSR Act and any other applicable
law, and taking all other actions necessary to cause the expiration or
termination of the applicable waiting periods under the HSR Act as soon as
practicable.
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10. Limitation of Grantee Profit. (a) Notwithstanding any other provisio
herein, in no event shall Grantee's Total Profit (as defined below) exceed $275
million (the "Maximum Profit") and, if it otherwise would exceed such amount,
Grantee, at its sole discretion, shall either (i) reduce the number of Shares
subject to the Option, (ii) deliver to Issuer for cancellation Shares (or other
securities into which such Option Shares are converted or exchanged), (iii) pay
cash to Issuer, or (iv) any combination of the foregoing, so that Grantee's
actually realized Total Profit shall not exceed the Maximum Profit after taking
into account the foregoing actions.
(b) For purposes of this Agreement, "Total Profit" shall mean: (i) the
aggregate amount of (A) any excess of (x) the net cash amounts received by
Grantee pursuant to a sale of Option Shares (or securities into which such
shares are converted or exchanged) (including amounts paid to Grantee in
respect of Option Shares repurchased by Issuer pursuant to Section 7) over (y)
the Grantee's aggregate purchase price for such Option Shares (or other
securities), plus (B) any amounts received by Grantee on the repurchase of the
Option by Issuer pursuant to Section 7, plus (C) any Termination Fee received
by Grantee pursuant to Section 7.2(b) of the Merger Agreement, minus (ii) the
amounts of any cash previously paid by Grantee to Issuer pursuant to this
Section 10 plus the value of the Option Shares (or other securities) previously
delivered by Grantee to Issuer for cancellation pursuant to this Section 10.
(c) Notwithstanding any other provision of this Agreement, nothing in this
Agreement shall affect the ability of Grantee to receive, nor relieve Issuer's
obligation to pay, the Termination Fee provided for in Section 7.2(b) of the
Merger Agreement; provided that if and to the extent the Total Profit received
by Grantee would exceed the Maximum Profit following receipt of such payment,
Grantee shall be obligated to comply with the terms of Section 10(a) within 20
days of the latest of (i) the date of receipt of such payment, (ii) the date of
receipt of cash by Grantee pursuant to the sale of Option Shares (or securities
into which such Option Shares are converted or exchanged) (including amounts
paid to Grantee in respect of Option Shares repurchased by Issuer pursuant to
Section 7) and (iii) the date of receipt of cash from the repurchase of the
Option by Issuer pursuant to Section 7.
(d) For purposes of Section 10(a) and clause (ii) of Section 10(b), the value
of any Option Shares delivered by Grantee to Issuer shall be the Applicable
Value.
11. Loss, Theft, Etc. of Agreement. This Agreement (and the Option granted
hereby) is exchangeable, without expense, at the option of Grantee, upon
presentation and surrender of this Agreement at the principal office of Issuer
for other Agreements providing for Options of different denominations entitling
the holder thereof to purchase in the aggregate the same number of Shares
purchasable hereunder. The terms "Agreement" and "Option" as used herein
include any other Agreements and related Options for which this Agreement (and
the Option granted hereby) may be exchanged. Upon receipt by Issuer of evidence
reasonably satisfactory to it of the loss, theft, destruction or mutilation of
this Agreement, and (in the case of loss, theft or destruction) of reasonably
satisfactory indemnification, and upon surrender and cancellation of this
Agreement, if mutilated, Issuer will execute and deliver a new Agreement of
like tenor and date. Any such new Agreement executed and delivered shall
constitute an additional contractual obligation on the part of Issuer, whether
or not the Agreement so lost, stolen, destroyed or mutilated shall at any time
be enforceable by anyone.
12. Miscellaneous.
(a) Expenses. Except as otherwise provided in Section 9 hereof or in the
Merger Agreement, each of the parties hereto shall bear and pay all expenses
incurred by it or on its behalf in connection with the transactions
contemplated hereunder, including fees and expenses of its own financial
consultants, investment bankers, accountants and counsel.
(b) Waiver and Amendment. Any provision of this Agreement may be waived at
any time by the party that is entitled to the benefits of such provision. This
Agreement may not be modified, amended, altered or supplemented except upon the
execution and delivery of a written agreement executed by the parties hereto.
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(c) Entire Agreement; No Third-Party Beneficiary; Severability. Except as
otherwise set forth in the Merger Agreement, this Agreement, together with the
Merger Agreement (a) constitutes the entire agreement and supersedes all prior
agreements and understandings, both written and oral, between the parties with
respect to the subject matter hereof and (b) is not intended to confer upon any
person other than the parties hereto any rights or remedies hereunder. If any
term, provision, covenant or restriction of this Agreement is held by a court
of competent jurisdiction or a federal or state regulatory agency to be
invalid, void or unenforceable, the remainder of the terms, provisions,
covenants and restrictions of this Agreement shall remain in full force and
effect and shall in no way be affected, impaired or invalidated. If for any
reason such court or regulatory agency determines that the Option does not
permit Grantee to acquire, or does not require Issuer to repurchase, the full
number of Shares as provided in Sections 2 and 7, as adjusted pursuant to
Section 6, it is the express intention of Issuer to allow Grantee to acquire or
to require Issuer to repurchase such lesser number of Shares as may be
permissible without any amendment or modification hereof.
(d) Governing Law. This Agreement shall be governed and construed in
accordance with the laws of the State of New York applicable to contracts made
and to be performed therein.
(e) Descriptive Headings. The descriptive headings contained herein are for
convenience of reference only and shall not affect in any way the meaning or
interpretation of this Agreement.
(f) Notices. All notices and other communications hereunder shall be in
writing and shall be deemed given as set forth in Section 8.2 of the Merger
Agreement.
(g) Counterparts. This Agreement and any amendments hereto may be executed in
two counterparts, each of which shall be considered one and the same agreement
and shall become effective when both counterparts have been signed by each of
the parties and delivered to the other party, it being understood that both
parties need not sign the same counterpart.
(h) Assignment. Grantee may not, without the prior written consent of Issuer
(which shall not be unreasonably withheld), assign this Agreement to any other
person. This Agreement shall not be assignable by Issuer except by operation of
law. Subject to the preceding sentence, this Agreement shall be binding upon,
inure to the benefit of and be enforceable by the parties and their respective
successors and assigns.
(i) Representations and Warranties. The representations and warranties
contained in Sections 3.1(a) and 3.2(a) of the Merger Agreement, and, to the
extent they relate to this Stock Option Agreement, in Sections 3.1(b), (c), (f)
and (g) of the Merger Agreement, are incorporated herein by reference.
(j) Further Assurances. In the event of any exercise of the Option by
Grantee, Issuer and Grantee shall execute and deliver all other documents and
instruments and take all other action that may be reasonably necessary in order
to consummate the transactions provided for by such exercise.
(k) Enforcement. The parties agree that irreparable damage would occur in the
event that any of the provisions of this Agreement were not performed in
accordance with their specific terms. It is accordingly agreed that the parties
shall be entitled to specific performance of the terms hereof, this being in
addition to any other remedy to which they are entitled at law or in equity.
Both parties further agree to waive any requirement for the securing or posting
of any bond in connection with the obtaining of any such equitable relief and
that this provision is without prejudice to any other rights that the parties
hereto may have for any failure to perform this Agreement.
(l) Captions. The Article, Section and paragraph captions herein are for
convenience only, do not constitute part of this Agreement and shall not be
deemed to limit or otherwise affect any of the provisions hereof.
(m) Confidentiality Agreement. Issuer hereby waives the restric tions on
Grantee's acquisition of Shares contained in the Confidentiality Agreement to
the extent necessary to permit Grantee to exercise the Option and purchase the
Option Shares as herein provided.
B-6
<PAGE>
IN WITNESS WHEREOF, Issuer and Grantee have caused this Stock Option
Agreement to be signed by their respective officers thereunto duly authorized,
all as of March 16, 1999.
Global Crossing Ltd.
/s/ Thomas J. Casey
By: _________________________________
Name: Thomas J. Casey
Title: Vice Chairman
Frontier Corporation
/s/ Joseph P. Clayton
By: _________________________________
Name: Joseph P. Clayton
Title: Chief Executive Officer
B-7
<PAGE>
ANNEX C
VOTING AGREEMENT
VOTING AGREEMENT dated as of March 16, 1999 (this "Agreement") among those
shareholders of Global Crossing Ltd, a company formed under the laws of Bermuda
("Global"), listed on Exhibit A (each a "Shareholder," and collectively, the
"Shareholders"), Frontier Corporation, a New York corporation (together with
its successors and assigns, "Frontier"), and, as to Section 2 only, Global.
A. Each Shareholder beneficially owns shares of Common Stock, par value $.01
per share, of Global (the "Global Common Stock") set forth opposite such
shareholder's name on Exhibit A. All such shares, together with any other
shares of capital stock of Global such Shareholder hereinafter acquires, are
referred to as the "Subject Shares"; provided that any such share shall cease
to be a "Subject Share" from and after the time that such share is transferred
pursuant to Section 2 and ceases to be subject to the Voting Documents (as
defined below) in accordance with the terms of Section 2.
B. Global, GCF Acquisition Corp., a New York corporation ("Merger Sub"), and
Frontier are, simultaneously with the execution hereof, entering into an
Agreement and Plan of Merger, dated as of March 16, 1999 (the "Merger
Agreement"), providing for, among other things, the merger of Merger Sub with
and into Frontier (the "Merger"). Terms not otherwise defined in this Agreement
have the meanings stated in the Merger Agreement.
C. The Board of Directors of Global has approved an amendment to the
Memorandum of Association of Global to increase the number of authorized shares
of Global Common Stock and the transactions contemplated by the Merger
Agreement including the Merger and the Alternative Merger.
D. The Shareholders and Frontier desire to enter into this Agreement to
provide for, among other things, (1) the obligation of the Shareholders to vote
their respective Subject Shares and any other shares of Global Common Stock
which each Shareholder has the right to vote at the Global Shareholders Meeting
(or an Early Global Meeting) (the "Voting Shares") to approve the Share
Issuance, the Global Charter Amendment and, if applicable, the Alternative
Merger and (2) certain restrictions on the sale or other transfer of the record
ownership or the beneficial ownership, or both, of the Subject Shares by the
Shareholders until the termination of this Agreement. This Agreement and all
other agreements, instruments and other documents executed and delivered by the
Shareholders in connection with this Agreement are collectively referred to as
the "Voting Documents."
E. Each Shareholder acknowledges that Frontier is entering into the Merger
Agreement in reliance on the representations, warranties, covenants and other
agreements of the Shareholders set forth in this Agreement and would not enter
into the Merger Agreement if the Shareholders did not enter into this
Agreement.
AGREEMENT
The parties agree as follows:
SECTION 1. Covenants of the Shareholders
(a) Voting. Until the day following the termination of this Agreement,
subject to the receipt of proper notice and the absence of a preliminary or
permanent injunction or other final order by any United States federal court or
state court or Bermuda court barring such action, each Shareholder shall do the
following:
(1) be present, in person or represented by proxy, at each meeting
(whether annual or special, and whether or not an adjourned or postponed
meeting) of the shareholders of Global, however called, or in connection
with any written consent of the shareholders of Global, so that all Subject
Shares and Voting Shares then entitled to vote may be counted for the
purposes of determining the presence of a quorum at such meetings; and
C-1
<PAGE>
(2) at each such meeting held before the Effective Time and with respect
to each such written consent, vote (or cause to be voted), or deliver a
written consent (or cause a consent to be delivered) covering, all the
Subject Shares held by such Shareholders and all Voting Shares to approve
the Share Issuance and the Global Charter Amendment and any action required
in furtherance thereof and of the Merger and, if applicable, the
Alternative Merger, and against any action which would reasonably be
expected to result in a failure of the conditions described in Section 6.3
of the Merger Agreement to be satisfied.
(b) No Inconsistent Agreements. Until the day following the termination of
this Agreement, each Shareholder shall not enter into any voting agreement or
grant a proxy or power of attorney with respect to the Subject Shares which is
inconsistent with this Agreement.
(c) Review of Merger Agreement. Each Shareholder acknowledges receipt and
review of a copy of the Merger Agreement.
SECTION 2. Transfer of Subject Shares. During the term of this Agreement,
each Shareholder shall not transfer record ownership or beneficial ownership,
or both, of any Subject Shares except in each case to the extent permitted
below and notwithstanding anything else contained herein, at no time will the
shares of Global Common Stock subject to this Agreement be less than the
Required Global Vote. Each and any Shareholder may transfer record ownership or
beneficial ownership, or both, of any Subject Shares, and such shares shall
cease to be subject to the Voting Documents; provided, that (x) if, as a result
of such transfer, less than 51% of the Combined Voting Power would be subject
to the Voting Documents, then the Person to whom record ownership or beneficial
ownership, or both, of such shares shall be transferred shall execute and
deliver to Frontier an agreement reason ably acceptable to Frontier by which
such transferee agrees that such shares shall be Subject Shares that are
subject to the Voting Documents and agrees to be bound by Sections 1, 2 and 4
of this Agreement with respect to such shares, (y) in any event, on the record
date for the meeting of the shareholders of Global at which the Share Issuance
and the Global Charter Amendment or any other transaction contemplated by the
Merger Agreement including, if applicable, the Alternative Merger, shall be
presented for their approval or with respect to any written consent in lieu
thereof, the Subject Shares shall, in the aggregate, constitute at least 51% of
the Combined Voting Power, and (z) such Shareholder complies with the notice
provisions and receives notice from Global that such transfer is approved as
described below. If a Shareholder (the "Transferring Shareholder") desires to
transfer (the "Proposed Transfer") any Subject Shares it should deliver written
notice (the "Proposed Transfer Notice") to the Chief Financial Officer or other
appropriate official of Global as designated by the Chief Financial Officer
(the "Designated Officer") no later than 10:00 a.m. Eastern Time on the day of
the Proposed Transfer. The Designated Officer shall within five business days
of receipt of the Proposed Transfer Notice use reasonable efforts to approve
the transfer ("Transfer Approval") only if the Designated Officer determines
that the Proposed Transfer will not cause less than 51% of the Combined Voting
Power to be subject to the Voting Documents. When determining whether to
approve a Proposed Transfer, in whole or in part, pursuant to the preceding
sentence, the Designated Officer shall evaluate the Proposed Transfer Notice on
a first come, first serve basis unless more than one Proposed Transfer Notice
is received that proposes to transfer Subject Shares on the same date, in which
case, if such Proposed Transfers cannot be approved to the full extent of the
Subject Shares covered thereby, but can be approved to a lesser extent, the
Designated Officer shall approve such Proposed Transfers based on a pro rata
allocation of the Subject Shares comprising such Proposed Transfers. Promptly
upon receipt of a Proposed Transfer Notice (but in no event later than two (2)
business days prior to the delivery of the Transfer Approval), the Designated
Officer shall notify the Chief Financial Officer of Frontier of the Proposed
Transfer and provide a calculation showing the percentage of the Combined
Voting Power that will be represented by the shares of Global Common Stock
subject to the Voting Agreement after giving effect to such Proposed Transfer.
If the Designated Officer determines that he or she can grant a Transfer
Approval, such Designated Officer shall deliver written notice of such Transfer
Approval by facsimile to the Transferring Share holder with a copy to the Chief
Financial Officer of Frontier. Notwithstanding the foregoing, in no event shall
any Transferring Shareholder be permitted to transfer any Subject Shares (other
than in compliance with clause (x)) without receiving a Transfer Approval. For
the purposes of this Agreement, the term "transfer" means a sale, an
assignment, a grant, a transfer, a pledge, the creation of a lien or other
disposition of any Subject Shares
C-2
<PAGE>
or any interest of any nature in any Subject Shares, including, without
limitations, the "beneficial ownership" of such Subject Shares (as determined
pursuant to Regulation 13D-G under the Exchange Act).
Notwithstanding anything set forth in this Agreement to the contrary, and in
addition to any restrictions otherwise set forth herein, during the period
during which the Average Price is to be determined for purposes of calculating
the Exchange Ratio, each Shareholder shall not (and shall not announce an
intention to) (1) acquire any Global Common Stock in the open market, (2) sell
any shares of Global Common Stock, (3) take any other action prohibited under
Regulation M promulgated under the Securities Act or (4) make any announcement
which would reason ably be expected to have the effect of resulting in a change
in the trading prices of the Global Common Stock.
SECTION 3. Representations and Warranties of Shareholders. Each Shareholder
severally represents and warrants to Frontier as follows:
(a) Existence and Power. Each Shareholder that is a corporation (1) is a
corporation duly incorporated, validly existing and in good standing under the
laws of the State of its incorporation and (2) has all requisite corporate
power and authority to execute and deliver each Voting Document to which it is
or may become a party.
(b) Authorization; Contravention. The execution and delivery by each
Shareholder of each Voting Document and the performance by it of its
obligations under each Voting Document have, (1) in the case of each Share
holder that is a corporation, been duly authorized by all necessary corporate
action and (2) do not and will not conflict with or result in a Violation
pursuant to, (A) in the case of each Shareholder that is a corporation, any
provision of its certificate of incorporation or bylaws, or similar
organizational document, or (B) any loan or credit agreement, note, mortgage,
bond, indenture, lease, benefit plan or other agreement, obligation,
instrument, permit, concession, franchise, license, judgment, order, decree,
statute, law, ordinance, rule or regulation applicable to such Share holder,
the Subject Shares or any of such Shareholder's other properties or assets.
(c) Binding Effect. Each applicable Voting Document constitutes, or when
executed and delivered by each Shareholder will constitute a valid and binding
obligation of such Shareholder, enforceable against such Shareholder, in
accordance with its terms, except as such enforceability may be limited by
bankruptcy, insolvency, reorganization, moratorium and similar laws relating to
or affecting creditors' rights generally, by general equity principles,
(regardless of whether such enforceability is considered in a proceeding in
equity or at law) or by an implied covenant of good faith and fair dealing.
(d) Ownership. Each Shareholder is the record owner or beneficial owner of
the Subject Shares listed beside its name in Exhibit A, free and clear of liens
except with respect to pledges or other liens that such Shareholder would be
entitled to effect or create as of the date of this Agreement pursuant to the
second sentence of Section 2 and in accordance with the terms thereof. As of
the date of this Agreement, each Shareholder does not own beneficially or of
record any equity securities of Global other than the Subject Shares. No
Shareholder has appointed or granted any proxy which is still effective with
respect to its Subject Shares. Each Shareholder has sole voting power or power
to direct the vote of the Global Common Stock set forth beside its name on
Exhibit A and on the record date and the date of the Global Shareholders
Meeting at which the Share Issuance and the Global Charter Amendment and, if
applicable, the Alternative Merger, shall be presented for approval, each
Shareholder will have sole voting power or power to direct the vote of all such
Shareholder's Subject Shares.
(e) Litigation. There is no action, suit, investigation, complaint or other
proceeding pending against any Shareholder or, to the knowledge of any
Shareholder, threatened against any Shareholder or any other Person that
restricts in any material respect or prohibits (or, if successful, would
restrict or prohibit) the exercise by any party or beneficiary of its rights
under any Voting Document or the performance by any party of its obligations
under any Voting Document.
C-3
<PAGE>
SECTION 4. Miscellaneous Provisions.
(a) Notices. All notices and other communications hereunder shall be in
writing and shall be deemed duly given (1) on the date of delivery if delivered
personally, or by telecopy or telefacsimile, upon confirmation of receipt, (2)
on the first Business Day following the date of dispatch if delivered by a
recognized next-day courier service, or (3) on the tenth Business Day following
the date of mailing if delivered by registered or certified mail, return
receipt requested, postage prepaid. All notices hereunder shall be given to
Global and Frontier at its address stated in Section 8.2 of the Merger
Agreement and all notices to the Shareholders shall be given at its address in
the records of Global or, in each case, at any other address as the party may
specify for this purpose by notice to the other parties.
(b) No Waivers; Remedies; Specific Performance.
(1) No failure or delay by Frontier in exercising any right, power or
privilege under any Voting Document shall operate as a waiver of the right,
power or privilege. A single or partial exercise of any right, power or
privilege shall not preclude any other or further exercise of the right,
power or privilege or the exercise of any other right, power or privilege.
The rights and remedies provided in the Voting Documents shall be
cumulative and not exclusive of any rights or remedies provided by law.
(2) In view of the uniqueness of the agreements contained in the Voting
Documents and the transactions contemplated hereby and thereby and the fact
that Frontier would not have an adequate remedy at law for money damages in
the event that any obligation under any Voting Document is not performed in
accordance with its terms, each of the Shareholders therefore agrees that
Frontier shall be entitled to specific enforcement of the terms of each
Voting Document in addition to any other remedy to which Frontier may be
entitled, at law or in equity.
(c) Amendments, Etc. No amendment, modification, termination, or waiver of
any provision of any Voting Document, and no consent to any departure by any of
the Shareholders or Frontier from any provision of any Voting Document, shall
be effective unless it shall be in writing and signed and delivered by all the
Shareholders and Frontier, and then it shall be effective only in the specific
instance and for the specific purpose for which it is given.
(d) Successors and Assigns; Third Party Beneficiaries.
(1) No party shall assign any of its rights or delegate any of its
obligations under any Voting Document. Any assignment or delegation in
contravention of this Section 4(d) shall be void AB INITIO and shall not
relieve the assigning or delegating party of any obliga tion under any
Voting Document.
(2) The provisions of each Voting Document shall be binding upon and
inure solely to the benefit of the parties hereto, the express
beneficiaries thereof (to the extent provided therein) and their respective
permitted heirs, executors, legal representatives, successors and assigns,
and no other person.
(e) Governing Law. Each Voting Document and all rights, remedies,
liabilities, powers and duties of the parties hereto and thereto, shall be
governed in accordance with the laws of the State of New York without regard to
principles of conflicts of laws.
(f) Severability of Provision. If any term or other provi sion of any Voting
Document is invalid, illegal or incapable of being enforced by any law or
public policy, all other terms and provisions of such Voting Document shall
nevertheless remain in full force and effect so long as the economic or legal
sub stance of the transactions contemplated hereby is not affected in any
manner materially adverse to any party. Upon such determination that any term
or other provision is invalid, illegal or incapable of being enforced, the
parties shall negotiate in good faith to modify such Voting Document so as to
effect the original intent of the parties as closely as possible in an
acceptable manner in order that the transactions contemplated hereby are
consummated as originally contemplated to the greatest extent possible.
C-4
<PAGE>
(g) Headings and References. Article and section headings in any Voting
Document are included for the convenience of reference only and do not
constitute a part of the Voting Document for any other purpose. References to
parties, express beneficiaries, articles and sections in any Voting Document
are references to parties to or the express beneficiaries and sections of the
Voting Document, as the case may be, unless the context shall require
otherwise. Any of the terms defined in this Agreement may, unless the context
otherwise requires, be used in the singular or the plural, depending on the
reference. The use in this Agreement of the word "include" or "including," when
following any general statement, term or matter, shall not be construed to
limit such statement, term, or matter to the specific items or matters set
forth immediately following such word or to similar items or matters, whether
or not nonlimiting language (such as "without limitation" or "but not limited
to" or words of similar import) is used with reference thereto, but rather
shall be deemed to refer to all other items or matters that fall within the
broadest possible scope of such general statement, term or matter.
(h) Entire Agreement. The Voting Documents embody the entire agreement and
understanding of the Shareholders and Frontier, and supersede all prior
agreements or understandings, with respect to the subject matters of the Voting
Documents.
(i) Survival. Except as otherwise specifically provided in any Voting
Document, each representation, warranty or covenant of a party contained in any
Voting Document shall remain in full force and effect, notwithstanding any
investigation or notice to the contrary or any waiver by any other party or
beneficiary of a related condition precedent to the performance by the other
party or beneficiary of an obligation under any Voting Document.
(j) Submission to Jurisdiction: Waivers. Each Share holder and Frontier
irrevocably agrees that any legal action or proceeding with respect to any
voting document or for recognition and enforcement of any judgment in respect
hereto or thereof brought by the other party hereto or its successors or
assigns may be brought and determined in the courts of the State of New York,
and each Shareholder and Frontier hereby irrevocably submit with regard to any
such action or proceeding for itself and in respect to its property, generally
and unconditionally, to the non-exclusive jurisdiction of the aforesaid courts.
Each Shareholder and Frontier hereby irrevocably waives, and agrees not to
assert, by way of motion, as a defense, counterclaim or otherwise, in any
action or proceeding with respect to any Voting Document, (a) any claim that it
is not personally subject to the jurisdic tion of the above-named courts for
any reason other than the failure to serve process in accordance with this
Section 4(j), (b) that it or its property is exempt or immune from jurisdiction
of any such court or from any legal process commenced in such courts (whether
through service of notice, attachment prior to judgment, attachment in aid of
execution of judgment, execution of judgment or otherwise), and (c) to the
fullest extent permitted by applicable law, that (i) the suit, action or
proceeding in any such court is brought in an inconvenient forum, (ii) the
venue of such suit, action or proceeding is improper and (iii) such Voting
Document, or the subject matter hereof or thereof, may not be enforced in or by
such courts. This Agreement does not involve less than $250,000 and the parties
intend that Section 5-1401 of the New York General Obligations will apply to
this Agreement.
(k) Waiver of Jury Trial. Each party, and each express beneficiary of a
Voting Document as a condition of its right to enforce or defend any right
under or in connection with such Voting Document, waives any right to a trial
by jury in any Action to enforce or defend any right under any Voting Document
and agrees that any Action shall be tried before a court and not before a jury.
(l) Termination. Frontier may terminate this Agreement at any time upon
written notice to each Shareholder. Unless terminated earlier by Frontier or by
mutual agreement of the parties, this Agreement shall terminate upon the first
to occur of (i) consummation of the Merger, (ii) the termination of the Merger
Agreement pursuant to Section 7.1 thereof or (iii) the full and irrevocable
satisfaction of the condition set forth in Section 6.1(a) of the Merger
Agreement with respect to both the Merger and the Alternative Merger.
(m) Counterparts. This Agreement may be signed in any number of counterparts,
each of which shall be an originals, with the same effect as if all signatures
were on the same instrument.
C-5
<PAGE>
IN WITNESS WHEREOF, the parties have executed and delivered this Agreement as
of the date first written above.
Frontier Corporation
By: /s/ Joseph P. Clayton
---------------------------------
Name: Joseph P. Clayton
Title: Chief Executive Officer
/s/ Abbott L. Brown
-------------------------------------
Brown Living Trust
By: /s/ Abbott L. Brown
---------------------------------
Ridgestone Corp.
By: /s/ Abbott L. Brown
---------------------------------
/s/ Barry Porter
-------------------------------------
Galenight Corp.
By: /s/ Barry Porter
---------------------------------
Continental Casualty Corp.
By: /s/ Hillel Weinberger
---------------------------------
Continental Casualty Corporation
Designated High Yield
By: /s/ Hillel Weinberger
---------------------------------
Global Crossing Trust 1998
By: /s/ Hillel Weinberger
---------------------------------
Hillel Weinberger, as Trustee
C-6
<PAGE>
Global Crossing Partners
By: /s/ Hillel Weinberger
---------------------------------
As general partner
CIBC WG Argosy Merchant Fund 3, LP
By: /s/ Jay R. Bloom
---------------------------------
CIBC Wood Gundy Capital (SFC) Inc.
By: /s/ Jay R. Bloom
---------------------------------
Co-Investment Merchant Fund, LLC
By: /s/ Jay R. Bloom
---------------------------------
Global Crossing Ltd., LDC
By: /s/ Jay R. Bloom
---------------------------------
Canadian Imperial Bank of Commerce
By: /s/ Jay R. Bloom
---------------------------------
/s/ David L. Lee
-------------------------------------
David and Ellen Lee Family Trust
By: /s/ David Lee
---------------------------------
David Lee, Trustee
San Pasqual Corp.
By: /s/ David Lee
---------------------------------
/s/ Gary Winnick
-------------------------------------
C-7
<PAGE>
Pacific Capital Group, Inc.
By: /s/ Gary Winnick
---------------------------------
GKW Unified Holdings, LLC
By: Pacific Capital Group, Inc.
---------------------------------
Manager
By: /s/ Gary Winnick
---------------------------------
/s/ Lodwrick Cook
-------------------------------------
MRCo, Inc.
By: /s/ Michael R. Steed
---------------------------------
As to Section 2 only
Global Crossing Ltd.
By: /s/ Thomas J. Casey
---------------------------------
Name: Thomas J. Casey
Title: Vice Chairman
C-8
<PAGE>
EXHIBIT A
<TABLE>
<CAPTION>
Post Split
Shares
----------
<S> <C>
Brown Living Trust.................................................. 3,435,922
Ridgestone Corp..................................................... 7,765,418
----------
Total Abbott L. Brown............................................. 11,201,340
Barry Porter........................................................ 6,335,780
Galenight Corp...................................................... 11,883,968
----------
Total Barry Porter................................................ 18,219,748
Continental Casualty Corp........................................... 16,795,500
Continental Casualty Corp Designated High Yield..................... 23,279,670
Global Crossing Partners (Hillel Weinberger)........................ 486,630
Global Crossing Trust 1998 (Hillel Weinberger)...................... 2,100,000
----------
Total Continental Casualty........................................ 42,661,800
Total CIBC (including CIBC WG Argosy Merchant Fund 3, LP, CIBC Wood
Gundy Capital (SFC) Inc., Co-Investment Merchant Fund, LLC and
Global Crossing Ltd., LDC)......................................... 97,026,800
David and Ellen Lee Family Trust.................................... 5,233,234
David L. Lee........................................................ 4,869,964
San Pasqual Corp.................................................... 9,900,822
----------
Total David Lee................................................... 20,004,020
GKW Unified Holdings, LLC........................................... 77,195,744
Pacific Capital Group, Inc.......................................... 15,993,406
----------
Total Gary Winnick................................................ 93,189,150
Lodwrick Cook....................................................... 3,580,452
MRCo, Inc. ......................................................... 33,180,260
</TABLE>
C-9
<PAGE>
ANNEX D-1
SalomonSmithBarney
- ---------------------------------
A Member of TravelersGroup [LOGO]
March 16, 1999
Board of Directors
Global Crossing Ltd.
Wessex House
45 Reid Street
Hamilton, Bermuda
Members of the Board:
You have requested our opinion as to the fairness, from a financial point of
view, to Global Crossing Ltd. ("Global Crossing"), of the consideration to be
provided by Global Crossing in connection with the proposed merger of Frontier
Corporation ("Frontier") with GCF Acquisition Corp. ("Sub"), a wholly owned
subsidiary of Global Crossing (the "Merger"), pursuant to an Agreement and Plan
of Merger, dated as of March 16, 1999 (the "Merger Agreement"), among Global
Crossing, Frontier and Sub. Upon the effectiveness of the Merger, each issued
and outstanding share of common stock, par value $1.00 per share, of Frontier
("Frontier Common Stock") (other than shares owned or held directly or
indirectly by Global Crossing or directly by Frontier) will be converted into
the right to receive that number of shares of common stock, par value $0.01 per
share, of Global Crossing ("Global Crossing Common Stock") equal to the
quotient of $62.00 divided by the Average Price (as defined in the Merger
Agreement) (the "Exchange Ratio"); provided that the Exchange Ratio will not be
less than 1.0919 or, unless Global Crossing exercises certain rights provided
to it in the Merger Agreement, greater than 1.7939. We understand that the
Merger is expected to qualify, for federal income tax purposes, as a
reorganization under the provisions of Section 368(a) of the Internal Revenue
Code of 1986, as amended.
Under certain circumstances described in the Merger Agreement, the Merger may
be restructured (the "Alternative Merger") such that each of Global Crossing
and Frontier will merge with wholly owned subsidiaries of a newly formed
holding company ("New Global Crossing"). Upon the effectiveness of the
Alternative Merger, each issued and outstanding of Frontier Common Stock (other
than shares owned or held directly or indirectly by Global Crossing or directly
by Frontier) will be converted into the right to receive that number of shares
of New Global Crossing common stock equal to the Exchange Ratio and each issued
and outstanding share of Global Crossing Common Stock will be converted into
one share of New Global Crossing common stock. We understand that the
Alternative Merger is expected to qualify, for federal income tax purposes, for
non-recognition treatment under the Internal Revenue Code of 1986, as amended.
References in this opinion to the "Exchange Ratio" shall include the Exchange
Ratio in the Alternative Merger and references to the "Transaction" shall refer
to the Merger or the Alternative Merger, as the case may be.
In connection with rendering our opinion, we have reviewed certain publicly
available information concerning Global Crossing and Frontier and certain other
financial information concerning Global Crossing and Frontier, including
financial forecasts and estimated cost savings and synergies resulting from the
Transaction, that were provided to us by Global Crossing and Frontier,
respectively. We have discussed the past and current business operations,
financial condition and prospects of Global Crossing and Frontier with certain
officers and employees of Global Crossing and Frontier, respectively. We have
also considered such other information, financial studies, analyses,
investigations and financial, economic and market criteria that we deemed
relevant.
D-1
<PAGE>
In our review and analysis and in arriving at our opinion, we have assumed
and relied upon the accuracy and completeness of the information reviewed by us
for the purpose of this opinion and we have not assumed any responsibility for
independent verification of such information. With respect to the financial
forecasts of Global Crossing and Frontier and the estimated cost savings and
synergies resulting from the Transaction, we have assumed that they have been
reasonably prepared on bases reflecting best currently available estimates and
judgments of the managements of Global Crossing and Frontier, respectively, and
we express no opinion with respect to such forecasts, cost savings or synergies
or the assumptions on which they are based. We also have assumed that the
Transaction will be consummated in accordance with the terms of the Merger
Agreement. We have not made or obtained or assumed any responsibility for
making or obtaining any independent evaluation or appraisal of any of the
assets (including properties and facilities) or liabilities of Global Crossing
or Frontier.
Our opinion is necessarily based upon conditions as they exist and can be
evaluated on the date hereof. Our opinion as expressed below does not imply any
conclusion as to the likely trading range for Global Crossing Common Stock
following the consummation of the Merger or for New Global Crossing common
stock following the consummation of the Alternative Merger, as the case may be,
which may vary depending upon, among other factors, changes in interest rates,
dividend rates, market conditions, general economic conditions and other
factors that generally influence the price of securities. Our opinion does not
address Global Crossing's underlying business decision to effect the
Transaction, and we express no view on the effect on Global Crossing of the
Transaction and related transactions. Our opinion is directed only to the
fairness, from a financial point of view, of the Exchange Ratio of Global
Crossing and does not constitute a recommendation concerning how holders of
shares of Global Crossing Common Stock should vote regarding the proposed
issuance of shares of Global Crossing Common Stock pursuant to the Merger, the
Alternative Merger or any related matter.
We have acted as financial advisor to the Board of Directors of Global
Crossing in connection with the Transaction and will receive a fee for our
services, a significant portion of which is contingent upon consummation of the
Transaction. In the ordinary course of business, we and our affiliates may
actively trade the securities of Global Crossing and Frontier and their
affiliates for our own account and for the accounts of customers and,
accordingly, may at any time hold a long or short position in such securities.
Also, we and our affiliates have previously rendered investment banking and
financial advisory services to Global Crossing and Frontier and certain of
their affiliates for which we have received customary compensation. We and our
affiliates may have other business relationships with Global Crossing, Frontier
and their respective affiliates.
Based upon and subject to the foregoing, it is our opinion that, as of the
date hereof, the Exchange Ratio is fair to Global Crossing from a financial
point of view.
Very truly yours,
/s/ Salomon Smith Barney Inc.
Salomon Smith Barney Inc.
D-2
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ANNEX D-2
SalomonSmithBarney
- ---------------------------------
A Member of TravelersGroup [LOGO]
May 16, 1999
Board of Directors
Global Crossing Ltd.
Wessex House
45 Reid Street
Hamilton, Bermuda
Members of the Board:
You have requested us to confirm, in connection with our opinion addressed to
you dated March 16, 1999, that, in light of the Amendment to the Merger
Agreement (each as defined below), the Exchange Ratio (as defined in the Merger
Agreement), as revised on May 16, 1999 (the "Revised Exchange Ratio"), is fair
from a financial point of view to Global Crossing Ltd. ("Global Crossing"). We
understand that Global Crossing has entered into a Consent and Amendment dated
May 16, 1999 (the "Amendment") to the Agreement and Plan of Merger dated March
16, 1999 (as so amended, the "Merger Agreement") with Frontier Corporation
("Frontier") and GCF Acquisition Corp. ("Sub"), a wholly owned subsidiary of
Global Crossing, pursuant to which Frontier will merger with Sub (the
"Merger").
In conducting our review and analysis to provide you our opinion, we
undertook to update the factors we considered in rendering our opinion dated
March 16, 1999. We have assumed and relied upon the accuracy and completeness
of the information reviewed by us for the purpose of this opinion and we have
not assumed any responsibility for independent verification of such
information. With respect to financial forecasts of Global Crossing and
Frontier and estimated cost savings and synergies resulting from the Merger, we
have assumed that they have been reasonably prepared on bases reflecting best
currently available estimates and judgments of the managements of Global
Crossing and Frontier, respectively, and we express no opinion with respect to
such forecasts, cost savings or synergies or the assumptions on which they are
based. We also have assumed that the Merger will be consummated in accordance
with the terms of the Merger Agreement. We have not made or obtained or assumed
any responsibility for making or obtaining any independent evaluation or
appraisal of any of the assets (including properties and facilities) or
liabilities of Global Crossing or Frontier.
Our opinion is necessarily based upon conditions as they exist and can be
evaluated on the date hereof. Our opinion as expressed below does not imply any
conclusion as to the likely trading range for the common stock, par value $.01
per share, of Global Crossing ("Global Crossing Common Stock") following the
consummation of the Merger, which may vary depending upon, among other factors,
changes in interest rates, dividend rates, market conditions, general economic
conditions and other factors that generally influence the price of securities.
Our opinion does not address Global Crossing's underlying business decision to
effect the Merger, and we express no view on the effect on Global Crossing of
the Merger and related transactions. Our opinion is directed only to the
fairness, from a financial point of view, of the Revised Exchange Ratio to
Global Crossing and does not constitute a recommendation concerning how holders
of Global Crossing Common Stock should vote regarding the proposed issuance of
Global Crossing Common Stock pursuant to the Merger or any related matter.
We have acted as financial advisor to the Board of Directors of Global
Crossing in connection with the Merger and are receiving a fee for our
services, a significant portion of which is contingent upon consummation of the
Merger. In the ordinary course of business, we and our affiliates may actively
trade the
D-3
<PAGE>
securities of Global Crossing and Frontier and their affiliates for our own
account and for the accounts of customers and, accordingly, may at any time
hold a long or short position in such securities. Also, we and our affiliates
have previously rendered investment banking and financial advisory services to
Global Crossing and Frontier and certain of their affiliates for which we have
received customary compensation. We and our affiliates may have other business
relationships with Global Crossing, Frontier and their respective affiliates.
Based upon and subject to the foregoing, it is our opinion that, as of the
date hereof, the Revised Exchange Ratio is fair to Global Crossing from a
financial point of view.
Very truly yours,
/s/ Salomon Smith Barney Inc.
Salomon Smith Barney Inc.
D-4
<PAGE>
ANNEX E
[LOGO] MERRILL LYNCH
March 16, 1999
Board of Directors
Global Crossing Ltd.
Wessex House
45 Reid Street
Hamilton, Bermuda
Members of the Board of Directors:
Frontier Corporation (the "Company"), Global Crossing Ltd. (the "Acquiror")
and GCF Acquisition Corp., a newly formed, wholly owned subsidiary of the
Acquiror (the "Acquisition Sub"), have entered into an Agreement and Plan of
Merger, dated as of March 16, 1999 (the "Agreement"), pursuant to which the
Acquisition Sub will be merged with the Company in a transaction (the "Merger")
in which each outstanding share of the Company's common stock, par value $1.00
per share (the "Company Shares"), other than any Company Shares owned or held
directly or indirectly by the Acquiror or directly by the Company, will be
converted into the right to receive that number of shares of the common stock
of the Acquiror, par value $0.01 per share (the "Acquiror Shares"), equal to
the quotient of $62.00 divided by the Average Price (as defined in the
Agreement) (the "Exchange Ratio"); provided that the Exchange Ratio will not be
less than 1.0919 or, unless the Acquiror exercises certain rights provided to
it in the Agreement, greater than 1.7939. You have asked us whether, in our
opinion, the Exchange Ratio is fair from a financial point of view to the
Acquiror.
Under certain circumstances described in the Agreement, the Merger may be
restructured (the "Alternative Merger") such that each of the Acquiror and the
Company will merge with wholly owned subsidiaries of a newly formed holding
company ("New Clipper"). Upon effectiveness of the Alternative Merger, each
issued and outstanding Company Share (other than any Company Shares owned or
held directly or indirectly by the Acquiror or directly by the Company) will be
converted into the right to receive that number of shares of New Clipper common
stock equal to the Exchange Ratio, and each issued and outstanding Acquiror
Share will be converted into one share of New Clipper common stock. References
in this opinion to the "Exchange Ratio" shall include the Exchange Ratio in the
Alternative Merger, and references to the "Transaction" shall refer to the
Merger or the Alternative Merger, as the case may be.
In arriving at the opinion set forth below, we have, among other things:
(1) Reviewed certain publicly available business and financial
information relating to the Company and the Acquiror that we deemed to be
relevant;
(2) Reviewed certain information, including financial forecasts, relating
to the business, earnings, cash flow, assets, liabilities and prospects of
the Company and the Acquiror, as well as the amount and timing of the cost
savings and related expenses, including potential tax expenses, and
synergies expected to result from the Transaction (the "Expected
Synergies") furnished to us by the Company and the Acquiror, respectively;
(3) Conducted discussions with members of senior management and
representatives of the Company and the Acquiror concerning the matters
described in clauses 1 and 2 above, as well as their respective businesses
and prospects before and after giving effect to the Transaction and the
Expected Synergies;
(4) Reviewed the market prices and valuation multiples for the Company
Shares and the Acquiror Shares and compared them with those of certain
publicly traded companies that we deemed to be relevant;
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(5) Reviewed the results of operations of the Company and the Acquiror
and compared them with those of certain publicly traded companies that we
deemed to be relevant;
(6) Compared the proposed financial terms of the Transaction with the
financial terms of certain other transactions that we deemed to be
relevant;
(7) Participated in certain discussions and negotiations among
representatives of the Company and the Acquiror and their financial and
legal advisors;
(8) Reviewed the potential pro forma impact of the Transaction;
(9) Reviewed the Agreement; and
(10) Reviewed such other financial studies and analyses and took into
account such other matters as we deemed necessary, including our assessment
of general economic, market and monetary conditions.
In preparing our opinion, we have assumed and relied on the accuracy and
completeness of all information supplied or otherwise made available to us,
discussed with or reviewed by or for us, or publicly available, and we have not
assumed any responsibility for independently verifying such information or
undertaken an independent evaluation or appraisal of any of the assets or
liabilities of the Company or the Acquiror or been furnished with any such
evaluation or appraisal. In addition, we have not assumed any obligation to
conduct any physical inspection of the properties or facilities of the Company
or the Acquiror. With respect to the financial forecast information and the
Expected Synergies furnished to or discussed with us by the Company or the
Acquiror, we have assumed that they have been reasonably prepared and reflect
the best currently available estimates and judgment of the Company's or the
Acquiror's management as to the expected future financial performance of the
Company or the Acquiror, as the case may be, and the Expected Synergies. We
have further assumed that the Merger will qualify as a tax-free reorganization
for U.S. federal income tax purposes and that the Alternative Merger will
qualify for U.S. federal income tax purposes as a "transaction" within the
meaning of Section 351 of the Internal Revenue Code of 1986, as amended.
Our opinion is necessarily based upon market, economic and other conditions
as they exist and can be evaluated on, and on the information made available to
us as of, the date hereof. We have assumed that in the course of obtaining the
necessary regulatory or other consents or approvals (contractual or otherwise)
for the Transaction, no restrictions, including any divestiture requirements or
amendments or modifications, will be imposed that will have a material adverse
effect on the contemplated benefits of the Transaction.
In connection with the preparation of this opinion, we have not been
authorized by the Acquiror or the Board of Directors to solicit, nor have we
solicited, third party indications of interest for the acquisition of all or
any part of the Acquiror.
We are acting as financial advisor to the Acquiror in connection with the
Transaction and will receive a fee from the Acquiror for our services, a
significant portion of which is contingent upon the consummation of the
Transaction. In addition, the Acquiror has agreed to indemnity us for certain
liabilities arising out of our engagement. We have, in the past, provided
financing services to the Acquiror, including serving as co-lead underwriter in
connection with the Acquiror's initial public offering in August 1998, and
provided financial advisory and financing services to the Company, and may
continue to do so and have received, and may receive, fees for the rendering of
such service. In addition, in the ordinary course of our business, we may
actively trade the Company Shares and other securities of the Company, as well
as the Acquiror Shares and other securities of the Acquiror, for our own
account and for the accounts of customers and, accordingly, may at any time
hold a long or short position in such securities. As of the date hereof,
certain affiliates of Merrill Lynch & Co.'s Asset Management Group held in
various funds approximately 4.3% of the Company Shares.
This opinion is for the use and benefit of the Board of Directors of the
Acquiror. Our opinion does not address the merits of the underlying decision by
the Acquiror to engage in the Transaction and does not constitute a
recommendation to any shareholder of the Acquiror as to such shareholder should
vote on the proposed issuance of the Acquiror Shares, the proposed Alternative
Merger or any related matter.
E-2
<PAGE>
We are not expressing any opinion herein as to the prices at which the
Acquiror Shares will trade following the announcement or consummation of the
Merger or at which the shares of New Clipper common stock will trade following
the consummation of the Alternative Merger, as the case may be.
On the basis of and subject to the foregoing, we are of the opinion that, as
of the date hereof, the Exchange Ratio is fair from a financial point of view
to the Acquiror.
Very truly yours,
Merrill Lynch, Pierce, Fenner & Smith
Incorporated
E-3
<PAGE>
ANNEX F
MORGAN STANLEY DEAN WITTER
May 16, 1999
Board of Directors
Frontier Corporation
180 South Clinton Avenue
Rochester, NY 14646
Members of the Board:
We understand that Frontier Corporation ("Frontier" or the "Company"), Global
Crossing Ltd., ("Global Crossing"), and GCF Acquisition Corp., a wholly owned
subsidiary of Global Crossing ("Acquisition Sub"), propose to enter into a
consent and amendment to the Agreement and Plan of Merger dated as of March 16,
1999 (as so amended, the "Merger Agreement"), which provides, among other
things, for the merger (the "Merger") of Acquisition Sub with and into
Frontier. Pursuant to the Merger, Frontier will become a wholly owned
subsidiary of Global Crossing and each outstanding share of common stock, par
value $1.00 per share (the "Frontier Common Stock") of Frontier, other than
shares held directly or indirectly by Global Crossing or directly by Frontier,
will be converted into the right to receive a certain number of shares of
common stock, par value $.01 per share (the "Global Crossing Common Stock"), of
Global Crossing equal to the Exchange Ratio (as defined in the Merger
Agreement). The terms and conditions of the Merger and an Alternative Merger
are more fully set forth in the Merger Agreement. Capitalized terms used but
not otherwise defined herein shall have the respective meanings ascribed
thereto in the Merger Agreement.
We also understand that Global Crossing and US WEST, Inc. ("USW") propose to
enter into an Agreement and Plan of Merger dated as of May 16, 1999 (the
"Second Merger Agreement") which provides, among other things, for (i) a tender
offer to be made by USW for certain shares of Global Crossing Common Stock at a
price of $62.75 per share (the "Tender Offer"), and (ii) the subsequent mergers
(the "Second Mergers") of each of Global Crossing and USW with subsidiaries of
a new holding company ("Parent") formed for purposes of the Second Merger
Agreement (or, in the case of Global Crossing, the alternative amalgamation or
share exchange described in the Second Merger Agreement), with the result that
each of Global Crossing and USW will be a wholly owned subsidiaries of Parent.
Pursuant to the Second Mergers, each share of Global Crossing Common Stock
shall be converted into the right to receive shares of Parent Class A Common
Stock and/or Parent Class B Common Stock (each as defined in the Second Merger
Agreement) in accordance with the election procedures set forth in the Second
Merger Agreement. We note that the consummation of the Merger Agreement is not
contingent upon the consummation of the Second Merger Agreement.
You have asked for our opinion as to whether the Exchange Ratio pursuant to
the Merger Agreement is fair from a financial point of view to such holders of
shares of Frontier Common Stock (other than Global Crossing and its
affiliates).
For purposes of the opinion set forth herein, we have:
(i) reviewed certain publicly available financial statements and other
information of the Company, Global Crossing and USW;
(ii) reviewed certain internal financial statements concerning the
Company, Global Crossing and USW prepared by the managements of the
Company, Global Crossing and USW, respectively;
(iii) analyzed certain financial projections for the Company, Global
Crossing and USW prepared by the managements of the Company, Global
Crossing and USW, respectively;
F-1
<PAGE>
(iv) reviewed certain reports prepared by consultants retained by Global
Crossing with respect to demand forecasts for certain markets in which
Global Crossing currently intends to operate and held discussions regarding
such forecasts with one of these consultants;
(v) analyzed certain financial projections for the Company contained in
certain securities analysts' research reports that were recommended for
review by the management of the Company;
(vi) discussed the past and current operations and financial condition
and the prospects of the Company, including information relating to certain
strategic, financial and operational benefits anticipated from the Merger
or, if applicable, the Alternative Merger, with the senior executives of
the Company;
(vii) discussed the past and current operations and financial condition
and the prospects of Global Crossing, including information relating to
certain strategic, financial and operational benefits anticipated from the
Merger or, if applicable, the Alternative Merger, and the Second Mergers
with the senior executives of Global Crossing;
(viii) discussed the past and current operations and financial condition
and the prospects of USW, including information relating to certain
strategic, financial and operational benefits anticipated from the Merger
or, if applicable, the Alternative Merger, and the Second Mergers with
certain senior executives of USW;
(ix) reviewed the pro forma impact of the Merger or, if applicable, the
Alternative Merger on Global Crossing's cash flow, consolidated
capitalization and financial ratios;
(x) reviewed the reported prices and trading activity for the Frontier
Common Stock, the Global Crossing Common Stock and the USW Common Stock;
(xi) compared the financial performance of the Company and Global
Crossing and the prices and trading activity of the Frontier Common Stock
and the Global Crossing Common Stock with those of certain other comparable
publicly-traded companies and their securities;
(xii) compared the prices and trading activity of USW Common Stock with
those of certain other comparable publicly-traded companies and their
securities;
(xiii) reviewed the financial terms, to the extent publicly available, of
certain comparable transactions relating to the Merger;
(xiv) participated in discussion and negotiations among representatives
of the Company and Global Crossing and their financial and legal advisors
in connection with the Merger;
(xv) discussed certain tax issues with senior executives of the Company
and Global Crossing and with the Company's legal and tax advisors in
connection with the Merger;
(xvi) reviewed the Merger Agreement, the Second Merger Agreement and
certain related documents; and
(xvii) performed such other analyses and considered such other factors as
we have deemed appropriate.
We have assumed and relied upon without independent verification the accuracy
and completeness of the information reviewed by us for the purposes of this
opinion. With respect to the financial and other operating data and discussions
relating to the strategic, financial and operational benefits anticipated from
the respective transactions, we have assumed that such financial and operating
data have been reasonably prepared on bases reflecting the best currently
available estimates and judgments of the future operating and financial
performance of the Company, Global Crossing and USW. We have relied upon the
financial projections for the Company included in the securities analysts'
research reports reviewed by us based on our own independent evaluation of
these reports and indications by management of the Company that the analyses
contained in these reports were reasonably comprehensive and detailed and were
based on assumptions about the trends influencing the Company's financial
results that were generally consistent with those of the Company's management.
We have not made any independent valuation or appraisal of the assets or
liabilities of the Company, nor have we been furnished with any such
appraisals.
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<PAGE>
We have further assumed with your consent that, except as provided below, the
transactions contemplated by the Merger Agreement, including the Merger or, if
applicable, the Alternative Merger, will be consummated on the terms set forth
in the Merger Agreement, including, among other things, that the Merger or, if
applicable, the Alternative Merger will be treated as a tax-free reorganization
or, if applicable, exchange pursuant to the Internal Revenue Code of 1986, as
amended. In addition, with the consent of the Company, we have relied upon the
advice of legal and tax advisors to the Company as to certain tax matters
relating to the Alternative Merger. Our opinion does not address the impact, if
any, of a determination by the Company not to exercise its termination rights
pursuant to Section 7.1(g). In addition, we have assumed that in connection
with the receipt of all necessary regulatory approvals for the Merger or, if
applicable, the Alternative Merger, no restrictions will be imposed that would
have a material adverse effect on the Company, Global Crossing or the
contemplated benefits expected to be derived in the Merger or, if applicable,
the Alternative Merger. Our opinion is necessarily based on economic, market
and other conditions as in effect on, and the information made available to us
as of, the date hereof.
We have acted as financial advisor to the Board of Directors of the Company
in connection with this transaction and will receive a fee for our services. In
the past, Morgan Stanley & Co. Incorporated and its affiliates have provided
financial advisory and financing services for the Company, Global Crossing and
USW and have received fees for the rendering of these services.
It is understood that this letter is for the information of the Board of
Directors of the Company, except that this opinion may be included in its
entirety in any filing made by the Company in respect of the Merger or, if
applicable, the Alternative Merger with the Securities and Exchange Commission.
In addition, this opinion does not in any manner address either the prices at
which the Global Crossing Common Stock, Parent Class A Common Stock, or Parent
Class B Common Stock will trade following announcement or consummation of any
of the proposed transactions or the fairness of the consideration to be
received by holders of Global Crossing Common Stock pursuant to the Tender
Offer or the Second Mergers and Morgan Stanley expresses no opinion or
recommendation as to how the holders of the Frontier Common Stock should vote
at the shareholders' meetings held in connection with the Merger or the
Alternative Merger.
Based upon and subject to the foregoing, we are of the opinion on the date
hereof that the Exchange Ratio pursuant to the Merger Agreement is fair from a
financial point of view to the holders of shares of the Frontier Common Stock
(other than Global Crossing and its affiliates).
Very truly yours,
Morgan Stanley & Co. Incorporated
By: /s/ Paul J. Taubman
---------------------------------
Paul J. Taubman
Managing Director
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<PAGE>
ANNEX G
Resolutions of Global Crossing's board of directors in connection with the
annual meeting
Proposal No. 1: Increase in Global Crossing's authorized share capital
"RESOLVED, subject to shareholder approval in General Meeting, that the
authorized capital of $6,000,000 of Global Crossing Ltd., a Bermuda company
("the Company"), represented by 600,000,000 shares of Common Stock, par value
$0.01 per share, be and is hereby increased from $6,000,000 to $30,200,000 by
the creation of an additional 2,400,000,000 shares of Common Stock, par value
$0.01 per share, and 20,000,000 shares of preferred stock, par value $0.01 per
share;
RESOLVED, FURTHER, that the Company be and is hereby authorized to issue from
time to time, as determined by resolution of the Board of Directors of the
Company subject to the Company's Bye-laws as in effect at such time, all the
authorized but unissued shares of Common Stock of the Company, par value $0.01
per share;
RESOLVED, FURTHER, that the Company be and is hereby authorized to issue from
time to time, as determined by resolution of the Board of Directors of the
Company subject to the Company's Bye-laws as in effect at such time, all the
authorized but unissued shares of preferred stock, par value $0.01 each, of the
Company, in one or more classes or series and with such voting powers (full or
limited), designations, preferences and relative, participating optional or
other rights, if any, and with such qualifications, limitations, restrictions
or redemption provisions, if any, as the Board of Directors of the Company may
determine; and
RESOLVED, FURTHER, that each of the proper officers of the Company be and is
hereby authorized, empowered and directed to take any and all actions
necessary, proper or advisable in order fully to carry out the intent and
accomplish the purposes of the resolutions adopted hereby and each of them,
including, without limitation, to deposit with the Bermuda Registrar of
Companies an applicable Memorandum of Increase of Share Capital of the Company
pursuant to the Companies Act 1981 of Bermuda, and all such actions heretofore
taken are hereby ratified and confirmed as the act and deed of the Company."
Proposal No. 2: Issuance of shares of Global Crossing common stock in the
Global Crossing/Frontier merger
"RESOLVED, subject to shareholder approval in General Meeting, that Global
Crossing Ltd., a Bermuda company (the "Company"), be and is hereby authorized
to issue such number of shares of Common Stock, par value $0.01 each
(collectively, the "Shares"), of the Company, to holders of Common Stock of
Frontier Corporation, a New York corporation ("Frontier"), as shall be
necessary pursuant to the Agreement and Plan of Merger, dated as of March 16,
1999 and amended as of May 16, 1999, among the Company, Frontier and GCF
Acquisition Corp., a New York corporation (as amended, the "Merger Agreement"),
to effectuate the Merger (as defined in the Merger Agreement); provided,
however, that the Closing (as defined in the Merger Agreement) of the Merger
shall have occurred prior to the issuance of the Shares;
RESOLVED, FURTHER, that the Company be and is hereby authorized to issue the
Shares as of such date, to holders of Frontier Common Stock as of such record
date, in such ratio per share of Frontier Common Stock and on such other terms
and conditions as the Company's Board of Directors shall by resolution
determine;
RESOLVED, FURTHER, that each of the proper officers of the Company be and is
hereby authorized, empowered and directed to take any and all actions
necessary, proper or advisable in order fully to carry out the intent and
accomplish the purposes of the resolutions adopted hereby and each of them, and
all such actions heretofore taken are hereby ratified and confirmed as the act
and deed of the Company."
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Proposal No. 3: Amendment and restatement of Global Crossing bye-laws (other
than bye-laws 34(2), 63, 130 and 148)
"RESOLVED, subject to shareholder approval in General Meeting, that Bye-law 5
of the Bye-laws of Global Crossing Ltd., a Bermuda company ("the Company"), in
effect as of August 13, 1998 is hereby amended and restated in its entirety as
follows:
"Subject to the Companies Acts and except as otherwise set forth in these
Bye-Laws, all or any of the special rights for the time being attached to
any class of common shares for the time being issued may from time to time
(whether or not the Company is being wound up) be altered or abrogated with
the sanction of a resolution passed at a separate general meeting of the
holders of common shares of that class, voting in person or by proxy and
representing at least a majority of the votes cast by holders of common
shares of that class at such separate general meeting. To any such separate
general meeting, all the provisions of these Bye-Laws as to general
meetings of the Company shall mutatis mutandis apply, but so that the
necessary quorum shall be two or more persons holding or representing by
proxy shares of the relevant class representing a majority of the votes
that may be cast by all holders of shares of that class, that every holder
of shares of the relevant class shall be entitled on a poll to the number
of votes for every such share held by him determined in accordance with
Bye-Laws 62 and 63 and that any holder of shares of the relevant class
present in person or by proxy may demand a poll; provided, however, that if
the Company or a class of common shares shall have only one Shareholder,
one Shareholder present in person or by proxy shall constitute the
necessary quorum. Subject to the Companies Acts and except as otherwise set
forth in these Bye-Laws, all or any of the special rights for the time
being attached to any class or series of preferred shares for the time
being issued may from time to time (whether or not the Company is being
wound up) be altered or abrogated with the requisite consent or vote of the
holders of such class or series as will be set forth in a schedule to the
Bye-Laws relating to such class or series at the time when such class or
series is issued.";
provided, however, that the amended and restated Bye-law 5 shall not come into
effect prior to the Closing (as defined in the Agreement and Plan of Merger,
dated March 16, 1999, as amended on May 16, 1999 (the "Merger Agreement"),
among the Company, Frontier Corporation, a New York corporation, and GCF
Acquisition Corp, a New York corporation) of the Merger (as defined in the
Merger Agreement);
RESOLVED, FURTHER, subject to shareholder approval in General Meeting, that
Bye-law 49(1) of the Company's Bye-laws in effect as of August 13, 1998 is
hereby amended and restated in its entirety as follows:
"The Board shall convene, and the Company shall hold, general meetings as
Annual General Meetings in accordance with the requirements of the
Companies Acts at such times and places as the Board shall appoint. The
Board or the Chairman or Co-Chairman of the Board may, whenever each thinks
fit, and shall, when requisitioned by shareholders pursuant to the
provisions of the Companies Acts, convene general meetings other than
Annual General Meetings which shall be called Special General Meetings.";
RESOLVED, FURTHER, subject to shareholder approval in General Meeting, that
Bye-law 50 of the Company's Bye-laws in effect as of August 13, 1998 is hereby
amended and restated in its entirety as follows:
"An Annual General Meeting shall be called by not less than 30 days notice
in writing, and a Special General Meeting shall be called by not less than
10 days notice in writing. The notice shall specify the place, day and time
of the meeting and the nature of the business to be considered. Notice of
every General Meeting shall be given in any manner permitted by Bye-Laws
135 and 136 to all Shareholders other than such as, under the provisions of
these Bye-Laws or the terms of issue of the shares they hold, are not
entitled to receive such notice from the Company and to each Director and
to any Resident Representative who or which has delivered a written notice
upon the Registered Office requiring that such notice be sent to him or
it.";
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RESOLVED, FURTHER, subject to shareholder approval in General Meeting, that
Bye-law 62 of the Company's Bye-laws in effect as of August 13, 1998 is hereby
amended and restated in its entirety as follows:
"Save where a greater percentage is required by the Companies Acts or these
Bye-Laws, any question proposed for consideration at any General Meeting
shall be decided on by a simple majority of votes cast at such meeting;
provided, however, that a resolution to remove any director pursuant to
Bye-Law 85 must be approved by the vote of at least a majority of all
issued and outstanding capital shares of the Company eligible to vote
thereon.";
provided, however, that the amended and restated Bye-law 62 shall not come into
effect prior to the Closing of the Merger;
RESOLVED, FURTHER, subject to shareholder approval in General Meeting, that
Bye-law 78(3) of the Company's Bye-laws in effect as of August 13, 1998 is
hereby amended and restated in its entirety as follows:
"Each of Abbott Brown, William Conway, Jay Levine, William Phoenix and
Barry Porter are hereby designated as "A" Directors for the purposes of
this Bye-law. Each of Lodwrick Cook, Jeffrey Kent, David Lee, Bruce Raben,
and Jack Scanlon are hereby designated "B" Directors, and each of Jay
Bloom, Dean Kehler, Teshiaki Ogasawara, Michael Steed, Hillel Weinberger
and Garry Winnick are hereby designated as "C" Directors. The Board of
Directors shall from time to time by resolution determine the number of A
Directors, B Directors and C Directors.";
RESOLVED, FURTHER, subject to shareholder approval at the General Meeting,
that Bye-law 79 of the Company's Bye-laws in effect as of August 13, 1998 is
hereby amended and restated in its entirety as follows:
"(1) The A Directors shall serve initially until the conclusion of the
Annual General Meeting of the Company held in the calendar year 2000,
at which consideration is made of financial statements for the period
ending 31 December 1999, and thereafter shall serve for a three-year
terms, concluding at the third Annual General Meeting after his
appointment or reappointment.
(2) The B Directors shall serve initially until the conclusion of the
Annual General Meeting of the Company held in the calendar year 2001,
at which consideration is made of financial statements for the period
ending 31 December 2000, and thereafter shall serve for a three-year
terms, concluding at the third Annual General Meeting after his
appointment or reappointment.
(4) The C Directors shall serve initially until the conclusion of the
Annual General Meeting of the Company held in the calendar year 2002,
at which consideration is made of financial statements for the period
ending December 31, 2001, and thereafter shall serve for a three-year
terms, concluding at the third Annual General Meeting after his
appointment or reappointment.";
RESOLVED, FURTHER, subject to shareholder approval in General Meeting, that
Bye-law 81 of the Company's Bye-laws in effect as of August 13, 1998 is hereby
amended and restated in its entirety as follows:
"No person shall be appointed a Director, unless:--
(a) in the case of an Annual or Special General Meeting, such person is
recommended by the Board; or
(b) in the case of an Annual General Meeting, not less than 120 nor more
than 150 days before the date of the Company's proxy statement released
to Shareholders in connection with the prior year's Annual General
Meeting, notice executed by a Shareholder (not being the person to be
proposed) has been received by the Secretary of the Company of the
intention to propose such person for appointment, setting forth as to
each person whom the Shareholder proposes to nominate for election or
re-election as a Director (i) the name, age, business address and
residence address of such person, (ii) the principal occupation or
employment of such person, (iii) the class, series and number of shares
of the Company which are beneficially owned by such person, (iv)
particulars which would, if he were so appointed, be required to be
included in the Company's register of Directors and Officers
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and (v) all other information relating to such person that is required
to be disclosed in solicitations for proxies for the election of
Directors pursuant to the Rules and Regulations of the Securities and
Exchange Commission under Section 14 of the Securities Exchange Act of
1934 of the United States of America, as amended, together with notice
executed by such person of his willingness to serve as a Director if so
elected; provided, however, that no Shareholder shall be entitled to
propose any person to be appointed, elected or re-elected Director at
any Special General Meeting.";
RESOLVED, FURTHER, subject to shareholder approval in General Meeting, that
Bye-law 82 of the Company's Bye-laws in effect as of August 13, 1998 is hereby
amended and restated in its entirety as follows:
"Except as otherwise required by the Companies Acts, the appointment of any
person proposed as a Director shall be effected by a separate resolution
voted on at a General Meeting pursuant to Bye-Law 62 herein.";
RESOLVED, FURTHER, subject to shareholder approval in General Meeting, that
Bye-law 84 of the Company's Bye-laws in effect as of August 13, 1998 is hereby
amended and restated in its entirety as follows:
"The Company may by Resolution determine (i) the minimum number of
Directors, which shall be not less than 11 and which is hereby set at 11
until such number is amended by a further Resolution and (ii) the maximum
number of Directors, which shall not be more than 20 and which is hereby
set at 20 until such number is amended by a further Resolution, and any
vacancies on the Board shall be deemed casual vacancies for the purposes of
these Bye-Laws. Without prejudice to the power of the Company by Resolution
in pursuance of any of the provisions of these Bye-Laws to appoint any
person to be a Director, the Board, so long as a quorum of Directors
remains in office, shall have power at any time and from time to time to
appoint any individual to be a Director so as to fill a casual vacancy. A
Director so appointed shall hold office only until the next following
Annual General Meeting and shall not be taken into account in determining
the Directors who are to retire by rotation at the meeting. If not
reappointed at such Annual General Meeting, he shall vacate office at the
conclusion thereof.";
RESOLVED, FURTHER, subject to shareholder approval in General Meeting, that
Bye-law 91 of the Company's Bye-laws in effect as of August 13, 1998 is hereby
amended and restated in its entirety as follows:
"The ordinary remuneration of the Directors who do not hold executive
office for their services (excluding amounts payable under any other
provision of these Bye-Laws) shall be such amount as the Board may from
time to time by resolution determine and in the absence of a determination
to the contrary such fees shall be deemed to accrue from day to day.
Subject thereto, each such Director shall be paid a fee (which shall be
deemed to accrue from day to day) at such rate as may from time to time be
determined by the Board. Each Director may be paid his reasonable travel,
hotel and incidental expenses in attending and returning from meetings of
the Board or committees constituted pursuant to these Bye-Laws or General
Meetings and shall be paid all expenses properly and reasonably incurred by
him in the conduct of the Company's business or in the discharge of his
duties as a Director. Any Director who, by request, goes or resides abroad
for any purposes of the Company or who performs services which in the
opinion of the Board go beyond the ordinary duties of a Director may be
paid such extra remuneration (whether by way of salary, commission,
participation in profits or otherwise) as the Board may determine, and such
extra remuneration shall be in addition to any remuneration provided for by
or pursuant to any other Bye-Law.";
RESOLVED, FURTHER, subject to shareholder approval in General Meeting, that
Bye-law 135 of the Company's Bye-laws in effect as of August 13, 1998 is hereby
supplemented by adding the following sentence at the end of the text of the
existing Bye-law:
"In counting the period of notice that may be served on or delivered to any
Shareholder by the Company pursuant to these Bye-laws, the date of posting
and the date of receipt of the applicable notice shall be included in such
period of notice"; and
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RESOLVED, FURTHER, that each of the proper officers of the Company be and is
hereby authorized, empowered and directed to take any and all actions
necessary, proper or advisable in order fully to carry out the intent and
accomplish the purposes of the resolutions adopted hereby and each of them,
including, without limitation, to cause the Company's Bye-laws to be amended
and restated to reflect the foregoing resolutions, and all such actions
heretofore taken are hereby ratified and confirmed as the act and deed of the
Company."
Proposal No. 4: Amendment and Restatement of Global Crossing Bye-laws 34(2),
63, 130 and 148
"RESOLVED, subject to shareholder approval in General Meeting, that Bye-law
34(2)(ii) of the Bye-laws of Global Crossing Ltd., a Bermuda company (the
"Company"), in effect as of August 13, 1998 is hereby amended and restated in
its entirety as follows:
"in the case of any Shareholder who is a natural person, any such
Shareholder beneficially owning, directly, indirectly or constructively
(within the meaning of Section 544 of the Code and Treasury Regulations
promulgated thereunder) common shares in excess of the Maximum Percentage
of the outstanding common shares of the Company, in either case without the
approval of a majority of the members of the Board and without the approval
of a majority of the votes cast by Shareholders at a General Meeting called
to approve that transfer, shall not be registered in the share register of
the Company and shall be void and of no effect.";
provided, however, that the amended and restated Bye-law 34(2)(ii) shall not
come into effect prior to the Closing (as defined in the Agreement and Plan of
Merger, dated March 16, 1999, as amended on May 16, 1999 (as amended, the
"Merger Agreement"), among the Company, Frontier Corporation, a New York
corporation, and GCF Acquisition Corp, a New York corporation) of the Merger
(as defined in the Merger Agreement);
RESOLVED, FURTHER, subject to shareholder approval in General Meeting, that
Bye-law 63(1) of the Company's Bye-laws in effect as of August 13, 1998 is
hereby amended and restated in its entirety as follows:
"Subject to Bye-law 63(2) and to the limitations imposed by the Board on
voting under Bye-law 130, and subject to any rights or restrictions
attached to any class of shares, at any meeting of the Company, each
Shareholder present in person or by proxy shall vote on a poll and shall be
entitled on a poll to one vote for each share held by him.";
RESOLVED, FURTHER, subject to shareholder approval in General Meeting, that
Bye-law 63(2), (3) and (4) of the Company's Bye-laws in effect as of August 13,
1998 is hereby amended and restated in its entirety as follows:
"(2) In the case of a Shareholder who is an Over-the-Threshold Shareholder
as defined below, each issued common share constituting a part of the
Controlled Shares of such Shareholder held by such Shareholder shall,
in the context of a particular meeting of shareholders, confer only a
fraction of a vote according to the following formula (the "Cut-back
Formula"): AV multiplied by the applicable percentage set forth in the
definition of "Maximum Vote" divided by CS.
Where; "AV" is the aggregate number of issued and outstanding common
shares represented at the applicable meeting (without regard to
any limitation on the number of votes any such shares may cast).
"CS" is the number of Controlled Shares of such Shareholder.
In determining the votes allocable to common shares beneficially
owned by CIBC, the preceding formula shall be applied to all of
the common shares beneficially owned by persons constituting a
part of CIBC, in the aggregate. In determining the votes
allocable to common shares beneficially owned by any member of a
group (within the meaning of Section 13(d) of the Exchange Act),
the preceding formula shall be applied to all of the common
shares beneficially owned by persons constituting a part of the
group, in the aggregate. Any person (a "Related Holder") who owns
Controlled Shares which are
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deemed to be owned directly, indirectly or constructively (within
the meaning of Section 958 of the Code and the Treasury
Regulations promulgated thereunder) by one or more Over-the-
Threshold Shareholders shall have the vote allocable to such
Controlled Shares held by the Related Holder reduced, in a manner
consistent with this Bye-Law 63(2), so as to prevent the Over-
the-Threshold Shareholders from having voting power greater than
the Maximum Vote applicable to such Over-the-Threshold
Shareholders.
A number of votes equal to the excess (the "Re-allocable Votes")
of (i) the number of votes that could have been cast by the
Controlled Shares held by all Over-the-Threshold Shareholders if
the Cut-back Formula were not applicable over (ii) the number of
votes that may be cast by such Controlled Shares after
application of the Cut-back Formula shall be reallocated among
the common shares that are (a) represented at the applicable
meeting, (b) not included in such Controlled Shares and (c) not
held by other Over-the-Threshold Shareholders in accordance with
the following formula (the "Reallocation Formula"):
RV
----------------
AV-ACS
Where: "RV" is the Re-allocable Votes
"AV" is used in the manner defined in the Cut-back-Formula
"ACS" is the aggregate number of Controlled Shares of all Over-
the-Threshold Shareholders
If the application of the Reallocation Formula causes any
Shareholder to become an Over-the-Threshold Shareholder, the Cut-
back Formula shall be applied to such Shareholder's Controlled
Shares (taking into account the additional votes of such shares
after the application of the Reallocation Formula), and the Cut-
back Formula and the Reallocation Formula shall continue to be
applied until there are no Over-the-Threshold Shareholders.
(3) The Board shall have the power and authority to make all determinations
that may be required to effectuate the provisions of this Bye-Law,
including any required determination of the number of Shares that may
be deemed to be held by any Shareholder, and such determinations shall
be conclusive in the absence of manifest error. All record and
beneficial owners of Shares (and all potential transferees of Shares)
shall be deemed to have agreed, by virtue of their ownership thereof,
to provide to the Board, at such times and in such detail as the Board
may reasonably request, any information that the Board may require in
order to make such determinations.
(4) The following definitions shall apply for the purposes of this Bye-Law:
"Maximum Vote" means (x) in the case of all Shareholders other than
CIBC, 9.5% of the total votes cast by holders of common shares of
the Company in connection with any matter being voted on and (y) in
the case of CIBC in the aggregate, 20% of the total votes cast by
holders of common shares of the Company in connection with any
matter being voted on.
An "Over-the-Threshold Shareholder" for the purposes of this Bye-Law
is a Shareholder in respect of whom, by virtue of their holding of
Controlled Shares would, upon giving effect to the principle that
holders of common shares shall have one vote for each common share
so registered, have greater than the Maximum Vote.";
provided, however, that the amended and restated Bye-law 63(2), (3) and (4)
shall not come into effect prior to the Closing of the Merger;
RESOLVED, FURTHER, subject to shareholder approval in General Meeting, that
Bye-law 130 of the Company's Bye-laws in effect as of August 13, 1998 is hereby
amended and restated in its entirety as follows:
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<PAGE>
"Notwithstanding any other provisions of these Bye-Laws, the Company may by
Resolution or the Board may fix any date as the record date for any
dividend, distribution, allotment or issue and for the purpose of
identifying the persons entitled to receive notices of, and entitled to
vote at, General Meetings or entitled to express consent to corporate
action in writing without a meeting. Any such record date may be on or at
any time (i) not more than 60 days before any date on which such dividend,
distribution, allotment or issue is declared, paid or made, (ii) not more
than 60 days nor less than 10 days before the date of any such meetings and
(iii) not more than 10 days after the date on which the resolution fixing
the record date for a shareholder action by written consent is adopted by
the Board.";
RESOLVED, FURTHER, subject to shareholder approval in General Meeting, that
Bye-law 148 of the Company's Bye-laws in effect as of August 13, 1998 is hereby
amended and restated in its entirety as follows:
"(1) These Bye-Laws may be amended, from time to time, by resolution of the
Board, subject to approval by Resolution at a General Meeting of the
Shareholders.
(2) The vote or consent of the holders of 75% of the outstanding capital
shares of the Company entitled to vote and the approval of a majority
of the Board shall be required to effect:--
(a) any amendments to the provisions of Bye-Laws 3, 34, 62, 63, 85, 86,
91, 92, 141 and this Bye-Law 148, provided that if the provisions
of Bye-Law 3, 34 or 63 are so amended or the Board and Shareholders
upon receipt of a written request for approval approve, by an
actual vote as described in Bye-Law 34(2), an otherwise prohibited
transfer under Bye-Law 34(2), the Company will indemnify each
holder of shares who becomes subject to treatment as a "United
States shareholder" for purposes of Section 951 et. seq. of the
Code as a result of such amendment from and against any and all
losses, costs, damages, liabilities and expenses arising out of,
directly or indirectly, such treatment. Notwithstanding the
foregoing provisions of Bye-Law 148(2)(a), in no event shall the
Company have any indemnity obligation under this Bye-Law with
respect to any transfer of shares for which approval was required
(whether or not granted) pursuant to Bye-Law 34(2) to any holder of
shares who either (i) received such shares in connection with such
transfer or (ii) voted in favor of such transfer; and
(b) any amendment to the maximum or minimum number of Directors
specified in Bye-Law 84."; and
RESOLVED, FURTHER, that each of the proper officers of the Company be and is
hereby authorized, empowered and directed to take any and all actions
necessary, proper or advisable in order fully to carry out the intent and
accomplish the purposes of the resolutions adopted hereby and each of them,
including, without limitation, to cause the Company's Bye-laws to be amended
and restated to reflect the foregoing resolutions, and all such actions
heretofore taken are hereby ratified and confirmed as the act and deed of the
Company.";
Proposal No. 6: Amendment of the 1998 Global Crossing Ltd. Stock Incentive Plan
"RESOLVED, subject to shareholder approval in General Meeting, that Section 3
of the 1998 Global Crossing Ltd. Stock Incentive Plan (the "1998 Plan") be and
is hereby amended to increase the aggregate number of shares of Common Stock,
par value $0.01 per share, of Global Crossing Ltd., a Bermuda company (the
"Company"), reserved for issuance under the 1998 Plan from 33,215,730 shares to
90,000,000 shares; and
RESOLVED, FURTHER, that each of the proper officers of the Company be and is
hereby authorized, empowered and directed to take any and all actions
necessary, proper or advisable in order fully to carry out and accomplish the
purposes of the resolutions adopted hereby and each of them, including, without
limitation, to cause the 1998 Plan to be amended and restated to reflect the
foregoing resolutions, and all such actions heretofore taken are hereby
ratified and confirmed as the act and deed of the Company."
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Proposal No. 7: Ratification of Outside Directors' Compensation
"RESOLVED, that each member of the Board of Directors of the Company (other
than any Director of the Company who is also an employee of the Company) shall
be entitled to receive cash compensation from the Company in the amount of
$2,500 for each properly convened Board of Directors meeting of the Company
attended by such member after the February 28, 1998; and further
"RESOLVED, that the Company grant to each of Jay Bloom, Dean Kehler, Jay
Levine, William Phoenix, Bruce Raben, Michael Steed and Hillel Weinberger, in
their capacities as members of the Board of Directors of the Company, options
to purchase 40,000 Class E Shares of the Company, each such grant to be made
pursuant to, and subject to the terms and conditions of, a stock option
agreement between the Company and such person (setting forth a strike price of
$2.50 per share and setting forth that the first 10,000 options shall
immediately vest, the next 15,000 options shall vest on April 3, 1999 so long
as such person shall be a member of the Board of Directors of the Company on
such date and the final 15,000 shall vest on April 3, 2000 so long as such
person shall be a member of the Board of Directors of the Company on such date)
entered into in accordance with the Company's Stock Option Plan, such stock
option agreement to be in such form as any Officer or Director of the Company
executing the same may approve, such approval to be conclusively evidenced by
their execution."
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ANNEX H
1998 GLOBAL CROSSING LTD.
STOCK INCENTIVE PLAN
1. Purpose of the Plan
The purpose of the Plan is to aid the Company and its Subsidiaries in
recruiting and retaining key individuals of outstanding ability and to
motivate such individuals to exert their best efforts on behalf of the Company
and its Subsidiaries by providing incentives through the granting of Awards.
The Company expects that it will benefit from the added interest which such
key individuals will have in the welfare of the Company as a result of their
proprietary interest in the Company's success.
2. Definitions
The following capitalized terms used in the Plan have the respective
meanings set forth in this Section:
(a) Act: The Securities Exchange Act of 1934, as amended, or any successor
thereto.
(b) Award: An Option, Stock Appreciation Right or Other Stock-Based Award
granted pursuant to the Plan.
(c) Beneficial Owner: A "beneficial owner", as such term is defined in Rule
13d-3 under the Act (or any successor rule thereto).
(d) Board: The Board of Directors of the Company.
(e) Change in Control: The occurrence of any of the following events:
(i) any Person (other than a Person holding securities representing 10%
or more of the combined voting power of the Company's outstanding
securities as of the Effective Date, the Company, any trustee or other
fiduciary holding securities under an employee benefit plan of the
Company, or any company owned, directly or indirectly, by the
shareholders of the Company in substantially the same proportions as
their ownership of stock of the Company), becomes the Beneficial Owner,
directly or indirectly, of securities of the Company, (a) in excess of
the interest in the Company held by the shareholders of the Company as
of the Effective Date (or their heirs or distributors by will or the
laws of descent and distribution) and (b) representing 30% or more of
the combined voting power of the Company's then-outstanding securities;
(ii) during any period of twenty-four months (not including any period
prior to the Effective Date), individuals who at the beginning of such
period constitute the Board, and any new director (other than (A) a
director nominated by a Person who has entered into an agreement with
the Company to effect a transaction described in Sections 2(e)(i),
(iii) or (iv) of the Plan, (B) a director nominated by any Person
(including the Company) who publicly announces an intention to take or
to consider taking actions (including, but not limited to, an actual or
threatened proxy contest) which if consummated would constitute a
Change in Control or (C) a director nominated by any Person who is the
Beneficial Owner, directly or indirectly, of securities of the Company
representing 10% or more of the combined voting power of the Company's
securities) whose election by the Board or nomination for election by
the Company's shareholders was approved in advance by a vote of at
least two-thirds ( 2/3) of the directors then still in office who
either were directors at the beginning of the period or whose election
or nomination for election was previously so approved, cease for any
reason to constitute at least a majority thereof;
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(iii) the shareholders of the Company approve any transaction or series
of transactions under which the Company is merged or consolidated with
any other company, other than a merger or consolidation which would
result in the shareholders of the Company immediately prior thereto
continuing to own (either by remaining outstanding or by being
converted into voting securities of the surviving entity) more than 65%
of the combined voting power of the voting securities of the Company or
such surviving entity outstanding immediately after such merger or
consolidation; or
(iv) the shareholders of the Company approve a plan of complete
liquidation of the Company or an agreement for the sale or disposition
by the Company of all or substantially all of the Company's assets,
other than a liquidation of the Company into a wholly-owned subsidiary.
(f) Code: The Internal Revenue Code of 1986, as amended, or any successor
thereto.
(g) Committee: The Board.
(h) Company: Global Crossing Ltd.
(i) Disability: Inability to engage in any substantial gainful activity by
reason of a medically determinable physical or mental impairment which
constitutes a permanent and total disability, as defined in Section
22(e)(3) of the Code (or any successor section thereto). The
determination whether a Participant has suffered a Disability shall be
made by the Committee based upon such evidence as it deems necessary
and appropriate. A Participant shall not be considered disabled unless
he or she furnishes such medical or other evidence of the existence of
the Disability as the Committee, in its sole discretion, may require.
(j) Effective Date: July 1, 1998
(k) Fair Market Value: On a given date, the arithmetic mean of the high and
low prices of the Shares as reported on such date on the Composite Tape
of the principal national securities exchange on which such Shares are
listed or admitted to trading, or, if no Composite Tape exists for such
national securities exchange on such date, then on the principal
national securities exchange on which such Shares are listed or
admitted to trading, or, if the Shares are not listed or admitted on a
national securities exchange, the arithmetic mean of the per Share
closing bid price and per Share closing asked price on such date as
quoted on the National Association of Securities Dealers Automated
Quotation System (or such market in which such prices are regularly
quoted), or, if there is no market on which the Shares are regularly
quoted, the Fair Market Value shall be the value established by the
Committee in good faith. If no sale of Shares shall have been reported
on such Composite Tape or such national securities exchange on such
date or quoted on the National Association of Securities Dealer
Automated Quotation System on such date, then the immediately preceding
date on which sales of the Shares have been so reported or quoted shall
be used.
(l) IS0: An Option that is also an incentive stock option granted pursuant
to Section 6(d) of the Plan.
(m) LSAR: A limited stock appreciation right granted pursuant to Section
7(d) of the Plan.
(n) Other Stock-Based Awards: Awards granted pursuant to Section 8 of the
Plan.
(o) Option: A stock option granted pursuant to Section 6 of the Plan.
(p) Option Price: The purchase price per Share of an Option, as determined
pursuant to Section 6(a) of the Plan.
(q) Participant: An individual who is selected by the Committee to
participate in the Plan.
(r) Performance-Based Awards: Certain Other Stock-Based Awards granted
pursuant to Section 8(b) of the Plan.
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(s) Person: A person, as such term is used for purposes of Section 13(d) or
14(d) of the Act (or any successor section thereto).
(t) Plan: The 1998 Global Crossing Ltd. Stock Incentive Plan.
(u) Public Offering: A sale of shares of the Company's common stock to the
public pursuant to a registration statement under the Securities Act of
1933, as amended, that has been declared effective by the Securities
and Exchange Commission (other than a registration statement on Form S-
4 or Form S-8, or any other successor or other forms promulgated for
similar purposes, or a registration statement in connection with an
offering to employees of the Company and its Subsidiaries) that results
in an active trading market in the Company's common stock; provided,
that there shall be deemed to be an "active trading market" if the
Company's common stock is listed or quoted on a national stock exchange
or the NASDAQ National Market.
(v) Shares: Common Shares of the Company, par value $0.01 per Share.
(w) Stock Appreciation Right: A stock appreciation right granted pursuant
to Section 7 of the Plan.
(x) Subsidiary: A subsidiary corporation, as defined in Section 424(f) of
the Code (or any successor section thereto).
3. Shares Subject to the Plan
The total number of Shares which may be issued under the Plan is 16,607,865.
The maximum number of Shares for which Awards may be granted during a calendar
year to any Participant shall be as determined by the Committee from time to
time. The Shares may consist, in whole or in part, of unissued Shares or Shares
that were issued and subsequently canceled. The issuance of Shares or the
payment of cash upon the exercise of an Award shall reduce the total number of
Shares available under the Plan, as applicable. Shares which are subject to
Awards which terminate or lapse may be granted again under the Plan.
4. Administration
The Plan shall be administered by the Committee, which may delegate its
duties and powers in whole or in part to any subcommittee thereof consisting
solely of at least two individuals who are each "non-employee directors" within
the meaning of Rule 16b-3 under the Act (or any successor rule thereto) and
"outside directors" within the meaning of Section 162(m) of the Code (or any
successor section thereto). The Committee is authorized to interpret the Plan,
to establish, amend and rescind any rules and regulations relating to the Plan,
and to make any other determinations that it deems necessary or desirable for
the administration of the Plan. The Committee may correct any defect or supply
any omission or reconcile any inconsistency in the Plan in the manner and to
the extent the Committee deems necessary or desirable. Any decision of the
Committee in the interpretation and administration of the Plan, as described
herein, shall lie within its sole and absolute discretion and shall be final,
conclusive and binding on all parties concerned (including, but not limited to,
Participants and their beneficiaries or successors). The Committee shall
require payment of any amount it may determine to be necessary to withhold for
federal, state, local or other taxes as a result of the exercise of an Award.
Unless the Committee specifies otherwise, the Participant may elect to pay a
portion or all of such withholding taxes by (a) delivery in Shares or (b)
having Shares withheld by the Company from any Shares that would have otherwise
been received by the Participant.
5. Limitations
No Award may be granted under the Plan after the tenth anniversary of the
Effective Date, but Awards theretofore granted may extend beyond that date.
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6. Terms and Conditions of Options
Options granted under the Plan shall be, as determined by the Committee, non-
qualified or incentive stock options for federal income tax purposes, as
evidenced by the related Award agreements, and shall be subject to the
foregoing and the following terms and conditions and to such other terms and
conditions, not inconsistent therewith, as the Committee shall determine:
(a) Option Price. The Option Price per Share shall be determined by the
Committee.
(b) Exercisability. Options granted under the Plan shall be exercisable
at such time and upon such terms and conditions as may be determined by the
Committee, but in no event shall an Option be exercisable more than ten
years after the date it is granted.
(c) Exercise of Options. Except as otherwise provided in the Plan or in
an Award agreement, an Option may be exercised for all, or from time to
time any part, of the Shares for which it is then exercisable. For purposes
of Section 6 of the Plan, the exercise date of an Option shall be the later
of the date a notice of exercise is received by the Company and, if
applicable, the date payment is received by the Company pursuant to clauses
(i), (ii) or (iii) in the following sentence. The purchase price for the
Shares as to which an Option is exercised shall be paid to the Company in
full at the time of exercise at the election of the Participant (i) in
cash, (ii) in Shares having a Fair Market Value equal to the aggregate
Option Price for the Shares being purchased and satisfying such other
requirements as may be imposed by the Committee; provided, that such Shares
have been held by the Participant for no less than six months, (iii) partly
in cash and partly in such Shares, (iv) through the withholding of Shares
(which would otherwise be delivered to the Participant) with an aggregate
Fair Market Value on the exercise date equal to the aggregate Option Price
or (v) through the delivery of irrevocable instruments to a broker to
deliver promptly to the Company an amount equal to the aggregate option
price for the shares being purchased. No Participant shall have any rights
to dividends or other rights of a stockholder with respect to Shares
subject to an Option until the Participant has given written notice of
exercise of the Option, paid in full for such Shares and, if applicable,
has satisfied any other conditions imposed by the Committee pursuant to the
Plan.
(d) ISOs. The Committee may grant Options under the Plan that are
intended to be ISOs. Such ISOs shall comply with the requirements of
Section 422 of the Code (or any successor section thereto). No ISO may be
granted to any Participant who at the time of such grant, owns more than
ten percent of the total combined voting power of all classes of stock of
the Company or of any Subsidiary, unless (i) the Option Price for such ISO
is at least 110% of the Fair Market Value of a Share on the date the ISO is
granted and (ii) the date on which such ISO terminates is a date not later
than the day preceding the fifth anniversary of the date on which the ISO
is granted. Any Participant who disposes of Shares acquired upon the
exercise of an ISO either (i) within two years after the date of grant of
such ISO or (ii) within one year after the transfer of such Shares to the
Participant, shall notify the Company of such disposition and of the amount
realized upon such disposition.
7. Terms and Conditions of Stock Appreciation Rights
(a) Grants. The Committee also may grant (i) a Stock Appreciation Right
independent of an Option or (ii) a Stock Appreciation Right in connection with
an Option, or a portion thereof. A Stock Appreciation Right granted pursuant to
clause (ii) of the preceding sentence (A) may be granted at the time the
related Option is granted or at any time prior to the exercise or cancellation
of the related Option, (B) shall cover the same Shares covered by an Option (or
such lesser number of Shares as the Committee may determine) and (C) shall be
subject to the same terms and conditions as such Option except for such
additional limitations as are contemplated by this Section 8 (or such
additional limitations as may be included in an Award agreement).
(b) Terms. The exercise price per Share of a Stock Appreciation Right shall
be an amount determined by the Committee but in no event shall such amount be
less than the greater of (i) the Fair Market Value of a Share on the date the
Stock Appreciation Right is granted or, in the case of a Stock Appreciation
Right granted in conjunction with an Option, or a portion thereof, the Option
Price of the related Option and (ii) an amount
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permitted by applicable laws, rules, by-laws or policies of regulatory
authorities or stock exchanges. Each Stock Appreciation Right granted
independent of an Option shall entitle a Participant upon exercise to an amount
equal to (i) the excess of (A) the Fair Market Value on the exercise date of
one Share over (B) the exercise price per Share, times (ii) the number of
Shares covered by the Stock Appreciation Right. Each Stock Appreciation Right
granted in conjunction with an Option, or a portion thereof, shall entitle a
Participant to surrender to the Company the unexercised Option, or any portion
thereof, and to receive from the Company in exchange therefor an amount equal
to (i) the excess of (A) the Fair Market Value on the exercise date of one
Share over (B) the Option Price per Share, times (ii) the number of Shares
covered by the Option, or portion thereof, which is surrendered. The date a
notice of exercise is received by the Company shall be the exercise date.
Payment shall be made in Shares or in cash, or partly in Shares and partly in
cash (any such Shares valued at such Fair Market Value), all as shall be
determined by the Committee. Stock Appreciation Rights may be exercised from
time to time upon actual receipt by the Company of written notice of exercise
stating the number of Shares with respect to which the Stock Appreciation Right
is being exercised. No fractional Shares will be issued in payment for Stock
Appreciation Rights, but instead cash will be paid for a fraction or, if the
Committee should so determine, the number of Shares will be rounded downward to
the next whole Share.
(c) Limitations. The Committee may impose, in its discretion, such conditions
upon the exercisability or transferability of Stock Appreciation Rights as it
may deem fit.
(d) Limited Stock Appreciation Rights. The Committee may grant LSARs that are
exercisable upon the occurrence of specified contingent events. Such LSARs may
provide for a different method of determining appreciation, may specify that
payment will be made only in cash and may provide that any related Awards are
not exercisable while such LSARs are exercisable. Unless the context otherwise
requires, whenever the term "Stock Appreciation Right" is used in the Plan,
such term shall include LSARs.
8. Other Stock-Based Awards
(a) Generally. The Committee, in its sole discretion, may grant Awards of
Shares, Awards of restricted Shares and Awards that are valued in whole or in
part by reference to, or are otherwise based on the Fair Market Value of,
Shares ("Other Stock-Based Awards"). Such Other Stock-Based Awards shall be in
such form, and dependent on such conditions, as the Committee shall determine,
including, without limitation, the right to receive one or more Shares (or the
equivalent cash value of such Shares) upon the completion of a specified period
of service, the occurrence of an event and/or the attainment of performance
objectives. Other Stock-Based Awards may be granted alone or in addition to any
other Awards granted under the Plan. Subject to the provisions of the Plan, the
Committee shall determine to whom and when Other Stock-Based Awards will be
made, the number of Shares to be awarded under (or otherwise related to) such
Other Stock-Based Awards; whether such Other Stock-Based Awards shall be
settled in cash, Shares or a combination of cash and Shares; and all other
terms and conditions of such Awards (including, without limitation, the vesting
provisions thereof and provisions ensuring that all Shares so awarded and
issued shall be fully paid and non-assessable).
(b) Performance-Based Awards. Notwithstanding anything to the contrary
herein, certain Other Stock-Based Awards granted under this Section 8 may be
granted in a manner which is deductible by the Company under Section 162(m) of
the Code (or any successor section thereto) ("Performance-Based Awards"). A
Participant's Performance-Based Award shall be determined based on the
attainment of written performance goals approved by the Committee for a
performance period established by the Committee (i) while the outcome for that
performance period is substantially uncertain and (ii) no more than 90 days
after the commencement of the performance period to which the performance goal
relates or, if less, the number of days which is equal to 25 percent of the
relevant performance period. The performance goals, which must be objective,
shall be based upon one or more of the following criteria: (i) consolidated
earnings before or after taxes (including earnings before interest, taxes,
depreciation and amortization); (ii) net income; (iii) operating income; (iv)
earnings per Share; (v) book value per Share; (vi) return on shareholders'
equity; (vii) expense management; (viii) return on investment; (ix)
improvements in capital structure; (x) profitability of an identifiable
business unit or product; (xi) maintenance or improvement of profit margins;
(xii) stock price; (xiii) market share; (xiv) revenues or sales;
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(xv) costs; (xvi) cash flow; (xvii) working capital and (xviii) return on
assets. The foregoing criteria may relate to the Company, one or more of its
Subsidiaries or one or more of its divisions or units, or any combination of
the foregoing, and may be applied on an absolute basis and/or be relative to
one or more peer group companies or indices, or any combination thereof, all as
the Committee shall determine. In addition, to the degree consistent with
Section 162(m) of the Code (or any successor section thereto), the performance
goals may be calculated without regard to extraordinary items. The maximum
amount of a Performance-Based Award during a calendar year to any Participant
shall be 500,000 Shares. The Committee shall determine whether, with respect to
a performance period, the applicable performance goals have been met with
respect to a given Participant and, if they have, to so certify and ascertain
the amount of the applicable Performance-Based Award. No Performance-Based
Awards will be paid for such performance period until such certification is
made by the Committee. The amount of the Performance-Based Award actually paid
to a given Participant may be less than the amount determined by the applicable
performance goal formula, at the discretion of the Committee. The amount of the
Performance-Based Award determined by the Committee for a performance period
shall be paid to the Participant at such time as determined by the Committee in
its sole discretion after the end of such performance period; provided,
however, that a Participant may, if and to the extent permitted by the
Committee and consistent with the provisions of Section 162(m) of the Code,
elect to defer payment of a Performance-Based Award.
9. Adjustments Upon Certain Events
Notwithstanding any other provisions in the Plan to the contrary, the
following provisions shall apply to all Awards granted under the Plan:
(a) Generally. In the event of any change in the outstanding Shares after the
Effective Date by reason of any Share dividend or split, reorganization,
recapitalization, merger, consolidation, spin-off, combination or exchange of
Shares or other corporate exchange, or any distribution to shareholders of
Shares other than regular cash dividends, the Committee in its sole discretion
and without liability to any person may make such substitution or adjustment,
if any, as it deems to be equitable, as to (i) the number or kind of Shares or
other securities issued or reserved for issuance pursuant to the Plan or
pursuant to outstanding Awards, (ii) the Option Price and/or (iii) any other
affected terms of such Awards.
(b) Change in Control. Except as otherwise provided in an Award agreement, in
the event of a Change in Control, the Committee in its sole discretion and
without liability to any person may take such actions, if any, as it deems
necessary or desirable with respect to any Award (including, without
limitation, (i) the acceleration of an Award, (ii) the payment of a cash amount
in exchange for the cancellation of an Award and/or (iii) the requiring of the
issuance of substitute Awards that will substantially preserve the value,
rights and benefits of any affected Awards previously granted hereunder) as of
the date of the consummation of the Change in Control.
10. No Right to Employment
The granting of an Award under the Plan shall impose no obligation on the
Company or any Subsidiary to continue the employment of a Participant and shall
not lessen or affect the Company's or Subsidiary's right to terminate the
employment of such Participant.
11. Successors and Assigns
The Plan shall be binding on all successors and assigns of the Company and a
Participant, including without limitation, the estate of such Participant and
the executor, administrator or trustee of such estate, or any receiver or
trustee in bankruptcy or representative of the Participant's creditors.
12. Nontransferability of Awards
Unless otherwise determined by the Committee, an Award shall not be
transferable or assignable by the Participant otherwise than by will or by the
laws of descent and distribution. An Award exercisable after the death of a
Participant may be exercised by the legatees, personal representatives or
distributees of the Participant.
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<PAGE>
13. Amendments or Termination
The Board may amend, alter or discontinue the Plan, but no amendment,
alteration or discontinuation shall be made which, (a) without the approval of
the shareholders of the Company, would (except as is provided in Section 10 of
the Plan), increase the total number of Shares reserved for the purposes of the
Plan or change the maximum number of Shares for which Awards may be granted to
any Participant or (b) without the consent of a Participant, would impair any
of the rights or obligations under any Award theretofore granted to such
Participant under the Plan; provided, however, that the Committee may amend the
Plan in such manner as it deems necessary to permit the granting of Awards
meeting the requirements of the Code or other applicable laws. Notwithstanding
anything to the contrary herein, the Board may not amend, alter or discontinue
the provisions relating to Section 9(b) of the Plan after the occurrence of a
Change in Control.
14. International Participants
With respect to Participants who reside or work outside the United States of
America and who are not (and who are not expected to be) "covered employees"
within the meaning of Section 162(m) of the Code, the Committee may, in its
sole discretion, amend the terms of the Plan or Awards with respect to such
Participants in order to conform such terms with the requirements of local law.
15. Choice of Law
The Plan shall be governed by and construed in accordance with the laws of
the State of New York.
16. Effectiveness of the Plan
The Plan shall be effective as of the Effective Date. If the Plan is not
approved by the shareholders of the Company prior to the first anniversary of
the Effective Date, no Awards may be granted thereafter.
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frontier [LOGO]
COMMUNICATIONS/SM/
<PAGE>
EXHIBIT 99.11
FORM OF PROXY
LOGO
FRONTIER CORPORATION
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To vote by telephone:
- ----------------------
It's fast, convenient, and immediate!
Call toll-free on a touch-tone phone
1-877-PRX-VOTE (1-877-779-8683)
Follow these four easy steps:
1. Read the accompanying joint proxy
statement/prospectus and proxy card
2. Call the toll-free number
1-877-PRX-VOTE (1-877-779-8683)
3. Enter your 14-digit control number located on your proxy card above your
name
4. Follow the recorded instructions
Your vote is important!
Call 1-877-PRX-VOTE anytime!
- ----------------------
To vote by Internet:
- ----------------------
It's fast, convenient, and your vote is immediately confirmed and posted!
Follow these four easy steps:
1. Read the accompanying joint proxy
statement/prospectus and proxy card
2. Go to the website:
http://www.eproxyvote.com/fro
3. Enter your 14-digit control number located on your proxy card above your
name
4. Follow the instructions provided
Your vote is important!
Go to http://www.eproxyvote.com/fro anytime!
Your telephone or Internet vote authorizes the named proxies to vote your
shares in the same manner as if you marked, signed and returned your proxy card.
Please note all votes cast via the telephone or the Internet must be cast prior
to 3:00 p.m. EDT, September 22, 1999.
You may also cast your vote by indicating your vote on the enclosed proxy
card, signing and dating the proxy card and returning the proxy card promptly in
the envelope provided. Please see the instructions on the proxy card.
If you wish to attend the Special Meeting in person, please mark the box
below and complete the ticket request form provided. You may also call the
shareholder line at 1-800-573-2473 to request an admission ticket. If you wish
to change your address, please mark the box below and note you change of address
at left.
Do not return the enclosed proxy card if you are voting by telephone or
Internet.
THANK YOU FOR VOTING!
<PAGE>
FOLD AND DETACH HERE
- --------------------------------------------------------------------------------
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE "FOR" THE PROPOSAL.
1. Proposal to adopt the Agreement and Plan of Merger, dated as of March
16, 1999 and as amended as of May 16, 1999, as the same may be amended
from time to time, among Global Crossing Ltd., GCF Acquisition Corp.
and Frontier Corporation.
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
2. In accordance with their discretion on any matters which may properly
come before the meeting or which are incident to the conduct of the
meeting.
MARK HERE FOR ADDRESS MARK HERE IF YOU
CHANGE AND NOTE AT LEFT [ ] PLAN TO ATTEND THE MEETING [ ]
---- ----
PLEASE SIGN NAME BELOW EXACTLY AS IT APPEARS ON THIS PROXY, DATE AND
RETURN THE PROXY PROMPTLY IN THE ENVELOPE PROVIDED. When signing as attorney,
executor, trustee or in other representative capacity, state full title. For
stock held in joint tenancy, each joint owner should sign.
Signature:________________________ Date:______________
Signature:________________________ Date:_____________
<PAGE>
Ticket Request
If you would like to attend the Special Meeting of Shareholders to be
held at the Crowne Plaza of Rochester, 70 State Street, Rochester, New York, at
10:30 a.m., local time, on September 23, 1999, you may use this form to request
your admission ticket. Complete the form by typing or printing your name and
address. All admission tickets for the meeting will be provided at the
registration desk beginning at 9:30 a.m. Please note that doors to the meeting
will not be open before 9:30 a.m. The envelope provided for the return of your
proxy card should also be used to return this form.
You may also request an admission ticket by calling the shareholder
line 1-800-573-2473. If you hold your shares through a broker or otherwise are
not a record holder, we may require you to show evidence of your share position
before you will be allowed into the Special Meeting.
Note: If your shares are not registered in your own name, please advise the
shareholder of record, which may be your bank, broker, trustee, etc., that you
wish to attend the Special Meeting. The registered owner must provide you with
evidence of your stock ownership so that you will be admitted at the meeting.
Name___________________________________________
Street_________________________________________
City___________________________________________
State____________________Zip Code______________
Please print or type the above information.
FOLD AND DETACH HERE
- --------------------------------------------------------------------------------
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF FRONTIER
CORPORATION.
The undersigned (a) appoints Joseph P. Clayton and Josephine S. Trubek
and each of them, with full power of substitution, his or her proxy to represent
and vote, as designated below, all shares of Frontier Corporation registered in
the name of the undersigned, with the powers the undersigned would possess if
personally present at the Special Meeting of Shareholders to be held at the
Crowne Plaza of Rochester, 70 State Street, Rochester, New York, at 10:30 a.m.,
local time, on September 23, 1999, and at any postponement, continuation or
adjournment thereof and (b) revokes all prior proxies.
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED AS DIRECTED HEREIN, OR
IF NO DIRECTION IS GIVEN, WILL BE VOTED "FOR" THE ADOPTION OF THE MERGER
AGREEMENT.
(Continued and TO BE SIGNED AND DATED on reverse side.)
