Document/Exhibit Description Pages Size
1: S-1 Registration Statement 176 974K
2: EX-12 Computation of Ratio of Earnings 2± 9K
3: EX-23.1 Consent of Independent Accountants 1 5K
4: EX-23.2 Independent Auditors' Consent 1 6K
5: EX-23.3 Consent of Independent Accountants 1 5K
As filed with the Securities and Exchange Commission on March 23, 2004
===============================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
--------------
Form S-1
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
--------------
Globix Corporation*
(Exact name of registrant as specified in its charter)
Delaware 7389 13-3781263
(State or Other Jurisdiction (Primary standard industrial (I.R.S. Employer
of Incorporation or classification code Identification
Organization) number) Number)
--------------
139 Centre Street, New York, New York 10013
Telephone: (212) 334-8500
(Address, Including Zip Code, and Telephone Number,
Including Area Code, of Registrant's Principal Executive Offices)
Peter K. Stevenson
President and Chief Executive Officer
139 Centre Street, New York, New York 10013
Telephone: (212) 334-8500
(Name, Address, Including Zip Code, and Telephone Number,
Including Area Code, of Agent for Service)
--------------
With a copy to:
Bonnie J. Roe, Esq.
Day, Berry & Howard LLP
One Canterbury Green
Stamford, CT 06901
Telephone: (203) 977-7300
Approximate date of commencement of proposed sale to the public: As
soon as practicable on or after the effective date of this Registration
Statement.
If any of the securities being registered on this form are to be
offered on a delayed or continuous basis pursuant to Rule 415 under the
Securities Act of 1933, check the following box. |X|
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. |_| _____________
If this form is a post-effective amendment filed pursuant to Rule
462(c) under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering. |_|____________
If this form is a post-effective amendment filed pursuant to Rule
462(d) under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering. |_|____________
If delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box. |_| _____________________
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CALCULATION OF REGISTRATION FEE
====================================================== ============== ================== =================== ==================
Proposed Maximum Proposed Maximum
Title of Each Class of Amount to be Offering Price Aggregate Amount of
Securities to be Registered Registered Per Unit Offering Price Registration Fee
------------------------------------------------------ -------------- ------------------ ------------------- ------------------
Common Stock, par value $0.01 per share........... 4,797,442 $2.98(1) $14,296,377(1) $1,811.35
11% Senior Secured Notes due 2008(3).............. 19,146,306 $1.00(2) $19,146,306(2) $2,425.84
Guarantees of the 11% Senior Secured Notes due
2008(4)*........................................ - - - -
Total.............................................. $33,442,683 $4,237.19(5)
====================================================== ============== ================== =================== ==================
(1) Pursuant to Rule 457(c) of the Securities Act, the proposed maximum
offering price per unit and the proposed maximum aggregate offering price
are based on the average of the bid and asked prices of the common stock on
the OTC Bulletin Board, as reported on March 22, 2004.
(2) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(a) of the Securities Act.
(3) Includes $13,999,614 aggregate principal amount of our 11% Senior Secured
Notes due 2008, or the notes, initially issued by our company pursuant to
the terms of the prepackaged plan of reorganization filed in connection
with our bankruptcy proceedings, plus $5,146,692 in aggregate principal
amount of additional notes issued or to be issued in lieu of cash interest
payments on the notes (assuming that interest is paid in additional notes
for a period of four years from the date of issuance of the notes).
(4) No separate consideration will be received for the guarantees. Pursuant to
Rule 457(n) under the Securities Act, no separate fee is payable for the
guarantees.
(5) Includes $2,821.55 already paid in connection with the Registration
Statement on Form S-1 filed with the Securities and Exchange Commission on
July 25, 2002 (File No. 333-97067).
* Includes certain subsidiaries of Globix Corporation identified on the
following page.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE
OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933, OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(a), MAY DETERMINE.
================================================================================
415 GREENWICH GC, LLC
(Exact name of registrant as specified in its charter)
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New York 7389 06-1602498
(State or Other Jurisdiction of (Primary standard industrial (I.R.S. Employer
Incorporation or Organization) classification code number) Identification Number)
415 GREENWICH GC TENANT, LLC
(Exact name of registrant as specified in its charter)
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New York 7389 13-4177134
(State or Other Jurisdiction of (Primary standard industrial (I.R.S. Employer
Incorporation or Organization) classification code number) Identification Number)
415 GREENWICH GC MM, LLC
(Exact name of registrant as specified in its charter)
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New York 7389 Pending
(State or Other Jurisdiction of (Primary standard industrial (I.R.S. Employer
Incorporation or Organization) classification code number) Identification Number)
PROSPECTUS
(Subject to Completion) Dated March ___, 2004
The information in this prospectus is not complete and may be changed. The
selling holders may not sell these securities until the registration statement
filed with the Securities and Exchange Commission is declared effective. This
prospectus is not an offer to sell these securities and is not soliciting an
offer to buy these securities in any state where the offer or sale is not
permitted.
[GLOBIX LOGO]
Globix Corporation
4,797,442 Shares of Common Stock
$19,146,306 11% Senior Secured Notes Due 2008
_______________________
Shares of our common stock and 11% senior secured notes due 2008, which
we refer to in this prospectus as the notes, are being offered from time to time
by the selling holders named in this prospectus under the caption "Selling
Holders." We will not receive any proceeds from the sale of shares of our common
stock or notes by the selling holders.
Our common stock and the notes are being registered to permit the
selling holders to sell these securities from time to time to the public. The
selling holders may sell the common stock and/or the notes through ordinary
brokerage transactions or through any other means described in the section of
this prospectus entitled "Plan of Distribution." We do not know when or in what
amounts a selling holder may offer securities for sale. The selling holders may
sell any, all or none of the common stock or notes offered by this prospectus.
Our common stock trades on the OTC Bulletin Board under the ticker
symbol "GBXX." On March ___, 2004, the closing sale price of one share of our
common stock was $[ ].
The notes are not currently listed on any national or regional
securities exchange or inter-dealer quotation service, and we have no plans to
cause the listing of the notes on any exchange or inter-dealer quotation
service.
-----------------------
INVESTING IN OUR COMMON STOCK AND THE NOTES INVOLVES RISKS. SEE "RISK
FACTORS" BEGINNING ON PAGE 9.
-----------------------
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined whether
this prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
The date of this prospectus is March ___, 2004
TABLE OF CONTENTS
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Page
Prospectus Summary......................................................................... 3
Risk Factors............................................................................... 9
Cautionary Statement Regarding Forward-Looking Statements.................................. 16
Use of Proceeds............................................................................ 17
Dividend Policy............................................................................ 17
Ratio of Consolidated Earnings to Fixed Charges ........................................... 17
Selected Consolidated Financial Data....................................................... 18
Management's Discussion and Analysis of Financial Condition and Results of Operations...... 21
Business................................................................................... 36
Management................................................................................. 42
Principal Stockholders..................................................................... 49
Selling Holders............................................................................ 53
Certain Relationships and Related Transactions............................................. 56
Description of Common Stock................................................................ 57
Description of Notes ...................................................................... 57
Plan of Distribution....................................................................... 84
Legal Matters.............................................................................. 86
Experts.................................................................................... 86
Where You Can Find More Information........................................................ 87
Index to Consolidated Financial Statements................................................. F-1
2
PROSPECTUS SUMMARY
This summary highlights information contained elsewhere in this prospectus. You
should read the following summary together with the more detailed information
and our consolidated financial statements and the notes to these statements
appearing elsewhere in this prospectus. In this prospectus, "we," "us," "our
company" and "our" refer to Globix Corporation and its consolidated
subsidiaries, unless the context otherwise requires.
Our Company
We are a provider of Internet services to businesses. Our services
include:
o Hosting and co-location in our secure and fault-tolerant
Internet data centers;
o Network services and connectivity to the Internet through our
Domestic and International Internet Protocol (IP) fiber based
network;
o Internet based managed services focusing on application
management and operating system management, security services
and storage services; and
o Media services including: streaming media, webcasting and
digital asset management solutions.
Our target market for our services is small to large size businesses in
a broad range of industries, including media, publishing, financial services,
retail, healthcare, governmental agencies, manufacturing, technology and
non-profit organizations. No single customer comprised more than 10% of our
revenues in the fiscal years ended September 30, 2003 or 2002. We sell our
services to businesses primarily through our direct sales force.
Our customers use our services to operate and maintain computer
equipment in a secure, fault-tolerant environment with connectivity to a
high-speed, high-capacity, direct link to the Internet, through our own network,
and to support Internet applications. Our employees are located in New York
City, New York; Atlanta, Georgia; Santa Clara, California; Fairfield New Jersey;
and London, England.
Our principal executive offices are located at 139 Centre Street, New
York, New York 10013, and our telephone number at that location is (212)
334-8500. Although we maintain a website at www.globix.com, we do not intend
that the information available through our website be incorporated into this
registration statement. Our SEC filings will be available on our website.
Globix was founded in 1989 and in 1998 undertook a major expansion plan
in order to pursue opportunities resulting from the growth of the Internet. On
March 1, 2002, Globix filed a voluntary petition under Chapter 11 of the United
States Bankruptcy Code, together with a prepackaged plan of reorganization,
which we refer to as the "Plan," with the United States Bankruptcy Court for the
District of Delaware. We continued to operate in Chapter 11 in the ordinary
course of business and received permission from the bankruptcy court to pay our
employees, trade, and certain other creditors in full and on time, regardless of
whether these claims arose prior to or after the Chapter 11 filing.
On April 8, 2002, the bankruptcy court confirmed the Plan. Effective
April 25, 2002, which we refer to as the "Effective Date of the Plan," all
conditions necessary for the Plan to become effective were satisfied or waived
and we emerged from Chapter 11 bankruptcy protection. For additional information
see "Our Chapter 11 Bankruptcy Reorganization" which begins on page 39, for a
discussion of our reorganization pursuant to Chapter 11 of the United States
Bankruptcy Code.
3
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The Offerings
Use of proceeds........................ We will not receive any of the proceeds from the sale of the shares of our
common stock and the notes offered by the selling holders.
Common Stock
Common stock offered by the selling
holders ............................... Up to 4,797,442 shares
11% Senior Notes
Notes offered by the selling holders... Up to $19,146,306 aggregate principal amount of notes.
Maturity Date.......................... May 1, 2008.
Interest............................... Payable annually in arrears on May 1, commencing on May 1, 2003:
o in additional notes through May 1, 2004;
o in cash or, at the election of our board of directors, in additional
notes (or any combination of additional notes and cash) on May 1,
2005 and May 1, 2006; and
o in cash thereafter until the maturity date of the notes.
Guaranties............................. Our wholly owned direct and indirect subsidiaries, 415 Greenwich GC, LLC, 415
Greenwich GC Tenant, LLC and 415 Greenwich GC MM, LLC have fully and
unconditionally and jointly and severally guaranteed all amounts payable under
the notes, including principal and interest. These subsidiaries currently have
no assets and Globix intends to dissolve them.
Ranking................................ The notes are our senior secured obligations and rank on parity with, or
senior to, all of our existing and future debt and liabilities. The notes are
secured by our assets and the assets of the subsidiary guarantors so that
claims of the holders of the notes will rank ahead of unsecured claims of our
creditors to the extent of the value, priority and validity of the liens
securing the notes and the subsidiary guarantees. However, since we and our
subsidiary guarantors may incur up to $20 million of debt in the aggregate
which may be secured by liens superior to, or in lieu of, those securing the
notes and the subsidiary guaranties, this debt will effectively rank ahead of
the notes and subsidiary guaranties.
The subsidiary guaranties are senior secured obligations of the subsidiary
guarantors and rank on parity with, or senior to, all existing and future debt
and liabilities of the subsidiary guarantors. However, our company and the
subsidiary guarantors may collectively incur up to $20 million of indebtedness
in the aggregate which may be secured by liens superior to, or in lieu of,
those securing the notes, and the subsidiary guaranties will in effect be
subordinated to this indebtedness.
Security............................... Our obligations under the notes are secured by a first priority security
interest in all of the otherwise unencumbered tangible and intangible assets of
our company and of each subsidiary guarantor, subject to agreed upon permitted
liens. The liens securing the notes may also be released or subordinated in
priority to liens securing up to $20 million of debt under credit facilities,
so long as the fair market value of the assets subject to these liens does not
exceed to any material extent 1.5 times the amount of the debt secured by these
liens.
Change of control...................... In the event of a "Change of Control" (as defined on page 58) of our
company, each holder of notes may require us to repurchase, in whole or in
part, all of that holder's notes for a cash payment equal to 101% of the
aggregate principal amount of that holder's notes, plus accrued and unpaid
interest, if any, to the redemption date.
4
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Optional redemption.................... We may redeem the notes at our option, in whole or in part, at any time and
from time to time, upon notice mailed not less than 15 days but not more than
60 days prior to the date of redemption, at a redemption price equal to 100% of
the principal amount of the notes being redeemed plus accrued and unpaid
interest up to, but excluding, the redemption date. However, in the event that
a Change of Control of our company has occurred and we have not offered to
purchase all of the notes in connection with the Change of Control, the
redemption price will be equal to 101% of the aggregate principal amount of the
notes being redeemed plus accrued and unpaid interest up to, but excluding, the
redemption date.
Certain covenants...................... The indenture governing the notes among other things, restricts, with certain
exceptions, the ability of our company and our subsidiaries to:
o sell assets unless the proceeds are applied to the acquisition of
property or assets to be used in the Internet service business, or to
repay certain debt;
o incur indebtedness unless our consolidated debt to EBITDA ratio would
be greater than zero and less than 6:1, except that we may incur up to
$20 million of senior debt and certain other indebtedness as permitted
under the indenture;
o incur liens other than certain permitted liens;
o declare or pay any dividend (other than stock, options, warrants or
other rights to acquire stock);
o make certain investments, except in a company that is or as a result
of an investment becomes a subsidiary of our company and except as
otherwise permitted by the indenture;
o purchase, redeem, retire or otherwise acquire for value any shares of
stock of our company, except as specifically permitted under the
indenture; and
o enter into any transaction (or series of related transactions) not in
the ordinary course of business with an affiliate or related person of
our company involving aggregate consideration in excess of $2 million
unless such transaction is on terms no less favorable to us than those
that could be obtained in a comparable arm's-length transaction with
an entity that is not an affiliate or related person and is in the
best interests of our company.
Governing law.......................... New York
As of the date of this prospectus, we had 16,460,000 shares of common
stock outstanding.
--------------------
Risk Factors
You should carefully consider all of the information contained in this
prospectus before making an investment in our common stock or the notes. In
particular, you should consider the risk factors described under "Risk Factors"
beginning on page 9.
5
SUMMARY CONSOLIDATED FINANCIAL DATA
The following summary historical consolidated financial data as of and
for the year ended September 30, 2003 (Successor Company), five months ended
September 30, 2002 (Successor Company), the seven months ended April 30, 2002
(Predecessor Company), as of and for the fiscal years ended September 30, 2001,
2000 and 1999 (Predecessor Company) have been derived from our audited
consolidated financial statements and related notes. The selected historical
financial data as of and for the three months ended December 31, 2003 and 2002
(Successor Company) is derived from our unaudited consolidated financial
statements and includes all adjustments, consisting of normal recurring
adjustments, which, in our opinion, are necessary for a fair presentation of the
financial position and results of operations for these periods.
This information should be read together with, and is qualified in its
entirety by reference to, our consolidated financial statements included
elsewhere in this prospectus, and the notes thereto and the information set
forth in "Management's Discussion and Analysis of Financial Condition and
Results of Operations" beginning on page 21. As a result of the application of
fresh start accounting under SOP No. 90-7 as of May 1, 2002 our financial
results for the fiscal year ended September 30, 2002 include two different bases
of accounting and, accordingly, the operating results and cash flows of the
Successor Company and the Predecessor Company have been separately disclosed.
For the purposes of this prospectus and the financial statements and
related notes contained in this prospectus, references to the "Predecessor
Company" are references to our company for periods prior to April 30, 2002 (the
last day of the calendar month in which we emerged from bankruptcy) and
references to the "Successor Company" are references to our company for periods
subsequent to April 30, 2002. The Successor Company's financial statements are
not comparable to the Predecessor Company's financial statements.
(In thousands of United States dollars, except share and per share data)
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Successor Company Predecessor Company
-------------------------------- --------------- --------------------------------------------
Year Ended Five Months Seven Months Year Ended Year Ended Year Ended
eptember 30 Ended Ended September 30, September 30, September 30,
2003 September 30, April 30, 2001 2000 1999
Consolidated Statement of ------------- --------------- --------------- -------------- ------------- -------------
Operations Data:
Revenue $ 60,177 $ 30,723 $ 51,273 $ 104,210 $ 81,287 $ 33,817
Operating costs and expenses:
Cost of revenues (excluding
depreciation, amortization,
payroll and occupancy shown
below) 19,990 10,458 22,123 40,609 42,513 22,184
Selling, general and
administrative 44,430 29,313 57,206 124,821 98,113 36,495
Loss (gain) on impairment of
assets - - 2,578 3,500 - -
Restructuring and other charges
(credits) (1,020) - 24,834 56,109 - -
Depreciation and amortization 15,523 6,060 28,115 36,657 18,228 6,329
------------ ------------ ------------ ------------ ------------ ------------
Total operating costs and expenses 78,923 45,831 134,856 261,696 158,854 65,008
Other operating income 345 - - - - -
------------ ------------ ------------ ------------ ------------ ------------
Loss from operations (18,401) (15,108) (83,583) (157,486) (77,567) (31,191)
Interest and financing expense,
net (13,962) (5,866) (32,487) (51,846) (33,082) (18,386)
Other income (expense) 1,232 (157) (509) (1,379) 1,779 6,192
Gain (loss) on debt discharge 6,023 - 427,066 - (17,577) -
Reorganization items - - (7,762) - - -
Fresh start accounting adjustments - - (148,569) - - -
Minority interest in subsidiary - - 5,778 - - -
------------ ------------ ------------ ------------ ------------ ------------
Income (loss) before income taxes
and cumulative effect of a change
in accounting principle (25,108) (21,131) 159,934 (210,711) (126,447) (43,385)
Income tax expense 167 - - - - -
------------ ------------ ------------ ------------ ------------ ------------
Income (loss) before cumulative
effect of a change in accounting
principle (25,275) (21,131) 159,934 (210,711) (126,447) (43,385)
Cumulative effect of a change in
accounting principle - - - (2,332) - -
------------ ------------ ------------ ------------ ------------ ------------
Net income (loss) (25,275) (21,131) 159,934 (213,043) (126,447) (43,385)
Dividends and accretion on
preferred stock - - (3,178) (7,104) (5,768) -
------------ ------------ ------------ ------------ ------------ ------------
Net income (loss) attributable to
common stockholders $ (25,275) $ (21,131) $ 156,756 $ (220,147) $ (132,215) $ (43,385)
============ ============ ============ ============ ============ ============
Earnings (loss) per common share:
Basic:
Before cumulative effect of a
change in accounting
principle $ (1.54) $ (1.28) $ 3.96 $ (5.66) $ (3.73) $ (1.73)
Cumulative effect of a change
in accounting principle - - - (0.06) - -
------------ ------------ ------------ ------------ ------------ ------------
Basic earnings (loss) per share
attributable to common
stockholders $ (1.54) $ (1.28) $ 3.96 $ (5.72) $ (3.73) $ (1.73)
============ ============ ============ ============ ============ ============
Weighted average common shares
outstanding - basic 16,460,000 16,460,000 39,618,856 38,476,909 35,484,040 25,116,800
============ ============ ============ ============ ============ ============
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Diluted:
Before cumulative effect of a
change in accounting principle $ (1.54) $ (1.28) $ 3.30 $ (5.66) $ (3.73) $ (1.73)
Cumulative effect of a change in
accounting principle -- -- -- (0.06) -- --
------------ ------------ ------------ ------------ ------------ ------------
Diluted earnings (loss) per share
attributable to common
stockholders $ (1.54) $ (1.28) $ 3.30 $ (5.72) $ (3.73) $ (1.73)
============ ============ ============ ============ ============ ============
Weighted average common shares
outstanding - diluted 16,460,000 16,460,000 48,507,456 38,476,909 35,484,040 25,116,800
============ ============ ============ ============ ============ ============
Other Consolidated Financial Data:
Net cash provided by (used in)
operating activities $ (12,188) $ 3,679 $ (59,684) $ (140,543) $ (94,318) $ (36,897)
Net cash provided by (used in)
investing activities $ (858) $ (6,461) $ 5,842 $ (113,271) $ (149,939) $ (58,774)
Net cash provided by (used in)
financing activities $ (10,539) $ (2,279) $ (4,946) $ 387 $ 509,395 $ 135,589
Consolidated Balance Sheet Data:
Cash, cash equivalent, short-term
investments and marketable
securities $ 33,260 $ 54,281 $ 113,112 $ 378,510 $ 111,412
Restricted cash and investments $ 6,928 $ 9,097 $ 33,870 $ 43,178 $ 45,039
Working capital $ 28,449 $ 42,421 $ 78,340 $ 366,139 $ 101,216
Total assets $ 222,282 $ 262,720 $ 552,988 $ 729,591 $ 302,518
Current portion of long-term debt $ 1,510 $ 1,520 $ 6,687 $ 2,173 $ 2,088
Long-term debt, less current portion $ 140,389 $ 151,274 $ 630,750 $ 621,809 $ 161,005
Mandatory redeemable convertible
preferred stock $ -- $ -- $ 83,230 $ 76,042 $ --
Stockholders' equity (deficit) $ 53,351 $ 72,547 $ (237,325) $ (18,030) $ 106,405
7
Successor Company
---------------------------------
Consolidated Statement of Three Months Three Months
Ended Ended
December 31, December 31,
Operations Data: 2003 2002
---------------------------------
(Unaudited) (Unaudited)
------------- ---------------
Revenue $ 14,385 $ 16,480
Operating costs and expenses:
Cost of revenues (excluding
depreciation, amortization, and
certain
payroll and occupancy shown
below) 4,876 5,624
Selling, general and
administrative 10,944 11,891
Loss on impairment of assets 17,313 -
Restructuring and other charges
(credits) - -
Depreciation and amortization 3,371 3,727
------------ ------------
Total operating costs and expenses 36,504 21,242
Other operating income - -
------------ ------------
Loss from operations (22,119) (4,762)
Interest and financing expense,
net (3,274) (3,516)
Other income (expense) 297 182
Gain (loss) on debt discharge 1,747 2,727
Reorganization items - -
Fresh start accounting adjustments - -
Minority interest in subsidiary - 108
------------ ------------
Income (loss) before income taxes
and
cumulative effect of a change in
accounting principle (23,349) (5,261)
Income tax expense - -
------------ ------------
Income (loss) before cumulative
effect
of a change in accounting
principle (23,349) (5,261)
Cumulative effect of a change in
accounting principle - -
------------ ------------
Net income (loss) (23,349) (5,261)
Dividends and accretion on
preferred stock - -
------------ ------------
Net income (loss) attributable to
common stockholders $ (23,349) $ (5,261)
============ ============
Earnings (loss) per common share:
Basic:
Before cumulative effect of a
change in accounting principle $ (1.42) $ (0.32)
Cumulative effect of a change in
accounting principle - -
------------ ------------
Basic earnings (loss) per share
attributable to common
stockholders $ (1.42) $ (0.32)
============ ============
Weighted average common shares
outstanding - basic 16,460,000 16,460,000
============ ============
Diluted:
Before cumulative effect of a
change in accounting principle $ (1.42) $ (0.32)
Cumulative effect of a change in
accounting principle -- --
------------ ------------
Diluted earnings (loss) per share
attributable to common
stockholders $ (1.42) $ (0.32)
============ ============
Weighted average common shares
outstanding - diluted 16,460,000 16,460,000
============ ============
Other Consolidated Financial Data:
Net cash provided by (used in)
operating activities $ (2,960) $ (915)
Net cash provided by (used in)
investing activities $ (6,278) $ (3,483)
Net cash provided by (used in)
financing activities $ (6,275) $ (2,955)
Consolidated Balance Sheet Data:
Cash, cash equivalent, short-term
investments and marketable
securities $ 21,226 $ 48,704
Restricted cash and investments $ 6,938 $ 8,856
Working capital $ 67,929 $ 37,831
Total assets $ 196,153 $ 252,716
Current portion of long-term debt $ 742 $ 1,668
Long-term debt, less current portion $ 135,846 $ 144,369
Mandatory redeemable convertible
preferred stock $ -- $ --
Stockholders' equity (deficit) $ 31,857 $ 68,241
8
RISK FACTORS
Our business, financial condition, results of operations and cash flows
may be adversely affected by various risks, including those set forth below.
We have a history of losses which may continue in the future.
We have experienced significant losses since we began operations.
Despite improvement in our operating margins since our emergence from
bankruptcy, we have not achieved operating profits and may continue to incur
losses in the future. For the year ended September 30, 2003, we had a loss from
operations of $18.4 million and a net loss of approximately $25.3 million. For
the quarter ended December 31, 2003, we had a loss from operations of $22.1
million and a net loss of $23.3 million. $17.3 million of the loss from
operations and net loss in the quarter ended December 31, 2003 was attributable
to a write-down of our property located at 415 Greenwich Street in New York
City, which we sold in January 2004. Our ability to achieve operating profits
depends on our ability to reduce our indebtedness and operating expenses or
increase our revenue base. If we are unable to reduce expenses sufficiently or
build up our revenue base, we will not become profitable. If we are unable to
become profitable, we will eventually become unable to meet our financial
obligations.
We may lose customers or have our existing customers reduce their level of
spending on our services.
We have experienced and may continue to experience declines in revenue
due to customers leaving us or staying with us but choosing to decrease their
spending on our services. One of our biggest challenges has been to limit these
revenue declines. Although we have reduced the level of revenue declines due to
customer loss, continued declines in revenue could harm our business, financial
condition and results of operations.
Our ability to meet our debt service obligations depends on our future operating
performance, and failure to satisfy these obligations could result in these
obligations becoming due and payable, resulting in bankruptcy.
Historically, we have not generated positive cash flows from
operations. Our ability to pay principal, premium, if any, and interest on the
11% senior notes and on our other indebtedness depends on our future operating
performance. Future operating performance is subject to market conditions and
business factors that are often beyond our control. Consequently, we cannot
assure you that we will have sufficient cash flows to pay the principal,
premium, if any, and interest on our indebtedness. If our cash flows and capital
resources are insufficient to allow us to make scheduled payments on our
indebtedness, we may have to reduce or delay capital expenditures, sell assets,
seek additional capital or restructure or refinance our indebtedness or file for
bankruptcy. We cannot assure you that the terms of our indebtedness will allow
these alternative measures or that these measures would satisfy our scheduled
debt service obligations. If we cannot make scheduled payments on our
indebtedness, we will be in default and, as a result:
o our debt holders could declare all outstanding principal and
interest to be due and payable; and
o we could be forced into bankruptcy.
Our outstanding debt obligations restrict our financial and operating
flexibility.
As of March 17, 2004, we had approximately $65 million of outstanding
indebtedness, after giving effect to the repurchase of approximately $40 million
of our outstanding 11% senior notes with proceeds from the sale of our property
at 415 Greenwich Street in New York City. Our indebtedness could:
o limit our ability to obtain additional financing to operate or
grow our business;
o require us to use the proceeds of certain asset sales to
redeem indebtedness;
o limit our financial flexibility in planning for and reacting
to industry changes;
o place us at a competitive disadvantage as compared to less
leveraged companies; and
o after the fourth anniversary of the issuance of the 11% senior
notes, require us to dedicate a substantial portion of our
cash flow to payments on our debt, reducing the availability
of our cash flow for other purposes.
Covenants in the indenture governing the 11% senior notes impose
limitations on our ability to borrow and invest, which could severely impair our
ability to expand or finance our future operations.
9
The indenture governing the 11% senior notes contains a number of
covenants that impose significant operating and financial restrictions on us and
our subsidiaries. These restrictions limit our ability to incur additional
indebtedness, create liens on assets, dispose of assets, enter into business
combinations or engage in certain activities with our subsidiaries.
The indenture governing the 11% senior notes permits us to incur up to $20
million in senior indebtedness.
The indenture governing the 11% senior notes also permits us and our
subsidiaries to incur up to $20 million of senior indebtedness which may be
secured by a first priority lien on the assets of our company and the
subsidiaries. The notes and the subsidiary guaranties would therefore be
subordinated to such indebtedness.
Our leverage will increase as a result of the payment of interest in kind.
The indenture under which our 11% senior notes were issued requires us
to pay interest in kind through 2004 and permits us to pay interest in kind at
the discretion of our board of directors through 2006. The additional issuances
of 11% senior notes could further restrict our financial and operating
flexibility and make it more difficult to meet our financial obligations upon
the maturity of the 11% senior notes.
Our acquisition strategy may prove to be unsuccessful.
In order to increase our revenue base, we may make investments in or
acquire businesses, products, services or technologies. Consequently, we are
subject to the following risks:
o we may not be able to make investments or acquisitions on
terms which prove advantageous;
o acquisitions may cause a disruption in our ongoing business,
distract our management and other resources and make it
difficult to maintain the operations, organization and
procedures of our company or the acquired business; and
o we may not be able to retain key employees of the acquired
business or to maintain good relations with its customers or
suppliers.
Our reorganization may have adversely affected some of our relationships with
customers and suppliers, and may continue to affect the way we are viewed in the
market.
The continuing impact of our April 2002 bankruptcy reorganization
cannot be accurately quantified. However, our bankruptcy may have adversely
affected our ability to negotiate favorable terms with vendors or retain
existing customers and may continue to affect the way we are perceived or the
contractual terms that are available to us.
Our business could suffer from a loss of management personnel.
Since our emergence from bankruptcy, we have undertaken a number of
changes in management as well as reductions in staffing. As a result, our
business has experienced, and could continue to experience, a lack of continuity
in management. We may have difficulty finding replacements for any further
management resources we may lose. The loss or unavailability to us of any member
of our senior management team could have a significant adverse effect on our
business.
We may not be able to attract or retain the personnel we need in each of the
critical areas of our business, which could adversely affect the ability of our
business to perform its functions.
Our future success depends on our ability to attract and retain key
personnel for management, technical, sales and marketing and customer support
positions. The failure to attract or retain qualified personnel in each of these
critical areas could adversely affect the ability of our business to perform its
functions. Further efforts to control management costs, given our flat
organizational structure, could have an additional adverse impact on morale in
certain parts of our company.
Competition for the Internet services that we provide is intense and we expect
that competition will continue to intensify, which could result in our
encountering significant pricing pressure.
Our competitors include other Internet service providers with a
significant national or global presence that focus on business customers, such
as IBM, Digex, EDS and Equinix. Our competitors also include telecommunications
companies, such as AT&T, British Telecom, Level 3, Cable and Wireless, MCI and
Sprint. Many of our existing competitors, as well as a number of potential new
competitors, have:
10
o longer operating histories;
o greater name recognition;
o larger customer bases;
o larger networks;
o more and larger facilities; and
o significantly greater financial, technical and marketing
resources.
New competitors, including large computer hardware, software, media and
other technology and telecommunications companies, may enter our market and
rapidly acquire significant market share. As a result of increased competition
and vertical and horizontal integration in the industry, we expect to continue
to encounter significant pricing pressures. These pricing pressures could result
in significantly lower average selling prices for our services. For example,
telecommunications companies may be able to provide customers with reduced
communications costs in connection with their Internet access services,
significantly increasing pricing pressures on us. We may not be able to offset
the effects of any price reductions with an increase in the number of our
customers, higher revenue from value-added services, cost reductions or
otherwise. In addition, Internet access service businesses are likely to
encounter consolidation in the near future, which could result in increased
prices and other competition.
Our success will depend on our ability to integrate, operate and maintain and
upgrade our network and facilities, and our failure to do so could adversely
affect our entire business.
A key element of our business strategy is the maintenance and upgrading
of our facilities and network, which has required, and will continue to require,
management time and the periodic expenditure of capital. Any interruption in our
ability to deliver services over our network due to market disruptions or third
party insolvencies may make us less attractive to future customers and may
hamper our ability to retain our current customers which, in turn, could
adversely affect our entire business.
Our business could be adversely affected by price increases or service
interruptions in our telecommunications service.
Our existing network relies entirely on many third-party data
communications and telecommunications providers, located in the United States
and abroad. These carriers are subject to price constraints, including tariff
controls, that in the future may be relaxed or lifted. In addition, certain of
these providers, including MCI, Global Crossing and Cable and Wireless, have
filed for protection under Chapter 11 under the U.S. Bankruptcy Code, which may
affect the availability and quality of the services that these entities provide.
Price increases or the lack of service availability and quality could adversely
affect the costs of maintaining our network and our ability to maintain or grow
our business.
We may not be able to obtain computer hardware and software on the scale and at
the times we need at an affordable cost, and failure to do so over an extended
period of time could harm our business, financial condition and results of
operations.
We rely on outside vendors to supply us with computer hardware,
software and networking equipment. We primarily use products from Cisco, Compaq,
Juniper Networks and Sun Microsystems, either leased or purchased from the
manufacturer or a third-party vendor. Consequently, our expertise is
concentrated in products from these manufacturers. We also rely on Cisco for
network design and installation services. If we are unable over an extended
period of time to obtain the products and services that we need on a timely
basis and at affordable prices, it will harm our business, financial condition
and results of operations.
Because we are dependent on computer and communication systems, a systems
failure would cause a significant disruption to our business.
Our business depends on the efficient and uninterrupted operation of
our computer and communications hardware systems and infrastructure. We
currently maintain most of our computer systems in our facilities in New York
City, New York; Atlanta, Georgia; Santa Clara, California; and London, England.
While we have taken precautions against systems failure, interruptions could
result from natural disasters as well as power loss, our inability to acquire
fuel for our backup generators, telecommunications failure, terrorist attacks
and similar events. We also lease telecommunications lines from local, regional
and national carriers, whose service may be interrupted. Our business, financial
condition and results of operations could be harmed by any damage or failure
that interrupts or delays our operations.
Our dependence on a limited number of suppliers exposes us to possible
interruptions that could delay or prevent us from providing our services.
11
Approximately 40% of our cost of revenues is derived from services
provided by two major telecommunication carriers. While we believe that most of
these services can be obtained from other alternative carriers, an interruption
in service from one of these carriers or other suppliers could limit our ability
to serve customers, which would adversely affect our results of operations.
If our security measures proved to be inadequate, our ability to attract and
retain customers would be adversely affected.
We have taken measures to protect the integrity of our infrastructure
and the privacy of confidential information. Nonetheless, our infrastructure is
potentially vulnerable to physical or electronic break-ins, viruses or similar
problems. If a person circumvents our security measures, he or she could
jeopardize the security of confidential information stored on our systems,
misappropriate proprietary information or cause interruptions in our operations.
We may be required to make significant additional investments and efforts to
protect against or remedy security breaches. Security breaches that result in
access to confidential information could damage our reputation and expose us to
a risk of loss or liability. The security services that we offer in connection
with our customers' networks cannot assure complete protection from computer
viruses, break-ins and other disruptive problems. Although we attempt to
contractually limit our liability in such instances, the occurrence of these
problems may result in claims against us or liability on our part. These claims,
regardless of their ultimate outcome, could result in costly litigation and
could harm our business and reputation and impair our ability to attract and
retain customers for our services.
Our business depends on the continued growth, use and improvement of the
Internet.
Our services are targeted toward businesses that use the Internet. The
Internet is subject to a high level of uncertainty and is characterized by
rapidly changing technology, evolving industry standards and frequent new
service introductions. Accordingly, we are subject to the risks and difficulties
frequently encountered in new and rapidly evolving markets.
Critical issues concerning the commercial use of the Internet remain
unresolved and may affect the growth of Internet use, especially in the market
we target. Despite growing interest in the many commercial uses of the Internet,
many businesses have been deterred from purchasing Internet services for a
number of reasons, including:
o inadequate protection of the confidentiality of stored data
and information moving across the Internet;
o inconsistent quality of service;
o inability to integrate business applications on the Internet;
o the need to deal with multiple vendors, whose products are
frequently incompatible;
o lack of availability of cost-effective, high-speed services;
and
o concern over the financial viability of Internet service
providers.
Capacity constraints caused by growth in Internet usage may, unless
resolved, impede further growth in Internet use. If the number of users on the
Internet does not increase and commerce over the Internet does not become more
accepted and widespread, demand for our services may decrease and, as a result,
our business would be harmed.
Our business requires us to adapt to technological changes, and significant
technological changes could render our existing services obsolete.
We must adapt to our rapidly changing market by continually improving
the responsiveness, functionality and features of our services to meet our
customers' needs. If we are unable to respond to technological advances and
conform to emerging industry standards in a cost-effective and timely basis, our
business, financial condition and results of operations will be harmed.
Changes in government regulations related to the Internet could restrict our
activities, expose us to liability or otherwise adversely affect our business.
There are an increasing number of laws and regulations pertaining to
the Internet. These laws or regulations relate to liability for content and
information received from or transmitted over the Internet, user privacy and
security, taxation, the enforcement of online contracts, consumer protection and
other issues concerning services. The government may also seek to regulate some
aspects of our activities as basic telecommunications services. Moreover, the
applicability to the Internet of existing laws governing copyright, trademark,
trade secret, obscenity, libel, consumer protection, privacy and other issues is
uncertain and developing. We cannot predict the impact that future regulation or
regulatory changes may have on our business.
We could be liable for violating the intellectual property rights of third
parties.
12
Despite our reasonable efforts to protect the intellectual property
that is important to the operation of our business, a third party could bring a
claim of infringement against us or any of our material suppliers. If such a
claim were settled or adjudicated against us or one of our material suppliers,
we could be forced to pay for a license to continue using the intellectual
property. There is no guarantee that we could obtain such a license, or that it
would be available on reasonable terms. Alternatively, we could be forced to
defend ourselves against infringement claims, which could be costly and which
could result in us having to pay damages to third parties.
We may be liable for the material that our customers distribute over the
Internet.
The law relating to the liability of online service providers, private
network operators and Internet service providers for content and information
carried on or disseminated through their networks is currently unsettled. While
we have taken steps to contractually limit our liability in these areas, we
could become subject to legal claims relating to the content of the web sites we
host. For example, lawsuits could be brought against us claiming that material
inappropriate for viewing by young children can be accessed from the web sites
that we host. Claims could also involve matters such as defamation, invasion of
privacy, copyright and trademark infringement. Internet service providers have
been sued in the past, sometimes successfully, based on the material
disseminated over their networks. We may take additional measures to reduce our
exposure to these risks, which could be costly or result in some customers not
doing business with us. In addition, defending ourselves against claims, or
paying damage awards to third parties, could strain our management and financial
resources.
We face currency risk and risks associated with differing regulatory regimes and
markets as a result of our international operations.
A substantial percentage of our business is located in the United
Kingdom, and our results of operations would be adversely affected by a
significant increase in the value of the dollar as compared to the pound
sterling. We also face problems of managing our business under differing
regulatory regimes in areas such as intellectual property, telecommunications
and employee relations. As a result, we may find it more difficult and expensive
to hire and train employees and to manage international operations together with
our United States operations. Because we have limited experience operating in
markets outside the United States and the United Kingdom, we may have difficulty
adapting our services to different international market needs. We may also be
unsuccessful in our efforts to market and sell these services to customers
abroad. If we fail to successfully address these risks, our international
operations may be adversely affected.
Our results of operations fluctuate on a quarterly and annual basis and we
expect to continue experiencing fluctuations in our future quarterly and annual
results of operations, which could affect the market price of our securities.
Our results of operations fluctuate on a quarterly and annual basis. We
expect to continue experiencing fluctuations in our future quarterly and annual
results of operations due to a variety of factors, many of which are outside our
control, including:
o timing of contractual cancellations and renewals;
o demand for and market acceptance of our services;
o introductions of new services by us and our competitors;
o customer retention;
o capacity utilization of our data centers and assets;
o timing of customer installations;
o our mix of services sold;
o the timing and magnitude of our capital expenditures;
o changes in our pricing policies and those of our competitors;
o fluctuations in bandwidth used by customers;
o our retention of key personnel;
o reliable continuity of service and network availability;
13
o costs related to the acquisition of network capacity;
o arrangements for interconnections with third-party networks;
o the provision of customer discounts and credits;
o the introduction by third parties of new Internet and
networking technologies;
o licenses and permits required to construct facilities, deploy
networking infrastructure or operate in the United States and
foreign countries; and
o other general economic factors.
Fluctuations in our quarterly or annual results as a result of one or
more of these factors could affect the market price of our securities.
Because our common stock is thinly traded, prices are more likely to be volatile
and it may be harder to sell any sizable number of shares.
Our common stock is currently traded on the Over-the-Counter Bulletin
Board. Because of the relatively small number of shares that are traded, prices
may be volatile and it may be difficult to find a purchaser for any sizable
amount of the stock.
If our board of directors determines to engage in certain change of control
transactions, or if a third party were to acquire more than 50% of our stock or
acquire control of our board of directors, we or the third party could be
required to purchase our 11% senior notes, and the failure to do so would result
in an event of default under the indenture governing the notes.
In the event that:
o subject to certain exceptions, any person, entity or group of
persons or entities becomes the beneficial owner, directly or
indirectly, of more than 50% of our outstanding voting
securities;
o at any time during any two-year period following the
distribution of the 11% senior notes, the individuals who
comprised a majority of our board of directors at the
beginning of such two year period, plus any new directors
whose election to our board was approved by a majority of
those directors, cease to comprise a majority of our board of
directors; or
o subject to certain exceptions, we consolidate with or merge
with or into another entity, we sell or lease all or
substantially all of our assets to another entity or any
entity consolidates with or merges into or with our company,
in each case pursuant to a transaction in which our
outstanding voting securities are changed into or exchanged
for cash, securities or other property, unless no person,
entity or group of persons or entities owns, immediately after
the transaction, more than 50% of our outstanding voting
stock,
then each holder of the 11% senior notes will have the right to require us to
repurchase all or a portion of its 11% senior notes for a purchase price equal
to 101% of the principal amount of that holder's 11% senior notes plus accrued
and unpaid interest to the date of repurchase. There can be no assurance that we
will have sufficient funds available to make any required repurchases of 11%
senior notes or that the terms of our other indebtedness will permit us to make
any required repurchases of 11% senior notes. If we are unable to repurchase a
holder's 11% senior notes in connection with one of the events described above,
then this would constitute an event of default under the indenture governing the
11% senior notes.
As a result of various financial accounting complexities, accounting staff
turnover and accounting staff shortages, we experienced material weaknesses in
our accounting and internal control environment in summer 2003 that resulted in
the delay and late filing of SEC reports filed during summer 2003.
Since our emergence from bankruptcy effective April 25, 2002, Globix
has had to face many challenging and complex accounting and financial reporting
issues, including fresh start accounting, restructuring and the restatement of
amounts in its financial statements as of and for the quarter ended March 31,
2002. In addition, Globix has experienced significant turnover in its financial
reporting staff, as well as limited management resources. Globix fell behind in
its SEC reporting for the year ended September 30, 2002, and experienced
difficulty in catching up with its filing obligations for the year ended
September 30, 2002 while fulfilling its responsibilities for the fiscal year
2003. The combined effect of these challenges placed a strain on our internal
accounting resources in summer 2003 and resulted in further delays in the
preparation and filing of periodic reports that were filed in summer 2003. The
strain on our internal accounting resources and the delays in the preparation
and filing of periodic reports created material weaknesses in our accounting and
internal control environment in summer 2003. For further information concerning
our internal controls, see "Changes In and Disagreements With Accountants on
Accounting and Financial Disclosure" beginning on page 35 of this prospectus.
14
As a result of our application of fresh start accounting under American
Institute of Certified Public Accountants Statement of Position no. 90-7,
"Financial Reporting By Entities In Reorganization Under The Bankruptcy Code"
(otherwise known as "SOP No. 90-7"), as of May 1, 2002, our financial statements
as of and for periods subsequent to May 1, 2002 are not comparable to our
financial statements as of and for periods prior to May 1, 2002.
In connection with our emergence from bankruptcy on April 25, 2002, we
have applied the principles of SOP 90-7 as of May 1, 2002. Accordingly our
financial statements for periods subsequent to May 1, 2002 are not comparable to
our financial statements for periods prior to May 1, 2002. This may make it more
difficult for third parties to assess our financial performance.
You may not be able to recover against Arthur Andersen LLP, our independent
auditors for fiscal 2001, for any liability that they might otherwise have under
Section 11(a) of the Securities Act or other securities laws.
Our consolidated financial statements for the year ended September 30, 2001 (our
predecessor company financial statements prior to our emergence from bankruptcy
in April 2002) were audited by Arthur Andersen LLP. We are unable to obtain the
consent of Arthur Andersen LLP for the inclusion in this Registration Statement
of its audit report for the 2001 fiscal year, and because of the liquidation of
Arthur Andersen LLP, you may not be able to recover against Arthur Andersen LLP
for any liability that Arthur Andersen LLP might otherwise have under Section
11(a) of the Securities Act of 1933, which imposes certain duties on persons
named as experts in a registration statement, or other securities laws.
15
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
This prospectus contains historical and forward-looking statements. The
forward-looking statements are based on current information and expectations and
are subject to risks and uncertainties that could cause the company's actual
results to differ materially from those expressed or implied in such statements.
You should carefully review all information, including the financial statements
and the notes to the financial statements included in this prospectus.
In addition to the risk factors described in "Risk Factors" beginning
on page 9 of this prospectus, the following important factors could affect
future results, causing these results to differ materially from those expressed
in our forward-looking statements:
o our ability to maintain and increase revenue by retaining
existing customers and attracting new customers;
o our ability to match our operating cost structure with revenue
to achieve positive cash flow;
o our ability to conduct business with critical vendors on
acceptable terms;
o the sufficiency of existing cash and cash flow to complete our
business plan and fund our working capital requirements;
o the insolvency of vendors, customers and other parties
critical to our business;
o our existing debt obligations and history of operating losses;
o our ability to integrate, operate and upgrade or downgrade our
network;
o our ability to recruit and retain sufficient and qualified
personnel needed to staff our operations;
o our ability to raise additional capital, if necessary;
o potential marketplace or technology changes, rendering
existing products and services obsolete;
o changes in or the lack of anticipated changes in the
regulatory environment, including potential legislation
increasing our exposure to content distribution and
intellectual property liability; and
o commencement of war, armed hostilities, terrorist activities
or other similar international calamity directly or indirectly
involving or affecting the United States or the United
Kingdom.
These factors and the other risk factors described in this prospectus
are not necessarily all of the important factors that could cause our actual
results to differ materially from those expressed in any of our forward-looking
statements. Other unknown or unpredictable factors also could harm our future
results. The forward-looking statements included in this prospectus are made
only as of the date of this prospectus and we cannot assure you that projected
results or events will be achieved. We do not assume any responsibility for
updating the forward-looking information contained in this prospectus.
16
USE OF PROCEEDS
We will not receive any of the proceeds from the sale of the shares of
our common stock and the notes offered by the selling holders.
DIVIDEND POLICY
We have not historically paid dividends on our common stock, and we do
not anticipate paying any cash dividends in the foreseeable future. We currently
intend to retain future earnings, if any, to finance operations and the
expansion of our business. Any future determination to pay cash dividends will
be at the discretion of our board of directors and will be dependent upon our
financial condition, operating results, capital requirements and other factors
that our board of directors deems relevant. In addition, the indenture governing
the 11% senior notes restricts our ability to pay dividends.
RATIO OF CONSOLIDATED EARNINGS TO FIXED CHARGES
Our ratios of consolidated earnings (deficiency) to fixed charges for
the quarter ended December 31, 2003 (Successor Company), for the year ended
September 30, 2003 (Successor Company"), five months ended September 30, 2002
(Successor Company), the seven months ended April 30, 2002 (Predecessor Company)
and for the fiscal years ended September 30, 201, 2000 and 1999 (Predecessor
Company) are set forth below:
[Enlarge/Download Table]
Successor Company Predecessor Company
------------------------------------------------ ------------------------------------------------------------------
Three Months Five Months Seven Months
Ended Year Ended Ended Ended Year Ended Year Ended Year Ended
December 31, September 30, September 30, April 30, September 30, September 30, September 30,
2003 2003 2002 2002 2001 2000 1999
-------------- --------------- -------------- -------------- -------------- ------------- --------------
(Unaudited)
-------------- --------------- -------------- --------------
Ratio of
Earnings to
Fixed
Charges
(Deficiency) $(23,349) $ (25,108) $(21,131) $ 5.12 $(228,999) $(133,591) $(47,152)
============== =============== ============== ============== =============== ============== ==============
17
SELECTED CONSOLIDATED FINANCIAL DATA
The following selected historical consolidated financial data as of and
for the year ended September 30, 2003 (Successor Company), five months ended
September 30, 2002 (Successor Company), the seven months ended April 30, 2002
(Predecessor Company), as of and for the fiscal years ended September 30, 2001,
2000 and 1999 (Predecessor Company) have been derived from our audited
consolidated financial statements and related notes. The selected historical
financial data as of and for the three months ended December 31, 2003 and 2002
(Successor Company) is derived from our unaudited consolidated financial
statements and includes all adjustments, consisting of normal recurring
adjustments, which, in our opinion, are necessary for a fair presentation of the
financial position and results of operations for these periods.
This information should be read together with, and is qualified in its
entirety by reference to, our consolidated financial statements included
elsewhere in this prospectus, and the notes thereto and the information set
forth in "Management's Discussion and Analysis of Financial Condition and
Results of Operations" beginning on page 21.
As a result of the application of fresh start accounting under SOP No.
90-7 as of May 1, 2002 our financial results for the fiscal year ended September
30, 2002 include two different bases of accounting and, accordingly, the
operating results and cash flows of the Successor Company and the Predecessor
Company have been separately disclosed. For the purposes of this prospectus and
the financial statements and related notes contained in this prospectus,
references to the "Predecessor Company" are references to our company for
periods prior to April 30, 2002 (the last day of the calendar month in which we
emerged from bankruptcy) and references to the "Successor Company" are
references to our company for periods subsequent to April 30, 2002. The
Successor Company's financial statements are not comparable to the Predecessor
Company's financial statements.
(In thousands of United States dollars, except share and per share data)
[Enlarge/Download Table]
Successor Company Predecessor Company
-------------------------------- ---------------------------------------------------------------
Five Months Seven Months
Year Ended Ended Ended Year Ended Year Ended Year Ended
Consolidated Statement of September 30, September 30, April 30, September 30, September 30, September 30,
Operations Data: 2003 2002 2002 2001 2000 1999
------------- ------------- -------------- ------------- -------------- --------------
Revenue $ 60,177 $ 30,723 $ 51,273 $ 104,210 $ 81,287 $ 33,817
Operating costs and expenses:
Cost of revenues (excluding
depreciation, amortization,
payroll and occupancy shown
below) 19,990 10,458 22,123 40,609 42,513 22,184
Selling, general and
administrative 44,430 29,313 57,206 124,821 98,113 36,495
Loss (gain) on impairment of
assets - - 2,578 3,500 - -
Restructuring and other charges
(credits) (1,020) - 24,834 56,109 - -
Depreciation and amortization 15,523 6,060 28,115 36,657 18,228 6,329
------------ ---------- ------------ ------------ ------------ ------------
Total operating costs and expenses 78,923 45,831 134,856 261,696 158,854 65,008
Other operating income 345 - - - - -
------------ ---------- ------------ ------------ ------------ ------------
Loss from operations (18,401) (15,108) (83,583) (157,486) (77,567) (31,191)
Interest and financing expense,
net (13,962) (5,866) (32,487) (51,846) (33,082) (18,386)
Other income (expense) 1,232 (157) (509) (1,379) 1,779 6,192
Gain (loss) on debt discharge 6,023 - 427,066 - (17,577) -
Reorganization items - - (7,762) - - -
Fresh start accounting adjustments - - (148,569) - - -
Minority interest in subsidiary - - 5,778 - - -
------------ ---------- ------------ ------------ ------------ ------------
Income (loss) before income taxes
and Cumulative effect of a change in
accounting principle (25,108) (21,131) 159,934 (210,711) (126,447) (43,385)
Income tax expense 167 - - - - -
------------ ---------- ------------ ------------ ------------ ------------
Income (loss) before cumulative
effect of a change in accounting
principle (25,275) (21,131) 159,934 (210,711) (126,447) (43,385)
Cumulative effect of a change in
accounting principle - - - (2,332) - -
------------ ---------- ------------ ------------ ------------ ------------
Net income (loss) (25,275) (21,131) 159,934 (213,043) (126,447) (43,385)
Dividends and accretion on
preferred stock - - (3,178) (7,104) (5,768) -
------------ ---------- ------------ ------------ ------------ ------------
Net income (loss) attributable to
common stockholders $ (25,275) $ (21,131) $ 156,756 $ (220,147) $ (132,215) $ (43,385)
============ ========== ============ ============ ============ ============
Earnings (loss) per common share:
Basic:
Before cumulative effect of a
change in accounting principle $ (1.54) $ (1.28) $ 3.96 $ (5.66) $ (3.73) $ (1.73)
Cumulative effect of a change in
accounting principle - - - (0.06) - -
------------ ---------- ------------ ------------ ------------ ------------
Basic earnings (loss) per share
attributable to common
stockholders $ (1.54) $ (1.28) $ 3.96 $ (5.72) $ (3.73) $ (1.73)
============ ============ ============= ============ ============ ============
Weighted average common shares
outstanding - basic 16,460,000 16,460,000 39,618,856 38,476,909 35,484,040 25,116,800
============ ============ ============= ============ ============ ============
18
[Enlarge/Download Table]
Diluted:
Before cumulative effect of a
change in accounting principle $ (1.54) $ (1.28) $ 3.30 $ (5.66) $ (3.73) $ (1.73)
Cumulative effect of a change in
accounting principle -- -- -- (0.06) -- --
------------ ------------ ------------ ------------ ------------ ------------
Diluted earnings (loss) per share
attributable to common
stockholders $ (1.54) $ (1.28) $ 3.30 $ (5.72) $ (3.73) $ (1.73)
============ ============ ============ ============ ============ ============
Weighted average common shares
outstanding - diluted 16,460,000 16,460,000 48,507,456 38,476,909 35,484,040 25,116,800
============ ============ ============ ============ ============ ============
Other Consolidated Financial Data:
Net cash provided by (used in)
operating activities $ (12,188) $ 3,679 $ (59,684) $ (140,543) $ (94,318) $ (36,897)
Net cash provided by (used in)
investing activities $ (858) $ (6,461) $ 5,842 $ (113,271) $ (149,939) $ (58,774)
Net cash provided by (used in)
financing activities $ (10,539) $ (2,279) $ (4,946) $ 387 $ 509,395 $ 135,589
Consolidated Balance Sheet Data:
Cash, cash equivalent, short-term
investments and marketable
securities $ 33,260 $ 54,281 $ 113,112 $ 378,510 $ 111,412
Restricted cash and investments $ 6,928 $ 9,097 $ 33,870 $ 43,178 $ 45,039
Working capital $ 28,449 $ 42,421 $ 78,340 $ 366,139 $ 101,216
Total assets $ 222,282 $ 262,720 $ 552,988 $ 729,591 $ 302,518
Current portion of long-term debt $ 1,510 $ 1,520 $ 6,687 $ 2,173 $ 2,088
Long-term debt, less current portion $ 140,389 $ 151,274 $ 630,750 $ 621,809 $ 161,005
Mandatory redeemable convertible
preferred stock $ -- $ -- $ 83,230 $ 76,042 $ --
Stockholders' equity (deficit) $ 53,351 $ 72,547 $ (237,325) $ (18,030) $ 106,405
19
Successor Company
---------------------------------
Three Months Three Months
Ended Ended
Consolidated Statement of December 31, December 31,
Operations Data: 2003 2002
------------- ---------------
(Unaudited) (Unaudited)
------------- ---------------
Revenue $ 14,385 $ 16,480
Operating costs and expenses:
Cost of revenues (excluding
depreciation, amortization, and
certain payroll and occupancy shown
below) 4,876 5,624
Selling, general and
administrative 10,944 11,891
Loss on impairment of assets 17,313 --
Restructuring and other charges
(credits) -- --
Depreciation and amortization 3,371 3,727
------------ ------------
Total operating costs and expenses 36,504 21,242
Other operating income -- --
------------ ------------
Loss from operations (22,119) (4,762)
Interest and financing expense, net (3,274) (3,516)
Other income (expense) 297 182
Gain (loss) on debt discharge 1,747 2,727
Reorganization items -- --
Fresh start accounting adjustments -- --
Minority interest in subsidiary -- 108
------------ ------------
Income (loss) before income taxes
and cumulative effect of a change in
accounting principle (23,349) (5,261)
Income tax expense -- --
------------ ------------
Income (loss) before cumulative
effect of a change in accounting
principle (23,349) (5,261)
Cumulative effect of a change in
accounting principle -- --
------------ ------------
Net income (loss) (23,349) (5,261)
Dividends and accretion on
preferred stock -- --
------------ ------------
Net income (loss) attributable to
common stockholders $ (23,349) $ (5,261)
============ ============
Earnings (loss) per common share:
Basic:
Before cumulative effect of a
change in accounting principle $ (1.42) $ (0.32)
Cumulative effect of a change in
accounting principle -- --
------------ ------------
Basic earnings (loss) per share
attributable to common
stockholders $ (1.42) $ (0.32)
============ ============
Weighted average common shares
outstanding - basic 16,460,000 16,460,000
============ ============
Diluted:
Before cumulative effect of a
change in accounting principle $ (1.42) $ (0.32)
Cumulative effect of a change in
accounting principle -- --
------------ ------------
Diluted earnings (loss) per share
attributable to common
stockholders $ (1.42) $ (0.32)
============ ============
Weighted average common shares
outstanding - diluted 16,460,000 16,460,000
============ ============
Other Consolidated Financial Data:
Net cash provided by (used in)
operating activities $ (2,960) $ (915)
Net cash provided by (used in)
investing activities $ (6,278) $ (3,483)
Net cash provided by (used in)
financing activities $ (6,275) $ (2,955)
Consolidated Balance Sheet Data:
Cash, cash equivalent, short-term
investments and marketable
securities $ 21,226 $ 48,704
Restricted cash and investments $ 6,938 $ 8,856
Working capital $ 67,929 $ 37,831
Total assets $ 196,153 $ 252,716
Current portion of long-term debt $ 742 $ 1,668
Long-term debt, less current portion $ 135,846 $ 144,369
Mandatory redeemable convertible
preferred stock $ -- $ --
Stockholders' equity (deficit) $ 31,857 $ 68,241
20
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis of our financial condition and
results of operations should be read together with our consolidated financial
statements and the accompanying notes and "Selected Consolidated Financial Data"
beginning on page 18 of this prospectus. The following discussion contains
forward-looking statements. These forward-looking statements are based on our
current expectations, assumptions, estimates and projections about our company
and our industry. Our results could differ materially from those anticipated in
these forward-looking statements as a result of various factors, including the
risks and uncertainties discussed in "Risk Factors" and elsewhere in this
prospectus. The results shown herein are not necessarily indicative of the
results to be expected in any future periods.
As is more fully discussed in Note 1 ("Basis of Presentation") to the
consolidated financial statements, we reported under fresh start accounting
pursuant to SOP 90-7 as of May 1, 2002 resulting in a change in the basis of
accounting in the underlying assets and liabilities of our company at the
Effective Date of the Plan. Accordingly, the financial statements of the
Successor Company and the Predecessor Company are not comparable. Where
appropriate, we have combined the actual results of operations for the Successor
Company for the five months ended September 30, 2002 and the Predecessor Company
for the seven months ended April 30, 2002 as pro forma combined 2002 operating
results in order to present a more meaningful comparative analysis to the
operating results of the prior fiscal year. Successor Company and Predecessor
Company financial data are derived from the consolidated financial statements
that appear elsewhere in this prospectus. In addition to the basis in accounting
differences noted above, our operating results for fiscal 2002 were
significantly impacted by:
o items associated with the Predecessor Company's bankruptcy,
including debt discharge, restructuring activities and other
charges related to certain bankruptcy activities and certain
changes in accounting estimates recorded in the third quarter
fiscal 2002; and
o the Successor Company recognizing the effects of reduced
depreciation, additional amortization and reduced interest
expense arising from the revaluation of our assets and
liabilities and the reduced amount of the Successor Company's
outstanding debt following the Effective Date of the Plan.
Overview
Globix is a provider of Internet services for small to large size business in a
broad range of industries. Our company was founded in 1989 and in 1998 undertook
a major expansion plan in order to pursue opportunities resulting from the
growth of the Internet. On March 1, 2002, Globix filed a voluntary petition
under Chapter 11 of the United States Bankruptcy Code, together with a
prepackaged plan of reorganization, with the United States Bankruptcy Court for
the District of Delaware. We continued to operate in Chapter 11 in the ordinary
course of business and received permission from the bankruptcy court to pay our
employees, trade, and certain other creditors in full and on time, regardless of
whether these claims arose prior to or after the Chapter 11 filing. On April 8,
2002, the bankruptcy court confirmed the Plan. Effective April 25, 2002, all
conditions necessary for the Plan to become effective were satisfied or waived
and we emerged from Chapter 11 bankruptcy protection. For additional information
about our reorganization, see "Our Chapter 11 Bankruptcy Reorganization"
beginning on page 39 of this prospectus.
Although Globix operates in one operating segment, there are four major service
lines as follows:
Internet Hosting and Co-Location
We offer co-location solutions for customers who choose to own and maintain
their own servers, but require the physically secure, climate-controlled
environment provided by our Internet data centers and connectivity to our
network. We offer hosting services in a dedicated server environment. This
service includes providing bandwidth and services to meet customer-specific
needs.
Managed Services
We provide managed application, system, network and media services to our
hosting and co-location customers. Such services include a wide variety of
maintenance, administration and problem resolution services for many popular
operating systems, Internet network devices, software security solutions,
web-based applications, as well as streaming media delivered in a streaming or
continuous fashion over the Internet or over a company's intranet.
Network Services and Internet Access
We provide access to our network for our hosting and co-location customers
located inside of our Internet data centers as well as Internet access services
which provide businesses with high-speed continuous access to the internet from
their own premises. In addition, we provide other services, such as domain name
registration, local loop provisioning, Internet address assignment, router
configuration, e-mail configuration and management and technical consulting
services.
21
Other
Our other services, which we categorize as "other," are comprised of hardware
and software sales and other non-recurring revenue. For the quarter ended
December 31, 2002, "other" also includes revenue from DSL customer accounts
which were sold during the fiscal year 2003.
For a more detailed description of these service lines see the "Business"
section beginning on page 36 of this prospectus.
Critical Accounting Policies and Estimates
Our discussion and analysis of financial condition and results of
operations are based upon our consolidated financial statements, which have been
prepared in accordance with accounting principles generally accepted in the
United States. The preparation of our financial statements requires us to make
estimates that affect the reported amounts of assets, liabilities, revenue and
expenses and related disclosures of contingent assets and liabilities. We base
our accounting estimates on historical experience and other factors that are
believed to be reasonable under the circumstances. However, actual results may
vary from these estimates under different assumptions or conditions. The
following is a summary of our critical accounting policies and estimates:
Revenue Recognition
Revenue consists primarily of Internet hosting, co-location, managed
services, network services and Internet access.
We recognize revenue in accordance with the Securities and Exchange
Commission's Staff Accounting Bulletin, or SAB, No. 101 "Revenue Recognition in
Financial Statements," as amended. SAB No. 101 expresses the view of the
Securities and Exchange Commission's staff in applying accounting principles
generally accepted in the United States to certain revenue recognition issues.
Under the provisions of SAB No. 101, set up and installation revenue are
deferred and recognized over the estimated length of the customer relationship,
which in the case of our business is approximately 36 months. Prior to April 30,
2002, the estimated length of the customer relationship was 12-18 months.
Effective October 1, 2000, we changed our revenue recognition method for set up
and service installation fees upon the adoption of SAB No. 101. Prior to our
adoption of SAB No. 101, we recognized revenue immediately upon completion of
set up or installation. The change in accounting principle resulted in a revenue
deferral and cumulative effect charge totaling $2.3 million, or $0.06 per share,
which was reflected in our consolidated statements of operations for the fiscal
year ended September 30, 2001. Our adoption of SAB No. 101 decreased our net
loss by $0.5 million for the fiscal year ended September 30, 2001. The effect of
our adoption of SAB No. 101 for the fiscal year ended September 30, 2000 was not
material.
Monthly service revenue related primarily to Internet hosting
co-location, network services and Internet access is recognized over the period
that services are provided. Revenue derived from managed services is recognized
at the completion of a project. Projects are generally completed within a month.
Payments received in advance of providing services are deferred until the period
that these services are provided.
Cost of Revenue
Cost of revenue consists primarily of telecommunications costs for
Internet access and managed hosting and includes the cost of hardware and
software purchased for resale to customers and payroll cost which relates to
certain managed services. Cost of revenue excludes certain payroll, occupancy,
depreciation and amortization. Telecommunications costs include the cost of
providing local loop for connecting dedicated access customers to the Company's
network, leased line and associated costs related to connecting with the
Company's peering partners and costs associated with leased lines connecting the
Company's facilities to its backbone and aggregation points of presence.
Intangible Assets
We adopted SFAS No. 141, "Business Combinations" and SFAS No. 142,
"Goodwill and Other Intangible Assets" at the Effective Date of the Plan. SFAS
141 requires all business combinations to be accounted for using the purchase
method of accounting and that certain intangible assets acquired in a business
combination must be recognized as assets separate from goodwill. SFAS No. 142
addresses the recognition and measurement of goodwill and other intangible
assets subsequent to their acquisition. SFAS No. 142 also addresses the initial
recognition and measurement of intangible assets acquired outside of a business
combination whether acquired individually or with a group of other assets. SFAS
No. 142 provides that intangible assets with indefinite lives and goodwill will
not be amortized but, will be tested at least annually for impairment. If an
impairment is indicated then the asset will be written down to its fair value
typically based upon its future expected discounted cash flows.
22
Intangible assets of the Successor Company are as follows:
o trademarks and trade name;
o network build-out/know-how; and
o customer contracts.
We amortize intangible assets by the straight-line method over their
estimated useful lives. Trademarks and trade name are amortized over a period of
7-15 years, network build-out/know-how is amortized over 8 years and the
customer contracts are amortized over 2-3 years.
Estimates
The preparation of financial statements requires us to make estimates
and assumptions that affect the reported amount of assets and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenue and expenses during the reported period. Use of
estimates and assumptions include, but are not limited to, allowance for
doubtful accounts, credit reserve and deferred tax valuation allowance.
Allowance for Doubtful Accounts and Credit Reserve
At each reporting period we evaluate on a specific basis the economic
condition of our customers and their ability and intent to pay their debt. If
such evaluation shows that it is probable that a customer will not settle his
full obligation, a reserve against accounts receivable in general and
administrative expense is recorded for the questionable amount. We also maintain
a general bad debt reserve, which is based on the aging of our customers
receivables. In addition during each reporting period we must make estimates of
potential future credits, which will be issued in respect of current revenues.
We analyze historical credits and changes in customer demands regarding our
current billings when evaluating credit reserves. If such analysis shows that it
is probable that a credit will be issued, we reserve the estimated credit amount
against revenues in the current period. As of December 31, 2003, September 30,
2003 and 2002 the balance of bad debt reserve amounted to approximately $2.8
million (Unaudited), $2.6 million and $2.6 million, respectively.
Accounting for Income Taxes
As part of the process of preparing our consolidated financial
statements we are required to estimate our income tax expense in each of the
jurisdictions in which we operate. This process involves us estimating our
actual current tax exposure together with assessing temporary differences
resulting from differing treatment of items, such as accruals and reserves, for
tax and accounting purposes. These differences result in deferred tax assets and
liabilities, which are included within our consolidated balance sheet. We must
then assess the likelihood that our deferred tax assets will be recovered from
future taxable income and to the extent we believe that recovery is not likely,
we must establish a valuation allowance. Management currently estimates that it
is more likely than not that these assets will not be realized in the
foreseeable future and accordingly a 100% valuation allowance is recorded
against the deferred tax assets.
Interim Financial Information
The consolidated financial information as of December 31, 2003 and for
the three months ended December 31, 2003 and 2002 is unaudited, but includes all
adjustments, consisting only of normal and recurring accruals, that management
considers necessary for a fair presentation of its combined results of
operations, financial position and cash flows. Results for the three months
ended December 31, 2003 and 2002 are not necessarily indicative of results to be
expected for the entire fiscal year.
Fiscal Quarter Ended December 31, 2003 Compared to Fiscal Quarter Ended December
31, 2002
23
Revenue
Revenue for the quarter ended December 31, 2003 decreased 12.7% or $2.1
million to $14.4 million from $16.5 million for the three month period ended
December 31, 2002. Customer churn accounted for $2.2 million of the net decrease
in revenue for the quarter ended December 31, 2003 over the same quarter for
2002. In addition our company experienced a $347 thousand decrease in lower
margin hardware and software sales to $24 thousand, as a result of our shift
away from lower margin hardware and software revenue and a decrease of $456
thousand from DSL services as a result of the sale of our DSL customer accounts
during the fiscal year 2003. These decreases were offset in part by our new
revenue stream of approximately $780 thousand resulting from the Aptegrity
acquisition and from a positive effect of foreign exchange rate on our customer
churn of approximately $500 thousand. We define churn as contractual revenue
losses due to customer cancellations and downgrades, net of upgrades, and
additions of new services. Cancellations refer to customers that have either
stopped using our services completely or remained a customer but terminated a
particular service. Downgrades are a result of customers taking less of a
particular service or renewing their contract for identical services at a lower
price. During the quarter ended December 31, 2003 our monthly churn excluding
the Aptegrity contribution averaged 0.2%. Of this average monthly churn, 1.6%
was related to downgrades and 1.7% was related to cancellations. These were
offset by increases of 1.7% in new contracts and 1.4% in contract upgrades.
Monthly positive change in contracts (negative churn) including the Aptegrity
contribution averaged 2.6% for the quarter ended December 31, 2003 compared to a
monthly averaged churn of 2.1% for the quarter ended December 31, 2002.
Cost of Revenue
Cost of revenue for the quarter ended December 31, 2003, decreased to
$4.9 million from $5.6 million for the quarter ended December 31, 2002. A
decrease of $935 thousand was realized within non-hardware related costs. This
was offset by additional costs of $489 thousand associated with the business
acquired from Aptegrity, Inc. This net decrease of approximately $446 thousand,
representing 59.6% of the total decrease in cost of revenue was primarily
attributable to our continued focus on deriving efficiencies and cost savings
from our network. Decrease of $302 thousand, representing 40.4% of the total
decrease in cost of revenue, was attributable to lower hardware costs as a
result of our shift away from lower margin hardware sales. Gross margin remained
flat at 66.1% for the quarter ended December 31, 2003 compared to 65.9% for the
quarter ended December 31, 2002.
Selling, General and Administrative
Selling, general and administrative expenses were $10.9 million as
compared to $11.9 million for the quarter ended December 31, 2002. The decrease
in selling, general and administrative expenses was in part due to a decrease of
$900 thousand in salaries and benefits to $4.9 million in the quarter ended
December 31, 2003 compared to $5.8 million in the quarter ended December 31,
2002, which resulted from our restructuring efforts that focused on significant
reduction in facilities and personnel. In addition, bad debt expenses decreased
$287 thousand to $337 thousand for the quarter ended December 31, 2003, compared
to $624 thousand in the same quarter last year, as a result of improvement in
collections and a reduction in the number of high risk customer account
receivable balances.
Loss on Impairment of Assets
Impairment charges for the quarter ended December 31, 2003 amounted to
$17.3 million resulting from the write-down of the cost basis of our company's
property located at 415 Greenwich Street in New York, New York to its market
value less cost to sell of approximately $11.5 million. The sale of this
property was consummated on January 22, 2004 for total cash consideration of $60
million.
Depreciation and Amortization
Depreciation and amortization decreased to $3.4 million for the quarter
ended December 31, 2003, as compared to $3.7 million in the quarter ended
December 31, 2002. The decrease resulted from lower capital spending and from
not depreciating the 415 Greenwich Street property classified as held for sale,
offset by amortization of intangible assets resulting from the acquisition of
Aptegrity in the amount of $26 thousand.
Interest and Financing Expenses
Interest and financing expense for the quarter ended December 31, 2003
was $3.5 million, compared to $3.9 million, for the quarter ended December 31,
2002. The decrease is attributable to the repurchase of approximately $16.8
million of our 11% senior notes during the calendar year 2003, offset by a an
increase in the balance of the 11% senior notes of approximately $11.3 million
resulting from a payment in kind of the related accrued interest as of May 1,
2003.
Interest Income
Interest income for the quarter ended December 31, 2003 was $179
thousand, compared to $388 thousand, for the quarter ended December 31, 2002.
The decrease is primarily due to a decrease in our cash and investments.
24
Other Income, net
Other income for the quarter ended December 31, 2003 was $297 thousand,
compared to $182 thousand, for the quarter ended December 31, 2002. The increase
is primarily due to higher rental income from leasing office space in our 139
Centre Street facility.
Gain on Debt Discharge
Gain on debt discharge was $1.7 million for the quarter ended December
31, 2003, as compared to $2.7 million for the quarter ended December 31, 2002.
These gains resulted from our repurchase of $7.0 million and $9.1 million in
aggregate principal amount of the 11% senior note and the associated accrued
interest of $329 thousand and $627 thousand for a total cash consideration of
$5.6 million and $7.0 million during the three month periods ended December 31,
2003 and 2002 respectively.
Net Loss Attributable To Common Stockholders
As a result of the factors described above, we reported net loss of
$23.3 million and net loss attributable to common stockholders of $23.3 million,
or $1.42 basic and diluted loss per share for the quarter ended December 31,
2003, as compared to a net loss of $5.3 million and net loss attributable to
common stockholders of $5.3 million, or $0.32 basic and diluted loss per share
for the quarter ended December 31, 2002.
Fiscal Year Ended September 30, 2003 Compared to Fiscal Year Ended September 30,
2002
Revenue
Revenue for the fiscal year ended September 30, 2003 decreased 26.6% to
$60.1 million from $82.0 million for the fiscal year ended September 30, 2002.
This decrease in revenues was mainly attributable to customer churn which
accounted for $19.8 million, or approximately 90.4% of our revenue decrease. We
define churn as contractual revenue losses as a percentage of total contractual
revenue due to customer cancellations and downgrades, net of upgrades, and
additions of new services. Cancellations refer to customers that have either
stopped using our services completely or remained a customer but terminated a
particular service. Downgrades are a result of customers taking less of a
particular service or renewing their contract for identical services at a lower
price. During fiscal 2003 our monthly churn averaged approximately 1.7%. Of this
average monthly churn, 1.8% was related to downgrades, 3.2% was related to
cancellations, partially offset by decreases in churn of 1.7% and 1.6% related
to new and upgraded contracts, respectively. Revenues also declined due to a
decrease in lower margin hardware and software sales. Hardware and software
sales decreased $2.1 million, or 77.3%, as a result of our shift away from lower
margin hardware and software sales. This decrease accounted for 9.6% of our
total revenue decline.
Cost of Revenue and Gross Margin
Cost of revenue for the fiscal year ended September 30, 2003 decreased
to $20.0 million from $32.6 million for the fiscal year ended September 30,
2002. A decrease of $10.8 million or 85.7% of our cost of revenue decrease,
realized within non-hardware related costs reflects our continued focus on
network reconfiguration. A decrease of $1.8 million, or 14.3% of our cost of
revenue decrease, in hardware costs reflects our shift away from lower margin
hardware sales. Gross margin increased to 66.8% for the fiscal year ended
September 30, 2003 from 60.0% for the fiscal year ended September 30, 2002. The
increase in gross margin is primarily attributable to the movement away from
lower margin products and the reduction of network cost as a result of our focus
on network reconfiguration. During fiscal year 2003, Globix sold its DSL
services in the second quarter and shifted away from hardware sales, both low
margin products. In addition, Globix reduced certain network costs through
contract renegotiations with certain major vendors.
Selling, General and Administrative Expenses
Selling, general and administrative expenses were $44.4 million, or
73.8% of revenue, for the year ended September 30, 2003, compared to $29.3
million, or 95.4% of revenue, for the five months ended September 30, 2002. For
the seven month period ended April 30, 2002, selling, general and administrative
expenses were $57.2 million, or 111.6% of revenue. For the fiscal year ended
September 30, 2002 selling, general and administrative expenses totaled $86.5
million, or 105.5% of revenue.
The decrease in selling, general and administrative expenses as a
percentage of revenue for the fiscal year ended September 30, 2003 from both the
five month period ended September 30, 2002 and the seven month period ended
April 30, 2002, was in part due to a decrease in salaries and benefits in
connection with our restructuring efforts, which focused on significant
reductions in facilities and personnel. During the year ended September 30,
2003, salaries and benefits were $21.3 million, or 35.5% of revenue, as compared
to $12.4 million, or 40.0% of revenue, in the five month period ended September
30, 2002. For the seven month period ended April 30, 2002, salaries and benefits
were $33.7 million, or 66.0% of revenue. For the fiscal year ended September 30,
2002, salaries and benefits totaled $46.1 million, or 56.0% of revenue. The
number of our employees decreased from approximately 262 as of September 30,
2002 to approximately 209 as of September 30, 2003.
25
For the year ended September 30, 2003, bad debt expense was $1.9
million, representing 3.1% of revenue, compared to $1.9 million, or 6.0% of
revenue, for the five month period ended September 30, 2002. For the seven month
period ended September 30, 2002, bad debt expense was $4.3 million, or 8.0% of
revenue. For the fiscal year ended September 30, 2002, bad debt expense was $6.2
million, or 8.0% of revenue. The decrease in bad debt expense for the fiscal
year ended September 30, 2003 was partially attributable to improvements in
collections as well as a proactive reduction in the number of high risk customer
account receivable balances.
Restructuring and Other Expenses
We recorded a reversal in the fiscal year 2003 of approximately $1.0
million to our previously recorded restructuring charges. Reversals related to
contract settlement charges in the amount of $0.8 million and facility closings
charges of $0.2 million were primarily for settling certain facility contracts
and purchase commitments for amounts lower than originally planned.
Depreciation and Amortization
Depreciation and amortization in the year ended September 30, 2003 was
$15.5 million or 25.8% of revenue, as compared to $6.1 million, or 20% of
revenue, in the five month period ended September 30, 2002. Depreciation and
amortization in the seven month period ended April 30, 2002 was $28.1 million or
55.0% of revenue. For the fiscal year ended September 30, 2002, depreciation and
amortization was $34.2 million, or 41.7% of revenue. The decrease in
depreciation and amortization expenses for the fiscal year 2003 compared to the
fiscal year 2002 was attributable to a decrease in our capital spending in
connection with our restructuring plan as well as the impact of fresh start
accounting, in particular the revaluation of our tangible and intangible assets
as of April 30, 2002.
Other operating income
Other operating income resulted from the sale of DSL customer accounts
in the amount of $345 thousand during the fiscal year ended September 30, 2003.
Interest and Financing Expense and Interest Income
Interest and financing expense for the year ended September 30, 2003
was $15.1 million, or 25.2% of revenue, compared to $6.7 million, or 22.0% of
revenue, in the five months ended September 30, 2002. Interest and financing
expense in the seven month period ended April 30, 2002 was $34.5 million, or
67.0% of revenue. For the fiscal year ended September 30, 2002, interest and
financing expense totaled $41.2 million, or 50.0% of revenue. The decrease in
interest and financing expense was primarily attributable to the reduction in
our outstanding indebtedness pursuant to the Plan and to the repurchase of
approximately $19 million in principal value of the 11% senior notes during the
fiscal year 2003.
Interest income in the year ended September 30, 2003 was $1.2 million,
or 2.0% of revenue, compared to $0.8 million, or 2.6% of revenue, in the five
month period ended September 30, 2002. Interest income in the seven month period
ended April 30, 2002 was $2.0 million, or 4.0% of revenue. For the fiscal year
ended September 30, 2002, interest income was $2.8 million, or 3.0% of revenue.
This decreasing trend was primarily attributable to the reduced amount of our
cash investments and the impact of declining interest rates as compared to the
prior fiscal year.
Other Income (Expense)
Other income in the year ended September 30, 2003 was $1.2 million
compared to an expense of $0.6 million in the fiscal year ended September 30,
2002. This increase is due primarily to write-offs of strategic investments in
the amount of $490 thousand in the prior period and insurance receipts in the
amount of $88 thousand associated with the September 11, 2001 terrorist attack
received in the current year.
Gain on Discharge of Debt
Gain on discharge of debt was $6.0 million for the fiscal year ended
September 30, 2003. The gain is a direct result of the repurchase of
approximately $19 million in principal value of the 11% senior notes. We did not
recognize any gain on discharge of debt during the five month period ended
September 30, 2002. The gain on the discharge of approximately $427.1 million
recorded in the seven month period ended April 30, 2002 resulted from the
exchange of the 12.5% senior notes for the 11% senior notes under the Plan.
Income Tax Expense
Income tax expense for the fiscal year ended September 30, 2003, in the
amount of $167 thousand, represents our estimated income taxes due in the United
Kingdom. We did not record any income tax expenses during the fiscal year ended
September 30, 2002.
26
Net Income (Loss) Attributable To Common Stockholders
As a result of the factors described above, we reported net loss of
$25.3 million and net loss attributable to common stockholders of $25.3 million,
or $1.54 basic and diluted loss per share for the fiscal year ended September
30, 2003, as compared to a net income of $138.8 million and net income
attributable to common stockholders of $135.6 million, or $2.67 basic earnings
per share and $2.01 diluted earnings per share, respectively, for the fiscal
year ended September 30, 2002.
Fiscal Year Ended September 30, 2002 Compared to Fiscal Year Ended September 30,
2001
Revenue
Revenue for the fiscal year ended September 30, 2002 decreased 21.0% to
$82.0 million from $104.2 million for the fiscal year ended September 30, 2001.
This decrease was primarily attributable to significant decreases in lower
margin hardware sales and increased customer churn. Hardware and software sales
decreased $5.1 million, or 65.0%, as a result of our shift away from lower
margin hardware and software revenue. This decrease accounted for 23.0% of our
total revenue decline. Customer churn accounted for $17.1 million, or
approximately 77.0% of our revenue decrease. We define churn as contractual
revenue losses as a percentage of total contractual revenue due to customer
cancellations and downgrades, net of upgrades, and additions of new services.
Cancellations refer to customers that have either stopped using our services
completely or remained a customer but terminated a particular service.
Downgrades are a result of customers taking less of a particular service or
renewing their contract for identical services at a lower price. During the
fiscal year 2002 our monthly churn averaged approximately 2.5%. Of this average
monthly churn, 1.7% was related to downgrades, 3.9% was related to
cancellations, partially offset by decreases in churn of 1.7% and 1.4% related
to new and upgraded contracts, respectively. For the first three quarters of
fiscal 2002, cancellations constituted approximately 69.0% of our monthly
revenue losses and downgrades constituted approximately 31.0% of our monthly
revenue losses. In the fourth quarter of 2002, cancellations constituted
approximately 52.0% of our monthly revenue losses and downgrades constituted
approximately 48.0% of our monthly revenue losses.
Cost of Revenue and Gross Margin
Cost of revenue for the fiscal year ended September 30, 2002 decreased
to $32.6 million from $40.6 million for the fiscal year ended September 30,
2001. A decrease of $3.9 million, or 11.0%, realized within non-hardware related
costs reflects our continued focus on network reconfiguration. A decrease of
$4.2 million, or 64.0%, in hardware costs reflects our shift away from lower
margin hardware sales. Gross margin decreased to 60.0% for the fiscal year ended
September 30, 2002 from 61.0% for the fiscal year ended September 30, 2001,
primarily due to the impact of pricing pressure within the co-location and
bandwidth product categories.
Selling, General and Administrative Expenses
Selling, general and administrative expenses, excluding restructuring
charges and gains/losses on impairment of operating assets were $57.2 million,
or 112.0% of revenue, for the seven month period ended April 30, 2002, compared
to $124.8 million, or 120.0% of revenue, for the fiscal year ended September 30,
2001. For the five month period ended September 30, 2002, selling, general and
administrative expenses were $29.3 million, or 95.0% of revenue. For the fiscal
year ended September 30, 2002 selling, general and administrative expenses
totaled $86.5 million, or 106% of revenue.
The sequential decrease in selling, general and administrative expenses
as a percentage of revenue from the fiscal year ended September 30, 2001 through
both the seven month period ended April 30, 2002 and the five month period ended
September 30, 2002, was primarily attributable to a decrease in salaries and
benefits in connection with our restructuring efforts, which focused on
significant reductions in facilities and personnel. In the seven month period
ended April 30, 2002, salaries and benefits were $33.7 million, or 66.0% of
revenue, as compared to $72.7 million, or 70.0% of revenue, in the fiscal year
ended September 30, 2001. For the five month period ended September 30, 2002,
salaries and benefits were $12.4 million, or 40.0% of revenue. For the fiscal
year ended September 30, 2002, salaries and benefits totaled $46.1 million, or
56.0% of revenue. The number of our employees decreased from approximately 650
as of September 30, 2001 to approximately 262 as of September 30, 2002.
For the seven month period ended April 30, 2002, bad debt expense was
$4.3 million, representing 8.0% of revenue, compared to $14.1 million, or 14.0%
of revenue, for the fiscal year ended September 30, 2001. For the five month
period ended September 30, 2002, bad debt expense was $1.9 million, or 6.0% of
revenue. For the fiscal year ended September 30,2002, bad debt expense decreased
to $6.2 million, or 8.0% of revenue. The decrease in bad debt expense for the
fiscal year ended September 30, 2002 was partially attributable to improvements
in collections as well as a proactive reduction in the number of high risk
customer account receivable balances. This decrease was also attributable to a
reduction in our allowance for doubtful accounts from a balance of approximately
$8.1 million at September 30, 2001 to $2.6 million at September 30, 2002.
27
In the seven month period ended April 30, 2002, marketing expenses were
$1.1 million, or 2.0% of revenue, compared to $6.4 million, or 6.0% or revenue,
for the fiscal year ended September 30, 2001. For the five month period ended
September 30, 2002, marketing expense was $0.2 million, or 1.0% of revenue. For
the fiscal year ending September 30, 2002, marketing expense totaled $1.4
million, or 2.0% of revenues. The decrease in marketing expenses for the fiscal
year ended September 30, 2002 was attributable to a reduction in the amount of
our advertising pursuant to our restructuring plan.
Decreases in selling, general and administrative expenses in the fiscal
year ended September 30, 2002 were offset by the write-off in the five months
ended September 30, 2002 of a $4.1 million note receivable related to a lease
deposit that we deemed to be uncollectible. The lease was associated with our
Boston, Massachusetts data center, which we closed as part of our restructuring
plan.
Loss on Impairment of Assets
In the seven month period ended September 30, 2002, loss on impairment
of assets resulted in a $2.6 million non-cash expense, as compared to $3.5
million in 2001. This non cash-expense was attributable to the write down, in
accordance with SFAS No. 121, of goodwill generated from our acquisition of
Comstar.net, Inc., totaling $3.2 million. The $0.6 million credit balance was
associated with the partial reversal of an estimated write-off in the fiscal
year ended September 30, 2001 of certain assets associated with an indefeasible
right of use, or IRU, capacity on a wavelength purchased from a supplier whose
financial viability was originally thought to have impaired the recoverability
of these assets.
Restructuring and Other Expenses
We recorded a restructuring charge of approximately $24.8 million in
the fiscal year ended September 30, 2002, compared to $56.1 million in the
fiscal year ended September 30, 2001. Of the $24.8 million restructuring charge
in the fiscal year ended September 30, 2002, $17.2 million was for the write-off
of previously escrowed lease deposit and landlord inducement and legal payments,
$2.9 million was associated with employee terminations and $4.7 million was for
the write-off of equipment and leasehold improvements.
Depreciation and Amortization
Depreciation and amortization in the seven month period ended April 30,
2002 was $28.1 million, or 55.0% of revenue, as compared to $36.7 million, or
35.0% of revenue, in the fiscal year ended September 30, 2001. The increase in
depreciation and amortization as a percentage of revenue for the seven month
period ended April 30, 2002 resulted from an increase in our capital
expenditures. Depreciation and amortization in the five month period ended
September 30, 2002 was $6.1 million, or 20.0% of revenue. In the five month
period ended September 30, 2002, this decrease was attributable to a decrease in
our capital spending in connection with our restructuring plan as well as the
impact of fresh start accounting, in particular the revaluation of our tangible
and intangible assets as of April 30, 2002. For the fiscal year ended September
30, 2002, depreciation and amortization was $34.2 million, or 41.7% of revenue.
Interest and Financing Expense and Interest Income
Interest and financing expense for the seven month period ended April
30, 2002 was $34.5 million, or 67.0% of revenue, compared to $65.1 million, or
63.0% of revenue, in the fiscal year ended September 30, 2001. Interest and
financing expense in the five month period ended September 30, 2002 was $6.7
million, or 22.0% of revenue. For the fiscal year ended September 30, 2002,
interest and financing expense totaled $41.2 million, or 50.0% of revenue. The
decrease in interest and financing expense was primarily attributable to the
reduction in our outstanding indebtedness pursuant to the Plan. As of the
Effective Date of the Plan, our annual interest expense was reduced from $75.0
million to approximately $13.2 million, before compounding.
Interest income in the seven month period ended April 30, 2002 was $2.0
million, or 4.0% of revenue, compared to $13.3 million, or 13.0% of revenue, in
the fiscal year ended September 30, 2001. Interest income in the five month
period ending September 30, 2002 was $0.8 million, or 3.0% of revenue. This
decreasing trend was primarily attributable to the reduced amount of our cash
investments and the impact of declining interest rates as compared to the prior
fiscal year. For the fiscal year ended September 30, 2002, interest income was
$2.8 million, or 3.0% of revenue.
Gain on Discharge of Debt
On the Effective Date of the Plan, we recognized a gain on the
discharge of debt of $427.1 million associated with the exchange of the 12.5%
senior notes for the 11% senior notes under the Plan and recognized this gain in
the fiscal year ended September 30, 2002. We did not recognize any gain on the
discharge of debt in the fiscal year ended September 30, 2001.
Minority Interest in Subsidiary
The minority interest credit of $5.8 million in the fiscal year ended
September 30, 2002 was related to the consolidation of a subsidiary in which we
own 0.1% but which we consolidate with our results due to our effective control
of this subsidiary. We did not recognize any minority interest in the fiscal
year ended September 30, 2001.
28
Reorganization Items
Reorganization expenses of $7.8 million recorded in the fiscal year
ended September 30, 2002 were attributable to expenses incurred by the
Predecessor Company in connection with its Chapter 11 bankruptcy filing and
reorganization. There were no reorganization expenses in the fiscal year ended
September 30, 2001.
Fresh Start Accounting Adjustments
Pursuant to fresh start accounting principles, we have adjusted the
value of our assets and liabilities to their fair values as of April 30, 2002.
The net effect of all fresh start accounting adjustments in the fiscal year
ended September 30, 2002 resulted in a charge of $148.6 million. There were no
fresh start accounting adjustments in 2001.
Other Income
Other income decreased to $0.6 million in the fiscal year ended
September 30, 2002 from $2.1 million in the year ended September 30, 2001. This
decrease primarily resulted from decreased gains on sales of short-term
investments and marketable securities.
Other Expenses
The decrease in other expense to $1.3 million for the fiscal year ended
September 30, 2002 as compared to $3.5 million for the fiscal year ended
September 30, 2001 is a result of fewer impairments on strategic investments in
fiscal 2002 as compared to fiscal 2001.
Net Income (Loss) Attributable To Common Stockholders
As a result of the factors described above, we reported net income of
$138.8 million and net income attributable to common stockholders of $135.6
million, or $2.67 basic earnings per share and $2.01 diluted earnings per share,
respectively, for the fiscal year ended September 30, 2002, as compared to a net
loss of $213.0 million and net loss attributable to common stockholders of
$220.1 million, or $5.72 basic and diluted loss per share (including the
cumulative effect of a change of accounting principle associated with the
adoption of SAB No. 101 of $2.3 million, or $0.06 per share), for the fiscal
year ended September 30, 2001.
Liquidity and Capital Resources
On March 1, 2002, our company and two of our wholly-owned domestic
subsidiaries, Comstar.net, Inc. and ATC Merger Corp., filed voluntary petitions
under Chapter 11 of the United States Bankruptcy Code, together with the Plan,
with the United States Bankruptcy Court for the District of Delaware. We
continued to operate in Chapter 11 in the ordinary course of business and
received permission from the bankruptcy court to pay our employees, trade, and
certain other creditors in full and on time, regardless of whether these claims
arose prior to or after the Chapter 11 filing.
On April 8, 2002, the bankruptcy court confirmed the Plan. Effective
April 25, 2002, all conditions necessary for the Plan to become effective were
satisfied or waived and we emerged from Chapter 11 bankruptcy protection.
As of the Effective Date of the Plan, all of our existing securities
were cancelled and:
o each holder of our 12.5% senior notes due 2010 became entitled
to receive, in exchange for its claims in respect of the 12.5%
senior notes, its pro rata share of:
o $120 million in aggregate principal amount of our 11%
senior notes, and
o 13,991,000 shares of our common stock, representing
85% of the shares of our common stock issued and
outstanding following the Effective Date of the Plan;
and
o each holder of shares of our preferred stock outstanding
immediately prior to the Effective Date of the Plan became
entitled to receive, in exchange for its claims in respect of
these shares of preferred stock, its pro rata share of
2,304,400 shares of our common stock, representing 14% of the
shares of our common stock issued and outstanding following
the Effective Date of the Plan; and
o each holder of shares of our common stock outstanding
immediately prior to the Effective Date of the Plan became
entitled to receive, in exchange for its claims in respect of
its shares of common stock, its pro rata share of 164,600
shares of our common stock, representing 1% of the shares of
our common stock issued and outstanding following the
Effective Date of the Plan.
29
All of the shares of our common stock issued pursuant to the Plan are
subject to dilution by the exercise of management incentive stock options,
representing up to 10% of the shares of our issued and outstanding common stock
on a fully-diluted basis following the Effective Date of the Plan.
A total of 16,460,000 shares of our common stock and $120 million in
aggregate principal amount of the 11% senior notes were deemed to be issued and
outstanding on the Effective Date of the Plan pursuant to the terms of the Plan.
As of September 30, 2002, however, no shares of our common stock or 11% senior
notes had been distributed. In October 2002, we distributed a total of
16,295,400 shares of common stock and $120 million in aggregate principal amount
of 11% senior notes. Pursuant to the terms of a Stipulation and Order that we
entered into with the lead plaintiffs in the class action lawsuit described in
"Legal Proceedings," beginning on page 40, 229,452 of these shares of common
stock and $1,968,000 in aggregate principal amount of these 11% senior notes
were placed in reserve in escrow pending the outcome of the class action
lawsuit. In the event that any judgment or settlement entered into in connection
with the class action lawsuit requires us to pay an amount in excess of our
liability insurance, then we will be required to issue to the class action
litigants and their attorneys all (in the event that this excess is $10 million
or greater) or a portion of (in the event that this excess is less than $10
million) the shares of common stock and 11% senior notes held in escrow.
Distribution of the remaining 164,600 shares of common stock deemed to have been
issued on the Effective Date of the Plan, which are allocable under the terms of
the Plan to the holders of our common stock outstanding immediately prior to the
Effective Date of the Plan, will occur following the resolution of the
shareholder derivative suit against our company and certain of our former
officers and directors described in "Legal Proceedings" below.
The indenture governing the 11% senior notes contains a number of
covenants that impose significant operating and financial restrictions on us and
our subsidiaries. These restrictions significantly limit, and in some cases
prohibit, among other things, the ability of our company and certain of our
subsidiaries to incur additional indebtedness, create liens on assets, enter
into business combinations or engage in certain activities with our
subsidiaries.
We historically have experienced negative cash flows from operations
and have incurred net losses. Our ability to generate positive cash flows from
operations and achieve profitability is dependent upon our ability to grow our
revenue and achieve further operating efficiencies while reducing our
outstanding indebtedness and other fixed obligations. We are dependent upon our
cash on hand and cash generated from operations to support our capital
requirements. Our management believes that we are positioned to maintain
sufficient cash flows from operations to meet our operating, capital and debt
service requirements for at least the next 12 months. There can be no assurance,
however, that we will be successful in executing our business plan, achieving
profitability, or in attracting new customers or maintaining our existing
customer base. Moreover, we have continued to experience significant decreases
in revenue and low levels of new customer additions in the period following our
restructuring. In the future, we may make acquisitions or repurchase
indebtedness of our company which, in turn, may adversely affect our liquidity.
Fiscal Quarter Ended December 31, 2003
As of December 31, 2003 Globix had cash and cash equivalents of
approximately $9.4 million compared to approximately $24.5 million on September
30, 2003. The decrease of approximately $15.1 million is mainly attributable to
operating activities, investing activities and financing activities as described
bellow. Since December 31, 2003, Globix has completed the sale of its 415
Greenwich Street property for approximately $48.5 million in net proceeds, of
which approximately $44.0 million was used to repurchase $40.3 in principal
amount of our 11% senior notes plus accrued interest and the remainder is to be
used for working capital.
Operating activities:
Net cash used in operating activities during the three month period
ended December 31, 2003 was approximately $3.0 million. This was attributable
mainly to the net loss of $23.3 million and a non-cash gain on debt discharge of
$1.7 million resulting from the repurchase of a portion of our 11% senior notes,
offset by non-cash depreciation and amortization expenses of $3.4 million and a
non-cash impairment charge of $17.3 million resulting from a write-down of our
property at 415 Greenwich Street in New York City to its fair market value less
cost for sale. Changes in assets and liabilities resulted in an increase to
operating cash-flow of approximately $1.1 million.
Investing activities:
Net cash used in investing activities during the three month period
ended December 31, 2003 was $6.3 million. Approximately $2.3 million was used
for the acquisition of Aptegrity. $3.6 million, net resulted from changes in our
investments and securities and $438 thousand was used for capital expenditures.
30
Financing activities:
Net cash used in financing activities during the three month period
ended December 31, 2003 was $6.3 million. Approximately $5.6 million of the cash
used in financing activities was attributed to the repurchase of a portion of
our 11% senior notes in the open market. The remaining $0.7 million were used
for payment and settlement of certain contractual obligations.
Fiscal Year Ended September 30, 2003:
As of September 30, 2003, the company had cash and cash equivalents of
approximately $24.5 million compared to approximately $47.6 million on September
30, 2002.
Operating activities
For the fiscal year ended September 30, 2003 net cash used in operating
activities was approximately $12.2 million attributable mainly to a net loss of
$25.3 and non-cash gains of approximately $6.0 million and $1.0 million for
discharges resulting from our repurchase of the 11% senior notes and reversal of
restructuring accruals recorded in prior years, respectively, offset by
depreciation and amortization expenses of approximately $15.5 million, an
increase in our provision of doubtful accounts of approximately $1.9 and a
non-cash charge of approximately $1.0 recorded in respect of warrants issued to
a consultant. Changes in assets and liabilities resulted in an increase to
operating cash-flow of approximately $2.0 million.
Investing activities
Cash used for investing activities for the year ended September 30,
2003 amounted to approximately $0.9 million, which attributed mainly to capital
expenditures in the amount of approximately $1.2 million.
During October 2003 we reached an agreement to sell our property
located at 415 Greenwich Street, New York, New York for total cash consideration
of approximately $60 million. The resulting proceeds were used to purchase a
portion of the 11% senior notes, to pay the minority interest investor in the
subsidiary owning the 415 Greenwich Street property and for working capital. The
closing of the sale took place on January 22, 2004, and the tender offer to
repurchase our 11% senior notes began on January 26, 2004 and expired on
February 25, 2004.
On October 31, 2003, Globix paid approximately $2.0 million (subject to
final settlement) for the acquisition of the business, substantially all of the
assets and the assumption of certain liabilities of Aptegrity, Inc., a provider
of web application and operations management services.
Financing activities
Cash used in financing activities for the year ended September 30, 2003
amounted to approximately $10.5 million. Approximately $14.6 million were used
to repurchase a portion of our 11% senior notes, approximately $0.9 million were
used to buy-out certain of our capital leased equipments and approximately $1.1
million were used to amortize scheduled payments under our mortgage and capital
lease agreements, offset by a contribution of approximately $6 million from the
minority interest investor mentioned above.
On October 3, 2003, we repurchased in the open market for approximately
$5.6 million additional portion of our outstanding 11% senior notes.
Fiscal Year Ended September 30, 2002
Net cash used in operating activities was $55.0 million in the seven
months ended April 30, 2002 and net cash provided by operating activities was
$3.7 million in the five month period ended September 30, 2002. Net cash used in
operating activities in the fiscal year ended September 30, 2002 was $51.3
million. The primary component of this decrease was the impact of year over year
decreases in our losses from operations. Additionally, net cash provided by or
used in operating activities can vary significantly from period to period
depending upon the timing of operating cash receipts and payments, particularly
accounts receivable, prepaid expenses and other assets and accounts payable and
accrued liabilities. Our net loss was offset by a gain on the discharge of the
12.5% senior notes recorded as of the Effective Date of the Plan, as well as by
non-cash interest charges on the 12.5% senior notes, depreciation and
amortization expenses, provisions for uncollectible accounts receivable and
non-cash components of restructuring charges.
31
Net cash provided by investing activities was $1.2 million in the
seven-month period ended April 30, 2002 and net cash used in investing
activities were $6.5 million in the five month period ended September 30, 2002.
Net cash used in investing activities in the fiscal year ended September 30,
2002 was $5.3 million. The decrease in net cash used in investing activities was
primarily attributable to decreased capital spending. Capital expenditures
related to our network and facilities were $24.7 million in the seven month
period ended April 30, 2002 and $1.4 million in the five month period ended
September 30, 2002. Of these amounts, we paid $23.3 million in the seven month
period ended April 30, 2002 and $1.2 million in the five month period ended
September 30, 2002, in cash. The balance was financed under financing
arrangements or remained in accounts payable, accrued liabilities and other long
term liabilities at the period end.
Net cash used in financing activities was $4.9 million in the seven
month period ended April 30, 2002 and $2.3 million in the five month period
ended September 30, 2002. Net cash used in financing activities for the fiscal
year ended September 30, 2002 was $7.2 million. This decrease was primarily
attributable to the decrease in capital contributions in a subsidiary in which
we own a minority interest. In the seven month period ended April 30, 2002, we
repaid certain mortgage and capital lease obligations totaling $4.9 million and
settled certain capital lease obligations for $18.7 million in cash. In the five
month period ended September 30, 2002, we repaid certain mortgage and capital
lease obligations totaling $2.3 million.
Segment Information
Our activities fall within one operating segment. The following table
sets forth geographic segment information for the three months ended December
31, 2003 and 2002 (Successor Company), year ended September 30, 2003 (Successor
Company), five months ended September 30, 2002 (Successor Company), seven months
ended April 30, 2002 and for the year ended September 30, 2001 (Predecessor
Company):
[Enlarge/Download Table]
Successor Company Predecessor Company
------------------------------------------------------------------- ------------------------------
For the Three Months Ended Year Five Months Seven Months Year Ended
--------------------------------- Ended Ended Ended September
December 31, December 31, September 30, September 30, April 30, 30,
2003 2002 2003 2002 2002 2001
------------- -------------- ------------ ------------- ------------- ------------
(Unaudited) (Unaudited)
Revenues:
United States .... $ 8,488 $ 10,581 $ 36,833 $ 20,410 $ 37,747 $ 82,020
Europe ........... 5,897 5,899 23,344 10,313 13,526 22,190
--------- --------- --------- --------- --------- ---------
Consolidated .... $ 14,385 $ 16,480 $ 60,177 $ 30,723 $ 51,273 $ 104,210
========= ========= ========= ========= ========= =========
Operating income (loss):
United States .... $ (22,991) $ (5,580) $ (22,631) $ (15,069) $ (54,433) $(142,713)
Europe ........... 872 818 4,230 (39) (29,150) (14,773)
--------- --------- --------- --------- --------- ---------
Consolidated ..... $ (22,119) $ (4,762) $ (18,401) $ (15,108) $ (83,583) $ 157,486)
========= ========= ========= ========= ========= =========
Tangible assets:
United States .... $ 147,227 $ 198,357 $ 175,864 $ 210,521 $ 439,667
Europe ........... 39,974 45,074 38,260 42,587 89,953
--------- --------- --------- --------- ---------
Consolidated ..... $ 187,201 $ 243,431 $ 214,124 $ 253,108 $ 529,620
========= ========= ========= ========= =========
Although our company operates in one operating segment, there are 4
major service lines as detailed in the table below. Data for fiscal years 2002
and 2001 have not been provided due to impracticability.
[Enlarge/Download Table]
Successor Company
---------------------------------------------
For the Three Months Ended Year
----------------------------- Ended
December December 31, September 30,
31, 2003 2002 2003
------------- ------------ -------------
(Unaudited) (Unaudited)
Internet Hosting and Co-Location.............. $ 5,955 $ 6,997 $ 26,048
Managed Services.............................. 4,172 3,610 13,342
Network Services and Internet Access.......... 4,224 4,849 19,034
Hardware and Software Sales, DSL and Other ... 34 1,024 1,753
----------- ------------- -------------
Revenue, net.................................. $ 14,385 $ 16,480 $ 60,177
=========== ============= =============
32
Income Taxes
Globix is in an accumulated loss position for both financial and income
tax reporting purposes. Globix has United States Federal income tax loss
carryforwards of approximately $91 million at September 30, 2003. These income
tax loss carryforwards expire through 2022. The United States Federal income tax
loss carryforwards were reduced upon emergence from bankruptcy due to the
Internal Revenue Code's rules and regulations related to the cancellation of
indebtedness income that is excluded from taxable income. Since the Plan
provided for substantial changes in our ownership, our use of its net operating
loss carryforward may be limited. Globix has not yet determined the impact, if
any, that changes in ownership have had on net operating loss carryforwards. As
of September 30, 2003, Globix also has net operating loss carryforwards of
approximately $24.7 million from its United Kingdom Subsidiaries, which do not
expire under United Kingdom tax rules. For financial reporting purposes, income
tax benefits through September 30, 2003 related to both United States Federal
and foreign income tax losses are fully offset by a valuation allowance due to
the uncertainty of our ability to realize income tax benefits by generating
taxable income in the future.
Our emergence from bankruptcy in fiscal 2002 did not create a new tax
reporting entity. Accordingly, the adjustments required to adopt fresh start
accounting are not applicable for our tax reporting and, therefore, deferred tax
items were recognized concurrently with the recognition of the respective fresh
start accounting adjustments. In addition, pursuant to SOP 90-7 reversals of the
valuation allowance recorded against deferred tax assets that existed as of the
emergence date will first reduce intangibles, until exhausted, and thereafter
are reported as additional paid in capital as opposed to income tax expense. The
balance of the valuation allowance for which this treatment is required was
approximately $80 million at September 30, 2003 and 2002.
Indebtedness
Our indebtedness at September 30, 2003 consisted of approximately
$112.3 million in aggregate principal amount of our 11% senior notes and
approximately $5.2 million in related accrued interest. Also included under our
indebtedness are, mortgage payable, capital lease obligations and a note
payable. Total borrowings at September 30, 2003 were $141.9 million, which
included $1.5 million in current obligations and $140.4 million of the 11%
senior notes and other notes payable and long-term capital lease obligations.
The indenture governing the 11% senior notes requires interest to be paid in
kind through 2004, and permits interest to be paid in kind for two years
thereafter at the discretion of our board of directors. In fiscal 2003 we
acquired approximately $19.0 million in aggregate principal amount of our 11%
senior notes and approximately $1.6 million of related accrued interest for an
aggregate purchase price of approximately $14.6 million in open market
purchases, and through September 30, 2003 we had issued an additional $11.3
million in 11% senior notes in payment of accrued interest on the 11% senior
notes.
In October 2003, we entered into an agreement to sell our property
located at 415 Greenwich Street, New York, New York for $60 million in cash.
Approximately 90% of the net proceeds of the sale were used to make an offer to
purchase our 11% senior notes at par plus accrued interest, as required pursuant
to the indenture under which the 11% senior notes were issued. Consummation of
the sale also eliminated certain obligations that we incurred in connection with
the purchase and rehabilitation of the 415 Greenwich Street property. The
closing of the sale took place on January 22, 2004. On March 3, 2004, we
purchased $40.3 million in principal amount of our 11% senior notes pursuant to
the offer to purchase. As of March 4, 2004, following completion of the offer to
purchase, we had approximately $65.0 million in outstanding indebtedness.
Commitments
As of September 30, 2003, we had commitments to certain
telecommunications carriers totaling $43 million payable in various years
through 2008. Additionally, we have various agreements to lease facilities and
equipment and are obligated to make future minimum lease payments of
approximately $73 million on operating leases expiring in various years through
2017.
As of September 30, 2003 we had contractual obligations due in future periods as
follows:
[Enlarge/Download Table]
Less than After 5
--------- -------
Contractual Obligations Total 1 year 1-3 years 4-5 years years
----------------------- ----- ------ --------- --------- -----
11% senior notes $ 112,321 $ - $ - $ - $ 112,321
11% senior notes - Accrued Interest 5,182 - - - 5,182
Mortgage Payable 20,187 275 642 768 18,502
Capital Lease Obligations 1,609 1,235 374 - -
Operating Leases 72,965 5,206 10,497 12,842 44,420
Telecommunications Commitments 43,008 13,325 20,952 8,649 82
Note Payable 2,600 - 2,600 - -
----------- ----------- ----------- ----------- ----------
Total Contractual Cash Obligations $ 257,872 $ 20,041 $ 35,065 $ 22,259 $ 180,507
=========== =========== =========== =========== ==========
33
Recent Technical Accounting Pronouncements
In April 2003, the Financial Accounting Standards Board issued SFAS No.
149, "Amendment of Statement 133 on Derivative Instruments and Hedging
Activities." SFAS No. 149 clarifies under what circumstances a contract with an
initial net investment meets the characteristics of a derivative as discussed in
Statement No. 133. It also specifies when a derivative contains a financing
component that warrants special reporting in the Consolidated Statement of Cash
Flows. SFAS No. 149 amends certain other existing pronouncements in order to
improve consistency in reporting these types of transactions. The new guidance
is effective for contracts entered into or modified after June 30, 2003, and for
hedging relationships designated after June 30, 2003. The adoption of this
standard did not have a material impact on our consolidated financial
statements.
In May 2003, the Financial Accounting Standards Board issued SFAS No.
150, "Accounting for Certain Financial Instruments with Characteristics of Both
Liabilities and Equity." SFAS No. 150 specifies that instruments within its
scope embody obligations of the issuer and that, therefore, the issuer must
classify them as liabilities. SFAS No. 150 requires issuers to classify as
liabilities the following three types of free standing financial instruments:
(1) mandatorily redeemable financial instruments; (2) obligations to repurchase
the issuer's equity shares by transferring assets and (3) certain obligations to
issue a variable number of shares. SFAS No. 150 defines a "freestanding
financial instrument" as a financial instrument that (1) is entered into
separately and apart from any of the entity's other financial instruments or
equity transactions or (2) is entered into in conjunction with some other
transaction and can be legally detached and exercised on a separate basis. For
all financial instruments entered into or modified after May 31, 2003, SFAS No.
150 is effective immediately. For all other instruments of public companies,
SFAS No. 150 goes into effect at the beginning of the first interim period
beginning after June 15, 2003. For contracts that were created or modified
before May 31, 2003 and still exist at the beginning of the first interim period
beginning after June 15, 2003, entities should record the transition to SFAS No.
150 by reporting the cumulative effect of a change in an accounting principle.
SFAS No. 150 prohibits entities from restating financial statements for earlier
years presented. The adoption of this standard did not have a material impact on
our consolidated financial statements.
In January 2003, the FASB issued FIN No. 46, "Consolidation of Variable
Interest Entities, an Interpretation of Accounting Research Bulletin (ARB) No.
51", which relates to the identification of, and financial reporting for,
variable-interest entities (VIEs). FIN No. 46 requires that if an entity is the
primary beneficiary of a variable interest entity, the assets, liabilities and
results of operations of the variable interest entity should be included in the
consolidated financial statements of the entity. The provisions of FIN No. 46
are effective immediately for all arrangements entered into after January 31,
2003. For those arrangements entered into prior to February 1, 2003, the
provision of FIN No. 46 are required to be adopted at the beginning of the first
interim or annual period beginning after June 15, 2003. In October 2003, FASB
Staff Position deferred the effective date for existing VIE arrangements created
before February 1, 2003 to the first interim or annual reporting period that
ends after December 15, 2003. The adoption of this standard did not have a
material impact on the Company's consolidated financial statements.
Quantitative and Qualitative Disclosures About Market Risk
At December 31, 2003, investments consisted of an investment in a
limited partnership that invests in fixed income securities and investments in
fixed rate investment grade and government securities denominated in United
States dollars. At December 31, 2003, the majority of our investments were due
to mature within 12 months and the carrying value of these investments
approximated fair value.
Marketable securities include our investments in two publicly-traded
entities, Edgar On-Line and Globecomm Systems Inc. ("Globecomm"), which are
recorded at fair market value. In December and January 2004, we sold our
interest in Globecomm on the public market. We do not hedge our exposure to
fluctuations in the value of our investments in equity securities. As of
December 31, 2003 no impairment has been recorded due to those investments as a
result of market condition after December 31, 2003.
At December 31, 2003, $6.9 million of our cash and investments were
restricted in accordance with the terms of certain collateral obligations.
We are also subject to market risk associated with foreign currency
exchange rates. To date, we have not utilized financial instruments to minimize
our exposure to foreign currency fluctuations. We will continue to analyze risk
management strategies to minimize foreign currency exchange risk in the future.
We believe that we have limited exposure to financial market risks,
including changes in interest rates. The fair value of our investment portfolio
or related income would not be significantly impacted by changes in interest
rates due mainly to the short-term nature of the majority of our investment
portfolio. An increase or decrease in interest rates would not significantly
increase or decrease interest expense on debt obligations, due to the fixed
nature of the substantial majority of our debt obligations.
34
Changes In and Disagreements With Accountants on Accounting and Financial
Disclosure
On July 31, 2002, we engaged PricewaterhouseCoopers LLP ("PWC") as our
independent accountants and dismissed Arthur Andersen LLP, which had previously
served as our independent accountants. The board of directors and audit
committee participated in and approved the decision to change independent
accountants. The audit reports of Arthur Andersen on the consolidated financial
statements of Globix and its subsidiaries as of and for the fiscal years ended
September 30, 2000 and 2001 did not contain an adverse opinion or disclaimer of
opinion, nor were they modified as to uncertainty, audit scope or accounting
principles. The audit report for the year ended September 30, 2001 contained a
going concern modification. During the fiscal years ended September 30, 2000 and
2001, there were no disagreements on any matter of accounting principles or
practices, financial statement disclosure, or auditing scope or procedure, which
disagreements, if not resolved to the satisfaction of Arthur Andersen LLP, would
have caused it to make reference to the subject matter of the disagreement in
connection with its report.
PWC served as our independent accountants from July 31, 2002 through
September 12, 2003. At a meeting held on September 12, 2003, our audit committee
recommended and approved a change in our independent accountants. Accordingly,
we dismissed PWC as our independent accountants on September 12, 2003.
PWC's reports on our financial statements for the seven-month period
ended April 30, 2002 and as of and for the five month period ended September 30,
2002 contained no adverse opinion or disclaimer of opinion and were not
qualified or modified as to uncertainty, audit scope or accounting principle.
From the date of PWC's engagement on July 31, 2002 through September
12, 2003, there have been no disagreements with PWC on any matter of accounting
principles or practices, financial statement disclosure, or auditing scope or
procedure, which disagreements, if not resolved to the satisfaction of PWC,
would have caused PWC to make reference thereto in its report on the financial
statements for such periods.
From the date of PWC's engagement on July 31, 2002 through September
12, 2003, there have been no "reportable events" as that term is defined in Item
304(a)(1)(v) of Regulation S-K, except that on August 13, 2003 PWC provided us
with a management letter reporting to us the matter described in the following
paragraphs:
Since our emergence from bankruptcy in April 2002, we have had to face
many challenging and complex accounting and financial reporting issues,
including fresh start accounting, restructuring and the restatement of amounts
in our financial statements for the quarter ended March 31, 2002. In addition,
we have experienced significant turnover in our financial reporting staff, as
well as limited management resources. We fell behind in our periodic reporting
to the Securities and Exchange Commission for the year ended September 30, 2002,
and experienced difficulty in catching up with our filing obligations for the
year ended September 30, 2002 while fulfilling our responsibilities for the year
ended September 30, 2003. PWC reported that the combined effect of these
challenges had stressed the capabilities of our accounting staff and created
material weaknesses within our accounting and reporting controls. The management
letter indicated that the shortage of qualified accounting personnel had
required PWC to perform significantly more work in connection with the audit of
our financial statements for the seven-month period ended April 30, 2002 and the
five month period ended September 30, 2002. The management letter recommended
hiring at least two additional senior financial staff members, one of whom would
be required to be the controller.
We agreed with these findings and recommendations and as such, the
management letter noted that we had hired a controller who began work on July
15, 2003. In addition, in order to resolve the problems described above, we
hired a new senior accountant in May 2003, a new manager of external reporting
in October 2003 and a new senior accountant in November 2003. In addition, we
have committed to returning to a normal recurring closing timetable that
includes formal management reviews and a monthly financial reporting package.
Finally, by completing our fiscal 2002 reporting, we have significantly reduced
the burden on our internal accounting staff.
At its meeting on September 12, 2003, our audit committee recommended
and approved the engagement of Amper, Politziner & Mattia PC, which firm we
refer to as "Amper," as our independent auditors. Accordingly, we engaged Amper
as our independent auditors, effective September 12, 2003. During the two most
recent fiscal years and through September 12, 2003, we had not consulted with
Amper regarding any matter that would require reporting under Item 304(a)(2) of
Regulation S-K.
35
BUSINESS
Our Company
We are a provider of Internet services to businesses. Our services include:
o Hosting and co-location in our secure and fault-tolerant
Internet data centers;
o Network services and connectivity to the Internet through our
Domestic and International Internet Protocol (IP) fiber based
network;
o Internet based managed services focusing on application
management and operating system management, security services
and storage services; and
o Media services including: streaming media, webcasting and
digital asset management solutions.
Our target market for our services is small to large size businesses in
a broad range of industries, including media, publishing, financial services,
retail, healthcare, governmental agencies, manufacturing, technology and
non-profit organizations. No single customer comprised more than 10% of our
revenues in the fiscal years ended September 30, 2003 or 2002. We sell our
services to businesses primarily through our direct sales force.
Our customers use our services to operate and maintain computer
equipment in a secure, fault-tolerant environment with connectivity to a
high-speed, high-capacity, direct link to the Internet, through our own network,
and to support Internet applications. Our employees are located in New York
City, New York; Atlanta, Georgia; Santa Clara, California; Fairfield, New
Jersey; and London, England.
Our principal executive offices are located at 139 Centre Street, New
York, New York 10013, and our telephone number at that location is (212)
334-8500. Although we maintain a website at www.globix.com, we do not intend
that the information available through our website be incorporated into this
registration statement. Our SEC filings will be available on our website.
Globix was founded in 1989 and in 1998 undertook a major expansion plan
in order to pursue opportunities resulting from the growth of the Internet. On
March 1, 2002, Globix filed a voluntary petition under Chapter 11 of the United
States Bankruptcy Code, together with a prepackaged plan of reorganization, with
the United States Bankruptcy Court for the District of Delaware. We continued to
operate in Chapter 11 in the ordinary course of business and received permission
from the bankruptcy court to pay our employees, trade, and certain other
creditors in full and on time, regardless of whether these claims arose prior to
or after the Chapter 11 filing.
On April 8, 2002, the bankruptcy court confirmed the Plan. On the
Effective Date of the Plan, all conditions necessary for the Plan to become
effective were satisfied or waived and we emerged from Chapter 11 bankruptcy
protection. For additional information, see "Our Chapter 11 Bankruptcy
Reorganization" which begins on page 39, for a discussion of our reorganization
pursuant to Chapter 11 of the United States Bankruptcy Code.
What We Offer Our Customers
We provide our customers with a range of Internet-based services,
including network infrastructure and expertise to build, maintain, operate and
support Internet-based operations. Our primary services include:
Internet Hosting and Co-Location
We currently operate Internet data centers in New York City, New York;
Atlanta, Georgia; Santa Clara, California; and London, England. Our Internet
data centers include electrical infrastructure, precision environmental control
systems, fire suppression systems and comprehensive security systems.
We offer co-location solutions for customers who choose to own and
maintain their own servers, but require the physically secure,
climate-controlled environment provided by our Internet data centers and
connectivity to our network. We offer hosting services in a dedicated server
environment. This service includes providing hardware, software, bandwidth and
services to meet customer-specific needs.
36
Managed Services
We provide managed system and network services to our hosting and
colocation customers. Such services include a wide variety of maintenance,
administration and problem resolution services for many popular operating
systems, Internet network devices, software security solutions and web based
applications.
On October 31, 2003, we acquired the business and substantially all of
the assets of Aptegrity, Inc., a provider of web application and operations
management services.
Network Services and Internet Access
We provide access to our network to our hosting and co-location
customers located inside of our Internet data centers as well as Internet access
services which provide businesses with high-speed continuous access to the
Internet from their own premises. In addition, we provide other services, such
as domain name registration, local loop provisioning, Internet address
assignment, router configuration, e-mail configuration and management and
technical consulting services.
Our network infrastructure is designed for high availability and low
latency, and utilizes a single autonomous system number. As a result, traffic is
carried on a network controlled by Globix to the greatest extent possible and
therefore does not suffer from the congestion or high latency of public
networks.
The domestic Globix backbone is a Packet over Synchronous Optical
Network, or SONET, which provides a mechanism for using the speed and efficient
management capabilities of SONET for data transport. Essentially, it provides a
method for carrying data packets in SONET frames that will operate at speeds up
to OC-48 (2.4Gbs). The OC-48 Globix domestic backbone connects to our data
centers and to our backbone points of presence in Boston, Chicago, Los Angeles,
Seattle and Washington, D.C.
Our European backbone is a Packet over SONET currently connecting
London, Amsterdam, Frankfurt and Paris. The domestic and European networks are
connected by two OC-3 (155Mbps) transatlantic crossings.
Our United States and European network sections interconnect to
numerous network access points, commercial Internet exchanges and other
Internet, application and network service providers.
Our network operations are directed from our 139 Centre Street data
center in New York City, which is staffed 24 hours a day, seven days a week.
Network administrators located in our operations center monitor our network
infrastructure. Our network administrators are able to identify and correct
network problems either themselves or by dispatching system engineers located at
our customer support centers.
Customer Support Centers
Our customer support call centers are operated 24 hours a day, seven
days a week, and are equipped with telecommunications systems capable of
automatic call distribution, automatic number identification, quality assurance
recording and archiving, and intelligent call routing. A trouble ticketing and
knowledge database of customer information and history supports our customer
service operations.
Media Services
We provide media services, such as streaming media, for business
communications. Streaming media is a process by which audio, video or other
multimedia is delivered in a streaming or continuous fashion over the Internet
or over a company's intranet.
Government Regulation
Information and Telecommunications Services
In the United States, our Internet services are currently classified by
the Federal Communications Commission as information services, which are not
subject to significant regulation, rather than as telecommunications or common
carrier services, which are subject to a comprehensive regulatory framework.
Similarly, our Internet services are not significantly regulated in certain
foreign jurisdictions in which we conduct business.
In certain other foreign jurisdictions in which we operate, however,
our provision of certain Internet services may be subject to the jurisdictions'
laws and regulations governing telecommunications services and/or common
carriers. In jurisdictions where these laws and regulations currently apply to
certain types of our Internet solutions, we endeavor to take all reasonable
steps necessary to ensure that we comply with these laws and regulations. This
may require us to, among other things, obtain regulatory authorizations and pay
fees each year to regulatory authorities.
37
The laws and regulations applicable to Internet-related services are
evolving in the United States and many other jurisdictions. As these laws and
regulations evolve, it is possible that we could be regulated in additional
jurisdictions as a telecommunications services provider and/or as a common
carrier. As a result, we may become subject to, among other things, additional
licensing requirements, fee payment obligations, common carrier obligations,
network access changes and/or universal service obligations.
In addition to the telecommunications and/or common carrier laws and
regulations that currently govern certain of our services in some jurisdictions
and that may, in the future, govern our Internet services in the United States
and other jurisdictions, new laws and regulations related to the provision of
Internet services may be adopted, implemented and/or challenged at the federal
state and/or local levels in the United States and at corresponding levels in
foreign jurisdictions. These laws and regulations may address, among other
things, issues of user privacy, obscenity, pricing, consumer protection,
taxation, advertising, intellectual property rights, information security,
liability for certain types of content and the convergence of traditional
telecommunications services with Internet communications. A number of laws and
regulations related to these issues are currently being considered by United
States and foreign regulators.
It is impossible to predict the nature of any new laws or regulations
that will be applicable to our services, whether currently existing laws and
regulations will be newly-applied to our services or the manner in which
currently existing laws and regulations applicable to us will be interpreted and
enforced. The adoption of new laws or regulations or the application of existing
laws or regulations in a manner that is adverse to our company might decrease
demand for our Internet solutions, impose taxes, fees or other charges or other
costly technical requirements on our company or otherwise increase our cost of
doing business. Any of these developments could harm our business, financial
position, results of operations and cash flows.
Distribution of Copyrighted Material
The Digital Millennium Copyright Act, or DMCA, includes a limitation on
liability of on-line service providers for copyright infringement for
transmitting, routing or providing connections, transient storage, caching or
storage at the direction of a user. This limitation on liability applies if the
service provider had no actual knowledge or awareness of the copyright
infringement and if certain other conditions are met. It is not yet clear how
the DMCA will be applied to limit liability that we may face in the future for
any possible copyright infringement or copyright-related issues relating to the
activities of our customers. The DMCA also requires Internet service providers
to follow certain "notice and take-down" procedures in order to be able to take
advantage of the limitation on liability provided for in the DMCA. We have
implemented these procedures and require our users to agree to an "acceptable
use" policy which prohibits the use of our facilities for illegal purposes.
There can be no assurance, however, that our procedures and acceptable use
policy will shield us from liability. Despite enactment of the DMCA, the law
relating to the liability of companies that provide Internet-related services
for information carried on or disseminated through their networks remains
largely unsettled. Claims could be made against us under currently existing or
future laws in the United States or other jurisdictions for defamation,
obscenity, negligence, copyright, trademark infringement or other legal theories
based on the nature and content of the materials disseminated through our
networks.
Employees and Employee Relations
As of September 30, 2003, we had approximately 209 full-time employees:
approximately 154 in the United States and 55 outside the United States. In
addition to our full-time employees, we also employ part-time personnel from
time to time in various departments to meet fluctuations in work levels. None of
our employees are covered by a collective bargaining agreement. Subsequent to
the closing of the Aptegrity, Inc. acquisition the number of our employees
increased by approximately 42 employees to approximately 251 full-time employees
out of which approximately 191 are in the United States and 60 are outside the
United States.
Competition
Our competitors include other Internet service providers with a
significant national or global presence that focuses on business customers, such
as IBM, Digex, Cable & Wireless/Exodus, Akamai, Colt, EDS and Equinix. Our
competitors also include telecommunications companies, such as AT&T, British
Telecom, Level 3, WorldCom and Sprint. We believe that competition is based upon
a number of factors, including price, quality of service and financial
stability.
New competitors, including large computer hardware, software, media and
other technology and telecommunications companies, may enter our market and
rapidly acquire significant market share. As a result of increased competition
and vertical and horizontal integration in our industry, we have encountered
significant pricing pressures. These pricing pressures have resulted in
significantly lower average selling prices for our services.
Trademarks and Patents
We currently have eight trademark applications and one patent
application pending in the United States Patent and Trademark Office.
Registration of the same trademarks has been applied for or granted in certain
foreign countries. Additionally, Globix acquired the US and European Union
registered trademarks of Aptegrity(R) and Minding your E-Business(R) in the
acquisition of Aptegrity, Inc.
38
Our Chapter 11 Bankruptcy Reorganization
On April 8, 2002, the United States Bankruptcy Court for the District
of Delaware confirmed our Plan of Reorganization, which became effective on
April 25, 2002. As of the Effective Date of the Plan, all of our existing
securities were cancelled and:
o each holder of the 12.5% senior notes, became entitled to
receive, in exchange for its claims in respect of the 12.5%
senior notes, its pro rata share of:
o $120 million in aggregate principal amount of the 11%
senior notes, and
o 13,991,000 shares of our common stock, representing
85% of the shares of our common stock issued and
outstanding following the Effective Date of the Plan;
o each holder of shares of our preferred stock outstanding
immediately prior to the Effective Date became entitled to
receive, in exchange for its claims in respect of these shares
of preferred stock, its pro rata share of 2,304,400 shares of
our common stock, representing 14% of the shares of our common
stock issued and outstanding following the Effective Date of
the Plan; and
o each holder of shares of our common stock outstanding
immediately prior to the Effective Date of the Plan became
entitled to receive, in exchange for its claims in respect of
these shares of common stock, its pro rata share of 164,600
shares of our common stock, representing 1% of the shares of
our common stock issued and outstanding following the
Effective Date of the Plan.
The Plan provides that all of the shares of our common stock are
subject to dilution by the exercise of management incentive stock options,
representing up to 10% of the shares of our issued and outstanding common stock
on a fully-diluted basis following the Effective Date of the Plan. As of
September 30, 2003, the number of outstanding options representing the right to
acquire 1,101,756 shares of common stock had been granted to members of our
management.
A total of 16,460,000 shares of our common stock and $120 million in
aggregate principal amount of the 11% senior notes were deemed to be issued and
outstanding on the Effective Date of the Plan. As of September 30, 2002,
however, no shares of our common stock or 11% senior notes had been distributed.
In October 2002, we distributed a total of 16,295,400 shares of common stock and
$120 million in aggregate principal amount of 11% senior notes. Pursuant to the
terms of a Stipulation and Order that we entered into with the lead plaintiffs
in the class action lawsuit described in "Legal Proceedings" beginning on page
40, 229,452 of these shares of common stock and $1,968,000 in aggregate
principal amount of the 11% senior notes were placed in reserve in escrow
pending the outcome of the class action lawsuit. In the event that any judgment
or settlement entered into in connection with the class action lawsuit requires
us to pay an amount in excess of our liability insurance, then we will be
required to issue to the class action litigants and their attorneys all (in the
event that this excess is $10 million or greater) or a portion of (in the event
that this excess is less than $10 million) the shares of common stock and 11%
senior notes held in escrow. Distribution of the remaining 164,600 shares of
common stock deemed to have been issued on the Effective Date of the Plan, which
are allocable under the terms of the Plan to the holders of our common stock
outstanding immediately prior to the Effective Date of the Plan, will occur
following the resolution of the shareholder derivative suit against our company
and certain of our former officers and directors described in "Legal
Proceedings" below.
Through October 3, 2003, we had acquired approximately $26 million in
aggregate principal amount of our 11% senior notes and related accrued interest
of approximately $1.9 million for an aggregate purchase price of approximately
$20.1 million, and had issued approximately an additional $11.3 million in 11%
senior notes in payment of accrued interest on the 11% senior notes. The
indenture governing the 11% senior notes requires interest to be paid in kind
through 2004, and permits interest to be paid in kind for two years thereafter
at the discretion of our board of directors. On March 3, 2004, we purchased
$40.3 million in principal amount of the 11% senior notes pursuant to an offer
to purchase as described elsewhere in this prospectus. As of March 4, 2004,
following completion of the offer to purchase, we had approximately $65.0
million in outstanding indebtedness.
Properties
In July 1998, we purchased the land and the approximately 155,000 gross
square foot building located at 139 Centre Street, New York, New York.
Construction at this facility was completed in July 1999 and the building houses
an Internet data center and offices for our executive, technical, sales and
administrative personnel. In December 2002 we retained the services of a real
estate broker to lease office space equivalent to approximately one third of our
139 Centre Street facility. As of November 30, 2003, we had leased or contracted
to lease office space of approximately 25% of this facility to third parties for
periods ranging between three to seven years. The estimated average annualized
rental income is approximately $0.9 million.
In July 1998, we signed a lease commencing January 15, 1999 for
approximately 60,000 gross square feet of space in Santa Clara, California. The
facility contains an Internet data center and offices for technical, sales and
administrative personnel. In October 1998, we signed a lease for the rental of
approximately 38,000 gross square feet of space at Prospect House, 80 New Oxford
Street, London, England. Construction at both of these facilities was completed
in July 1999.
39
Prospect House contains an Internet data center and some technical
staff while the balance of technical personnel, as well as sales and
administrative personnel, are located in our other London facility at 1 Oliver's
Yard. In July 2000, we entered into a lease for the Oliver's Yard facility,
which consists of approximately 210,000 gross square feet of space. Construction
and fit-out of one floor of Internet data center space has been completed and
the facility became operational in June 2001. In April 2002 we renegotiated our
lease for this Internet data center, resulting in us retaining a total of 60,000
gross square feet of space.
In August 2000, in connection with our acquisition of Comstar.net,
Incorporated, we acquired our existing leases for an Internet data center in
Atlanta containing approximately 5,000 gross square feet of space.
In September 2000 we purchased the land and the approximately 187,000
gross square foot building located at 415 Greenwich Street, New York, New York.
In October 2003, we entered into an agreement to sell that property for $60
million in cash. Approximately 90% of the net proceeds of the sale were used to
purchase our 11% senior notes at par plus accrued interest, as required pursuant
to the indenture under which the 11% senior notes were issued. Consummation of
the sale also eliminated certain obligations that we incurred in connection with
the purchase and rehabilitation of the property. The closing of the sale took
place on January 22, 2004. On March 3, 2004, we purchased $40.3 million of
outstanding 11% senior notes pursuant to the offer to purchase.
In November 2003, our company assumed Aptegrity, Inc.'s lease of
approximately 5,600 square feet in Fairfield, New Jersey for approximately
$11,000 a month ending December 2006.
We believe that the facilities that we plan to continue to occupy are
adequate for our current and foreseeable needs and that additional space will be
available, either through leasing or purchasing, when needed.
Legal Proceedings
On January 28, 2002, a derivative suit was filed in the United States
District Court for the Southern District of New York against our company, as
nominal defendant, and certain of our current and former directors and officers.
We believe that the allegations in this lawsuit are without merit and we intend
to vigorously defend against them. In addition, the plaintiff has not pursued
her claims since the filing of the lawsuit. Although there can be no assurance
as to the outcome or effect of this lawsuit, we do not believe, based on
currently available information, that the ultimate liabilities, if any,
resulting from this lawsuit will have a material adverse impact on our business,
financial condition, results of operations or cash flows.
There is a putative class action lawsuit pending in the United States
District Court for the Southern District of New York entitled In re Globix Corp
Securities Litigation, No. 02-CV-00082. This lawsuit names as defendants Globix
and our former officers Marc Bell, Peter Herzig (who remains a director of
Globix) and Brian Reach, and asserts claims under sections 10(b) and 20(a) of
the Securities Exchange Act of 1934 and Rule 10b-5 promulgated thereunder on
behalf of all persons or entities who purchased our securities between November
16, 2000 and December 27, 2001.
On June 25, 2002, we entered into a Stipulation and Order with the lead
plaintiffs in the class action lawsuit. The Stipulation and Order provides that
229,452 shares of our common stock and $1,968,000 in aggregate principal amount
of the 11% senior notes will be held in escrow pending the outcome of the class
action lawsuit. In the event that any judgment or settlement entered into in
connection with the class action lawsuit requires us to pay an amount in excess
of our liability insurance, we will be required to issue to the class action
litigants and their attorneys all (in the event that this excess is $10 million
or greater) or a portion of (in the event that this excess is less than $10
million) the shares of our common stock and the 11% senior notes being held in
escrow.
A consolidated amended complaint was filed in this lawsuit on June 28,
2002. We have filed a motion to dismiss the consolidated amended complaint.
Briefing of that motion is not yet complete. If the motion is denied, the case
will proceed to the discovery stage. We believe that the allegations in this
lawsuit are without merit and we intend to vigorously defend against them.
Although there can be no assurance as to the outcome or effect of this lawsuit,
we do not believe, based on currently available information, that the ultimate
liabilities, if any, resulting from this lawsuit will have a material adverse
impact on our business, financial condition, results of operations or cash
flows.
On November 12, 2003, we were served with a complaint filed in the
United States Court for Southern District of New York, entitled Alfred G.
Binford v. Globix Corporation, alleging breach of contract claims related to the
failure to make payments under an employment letter, as amended, seeking damages
in the amount of $2,113,000. Although there can be no assurance as to the
outcome or effect of this lawsuit, we do not believe, based on currently
available information, that the ultimate liabilities, if any, resulting from
this lawsuit will have a material adverse impact on our business, financial
condition, results of operations or cash flows. Globix has accrued its estimated
liability.
40
We are from time to time involved in legal proceedings in the ordinary
course of our business operations. Although there can be no assurance as to the
outcome or effect of any legal proceedings to which we are a party, we do not
believe, based on currently available information, that the ultimate
liabilities, if any, arising from any such legal proceedings would have a
material adverse impact on our business, financial condition, results of
operations or cash flows.
41
MANAGEMENT
Set forth below is the name, age as of March 17, 2004, and a brief
account of the business experience of each person who is, or was at March 17,
2004, a director or officer of our company.
Name Age Position
Peter K. Stevenson 43 President, Chief Executive Officer and Director
Peter S. Brodsky 33 Director
Peter L. Herzig 41 Vice Chairman of the Board of Directors
Steven Lampe 44 Director
Steven G. Singer 42 Chairman of the Board of Directors
Raymond L. Steele 69 Director
Steven A. Van Dyke 44 Director
Peter K. Stevenson joined Globix as president and chief executive
officer in April 2002 and also serves as a member of our board of directors. Mr.
Stevenson has over 20 years of experience in the communications industry. Prior
to joining Globix, Mr. Stevenson was a senior consultant to Communication
Technology Advisors LLC, from January 2002 through April 2002, a restructuring
boutique focusing on distressed telecommunications companies through the
provision of strategic planning advice, restructuring assistance and overall
business advice that currently provides Globix with a wide array of business
advisory services. Mr. Stevenson is a founder of Net One Group, Inc., a Northern
Virginia based telecom investment and management company focused on developing
and operating next generation broadband services networks. From January 2001 to
January 2002, Mr. Stevenson served as a strategic advisor to the board of
directors of Net Uno, one of the largest cable television, CLEC and ISP carriers
in Venezuela. From January 1998 to December 2000, Mr. Stevenson was a corporate
officer of Net Uno and president and chief operating officer of Net Uno's Data
and Telephone Group. From February 1996 to June 1998, Mr. Stevenson was partner
in, and vice president for, Wave International, an international
telecommunications investment and management firm focused on developing
companies in international markets. Mr. Stevenson graduated with a Bachelor of
Science degree from Saint Francis University in Loretto, Pennsylvania.
Peter S. Brodsky has been a director of Globix since October 2001. Mr.
Brodsky is a partner of Hicks, Muse, Tate & Furst Incorporated and has been with
Hicks Muse since 1995. At Hicks Muse, Mr. Brodsky has focused on Hicks Muse's
media investments, specifically in radio, television, sports and software, and
serves as a director of several of Hicks Muse's portfolio companies. Prior to
joining Hicks Muse, Mr. Brodsky was employed in the investment banking
department of CS First Boston Corporation in New York. In addition to Globix,
Mr. Brodsky is a director of RCN Corporation, a publicly-traded company, and
Activant Solutions, Inc. Mr. Brodsky received a Bachelor of Arts degree from
Yale University.
Peter L. Herzig has served as vice chairman of our board of directors
since May 2002. From August 2001 through April 2002, Mr. Herzig served as our
chief executive officer. Mr. Herzig joined Globix in October 2000, served as
chief operating officer from March 2001 through August 2001 and served as senior
vice president and chief operating officer-Application Services Group from
October 2000 through March 2001. Prior to joining Globix, Mr. Herzig served as
executive vice president and chief financial officer at iWon.com from March 2000
to October 2000, where his responsibilities included managing iWon's
relationship with Globix. Prior to joining iWon.com, Mr. Herzig was a senior
managing director and head of global capital markets services for Bear, Stearns
& Co. Inc. from February 1998 through March 2000, where he provided strategic
capital-structure advisory services to a broad spectrum of domestic and
international clients, including many new media technology companies
experiencing growth with the expansion of the Internet. Prior to Bear Stearns,
Mr. Herzig worked at Goldman Sachs & Co. from July 1989 through February 1998.
Mr. Herzig has a Bachelor of Arts degree from Dartmouth College and a Masters in
Business Administration degree from Columbia University.
Steven Lampe has been a director of Globix since April 2002. Mr. Lampe
is a managing member of Lampe, Conway & Co. LLC, an investment management
company which he co-founded in June 1999. Prior to his work at Lampe, Conway,
Mr. Lampe managed Lone Star Securities Fund, a distressed investment fund, from
June 1997 through June 1999. Prior to his employment with Lone Star, Mr. Lampe
worked at Smith Management, a private investment company, from February 1988
through June 1997. Mr. Lampe has a Bachelor of Arts degree from Middlebury
College and a Masters in Business Administration degree from Harvard University.
42
Steven G. Singer has been a director of Globix since April 2002.
Effective December 15, 2002 Mr. Singer became chairman of our board of
directors. Mr. Singer is the chairman and chief executive officer of American
Banknote Corporation, a publicly-traded corporation and 200 year-old global
security printer of documents of inherent value, including currency, passports,
credit cards, stock and bond certificates, and related products and services. He
also serves as the non-executive chairman of the board of Motient Corporation, a
publicly traded corporation, and as the Chapter 7 Trustee of American Pad &
Paper Company. From 1993 through November 2000, Mr. Singer was the executive
vice president and chief operating officer of Romulus Holdings, Inc., a
family-owned investment vehicle, and, from 1994 through the present, has served
as the chairman of Pure 1 Systems, a manufacturer and distributor of water
treatment products. Mr. Singer has a Bachelor of Arts degree, summa cum laude,
from the University of Pennsylvania and a Juris Doctor degree from the Harvard
Law School.
Raymond L. Steele has been a director of Globix since June 2003. Mr.
Steele is a retired businessman. In addition to our company, Mr. Steele is a
member of the board of directors of Dualstar Technologies Corporation and
American Banknote Corporation. From August 1997 until October 2000, Mr. Steele
served as a board member of Video Services Corp. Prior to his retirement, Mr.
Steele held various senior positions such as executive vice president of
Pacholder Associates, Inc. (from August 1990 until September 1993), executive
advisor at the Nickert Group (from 1989 through 1990), and vice president, trust
officer and chief investment officer of the Provident Bank (from 1984 through
1988).
Steven A. Van Dyke has been a director of Globix since October 2002.
Mr. Van Dyke is the founder and co-managing principal of Bay Harbour Management,
L.C. Mr. Van Dyke joined Bay Harbour's predecessor firm in Louisville in 1986.
Mr. Van Dyke purchased the predecessor firm in 1987 and transitioned it to one
with a dedicated focus on distressed securities management. Mr. Van Dyke sold a
minority interest in the predecessor firm in December 1996 and changed the name
of the predecessor firm to Bay Harbour Management. Mr. Van Dyke currently serves
on the board of directors of Barneys New York, Inc., American Banknote
Corporation, a publicly traded corporation, and Buckhead America Corp. Mr. Van
Dyke graduated from the University of Kentucky in 1981 with his Bachelor of
Business Administration degree in Finance. He is a Chartered Financial Analyst,
and is a member of The Financial Analysts Society of Central Florida and the
Association for Investment Management and Research.
Our Board of Directors and Executive Officers
The number of directors on our board of directors is seven. Our
directors are elected at each annual stockholders' meeting, and serve until the
next annual stockholders' meeting or the election and qualification of their
respective successors. Five of the current members of our board of directors
were selected in accordance with the terms of the Plan to serve as the directors
of Globix following the Effective Date of the Plan. Mr. Van Dyke was appointed
to our board of directors by our current board of directors in October 2002. Mr.
Steele was appointed to our board of directors by our current board of directors
in June 2003. The board of directors met nine times in fiscal year 2003.
43
Committees
Our bylaws provide that our board of directors may create, by the
affirmative vote of at least a majority of the directors then in office, an
executive committee and any other committees which our board of directors deems
necessary or desirable to create. Our board of directors has the following
committees:
[Enlarge/Download Table]
Name of Committee Functions of the Committee
and Members
----------------------------- -----------------------------------------------------------------------------------
AUDIT: This committee is comprised entirely of non-employee directors and its
responsibilities include:
Raymond L. Steele, o appointing, determining funding for, overseeing and replacing our
Chairman independent auditors;
o monitoring the independence and performance of our independent auditors;
Peter L. Herzig o preapproving all audit and permitted non-audit services performed by the
independent auditors;
Steven A. Van Dyke o reviewing our annual and quarterly financial statements;
o monitoring our accounting and financial reporting process and systems of
internal control;
o overseeing and providing direction on our conduct of its business and
compliance with its ethical and legal responsibilities;
o overseeing our internal audit function; and
o facilitating open communication among the board, senior management,
internal audit and the independent auditors.
Audit Committee Financial Expert
The audit committee is composed of three directors, all of whom have been
determined by the board of directors to be "independent" as defined under the
rules of the NASDAQ Stock Market, Section 10A(m)(3) of the Securities Exchange
Act of 1934 and the rules and regulations of the Securities and Exchange
Commission, except Mr. Herzig who would not be deemed independent under the
rules of the NASDAQ Stock Market because he served as our chief executive
officer from August 2001 through April 2002. All three members of the audit
committee have been determined by the board of directors to be "financial
experts" as defined by the Securities and Exchange Commission.
[Enlarge/Download Table]
Name of Committee Functions of the Committee
and Members
----------------------------- -----------------------------------------------------------------------------------
COMPENSATION: This committee is comprised entirely of non-employee directors and its
responsibilities include:
Steven G. Singer, o overseeing the compensation and benefits of employees; and
Chairman o establishing executive compensation.
Peter S. Brodsky
Steven Lampe
44
[Enlarge/Download Table]
Name of Committee Functions of the Committee
and Members
----------------------------- -----------------------------------------------------------------------------------
NOMINATING: This committee is comprised entirely of non-employee directors and its
responsibilities include:
Steven G. Singer, o identifying director candidates who have the highest capabilities,
Chairman judgment and ethical standards and who have an understanding of our
business; and
Raymond L. Steele o considering director candidates recommended by security holders
Steven Lampe The nominating committee does not yet have a charter.
[Enlarge/Download Table]
Other Executive Officers
Name Age Position
Robert M. Dennerlein 44 Vice President and Chief Financial Officer
Henry J. Holcombe 40 Senior Vice President, Operations, Chief Technology
Officer and Secretary
John D. McCarthy 40 Senior Vice President, Business Development and U.S.
Sales and Marketing
Philip J. Cheek 38 Managing and Finance Director of Globix U.K. Ltd.
Robert M. Dennerlein joined Globix in January 2003 as vice president
and corporate controller and became our chief financial officer on May 12, 2003.
Prior to joining Globix, from August 2001 until January 2003, Mr. Dennerlein
served as vice president and controller for OpNext, a global optical components
joint venture created by a spinoff from Hitachi and a venture capital investment
by Clarity Partners. From July 1999 until August 2001, Mr. Dennerlein served as
the director of accounting and external reporting for Agere Systems (formerly
the Microelectronics division of Lucent Technologies). From June 1992 until July
1999, Mr. Dennerlein held various management positions at International
Specialty Products, a global specialty chemicals manufacturer. He served as
senior director, ISP Financial Services from July 1997 until July 1999 and prior
to that controller, ISP International Operations from May 1995 until July 1997.
Mr. Dennerlein is a Certified Public Accountant and received a Masters
International Business degree from Seton Hall University. He also holds a
Bachelor of Science in Accounting from Seton Hall University.
Henry J. Holcombe joined Globix in July 2002 as senior vice president
of operations, a position he continues to hold. In April, 2003 he became our
corporate secretary and on August 11, 2003 he became our chief technology
officer. Prior to joining Globix, Mr. Holcombe served as chief information
officer of Cambrian Communications from February 2000 through July 2002. From
August 1997 to January 2000, Mr. Holcombe served as a senior principal
consultant at C-Change, Inc. in San Rafael CA, leading project teams to deliver
e-commerce initiatives for entertainment, telecommunications and financial
services clients. Mr. Holcombe received a Masters degree in Computer Science
from George Washington University in Washington, D.C. and a Masters in Business
Administration degree from Chaminade University in Honolulu. Mr. Holcombe
received his undergraduate degree from the US Military Academy at West Point.
John D. McCarthy has served as senior vice president, business
development since September 2002 and as senior vice president of US sales and
marketing since October 2003. Prior to that, he served as acting chief financial
officer from March 2002 through September 2002. Mr. McCarthy also resumed the
duties of acting chief financial officer from November 2002 to May 2003. Mr.
McCarthy served as vice president of financial planning and analysis from August
2001 through March 2002 and as managing director for the Application Services
Group from the time he joined Globix in March 2001 through August 2001. Prior to
joining Globix, Mr. McCarthy served as vice president, finance for LC39 Venture
Group LLC, a New York based technology incubator and venture capital fund, from
April 2000 to March 2001. From November 1998 through April 2000, he held
management positions with an e-commerce startup and acted as a consultant to
several entrepreneurial ventures. From 1996 to 1998, Mr. McCarthy was vice
president, director of business affairs with divisions of Young & Rubicam. Mr.
McCarthy received a Masters in Business Administration degree from The Wharton
School of Business of the University of Pennsylvania and a Masters degree in
International Studies from Wharton's Lauder Institute. Mr. McCarthy received his
undergraduate degree from Connecticut College.
Philip J. Cheek joined our United Kingdom subsidiary, Globix Ltd., in
July 2000 as European finance director. Mr. Cheek was subsequently appointed to
the additional position of managing director of Globix Ltd. on July 12, 2001. He
currently serves on the Globix Ltd. United Kingdom board of directors. Prior to
his joining Globix Ltd., Mr. Cheek served in various financial positions with
Fritz Companies, an international freight company (now part of UPS) from April
1996 through July 2000. Mr. Cheek graduated as a qualified ACCA in 1992 with a
professional training practice Maxwells Chartered Accountants.
45
Executive Compensation
Summary Compensation Table
The following summary compensation table sets forth the total
compensation for the fiscal years ended September 30, 2003, September 30, 2002
and September 30, 2001 for our chief executive officer, our four other most
highly compensated executive officers during the fiscal year ended September 30,
2003 who held office as of September 30, 2003 and one additional individual who
would have been included in the group of the most highly compensated executive
officers but who left his position prior to September 30, 2003.
[Enlarge/Download Table]
Annual Compensation
-------------------
Other Annual Securities
Compensation Underlying
Name and Principal Salary Bonus ------------ Options/ All Other
Position Year ($) ($) ($) SARs (#) Compensation
-------- ---- --- --- --- -------- ------------
Peter K. Stevenson(1) 2003 284,684 150,000 79,105(2) 548,667(3) ---
President and Chief 2002 127,333 75,000 50,000(4) --- $1,4595
Executive Officer
Robert M. Dennerlein(6) 2003 108,077 42,916 --- 100,000 ---
Chief Financial Officer
Henry J. Holcombe(7) 2003 170,000 53,125 79,623(8) 106,582 ---
Senior Vice President 2002 34,375 --- 27,621(9) --- ---
of Operations,
Corporate Secretary and
Chief Technology Officer
John D. McCarthy(10) 2003 190,000 62,938 --- 146,316 ---
Senior Vice President 2002 190,000 27,000 --- 100,000(11) ---
Corporate Development 2001 109,494 5,833 --- 20,000(11) ---
Philip J. Cheek(12) 2003 178,333 41,625 --- 30,000 17,833(13)
Managing and Finance 2002 119,662 18,097 --- --- 11,966(13)
Director, Globix U.K. Ltd. 2001 100,675 14,806 --- --- 11,703(13)
Gregory P. Leahy(14) 2003 106,421 --- --- 100,590(15) 46,247(16)
Former General Counsel 2002 152,917 20,000 --- 10,000(17) ---
and Corporate Secretary 2001 136,820 --- --- 4,000(17) ---
1 Mr. Stevenson became our president and chief executive officer on April
15, 2002.
2 Represents the amount that we reimbursed Mr. Stevenson for his housing
and travel costs in the fiscal year ended September 30, 2003, including
amounts reimbursed for taxes associated with these payments, as his
permanent residence is located outside of the New York area.
3 Pursuant to Mr. Stevenson's employment agreement dated as of April 15,
2002, we agreed to grant to Mr. Stevenson options to acquire 548,667
shares of our common stock. These options were granted to Mr. Stevenson
on March 14, 2003 pursuant to our 2003 Stock Option Plan.
4 Represents the amount that we reimbursed Mr. Stevenson for his housing
and travel costs in the fiscal year ended September 30, 2002, as his
permanent residence is located outside of the New York area.
5 Represents the amount of premiums for life insurance benefits for Mr.
Stevenson paid by Globix in the five month period ended September 30,
2002.
46
6 Mr. Dennerlein became our chief financial officer on May 12, 2003. He joined
Globix in January 2003.
7 Mr. Holcombe joined Globix in July 2002 as senior vice president of
operations. He became our corporate secretary in April 2003 and our chief
technology officer on August 11, 2003.
8 Represents the amount that we reimbursed Mr. Holcombe for his housing and
travel costs in the fiscal year ended September 30, 2003, including amounts
reimbursed for taxes associated with these payments, as his permanent
residence is located outside of the New York area.
9 Represents the amount that we reimbursed Mr. Holcombe for his housing and
travel costs in the fiscal year ended September 30, 2002, as his permanent
residence is located outside of the New York area.
10 Mr. McCarthy has served as our senior vice president, corporate development
since September 2002. He joined Globix on March 5, 2001.
11 These options were granted prior to the Effective Date of the Plan and were
cancelled on the Effective Date of the Plan.
12 Mr. Cheek joined our United Kingdom subsidiary, Globix Ltd., in July 2000.
He was appointed managing and finance director of Globix Ltd. on July 12,
2001.
13 Represents the amount contributed by Globix Ltd. to its profit sharing plan.
14 Mr. Leahy resigned from Globix on July 12, 2003, however, he provided
consulting services to the company from April to July of 2003. He joined
Globix as associate general counsel in July 1999 and became our general
counsel and corporate secretary in February 2002.
15 These options, which were subject to the approval of our 2003 Stock Option
Plan, were forfeited when Mr. Leahy resigned from Globix on July 12, 2003.
16 Represents the amount of severance paid to Mr. Leahy in connection with his
resignation from Globix.
17 These options were granted prior to the Effective Date of the Plan and were
cancelled on the Effective Date of the Plan.
Option/SAR Grants in Fiscal Year Ended September 30, 2003
The following table provides information on grants of stock options in
the fiscal year 2003 to the officers listed in the summary compensation table.
[Enlarge/Download Table]
Number of
Securities Percent of Total
Underlying Options/SARS Potential Realizable Value
Options/ Granted to Exercise or at Assumed Annual Rate of
SARs Employees in Base Price Expiration Stock Price Appreciation
Name Granted(#)(1) Fiscal Year ($/Share) Date for Option Term
-----------------------------
5% ($) 10%($)
----------------------- ---------------- ------------------ ------------- ------------- ---------- ------------------
Peter K. Stevenson 548,667 40.47% $3.04 3/13/13 396,571 1,619,513
Robert M. Dennerlein 35,000 2.58% $3.04 3/13/13 25,296 103,304
65,000 4.79% $3.04 6/13/13 120,034 308,180
Henry J. Holcombe 71,582 5.28% $3.04 3/13/13 51,736 211,278
35,000 2.58% $3.04 6/13/13 64,634 165,943
John D. McCarthy 146,316 10.79% $3.04 3/13/13 105,749 431,858
Philip J. Cheek 30,000 2.21% $3.04 6/13/13 55,401 142,237
Gregory P. Leahy 100,590 7.42% $3.04 forfeited 72,701 296,896
47
(1) 50% of the total number of shares granted under the 2003 Stock Option Plan
will vest on the first, second and third anniversaries of the grant date of
such options. The remaining 50% will vest over a period of three years based
upon the substantial achievement by Globix (as determined by the
compensation committee) of certain components of the Globix operating plan
in fiscal years 2003, 2004 and 2005. For Mr. Stevenson, the compensation
committee determined in March 2003 that the financial performance measures
had been achieved for purposes of the vesting of 50% of his options. On
April 15, 2003, the remaining 274,334 shares vested under his options based
on the passage of one year since the date of his employment agreement. Upon
a "change in control" (as defined in the stock option agreements entered
into by Globix with Messrs. Stevenson, Dennerlein, Holcombe, McCarthy and
Cheek), all of the shares covered by options granted to them that have not
yet vested will fully vest. Mr. Leahy's options were forfeited when he
resigned from Globix on July 12, 2003.
Aggregated Option/SAR Exercised in Fiscal Year Ended September 30, 2003 and
Fiscal Year-End Option Values
The following table presents information concerning options granted to
the officers included in the summary compensation table during the fiscal year
ended September 30, 2003.
[Enlarge/Download Table]
Value
Number of Realized
Shares (Market Price Number of Securities Value of Unexercised
Acquired at Exercise Underlying Unexercised In-The-Money Options/SARS at
on Less Exercise Options at Fiscal Year End Fiscal Year End (1)
Name Exercise Price)
Exercisable Unexercisable Exercisable Unexercisable
------------------------ ------------- --------------- ----------------- --------------- ------------------- ----------------
Peter K. Stevenson 548,667 0 0
Robert M. Dennerlein 22,500 77,500 0 0
Henry J. Holcombe 29,694 76,888 0 0
John D. McCarthy 48,772 97,544 0 0
Philip J. Cheek 5,000 25,000 0 0
Gregory P. Leahy 100,590 0 0
(1) Based on a sales price of $2.66 per share of our common stock on the OTC
Bulletin Board on September 30, 2003.
Employment Agreements
Peter K. Stevenson. Effective April 15, 2002, we entered into an
employment agreement with Peter K. Stevenson for his services as our president
and chief executive officer. The original term of the agreement extended until
July 31, 2003. As of August 1, 2003, the agreement was amended to extend the
term until July 31, 2004, subject to extension for successive six month periods
with the mutual consent of Globix and Mr. Stevenson, and to make certain other
changes in Mr. Stevenson's compensation and severance arrangements. Under the
amended agreement, Mr. Stevenson's base salary is $308,000 per year. Mr.
Stevenson is also eligible for an annual bonus in an amount up to 50% of his
base salary, payable at the discretion of the compensation committee, if he
achieves the targets (objective and subjective) established by the compensation
committee. In addition, under the terms of Mr. Stevenson's employment agreement,
we agreed to grant to Mr. Stevenson options to acquire 548,667 shares of our
common stock, or 3% of the outstanding shares of our common stock on a fully
diluted basis. 100% percent of these options have vested. 50% have vested based
on the passage of time. The remaining 50% have vested based on the determination
by the compensation committee that Globix had substantially achieved the
performance targets specified in Mr. Stevenson's original employment agreement.
On March 14, 2003, the compensation committee determined that these performance
targets, which were oriented towards the achievement of positive cash flow, had
been met for purposes of the vesting of the options. Under his employment
agreement, Mr. Stevenson is also entitled to reimbursement for certain travel
expenses between his home in Virginia and our offices in New York City, and for
the expense of maintaining an office in Virginia.
Mr. Stevenson's employment agreement provides that in the event that we
terminate his employment with Globix for any reason other than cause, or if Mr.
Stevenson terminates his employment with our company for good reason, then Mr.
Stevenson is entitled to 12 months' salary.
Henry J. Holcombe. On July 15, 2002, we entered into an agreement with
Henry J. Holcombe outlining the terms of Mr. Holcombe's employment as our vice
president, operations. Mr. Holcombe's base salary is $165,000 per year, which
will be increased no less frequently than once per year in accordance with our
policies. Mr. Holcombe is also eligible to receive a bonus of 30% of his base
salary, which is contingent upon our company meeting certain performance targets
mutually agreed upon by Globix and Mr. Holcombe. Further, we are required to
reimburse Mr. Holcombe for his travel each week to New York and his reasonable
living expenses while in New York. Our agreement with Mr. Holcombe also provides
that he is eligible to receive stock options under our 2003 Stock Option Plan.
We are entitled to terminate Mr. Holcombe's employment at any time.
48
Compensation Committee Interlocks and Insider Participation
Mr. Brodsky is a partner of Hicks, Muse, Tate & Furst Incorporated,
which is an affiliate of various stockholders that are parties to a registration
rights agreement with Globix. See "Certain Relationships and Related
Transactions," beginning on page 56.
Director Compensation
Under our compensation program for directors, our directors are entitled to
receive:
o $2,000 per month for directors and $4,000 per month for the chairman;
o an additional $250 per month for service on the compensation committee of our
board of directors (or $500 per month for the chairman of the compensation
committee);
o an additional $500 per month for service on the audit committee of our board
of directors (or $1,000 per month for the chairman of the audit committee);
and
o an additional $1,000 for each board of directors or committee meeting in
excess of four per year.
Indemnification of Directors and Executive Officers and Limitation on Liability
Our amended and restated certificate of incorporation and amended and
restated bylaws provide that we will indemnify our directors and executive
officers to the fullest extent permitted by Delaware law for damages resulting
from conduct as a director or executive officer. In addition, we carry an
insurance policy for the protection of our directors and executive officers
against any liability asserted against them in their official capacities. To the
extent that indemnification for liabilities under the Securities Act may be
permitted to directors or executive officers of our company, we have been
informed that in the opinion of the Securities and Exchange Commission of 1933,
this indemnification is against public policy as expressed in the Securities Act
of 1933, and is therefore unenforceable.
PRINCIPAL STOCKHOLDERS
As of January 16, 2004, Globix had 64 stockholders of record. The
following table and the accompanying notes set forth certain information, as of
December 31, 2003 (except as set forth below), concerning the beneficial
ownership of our common stock by: (1) each person who is known by us to
beneficially own more than 5% of our common stock, (2) each director of Globix,
(3) each officer named in the summary compensation table and (4) all directors
and executive officers as a group.
49
[Download Table]
Name and Address Number of Percent of
of Beneficial Owner Shares(1, 2) Class
------------------- ---------- ----------
Goldman, Sachs & Co. 1,405,513(3) 8.54%
85 Broad Street
New York, NY 10004
HM Parties(4) 2,304,400(5) 14.00%
c/o Hicks, Muse, Tate & Furst Incorporated
200 Crescent Court, Suite 1600
Dallas, Texas 75201
Mackay Shields LLC 2,493,042(6) 15.15%
c/o Mackay Shields Financial Corp.
9 West 57th Street
New York, NY 10019
JGD Management Corp. 1,630,936(7) 9.91%
350 Park Avenue
New York, New York 10022
Kingdon Capital Management, LLC 1,166,057(8) 7.08%
Peter S. Brodsky ---(9) *
Peter L. Herzig --- *
Steven Lampe 1,219,817(10) 7.41%
Steven G. Singer 1,107,088(11) 6.73%
Raymond L. Steele --- *
Peter K. Stevenson 548,667(12) 3.33%
Steven Van Dyke 172,017(13) 1.05%
Robert M. Dennerlein 22,500(14) *
Henry J. Holcombe 29,694(15) *
John D. McCarthy 48,772(16) *
Philip J. Cheek 5,000(17) *
Gregory P. Leahy ---(18) *
All directors and executive officers as a group
(11 persons) 3,153,555 19.16%
_________________
* Less than 1%.
(1) The information regarding beneficial ownership of our common stock
has been presented in accordance with the rules of the Securities and Exchange
Commission. Under these rules, a person may be deemed to beneficially own any
shares as to which such person, directly or indirectly, has or shares voting
power or investment power and also any shares of our common stock as to which
such person has the right to acquire voting or investment power within 60 days
through the exercise of any stock option or other right. The percentage of
beneficial ownership as to any person as of a particular date is calculated by
dividing (a) (i) the number of shares beneficially owned by such person plus
(ii) the number of shares as to which such person has the right to acquire
voting or investment power within 60 days by (b) the total number of shares
outstanding as of such date, plus any shares that such person has the right to
acquire from Globix within 60 days. For purposes of calculating the beneficial
ownership percentages set forth above, the total number of shares of our common
stock deemed to be outstanding as of December 31, 2003 was 16,460,000. As used
in this proxy statement, "voting power" is the power to vote or direct the
voting of shares and investment power" is the power to dispose or direct the
disposition of shares. Except as noted, each stockholder listed has sole voting
and investment power with respect to the shares shown as being beneficially
owned by such stockholder.
(2) On June 25, 2002, we entered into a Stipulation and Order with the
lead plaintiffs in the class action lawsuit described in the section of the
Annual Report on Form 10-K entitled "Business--Legal Proceedings." The
Stipulation and Order provides that 229,452 shares of our common stock and
$1.968 million in aggregate principal amount of our 11% senior notes will be
held in reserve in escrow pending the outcome of the class action lawsuit. In
the event that any judgment or settlement entered into in connection with the
class action lawsuit requires us to pay an amount in excess of our liability
insurance, we will be required to issue to the class action litigants and their
attorneys all (in the event that this excess is $10 million or greater) or a
portion of (in the event that this excess is less than $10 million) the shares
of our common stock and the notes being held in escrow. Assuming that our
liability insurance is sufficient to cover any judgment or settlement in the
class action lawsuit and that the shares of our common stock and the notes being
held in escrow will be distributed in accordance with the plan of reorganization
rather than to the class action litigants and their attorneys, each of Mackay
Shields and Goldman Sachs & Co. (and each other former holder of our 12.5%
senior notes on the Effective Date of the Plan) will be entitled to receive a
portion of these 229,452 shares of common stock based on its percentage
ownership of the 12.5% senior notes on the effective date of the plan of
reorganization.
(3) This information is as of December 31, 2003, as set forth in a
Schedule 13G filed by Goldman Sachs & Co. with the Securities and Exchange
Commission on February 12, 2004.
50
(4) "HM Parties" refers collectively to HM4 Globix Qualified Fund, LLC,
HM4 Globix Private Fund, LLC, HM PG-IV Globix, LLC, HM 4-EQ Globix Coinvestors,
LLC and HM 4-SBS Globix Coinvestors, LLC. Of the 2,304,400 shares held by the HM
Parties: (i) 2,092,487 of these shares are owned of record by HM4 Globix
Qualified Fund, LLC; (ii) 111,430 of these shares are owned of record by HM4
Globix Private Fund, LLC; (iii) 11,430 of these shares are owned of record by HM
PG-IV Globix, LLC; (iv) 34,177 of such shares are owned of record by HM 4-EQ
Globix Coinvestors, LLC; and (v) 51,475 of these shares are owned of record by
HM 4-SBS Globix Coinvestors, LLC.
(5) Thomas O. Hicks is the chairman of each of the HM Parties and is
the sole member of the ultimate general partner of the controlling member of
each of the HM Parties and has the ultimate legal authority over all investment
decisions made with respect to the shares of our common stock owned of record by
the HM Parties. Accordingly, Mr. Hicks may be deemed to beneficially own all or
a portion of the shares of our common stock owned of record by the HM Parties.
Peter S. Brodsky, a director of Globix, Dan H. Blanks, Joe Colonnetta, Jack D.
Furst, a director of Globix from December 1999 through April 2002, Lyndon Lea,
John R. Muse, Rick Neuman and Andrew Rosen are partners of Hicks, Muse, Tate &
Furst Incorporated, which is an affiliate of Mr. Hicks and of the HM Parties. In
addition Messrs Hicks, Muse and Furst are members of the management committee
of Hicks, Muse, Tate & Furst Incorporated. Consequently, these individuals may
be deemed to beneficially own all or a portion of the shares of our common stock
owned of record by the HM Parties. Each of Messrs. Hicks, Brodsky, Blanks,
Colonnetta, Furst, Lea, Muse, Neuman and Rosen disclaims the existence of a
group and disclaims beneficial ownership of the shares of our common stock of
which he is not the record owner.
(6) According to information provided to us by MacKay Shields, the
pecuniary interests in these shares are held by a number of institutional
investors for whom MacKay Shields is the discretionary investment advisor.
MacKay Shields has voting and investment control over these shares and,
accordingly, is deemed to beneficially own these shares. A number of individuals
at MacKay Shields LLC have voting and investment control over these shares.
(7) According to a Form 4 filed on October 27, 2003, JGD Management
Corp. owned 1,630,936 shares and ceased its obligations to report transactions
under Section 16 of the Securities Exchange Act of 1934 as of that date.
According to the Form 4, JGD Management Corp manages certain managed accounts
and the following investment funds: York Capital Management, L.P., York
Distressed Opportunities Fund, L.P., York Global Value Partners, L.P., York
Investment Limited, York Offshore Investors Unit Trust, York Select, L.P. and
York Select Unit Trust. JGD Management Corp. disclaims any beneficial interest
ownership of the securities held by the managed accounts and the investment
funds except to the extent of its pecuniary interest therein. The address for
JGD Management Corp. is 350 Park Avenue, NY 10022.
(8) This information is as of December 31, 2003, as set forth in a
Schedule 13G filed by Kingdon Capital Management LLC with the Securities and
Exchange Commission on February 3, 2004.
(9) Mr. Brodsky is a partner of Hicks, Muse, Tate & Furst Incorporated,
which is an affiliate of Mr. Hicks and each of the HM Parties, and serves as an
officer of each of the HM Parties. Consequently, Mr. Brodsky may be deemed to
beneficially own all or a portion of the shares of our common stock owned of
record by each of the HM Parties. Mr. Brodsky disclaims the existence of a group
and disclaims beneficial ownership of shares of our common stock of which he is
not the record owner.
(10) Mr. Lampe is affiliated with LC Capital, which owns these shares.
Mr. Lampe has voting and investment control over these shares and, consequently,
is deemed to beneficially own these shares.
(11) Mr. Singer is co-trustee of three trusts for the benefit of his
brother's children and as trustee has voting and investment control over the
1,107,088 shares of our common stock held in the trusts. Mr. Singer and his
sister-in-law, Karen Singer, filed a Schedule 13G to report the beneficial
ownership of these shares. Mr. Singer and his sister-in-law disclaim membership
in a group, as such term is defined in Section 13(d)(3) of the Securities
Exchange Act of 1934, and disclaim any other interest in the common stock held
in the trusts.
(12) Pursuant to the terms of Mr. Stevenson's employment agreement
described in "Executive Compensation - Employment Agreements - Peter K.
Stevenson", on March 14, 2003, we granted to Mr. Stevenson options to acquire
548,667 shares of our common stock pursuant to our 2003 Stock Option Plan. As of
December 31, 2003, all of these stock options were vested.
(13) Mr. Van Dyke is the founder and co-managing principal of Bay
Harbour Management L.C. Bay Harbour Management serves as investment advisor for
Bay Harbour 90-1, Ltd., Bay Harbour Partners, Ltd., Zurich Institutional
Benchmarks Master Fund Ltd. and HFR DS Strategic Master Trust, which
collectively owned (as of December 31, 2003) 172,017 shares of our common stock,
or approximately 1.05 percent of the shares of our outstanding common stock. Bay
Harbour Management has voting and investment control over these shares and,
accordingly, may be deemed to beneficially own these shares. Mr. Van Dyke is the
natural person with voting and investment control over these shares.
(14) Does not include options to purchase 77,500 shares under the 2003
Stock Option Plan that are subject to vesting.
51
(15) Does not include options to purchase 76,888 shares under the 2003
Stock Option Plan that are subject to vesting.
(16) Does not include options to purchase 97,544 shares under the 2003
Stock Option Plan that are subject to vesting.
(17) Does not include options to purchase 25,000 shares under the 2003
Stock Option Plan that are subject to vesting.
(18) Does not include options to purchase 100,590 shares, which were
forfeited when Mr. Leahy resigned from Globix on July 12, 2003.
Unless otherwise indicated, the address for the individuals listed
above is c/o Globix Corporation, 139 Centre St., New York, NY 10013.
52
SELLING HOLDERS
The following table and accompanying notes set forth certain
information, as of March 17, 2004, regarding the selling holders. Under this
prospectus, the selling holders and any of their respective transferees,
assignees, donees, distributees, pledgees or other successors-in-interest may
offer and sell from time to time an aggregate of 4,797,442 shares of our common
stock and an aggregate of $19,146,306 in aggregate principal amount of the
notes. The securities listed below are being registered to permit public sales
of these securities by the selling holders, and the selling holders may offer
all, some or none of these securities.
Certain of the selling holders owned the 12.5% senior notes prior to
the Effective Date of the Plan, when the 12.5% senior notes were exchanged for
shares of our common stock and the notes. These selling holders owned various
amounts of the 12.5% senior notes and may have engaged in open market and
off-market transactions involving purchases and sales of the 12.5% senior notes
in the period prior to the Effective Date of the Plan.
In connection with the Plan, on April 23, 2002, we entered into a
registration rights agreement with certain holders of our common stock and our
11% senior notes whose ability to sell the common stock or 11% senior notes is
restricted because of their percentage ownership of the common stock or notes.
One of our directors, Mr. Brodsky, is a partner of Hicks Muse Tate and Furst
Incorporated which is affiliated with certain holders of common stock that are
parties to the registration rights agreement.
Subject to certain adjustments, we are required to bear all expenses
incident to the registration of the notes and our common stock. We agreed to
indemnify the holders of the restricted securities against all liabilities,
whether under the securities laws or otherwise, arising out of disclosure
deficiencies in the registration statement. Our indemnity obligation does not,
however, extend to liability for information pertaining to a holder and
furnished to Globix by or on behalf of such holder for inclusion in the
registration statement.
Subject to certain adjustments, we are obligated to file and keep the
registration statement continuously effective, supplemented and amended for a
period ending on the earlier of:
o the date on which all of the 11% senior notes and the shares of our
common stock have been sold pursuant to the registration statement
or pursuant to Rule 144 under the Securities Act of 1933;
o the three year anniversary of the date on which the Securities and
Exchange Commission declares the registration statement effective;
or
o the date on which there are no longer any shares of our common stock
or 11% senior notes outstanding.
Common Stock
The table below sets forth the names of the selling holders of shares
of our common stock and the number of shares of our common stock beneficially
owned by these selling holders as of March 17, 2004. On March 17, 2004, the
number of shares of our common stock deemed to be outstanding pursuant to the
terms of the Plan was 16,460,000. Except as otherwise indicated, each person
listed in the table below has informed us that it has (1) voting and investment
power with respect to its shares of our common stock and (2) record and
beneficial ownership with respect to its shares of our common stock.
If all of the shares of our common stock listed below are sold pursuant
to this prospectus, then the selling holders will sell 4,797,442 shares of
our common stock, or 29.15% of the total number of shares of our common stock
outstanding.
The information set forth in the table below was provided to us by the
selling holders listed below.
[Enlarge/Download Table]
Name and Address of Beneficial Owner Beneficial Ownership Shares of Beneficial Ownership
of Common Stock Common Stock to of Common Stock
Before Offering(1) (2) be Sold After Offering
----------------------- ----------------- -------------------------
Shares % Shares %
---------- ------------ ----------------- ----------- -----------
HM Parties(3) 2,304,400(4) 14.00% 2,304,400 0 0
c/o Hicks, Muse, Tate & Furst
Incorporated
200 Crescent Court, Suite 1600
Dallas, Texas 75201
Mackay Shields LLC 2,493,042(5) 15.15% 2,493,042 0 0
c/o Mackay Shields Financial Corp.
9 West 57th Street
New York, NY 10019
53
(1) The information regarding beneficial ownership of our common stock
has been presented in accordance with the rules of the Securities and Exchange
Commission. Under these rules, a person may be deemed to beneficially own any
shares as to which such person, directly or indirectly, has or shares voting
power or investment power and also any shares of our common stock as to which
such person has the right to acquire voting or investment power within 60 days
through the exercise of any stock option or other right. The percentage of
beneficial ownership as to any person as of a particular date is calculated by
dividing (a) (i) the number of shares beneficially owned by such person plus
(ii) the number of shares as to which such person has the right to acquire
voting or investment power within 60 days by (b) the total number of shares
outstanding as of such date, plus any shares that such person has the right to
acquire from Globix within 60 days. For purposes of calculating the beneficial
ownership percentages set forth above, the total number of shares of our common
stock deemed to be outstanding as of December 31, 2003 was 16,460,000. As used
in this proxy statement, "voting power" is the power to vote or direct the
voting of shares and investment power" is the power to dispose or direct the
disposition of shares. Except as noted, each stockholder listed has sole voting
and investment power with respect to the shares shown as being beneficially
owned by such stockholder.
(2) On June 25, 2002, we entered into a Stipulation and Order with the
lead plaintiffs in the class action lawsuit described in the section of the
Annual Report on Form 10-K entitled "Business--Legal Proceedings." The
Stipulation and Order provides that 229,452 shares of our common stock and
$1.968 million in aggregate principal amount of our 11% senior notes will be
held in reserve in escrow pending the outcome of the class action lawsuit. In
the event that any judgment or settlement entered into in connection with the
class action lawsuit requires us to pay an amount in excess of our liability
insurance, we will be required to issue to the class action litigants and their
attorneys all (in the event that this excess is $10 million or greater) or a
portion of (in the event that this excess is less than $10 million) of the
shares of our common stock and the 11% senior notes being held in escrow.
Assuming that our liability insurance is sufficient to cover any judgment or
settlement in the class action lawsuit and that the shares of our common stock
and the 11% senior notes being held in escrow will be distributed in accordance
with the plan of reorganization rather than to the class action litigants and
their attorneys, each of Mackay Shields and Goldman Sachs & Co. (and each other
former holder of our 12.5% senior notes on the Effective Date of the Plan) will
be entitled to receive a portion of these 229,452 shares of common stock based
on its percentage ownership of the 12.5% senior notes on the Effective Date of
the Plan.
(3) "HM Parties" refers collectively to HM4 Globix Qualified Fund, LLC,
HM4 Globix Private Fund, LLC, HM PG-IV Globix, LLC, HM 4-EQ Globix Coinvestors,
LLC and HM 4-SBS Globix Coinvestors, LLC. Of the 2,304,400 shares held by the HM
Parties: (i) 2,092,487 of these shares are owned of record by HM4 Globix
Qualified Fund, LLC; (ii) 14,831 of these shares are owned of record by HM4
Globix Private Fund, LLC; (iii) 111,430 of these shares are owned of record by
HM PG-IV Globix, LLC; (iv) 34,177 of such shares are owned of record by HM 4-EQ
Globix Coinvestors, LLC; and (v) 51,475 of these shares are owned of record by
HM 4-SBS Globix Coinvestors, LLC.
(4) Thomas O. Hicks is the chairman of each of the HM Parties and is
the sole member of the ultimate general partner of the controlling member of
each of the HM Parties and has the ultimate legal authority over all investment
decisions made with respect to the shares of our common stock owned of record by
the HM Parties. Accordingly, Mr. Hicks may be deemed to beneficially own all or
a portion of the shares of our common stock owned of record by the HM Parties.
Peter S. Brodsky, a director of Globix, Dan H. Blanks, Joe Colonnetta, Jack D.
Furst, a director of Globix from December 1999 through April 2002, Lyndon Lea,
John R. Muse, Rick Neuman and Andrew Rosen are partners of Hicks, Muse, Tate &
Furst Incorporated, which is an affiliate of Mr. Hicks and of the HM Parties. In
addition Messrs Hicks, Muse and Furst are members of the management committee of
Hicks, Muse, Tate & Furst Incorporated. Consequently, these individuals may be
deemed to beneficially own all or a portion of the shares of our common stock
owned of record by the HM Parties. Each of Messrs. Hicks, Brodsky, Blanks,
Colonnetta, Furst, Lea, Muse, Neuman and Rosen disclaims the existence of a
group and disclaims beneficial ownership of the shares of our common stock of
which he is not the record owner.
(5) According to information provided to us by MacKay Shields, the
pecuniary interests in these shares are held by a number of institutional
investors for whom MacKay Shields is the discretionary investment advisor.
MacKay Shields has voting and investment control over these shares and,
accordingly, is deemed to beneficially own these shares. A number of individuals
at MacKay Shields LLC have voting and investment control over these shares.
54
The 11% Senior Notes
The table below sets forth the name of the selling holder of the notes
and the aggregate principal amount of the 11% senior notes beneficially owned by
this selling holder as of March 17, 2004. On March 17, 2004, $65 million in
aggregate principal amount of the notes was deemed to be outstanding pursuant to
the terms of the Plan. The information set forth in the table below was provided
to us by the selling holder listed below.
[Enlarge/Download Table]
Aggregate Principal
Beneficial Ownership Amount of Notes Beneficial Ownership
Name and Address of Beneficial Owner of Notes Before Offering to be Sold of Notes After Offering
--------------------------------------------- -------------------------- ------------------------ ---------------------------
Aggregate Principal Aggregate Principal
Amount of Notes Amount of Notes
--------------------------------------------- -------------------------- ------------------------ ---------------------------
Mackay Shields LLC $13,999,614 $13,999,614 0
c/o Mackay Shields Financial Corp.
9 West 57th Street
New York, NY 10019
55
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
One of our directors, Mr. Brodsky, is a partner of Hicks Muse Tate and
Furst Incorporated which is affiliated with certain holders of common stock that
are parties to the registration rights agreement described in this prospectus
under "Selling Holders", beginning on page 53.
In September 2002, we paid Peter L. Herzig a lump sum of $250,000 in
connection with his resignation as chief executive officer of Globix.
56
DESCRIPTION OF COMMON STOCK
The following summary is a description of the material terms of our
common stock, does not purport to be complete and is subject in all respects to
the applicable provisions of Delaware law and of our constituent documents and
of the constituent documents of our subsidiaries. Our Amended and Restated
Certificate of Incorporation and Bylaws are filed as exhibits to the
registration statement of which this prospectus is a part.
General
Our company is authorized to issue 500,000,000 shares of common stock
with a par value of $0.01 per share. We are also authorized to issue 5,000,000
shares of preferred stock with a par value of $0.01 per share. As of March 17,
2004, 16,460,000 shares of common stock were deemed to be outstanding pursuant
to the terms of the Plan and no shares of our preferred stock were outstanding.
Our board of directors is authorized, subject to any limitations prescribed by
law and limitations set forth in the indenture, dated as of April 23, 2002,
among Globix, the subsidiary guarantors listed therein and HSBC Bank USA, as
trustee, to provide for the issuance of preferred stock in one or more series
and to fix or alter the dividend rate, voting rights, redemption price,
liquidation preference and any other rights, powers and preferences as our board
of directors may determine from time to time. The indenture limits, among other
things, our ability to pay dividends and to issue stock with a mandatory
redemption date prior to the maturity date of the notes.
All shares of our common stock are identical and entitle the holders
thereof to the same rights and privileges. The issued and outstanding shares of
our common stock are validly issued, fully paid and non-assessable. The holders
of outstanding shares of our common stock are entitled to receive dividends out
of assets legally available therefor at such times and in such amounts as our
board of directors may from time to time determine in its discretion. The
holders of our common stock have no preemptive rights to purchase any of our
securities. Upon liquidation, dissolution or winding up of our company, the
holders of our common stock are entitled to receive pro rata our assets which
are legally available for distribution, after payment of all debts and other
liabilities and subject to the prior rights of any holders of any preferred
stock then outstanding. Each outstanding share of our common stock is entitled
to one vote on all matters submitted to a vote of stockholders.
Delaware Anti-Takeover Law
We are subject to Section 203 of the Delaware General Corporation Law
which, subject to certain exceptions, prohibits a Delaware corporation from
engaging in any business combination with any interested stockholder for a
period of three years following the date that the stockholder became an
interested stockholder, unless:
- prior to that date, the board of directors of the corporation approved
either the business combination or the transaction which resulted in the
stockholder becoming an interested stockholder;
- upon consummation of the transaction which resulted in the stockholder
becoming an interested stockholder, the interested stockholder owned at
least 85% of the voting stock of the corporation outstanding at the time
the transaction commenced, excluding for purposes of determining the
number of shares outstanding those shares owned by persons who are
directors and also officers and by employee stock plans in which employee
participants do not have the right to determine confidentially whether
shares held subject to the plan will be tendered in a tender or exchange
offer; or
- on or subsequent to that date, the business combination is approved by
the board of directors of the corporation and is authorized at an annual
or special meeting of stockholders, and not by written consent, by the
affirmative vote of holders of at least 66 2/3% of the outstanding shares
of voting stock which are not owned by the interested stockholder.
Transfer Agent and Registrar
The transfer agent and registrar for our common stock is Mellon
Investor Services.
DESCRIPTION OF THE NOTES
General
The 11% senior notes (the "notes") were issued under an indenture dated
as of April 23, 2002 (the "Indenture"), among our company, HSBC Bank USA, as
trustee (the "Trustee") and certain of our United States-based subsidiaries (the
"Subsidiary Guarantors").
57
The following is a summary of certain provisions of the Indenture, the
notes, the security agreements entered into pursuant to the Indenture (the
"Security Agreements") and the guarantees provided by the Subsidiary Guarantors
(the "Subsidiary Guaranties"). It does not state these provisions in their
entirety. For complete information, prospective purchasers of the notes should
read the Indenture, the form of Security Agreements and the form of the
Subsidiary Guaranties because those documents, and not this summary, define the
rights of the holders of the notes.
In this "Description of the Notes", we refer to "we" and "our company"
only as Globix and not to any of our subsidiaries.
Terms of the Notes
We are deemed to have issued the notes on the effective date of our
plan of reorganization in one series that was initially limited to $120 million
aggregate principal amount of notes. The notes will mature on May 1, 2008. We
refer to the notes issued as of the effective date of our plan of reorganization
as the initial notes.
The notes are issuable only in fully registered form, without coupons,
in denominations of $1.00 and any integral multiple of $1.00. No service charge
may be made for any registration of transfer or exchange of notes, but we may
require payment of a sum sufficient to cover any transfer tax or other similar
governmental charge payable in connection therewith.
Each initial note will bear interest at 11% per annum as of May 1,
2002, or from the most recent date to which interest has been paid or provided
for, payable annually on May 1 in each year, commencing May 1, 2003, in the case
of the initial notes. Interest is computed on the basis of a 360-day year
consisting of twelve 30-day months.
We are required to issue additional notes, with terms identical to the
initial notes (other than with respect to the date of issuance) to pay interest
for the two-year period commencing May 1, 2002.
For the two-year period thereafter, interest may be paid in cash or, at
our option when authorized by a board resolution, in additional notes, or in any
combination of cash and additional notes. For the period commencing May 1, 2006,
interest is payable in cash.
In connection with the issuance of additional notes, we must deliver a
written request to the Trustee, an officers' certificate setting forth, among
other things, the aggregate principal amount of such additional note and the
proposed issuance date, and, if such issuance occurs after the two-year
anniversary of the initial notes, a board resolution and notice to all holders.
As a result of purchases that we have made of outstanding notes,
$65 million in aggregate notes was outstanding as of March 17, 2004.
Redemptions
Unless a Change of Control (as defined below under "Change of Control")
has occurred and we have not completed the required Offer to Purchase (as
described below under "Change in Control"), we have the right to redeem the
notes, at our option, in whole or in part, at any time or from time to time, at
a redemption price equal to 100% of the aggregate principal amount, plus accrued
and unpaid interest to but excluding the redemption date. In order to redeem the
notes, we must give not less than 15 nor more than 60 days' prior notice mailed
by first-class mail to each holder's registered address. All accrued and unpaid
interest must be paid in cash.
If a Change of Control has occurred and the required Offer to Purchase
has not been completed, we may redeem the notes as described above, but the
redemption price will be 101% of the aggregate principal amount of notes being
redeemed plus accrued and unpaid interest up to but excluding the date of
redemption.
Change of Control
"Change of Control" means the occurrence of one or more of the
following events:
o any "person" or "group", other than the Permitted Holders (as defined
below), is or becomes the "beneficial owner", directly or indirectly,
of more than 50% of our total outstanding stock;
o during any period of two consecutive years commencing with May 1,
2002, individuals who at the beginning of such period constituted the
board of directors (together with any new directors whose election or
nomination for election was approved by a vote of a majority of the
directors then still in office who were either directors at the
beginning of such period or whose election or nomination for election
was previously so approved), cease for any reason to constitute a
majority of such board of directors then in office;
58
o we consolidate with or merge with or into any person or convey,
transfer or lease all or substantially all of our assets to any
person, or any corporation consolidates with or merges into or with
our company, in any such event, pursuant to a transaction in which
our outstanding stock is changed into or exchanged for cash,
securities or other property, except (x) to the extent necessary to
reflect a change in our jurisdiction of incorporation or (y) where no
"person" or "group" other than a Permitted Holder, owns, directly or
indirectly, more than 50% of the total outstanding stock of the
surviving corporation immediately after such transaction; or
o we are liquidated or dissolved or adopt a plan of liquidation or
dissolution.
The "Permitted Holders" are AIG/SUN America Investments, Inc., American
General, AIM Capital Management, American Express Financial Advisors, Goldman,
Sachs & Co. Special Situations Investing, LC Capital Partners, LP, Lehman
Brothers, Lord Abbett, Mackay Shields, Morgan Stanley Asset Management,
Oppenheimer Funds, Putnam Investments, Romulus Holdings, Inc., Triage Capital
Management and, with respect to each of the foregoing, any majority-owned
affiliate thereof.
Upon a Change of Control, each holder will have the right to require us
to purchase such holder's notes in whole or in part in integral multiples of
$1,000, in cash, in an amount equal to 101% of the principal amount of such
notes or portion thereof, plus accrued and unpaid interest, to the date of
purchase, pursuant to an Offer to Purchase and in accordance with the other
procedures set forth in the Indenture. Within 30 days following the Change of
Control, we are required to mail an Offer to Purchase to each holder describing
the transaction or transactions that constitute the Change of Control and
offering to purchase notes on the date specified in the Offer to Purchase. For
information on the procedures we must follow in making an Offer to Purchase,
please refer to "Offer to Purchase," beginning on page 75.
We are not required to make an Offer to Purchase upon a Change of
Control if a third party makes an Offer to Purchase in the manner, at the times
and otherwise in compliance with the requirements set forth in the "Change of
Control" provisions of the Indenture and the Indenture applicable to the Offer
to Purchase made by us, and purchases all notes validly tendered and not
withdrawn under such Offer to Purchase.
Our ability to repurchase notes pursuant to a Change of Control offer
may be limited by a number of factors. Future debt of our company or any of our
subsidiaries may contain prohibitions on the occurrence of certain events that
would constitute a Change of Control or require such debt to be repurchased upon
a Change of Control. The exercise by the holders of the notes of their right to
require us to repurchase the notes could cause a default under such debt, even
if the Change of Control itself does not, due to the financial effect of such
repurchase on us and our subsidiaries. We do not currently have any debt that
would prohibit the purchase of notes on a Change of Control.
Our ability to purchase notes following a Change of Control could also
be limited by our financial resources at the time of the Change of Control.
There can be no assurance that sufficient funds will be available when necessary
to make any required repurchases. In the event that a Change of Control offer
occurs at a time when we do not have sufficient available funds to pay the
purchase price for all notes validly tendered pursuant to such an offer or at a
time when we are prohibited from making a Change of Control offer (and we are
unable either to obtain the consent of the holders of the relevant debt or to
repay such debt), an Event of Default (see definition in "Defaults," starting on
page 73) would occur under the Indenture. Our failure to purchase tendered notes
would constitute a breach of the Indenture which could, in turn, constitute a
default under other debt and could lead to the acceleration of such other debt.
Collateral
In order to secure our obligations under the Indenture, our company and
the Subsidiary Guarantors have pledged to HSBC Bank USA, as collateral agent
(the "Collateral Agent") in favor of the holders and the Trustee, our interest
in all of our respective assets, whether now owned or hereafter acquired, upon
which a lien is created or granted from time to time pursuant to any Security
Document (the "Collateral"). The Collateral consists of substantially all of the
unencumbered assets of our company and our subsidiaries which are organized
under the laws of the United States. The Collateral does not include, among
other assets, our Internet data center located in New York, New York or those
assets which are owned by foreign subsidiaries, and thus these assets are not
subject to the lien of the Indenture.
The Security Agreements and the Subsidiary Guaranties (collectively,
the "Security Documents") contain covenants pursuant to which our company and
the Subsidiary Guarantors are, among other things, prohibited from selling,
further mortgaging or transferring any interest in such Collateral (other than
as permitted under the Indenture and the Security Documents). The provisions of
the Indenture and the Security Documents concerning the release of Collateral
are described under "Release of Collateral," beginning on page 76.
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Subsidiary Guarantors, Restricted Subsidiaries and Unrestricted Subsidiaries
Subsidiary Guarantors
The current Subsidiary Guarantors are 415 Greenwich GC, LLC, 415
Greenwich GC Tenant, LLC and 415 Greenwich GC MM, LLC. As a result of the sale
of our property at 415 Greenwich Street in New York City, none of the Subsidiary
Guarantors has any substantial assets and we expect to dissolve these
subsidiaries within fiscal year 2004.
We are required to cause each person that becomes a subsidiary (other
than a subsidiary that is not organized under the laws of the United States or a
subsidiary of such a foreign subsidiary), after May 1, 2002 to become a
Subsidiary Guarantor, by causing such person to execute and deliver to the
Trustee a supplemental indenture as provided in the Indenture at the time such
person becomes a subsidiary.
Each Subsidiary Guarantor unconditionally guarantees, jointly and
severally, to each holder of notes and the Trustee the full and prompt
performance of our obligations under the Indenture and the notes, including the
payment of principal of and premium, if any, and interest on the notes pursuant
to its Subsidiary Guaranty.
Additional provisions setting forth certain obligations of the
Subsidiary Guarantors, the release of Subsidiary Guarantors and the
subordination of debt with respect to Subsidiary Guarantors are set forth in
"Additional Provisions Regarding Subsidiary Guarantors", starting on page 76.
Restricted and Unrestricted Subsidiaries
The Indenture permits us, under certain limited circumstances to cause
a subsidiary to be exempt from the covenants generally applicable to us and our
subsidiaries. Such subsidiaries are referred to as "Unrestricted Subsidiaries."
For further information on the conditions under which we may create an
Unrestricted Subsidiaries, see "Unrestricted Subsidiaries," starting on page
78. The Indenture refers to all subsidiaries other than Unrestricted
Subsidiaries as "Restricted Subsidiaries," but we have referred to them in this
description as "subsidiaries." We do not currently have any Unrestricted
Subsidiaries.
Ranking
The debt evidenced by the notes is a senior secured obligation of our
company, ranks pari passu in right of payment with all of our existing and
future debt and other liabilities that are not expressly subordinated by their
express terms to the notes and is senior in right of payment to all of our debt
that is so subordinated. The notes are secured by the Collateral. Accordingly,
claims of the holders of the notes will rank ahead of unsecured claims of our
creditors to the extent of the value, priority and validity of the liens
securing the notes in such Collateral.
Although the Indenture limits the incurrence of debt by our company or
any subsidiary, such limitation is subject to a number of significant
qualifications. One such qualification is the ability of our company and our
subsidiaries to incur up to $20 million of senior indebtedness ("Permitted
Senior Secured Debt", as further described on page 63). The Indenture permits
any Permitted Senior Secured Debt to be secured by a first priority lien on the
assets of our company and our subsidiaries. The notes and the Subsidiary
Guaranties would be subordinated to such Permitted Senior Secured Debt.
The notes and Subsidiary Guaranties are also effectively subordinated
to present or future secured indebtedness of the Subsidiary Guarantor (including
the Permitted Senior Secured Debt) to the extent of the value, priority and
validity of the liens on the collateral securing such indebtedness
A Subsidiary Guaranty will be subordinated in priority of payment to
Permitted Senior Secured Debt of the Subsidiary Guarantor, but will rank pari
passu in priority of payment with all other debt and other liabilities of such
Subsidiary Guarantor that are not subordinated by their express terms to such
Subsidiary Guaranty, and senior in priority of payment to all other debt of such
Subsidiary Guarantor that by its terms is subordinated or junior in right of
payment to such Subsidiary Guaranty. Each Subsidiary Guaranty is secured by the
Collateral in which such Subsidiary Guarantor has an interest. Accordingly,
claims of the holders of notes will rank ahead of unsecured claims of creditors
of such Subsidiary Guarantors (other than holders of Permitted Senior Secured
Debt of such Subsidiary Guarantor) to the extent of the value, priority and
validity of the liens securing such Subsidiary Guarantor's Subsidiary Guaranty.
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Certain Covenants
The Indenture contains, among others, covenants limiting our ability,
and the ability of our subsidiaries, to:
o incur debt;
o incur liens on our assets;
o make certain investments and to pay dividends or make certain other
restricted payments;
o sell assets;
o issue stock of subsidiaries to third parties;
o engage in certain sale and leaseback transactions;
o restrict the ability of our subsidiaries to pay dividends to us;
o enter into transactions with affiliates and related persons; and
o merge with or into another entity or transfer substantially all of
our assets.
In addition, the Indenture requires us, among other things, to deliver
financial reports to the Trustee and registered holders, deliver compliance
certificates to the Trustee and maintain the perfection of the lien of the
Indenture on the Collateral.
We believe that we are in compliance with the covenants contained in
the Indenture.
These covenants are described below.
Limitation on Debt
We may incur debt and our subsidiaries may incur debt if, after giving
effect to the incurrence of such debt and the receipt and application of the
proceeds therefrom, the Consolidated Debt to EBITDA Ratio (as defined below
under "Consolidated Debt to EBITDA Ratio," starting on page 62) would be greater
than zero and less than 6:1.
In addition, the following debt may be incurred:
(i) up to $20 million in Permitted Senior Secured Debt (as described
below under "Permitted Senior Secured Debt," starting on page
63);
(ii) Capital Lease Obligations (as defined in the Indenture);
(iii) Purchase Money Secured Debt (as defined under "Purchase Money
Secured Debt," on page 63), so long as the Purchase Money
Secured Debt does not exceed $15 million in any one year and the
total amount of Purchase Money Secured Debt outstanding at any
one time does not exceed $60 million;
(iv) certain intercompany debt;
(v) debt, in respect of performance, surety or appeal bonds or
letters of credit in the ordinary course of business;
(vi) certain indemnification obligations incurred in connection with
the disposition of any business, assets or subsidiary, in a
principal amount not to exceed the gross proceeds actually
received by us in connection with such disposition;
(vii) debt under any Permitted Interest Rate or Currency Protection
Agreements (as defined in the Indenture);
(viii) debt in an amount up to two times the Net Cash Proceeds (as
defined in the Indenture) from certain equity offerings after
May 1, 2002, as further described below under "Net Cash Proceeds
from Equity Financings," on page 64);
(ix) debt existing on the closing date of the Indenture;
(x) debt incurred to replace or refinance debt existing on the
closing date of the Indenture;
(xi) debt not to exceed $15 million in an aggregate principal amount
outstanding at any time.
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The foregoing clauses (i) - (xi) are collectively referred to herein as
"Permitted Debt".
We may not incur any debt that does not fall in the Permitted Debt
categories listed in this section. Notwithstanding the prior paragraphs of this
"Limitation on Debt" covenant, we may not incur any debt if the proceeds thereof
are used, directly or indirectly, to repay, prepay, redeem, defease, retire,
refund or refinance any debt that is subordinate in right of payment to the
notes or the Subsidiary Guaranties, unless the new debt is subordinated to the
notes and the Subsidiary Guaranties to at least the same extent as the prior
debt.
Consolidated Debt to EBITDA Ratio
As indicated above, we may incur debt if our Consolidated Debt to
EBITDA Ratio is greater than zero but less than 6:1.
The "Consolidated Debt to EBITDA Ratio" means the ratio of (i) the
total consolidated debt as of the date of calculation (the "Determination Date")
to (ii) four times the Consolidated EBITDA (as defined below) for the latest
fiscal quarter completed after May 1, 2002 for which financial information is
available immediately preceding such Determination Date (the "Measurement
Period").
"Consolidated EBITDA" means, with respect to any period, the
consolidated net income (or loss) of our company and our subsidiaries for such
period determined on a consolidated basis in accordance with generally accepted
accounting principles in the United States, adjusted as follows:
o the following items are excluded from generally accepted accounting
principles consolidated net income when computing Consolidated
EBITDA:
(i) the net income (or loss) of any person acquired by our company
or any subsidiary in a pooling-of-interests transaction for
any period prior to the date of such transaction;
(ii) the net income (or loss) of any person that is not a
subsidiary except to the extent of the amount of dividends or
other distributions actually paid to our company or a
subsidiary by such person during such period,
(iii) gains or losses on certain sales of assets by us or our
subsidiaries;
(iv) all extraordinary gains and extraordinary losses;
(v) the cumulative effect of changes in accounting principles;
(vi) any gain or loss realized on the termination of any employee
pensions benefit plan;
(vii) the net incomes (but not net loss) of any foreign subsidiary
to the extent that the transfer of that net income is not at
the time permitted; and
(viii) the tax effect of any of the items described in clauses (i) -
(vii) above.
o the following items are added to generally accepted accounting
principles consolidated net income when computing Consolidated
EBITDA:
(i) the consolidated provision for income taxes of our company and
our subsidiaries calculated on a consolidated basis in
accordance with generally accepted accounting principles in
the United States for such period;
(ii) consolidated interest expense; and
(iii) depreciation, amortization and any other non-cash items for
such period, less any non-cash items to the extent they
increase Consolidated Net Income (including the partial or
entire reversal of reserves taken in prior periods) for such
period, of our company and any subsidiary, including, without
limitation, amortization of capitalized debt issuance costs
for such period.
For purposes of calculating the Consolidated Debt to EBITDA Ratio as of
any Determination Date:
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o any person that is a subsidiary on the Determination Date (or would
become a subsidiary on the Determination Date in connection with the
transaction that requires the determination of Consolidated EBITDA)
will be deemed to have been a subsidiary at all times during the
Measurement Period; and
o any person that is not a subsidiary on such Determination Date (or
would cease to be a subsidiary on such Determination Date in
connection with the transaction that requires the determination of
such Consolidated EBITDA) will be deemed not to have been a
subsidiary at any time during such Measurement Period.
Appropriate pro forma adjustments in accordance with generally accepted
accounting principles will be made to reflect acquisitions and dispositions as
described above as if they had occurred on the first day of the Measurement
Period. Pro forma effect will also be given to the incurrence of debt and the
institution of certain cost savings measures in connection with any such
acquisition or disposition.
Permitted Senior Secured Debt
The Indenture defines "Permitted Senior Secured Debt" as:
o debt incurred by us and/or any subsidiary
(i) pursuant to one or more senior commercial term loan and/or
revolving credit facilities (including any letter of credit
subfacility) entered into principally with commercial banks
and/or other financial institutions typically party to
commercial loan agreements,
(ii) in the form of, or represented by, bonds or other securities;
and
o debt which may be secured by liens having the same or senior priority
to the liens securing the notes.
Furthermore, a Subsidiary Guarantor may designate certain obligations
incurred under its Permitted Senior Secured Debt as "Designated Senior Debt" in
the instrument or agreement pursuant to which such designated senior debt is
issued.
Permitted Senior Secured Debt and Designated Senior Debt are
collectively referred to as "Senior Obligations". Our company and our
subsidiaries are permitted to have Senior Obligations in an aggregate principal
amount not to exceed $20 million at any one time outstanding. Such Senior
Obligations may be secured by liens on Collateral either senior to or in lieu of
the liens of the Security Documents. However, at the time liens are granted with
respect to Senior Obligations, such liens may not extend to assets in excess of
assets having a fair market value equal to or as close as practicable to 1.5
multiplied by the specific Senior Obligations then being advanced or made
available. Until such time as the Senior Obligations are paid in full, the
Collateral Agent may not demand or sue for any right or remedy in respect of the
Collateral used to secure such Senior Obligations.
Purchase Money Secured Debt
Under the Indenture we may incur up to $15 million in Purchase Money
Secured Debt in any one year, so long as the total amount of Purchase Money
Secured Debt outstanding at any one time does not exceed $60 million.
"Purchase Money Secured Debt" means debt (whether provided by a vendor
or a third party) secured by a lien on real or personal property, which debt
o constitutes all or a part of the purchase price or construction cost
of such property, or
o is incurred prior to, at the time of or within 180 days after the
latter of the acquisition or the substantial completion of such
property for the purpose of financing all or any part of the
purchase price or construction cost thereof;
so long as (i) the debt so incurred does not exceed 100% of the purchase price
or construction cost of such property and related expenses, (ii) the lien does
not extend to or cover any property other than such item of property and any
improvements on such item and proceeds thereof, (iii) the purchase price or
construction cost for such property is or should be included in "addition to
property, plant and equipment" in accordance with generally accepted accounting
principles in the United States and (iv) the purchase or construction of such
property is not part of any acquisition of a person or business unit or line of
business, incurred to finance the purchase or other acquisition of any property,
inventory, asset or business, directly or indirectly, by our company or any
subsidiary used in, or to be used in, the Internet Service Business (as defined
below under "Limitations on Asset Sales," starting on page 67).
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Net Cash Proceeds from Equity Financings
Under the Indenture, we may incur indebtedness in an amount not to
exceed two time the Net Cash Proceeds received by us after May 1, 2002 from
o the issuance of stock (other than Disqualified Stock, as defined
below); or
o the issuance of convertible debt upon the conversion of that debt
into stock, other than Disqualified Stock, if the convertible debt
does not have a final maturity prior to the final maturity of the
notes and has an average life longer than the average life of the
notes.
"Disqualified Stock" means any stock that by its terms, or by the terms
of any security into which it is convertible, or for which it is exchangeable,
is, in whole or in part, redeemable at the option of the holder thereof or
otherwise matures or is required to be redeemed (pursuant to any sinking fund
obligation or otherwise, but other than as a result of the death or disability
of the holder thereof or the termination of the employment with us or one of our
subsidiaries of the holder thereof) or is convertible into or exchangeable (in
each case at the option of the holder) for debt, at any time prior to the final
maturity of the notes; provided, however, that any stock which would not
constitute Disqualified Stock but for provisions thereof giving holders thereof
the right to require us or our subsidiaries to repurchase or redeem such stock
upon the occurrence of an "asset sale" or a "change of control" occurring prior
to the final maturity date of the notes, will not constitute Disqualified Stock
if such provisions applicable to such stock provide that our company and our
subsidiaries will not repurchase or redeem the stock pursuant to such provisions
prior to the repurchase of such notes as are required to be repurchased pursuant
to the Indenture upon an Asset Sale or a Change of Control.
Limitation on Liens
We may not, and may not permit any subsidiary to, incur or suffer to
exist any lien on or with respect to any property or assets now owned or
hereafter acquired to secure any debt without making, or causing such subsidiary
to make, effective provision for securing the notes (x) equally and ratably with
such debt as to such property or assets for so long as such debt is so secured
or (y) in the event such debt is debt of our company which is subordinate in
right of payment to the notes, prior to such debt as to such property or assets
for so long as such debt is so secured.
The foregoing restrictions will not apply to:
o liens in existence as of the closing date of the Indenture;
o liens securing only the notes or the Subsidiary Guaranties and any
lien in favor of the Collateral Agent for the benefit of the Trustee
and the holders arising under the provisions in the Indenture or the
Security Documents;
o liens granted by a subsidiary in favor of our company or any other
subsidiary;
o liens to secure Permitted Senior Secured Debt;
o liens securing Purchase Money Secured Debt;
o liens on property existing immediately prior to the time of
acquisition thereof (and not incurred in anticipation of the
financing of such acquisition), provided that such lien extends only
to the acquired property;
o liens on property of a person existing at the time such person
becomes a subsidiary and not incurred in anticipation of becoming a
subsidiary, provided that such lien extends only to the acquired
property;
o any interest in or title of a lessor to any property subject to a
Capital Lease Obligation which is permitted under the Indenture;
o liens on the property or assets of a subsidiary securing debt of
such subsidiary, which debt is permitted under the Indenture; or
o liens to secure debt incurred pursuant to clause (ix) of Permitted
Debt (as set forth in "Limitation on Debt" above); provided that
such lien does not extend to any property other than the property
securing the debt being replaced, refunded or refinanced pursuant to
such clause (ix).
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Limitation on Certain Investments and Restricted Payments
Permitted Investments and Restricted Payments
The Indenture provides that any investment that is not a "Permitted
Investment", as defined below, will be deemed a "Restricted Payment," as defined
below, and subject to certain restrictions as set forth herein.
"Permitted Investment" means:
o an investment in our company or a subsidiary or a person which will,
upon the making of such investment, become a subsidiary or be merged
or consolidated with or into or transfer or convey all or
substantially all its assets to, our company or a subsidiary;
provided that the acquired person's primary business or the assets
to be transferred or conveyed are reasonably related, ancillary or
complementary to the Internet Service Business;
o Cash Equivalents (as defined in the Indenture);
o payroll, travel, relocation and similar advances to cover matters
that are expected at the time of such advances ultimately to be
treated as expenses in accordance with generally accepted accounting
principles in the United States;
o stock, obligations or securities received (A) in satisfaction of
judgments or (B) in connection with the sale or disposition of a
person, assets or business;
o investments in prepaid expenses, negotiable instruments held for
collection and lease, utility and worker's compensation, performance
and other similar deposits;
o Permitted Interest Rate or Currency Protection Agreements (as
defined in the Indenture);
o loans or advances to officers or employees of our company or any
subsidiary that do not in the aggregate exceed $5 million at any
time outstanding;
o an investment in any person (other than an Unrestricted Subsidiary)
whose primary business is reasonably related, ancillary or
complementary to the Internet Service Business, and such investment
is determined by the board of directors to promote or significantly
benefit the businesses of our company and our subsidiaries on the
date of such investment, so long as the aggregate amount of
investments made pursuant to this clause does not exceed $15
million; and
o accounts receivable in the ordinary course of business (and
investments obtained in exchange or settlement of accounts
receivable for which we have determined that collection is not
likely or as a result of bankruptcy or insolvency proceedings or
upon the foreclosure, perfection or enforcement of any lien in favor
of us or any subsidiary, in each case as to debt owing to us or any
subsidiary that arose in the ordinary course of business of our
company or such subsidiary).
The following payments or other actions described below are deemed to
be "Restricted Payments":
o declaration or payment of any dividend or any distribution to
persons other than our company or any of our subsidiaries (other
than dividends or distributions payable solely in shares of our
stock (other than Disqualified Stock), or in options, warrants or
other rights to acquire shares of such stock; pro rata dividends or
distributions on common stock of subsidiaries held by minority
stockholders; or dividends in respect of Disqualified Stock);
o purchase, redemption, retirement or other acquisition for value any
shares of stock of,
(A) our company or any Unrestricted Subsidiary (including options,
warrants or other rights to acquire such shares of stock) held
by any person; or
(B) a subsidiary (including options, warrants or other rights to
acquire such shares of stock) held by any person other than our
company or a wholly-owned subsidiary, provided, however, that
this paragraph will not prohibit an investment which would be
considered a Permitted Investment under the first clause of the
definition of Permitted Investment; and
65
o making of any voluntary or optional principal payment, or voluntary
or optional redemption, repurchase, defeasance, or other acquisition
or retirement for value, of obligations that are subordinate or
junior in right of payment to the notes or the Subsidiary
Guaranties, as applicable.
Restricted Payment Covenants
We will not, and will not permit any subsidiary to, directly or
indirectly make any investment, other than a Permitted Investment, in any person
if, at the time of, and after giving effect to, the proposed Restricted Payment:
(A) a Default or Event of Default (as defined in "-Defaults",
starting on page 73) has occurred and is continuing;
(B) our company could not incur at least $1.00 of debt under the
first paragraph of the "Limitation on Debt" covenant, relating
to the Consolidated Debt to EBITDA Ratio, set forth above under
"Limitation on Debt"; or
(C) the aggregate amount of all Restricted Payments (which amount,
if other than cash, is to be determined in good faith by the
board of directors) exceeds the "Restricted Payment Basket".
"Restricted Payment Basket" is the sum of:
(1) cumulative Consolidated EBITDA since the first full fiscal
quarter after the fiscal quarter ending June 30, 2003
through the last day of the last full fiscal quarter ending
immediately preceding the date of such Restricted Payment
for which quarterly or annual financial statements are
available; minus
(2) 1.5 times our cumulative consolidated interest expense since
the closing date of the Indenture of the notes through the
last day of the last full fiscal quarter ending immediately
preceding the date of such Restricted Payment for which
quarterly or annual financial statements are available; plus
(3) the aggregate Net Cash Proceeds received by our company
after the closing date of the Indenture from the issuance
and sale of our stock (other than Disqualified Stock) to a
person who is not one of our subsidiaries, including an
issuance or sale permitted by the Indenture of convertible
debt of our company for cash subsequent to the closing date
of the Indenture upon the conversion of such debt into stock
(other than Disqualified Stock) of our company, or from the
issuance to a person who is not a subsidiary (including an
Unrestricted Subsidiary) of our company of any options,
warrants or other rights to acquire stock (other than
Disqualified Stock) of our company exclusive of any options,
warrants or other rights that are redeemable at the option
of the holder, or are required to be redeemed, prior to the
stated final maturity date of the notes), in each case
except to the extent such Net Cash Proceeds are used to
incur debt pursuant to clause (viii) of Permitted Debt (as
set forth in the foregoing "Limitation on Debt"); plus
(4) an amount equal to the net reduction in investments (other
than reductions in Permitted Investments) in any person
resulting from payments of interest on debt, dividends,
repayments of loans or advances, or other transfers of
assets, in each case to our company or any subsidiary or
from the Net Cash Proceeds from the sale of any such
investment (except, in each case, to the extent any such
payment or proceeds are included in the calculation of
Consolidated EBITDA), or from redesignations of Unrestricted
Subsidiaries as subsidiaries, not to exceed, in each case,
the amount of investments previously made by our company or
any subsidiary in such person or Unrestricted Subsidiary.
The foregoing clauses (A) - (C) are collectively referred to herein as
the "Restricted Payment Covenants".
The Restricted Payment Covenants will not be violated by reason of:
(i) the payment of any dividend within 60 days after the date of
declaration thereof if, at said date of declaration, such
payment would comply with the Restricted Payment Covenants;
(ii) the redemption, repurchase, repayment, prepayment, defeasance
or other acquisition or retirement for value of subordinated
obligations, including premium, if any, and accrued and
unpaid interest, with the proceeds of, subordinated
obligations which are permitted to be incurred under the
"Limitation on Debt" covenant;
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(iii) the repurchase, redemption or other acquisition of our
company's stock or the stock of any of our subsidiaries,
including Unrestricted Subsidiaries, (or options, warrants or
other rights to acquire such stock) in exchange for
(including upon exercise of a conversion right), or out of
the proceeds of a capital contribution or a substantially
concurrent offering of, shares of stock (other than
Disqualified Stock) of our company (or options, warrants or
other rights to acquire such stock, other than Disqualified
Stock);
(iv) the making of any principal payment or the repurchase,
redemption, retirement, defeasance or other acquisition for
value of subordinated obligations in exchange for, or out of
the proceeds of, a capital contribution or a substantially
concurrent offering of, shares of the stock (other than
Disqualified Stock) of our company (or options, warrants or
other rights to acquire such stock other than Disqualified
Stock);
(v) payments or distributions to dissenting stockholders pursuant
to applicable law, pursuant to or in connection with a
consolidation, merger or transfer of assets that complies
with the provisions of the Indenture applicable to mergers,
consolidations and transfers of all or substantially all of
the property and assets of our company, and payments of cash
in lieu of fractional shares;
(vi) investments in any person, provided that the aggregate amount
of investments made pursuant to this clause (vi) does not
exceed the sum of:
o the amount of Net Cash Proceeds received by our company after the
closing date of the Indenture from the sale of our stock (other than
Disqualified Stock), except to the extent such Net Cash Proceeds are
used to incur debt pursuant to clause (viii) of Permitted Debt, as
set forth in "Limitation on Debt", or to make Restricted Payments
pursuant to clause (C)(3) of the Restricted Payment Covenants or
clauses (iii) or (iv) of this paragraph, plus
o the net reduction in investments made pursuant to this clause (vi),
other than reductions in Permitted Investments, resulting from
distributions on or repayments of such investments or from the Net
Cash Proceeds from the sale of any such investment (except in each
case to the extent any such payment or proceeds is included in the
calculation of Consolidated EBITDA) or from such person becoming a
subsidiary; provided that the net reduction in any investment will
not exceed the amount of such investment;
(vii) investments acquired in exchange for our stock (other than
Disqualified Stock);
(viii) the purchase, redemption or other acquisition or retirement
of our common stock or any warrant, option or other right to
acquire shares of our common stock from employees of our
company or our subsidiaries (including Unrestricted
Subsidiaries) in an amount not to exceed $2 million in any
fiscal year; provided that, amounts not paid for any such
purchase, redemption or other acquisition or retirement in
any fiscal year may be accumulated and paid in any subsequent
fiscal year;
(ix) additional Restricted Payments not to exceed $10 million in
the aggregate; or
(x) our acquisition of our stock in connection with the cashless
exercise of any options, warrants or similar rights issued by
our company.
Each Restricted Payment permitted pursuant to the preceding paragraph
(other than the Restricted Payment referred to in clause (ii) thereof and an
exchange of stock for stock or debt referred to in clauses (iii) or (iv)
thereof), and the Net Cash Proceeds from any issuance of stock referred to in
clauses (iii), (iv) or (vi) will be included in calculating whether any
subsequent Restricted Payment would exceed the Restricted Payment Basket set
forth in clause (C) of the Restricted Payment Covenants. In the event that the
proceeds of an issuance of our stock are used for the redemption, repurchase or
other acquisition of the notes, or debt that is pari passu with the notes, then
the Net Cash Proceeds of such issuance will be included in clause (C) of the
Restricted Payment Covenants only to the extent that such proceeds are not used
for such redemption, repurchase or other acquisition of such debt.
Limitation on Asset Sales
The Indenture limits our ability to make certain Asset Sales (as
defined below), unless the proceeds are applied as provided in the Indenture.
An "Asset Sale" means any transfer, conveyance, sale, lease, license or
other disposition by us or any of our subsidiaries (including a consolidation or
merger or other sale of any such subsidiary with, into or to another person in a
transaction in which such subsidiary ceases to be a subsidiary) (collectively a
"transfer") of
o shares of capital stock (other than directors' qualifying shares) or
other ownership interests of a subsidiary;
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o all or substantially all of the assets of, or any division or line
of business of, our company or any of our subsidiaries; or
o any other property, assets or rights (including intellectual
property rights) of our company or any of our subsidiaries outside
of the ordinary course of business.
Notwithstanding the foregoing, the term "Asset Sale" does not include
o any transfer of all or substantially all of our assets in a
transaction that is made in compliance with the requirements of
provisions of the covenant described in "Limitations on Mergers,
Consolidations and Certain Sales of Assets," starting on page 72;
o any transfer by us to any of our subsidiaries or by any of our
wholly-owned subsidiaries to any other of our wholly-owned
subsidiaries or to us in a manner that does not otherwise violate
the terms of the Indenture;
o transfers made in compliance with the requirements of the covenant
described in "Limitations on Certain Investments and Restricted
Payments," starting on page 65;
o transfers constituting the granting of a permitted lien;
o exchanges of equipment used in the Internet Service Business (as
defined below) for other equipment to be used in the Internet
Service Business, provided any such exchange for equipment with a
fair market value in excess of $2 million must be approved by the
board of directors; and
o transfers of assets, property or other rights (including
intellectual property rights) with a fair market value at the date
of transfer of less than $2 million.
"Internet Service Business" means, as determined by a majority of the
board of directors:
o any business principally engaged in (A) the operation of an Internet
connectivity or Internet enhancement service as it exists from time
to time, including, without limitation, dial up or dedicated
Internet service, web hosting or co-location services, security
solutions, the provision and development of software in connection
therewith, configuration services, electronic commerce, intranet
solutions, data backup and restoral, business content and
collaboration, communications tools or network equipment, products
or services or (B) the supply, provision, broadcast, delivery,
distribution, collection or retrieval of information or content
reasonably believed suitable for dissemination through the business,
facilities or capacity of our company, or
o any business or property reasonably related to any of the foregoing.
We may, and any subsidiary may, consummate an Asset Sale only if:
o our company or the applicable subsidiary, as the case may be,
receives consideration at the time of such Asset Sale at least equal
to the fair market value of the assets sold or otherwise disposed
of; and
o at least 75% of the consideration received by our company or the
subsidiary, as the case may be, from such Asset Sale will be cash,
Cash Equivalents, any securities or other obligations that are
converted into or exchanged for cash or Cash Equivalents within 90
days after the Asset Sale, or unsubordinated liabilities of our
company or the liabilities of a subsidiary assumed by the transferee
(or its designee) such that our company or such subsidiary has no
further liability therefor, the amount of the liability to be
determined in accordance with generally accepted accounting
principles in the United States.
Our company or any subsidiary may, within 365 days of the Asset Sale,
invest the Net Cash Proceeds of such Asset Sale:
o in property or assets used, or to be used, in the Internet Service
Business, or in a company engaged primarily in the Internet Service
Business (if and to the extent such investment is otherwise
permitted under the Indenture);
o permanently to repay Permitted Senior Secured Debt, Designated
Senior Debt or other debt that is pari passu with the notes or the
Subsidiary Guaranties, as applicable, and is secured by liens that
are prior to the liens of the Security Documents; or
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o permanently to repay debt of our company or of a subsidiary (in each
case other than subordinated obligations) provided that notes are
redeemed on a pro rata basis with such debt.
The amount of such Net Cash Proceeds not used or invested within 365 days of the
Asset Sale in the manner described in the preceding three clauses will
constitute "Excess Proceeds."
In the event that Excess Proceeds exceed $10 million, we are required
to make an Offer to Purchase of the amount of notes equal to the amount of
Excess Proceeds at a price equal to 100% of the principal amount of the notes to
be purchased, plus accrued and unpaid interest to the date of purchase and, to
the extent required by the terms thereof, any other debt of our company that is
pari passu with the notes or debt of a subsidiary. Each Offer to Purchase will
be mailed within 30 days following the date that we become obligated to purchase
notes with any Excess Proceeds. Following the completion of an Offer to
Purchase, the amount of Excess Proceeds will be deemed to be reset at zero and,
to the extent there are any remaining Excess Proceeds, we may use such Excess
Proceeds for any use that is not otherwise prohibited by the Indenture.
We are required to comply with the requirements of Rule 14e-1 under the
Securities Exchange Act of 1934 and the rules and regulations promulgated
thereunder to the extent that such rules and regulations are applicable in
connection with the purchase of notes pursuant to such Offer to Purchase.
Not later than the date of commencement of an Offer to Purchase, we are
required to deliver to the Trustee an officers' certificate as to the aggregate
principal amount of the outstanding notes offered to be purchased, the
allocation of the Net Cash Proceeds from the Asset Sale(s) pursuant to which
such offer is being made, and the compliance of such allocation with the
provisions of the Indenture.
On or prior to the purchase date, we are required to:
o accept for payment (on a pro rata basis, if necessary) notes or
portions thereof tendered pursuant to the Offer to Purchase;
o deposit with the paying agent (or, if we are acting as our own
paying agent, segregate and hold in trust) money sufficient to pay
the purchase price of all notes or portions thereof so accepted; and
o deliver or cause to be delivered to the Trustee all notes so
accepted together with an officers' certificate stating the notes or
portions thereof accepted for payment by us.
The paying agent (or our company, if we are acting as paying agent)
will promptly mail or deliver to holders of notes so accepted, payment in an
amount equal to the purchase price for the notes, and the Trustee will promptly
authenticate and mail or deliver to such holders a new note equal in principal
amount to any unpurchased portion of the note surrendered. We are required to
promptly mail or deliver any note not accepted for payment to the holder
thereof. Upon surrender of a Global Note (as defined below in "Offer to
Purchase," starting on page 75) that is purchased in part pursuant to an Offer
to Purchase, the paying agent will forward such Global Note to the Trustee who
will make a notation in its records to reduce the principal amount of such
Global Note to an amount equal to the unpurchased portion of such Global Note.
We are required to publicly announce the results of the Offer to Purchase on or
as soon as practicable after the purchase date.
The Security Agreements securing the notes also restrict sales of
Collateral outside of the ordinary course of business, and may require us to
obtain the consent of the holders in order to sell certain assets.
Limitation on Issuance of Stock of Subsidiaries
We may not, and our subsidiaries may not, directly or indirectly, issue
or sell, any shares of stock of a subsidiary (including options, warrants or
other rights to purchase shares of such stock) except for:
o issuances to our company or a wholly-owned subsidiary of our
company;
o issuances of director's qualifying shares or sales to foreign
nationals of shares of stock of subsidiaries not organized under the
laws of the United States, to the extent required by applicable law;
or
o issuances or sales of common stock of a subsidiary, provided that
(x) the proceeds therefrom will be treated as proceeds from an Asset
Sale in accordance with the "Limitations on Asset Sales," described
above and (y) if, immediately after giving effect to the issuance or
sale, the subsidiary would no longer constitute a subsidiary, any
investment in any person remaining after giving effect to the
issuance or sale would have been permitted to be made under the
"Limitation on Certain Investments and Restricted Payments" above if
made on the date of the issuance or sale.
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Limitation on Sale-Leaseback Transaction
We will not, and will not permit any subsidiary to, enter into any
sale-leaseback transaction involving any of the assets or properties of our
company or such subsidiary, whether now owned or hereafter acquired, whereby our
company or such subsidiary sells or transfers such assets or properties and
subsequently leases such assets or properties or any part thereof or any other
assets or properties that our company or such subsidiary, as the case may be,
intends to use for substantially the same purpose or purposes as the assets or
properties sold or transferred.
Notwithstanding the foregoing, this restriction does not apply to any
sale-leaseback transaction if:
o the lease is for a period, including renewal rights, of not in
excess of three years;
o the sale-leaseback transaction is consummated within 180 days after
the purchase of the assets subject to such transaction;
o the transaction is solely between our company and any wholly-owned
subsidiary of our company or solely between wholly-owned
subsidiaries of our company; or
o our company or such subsidiary, within 12 months after the sale or
transfer of any assets or properties is completed, applies an amount
no less than the Net Cash Proceeds received from such sale in
accordance with the foregoing "Limitations on Asset Sales"
provisions.
Limitation on Dividend and Other Payment Restrictions Affecting Subsidiaries
The Indenture prohibits us and our subsidiaries from, directly or
indirectly, creating or suffering the existence of any encumbrance or
restriction on the ability of any subsidiary (A) to pay dividends (in cash or
otherwise) or make any other distributions in respect of its stock owned by our
company or any other subsidiary or pay any debt or other obligation owed to our
company or any other subsidiary; (B) to make loans or advances to our company or
any other subsidiary; or (C) to transfer any of its property or assets to our
company or any other subsidiary, unless such encumbrance or restriction is:
o pursuant to any agreement in effect as of the closing date of the
Indenture, and any amendments, extensions, refinancings, refundings,
renewals, restatements or replacements of such agreements, provided
that the amendments, encumbrances and restrictions in any such
extensions, refinancings, renewals, restatements or replacements are
no less favorable in any material respect to the holders, than those
encumbrances or restrictions that are then in effect and that are
being extended, refinanced, renewed, restated or replaced;
o existing under or by reason of applicable law;
o existing or arising in connection with any Permitted Senior Secured
Debt or any debt of a person existing at the time such person
becomes a subsidiary or assumed in connection with an Asset
Acquisition (as defined below), and not incurred in connection with,
or in anticipation of, such person becoming a subsidiary or such
Asset Acquisition;
o pursuant to an agreement entered into in connection with debt
incurred under clause (ix) of Permitted Debt (as set forth in
"Limitation on Debt"); provided, however, that the provisions
contained in such agreement related to such encumbrance or
restriction are no more restrictive in any material respect than the
provisions contained in the agreement that is the subject of the
refinancing;
o contained in any agreement relating to a lien on any property or
assets of a subsidiary or our company otherwise permitted under the
Indenture, but only to the extent such restrictions restrict the
transfer of the property subject to such lien;
o pursuant to customary nonassignment provisions entered into in the
ordinary course of business in leases, licenses and other contracts
to the extent such provisions restrict the transfer, sublicensing or
any such license or subletting of any such lease or the assignment
of rights under any such contract;
70
o with respect to a subsidiary imposed pursuant to an agreement which
has been entered into for the sale or disposition of all or
substantially all of the stock or assets of such subsidiary;
provided that consummation of such transaction would not result in a
Default or an Event of Default (as defined in "Defaults", starting
on page 73), that such restriction terminates if such transaction is
closed or abandoned and that the closing or abandonment of such
transaction occurs within one year of the date such agreement was
entered into;
o imposed pursuant to contracts for the sale of assets with respect to
the transfer of the assets to be sold pursuant to such contract;
o arising or agreed to in the ordinary course of business, not
relating to any debt, and that do not, individually, or in the
aggregate, detract from the value of property or assets of our
company or any subsidiary in any manner material to our company or
any subsidiary; or
o if such encumbrance or restriction is contained in the terms of any
agreement entered into in connection with the incurrence of debt if
(1) the encumbrance or restriction applies only in the event of a
payment default or a default with respect to a financial covenant
contained in such debt or agreement, (2) the encumbrance or
restriction is not materially more disadvantageous to the holders of
the notes than is customary in comparable financings, and (3) we
determine that any such encumbrance or restriction will not
materially affect our ability to make principal or interest payments
on the notes.
If such encumbrance or restriction does not comply with the foregoing,
then it will not be permitted by the terms of the Indenture and the other
Security Documents.
"Asset Acquisition" means an acquisition by us or any of our
subsidiaries of the property and assets of any person other than our company or
any of our subsidiaries that constitute substantially all of a division or line
of business of such person; provided that the property and assets acquired are
to be used in the Internet Service Business.
Limitation on Transactions with Affiliates and Related Persons
We may not, and may not permit any subsidiary to, directly or
indirectly enter into any transaction (or series of related transactions) not in
the ordinary course of business with an affiliate or related person of our
company (other than our company or a wholly-owned subsidiary of our company)
involving aggregate consideration in excess of $2 million, unless such
transaction is on terms no less favorable to our company or such subsidiary than
those that could be obtained in a comparable arm's-length transaction with an
entity that is not an affiliate or related person and is in the best interests
of our company or such subsidiary.
For any transaction (or series of related transactions) that involves
aggregate consideration in excess of $2 million but less than or equal to $10
million, our chief executive officer, president, chief financial officer, or
chief operating officer is required to determine that the transaction satisfies
the above criteria and evidence such determination by an officers' certificate
filed with the Trustee.
For any transaction that involves aggregate consideration in excess of
$10 million (A) a majority of the disinterested members of the board of
directors is required to determine that the transaction satisfies the above
criteria and evidence such determination in a board resolution or (B) we are
required to obtain a written opinion of a nationally recognized investment
banking or appraisal firm stating that the transaction is fair to our company or
such subsidiary.
The foregoing do not apply to:
o any transaction solely between our company and any wholly-owned
subsidiary of our company or solely between any of our wholly-owned
subsidiaries;
o the payment of reasonable and customary regular fees to directors of
our company or our subsidiaries who are not employees of our company
or our subsidiaries;
o licensing or sublicensing or the use of any intellectual property by
our company or any wholly-owned subsidiary of our company to our
company or any wholly-owned subsidiary of our company;
o any transaction entered into for the purpose of granting or altering
registration rights with respect to any of our stock;
o any Restricted Payments not prohibited by the provisions set forth
in the foregoing "Limitation on Certain Investments and Restricted
Payments";
71
o indemnification or insurance provided to our officers or directors;
o sales of our stock to affiliates of our company; or
o compensation, severance and employee benefit arrangements with any
officer, director or employee of our company or any subsidiary,
including under any stock option or stock incentive plans, in the
ordinary course of business or in connection with such plan.
Limitation on Mergers, Consolidations and Certain Sales of Assets
We may, in a single transaction or a series of related transactions,
(A) consolidate or merge with or into any other person or permit any other
person to consolidate or merge with or into our company, or (B) directly or
indirectly, transfer, sell, lease or otherwise dispose of all or substantially
all of our assets, only if:
o in a transaction in which we do not survive or in which we transfer,
sell, lease or otherwise dispose of all or substantially all of our
assets, the successor entity to our company is organized and validly
existing under the laws of any state of the United States of America
or the District of Columbia, and expressly assumes by supplemental
indenture executed and delivered to the Trustee, in form
satisfactory to the Trustee, all of our obligations under the
Indenture, the notes and the Security Documents;
o immediately before and after giving effect to such transaction and
treating any debt which becomes an obligation of our company or a
subsidiary as a result of such transaction as having been incurred
by our company or such subsidiary at the time of the transaction, no
Event of Default has occurred and be continuing;
o except in the case of any such consolidation or merger of our
company with or into, or any such transfer, sale, lease or other
disposition of assets to, a wholly-owned subsidiary of our company,
immediately after giving effect to such transaction and treating any
debt which becomes an obligation of our company or a subsidiary as a
result of such transaction as having been incurred by our company or
such subsidiary at the time of the transaction, our company
(including any successor entity) could incur at least $1.00 of
additional debt pursuant to the provisions of the first paragraph of
"Limitation on Debt", or our company (including any successor entity
thereto) would have a Consolidated Debt to EBITDA Ratio immediately
after giving effect to the transaction that is (x) less than or
equal to our Consolidated Debt to EBITDA Ratio immediately prior to
the transaction, if the ratio immediately prior to the transaction
is positive, or (y) greater than or equal to our Consolidated Debt
to EBITDA Ratio immediately prior to the transaction, if the ratio
immediately prior to the transaction is negative; and
o we have delivered to the Trustee an officers' certificate and an
opinion of counsel, each stating that such amalgamation,
consolidation, merger, conveyance, transfer, sale, lease or
disposition and, if a supplemental indenture is required in
connection with such transaction, such supplemental indenture,
complies with the covenant discussed in this section and that all
conditions precedent therein provided for relating to such
transaction have been complied with, and, with respect to such
officers' certificate, setting forth the manner of determination of
our ability to incur debt in accordance with the third clause of
this covenant, or, if applicable, of the successor entity to our
company as required pursuant to the foregoing.
Upon any consolidation of our company with, or merger of our company into, any
other person or any transfer, conveyance, sale, lease or other disposition of
all or substantially all of our properties and assets as an entirety in
accordance with the covenant described in this section, the successor entity to
our company will succeed to, and be substituted for, and may exercise every
right and power of, our company under the Indenture, and thereafter, except in
the case of a lease, the predecessor person will be relieved of all obligations
and covenants under the Indenture and the notes.
Waiver of Certain Covenants
The Indenture provides that we may omit in any particular instance to
comply with any covenant or condition set forth in certain covenants including
those described in the foregoing "Change of Control" and "Limitation on Debt,"
"Limitation on Liens," "Limitation on Certain Investments and Restricted
Payments," "Limitation on Asset Sales," "Limitation on Sale-Leaseback
Transactions," "Limitation on Dividend and Other Payment Restrictions Affecting
Subsidiaries," "Limitation on Transactions with Affiliates and Related Persons,"
and "Limitation on Mergers, Consolidations and Certain Sales of Assets," if
before the time for such compliance the holders of at least a majority in
principal amount of the outstanding notes, by act of such holders, either waive
such compliance in such instance or generally waive compliance with such
covenant or condition. No such waiver will extend to or affect such covenant or
condition except to the extent so expressly waived, and, until such waiver will
become effective, our obligations and the duties of the Trustee in respect of
any such covenant or condition will remain in full force and effect; provided,
however, that with respect to an Offer to Purchase relating to a Change of
Control, no such waiver may be made or will be effective against any holder not
consenting to such waiver, and we may not omit to comply with the terms of such
offer as to such holder.
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Provision of Financial Information
We are required to file with the Securities and Exchange Commission the
annual reports, quarterly reports and other documents required to be filed
pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934,
regardless of whether or not we are subject to those sections of the Securities
Exchange Act of 1934, on or prior to the respective dates set forth in such
provisions (the "Required Filing Dates"). We are also required within 15 days of
each Required Filing Date to (A) transmit by mail to all holders, as their names
and addresses appear in the register providing for the registration of notes and
of transfers and exchanges of notes, without cost to such holders and (B) file
with the Trustee copies of such annual reports, quarterly reports and other
documents. Furthermore, in the event that we are not permitted by the Securities
and Exchange Commission to file such annual reports, quarterly reports and other
documents, to furnish promptly upon written request copies of such annual
reports, quarterly reports and other documents to any prospective holder.
Statement by Officers as to Default; Compliance Certificates
Our company and each Subsidiary Guarantor are required to deliver to
the Trustee:
o Within 90 days after the end of the fiscal year of our company and
each Subsidiary Guarantor, and within 60 days after the end of each
fiscal quarter (other than the fourth fiscal quarter) of our company
and each Subsidiary Guarantor, an officers' certificate stating
whether or not to the best knowledge of the signers thereof, our
company or any Subsidiary Guarantor is in default in the performance
and observance of any of the terms, provisions and conditions of the
Indenture or the Security Documents, and if our company or any
Subsidiary Guarantor is in Default, specifying all such Defaults and
Events of Default (as set forth in "Defaults", starting on page 73)
and the nature and status thereof of which they may have knowledge.
o As soon as possible, and in any event within 10 days after we become
aware of the occurrence of a Default or an Event of Default, an
officers' certificate setting forth the details of such Event of
Default or Default (as set forth in "Defaults" starting on page 73)
and the action which we propose to take with respect to such Event
of Default or Default.
o Within 90 days after the end of each fiscal year, a written
statement by our independent public accountants stating (A) that
such accountants' audit examination has included a review of the
terms of the Indenture and the notes as they relate to accounting
matters, and (B) whether, in connection with their audit
examination, any event which, with notice or the lapse of time or
both, would constitute an Event of Default under the "Limitation on
Debt" covenant and the "Limitation on Restricted Payments" covenant
has come to their attention and, if such an event has come to their
attention, specifying the nature and period of the existence
thereof.
Perfection of Security Interests
We are required to preserve the security interests granted under the
Security Documents and undertake all actions which are required by applicable
law or necessary or appropriate in the reasonable judgment of the Trustee to
maintain the Trustee's security interest in the Collateral in full force and
effect at all times (including the priority thereof) and preserve and protect
the Collateral and protect and enforce our rights and title and the rights of
the Trustee to the Collateral, including, without limitation, the making or
delivery of all filings and recordations, the payment of fees and other charges
and the issuance of supplemental documentation for such purposes.
Defaults
An "Event of Default" is defined as:
o failure to pay the principal of (or premium, if any, on) any note
when due (whether at stated maturity or upon acceleration, optional
or mandatory redemption, required repurchase or otherwise);
o failure to pay interest on any note when due, and in the case of
cash interest, such default continues for a period of 30 days;
o default in the payment of principal and interest on notes required
to be purchased pursuant to an Offer to Purchase under a Change of
Control or Asset Sale when due and payable;
o failure to perform or comply with the provisions contained in
"Limitation on Mergers, Consolidations and Certain Sales of Assets";
73
o failure to perform any other covenant or agreement of our company or
any Subsidiary Guarantor under the Indenture, the notes or the
Security Documents and such failure continues for 60 days after
written notice to our company by the Trustee or to our company and
the Trustee by the holders of at least 25% in aggregate principal
amount of outstanding notes;
o any default by our company or any subsidiary in the payment of the
principal, premium, if any, or interest has occurred with respect to
amounts in excess of $10 million under any agreement, indenture or
instrument evidencing debt when the same becomes due and payable in
full and such default has continued after any applicable grace
period and has not been cured or waived and, if not already matured
at its final maturity in accordance with its terms, the holders of
such debt have the right to accelerate such debt, or has been
accelerated;
o the rendering of a final judgment or judgments against our company
or any subsidiary in an amount in excess of $5 million which remains
undischarged or unstayed for a period of 60 days after the date on
which the right to appeal has expired;
o certain events of bankruptcy or insolvency with respect to our
company or any Subsidiary Guarantor and any other subsidiary that
would be a "significant subsidiary" of our company under regulations
promulgated by the Securities and Exchange Commission, including any
group of subsidiaries that, taken as a whole as of the latest
audited consolidated financial statements for our company and its
subsidiaries (including Unrestricted Subsidiaries), would constitute
a "significant subsidiary", whether voluntary or involuntary, and
the continuance of any such decree or order for relief or any such
other decree or order is unstayed and in effect for a period of 60
consecutive days;
o the liens created by the Security Documents at any time do not
constitute a valid and perfected lien on the Collateral intended to
be covered thereby (to the extent perfection by filing,
registration, recordation or possession is required herein or
therein) in favor of the Collateral Agent, free and clear of all
other liens (other than permitted liens), or, except for expiration
in accordance with its terms or amendment, modification, waiver,
termination or release in accordance with the terms of the
Indenture, any of the Security Documents are for whatever reason
terminated or cease to be in full force and effect, if in either
case, such default continues for 15 days or the enforceability
thereof is contested by our company or any Subsidiary Guarantor;
o any Subsidiary Guaranty ceases to be in full force and effect (other
than in accordance with the terms of the Indenture and such
Subsidiary Guaranty) or a Subsidiary Guarantor denies or disaffirms
its obligations under its Subsidiary Guaranty;
o we fail to make, when due, any transfer, delivery, pledge,
assignment or grant of Collateral required to be made by us and such
failure continues unremedied for three business days after notice of
such failure is given to us by the Trustee or to us and the Trustee
by the holders of at least 25% in aggregate principal amount of the
outstanding notes; or
o we fail or refuse to perform, or breach or violate, any of the
terms, obligations, covenants or warranties of any Security Document
other than those specified in the immediately preceding clause
above, and such failure or refusal continues unremedied for three
business days after the applicable cure period has expired.
If an Event of Default occurs and is continuing (other than certain
events of bankruptcy, insolvency or reorganization), the Trustee or the holders
of not less than 25% in principal amount of the notes outstanding may declare
the principal of and premium, if any, and accrued but unpaid interest on all the
notes due and payable. Upon such a declaration, such principal, premium, if any,
and interest will be due and payable immediately.
If an Event of Default relating to certain events of bankruptcy,
insolvency or reorganization occurs and is continuing, the principal of and
accrued interest on the notes outstanding will become immediately due and
payable without any declaration or other act on the part of either the Trustee
or any holder.
The amount due and payable on the acceleration of any note will be
equal to 100% of the principal amount of such note, plus accrued and unpaid
interest to the date of payment.
In the event of a declaration of acceleration because an Event of
Default with respect to a failure to pay debt in excess of $10 million above has
occurred and is continuing, such declaration of acceleration will be
automatically rescinded and annulled if the event triggering such Event of
Default is remedied or cured or waived by the holders of the relevant
indebtedness within 30 days after such event; provided, that no judgment or
decree for the payment of the money due on the notes has been obtained by the
Trustee as provided in the Indenture.
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Under certain circumstances, and before a judgment or decree for
payment of the money has been obtained by the Trustee, the holders of a majority
in principal amount of the outstanding notes may rescind any such acceleration
with respect to the notes and its consequences.
A holder may institute any proceeding, judicial or otherwise, or pursue
any remedy under the Indenture only after:
o the holder has previously given written notice to the Trustee of a
continuing Event of Default;
o holders of at least 25% in principal amount of outstanding notes
have made a written request to the Trustee to pursue such remedy in
respect of such Event of Default in its own name, as Trustee under
the Indenture;
o the Trustee has been offered by the holders indemnity reasonably
satisfactory to it against the costs, expenses and liabilities to be
incurred in compliance with such request;
o the Trustee has failed to act for a period of 60 days after receipt
of such notice and offer of indemnity; and
o the Trustee has received no inconsistent direction during such
60-day period from holders of a majority in principal amount of the
outstanding notes;
it being understood and intended that no one or more holders will have any right
in any manner to affect, disturb or prejudice the rights of any other holders to
enforce any right under the Indenture, the Subsidiary Guaranties or the Security
Agreements, except as provided in the Indenture and for the equal and ratable
benefit of all the holders.
Notwithstanding the foregoing, a holder will have the right to receive
payment of the principal of (and premium if any) and interest on such note on
the respective stated maturities expressed in such security (or, in the case of
redemptions, on the redemption date or, in the case of an Offer to Purchase, on
the purchase date) and institute suit for the enforcement of any such payment,
and such rights will not be impaired or affected without the consent of such
holder, so long as such suit if and to the extent that the institution or
prosecution thereof, or the entry of judgment therein, would not under
applicable law result in the surrender, impairment, waiver or loss of the liens
of the Security Documents upon any property or assets subject to the liens.
Offer to Purchase
Under the Indenture, we may be required to make an Offer to Purchase
notes upon a Change of Control, or in the event that we receive Net Cash
Proceeds in excess $10 million from Asset Sales that have not been applied to
investments in the Internet Service Business or the repayment of certain debt as
described above under "Limitations on Asset Sales," starting on page 67.
An "Offer to Purchase" means a written offer, a copy of which will be
delivered to the Trustee, sent by us by first class mail, postage prepaid, to
each holder at his address appearing in the notes register on the date of the
offer offering to purchase up to the principal amount of notes specified in such
offer at the purchase price specified in such offer (a price equal to either
100% or 101% of the aggregate principal amount of the notes, as further set
forth in the Indenture). Unless otherwise required by applicable law, the Offer
to Purchase will specify an expiration date, which will be, subject to any
contrary requirements of applicable law, not less than 30 days or more than 60
days after the date of such offer, and a settlement date for purchase of notes
within five business days after the offer expiration date. We are required to
notify the Trustee at least 15 business days (or such shorter period as is
acceptable to the Trustee) prior to the mailing of the offer of our obligation
to make an Offer to Purchase, and the offer will be mailed by us or, at our
request, by the Trustee in our name and at our expense.
We are required to perform our obligations specified in the Offer to
Purchase and the Trustee is required to perform its obligations arising under
the Indenture in connection therewith. Prior to the settlement date under the
Offer to Purchase, we are required to:
o accept for payment notes or portions thereof tendered pursuant to
the written Offer to Purchase;
o deposit with the paying agent (or, if we are acting as our own
paying agent, segregate and hold in trust) money sufficient to pay
the purchase price of all notes or portions thereof so accepted; and
o deliver or cause to be delivered to the Trustee all notes so
accepted together with an officers' certificate stating the notes or
portions thereof accepted for payment by our company.
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The paying agent will promptly mail or deliver to holders of notes so
accepted payment in an amount equal to the purchase price, and the Trustee will
promptly authenticate and mail or deliver to such holders a new note or notes
equal in principal amount to any unpurchased portion of the note surrendered as
requested by the holder. We are required to promptly mail or deliver any note
not accepted for payment to the holder thereof. Upon surrender of a note that is
registered in the name of The Depositary Trust Company ("DTC") or a nominee
thereof or its successor (a "Global Note") that is purchased in part pursuant to
an Offer to Purchase, the paying agent will forward such Global Note to the
Trustee who will make a notation in its records to reduce the principal amount
of such Global Note to an amount equal to the unpurchased portion of such Global
Note. We will publicly announce the results of a written Offer to Purchase on or
as soon as practicable after the settlement date as set forth therein. We are
required to comply with the requirements of Rule 14e-1 under the Securities
Exchange Act of 1934 and any other securities laws and regulations promulgated
thereunder to the extent such laws and regulations are applicable in connection
with the purchase of the notes pursuant to the Offer to Purchase.
Release of Collateral/Liens
The Collateral may be released from the liens created by the Security
Documents in accordance with the provisions of the Indenture and Security
Documents regarding:
o the use, sale or other disposal of equipment and inventory in the
ordinary course of business;
o payment in full of the notes in accordance with the terms of the
notes and the Indenture and the other obligations then due and owing
under the notes, the Indenture and the Security Documents;
o the sale or other disposition of Collateral constituting an Asset
Sale (as defined in "Limitations on Asset Sales") or otherwise
allowed by the definition of Asset Sale; and
o in connection with the release of a Subsidiary Guarantor as
described in "Additional Provisions Regarding Subsidiary
Guarantors", starting on page 76.
The Collateral Agent may also release a portion of the Collateral from
the lien of the Security Documents or subordinate its lien on such Collateral so
that we may use it to secure Permitted Secured Debt. Upon receiving a written
request by the agent for the Permitted Senior Secured Debt, the Collateral Agent
will release its liens and security interests in any Collateral upon any sale,
lease, transfer or other disposition of such Collateral pursuant to the terms of
the agreements governing the Permitted Senior Secured Debt (but subject to the
rights of the Collateral Agent in and to such Collateral and any proceeds
thereof to the extent of any excess thereof over the amount of the Senior
Obligations). In addition, the Collateral Agent will refrain from contesting,
bringing or joining any action or proceeding contesting the validity, perfection
or priority of the security interest of such agent in the Collateral to the
extent of the Senior Obligations.
The release of any Collateral from the terms of the Indenture and the
Security Documents, or the release, in whole or in part, of the liens created by
the Security Documents, or the termination of the Security Documents, will not
be deemed to impair the lien on the Collateral under the Indenture in
contravention of the provisions thereof and of the Security Documents, provided
that the Collateral is released or the Security Documents are terminated
pursuant to the Indenture and the applicable Security Documents. In connection
with the release of Collateral, we must comply with Section 314(d) of the Trust
Indenture Act of 1939, as amended, and the terms of the Indenture.
Additional Provisions Regarding Subsidiary Guarantors
The obligations of each Subsidiary Guarantor are limited to the maximum
amount as will, after giving effect to all other contingent and fixed
liabilities of such Subsidiary Guarantor and after giving effect to any
collections from or payments made by or on behalf of any other Subsidiary
Guarantor in respect of the obligations of such other Subsidiary Guarantor under
its Subsidiary Guaranty or pursuant to its contribution obligations under the
Indenture, result in the obligations of such Subsidiary Guarantor not
constituting a fraudulent conveyance or fraudulent transfer under any applicable
federal, state or foreign bankruptcy law or not otherwise being void, voidable
or unenforceable under such applicable bankruptcy law.
Each Subsidiary Guarantor that makes a payment or distribution under a
Subsidiary Guaranty is entitled to a contribution from each other Subsidiary
Guarantor in a pro rata amount based on the Adjusted Net Assets of each
Subsidiary Guarantor. As used herein, "Adjusted Net Assets" means the amount by
which the fair value of the assets and property of each Subsidiary Guarantor
exceeds the total amount of liabilities including, without limitation,
contingent liabilities (after giving effect to all other fixed and contingent
liabilities incurred or assumed on such date), but excluding liabilities under
its Subsidiary Guaranty, of such Subsidiary Guarantor.
Each Subsidiary Guarantor may consolidate with or merge into or sell or
otherwise dispose of all or substantially all of its properties and assets to us
or to a wholly-owned subsidiary. Each Subsidiary Guarantor may consolidate with
or merge into or sell all or substantially all of its properties and assets to a
person other than our company or a subsidiary so long as:
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o the transaction constitutes an Asset Sale made in compliance with
the Asset Sale provisions of the Indenture (as previously described
in "Limitations on Asset Sales"); or
o if:
o the surviving person, if not the Subsidiary Guarantor, is a
corporation organized and existing under the laws of the United
States of America, any state thereof or the District of Columbia
or, if the Subsidiary Guarantor was a subsidiary not organized
under the laws of the United States of America or any state
thereof or the District of Columbia, the jurisdiction of
organization of such Subsidiary Guarantor;
o the surviving person, if not the Subsidiary Guarantor, agrees to
assume the Subsidiary Guarantor's obligations under its
Subsidiary Guaranty and all Security Documents; and
o in the case of a transfer or other disposition of all or
substantially all the assets of a Subsidiary Guarantor, such
assets have been transferred as an entirety or virtually an
entirety to one person and all liens on such assets created by
the Security Documents remain valid, enforceable and perfected.
Release of Subsidiary Guarantors
Upon the sale or other disposition (by merger or otherwise) of a
Subsidiary Guarantor or the sale of all or substantially all of its assets to a
person other than our company or another Subsidiary Guarantor and pursuant to a
transaction that is otherwise in compliance with the Indenture, such Subsidiary
Guarantor will be deemed released from its Subsidiary Guaranty and the related
obligations set forth in the Indenture. However, any such release will occur
only to the extent that all obligations of such Subsidiary Guarantor under all
of its guarantees of, and under all of its pledges of assets or other security
interests which secure, other indebtedness of our company or any other
subsidiary will also terminate upon such sale or other disposition. Each
Subsidiary Guarantor that is designated as an "Unrestricted Subsidiary" will be
released from its Subsidiary Guaranty and the related obligations set forth in
the Indenture for so long as it remains an Unrestricted Subsidiary.
Any Subsidiary Guaranty by a subsidiary not organized under the laws of
the United States will be automatically and unconditionally released and
discharged, as evidenced by a supplemental indenture executed by us and the
Subsidiary Guarantors and the Trustee, upon the release or discharge of the
guarantee which resulted in the creation of such subsidiary's Subsidiary
Guaranty and all other guarantees of the obligations of any obligor on the
notes, except a discharge or release by, or as a result of, payment under such
guarantee.
All monetary obligations and performance obligations (collectively, the
"Obligations") of the Subsidiary Guarantors under the Indenture, the notes and
the Security Documents are secured by the liens of the Security Documents.
However, such liens may be required to be released when a Subsidiary Guarantor
is released or in connection with incurrence of Senior Obligations, or such
liens may be required to be subordinated to liens securing such Senior
Obligations as described under "Collateral" above. The Obligations of each
Subsidiary Guarantor under its Subsidiary Guaranty are subordinated to the prior
payment in full of such Subsidiary Guarantor's Designated Senior Debt.
Subordination
Only debt of each Subsidiary Guarantor that is Designated Senior Debt
will rank senior to its Subsidiary Guaranty in accordance with the provisions of
the Indenture. The Subsidiary Guaranties will in all respects rank equally with
all other senior debt of the Subsidiary Guarantors, and will effectively rank
senior to subordinated debt of the Subsidiary Guarantors.
Upon any payment or distribution of the assets of any Subsidiary
Guarantor to creditors upon a total or partial liquidation or dissolution of
such Subsidiary Guarantor or in a bankruptcy, reorganization, insolvency,
receivership or similar proceeding relating to such Subsidiary Guarantor or its
property:
o holders of Designated Senior Debt of such Subsidiary Guarantor will
be entitled to receive payment in full in cash of such Designated
Senior Debt before holders will be entitled to receive any payment
pursuant to any Obligations of such Subsidiary Guarantor; and
o until the Designated Senior Debt of any Subsidiary Guarantor is paid
in full in cash, any distribution made by or on behalf of such
Subsidiary Guarantor to which holders would be entitled but for the
subordination of such Subsidiary Guaranty, will be made to holders
of the Designated Senior Debt as their interests may appear, except
that all holders may receive and retain shares of stock and any debt
securities of such Subsidiary Guarantor that are subordinated to
Designated Senior Debt of such Subsidiary Guarantor to at least the
same extent as the Obligations of such Subsidiary Guarantor are
subordinated to Designated Senior Debt of such Subsidiary Guarantor.
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A Subsidiary Guarantor may not make any payment pursuant to its
Obligations or repurchase, redeem or retire any notes or other Obligations if:
o any of its Designated Senior Debt is not paid when due; or
o any other default on any of its Designated Senior Debt occurs and
the maturity of such Designated Senior Debt is accelerated in
accordance with its terms unless, in either case, the default has
been cured or waived and any such acceleration has been rescinded or
such Designated Senior Debt has been paid in full in cash.
A Subsidiary Guarantor also will not be permitted to pay the
Obligations for a Payment Blockage Period (as defined below) during the
continuance of any default, other than a default described in the preceding
paragraph, on any of its Designated Senior Debt that permits the holders of such
Designated Senior Debt to accelerate its maturity immediately without either
further notice (except such notice as may be required to effect such
acceleration) or the expiration of any applicable grace period.
A "Payment Blockage Period" commences on the receipt by the Trustee and
such Subsidiary Guarantor of written notice (a "Payment Blockage Notice") of a
default of the kind described in the immediately preceding paragraph from the
representative of the holders of such Designated Senior Debt specifying an
election to effect a Payment Blockage Period, and ends 179 days thereafter. The
Payment Blockage Period will end earlier if such Payment Blockage Period is
terminated:
o by written notice to the Trustee and such Subsidiary Guarantor from
the person or persons who gave such Payment Blockage Notice;
o because the default giving rise to such Payment Blockage Notice is
no longer continuing; or
o because such Designated Senior Debt has been repaid in full in cash.
The Subsidiary Guarantor may resume payments on the Obligations after
the end of the Payment Blockage Period, unless the holders of such Designated
Senior Debt have accelerated the maturity of such Designated Senior Debt and not
rescinded such acceleration. Not more than one Payment Blockage Notice may be
given in any consecutive 360-day period, irrespective of the number of defaults
with respect to Designated Senior Debt during such period.
Subject to certain restrictions, the holders of a majority in aggregate
principal amount of the outstanding notes are given the right to direct the
time, method and place of conducting any proceeding for any remedy available to
the Trustee or of exercising any trust or power conferred on the Trustee. The
Trustee, however, may refuse to follow any direction that conflicts with law or
the Indenture, that would unduly prejudice the rights of other holders or that
would involve the Trustee in personal liability. Subject to the provisions of
the Indenture relating to the duties of the Trustee in case of an Event of
Default, the Trustee will be under no obligation to exercise any of the rights
or powers under the Indenture or the Security Documents at the request or
direction of any of the holders of the notes unless such holders offer the
Trustee reasonable indemnity or security against any cost, liability or expense.
The Indenture provides that if any event that is, or with the passage
of time or the giving of notice, or both, would be an Event of Default (a
"Default") occurs and the Trustee has knowledge of such Default, the Trustee
will give to each holder of the notes notice of such Default. Except in the case
of an Event of Default in payment of principal of (premium, if any) or interest
on any note, the Trustee may withhold notice if and so long as a committee of
its responsible officers in good faith determines that withholding the notice is
in the interests of the holders.
Unrestricted Subsidiaries
The Indenture permits under limited circumstances the creation of, or
the designation of existing subsidiaries, as "Unrestricted Subsidiaries". Such
"Unrestricted Subsidiaries" will not generally be subject to the covenants
applicable to us and to our subsidiaries under the Indenture. Unless otherwise
specified, all references to "subsidiaries" in this prospectus do not include
Unrestricted Subsidiaries.
"Unrestricted Subsidiary" means any subsidiary designated as such by
the board of directors where (A) no default with respect to any debt of such
subsidiary or any subsidiary of such subsidiary (including any right which the
holders thereof may have to take enforcement action against such subsidiary)
would permit (upon notice, lapse of time or both) any holder of any other debt
in a principal amount in excess of $10 million of our company and our
subsidiaries (other than another Unrestricted Subsidiary) to declare a default
on such other debt or cause the payment thereof to be accelerated or payable
prior to its final scheduled maturity and (B) our company could make a
Restricted Payment (as defined in "Limitation on Certain Investments and
Restricted Payments", starting on page 65) in an amount equal to the greater of
the fair market value and book value of such subsidiary at the time of
designation pursuant to the provisions set forth in "Limitation on Restricted
Payments", and such amount is thereafter treated as a Restricted Payment for the
purpose of calculating the aggregate amount available for Restricted Payments
thereunder, and includes any subsidiary of an Unrestricted Subsidiary.
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The board of directors may not designate a subsidiary to be an
Unrestricted Subsidiary if such subsidiary owns any stock of, or owns or holds
any lien on any property of, any other subsidiary of our company which is not to
be designated an Unrestricted Subsidiary. The board of directors may cause any
Unrestricted Subsidiary to cease to be an Unrestricted Subsidiary if,
immediately after giving effect to such change in status, no Default or Event of
Default, as defined in "Defaults", starting on page 73, has occurred and be
continuing or would occur as a consequence thereof and we could incur at least
$1.00 of additional debt under the foregoing "Limitation on Debt" on a pro forma
consolidated basis taking into account such designation. Such designation will
be deemed made at such time as the condition set forth in clause (A) in the
definition of "Unrestricted Subsidiary" ceases to be true, in which case any
debt of such subsidiary will be deemed to be incurred as of such date.
We do not currently have any Unrestricted Subsidiaries.
Amendments and Waivers
Subject to certain exceptions, our company, the Subsidiary Guarantors
and the Trustee may amend the Indenture and the Security Documents with the
consent of the holders of a majority in aggregate principal amount of the notes
then outstanding, and any past Default or Event of Default or compliance with
any provisions may also be waived with the consent of the holders of a majority
in aggregate principal amount of the notes then outstanding.
Notwithstanding the foregoing, the following amendments require the
consent of each holder of an outstanding note affected thereby:
o reduction of the amount of notes whose holders must consent to an
amendment or waiver;
o reduction of the rate of or extend the time for payment of interest
on any note;
o reduction of the principal of or extend the stated maturity of the
principal of, or any installment of interest on, any note;
o reduction of the premium payable upon the redemption of any note or
change the time at which any note may be or is required to be
redeemed, as described under "-Redemptions";
o modify our obligations to make mandatory repayments, as described
under "-Redemptions";
o modify any provisions of the Indenture requiring us to make any
Offer to Purchase for the notes after the occurrence of a Change of
Control;
o make any note payable in money other than that stated in the note;
o impair the right of any holder of the notes to receive payment of
principal of and interest on such holder's notes on or after the due
dates therefor or to institute suit for the enforcement of any
payment on or with respect to such holder's notes;
o make any change in the amendment provisions which require each
holder's consent or in the waiver provisions;
o make any change in the Indenture, the notes or any of the Security
Documents relating to Collateral in any manner adverse to the notes;
o subordinate in right of payment the notes or the Subsidiary
Guaranties to any debt other than Designated Senior Debt; or
o make any change in any Subsidiary Guaranty that would adversely
affect the holders of the notes.
Without the consent of any holder of the notes, our company, the
Subsidiary Guarantors and the Trustee may amend the Indenture, the notes or any
Security Document to, among other things:
79
o evidence the succession of another person to our company or a
Subsidiary Guarantor and the assumption by any such successor of our
covenants under the Indenture and in the notes and the Security
Documents and of such Subsidiary Guarantor contained in the
Indenture and in the Security Documents;
o add to the covenants of our company or the Subsidiary Guarantors for
the benefit of the holders, or to surrender any right or power
conferred upon our company under the Indenture;
o secure the notes pursuant to the "Limitation on Liens" covenant or
otherwise;
o comply with any requirements of the Securities and Exchange
Commission in order to effect and maintain the qualification of the
Indenture under the Trust Indenture Act of 1939, as amended;
o cure any ambiguity, to correct or supplement any provision in the
Indenture or in the Security Documents which may be inconsistent
with any other provision therein, or to make any other provisions
with respect to matters or questions arising under the Indenture or
the Security Documents which will not be inconsistent with the
provisions of the Indenture, provided that such action pursuant to
this clause will not adversely affect the interests of the holders
in any material respect;
o to evidence and provide for the acceptance and appointment hereunder
of a successor Trustee with respect to the notes;
o to mortgage, pledge, hypothecate or grant a lien in favor of the
Collateral Agent for the benefit of Trustee and the holders as
additional security for the payment of principal of (and premium, if
any) and interest on the notes by our company or on the Subsidiary
Guaranties by the Subsidiary Guarantors under the Indenture in any
property or assets, including any which are required to be
mortgaged, pledged or hypothecated, or in which a lien is required
to be granted to the Collateral Agent, pursuant to the Indenture or
the Security Documents;
o to add guarantees with respect to the notes, to secure the notes or
to release Subsidiary Guarantors from Subsidiary Guaranties as
provided by the terms of the Indenture; or
o to add additional Events of Default.
No amendment may make any change that adversely affects the rights of
any holder of Senior Obligations that is outstanding unless the holders of such
Senior Obligations (or their authorized representatives), as the case may be,
consent to such change.
The consent of the holders is not necessary under the Indenture to
approve the particular form of any proposed amendment. It is sufficient if such
consent approves the substance of the proposed amendment. After an amendment
under the Indenture or the Security Documents becomes effective, we are required
to mail to the holders a notice briefly describing such amendment. However, our
failure to give such notice to all holders, or any defect in such notice, will
not impair or affect the validity of the amendment.
Ability to Realize on Collateral
The proceeds of any sale of the Collateral in whole pursuant to the
Indenture and the Security Documents following an Event of Default may not be
sufficient to provide sufficient funds to permit us to make payments due on the
notes. In addition, the ability of the holders to realize upon the Collateral
may be limited in the event of a bankruptcy or insolvency or pursuant to
applicable laws, including securities laws.
If an Event of Default occurs and is continuing and the notes become
payable in full, the Trustee, on behalf of the holders, in addition to any other
rights or remedies available to it under the Indenture and the Security
Documents, may take such action as it deems advisable to protect and enforce its
rights in the Collateral, including the institution of sale or foreclosure
proceedings. The proceeds received by the Trustee from any such sale or
foreclosure will be applied by the Trustee first to pay the expenses of such
sale or foreclosure and fees and other amounts then payable to the Trustee under
the Indenture, and thereafter to pay amounts due and payable with respect to the
notes and the balance, if any, to our company.
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The right of the Trustee to repossess and dispose of the Collateral,
upon acceleration of the notes is likely to be significantly impaired by
applicable bankruptcy or insolvency law if a bankruptcy or insolvency proceeding
were to be commenced by or against us prior to or possibly even after the
Trustee has repossessed and disposed of the Collateral. Under the United States
Bankruptcy Code, a secured creditor such as the Trustee is prohibited from
repossessing its security from a debtor in a bankruptcy case, or from disposing
of security repossessed from such debtor, without bankruptcy court approval.
Moreover, applicable United States bankruptcy law generally permits the debtor
to continue to retain and to use collateral (and the proceeds, products,
offspring, rents or profits of such collateral) even though the debtor is in
default under the applicable debt instruments, provided generally that the
secured creditor is given "adequate protection". The meaning of the term
"adequate protection" may vary according to circumstances, but it is intended in
general to protect the value of the secured creditor's interest in the
collateral and may include, if approved by the court, cash payments or the
granting of additional or replacement security for any diminution in the value
of the collateral as a result of the stay of repossession or disposition or any
use of the collateral by the debtor during the pendency of the bankruptcy case.
In view of the lack of a precise definition of the term "adequate protection"
and the broad discretionary powers of a bankruptcy court, it is impossible to
predict how long payments under the notes could be delayed following
commencement of a bankruptcy case, whether or when the Trustee would repossess
or dispose of the Collateral or whether, or to what extent, holders of the notes
would be compensated for any delay in payment or loss of value of the Collateral
through the requirements of "adequate protection". Furthermore, in the event
that the bankruptcy court determines that the value of the Collateral is not
sufficient to repay all amounts due on the notes, the holders would have
"undersecured claims". Applicable United States bankruptcy laws do not permit
the payment and/or accrual of interest, costs and attorneys' fees for
"undersecured claims" during the debtor's bankruptcy case.
Defeasance
At any time we may terminate all of our obligations under the notes,
the Indenture and the Security Documents and the obligations of any Subsidiary
Guarantor under its Subsidiary Guaranty ("legal defeasance"), except for certain
obligations, such as those respecting the defeasance trust and obligations to
register the transfer or exchange of the notes and to maintain a registrar and
paying agent in respect of the notes and except for our optional redemption
rights. At any time we may also terminate our mandatory redemption and
repurchase obligations under the covenants referred to under "Certain Covenants"
(other than the covenant described under "Limitations on Mergers, Consolidations
and Certain Sales of Assets"), the operation of the cross-acceleration
provision, the valid and perfected lien on the Collateral requirement, the
termination of a Subsidiary Guaranty, and the judgment default provisions
described under "Defaults" above and the limitations contained in the third,
fourth and fifth clauses of the first paragraph under "Limitations on Mergers,
Consolidations and Certain Sales of Assets" above ("covenant defeasance").
We may exercise our legal defeasance option notwithstanding our prior
exercise of our covenant defeasance option. If we exercise our legal defeasance
option, payment of the notes may not be accelerated because of an Event of
Default with respect thereto. If we exercise our covenant defeasance option,
payment of the notes may not be accelerated because of an Event of Default
specified in several clauses contained in "Defaults" above or because of our
failure to comply with the third, fourth and fifth clauses of the first
paragraph under "Limitations on Mergers, Consolidations and Certain Sales of
Assets" above.
In order to exercise either defeasance option, we must irrevocably
deposit in trust (the "defeasance trust") with the Trustee money, United States
government securities, or a combination thereof, for the payment of principal,
premium, if any, and interest on the notes to redemption or maturity, as the
case may be, and must comply with certain other conditions, including but not
limited to -: delivery to the Trustee of an opinion of counsel to the effect
that holders will not recognize gain or loss for United States income tax
purposes as a result of such deposit and defeasance and will be subject to such
federal income tax on the same amounts and in the same manner and at the same
times as would have been the case if such deposit and defeasance had not
occurred (and, in the case of legal defeasance only, such opinion of counsel
must be based on a ruling of the Internal Revenue Service or other change in
applicable federal income tax law); delivery to the Trustee of certain officers'
certificates; that no Default or Event of Default will have occurred on the date
of such deposit; that such defeasance will not result in a breach or violation
of, or constitute a default under, any other agreement or instrument to which
our company or any subsidiary is a party; and that such deposit must not cause
the trust so created to constitute an investment company as defined in the
United States Investment Company Act of 1940, as amended, or such trust must be
qualified under such act or exempt from regulation thereunder.
Concerning the Trustee
HSBC Bank USA is the Trustee under the Indenture. HSBC Bank USA is also
the Collateral Agent under the Security Documents and the Escrow Agent for the
escrow established in connection with the class-action lawsuit pending against
our company (see "Summary - Our Chapter 11 Bankruptcy Reorganization" and
"Business - Legal Proceedings"). We have appointed the Trustee as registrar and
paying agent with regard to the notes.
The Indenture provides that, except during the continuance of an Event
of Default, the Trustee will in accordance with the terms of the Indenture and
applicable law perform only such duties as are specifically set forth in the
Indenture. During the existence of an Event of Default, the Trustee will
exercise such rights and powers vested in it under the Indenture and the Trustee
will use the same degree of care and skill in its exercise as a prudent person
would exercise under the circumstances in the conduct of such person's own
affairs.
The Trustee is permitted to engage in other transactions with our
company or any affiliate of our company, provided, however, that if the Trustee
acquires any conflicting interest (as defined in the Indenture) it must
eliminate such conflict, apply to the Securities and Exchange Commission for
permission to continue or resign.
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The Indenture is subject to the provisions of the United States Trust
Indenture Act of 1939, as amended, upon registration.
Governing Law
The Indenture provides that the Indenture, the notes and the Subsidiary
Guaranties are governed by, and construed in accordance with, the laws of the
State of New York without giving effect to applicable principles of conflicts of
law, except to the extent that the application of the law of another
jurisdiction would be required thereby.
Additional Information
Holders of our securities may obtain a copy of the Indenture and the
Security Documents without charge by writing to Globix Corporation, 139 Centre
Street, New York, New York 10013, Attention: Secretary.
Book-Entry, Delivery and Form
The notes were initially issued in the form of one or more Global
Notes. Global Notes were deposited with the Trustee as custodian for DTC, which
we refer to in this prospectus as the "Depositary", and registered in the name
of Cede & Co., as nominee of the Depositary.
The Depositary is a limited-purpose trust company that was created to
hold securities for its participating organizations and to facilitate the
clearance and settlement of transactions in such securities between participants
through electronic book-entry changes in accounts of its participants. The
Depositary's participants include securities brokers and dealers, banks and
trust companies, clearing corporations and certain other organizations. Access
to the Depositary's system is also available to other entities such as banks,
brokers, dealers and trust companies that clear through or maintain a custodial
relationship with a participant, either directly or indirectly. Persons who are
not participants may beneficially own securities held by or on behalf of the
Depositary only through the Depositary's participants or the Depositary's
indirect participants.
Pursuant to procedures established by the Depositary:
o upon deposit of the Global Note, the Depositary credits the accounts
of participants designated by the initial holder with portions of
the principal amount of the Global Note; and
o ownership of the notes evidenced by the Global Note are shown on,
and the transfer of ownership thereof will be affected only through,
records maintained by the Depositary (with respect to the interests
of the Depositary's participants), the Depositary's participants and
the Depositary's indirect participants.
Prospective purchasers are advised that the laws of some states require
that certain persons take physical delivery in definitive form of securities
that they own. Consequently, the ability to transfer notes evidenced by the
Global Note will be limited to such extent.
So long as the Global Note holder is the registered owner of any notes,
the Global Note holder will be considered the sole holder under the Indenture of
any notes evidenced by the Global Note. Beneficial owners of notes evidenced by
the Global Note will not be considered the owners or holders thereof under the
Indenture for any purpose, including with respect to the giving of any
directions, instructions or approvals to the trustee thereunder. Neither our
company nor the trustee will have any responsibility or liability for any aspect
of the records of the Depositary or for maintaining, supervising or reviewing
any records of the Depositary relating to the notes.
Payments in respect of the principal of or premium and interest, if
any, on any notes registered in the name of the Global Note holder on the
applicable record date will be payable by the Trustee to or at the direction of
the Global Note holder in its capacity as the registered holder under the
Indenture.
Under the terms of the Indenture, our company and the Trustee may treat
the persons in whose names notes, including the Global Note, are registered as
the owners thereof for the purpose of receiving such payments. Consequently,
neither our company nor the Trustee has or will have any responsibility or
liability for the payment of such amounts to beneficial owners of notes. We
believe, however, that it is currently the Depositary's policy to immediately
credit the accounts of the relevant participants with such payments, in amounts
proportionate to their respective holdings of beneficial interests in the
relevant security as shown on the records of the Depositary. Payments by the
Depositary's participants and the Depositary's indirect participants to the
beneficial owners of notes will be governed by standing instructions and
customary practice and will be the responsibility of the Depositary's
participants or the Depositary's indirect participants.
82
Exchange of Book-Entry Notes for Certificated Notes
No Global Note may be exchanged in whole or in part for notes
registered, and no transfer of a Global Note in whole or in part may be
registered, in the name of any person other than the Depositary for such Global
Note or a nominee thereof, unless:
o the Depositary notifies us in writing that it is no longer willing
or able to act as a depositary or has ceased to be a clearing agency
registered under the Securities Exchange Act of 1934 and we fail to
appoint a successor within 120 days; or
o our company, at our option, notifies the Trustee in writing that we
elect to cause the issuance of notes in certificated form; or
o an Event of Default has occurred and is continuing;
then, upon surrender by the Global Note holder of its Global Note, notes in
certificated form will be issued to each person that the Depositary identifies
as being the beneficial owner of the related notes.
Neither our company nor the Trustee will be liable for any delay by the
Depositary in identifying the beneficial owners of notes and our company and the
Trustee may conclusively rely on, and will be protected in relying on,
instructions from the Depositary for all purposes.
Same-Day Settlement and Payment
The Indenture requires that payments in respect of the notes
represented by the Global Note (including principal and premium and interest, if
any) be made by deposit of Additional Securities, in the case of interest
payable in kind, or by wire transfer of immediately available funds, in the case
of interest payable in cash, to the accounts specified by the Global Note holder
provided, however, that at our option, payment of interest may be made by check
mailed to the address appearing in the security register. Secondary trading in
long-term notes and debentures of corporate issuers is generally settled in
clearing-house or next-day funds. In contrast, the notes represented by the
Global Note are expected to be eligible to trade in the Depositary's Same-Day
Funds Settlement System and any permitted secondary market trading activity in
such notes will, therefore, be required by the Depositary to be settled in
immediately available funds. We expect that secondary trading in the
certificated notes will also be settled in immediately available funds.
83
PLAN OF DISTRIBUTION
We are registering the shares of our common stock and notes on behalf
of the selling holders. A selling holder is a person named on page 53 and also
includes any donee, pledgee, transferee or other successor-in-interest selling
shares of our common stock or notes received after the date of this prospectus
from a selling holder as a gift, pledge, partnership distribution or other
non-sale related transfer. All costs, expenses and fees in connection with the
registration of the shares of our common stock and notes offered by this
prospectus will be borne by our company, other than brokerage commissions and
similar selling expenses, if any, attributable to the sale of shares of our
common stock and notes, which will be borne by the selling holders. Sales of
shares of our common stock and notes may be effected by selling holders from
time to time in one or more types of transactions (which may include block
transactions) in the over-the-counter market, in negotiated transactions,
through put or call options transactions relating to the shares of our common
stock, through short sales of shares of our common stock, or a combination of
these methods of sale, at market prices prevailing at the time of sale, or at
negotiated prices. These transactions may or may not involve brokers or dealers.
We are not aware of any agreements, understandings or arrangements among the
selling holders and any underwriters or broker-dealers regarding the sale of the
shares of our common stock or notes held by the selling holders, nor is there an
underwriter or coordinated broker acting in connection with the proposed sale of
shares of our common stock and notes by the selling holders.
The selling holders may enter into hedging transactions with
broker-dealers or other financial institutions. In connection with these
transactions, broker-dealers or other financial institutions may engage in short
sales of the shares of our common stock in the course of hedging positions they
assume with selling holders. The selling holders may also enter into options or
other transactions with broker-dealers or other financial institutions which
require the delivery to these broker-dealers or other financial institutions of
shares of our common stock or notes, which shares of our common stock or notes
these broker-dealer or other financial institution may resell pursuant to this
prospectus (as amended or supplemented to reflect such transaction). The selling
holders may also engage in short sales of shares and, in those instances, this
prospectus may be delivered in connection with the short sales and the shares
offered under this prospectus may be used to cover the short sales.
The selling holders may make these transactions by selling shares of
our common stock or notes directly to purchasers or to or through
broker-dealers, which may act as agents or principals. These broker-dealers may
receive compensation in the form of discounts, concessions or commissions from
selling holders and/or the purchasers of shares of our common stock or notes for
whom these broker-dealers may act as agents or to whom they sell as principal,
or both (which compensation as to a particular broker-dealer might be in excess
of customary commissions).
The selling holders and any broker-dealers that act in connection with
the sale of shares of our common stock or notes may be deemed to be
"underwriters" within the meaning of Section 2(11) of the Securities Act of
1933, and any commissions received by these broker-dealers or any profit on the
resale of the shares of our common stock or notes sold by them while acting as
principals might be deemed to be underwriting discounts or commissions under the
Securities Act of 1933. The selling holders may agree to indemnify any agent,
dealer or broker-dealer that participates in transactions involving sales of
shares of our common stock or notes against certain liabilities, including
liabilities arising under the Securities Act of 1933.
Because selling holders may be "underwriters" within the meaning of
Section 2(11) of the Securities Act of 1933, the selling holders may be subject
to the prospectus delivery requirements of the Securities Act of 1933. The rules
and regulations set forth in Regulation M promulgated under the Securities
Exchange Act of 1934 provide that during the period that any person is engaged
in a distribution of the shares within the meaning of Regulation M, that person
usually may not purchase the shares. The selling holders are subject to the
rules and regulations of the Securities Act of 1934 and the Securities Exchange
Act of 1934, including Regulation M, which may limit the timing of purchases and
sales of shares by the selling holders. Regulation M's prohibition on purchases
may include purchases to cover short positions by the selling holders, and a
selling shareholder's failure to cover a short position at a lender's request
and subsequent purchases by the lender in the open market of shares to cover
such short positions, may constitute an inducement to buy shares which is
prohibited by Regulation M. Consequently, this may affect the marketability of
the shares. Our company has informed the selling holders that the
anti-manipulative provisions of Regulation M may apply to their sales in the
market.
Selling holders also may resell all or a portion of the shares of our
common stock or notes in open market transactions in reliance upon Rule 144
under the Securities Act of 1933, provided that they meet the criteria and
conform to the requirements of Rule 144.
Upon our company being notified by a selling holder that any material
arrangement has been entered into with a broker-dealer for the sale of shares of
our common stock or notes through a block trade, special offering, exchange
distribution or secondary distribution or a purchase by a broker or dealer, a
supplement to this prospectus will be filed, if required, pursuant to Rule
424(b) under the Securities Act of 1933, disclosing:
- the name of each such selling holder and of the participating
broker-dealer(s);
84
- the number of shares of our common stock and/or notes involved;
- the initial price at which these shares and/or notes were sold;
- the commissions paid or discounts or concessions allowed to such
broker-dealer(s), where applicable;
- that such broker-dealer(s) did not conduct any investigation to verify
the information set out or incorporated by reference in this prospectus;
and
- other facts material to the transactions.
In addition, upon our company being notified by a selling holder that a
donee, pledgee, transferee or other successor-in-interest intends to sell more
than 500 shares of our common stock, a supplement to this prospectus will be
filed.
85
LEGAL MATTERS
The validity of the shares of our common stock and the notes offered
hereby will be passed upon for our company by Day, Berry & Howard LLP, Stamford,
CT 06901.
EXPERTS
Our consolidated financial statements as of September 30, 2003 and
September 30, 2002, and for each of the years in the three year period ended
September 30, 2003 have been included in this prospectus in reliance upon the
report of the following firms, upon the authority of said firms as experts in
accounting and auditing:
Arthur Andersen LLP, with regard to the consolidated financial statements for
the fiscal year ending September 30, 2001;
The financial statements as of September 30, 2002, for the seven months ended
April 30, 2002 and for the five months ended September 30, 2002 included in this
Form S-1 have been so included in reliance on the reports of
PricewaterhouseCoopers LLP, independent accountants, given on the authority of
said firm as experts in auditing and accounting;
Amper, Politziner & Mattia PC, with regard to the consolidated financial
statements for the fiscal year ending September 30, 2003.
The financial statements of 415 Greenwich GC, LLC, 415 Greenwich GC
Tenant, LLC and 415 Greenwich GC MM, LLC, as of September 30, 2003 and September
30, 2002, and for the year ended September 30, 2003, the seven months ended
April 30, 2002, the five months ended September 30, 2002 and for the period from
June 11, 2001 (inception) through September 30, 2001 have been included in this
prospectus in reliance upon the report of Ehrenkrantz Sterling & Co., L.L.C.,
upon the authority of said firm as experts in accounting and auditing.
86
WHERE YOU CAN FIND MORE INFORMATION
We have filed with the Securities and Exchange Commission a
registration statement on Form S-1 under the Securities Act of 1933 for the
shares of our common stock and the notes being sold pursuant to this prospectus.
This prospectus constitutes a part of that registration statement. This
prospectus does not contain all of the information set forth in the registration
statement and the accompanying exhibits and schedules because some parts have
been omitted in accordance with the rules and regulations of the Securities and
Exchange Commission. For further information about us and our shares of common
stock and notes, we refer you to the registration statement and the accompanying
exhibits and schedules. Whenever a reference is made in this prospectus
regarding the contents of any agreement, contract or any other document, please
be aware that the reference is only a summary of all material terms of the
agreement, contract or other document. In each case, reference is made to the
copy of the agreement, contract or other document filed as an exhibit to the
registration statement, and each statement is qualified in all respects by that
reference.
We file annual, quarterly and current reports and other information
with the Securities and Exchange Commission. You may read and copy any document
we file with the Securities and Exchange Commission at the Securities and
Exchange Commission's public reference facilities located in Room 1024,
Judiciary Plaza, 450 Fifth Street, N.W., Washington D.C. 20549. Please call the
Securities and Exchange Commission at 1-800-SEC-0330 for further information on
the operation of its public reference facilities. Our Securities and Exchange
Commission filings will also be available to the public from commercial document
retrieval services and at the Securities and Exchange Commission's web site at
http://www.sec.gov.
You may request a copy of any of our filings with the Securities and
Exchange Commission, or any of the agreements or other documents that constitute
exhibits to those filings, at no cost, by writing or telephoning us at the
following address or phone number:
Globix Corporation
139 Centre Street
New York, New York 10013
Phone Number: (212) 334-8500
You should rely only on the information provided in this prospectus. No
person has been authorized to provide you with different information. The
information in this prospectus is accurate as of the date on the front cover.
You should not assume that the information contained in this prospectus is
accurate as of any other date.
87
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
PAGE
Reports of Independent Public Accountants ............................. F-2
Reports of Independent Public Auditors ................................ F-3
Reports of Independent Public Auditors ................................ F-4
Reports of Independent Public Accountants ............................. F-5
Consolidated Balance Sheets-as of December 31, 2003
(Unaudited), September 30, 2003 and 2002 (Successor Company) .......... F-6
Consolidated Statements of Operations-for the Three Months
Ended December 31, 2003 and 2002 (Unaudited) (Successor Company),
Year Ended September 30, 2003 (Successor Company), Five Months
Ended September 30, 2002 (Successor Company), Seven Months
Ended April 30, 2002 (Predecessor Company) and Year Ended
September 30, 2001 (Predecessor Company) .............................. F-7
Statements of Changes in Stockholders' Equity (Deficit) and
Comprehensive Income (Loss)- for the Three Months Ended December
31, 2003 and 2002 (Unaudited) (Successor Company), Year Ended
September 30, 2003 (Successor Company), Five Months Ended
September 30, 2002 (Successor Company), Seven Months
Ended April 30, 2002 (Predecessor Company)and Year
Ended September 30, 2001 (Predecessor Company) ........................ F-8
Consolidated Statements of Cash Flows- for the Three Months
Ended December 31, 2003 and 2002 (Unaudited) (Successor
Company), Year Ended September 30, 2003 (Successor Company),
Five Months Ended September 30, 2002 (Successor Company),
Seven Months Ended April 30, 2002 (Predecessor Company) and
Year Ended September 30, 2001 (Predecessor Company) ................... F-9
Notes to Consolidated Financial Statements ............................ F-11
F-1
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Stockholders and Board of Directors of Globix Corporation:
We have audited the accompanying consolidated balance sheet of Globix
Corporation (a Delaware Corporation) and Subsidiaries as of September 30, 2003,
and the related consolidated statement of operations, stockholders' equity and
comprehensive income, and cash flows for the year ended September 30, 2003.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audit.
We conducted our audit in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the consolidated
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
audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Globix Corporation
and Subsidiaries as of September 30, 2003, and the results of its operations and
its cash flows for the year ended September 30, 2003 in conformity with
accounting principles generally accepted in the United States of America.
In connection with our audit of the financial statements referred to above, we
audited Schedule II - Valuation and Qualifying Accounts. In our opinion, the
financial schedule, when considered in relation to the financial statements
taken as a whole, presents fairly, in all material respects, the information
stated therein.
/s/ Amper, Politziner & Mattia PC
December 8, 2003
Edison, New Jersey
F-2
REPORT OF INDEPENDENT AUDITORS
To the Stockholders and Board of Directors of Globix Corporation:
In our opinion, the accompanying consolidated balance sheet as of September 30,
2002 and the related consolidated statements of operations, cash flows and
changes in stockholders' equity present fairly, in all material respects, the
consolidated financial position of Globix Corporation and its subsidiaries (the
Successor Company) at September 30, 2002 and the consolidated results of their
operations and their consolidated cash flows for the five months ended September
30, 2002 in conformity with accounting principles generally accepted in the
United States of America. In addition, in our opinion, the financial statement
schedule as of and for the five months ended September 30, 2002 presents fairly,
in all material respects, the information set forth therein when read in
conjunction with the related consolidated financial statements. These financial
statements and financial statement schedule are the responsibility of the
Company's management; our responsibility is to express an opinion on these
financial statements and financial statement schedule based on our audit. We
conducted our audit of these statements in accordance with auditing standards
generally accepted in the United States of America, which require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
As discussed in Note 2, the United States Bankruptcy Court for the District of
Delaware confirmed the Company's Prepackaged Plan of Reorganization (the "plan")
on April 8, 2002. Confirmation of the plan substantially alters rights and
interests of equity security holders as provided for in the plan. The plan was
substantially consummated on April 25, 2002 and the Company emerged from
bankruptcy. In connection with its emergence from bankruptcy, the Company
adopted fresh start accounting as of May 1, 2002.
/s/ PricewaterhouseCoopers LLP
New York, New York
February 3, 2003
F-3
REPORT OF INDEPENDENT AUDITORS
To the Stockholders and Board of Directors of Globix Corporation:
In our opinion, the accompanying consolidated statements of operations, cash
flows and changes in stockholders' deficit for the seven months ended April 30,
2002 present fairly, in all material respects, the consolidated results of
operations and cash flows of Globix Corporation and its subsidiaries (the
Predecessor Company) for the seven months ended April 30, 2002 in conformity
with accounting principles generally accepted in the United States of America.
In addition, in our opinion, the financial statement schedule for the seven
months ended April 30, 2002 presents fairly, in all material respects, the
information set forth therein when read in conjunction with the related
consolidated financial statements. These financial statements and financial
statement schedule are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements and
financial statement schedule based on our audit. We conducted our audit of these
statements in accordance with auditing standards generally accepted in the
United States of America, which require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audit provides a reasonable basis for our opinion. The consolidated financial
statements of Globix Corporation and its subsidiaries (the Predecessor Company)
for the year ended September 30, 2001, prior to the adjustment discussed in
Note 3, were audited by other independent accountants who have ceased
operations. Those independent accountants expressed an unqualified opinion on
those financial statements in their report (which included an explanatory
paragraph indicating factors that raise substantial doubt about the Company's
ability to continue as a going concern and an explanatory paragraph emphasizing
a change in the Company's method of accounting for revenue recognition) dated
December 31, 2001.
As discussed in Note 2, the Company filed a petition on March 1, 2002 with the
United States Bankruptcy Court for the District of Delaware for reorganization
under the provisions of Chapter 11 of the Bankruptcy Code. The Company's
Prepackaged Plan of Reorganization was substantially consummated on April 25,
2002 and the Company emerged from bankruptcy. In connection with its emergence
from bankruptcy, the Company adopted fresh start accounting.
As discussed in Note 3, the Company changed the manner in which it accounts for
goodwill and other intangible assets upon adoption of Statement of Financial
Accounting Standards ("SFAS") No. 142, "Goodwill and Other Intangible Assets,"
on May 1, 2002.
As discussed above, the consolidated financial statements of Globix and its
subsidiaries (the Predecessor Company) for the year ended September 30, 2001,
were audited by other independent accountants who have ceased operations. As
described in Note 3, these financial statements have been revised to include the
transitional disclosure required by SFAS No. 142, "Goodwill and Other Intangible
Assets", which was adopted by the Successor Company as of May 1, 2002. In our
opinion, the transitional disclosure is appropriate and have been properly
applied. However, we were not engaged to audit, review, or apply any procedures
to the September 30, 2001 consolidated financial statements of the Predecessor
Company other than with respect to such transitional disclosure and accordingly,
we do not express an opinion or any other form of assurance on the September 30,
2001 financial statements taken as a whole.
/s/ PricewaterhouseCoopers LLP
New York, New York
February 3, 2003
F-4
This report is a copy of a report previously issued by Arthur Andersen LLP,
which has not been reissued by Arthur Andersen LLP. The consolidated balance
sheets at September 30, 2001 and 2000 and the consolidated statements of
operations, stockholders' (deficit) equity and cash flows for the two years
ended September 30, 2000 are not required to be presented in this Form S-1. The
note references in the opinion below are to the financial statements included in
the Form 10-K for the year ended September 30, 2001. As discussed in Note 3 to
the consolidated financial statements, the Company has revised its consolidated
financial statements for the year ended September 30, 2001 to include the
transitional disclosures required by Statement of Financial Accounting Standards
("SFAS") No. 142, "Goodwill and Other Intangible Assets", which was adopted by
the Company as of May 1, 2002. The Arthur Andersen LLP report does not extend to
these changes. The revisions related to these transitional disclosures and
reclassifications were reported on by PricewaterhouseCoopers LLP, as stated in
their report appearing herein.
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Stockholders and Board of Directors of Globix Corporation:
We have audited the accompanying consolidated balance sheets of Globix
Corporation (a Delaware corporation) and Subsidiaries as of September 30, 2001
and 2000, and the related consolidated statements of operations, stockholders'
(deficit) equity and cash flows for each of the three years in the period ended
September 30, 2001. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Globix Corporation and
Subsidiaries as of September 30, 2001 and 2000, and the results of their
operations and their cash flows for each of the three years in the period ended
September 30, 2001 in conformity with accounting principles generally accepted
in the United States.
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in Note 1 to the
consolidated financial statements, the Company has incurred recurring net losses
and net operating cash deficiencies and has a significant stockholders'
deficiency. These factors raise substantial doubt about the Company's ability to
continue as a going concern. Management's plans in regard to these matters are
described in Note 1. The consolidated financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
As discussed in Note 2 to the consolidated financial statements, the Company
changed its method of accounting for revenue recognition effective October 1,
2000.
/s/ ARTHUR ANDERSEN LLP
New York, New York
December 31, 2001
F-5
GLOBIX CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Amounts in Thousands, Except Share and Per Share Data)
[Enlarge/Download Table]
Successor Company
------------------------------------
September 30,
December 31, -----------------------
2003 2003 2002
--------- --------- ---------
(Unaudited)
Assets
Current assets:
Cash and cash equivalents ....................................................... $ 9,358 $ 24,503 $ 47,562
Short-term investments .......................................................... 10,706 7,226 5,392
Marketable securities ........................................................... 1,162 1,531 1,327
Accounts receivable, net of allowance for doubtful accounts of $2,793, $2,646 and
$2,565, respectively ......................................................... 7,141 6,012 7,060
Prepaid expenses and other current assets ....................................... 5,819 4,497 7,735
Property held for sale .......................................................... 48,920 -- --
Restricted cash ................................................................. 2,063 2,195 1,760
--------- --------- ---------
Total current assets .................................................. 85,169 45,964 70,836
Investments ..................................................................... 1,452 697 --
Investments, restricted ......................................................... 4,875 4,733 7,337
Property, plant and equipment, net .............................................. 95,394 162,630 174,710
Intangible assets, net of accumulated amortization of $2,403, $1,997 and $543,
respectively ................................................................. 8,952 8,158 9,612
Other assets .................................................................... 311 100 225
--------- --------- ---------
Total assets .......................................................... $ 196,153 $ 222,282 $ 262,720
========= ========= =========
Liabilities and Stockholders' Equity
Current liabilities:
Current portion of capital lease obligation and mortgage payable ................ $ $
$ 742 1,510 1,520
Accounts payable ................................................................ 5,606 5,846 8,971
Accrued liabilities ............................................................. 10,892 10,159 17,924
--------- --------- ---------
Total current liabilities ............................................. 17,240 17,515 28,415
Capital lease obligations, net of current portion ............................... 308 374 2,807
Mortgage payable ................................................................ 19,837 19,912 20,186
11% Senior Notes ................................................................ 105,321 112,321 120,000
Accrued interest - 11% Senior Notes ............................................. 7,780 5,182 5,681
Other long term liabilities ..................................................... 10,842 10,659 13,084
Put-option liability ............................................................ 2,968 2,968 --
--------- --------- ---------
Total liabilities ..................................................... 164,296 168,931 190,173
--------- --------- ---------
Commitments and contingencies (Note 18):
Stockholders' Equity:
Common stock, $.01 par value; 500,000,000 shares authorized; 16,460,000
issued and outstanding, for all periods presented ........................... 165 165 165
Additional paid-in capital ...................................................... 97,166 97,191 93,112
Deferred compensation ........................................................... (143) -- --
Accumulated other comprehensive income .......................................... 4,424 2,401 401
Accumulated deficit ............................................................. (69,755) (46,406) (21,131)
--------- --------- ---------
Total stockholders' equity ............................................ 31,857 53,351 72,547
--------- --------- ---------
Total liabilities and stockholders' equity ............................ $ 196,153 $ 222,282 $ 262,720
========= ========= =========
The accompanying notes are an integral part of these consolidated
financial statements.
F-6
GLOBIX CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Amounts in Thousands, Except Share and Per Share Data)
[Enlarge/Download Table]
Successor Company
-------------------------------------------------------------------------
For the Three Months Ended
----------------------------------- Five Months
Year Ended Ended
December 31, December 31, September 30, September 30,
2003 2002 2003 2002
---------------- ---------------- ---------------- --------------
(Unaudited) (Unaudited)
Revenue, net .......................................... $ 14,385 $ 16,480 $ 60,177 $ 30,723
Operating costs and expenses:
Cost of revenue (excluding depreciation,
amortization, certain payroll and occupancy shown
below) .......................................... 4,876 5,624 19,990 10,458
Selling, general and administrative ............... 10,944 11,891 44,430 29,313
Loss on impairment of assets ...................... 17,313 -- -- --
Restructuring and other charges (credits).......... -- -- (1,020) --
Depreciation and amortization ..................... 3,371 3,727 15,523 6,060
---------------- ---------------- ---------------- --------------
Total operating costs and expenses ............ 36,504 21,242 78,923 45,831
Other operating income -- -- 345 --
---------------- ---------------- ---------------- --------------
Loss from operations .................................. (22,119) (4,762) (18,401) (15,108)
Interest and financing expense .................... (3,453) (3,904) (15,141) (6,653)
Interest income ................................... 179 388 1,179 787
Other (expense) income, net ....................... 297 182 1,232 (157)
Gain on discharge of debt.......................... 1,747 2,727 6,023 --
Minority interest in subsidiary ................... -- 108 -- --
Reorganization items .............................. -- -- -- --
Fresh start accounting adjustments ................ -- -- -- --
---------------- ---------------- ---------------- --------------
Income (loss) before income taxes and cumulative effect
of a change in accounting principle................ (23,349) (5,261) (25,108) (21,131
Income tax expense..................................... -- -- 167 --
---------------- ---------------- ---------------- --------------
Net income (loss) before cumulative effect of a change
in accounting principle............................ (23,349) (5,261) (25,275) (21,131)
Cumulative effect of a change in accounting principle,
net of tax......................................... -- -- -- --
---------------- ---------------- ---------------- --------------
Net income (loss)...................................... (23,349) (5,261) (25,275) (21,131)
Dividends and accretion on preferred stock ............ -- -- -- --
---------------- ---------------- ---------------- --------------
Net income (loss) attributable to common stockholders . $(23,349) $(5,261) $(25,275) $(21,131)
================ ================ ================ ==============
Earnings (loss) per common share:
Basic: Before cumulative effect of a change in
accounting principle............................... $ (1.42) $ (0.32) $ (1.54) $ (1.28)
Cumulative effect of a change in accounting principle . -- -- -- --
---------------- ---------------- ---------------- --------------
Basic income(loss) per share attributable to common
stockholders...................................... $ (1.42) $ (0.32) $ (1.54) $ (1.28)
================ ================ ================ ==============
Weighted average common shares outstanding--basic....... 16,460,000 16,460,000 16,460,000 16,460,000
================ ================ ================ ==============
Diluted: Before cumulative effect of a change in
accounting principle............................... $ (1.42) $ (0.32) $ (1.54) $ (1.28)
Cumulative effect of a change in accounting principle . -- -- -- --
---------------- ---------------- ---------------- --------------
Diluted (loss) income per share attributable to common
stockholders...................................... $ (1.42) $ (0.32) $ (1.54) $ (1.28)
================ ================ ================ ==============
Weighted average common shares outstanding--diluted .... 16,460,000 16,460,000 16,460,000 16,460,000
================ ================ ================ ==============
Predecessor Company
----------------------------------
Seven Months
Ended Year Ended
April 30, September 30,
2002 2001
---------------- ----------------
Revenue, net .......................................... $ 51,273 $ 104,210
Operating costs and expenses:
Cost of revenue (excluding depreciation,
amortization, certain payroll and occupancy shown
below) .......................................... 22,123 40,609
Selling, general and administrative ............... 57,206 124,821
Loss on impairment of assets ...................... 2,578 3,500
Restructuring and other charges (credits).......... 24,834 56,109
Depreciation and amortization ..................... 28,115 36,657
---------------- ----------------
Total operating costs and expenses ............ 134,856 261,696
Other operating income -- --
---------------- ----------------
Loss from operations .................................. (83,583) (157,486)
Interest and financing expense .................... (34,511) (65,128)
Interest income ................................... 2,024 13,282
Other (expense) income, net ....................... (509) (1,379)
Gain on discharge of debt.......................... 427,066 --
Minority interest in subsidiary ................... 5,778 --
Reorganization items .............................. (7,762) --
Fresh start accounting adjustments ................ (148,569) --
---------------- ----------------
Income (loss) before income taxes and cumulative effect
of a change in accounting principle................ 159,934 (210,711)
Income tax expense..................................... -- --
---------------- ----------------
Net income (loss) before cumulative effect of a change
in accounting principle............................ 159,934 (210,711)
Cumulative effect of a change in accounting principle,
net of tax......................................... -- (2,332)
---------------- ----------------
Net income (loss)...................................... 159,934 (213,043)
Dividends and accretion on preferred stock ............ (3,178) (7,104)
---------------- ----------------
Net income (loss) attributable to common stockholders . $ 156,756 $ (220,147)
================ ================
Earnings (loss) per common share:
Basic: Before cumulative effect of a change in
accounting principle............................... $ 3.96 $ (5.66)
Cumulative effect of a change in accounting principle . -- (0.06)
---------------- ----------------
Basic income(loss) per share attributable to common
stockholders...................................... $ 3.96 $ (5.72)
================ ================
Weighted average common shares outstanding--basic....... 39,618,856 38,476,909
================ ================
Diluted: Before cumulative effect of a change in
accounting principle............................... $ 3.30 $ (5.66)
Cumulative effect of a change in accounting principle . -- (0.06)
---------------- ----------------
Diluted (loss) income per share attributable to common
stockholders...................................... $ 3.30 $ (5.72)
================ ================
Weighted average common shares outstanding--diluted .... 48,507,456 38,476,909
================ ================
The accompanying notes are an integral part of these consolidated
financial statements.
F-7
GLOBIX CORPORATION AND SUBSIDIARIES
STATEMENTS OF CHANGES IN STOCKHOLDERS' (DEFICIT)
EQUITY AND COMPREHENSIVE INCOME (LOSS)
(Amounts in Thousands, Except Share Data)
[Enlarge/Download Table]
Accumulated Total
Additional Other Stockholders'
Common Stock Paid-In Deferred Comprehensive Accumulated Equity
Shares Amount Capital Compensation Income (loss) Deficit (Deficit)
----------- ----------- ----------- ------------ ------------- ----------- -----------
Balance, October 1, 2000
(Predecessor Company) ............. 37,307,315 $ 373 $ 165,890 $ -- $ 1,784 $(186,077) $ (18,030)
Issuance of common stock in
conjunction with acquisition ...... 80,000 1 1,199 -- -- -- 1,200
Issuance of common stock upon
exercise of options ............... 1,559,424 15 2,486 -- -- -- 2,501
Issuance of restricted stock ........ 3,063,490 31 8,968 (8,999) -- -- --
Amortization of deferred compensation -- -- -- 1,638 -- -- 1,638
Cancellation of restricted stock .... (90,000) (1) (263) 264 -- -- --
Dividends and accretion
on preferred stock ................ -- -- (7,104) -- -- -- (7,104)
Comprehensive Income (loss):
Net loss ....................... -- -- -- -- -- (213,043) --
Unrealized holding losses ...... -- -- -- -- (5,539) -- --
Foreign currency
translation adjustments ...... -- -- -- -- 1,052 -- --
Total Comprehensive Loss ........... -- -- -- -- -- -- (217,530)
----------- ----------- ----------- ----------- ----------- --------- -----------
Balance, September 30, 2001
(Predecessor Company) ............. 41,920,229 419 171,176 (7,097) (2,703) (399,120) (237,325)
Amortization of deferred compensation -- -- -- 7,027 -- -- 7,027
Cancellation of restricted stock ... (23,750) -- (70) 70 -- -- --
Dividends and accretion on
preferred stock ................... -- -- (3,178) -- -- -- (3,178)
Comprehensive Income (loss):
Net income ..................... -- -- -- -- -- 159,934 --
Unrealized holding gains ....... -- -- -- -- 1,185 -- --
Foreign currency
translation adjustments ...... -- -- -- -- (1,807) -- --
Total Comprehensive Income .......... -- -- -- -- -- -- 159,312
Fresh start accounting adjustments .. (25,436,479) (254) (74,816) -- 3,325 239,186 167,441
----------- ----------- ----------- ----------- ----------- --------- -----------
Balance, May 1, 2002
(Successor Company) ............... 16,460,000 165 93,112 -- -- -- 93,277
Comprehensive Income (loss):
Net loss ....................... -- -- -- -- -- (21,131) --
Unrealized holding losses ...... -- -- -- -- (1,430) -- --
Foreign currency translation
adjustments .................. -- -- -- -- 1,831 -- --
Total Comprehensive Loss ............ -- -- -- -- -- -- (20,730)
----------- ----------- ----------- ----------- ----------- --------- -----------
Balance, September 30, 2002
(Successor Company) ............... 16,460,000 165 93,112 -- 401 (21,131) 72,547
Issuance of warrants to
consultants ....................... -- -- 1,050 -- -- -- 1,050
Capital contribution in
minority-owned subsidiary, net .... -- -- 5,997 -- -- -- 5,997
Put-option .......................... -- -- (2,968) -- -- -- (2,968)
Comprehensive Income (loss):
Net loss ....................... -- -- -- -- -- (25,275) --
Unrealized holding gains ....... -- -- -- -- 195 -- --
Foreign currency
translation adjustments ...... -- -- -- -- 1,805 -- --
Total Comprehensive Loss ............ -- -- -- -- -- -- (23,275)
----------- ----------- ----------- ----------- ----------- --------- -----------
Balance, September 30, 2003
(Successor Company) ............... 16,460,000 $ 165 $ 97,191 $ -- $ 2,401 $ (46,406) $ 53,351
Capital distribution in
minority-owned
subsidiary, net ................... -- -- (202) -- -- -- (202)
Deferred stock-based
compensation (Unaudited) .......... -- -- 177 (177) -- -- --
Amortization of deferred
compensation (Unaudited) .......... 34 34
Comprehensive Income (loss):
Net loss (Unaudited) ........... -- -- -- -- -- (23,349) --
Unrealized holding gains
(Unaudited) .................. -- -- -- -- 309 -- --
Foreign currency translation
adjustments (Unaudited) ....... -- -- -- -- 1,714 -- --
Total Comprehensive Loss
(Unaudited) ....................... -- -- -- -- -- -- (21,326)
----------- ----------- ----------- ----------- ----------- --------- -----------
Balance, December 31, 2003
(Successor Company)
(Unaudited) ....................... 16,460,000 $ 165 $ 97,166 $ (143) $ 4,424 $ (69,755) $ 31,857
=========== =========== =========== =========== =========== ========= ===========
Balance, September 30, 2002
(Successor Company) ............... 16,460,000 $ 165 $ 93,112 $ -- $ 401 $ (21,131) $ 72,547
Comprehensive Income (loss):
Net loss (Unaudited) ........... -- -- -- -- -- (5,261) --
Unrealized holding gains
(Unaudited) ................... -- -- -- -- 129 -- --
Foreign currency translation
adjustments (Unaudited) ....... -- -- -- -- 826 -- --
Total Comprehensive Loss
(Unaudited) ....................... -- -- -- -- -- -- (4,306)
----------- ----------- ----------- ----------- ----------- --------- -----------
Balance, December 31, 2002
(Successor Company)
(Unaudited) ....................... 16,460,000 $ 165 $ 93,122 $ -- $ 1,356 $ (26,392) $ 68,241
=========== =========== =========== =========== =========== ========= ===========
The accompanying notes are an integral part of these consolidated
financial statements.
F-8
GLOBIX CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in Thousands)
[Enlarge/Download Table]
Successor Company
-------------------------------------------------------------------
For the Three Months Ended
------------------------------ Five Months
Year Ended Ended
December 31, December 31, September 30, September
2003 2002 2003 30, 2002
------------- -------------- -------------- --------------
(Unaudited) (Unaudited)
Cash Flows From Operating Activities
Net Income (Loss) ........................................ $ (23,349) $ (5,261) $ (25,275) $ (21,131)
Operating activities:
Depreciation and amortization ........................... 3,371 3,727 15,523 6,060
Provision for uncollectible receivables.................. 202 624 1,861 1,904
Services contributed to minority-owned subsidiary ....... -- -- -- --
Gain on debt discharge................................... (1,747) (2,727) (6,023) --
Cumulative effect of a change in accounting principle ... -- -- -- --
Restructuring and other charge (net of cash payment) .... -- -- (1,020) --
Gain on sale of short-term investments .................. -- (138) -- --
Unrealized loss (gain) on short-term investment.......... -- -- (439) 57
Loss on impairment of investment......................... -- -- -- --
Loss on impairment of operating assets................... 17,313 -- -- --
Gain on sale of marketable securities.................... 142 -- -- --
Amortization of debt issuance costs...................... -- -- -- --
Amortization of deferred compensation and issuance of 34 --
stock warrants........................................ 1,050 --
Write-off of note receivable............................. -- -- -- 4,078
Minority interest in subsidiary.......................... -- (108) -- --
Fresh start accounting adjustment........................ -- -- -- --
Changes in assets and liabilities:
Decrease (increase) in accounts receivable .............. (486) 594 (639) 3,565
Decrease (increase) in prepaid expenses and other current (590) 2,702
assets................................................ 3,306 4,210
Decrease (increase) in other assets...................... (211) -- 125 16
Increase (decrease) in accounts payable.................. (457) 332 (3,195) 1,362
Increase (decrease) in accrued liabilities............... 12 (3,812) (7,093) (1,762)
Increase (decrease) in accrued interest.................. 2,927 3,263 12,359 5,500
Other.................................................... (121) (111) (2,728) (180)
------------- -------------- -------------- --------------
Net Cash Provided by (Used in) Operating Activities....... (2,960) (915) (12,188) 3,679
------------- -------------- -------------- --------------
Cash Flows From Investing Activities
Investments in short-term and long-term investments...... (4,269) (3,234) (2,017) (5,449)
Proceeds from sale of short-term investments............. -- -- -- --
Proceeds from restricted cash and investments............ 146 306 2,329 166
Proceeds from sale of marketable securities.............. 570 -- -- --
Payment for business acquired from Aptegrity (Appendix A) (2,287) -- -- --
Return of strategic investments.......................... -- -- -- 51
Purchase of property, plant and equipment................ (438) (555) (1,170) (1,229)
------------- -------------- -------------- --------------
Net Cash Provided by (Used in) Investing Activities....... (6,278) (3,483) (858) (6,461)
------------- -------------- -------------- --------------
Cash Flows From Financing Activities
Repurchase of 11% Senior Notes........................... (5,583) (7,030) (14,612) --
Proceeds from exercise of stock options and warrants, net -- -- -- --
Capital contribution (distribution) in minority-owned (202) 4,361
subsidiary, net....................................... 5,997 --
Payment of dividends on preferred stock.................. -- -- -- --
Settlement of capital lease obligations.................. (319) -- (850) --
Repayment of mortgage payable and capital lease obligation (171) (286) (1,074) (2,279)
------------- -------------- -------------- --------------
Net Cash Provided by (Used in) Financing Activities....... (6,275) (2,955) (10,539) (2,279)
------------- -------------- -------------- --------------
Effects of Exchange Rates Changes on Cash and Cash 368 275
Equivalents........................................... 526 (99)
------------- -------------- -------------- --------------
Decrease in Cash and Cash Equivalents..................... (15,145) (7,078) (23,059) (5,160)
Cash and Cash Equivalent, Beginning of Period............. 24,503 47,562 47,562 52,722
------------- -------------- -------------- --------------
Cash and Cash Equivalent, End Period...................... $ 9,358 $ 40,484 $ 24,503 $ 47,562
============= ============== ============== ==============
Predecessor Company
----------------------------------
Seven Months
Ended Year Ended
April 30, September
2002 30, 2001
---------------- --------------
Cash Flows From Operating Activities
Net Income (Loss) ........................................ $ 159,934 $ (213,043)
Operating activities:
Depreciation and amortization ........................... 28,115 36,657
Provision for uncollectible receivables.................. 4,284 14,119
Services contributed to minority-owned subsidiary ....... 372 --
Gain on debt discharge................................... (427,066) --
Cumulative effect of a change in accounting principle ... -- 2,332
Restructuring and other charge (net of cash
payment) .............................................. 8,233 22,889
Gain on sale of short-term investments .................. -- (1,459)
Unrealized loss (gain) on short-term investment.......... -- --
Loss on impairment of investment......................... 490 3,250
Loss on impairment of operating assets................... 2,578 3,500
Gain on sale of marketable securities.................... (27) (663)
Amortization of debt issuance costs...................... 650 1,177
Amortization of deferred compensation and issuance of
stock warrants........................................ 7,027 1,638
Write-off of note receivable............................. -- --
Minority interest in subsidiary.......................... (5,778) --
Fresh start accounting adjustment........................ 148,569 --
Changes in assets and liabilities:
Decrease (increase) in accounts receivable .............. (3,449) (6,526)
Decrease (increase) in prepaid expenses and other current
assets................................................ (4,574) (3,309)
Decrease (increase) in other assets...................... 54 (3,567)
Increase (decrease) in accounts payable.................. (5,181) 2,303
Increase (decrease) in accrued liabilities............... 497 947
Increase (decrease) in accrued interest.................. 31,431 (2)
Other.................................................... (1,152) (786)
---------------- --------------
Net Cash Provided by (Used in) Operating Activities....... (54,993) (140,543)
---------------- --------------
Cash Flows From Investing Activities
Investments in short-term and long-term investments...... -- --
Proceeds from sale of short-term investments............. -- 10,180
Proceeds from restricted cash and investments............ 24,235 9,308
Proceeds from sale of marketable securities.............. 64 1,426
Payment for business acquired from Aptegrity (Appendix A) -- --
Return of strategic investments.......................... 193 --
Purchase of property, plant and equipment................ (23,341) (134,185)
---------------- --------------
Net Cash Provided by (Used in) Investing Activities....... 1,151 (113,271)
---------------- --------------
Cash Flows From Financing Activities
Repurchase of 11% Senior Notes........................... -- --
Proceeds from exercise of stock options and warrants, net -- 2,501
Capital contribution (distribution) in minority-owned
subsidiary, net....................................... -- 5,406
Payment of dividends on preferred stock.................. -- (1,500)
Settlement of capital lease obligations.................. -- --
Repayment of mortgage payable and capital lease obligation (4,946) (6,020)
---------------- --------------
Net Cash Provided by (Used in) Financing Activities....... (4,946) 387
---------------- --------------
Effects of Exchange Rates Changes on Cash and Cash
Equivalents........................................... 8 1,052
---------------- --------------
Decrease in Cash and Cash Equivalents..................... (58,780) (252,375)
Cash and Cash Equivalent, Beginning of Period............. 111,502 363,877
---------------- --------------
Cash and Cash Equivalent, End Period...................... $ 52,722 $ 111,502
================ ==============
F-9
GLOBIX CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in Thousands)
[Enlarge/Download Table]
Successor Company Predecessor Company
----------------------------------------------------------- ----------------------------
For the Three Months Ended Five Months Seven Months
-------------------------------- Year Ended Ended Ended Year Ended
December 31, December 31, September 30, September 30, April 30, September 30,
2003 2002 2003 2002 2002 2001
--------------- -------------- ------------ -------------- ------------ --------------
(Unaudited) (Unaudited)
Supplemental Disclosure
of Cash Flow Information:
Cash paid for interest $ 477 $ 570 $ 2,294 $ 975 $ 2,101 $ 78,289
Cash paid for income taxes $ -- $ -- $ -- $ -- $ -- $ 34
Non-cash investing and
financing activities:
11% Senior Notes issued
in payment of accrued interest $ -- $ -- $ 11,298 $ -- $ -- $ --
Equipment acquired under
capital lease obligations $ -- $ -- $ -- $ -- $ 1,036 $ 19,475
Capital expenditures included
in accounts payable, capital
liabilities and other
long term liabilities $ -- $ 215 $ -- $ 168 $ 273 $ 12,557
Cumulative dividends and
accretion on preferred stock $ -- $ -- $ -- $ -- $ 3,178 $ 7,104
Mandatorily redeemable
convertible preferred stock $ -- $ -- $ -- $ -- $ 83,230 $ --
Restructuring of debt $ -- $ -- $ -- $ -- $427,066 $ --
Put-option $ -- $ -- $ 2,968 $ -- $ -- $ --
Appendix A - Payment for business acquired from Aptegrity:
[Enlarge/Download Table]
Successor Company Predecessor Company
------------------------------------------------------------ ---------------------------------
For the Three Months Ended Five Months Seven Months
------------------------------ Year Ended Ended Ended Year Ended
December 31, December 31, September 30, September 30, April 30, September 30,
2003 2002 2003 2002 2002 2001
------------ ------------ ------------ ----------- ------------- ---------------
(Unaudited) (Unaudited)
Current assets $ (696) $ -- $ -- $ -- $ -- $ --
Property, plant and equipment (738) -- -- -- -- --
Current liabilities 347
Other intangible assets (1,200) -- -- -- -- --
------- ------ ---------- -------- -------- --------
$(2,287) $ -- $ -- $ -- $ -- $ --
======= ====== ========== ======== ======== ========
The accompanying notes are an integral part of these consolidated
financial statements.
F-10
GLOBIX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in Thousands, Except Share and Per Share Data)
1. General
Globix Corporation and its subsidiaries ("Globix", the "Company" or the
"Successor Company") is a provider of Internet solutions to businesses. The
solutions include secure and fault-tolerant Internet data centers with network
services providing network connectivity to the Internet and Internet-based
managed services and application services, which include co-location, dedicated
hosting, streaming media, and messaging services. The Company currently offers
services from facilities in New York City, New York, Santa Clara, California,
Atlanta, Georgia and London, England.
The financial statements presented have been prepared by the Company in
accordance with accounting principles generally accepted in the United States of
America and the rules and regulations of the Securities and Exchange Commission.
As a result of the application of fresh start accounting as of May 1, 2002, in
accordance with the American Institute of Certified Public Accountants Statement
of Position No. 90-7 ("SOP 90-7") "Financial Reporting by Entities in
Reorganization Under the Bankruptcy Code", the Company's financial results for
the fiscal year ended September 30, 2002 include two different bases of
accounting and, accordingly, the operating results and cash flows of the
Successor Company and the Predecessor Company have been separately disclosed.
For the purposes of these financial statements, references to the "Predecessor
Company" are references to the Company for periods prior to April 30, 2002 (the
last day of the calendar month in which the Company emerged from bankruptcy) and
references to the "Successor Company" are references to the Company for periods
subsequent to April 30, 2002. The Successor Company's financial statements are
not comparable to the Predecessor Company's financial statements. Although April
25, 2002 was the effective date of Globix's emergence from bankruptcy (the
"Effective Date"), for financial reporting convenience purposes, the Company
accounted for the consummation of the Plan of Reorganization (the "Plan") as of
April 30, 2002.
The following table describes the periods presented in the financial statements
and related notes thereto:
Period Referred to as
------ ---------------
From May 1, 2002 through December 31, 2003 "Successor Company"
From October 1, 2001 through April 30, 2002
and for the fiscal year ended September 30, 2001 "Predecessor Company"
On October 31, 2003, Globix acquired for cash the business, substantially all of
the assets and assumed certain liabilities of Aptegrity, Inc. ("Aptegrity"), a
provider of web application and operations management services for a total net
cash consideration of approximately $2,300, subject to final settlement.
The acquisition was accounted for as a purchase; accordingly, the purchase price
has been allocated to the assets acquired. The allocation of the purchase price
among the identifiable intangible assets was based upon the Company's estimates
of fair value of those assets. The Company has recorded $800 in respect of
acquired trademarks and trade names which are being amortized on a straight-line
basis over 7 years and $400 was recorded in respect of customer contracts which
are being amortized on a straight-line basis over 2 years. The operations of
Aptegrity are included in the consolidated statements from November 1, 2003.
Pro forma information has not been provided due to immateriality of Aptegrity's
results of operations.
F-11
GLOBIX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in Thousands, Except Share and Per Share Data)
The Company has historically experienced negative cash flow from operations and
has incurred net losses. The Company's ability to generate positive cash flow
from operations and achieve profitability is dependent upon its ability to
reduce indebtedness and operating expenses or increase its revenue base. For the
three months ended December 31, 2003 and for the year ended September 30, 2003,
the Company had a net loss of $ 23,349 (Unaudited) and $25,275, respectively and
an accumulated deficit at December 31, 2003 and September 30, 2003 of $69,755
(Unaudited) and $46,406, respectively. The Company is dependent upon its cash on
hand and cash generated from operations to support its capital requirements.
Although no assurances can be given, the Company's management believes that
actions taken by the Company pursuant to the Plan, including company downsizing,
headcount reductions and other cost reductions, as well as cost control measures
and the restructuring of its outstanding debt in connection with the Plan, have
positioned the Company to maintain sufficient cash flows from operations to meet
its operating, capital and debt service requirements for the next 12 months.
There can be no assurance, however, that the Company will be successful in
executing its business plan, achieving profitability, in attracting new
customers, or in maintaining its existing customer base. Moreover, despite the
Company's restructuring, it has continued to experience significant decreases in
revenue and low levels of new customer additions in the period following its
restructuring. In the future, the Company may make acquisitions or repurchase
indebtedness of the Company which, in turn, may adversely affect the Company's
liquidity.
Approximately 40% (Unaudited) and 38% of the Company's cost of revenue for the
three months period ended December 31, 2003 and for the fiscal year September
30, 2003, respectively is derived from services provided by 2 major
telecommunication carriers. While the Company believes that most of these
services can be obtained from other alternative carriers, an interruption in
services from one of these carriers or other suppliers could limit the Company's
ability to serve its customers, which would adversely affect the Company's
results of operations. No single customer comprised more than 10% of the
Company's revenues for any of the periods presented.
F-12
GLOBIX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in Thousands, Except Share and Per Share Data)
2. Reorganization and Emerging from Chapter 11
On March 1, 2002, the Company and two of its wholly-owned subsidiaries,
Comstar.net, Inc. and ATC Merger Corp., filed voluntary petitions under Chapter
11 of the U.S. Bankruptcy Code, together with a prepackaged Plan with the United
States Bankruptcy Court for the District of Delaware. The Company continued to
operate in Chapter 11 in the ordinary course of business and received permission
from the bankruptcy court to pay its employees, trade, and certain other
creditors in full and on time, regardless of whether these claims arose prior to
or after the Chapter 11 filing.
On April 8, 2002, the bankruptcy court confirmed the Plan. Effective April 25,
2002, all conditions necessary for the Plan to become effective were satisfied
or waived and the Company emerged from Chapter 11 bankruptcy protection.
As of the Effective Date of the Plan, all of the Company's existing securities
were cancelled and:
- Each holder of the Company's 12.5% Senior Notes due 2010 (the "12.5% Senior
Notes"), became entitled to receive, in exchange for its claims in respect
of the 12.5% Senior Notes, its pro rata share of:
- $120,000 in aggregate principal amount of the Company's 11% Senior Secured
Notes due 2008 (the "11% Senior Notes"), and
- 13,991,000 shares of the Company's common stock, representing 85% of the
shares of the Company's common stock issued and outstanding following the
Effective Date of the Plan;
- Each holder of shares of the Company's preferred stock outstanding
immediately prior to the Effective Date of the Plan became entitled to
receive, in exchange for its claims in respect of these shares of preferred
stock, its pro rata share of 2,304,400 shares of the Company's common
stock, representing 14% of the shares of the Company's common stock issued
and outstanding following the Effective Date of the Plan; and
- Each holder of shares of the Company's common stock outstanding immediately
prior to the Effective Date of the Plan became entitled to receive, in
exchange for its claims in respect of these shares of common stock, its pro
rata share of 164,600 shares of the Company's common stock, representing 1%
of the shares of the Company's common stock issued and outstanding
following the Effective Date of the Plan.
A total of 16,460,000 shares of the Company's common stock and $120,000 in
aggregate principal amount of the 11% Senior Notes were deemed to be issued and
outstanding on the Effective Date pursuant to the terms of the Plan, and are
deemed to be issued and outstanding for purposes of these financial statements.
As of September 30, 2002, however, no shares of the Company's common stock or
11% Senior Notes had been distributed. In October 2002, the Company distributed
a total of 16,295,400 shares of common stock and $120,000 in aggregate principal
amount of 11% Senior Notes. Pursuant to the terms of a Stipulation and Order
that the Company entered into with the lead plaintiffs in the class action
lawsuit described in Note 18, 229,452 of these shares of common stock and $1,968
in aggregate principal amount of these 11% Senior Notes were placed in reserve
in escrow pending the outcome of the class action lawsuit. In the event that any
judgment or settlement entered into in connection with the class action lawsuit
requires the Company to pay an amount in excess of its liability insurance, then
the Company will be required to issue to the class action litigants and their
attorneys all (in the event that this excess is $10,000 or greater) or a portion
of (in the event that this excess is less than $10,000) of the shares of common
stock and 11% Senior Notes held in escrow. Distribution of the remaining 164,600
shares of common stock deemed to have been issued on the Effective Date, which
are allocable under the terms of the Plan to the holders of the Company's common
stock outstanding immediately prior to the Effective Date of the Plan, will
occur following the resolution of the shareholder derivative suit against the
Company and certain former officers and directors described in Note 18.
F-13
GLOBIX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in Thousands, Except Share and Per Share Data)
3. Summary of Significant Accounting Policies
Management Estimates
The preparation of the Company's financial statements in accordance with
accounting principles generally accepted in the United States of America
requires management to make estimates and assumptions. Such estimates and
assumptions affect the reported amounts of assets, liabilities, revenue and
expenses and related disclosures of contingent assets and liabilities.
Significant estimates include estimates of the collectibility of accounts
receivable, the useful lives and ultimate realizability of property, equipment,
intangible assets, deferred tax assets and restructuring reserves. Estimates and
assumptions are reviewed periodically and the effects of revisions are reflected
in the period that they are determined to be necessary. Actual results may vary
from these estimates under different assumptions or conditions.
Interim Financial Information
The consolidated financial information as of December 31, 2003 and for the three
months ended December 31, 2003 and 2002 is unaudited, but includes all
adjustments, consisting only of normal and recurring accruals, that management
considers necessary for a fair presentation of its combined results of
operations, financial position and cash flows. Results for the three months
ended December 31, 2003 and 2002 are not necessarily indicative of results to be
expected for the entire fiscal year.
Principles of Consolidation
The consolidated financial statements include the accounts of the Company and
its subsidiaries. Included in the Company's consolidated results is a 0.01%
owned subsidiary, 415 Greenwich GC Tenant, LLC. The Company controls all
financial aspects of this entity. All significant intercompany accounts and
transactions have been eliminated in consolidation.
In January 2003, the FASB issued FIN No. 46, "Consolidation of Variable Interest
Entities". FIN 46 classifies entities into two groups: (1) those for which
voting interest are used to determine consolidation; and (2) those for which
other interests (variable interest) are used to determine consolidation. FIN 46
deals with the identification of Variable Interest Entities ("VIE") and the
business enterprise which should include the assets, liabilities,
non-controlling interests, and results of activities of a VIE in its
consolidated financial statements. FIN 46 has become effective during 2003. The
adoption of FIN 46 did not have an effect on the Company's consolidated
financial statements.
Revenue Recognition
Revenue consists primarily of Internet hosting, co-location, managed
services, network services and Internet access.
The Company recognizes revenue in accordance with the Securities and Exchange
Commission's Staff Accounting Bulletin, or SAB, No. 101 "Revenue Recognition in
Financial Statements," as amended. SAB No. 101 expresses the view of the
Securities and Exchange Commission's staff in applying accounting principles
generally accepted in the United States of America to certain revenue
recognition issues. Under the provisions of SAB No. 101, set up and installation
revenue are deferred and recognized over the estimated length of the customer
relationship, which in the case of the Company's business is approximately 36
months. Prior to April 30, 2002, the estimated length of the customer
relationship was 12-18 months. Effective October 1, 2000, the Company changed
its revenue recognition method for set up and service installation fees upon the
adoption of SAB No. 101. Prior to the Company's adoption of SAB No. 101, the
Company recognized revenue immediately upon completion of set up or
installation. The change in accounting principle resulted in a revenue deferral
and cumulative effect charge totaling $2,332, or $0.06 per share, which was
reflected in the Company's consolidated statements of operations for the fiscal
year ended September 30, 2001. The Company's adoption of SAB No. 101 decreased
the Company's net loss by $547 for the fiscal year ended September 30, 2001.
The Company maintains a provision for potential future credits which will be
issued in respect of current revenues.
Monthly service revenue related primarily to Internet hosting, co-location,
network services and Internet access is recognized over the period that services
are provided. Revenue derived from managed services is recognized at the
completion of a project. Projects are generally completed within a month.
Payments received in advance of providing services are deferred until the period
that these services are provided.
F-14
GLOBIX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in Thousands, Except Share and Per Share Data)
The Company provided $802 and purchased $551 of data center services from a
telecommunications operator during the year ending September 30, 2002. $318 of
the transactions billed were settled monetarily, with the balance of $445
settled by offsetting or netting the remainder.
In September 2002, the EITF issued Issue No. 00-21, "Accounting for Revenue
Arrangements with Multiple Deliverables." The scope of EITF 00-21 deals with how
a company should recognize revenue when it sells multiple products or services
to a customer as part of an overall solution. In general, EITF 00-21 provides
the following broad criteria for recognizing revenue in multiple element
arrangements: (i) revenue should be recognized separately for separate units of
accounting; (ii) revenue for a separate unit of accounting should be recognized
only when the arrangement consideration is reliably measurable and the earnings
process is complete; (iii) consideration should be allocated among separate
units of measure of accounting in an arrangement based on their relative fair
values. The adoption of EITF 00-21 during the third quarter of the fiscal year
2003 did not have an impact on the Company's results of operations or financial
position.
Cost of Revenue
Cost of revenue consists primarily of telecommunications costs for Internet
access and managed hosting and includes the cost of hardware and software
purchased for resale to customers and payroll cost which relates to certain
managed services. Cost of revenue excludes certain payroll, occupancy and
depreciation and amortization. Telecommunications costs include the cost of
providing local loop for connecting dedicated access customers to the Company's
network, leased line and associated costs related to connecting with the
Company's peering partners and costs associated with leased lines connecting the
Company's facilities to its backbone and aggregation points of presence.
Concentrations of Credit Risk
Financial instruments that potentially subject the Company to concentrations of
credit risk consist primarily of cash and cash equivalents, short-term
investments, restricted cash and restricted investments, marketable securities
and accounts receivable. The Company maintains cash and cash equivalents,
short-term investments and restricted cash and restricted investments with
various major financial institutions, which invest primarily in U.S. Government
instruments, high quality corporate obligations, certificates of deposit and
commercial paper.
The Company believes that concentrations of credit risk with respect to trade
accounts receivable are limited due to the large number of the Company's
customers. The Company performs ongoing credit evaluations of its customers and
maintains reserves for potential losses. The Company's management makes
estimates of the uncollectibility of its trade accounts receivable on a monthly
basis. No single customer of the Company individually comprised more than 10% of
the Company's revenues for all periods presented.
In December 2000, the Company received a note for $4,100 relating to the
settlement of a lease of a data center property. This note was to be paid on
either the sale of the property, the lease of at least 95% of the property, or
two years from the date of the note. The obligor has indicated that it has
insufficient funds to satisfy the debt and does not intend to make payment.
While the Company has made demand and intends to vigorously pursue legal remedy,
in light of the financial condition of the obligor, the Company has written off
the entire amount during the five month period ended September 30, 2002.
Short-term investments and marketable securities are well diversified and
accordingly minimal credit risk exists with respect to these investments.
F-15
GLOBIX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in Thousands, Except Share and Per Share Data)
Cash, Cash Equivalents and Restricted Cash
The Company considers all highly liquid investments with an original maturity of
three months or less to be cash and cash equivalents.
Included in restricted cash are funds held in escrow related to a mortgage on
the Company's property located at 139 Centre Street, collateral funds for the
Company's corporate credit card and required share capital held in escrow for
the Company's European subsidiaries. These funds are primarily invested in
highly liquid investments with an original maturity of three months or less. The
classification is determined based on the expected term of the collateral
requirement and not the maturity date of the underlying securities.
Marketable Securities
Investment in marketable equity securities covered by SFAS No. 115 "Accounting
for Certain Investments in Debt and Equity Securities", were designated as
available-for-sale. Accordingly, these securities are stated at fair value, with
unrealized gains/ losses reported in accumulated other comprehensive income
(loss). Realized gain and losses are calculated based on specific identification
method. Other-than-temporary declines in value from the original cost are
charged to operations in the period in which the loss occurs. In determining
whether other-than- temporary decline in the market value has occurred, the
Company considers the duration that and the extent to which market value is
below original cost. As of September 30, 2003 no impairment has been recorded
due to those investments as a result of market condition after September 30,
2003. At September 30, 2003 and 2002, marketable securities had a cost basis of
approximately $2,800 and a balance of unrealized losses of $1,226 and $1,430,
respectively which was included in the Company's accumulated other comprehensive
loss, a separate component of the stockholders' equity.
Investments
Short-term investments consist of an investment in a limited partnership which
invests in fixed income securities and certain investments which do not meet the
requirements to be reported as cash and cash equivalents. The limited
partnership is accounted for on a "mark-to-market" basis. At September 30, 2003
and 2002 the limited partnership had a cost basis of $5,000 and $5,000,
respectively and the unrealized gain (loss) from the "mark to market" adjustment
of $523 and $(57), respectively, which was recorded in the Company's
consolidated statement of operations.
Also included in investments are investments in mortgage and asset backed
securities which do not meet the requirements to be reported as cash and cash
equivalents. These investments are classified as available for sale securities
and reported at fair value, with unrealized gains and losses excluded from
earnings and reported in other comprehensive income or loss in stockholders'
equity. At September 30, 2003 and 2002, these investments had a cost of $2,466
and $449, respectively and the balance of unrealized loss from the "mark to
market" adjustment of $9 and $0, respectively, which was included in the
Company's accumulated other comprehensive loss, a separate component of the
stockholders' equity.
Included in restricted investments as of September 30, 2003 and 2002 are
collateral funds for the note payable of $2,600 and amounts held in escrow
related to the lease of the Company's facility located at Prospect House, 80 New
Oxford Street, London, United Kingdom of approximately $2,000. These funds are
primarily invested in highly liquid investments with an original maturity of
three months or less. Also included in the balance for September 30, 2002 are
collateralized funds for the Rabbi Trust obligation of $2,756 described in Note
12 which is included in other long-term liabilities. The classification is
determined based on the expected term of the collateral requirement and not the
maturity date of the underlying securities.
F-16
GLOBIX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in Thousands, Except Share and Per Share Data)
Property, Plant and Equipment
Property, plant and equipment are stated at depreciated historical cost for the
Predecessor Company adjusted for impairment and include fresh start adjustments
for the Successor Company. All identifiable assets recognized in accordance with
fresh start accounting were recorded at the Effective Date of the Plan based
upon an independent appraisal. Depreciation is provided using the straight-line
method for financial reporting purposes and accelerated methods for income tax
purposes. The estimated useful lives of property are as follows:
Years
----------
Buildings and buildings improvements....................... 10 - 44
Computer hardware and software and network equipment ...... 2 - 7
Office furniture and equipment ............................ 3 - 7
Leasehold improvements are amortized over the term of the lease or life of the
asset, whichever is shorter. Maintenance and repairs are charged to expense as
incurred. The cost of additions and betterments are capitalized. The cost and
related accumulated depreciation of property retired or sold are removed from
the applicable accounts and any gain or loss is taken into income.
The Company's long-lived assets are reviewed for impairment in accordance with
Statement of Financial Accounting Standard No. 144 "Accounting for the
Impairment or Disposal of Long-Lived Assets" ("SFAS No. 144") whenever events or
changes in circumstances indicate that the carrying amount of an asset may not
be recoverable. Recoverability of assets to be held and used is measured by a
comparison of the carrying amount of an asset to the future undiscounted cash
flows expected to be generated by the assets. If such assets are considered to
be impaired, the impairment to be recognized is measured by the amount by which
the carrying amount of the assets exceeds the fair value of the assets.
F-17
GLOBIX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in Thousands, Except Share and Per Share Data)
Intangible Assets
The Company adopted Statement of Financial Accounting Standards No. 141,
"Business Combinations" ("SFAS 141") and Statement of Financial Accounting
Standard No. 142, "Goodwill and other Intangible Assets "("SFAS 142") at the
Effective Date of the Plan. SFAS 141 requires all business combinations to be
accounted for using the purchase method of accounting and that certain
intangible assets acquired in a business combination must be recognized as
assets separate from goodwill. SFAS 142 addresses the recognition and
measurement of goodwill and other intangible assets subsequent to their
acquisition. SFAS 142 also addresses the initial recognition and measurement of
intangible assets acquired outside of a business combination whether acquired
individually or with a group of other assets. This statement provides that
intangible assets with indefinite lives and goodwill will not be amortized but,
will be tested at least annually for impairment. If impairment is indicated then
the asset will be written down to its fair value typically based upon its future
expected discounted cash flows.
For the seven month period ended April 30, 2002 and the fiscal years ended
September 30, 2001, goodwill amortization amounted to $1,141 and $2,604,
respectively. If the Company had adopted SFAS 142 as of October 1, 2000 and
discontinued goodwill amortization, the Company's net income and loss per common
share on a pro forma basis would have been as follows:
[Enlarge/Download Table]
Successor Company Predecessor Company
-------------------------------- --------------------------------
Five Months Seven Months
Year Ended Ended Ended Year Ended
September 30, September 30, April 30, September 30,
2003 2002 2002 2001
------------- ------------- ----------- ---------------
Net income (loss) ........................ $ (25,275) $ (21,131) $ 159,934 $(213,043)
Add back goodwill amortization ......... -- -- 1,141 2,604
Adjusted net income (loss) ............... (25,275) (21,131) 161,075 (210,439)
Dividends and accretion on
preferred stock ...................... -- -- (3,178) (7,104)
--------- --------- --------- ---------
Adjusted net income (loss)
attributed to common stockholders ...... $ (25,275) $ (21,131) $ 157,897 $(217,543)
========= ========= ========= =========
Adjusted earnings (loss) per common share:
Basic earnings (loss) per share
attributable to common stockholders ...... $ (1.54) $ (1.28) $ 3.99 $ (5.65)
========= ========= ========= =========
Diluted earnings (loss) per share
attributable to common stockholders ...... $ (1.54) $ (1.28) $ 3.32 $ (5.65)
========= ========= ========= =========
Intangible assets of the Successor Company are as follows:
- trademarks and trade name;
- network build-out/know-how; and
- customer contracts.
The Company amortizes intangible assets by the straight line method over their
estimated useful lives. Trademarks and trade name are amortized over a period of
7-15 years, network build out/know how are being amortized over 8 years and the
customer contracts are amortized over 2-3 years.
Intangible assets are reviewed for impairment in accordance with SFAS No. 144.
During the seven month period ended April 30, 2002, the Company recorded an
impairment charge of $3,221 of intangible assets related to the acquisition of
Comstar.net, Inc., which ceased its operations.
F-18
GLOBIX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in Thousands, Except Share and Per Share Data)
Income Taxes
Deferred income taxes are provided in accordance with SFAS No. 109, "Accounting
for Income Taxes" for differences between financial statement and income tax
bases of assets and liabilities using enacted tax rates in effect in the years
in which the differences are expected to reverse. The Company provides a
valuation allowance on net deferred tax assets when it is more likely than not
that these assets will not be realized. Certain tax benefits existed as of the
Effective Date of the Plan but were offset by valuation allowances. The
utilization of these benefits to reduce income taxes paid to U.S. Federal and
state and foreign jurisdictions does not reduce the Company's income tax
expense. Realization of net operating loss, tax credits and other deferred tax
benefits from pre-emergence attributes will first reduce intangible assets until
exhausted, and thereafter will be credited to additional paid in capital.
Comprehensive Income
SFAS No. 130, "Reporting Comprehensive Income", requires the reporting of
comprehensive income in addition to net income from operations. Comprehensive
income is a more inclusive financial reporting method that includes amounts that
historically have not been recognized in the calculation of net income.
Comprehensive Income and Accumulated Other Comprehensive Income (Loss) includes
net income, foreign currency translation, and unrealized gain (loss) on
financial instruments and is included in the Consolidated Statements of
Stockholders' Equity (Deficit).
Foreign Currency Translation
The financial statements of the Company's foreign subsidiaries have been
translated in accordance with SFAS No. 52, "Foreign Currency Translation". These
subsidiaries' assets and liabilities are translated into U.S. Dollars at the
year-end rate of exchange. Income and expense items are translated at the
average exchange rate during the year. The resulting foreign currency
translation adjustment is included in stockholders' equity as a component of
accumulated other comprehensive income. Transaction gains and losses are
recorded in the consolidated statement of operations.
F-19
GLOBIX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in Thousands, Except Share and Per Share Data)
Stock-Based Compensation
As permitted by SFAS No. 123, "Accounting for Stock-Based Compensation", which
establishes a fair value based method of accounting for stock-based compensation
plans, the Company has elected to follow Accounting Principles Board Opinion No.
25 "Accounting for Stock Issued to Employees" for recognizing stock-based
compensation expense for financial statement purposes. For companies that choose
to continue applying the intrinsic value method, SFAS No. 123 mandates certain
pro forma disclosures as if the fair value method had been utilized. The Company
accounts for stock based compensation to consultants in accordance with EITF
96-18, "Accounting for Equity Instruments That Are Issued to Other Than
Employees for Acquiring, or in Conjunction with Selling, Goods or Services" and
SFAS No. 123.
In December 2002, the FASB issued SFAS No. 148, "Accounting for Stock-Based
Compensation - Transition and Disclosure - an amendment of FASB Statement No.
123", which provides optional transition guidance for those companies electing
to voluntarily adopt the accounting provisions of SFAS No. 123. In addition,
SFAS No. 148 mandates certain new disclosures that are incremental to those
required by SFAS No. 123. The Company continued to account for stock-based
compensation in accordance with APB No. 25.
The following table illustrates the effect on income (loss) attributable to
common stockholders and earnings (loss) per share if the Company had applied the
fair value recognition provisions of SFAS No. 123 to stock-based employee
compensation.
[Enlarge/Download Table]
Successor Company Predecessor Company
--------------------------------------------------------------------- -------------------------------
For the Three Months Ended Five Months Seven Months
--------------------------------- Year Ended Ended Ended Year Ended
December 31, December 31, September 30, September 30, April 30, September 30,
2003 2002 2003 2002 2002 2001
--------------- -------------- ------------- -------------- -------------- -------------
(Unaudited) (Unaudited)
Net income (loss), as
reported attributable
to common stockholders $ (23,349) $ (5,261) $ (25,275) $ (21,131) $ 156,756 $ (220,147)
=========== =========== =========== =========== =========== ===========
Pro-forma net income
(loss) attributed
to common
stockholders ...... $ (23,423) $ (5,261) $ (26,488) $ (21,131) $ 151,621 $ (228,599)
=========== =========== =========== =========== =========== ===========
Earning (loss) per
share attributable
to common
stockholders
Basic - as reported .. $ (1.42) $ (0.32) $ (1.54) $ (1.28) $ 3.96 $ (5.72)
=========== =========== =========== =========== =========== ===========
Basic - Pro-forma .... $ (1.42) $ (0.32) $ (1.61) $ (1.28) $ 3.83 $ (5.94)
=========== =========== =========== =========== =========== ===========
Diluted - as reported $ (1.42) $ (0.32) $ (1.54) $ (1.28) $ 3.30 $ (5.72)
=========== =========== =========== =========== =========== ===========
Diluted - Pro-forma .. $ (1.42) $ (0.32) $ (1.61) $ (1.28) $ 3.19 $ (5.94)
=========== =========== =========== =========== =========== ===========
Under SFAS No. 123 the fair value of each option grant is estimated on the date
of grant using the Black-Scholes option-pricing model with the following
weighted-average assumptions:
[Enlarge/Download Table]
Successor Company Predecessor Company
----------------------------------------------------------------------- -------------------------------
For the Three Months Ended Five Months Seven Months
-------------------------- Year Ended Ended Ended Year Ended
December 31, December 31, September September 30, April 30, September
2003 2002 30, 2003 2002 2002 30, 2001
--------------- -------------- ------------- ---------------- -------------- -------------
(Unaudited) (Unaudited)
Expected life (in -- -- 4.2 -- 6.0 6.0
years) ............
Risk-free interest rate -- -- 2.7% -- 4.7% 5.0%
Volatility ............ -- -- 128% -- 133% 133%
Dividend yield........ -- -- 0.0% -- 0.0% 0.0%
F-20
GLOBIX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in Thousands, Except Share and Per Share Data)
Earnings (Loss) Per Share
Basic earnings or loss per share is calculated by dividing net loss attributable
to common shareholders by the weighted average number of shares of common stock
outstanding during the period. Diluted earnings or loss per share is calculated
by dividing net income (loss) attributable to common shareholders by the
weighted average number of common shares outstanding, adjusted for potentially
dilutive securities. The following table summarizes the equivalent number of
common shares assuming the related securities that were outstanding for each of
the periods presented had been converted, but not included in the calculation of
diluted loss per share because such shares are antidilutive:
[Enlarge/Download Table]
Successor Company Predecessor Company
------------------------------------------------------------------ -------------------------------
For the Three Months Ended Five Months Seven Months
-------------------------------- Year Ended Ended Ended Year Ended
December 31, December September 30, September 30, April 30, September 30,
2003 31, 2002 2003 2002 2002 2001
-------------- ------------- -------------- -------------- -------------- -------------
(Unaudited) (Unaudited)
Convertible
Preferred Stock..... -- -- -- -- -- 8,617,300
Employee Stock
Options............. 1,101,756 1,101,756 -- 10,021,258 10,394,781
Warrants.............. 500,000 -- 500,000 -- 194,797 194,797
-------------- -------------- -------------- -------------- -------------- -------------
1,601,756 1,601,756 -- 10,216,055 19,206,878
============== ============== ============== ============== ============== =============
The following is a reconciliation of basic earnings per share to diluted
earnings per share:
[Enlarge/Download Table]
Predecessor Company
---------------------------------------------------
Seven Months Ended April 30, 2002
---------------------------------------------------
Numerator Denominator Per Share
Income (Loss) Shares Amount
--------------- ------------- -----------
Basic earnings per share:
Net income...................................... $ 159,934
Dividends and accretion on preferred stock...... (3,178)
------------- -----------
Net income attributable to common stockholders $ 156,756 39,618,856 $ 3.96
============= =========== ==========
Add back dividends on preferred stock........... 3,178 8,888,600
Diluted earnings per share:
------------- ----------- ----------
Net income attributable to common stockholders $ 159,934 48,507,456 $ 3.30
============= =========== =========
F-21
GLOBIX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in Thousands, Except Share and Per Share Data)
Recent Accounting Pronouncements
In April 2003, the FASB issued SFAS No. 149, "Amendment of Statement 133 on
Derivative Instruments and Hedging Activities". SFAS No. 149 clarifies under
what circumstances a contract with an initial net investment meets the
characteristics of a derivative as discussed in Statement No. 133. It also
specifies when a derivative contains a financing component that warrants special
reporting in the Consolidated Statement of Cash Flows. SFAS No. 149 amends
certain other existing pronouncements in order to improve consistency in
reporting these types of transactions. The new guidance is effective for
contracts entered into or modified after June 30, 2003, and for hedging
relationships designated after June 30, 2003. The adoption of this standard did
not have a material impact on the Company's consolidated financial statements.
In May 2003, the FASB issued SFAS No. 150, "Accounting for Certain Financial
Instruments with Characteristics of Both Liabilities and Equity". SFAS No. 150
specifies that instruments within its scope embody obligations of the issuer and
that, therefore, the issuer must classify them as liabilities. SFAS No. 150
requires issuers to classify as liabilities the following three types of free
standing financial instruments: (1) mandatorily redeemable financial
instruments; (2) obligations to repurchase the issuer's equity shares by
transferring assets and (3) certain obligations to issue a variable number of
shares. SFAS No. 150 defines a "freestanding financial instrument" as a
financial instrument that (1) is entered into separately and apart from any of
the entity's other financial instruments or equity transactions or (2) is
entered into in conjunction with some other transaction and can be legally
detached and exercised on a separate basis. For all financial instruments
entered into or modified after May 31, 2003, SFAS No. 150 is effective
immediately. For all other instruments of public companies, SFAS No. 150 goes
into effect at the beginning of the first interim period beginning after June
15, 2003. For contracts that were created or modified before May 31, 2003 and
still exist at the beginning of the first interim period beginning after June
15, 2003, entities should record the transition to SFAS No. 150 by reporting the
cumulative effect of a change in an accounting principle. SFAS No. 150 prohibits
entities from restating financial statements for earlier years presented. The
adoption of SFAS No. 150 did not have a material impact on the Company's
consolidated financial statements.
In January 2003, the FASB issued FIN No. 46, "Consolidation of Variable Interest
Entities, an Interpretation of Accounting Research Bulletin (ARB) No. 51", which
relates to the identification of, and financial reporting for, variable-interest
entities (VIEs). FIN No. 46 requires that if an entity is the primary
beneficiary of a variable interest entity, the assets, liabilities and results
of operations of the variable interest entity should be included in the
consolidated financial statements of the entity. The provisions of FIN No. 46
are effective immediately for all arrangements entered into after January 31,
2003. For those arrangements entered into prior to February 1, 2003, the
provisions of FIN No. 46 are required to be adopted at the beginning of the
first interim or annual period beginning after June 15, 2003. In October 2003,
FASB Staff Position deferred the effective date for existing VIE arrangements
created before February 1, 2003 to the first interim or annual reporting period
that ends after December 15, 2003. The adoption of this standard did not have a
material impact on the Company's consolidated financial statements.
4. Fresh Start Accounting
The Company employed an independent third party to determine the enterprise
value of the Company as of the emergence date. The third party determined the
enterprise value to be $240,000. This amount was based upon several generally
accepted valuation methodologies including discounted cash flows, comparable
public company analysis and comparable mergers and acquisitions analysis. The
assigned equity values are based upon the reorganized value of the ongoing
business and include significant estimates made by management based on
information available as of the Effective Date. Valuation methodologies require
the input of highly subjective assumptions. Actual future results and events
could differ substantially from current estimates and assumptions. Any changes
in valuation could affect the Company's balance sheet.
In accordance with the principles of fresh start accounting, the Company has
adjusted the value of its assets and liabilities to their fair values as of
April 30, 2002. The equity value of the Successor Company at May 1, 2002 was
calculated as follows:
Enterprise Value........................... $ 240,000
11% Senior Notes........................... (120,000)
Mortgage Payable........................... (20,536)
Capitalized Leases......................... (6,187)
-----------
Equity value of Successor Company $ 93,277
===========
F-22
GLOBIX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in Thousands, Except Share and Per Share Data)
The Company engaged the services of an independent third party to perform a
valuation analysis of certain tangible and intangible assets. The valuation of
the subject assets was performed following standards promulgated by the American
Society of Appraisers and is in compliance with the Uniform Standards of
Professional Appraisal Practices. The tangible assets were valued using the
costs and market comparables methods. The intangible assets were valued using
the income approach and the cost approach methods.
The net effect of all fresh start accounting adjustments resulted in a charge of
$148,569 which is reflected in the Predecessor Company's statement of operations
for the seven month period ended April 30, 2002. The interest of $11,507 on the
12.5% Senior Notes for the period March 1, 2002 through the Effective Date was
not accrued in accordance with SOP 90-7.
On the Effective Date of the Plan, the Company recognized a gain of $427,066
associated with the exchange of the 12.5% Senior Notes for the 11% Senior Notes
and shares of the Company's common stock under the Plan. As a result of the
adoption of SFAS No. 145, "Rescission of SFAS Nos. 4, 44, and 64, Amendment of
SFAS 13, and Technical Corrections as of April 2002", the gain was reclassified
from extraordinary item to a gain on extinguishment of debt included in the
Predecessor Company's Statement of Operations for the seven month period ended
April 30, 2002
The Successor Company's gain on discharge of debt at April 30, 2002 was
calculated as follows:
Carrying value of 12.5% Senior Notes....................... $ 600,000
Carrying value of related accrued interest................. 43,750
Carrying value of 11% Senior Notes......................... (120,000)
Carrying value of capitalized costs
associated with 12.5% Senior Notes....................... (17,398)
85% of equity value of Successor Company................... (79,286)
----------
Gain on discharge of debt $ 427,066
==========
The effects of the transactions contemplated by the Plan and the application of
fresh start accounting on the Company's consolidated balance sheet are as
follows:
[Enlarge/Download Table]
Predecessor Successor
Company Company
April 30, Debt Fresh Start April 30,
2002 Discharge Adjustments(1) 2002
-------------- ------------ -------------- -------------
Assets
Cash and cash equivalents $ 52,722 $ -- $ -- $ 52,722
Marketable securities 2,757 -- -- 2,757
Accounts receivable, net 11,959 -- -- 11,959
Prepaid expenses and other current assets 17,264 -- (2,024) 15,240
Restricted cash. 4,018 -- -- 4,018
----------- ---------- ----------- ----------
Total current assets 88,720 -- (2,024) 86,696
Investments, restricted 5,114 -- -- 5,114
Property, plant and equipment, net 333,063 -- (155,693) 177,370
Debt issuance costs, net 18,250 (17,398)(a) (852) --
Intangible assets, net -- -- 10,155 10,155
Other assets 500 -- (208) 292
----------- ---------- ----------- ----------
Total assets $ 445,647 $ (17,398) $ (148,622) $ 279,627
=========== ========== =========== ==========
F-23
GLOBIX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in Thousands, Except Share and Per Share Data)
[Enlarge/Download Table]
Predecessor Successor
Company Company
April 30, Debt Fresh Start April 30,
2002 Discharge Adjustments(1) 2002
----------- ----------- ------------- ------------
Liabilities and Stockholders' Equity
(Deficit)
Current portion of capital lease
obligation and mortgage payable...... $ 5,239 $ -- $ (1,690) $ 3,549
Accounts payable........................ 7,782 -- (110) 7,672
Accrued liabilities..................... 26,067 (2,713)(b) (2,264) 21,090
Accrued restructuring................... 3,122 -- -- 3,122
----------- ------------ ------------ -----------
Total current liabilities 42,210 (2,713) (4,064) 35,433
Liabilities not subject to compromise:
Capital lease obligation, net of current
portion.............................. 6,383 -- (3,499) 2,884
Mortgage payable........................ 20,291 -- -- 20,291
11% Senior Notes........................ -- 120,000(c) -- 120,000
Other long-term liabilities............. 232 -- 7,510 7,742
----------- ------------ ------------ -----------
Total liabilities not subject to
compromise 69,116 117,287 (53) 186,350
Liabilities subject to compromise 643,750 (643,750)(c),(d) -- --
----------- ------------ ------------ -----------
Total liabilities 712,866 (526,463) (53) 186,350
Mandatorily redeemable
convertible preferred stock 83,695 (83,695)(e) -- --
Total stockholders' (deficit) equity (350,914) 592,760 (148,569) 93,277
----------- ------------ ------------ -----------
Total liabilities and
stockholders' (deficit) equity $ 445,647 $ (17,398) $ (148,622) $ 279,627
=========== ============ ============ ===========
(a) To remove debt issuance cost associated with the 12.5% Senior Notes.
(b) To remove accrued dividends payable on mandatorily redeemable convertible
preferred stock.
(c) To exchange 12.5% Senior Notes for 11.0% Senior Notes.
(d) To remove accrued interest on 12.5% Senior Notes.
(e) To remove mandatorily redeemable convertible preferred stock.
(1) To adjust assets and liabilities to fair value.
5. Reorganization Items
Reorganization expenses are expenses incurred by the Predecessor Company in
connection with its reorganization under Chapter 11 of the Bankruptcy Code.
Reorganization items included in the Predecessor Company's Statement of
Operations include professional fees directly related to the Predecessor
Company's bankruptcy. Reorganization expenses included in the statement of
operations were approximately $7,762 for the seven-month period ended April 30,
2002. No reorganization items were incurred by the Company in any of the other
periods presented.
6. Prepaid Expenses and Other Current Assets
[Download Table]
Successor Company
---------------------------------
September 30,
---------------------------------
2003 2002
-------------- ---------------
Prepaid expenses.............................. $ 3,797 $ 5,999
Accrued interest income....................... 7 528
Notes receivables............................. 152 192
Other......................................... 541 1,016
-------------- ---------------
$ 4,497 $ 7,735
============== ===============
F-24
GLOBIX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in Thousands, Except Share and Per Share Data)
7. Property, Plant and Equipment
Property, plant and equipment consist of the following:
[Enlarge/Download Table]
Successor Company
------------------------------------
September 30,
------------------------------------
2003 2002
--------------- --------------
Land.................................................... $ 2,713 $ 2,713
Building and building improvements...................... 84,380 84,094
Leasehold improvements.................................. 75,286 71,322
Computer hardware and software and network equipment.... 15,454 15,607
Furniture and equipment................................. 3,846 3,660
--------------- --------------
181,679 177,396
Less: Accumulated depreciation and amortization......... (19,136) (5,549)
Add: Construction in progress........................... 87 2,863
--------------- --------------
Property, plant and equipment, net...................... $ 162,630 $ 174,710
=============== ==============
Depreciation expense, were $14,069, $5,517, $26,974 and $34,053 for the year
ended September 30, 2003, the five months ended September 30, 2002, the seven
months ended April 30, 2002 and the year ended September 30, 2001, respectively.
At September 30, 2001, the Company recorded an estimated loss on impairment of
operating assets of $3,500. During the seven month period ended April 30, 2002,
the Company determined that impaired assets previously held for disposal were to
be used in operations and, accordingly, $643 of this charge was reversed.
Certain computer and network equipment are recorded under capital leases that
aggregated approximately $1,770 and $4,466 as of September 30, 2003 and 2002,
respectively. Accumulated amortization on the assets recorded under capital
leases aggregated approximately $257 and $465 as of September 30, 2003 and 2002,
respectively. During the year ended September 30, 2003, the Company purchased
certain of its equipment recorded under capital lease for a total consideration
of $850. The acquired assets had a net carrying value of $1,364 and the related
balance of the capital lease was $1,690. The transaction resulted in a net
reduction of $840 in the balance of the Company's network equipment.
ATC Merger Corp. ("ATC Corp."), a wholly owned subsidiary of the Company owns
the land and building located at 139 Centre Street, New York, New York ("139
Centre St. Building"). The nine-story building with approximately 160,000 square
feet of floor space houses the Company's corporate headquarters and one of its
Internet data center facilities. A former owner has the right to purchase the
Centre Street property and is entitled to additional consideration if the
Company sells the property in an amount equal to the greater of (a) $1,000
(subject to increase after June 1, 2018 by ten percent and an additional ten
percent every fifth year thereafter), or (b) 10% of the gross sales price of the
property if the sales price is greater than $17,500. As per the use of the 139
Centre St. Building to secure the Company's mortgage note see Note 14.
During October 2003 the Company reached an agreement to sell the property
located at 415 Greenwich Street, New York, NY ("the Property") for total cash
consideration of approximately $60,000. In connection with the sale the Company
recorded an impairment charge of $17,313 to write-down the Property to its
market value less cost to sell of approximately $11,500, reflecting a $7,000
payment required to be made to a third party investor in the Property (See Note
8), approximately $1,800 of property taxes due in connection with the sale and
other related expenses. The sale of the Property was completed on January 22,
2004. On March 3, 2004, the Company used approximately $44,000 of the net
proceeds to repurchase $40,274 in principal amount of its outstanding 11% Senior
Notes Due 2008 at par value plus accrued interest. The Company intends to use
the remaining balance of the net proceeds from the sale for working capital
purposes. As of December 31, 2003 the Property is classified under current
assets as property held for sale in accordance with SFAS No. 144.
F-25
GLOBIX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in Thousands, Except Share and Per Share Data)
8. Minority Interest
In September 2000, the Company purchased the Property. The Property is a
certified historic structure eligible for historic tax credits ("Tax Credits")
based on qualified expenditures, as defined in the Internal Revenue Code.
In June 2001, the Company entered into an agreement whereby the Tax Credits
generated from the renovation of the Property will be utilized by a third party
(the "Investor") via a subsidiary (the "LLC") in consideration for a capital
contribution to the LLC of approximately $16,549, which represents a 99.9%
interest in the LLC. As of September 30, 2002, the LLC had received
approximately $5,778 of such capital contribution. The LLC received an
additional $4,458 in October 2002 and an additional $1,636 in January 2003. The
remaining balance of the capital contribution is due from the Investor in annual
installments as follows:
Year Ending September 30,
--------------------------
2004............................... $ 1,557
2005............................... 1,479
2006............................... 1,400
2007............................... 241
-------------
Total.............................. $ 4,677
=============
As a result of the sale of the Property the Company will not receive the
remaining balance of capital contribution See also Note 7.
Although the Company's ownership of the LLC is 0.1%, the Company has
consolidated the financial statements of the LLC since inception due to
effective control of the LLC by the Company resulting in a minority interest in
subsidiary in the accompanying consolidated financial statements. The following
table reflects the summary statement of operations data for the LLC for the year
ended September 30, 2003, the five months ended September 30, 2002, the seven
months ended April 30, 2002, and for the period from inception to September 30,
2001:
[Enlarge/Download Table]
Successor Company Predecessor Company
---------------------------------- -------------------------------------------
Five Months Seven Months Period From
Year Ended Ended Ended Inception (June 11,
September 30, September 30, April 30, 2001) To
2003 2002 2002 September 30, 2001
--------------- ---------------- ---------------- ----------------------
Revenue..................................... $ 7,700 $ 3,208 $ 4,492 $ 2,331
Net Loss.................................... (439) (195) (7,374) (701)
=============== ========== =========== ============
Basic and diluted loss per share............
attributable to common stockholders........ $ (0.01) $ (0.01) $ (0.19) $ (0.02)
=============== ========== =========== ===========
In connection with the above transaction, the Investor has a Put Option with the
Company. The Put Option provides that during the 6 months following the 61st
month after the date of the certification of the qualifying rehabilitation
expenditures (the "Certification Date") which occurred on September 17, 2002,
the Investor may require the Company to purchase the Investor's interest in the
LLC for an amount equal to 25% of the Investor's capital contribution in the
LLC. If the Investor does not exercise its Put Option, the Company may exercise
a Call Option during a period of 24 months following the 73rd month after the
Certification Date. The Call Option allows the Company to acquire the Investor
interest in LLC for the greater of the fair market value of the Investor
interest in the LLC or an amount equal, on an after tax basis, to taxes payable
by the Investor upon the sale of its investment.
The Put Option that the Company has written has been recorded at its fair value
and is marked to fair value through stockholders' equity. At September 30, 2003
and 2002, the fair value of this option approximated $2,968 and $0,
respectively.
Upon certain events including the sale of the Property at any time after 2007
(to the extent the above mentioned put/call options have not been exercised),
the Company is obligated to pay the Investor 30% of any proceeds received in
excess of the cost of the Property. In the event that the Property is sold
anytime before 2007, the Company is obligated to pay to the Investor its capital
contribution (less any unrecaptured Tax Credits available to the Investor), plus
any loss attributable to the projected economic benefits to the Investor and any
other amounts owed to the Investor (as defined). The above potential commitment
is mitigated during the initial 60 months following the Certification Date by
the Company's right to terminate the transaction by paying the difference
between a 20% annual return on the Investor's capital contributions up to the
termination date and the Investor's actual return up to the termination date.
See also Note 7 as per the sale of the Property during October 2003 and the
related payment to the Investor.
F-26
GLOBIX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in Thousands, Except Share and Per Share Data)
9. Intangible Assets
[Enlarge/Download Table]
Successor Company
-----------------------------------------------------------------
September 30, 2003 September 30, 2002
-----------------------------------------------------------------
Gross Carrying Accumulated Gross Carrying Accumulated
Amount Amortization Amount Amortization
-------------- ------------ ------------ ----------
Trademarks and trade names......... $ 1,584 $ 149 $ 1,584 $ --
Network build-out know-how......... 7,453 1,320 7,453 388
Customer contracts................. 1,118 528 1,118 155
-------------- ----------- ------------ ----------
$ 10,155 $ 1,997 $ 10,155 $ 543
============== =========== ============ ===========
Identifiable intangible assets amortization expense amounted to $1,454, $543, $0
and $0, for the year ended September 30, 2003, for the five months ended
September 30, 2002, for the seven months ended April 30, 2002 and for the year
ended September 30, 2001, respectively.
Estimated future annual amortization expense as of September 30, 2003 is as
follows:
Year Ending September 30,
-------------------------
2004 ............................ $ 1,410
2005 ............................ 1,255
2006 ............................ 1,037
2007 ............................ 1,037
2008 ............................ 1,037
Thereafter....................... 2,382
----------
Total............................ $ 8,158
==========
10. Accrued Liabilities
Accrued liabilities consist of the following:
[Enlarge/Download Table]
Successor Company
----------------------------
September 30,
----------------------------
2003 2002
------------- -----------
Franchise tax, sales tax and property tax............... $ 1,312 $ 2,177
Salaries, benefits and commissions...................... 1,372 1,636
Telecommunications accrual.............................. 2,228 1,706
Technology licenses and maintenance contracts........... 249 1,205
Deferred revenue ....................................... 1,740 1,503
Restructuring .......................................... 68 1,828
Other ................................................. 3,190 7,869
------------- -----------
$ 10,159 $ 17,924
============= ===========
F-27
GLOBIX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in Thousands, Except Share and Per Share Data)
11. Restructuring and Other
The Company announced a number of restructuring actions to reduce expenses and
streamline operations. These actions included a workforce reduction and
rationalization of data center and sales locations. The Company recorded
restructuring charges of $56,109 in fiscal 2001. The Company recorded net
restructuring of $24,834 in the seven month period ended April 30, 2002. This
amount is comprised of $28,395, offset by reversals of $3,561, related to
revised estimates and a $1,184 vendor settlement related to an asset impaired in
the prior year. The Company believes these actions will result in ongoing annual
operating expense savings of approximately $24,000.
During the quarter ended December 31, 2000, the Company's board of directors
approved a restructuring plan to modify its Internet data center expansion plan
to delay, scale back and eliminate certain facilities. The restructuring plan
included the termination of certain lease obligations, associated surplus power
and environmental equipment related to the proposed expansion of Globix Internet
data centers in Boston, MA; Seattle, WA; and Los Angeles, CA. When initiated,
the restructuring plan was expected to take approximately one year to complete.
The Company recorded a $38,109 charge associated with this restructuring plan in
the fiscal quarter ending December 31, 2000. Approximately $18,460 of this
charge was recorded as a write-off of construction in progress, which included
capitalized interest, consulting and legal fees, construction and
pre-construction related costs previously capitalized. Approximately $17,019 was
recorded for landlord contract settlements and $2,630 for facilities closings.
During the quarter ending September 30, 2001, the Company further modified its
business plan to eliminate certain additional Internet data center and sales
office facilities, resulting in the termination of certain employees, lease
obligations and write-off of certain equipment, leasehold improvements and
intangible assets and other costs. In connection with this modification,
additional restructuring charges of $18,000 were recorded, of which $9,947 was a
write-off of equipment, leasehold improvements and intangible assets, $4,150 for
landlord contract settlements, $2,703 for facility closings and $1,200
associated with employee terminations (106 employees).
During the quarter ended March 31, 2002, the Company made an additional
modification to its business plan pursuant to the Plan, in order to reduce
certain Internet data center lease obligations and close certain network access
points and network aggregation points, resulting in the termination of certain
employees, lease obligations and write-off of certain equipment, leasehold
improvements and other costs. In connection with this modification, the Company
recorded a restructuring charge of $28,395, of which $16,407 was for the
write-off of previously escrowed lease deposit and landlord inducement and legal
payments, $6,922 was for the write-off of equipment and leasehold improvements,
$2,120 for facilities closings and $2,946 was associated with employee
terminations (148 employees).
Reversals related to contract settlement charges and facility closings were
primarily for settling certain facility contracts and purchase commitments for
amounts lower than originally planned. Reversals related to fiscal 2001 asset
write downs were primarily related to adjustments to estimated Plant, Property
and Equipment impairment. Actual impairment amounts were less than the original
estimates.
F-28
GLOBIX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in Thousands, Except Share and Per Share Data)
The following table displays the activity and balances of the restructuring
reserve account from inception to September 30, 2003:
[Enlarge/Download Table]
Restructuring Other
--------------------------------------------------- ---------------------------------
Employee Contract Facility Assets
Termination Settlements Closing Write-Down Total
-------------- ---------------- --------------- ---------------- ---------------
Restructure Charge..................... $ 1,200 $ 21,169 $ 5,333 $ 28,407 $ 56,109
Deductions-Non-Cash.................... -- -- -- (22,889) (22,889)
Deductions-Cash........................ (194) (17,119) (3,380) (3,336) (24,029)
-------------- ---------------- --------------- ---------------- ---------------
September 30, 2001 Balance
(Predecessor Company) ................ 1,006 4,050 1,953 2,182 9,191
Additional Restructure Charge.......... 2,946 16,407 2,120 6,922 28,395
Deductions-Non-Cash.................... (889) -- (422) (6,922) (8,233)
Deductions-Cash........................ (2,520) (18,480) (1,669) -- (22,669)
Reversal to Fiscal 2001 Plan........... -- (678) (701) (2,182) (3,561)
-------------- ---------------- --------------- ---------------- ---------------
April 30, 2002 Balance
(Predecessor Company) ................. 543 1,299 1,281 -- 3,123
Deductions-Cash........................ (400) -- (895) -- (1,295)
-------------- ---------------- --------------- ---------------- ---------------
September 30, 2002 Balance
(Successor Company) ................... 143 1,299 386 -- 1,828
Deduction-Cash......................... (143) (485) (112) -- (740)
Reversal of accruals................... -- (814) (206) -- (1,020)
-------------- ---------------- --------------- ---------------- ---------------
September 30, 2003 (Successor
Company) .............................. $ -- $ -- $ 68 $ -- $ 68
============== ================ =============== ================ ===============
The remaining liability is expected to be settled in cash.
12. Other Long Term Liabilities
Other long-term liabilities consist of the following:
[Download Table]
Successor Company
------------------------
September 30,
------------------------
2003 2002
---------- ----------
Note payable......................................... $ 2,600 $ 2,600
Rabbi trust obligation............................... -- 2,777
Negative leasehold obligation........................ 7,247 7,607
Deferred rent........................................ 486 100
Other................................................ 326 --
---------- ----------
$ 10,659 $ 13,084
========== ==========
The Company has a $2,600 note payable, due November 15, 2005. The note bears
interest, payable monthly, at the rate of Prime plus 1%. The note is
collateralized by an irrevocable standby letter of credit. The related funds are
included in restricted investments on the accompanying consolidated balance
sheet.
On July 21, 1999, the Company established a trust (the "Rabbi Trust") for the
benefit of a former executive. The trust agreement was for three years beginning
in April 1999 through March 1, 2002. The agreement was amended on March 21,
2001, and provided for payments from the Rabbi Trust commencing April 2001.
Payments were made from the Trust until March 1 2002, when Globix and two of its
wholly-owned subsidiaries filed for Chapter 11. The Company was in litigation
over the trust which was settled pursuant to court order confirmation of the
settlement dated June 13, 2003. Pursuant to this settlement, Mr. Bell received a
distribution of $990 and the Company received a distribution of approximately
$1,700. The amount of approximately $100 was retained by the trustee to cover
the costs of winding up the trust. See also Note 18.
F-29
GLOBIX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in Thousands, Except Share and Per Share Data)
In connection with fresh start accounting at the Effective Date, the Company
recorded a Negative Leasehold Liability associated with three of its Internet
data centers. The Negative Leasehold Liability amount was determined by
independent appraisal and based upon research of the local market condition in
each market and estimation of the net effective market rental rates in
comparison to the Company's contractual lease rates through expiration of the
lease. Such liability will be amortized to reduce lease expense over the
remaining life of the lease as follows:
Year Ending September 30,
-------------------------
2004 ............................. $ 678
2005 ............................. 678
2006 ............................. 678
2007 ............................. 678
2008.............................. 678
Thereafter........................ 4,535
---------
Total............................. 7,925
Less: Current Portion............. (678)
---------
Long-term Portion................. $ 7,247
=========
13. 12.5% Senior Notes and 11% Senior Notes
In February 2000, the Company issued $600,000 in aggregate principal amount of
its 12.5% Senior Notes in a private placement resulting in net proceeds of
approximately $580,000. In connection with the offer of the 12.5% Senior Notes
the Company incurred costs of approximately $20,000 that were being amortized
over ten years using the effective interest method.
As of the Effective Date, all of the existing 12.5% Senior Notes were cancelled
and each holder of the 12.5% Senior Notes became entitled to receive, in
exchange for its 12.5% Senior Notes, its pro rata share of $120,000 in aggregate
principal amount of the 11% Senior Notes and 13,991,000 shares of the Company's
common stock, representing 85% of the shares of the Company's common stock
issued and outstanding following the Effective Date. The interest of $11,507 on
the 12.5% Senior Notes for the period March 1, 2002 through the Effective Date
was not accrued in accordance with SOP 90-7. See Note 4 as per the accounting
treatment applied under the Fresh Start Accounting.
The Company is deemed to have issued the 11% Senior Notes on the Effective Date
in one series that is initially limited to $120,000 aggregate principal amount
of 11% Senior Notes. However, none of the 11% Senior Notes had been distributed
as of September 30, 2002. In October 2002, the Company distributed $120,000 in
aggregate principal amount of the 11% Senior Notes, which included $1,968 in
aggregate principal amount of Senior Notes placed in reserve in escrow pursuant
to a Stipulation and Order entered into with the lead plaintiffs in the class
action lawsuit described in Note 18.
The 11% Senior Notes will mature on May 1, 2008. The 11% Senior Notes will bear
interest at 11% per annum, payable annually in May of each year, commencing on
May 1, 2003. Interest on the 11% Senior Notes for the first two year period
following the initial date of issuance is, payable in kind by the issuance of
additional notes with terms identical to the 11% Senior Notes (other than the
date of issuance) in a principal amount equal to the interest payment then due.
For the two year period thereafter, interest is payable in cash or, at the
Company's option when authorized by its board of directors, in additional notes
with terms identical to the 11% Senior Notes (other than the date of issuance),
or in any combination of cash and additional notes. For the remaining two years
until maturity, interest is payable in cash. As of September 30, 2003 the
Company issued an additional $ 11,298 in 11% Senior Notes in payment of accrued
interest on the 11% Senior Notes.
F-30
GLOBIX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in Thousands, Except Share and Per Share Data)
The 11% Senior Notes were issued under an indenture dated as of April 23, 2002
(the "Indenture"), among the Company, HSBC Bank USA, as trustee (the "Trustee")
and Bluestreak Digital, Inc., Gamenet Corporation, NAFT Computer Service
Corporation, NAFT International Ltd., PFM Communications, Inc., GRE Consulting,
Inc., 415 Greenwich GC, LLC, 415 Greenwich GC Tenant, LLC, 415 Greenwich GC MM,
LLC, Comstar.net, Inc. and Comstar Telecom & Wireless, Inc., as the initial
Subsidiary Guarantors. See Note 21 for additional disclosures related to the
Subsidiary Guarantors. During 2003, the Company merged each of these subsidiary
guarantors, other than 415 Greenwich GC, 415 Greenwich GC tenant, LLC, 415
Greenwich GC MM, LLC, with into the Company.
Each holder of the 11% Senior Notes will have the right to require the Company
to repurchase all or a portion of its 11% Senior Notes for a purchase price
equal to 101% of the principal amount of that holder's 11% Senior Notes plus
accrued and unpaid interest to the date of repurchase in the event that:
- Subject to certain exceptions, any person, entity or group of persons
or entities becomes the beneficial owner, directly or indirectly, of
50% or more of the Company's outstanding voting securities;
- At any time during the two-year period following the distribution of
the 11% Senior Notes, the individuals that comprise a majority of the
Company's board of directors on the date of distribution of the 11%
Senior Notes, plus any new directors elected to the Company's board of
directors during this two-year period, cease to comprise a majority of
the Company's board of directors;
- Subject to certain exceptions, the Company consolidates with or merges
with or into another entity, the Company sells or leases all or
substantially all of its assets to another entity or any entity
consolidates with or merges with or into the Company, in each case
pursuant to a transaction in which the Company's outstanding voting
securities are changed into or exchanged for cash, securities or other
property, unless no person, entity or group of persons or entities
owns, immediately after the transaction, more than 50% of the Company's
outstanding voting stock,
The indenture governing the 11% Senior Notes (the "Indenture") contains a number
of covenants that impose significant operating and financial restrictions on the
Company and its subsidiaries. These restrictions significantly limit, and in
some cases prohibit, among other things, the ability of the Company and certain
of its subsidiaries to incur additional indebtedness, create liens on assets,
enter into business combinations or engage in certain activities with
subsidiaries. As of September 30, 2003, the Company was in compliance with the
material operating and financial restrictions imposed upon the Company contained
in the Indenture.
During the year ended September 30, 2003, the Company repurchased in the open
market for $14,612 a portion of its outstanding 11% Senior Notes, which had a
principal value of approximately $19,074 and associated accrued interest of
$1,561. As a result of the repurchase the Company recorded a gain on discharge
of debt in the amount of $6,023.
On October 3, 2003, the Company repurchased in the open market for $5,583 a
portion of its outstanding 11% Senior Notes, which had a principal value of
$7,000 and associated accrued interest of $330. As a result of the repurchase
the Company recorded a gain on discharge of debt in the amount of $1,747. On
March 3, 2004, the Company used approximately $44,000 to repurchase $40,274 in
principal amount of its outstanding 11% Senior Notes at par value plus accrued
interest (See also Note 7).
14. Mortgage Payable
On January 25, 2000, the Company borrowed $21,000 from a financial institution
pursuant to a mortgage note secured by the Company's property at 139 Centre
Street, New York. Interest is payable at 9.16% (subject to adjustment on
February 11, 2010) based on a 25 year amortization schedule. Principal and
interest payments of $178.5 are payable monthly and any balance of the principal
and all accrued and unpaid interest is due and payable in February 2025.
F-31
GLOBIX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in Thousands, Except Share and Per Share Data)
15. Stockholders' Equity
Restricted Stock Grant
In December 2000, the Company granted 3,063,490 shares of restricted stock to
certain employees and directors. The restricted stock awards vested 25% per year
over a four-year period on the anniversary date of the grant. In connection with
this restricted stock grant, the Company recorded a deferred compensation charge
of $8,999 in stockholders' equity. This deferred compensation was to be recorded
as compensation expense over the four-year vesting period. In April 2002, the
Company's board of directors approved the vesting of 100% of the remaining
unvested restricted shares. This resulted in a non-cash charge to compensation
expense of $5,100 in April 2002. Compensation expense recorded in the seven
month period ended April 30, 2002 was $7,027.
Stock Option Plans
On March 14, 2003, the Company's board of directors approved the 2003 Stock
Option Plan (the "2003 Plan"). The 2003 Plan provides for the grant of stock
options to purchase up to 1,828,889 shares of the Company's common stock to any
employee, officer, director, or consultant of the Company at an exercise price
equal to at least the fair market value at the date of grant. All options
granted under the 2003 Plan shall terminate no later than ten years from the
date of grant, 50% of options granted under the 2003 Plan vest ratably over a
period of up to 3 years with certain acceleration clauses while the remainder of
the 50% vest upon meeting certain financial conditions. As of September 30, 2003
the Company's board of directors granted a total of 1,355,976 options. Although
the 2003 Plan and the aforementioned options grants are pending on the approval
of the Company's stockholders, such options are considered as granted for
accounting purposes. None of the options granted under the 2003 Plan can be
exercised prior to an approval of the Plan by the stockholders. The 2003 Plan
was approved by the Company's stockholders during the annual stockholders
meeting in February 2004. Outstanding options, which are subject to meeting
certain financial conditions, are accounted for in accordance with FIN 28,
"Accounting for Stock Appreciation Rights and Other Variable Stock Option or
Award Plans an interpretation of APB Opinions No. 15 and 25". These options are
subject to variable accounting and are valued quarterly over their respective
periods until all performance goals are satisfied or until the options are
vested, forfeited or cancelled. Accordingly, for the quarter ended December 31,
2003 the Company recorded deferred stock compensation of $177 and a non-cash
charge of $34 for the amortization of deferred stock compensation. These
balances were based on the amount by which the common stock closing price at the
end of the quarter ended December 31, 2003 exceeded the exercise price of the
unvested variable options.
Until the Effective Date the Company's shareholders approved several options
plans. As a result of the Company's reorganization, all outstanding options and
warrants granted under those plans were cancelled and such plans were considered
void as of the Effective Date.
Summary Stock Option Activity
The following table summarizes stock option information with respect to all
stock options for the three years ended September 30, 2003:
[Enlarge/Download Table]
Number of Weighted Average
Shares Exercise Price
------------ ---------------
Options outstanding, September 30, 2000 10,298,692 $ 9.54
Granted 2,784,160 3.11
Canceled (1,128,647) 12.77
Exercised (1,559,424) 1.61
------------
Options outstanding, September 30, 2001 10,394,781 $ 8.66
Granted 3,219,200 0.45
Canceled (3,592,723) 5.83
Exercised -- --
------------
Options outstanding, April 30, 2002 10,021,258 $ 7.03
Canceled (10,021,258) 7.03
------------
Options outstanding, May 1, 2002 and September 30, 2002 -- $ --
Granted 1,355,976 3.04
Canceled (254,220) 3.04
Exercised -- --
------------
Options outstanding, September 30, 2003 1,101,756 $ 3.04
============
F-32
GLOBIX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in Thousands, Except Share and Per Share Data)
The weighted average fair value of options granted was $1.89 and $2.83 for the
years ended September 30, 2003 and 2001, respectively, and $0.41 for the seven
months ended April 30, 2002.
On March 14, 2003, the Company's board of directors approved the sale to
Communication Technology Advisors, LLC ("CTA") of a fully vested warrant
exercisable for 500,000 shares of the Company's common stock at an exercise
price of $3.00 per share. CTA provides consulting services to the Company and
was a related party until June 24, 2003 (See Note 20). The purchase price of the
warrants is $25. If CTA elects to purchase this warrant, it will be immediately
exercisable for a period of 10 years from the date of issuance. CTA is a
provider of services to the Company and as such, the value of the warrant is
expensed as determined by using the Black Scholes valuation model. The
assumptions used in the Black- Scholes model include the risk free rate of
2.92%, volatility of 133%, no dividend yield, a contractual life of 10 years and
an expected life of five years with a fair market value of $2.50. The fair value
of the warrant of $ 1,050 was expensed as part of SG&A during the year ended
September 30, 2003. The CTA warrant is not included in the aforementioned table.
The warrant was exercised during January 2004.
In April 1998, the Company completed a $160.0 million debt financing consisting
of 160,000 units, each unit consisting of a note in the principal amount of one
thousand dollars and one warrant to purchase 14.08 shares of common stock (total
of 2,252,800 shares of common stock) at a purchase price of $3.51 per share. Of
the 2,252,800 shares underlying the original 160,000 warrants, 194,797 shares
remained, until canceled on the Effective Date.
16. 401(k) Plan
The Company offers its eligible U.S. employees the opportunity to participate in
a defined contribution retirement plan qualifying under the provisions of
Section 401(k) of the Internal Revenue Code ("the 401(k) Plan"). Each employee
is eligible to contribute, on a tax-deferred basis, a portion of annual earnings
not to exceed certain federal income tax limitations. The Company made
discretionary contributions for all eligible employees who contribute to the
401(k) Plan in an amount not exceeding 50% of each participant's first 4% of
compensation contributed as elective deferrals for the Plan year. The Company
contributed approximately $110 and $390 to the 401(k) Plan during the periods
ended April 30, 2002 and September 30, 2001, respectively. The Company
contributed approximately $110 to the 401(k) Plan during the three-months ended
December 31, 2001. The Company ceased making contributions to the 401(k) Plan
effective January 1, 2002.
F-33
GLOBIX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in Thousands, Except Share and Per Share Data)
17. Income Taxes
The Company accounts for income taxes under SFAS. No. 109, "Accounting for
Income Taxes". This statement applies an asset and liability approach that
requires the recognition of deferred tax assets and liabilities with respect to
the expected future tax consequences of events that have been recognized in the
consolidated financial statements and the Company's tax returns.
The provision for income taxes for the periods below differs from the amount
computed by applying the federal statutory rate due to the following:
[Enlarge/Download Table]
Successor Company Predecessor Company
----------------------------- -----------------------------
Five Months Seven Months
Year Ended Ended Ended Year Ended
September 30, September 30, April 30, September 30,
2003 2002 2002 2001
-------------- ------------- ------------ -------------
Statutory Federal income tax rate...... (35)% (35)% 35% (34)%
State and local taxes, net of Federal
benefit............................ (10)% (10)% 14% (11)%
Other: -- -- 5% --
Valuation Allowance. .................. 45% 45% (54)% 45%
Effective income tax rate.............. -- -- -- --
Significant components of the deferred tax assets and liabilities are as
follows:
[Enlarge/Download Table]
Successor Company
--------------------------------
September 30,
--------------------------------
2003 2002
------------- ------------
Deferred tax assets:
Net operating loss carryforwards..................... $ 48,318 $ 32,717
Restructuring reserve................................ 364 823
Allowance for doubtful accounts...................... 589 477
Depreciation and amortization........................ 46,771 53,893
Deferred rent........................................ 219 1,403
Deferred compensation................................ -- 429
Deferred revenue..................................... 783 52
Other................................................ 31 383
------------- ------------
Total deferred tax assets 97,075 90,177
Less: valuation allowance............................ (97,075) (90,177)
------------- ------------
Total net deferred tax assets $ -- $ --
============= ============
The Company is in an accumulated loss position for both financial and income tax
reporting purposes. The Company has U.S. Federal income tax loss carryforwards
of approximately $91,000 at September 30, 2003. These income tax loss
carryforwards expire through 2022. The U.S. Federal income tax loss
carryforwards were reduced upon emergence from bankruptcy due to the Internal
Revenue Code's rules and regulations related to the cancellation of indebtedness
income that is excluded from taxable income. Since the Plan provided for
substantial changes in the Company's ownership, the Company's use of its net
operating loss carryforward may be limited. The Company has not yet determined
the impact, if any that changes in ownership have had on net operating loss
carryforwards. As of September 30, 2003, the Company also has net operating loss
carryforwards of approximately $24,700 from its United Kingdom Subsidiaries,
which do not expire under U.K. tax rules. For financial reporting purposes,
income tax benefits through September 30, 2003 related to both U.S. Federal and
foreign income tax losses are fully offset by a valuation allowance due to the
uncertainty of the Company's ability to realize income tax benefits by
generating taxable income in the future.
F-34
GLOBIX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in Thousands, Except Share and Per Share Data)
The Company's emergence from bankruptcy in fiscal 2002 did not create a new tax
reporting entity. Accordingly, the adjustments required to adopt fresh start
accounting are not applicable for the Company's tax reporting and therefore,
deferred tax items were recognized concurrently with the recognition of the
respective fresh start accounting adjustments. In addition pursuant to SOP 90-7,
reversals of the valuation allowance recorded against deferred tax assets that
existed as of the emergence date will first reduce intangibles until exhausted
and thereafter are reported as additional paid in capital as opposed to income
tax expense. The balance of the valuation allowance for which this treatment is
required was approximately $80,400 at September 30, 2003 and 2002.
18. Commitments and Contingencies
Leases
The Company has minimum monthly usage/maintenance levels with certain of its
telecommunications carriers expiring in various years through 2008. The Company
also leases certain of its facilities and various equipment under non-cancelable
operating leases expiring in various years through 2030. Total lease expense for
all operating leases for the year ended September 30, 2003 the seven months
ended April 30, 2002, the five months ended September 30, 2002 and for the year
ended September 30, 2001 was $5,800, $6,101, $2,993and $7,128, respectively.
Future minimum payments due under these operating leases and telecommunications
carrier usage commitments as of September 30, 2003 are as follows:
[Download Table]
Year Ending September 30, Telecom Leases Total
--------------------------------- ------------- ------------ --------------
2004......................... $ 13,325 $ 5,206 $ 18,531
2005......................... 11,071 4,147 15,218
2006......................... 9,881 6,350 16,231
2007......................... 4,446 6,397 10,843
2008......................... 4,203 6,445 10,648
Thereafter................... 82 44,420 44,502
------------- ------------ --------------
Total $ 43,008 $ 72,965 $ 115,973
============= ============ ==============
Capital Lease Obligation
Future minimum lease payments due under capital leases as of September 30, 2003
are as follows:
Year Ending September 30,
-------------------------
2004.............................................. $ 1,383
2005.............................................. 251
2006.............................................. 123
Less: Amount representing interest................ (148)
---------
Present value of net minimum lease payments....... 1,609
Less: Principal Current Portion................... (1,235)
---------
Long-term Portion................................. $ 374
=========
Letters of Credit
As of September 30, 2003 and 2002 the Company had collateralized letters of
credit aggregating to $2,600. The related funds are included in restricted cash
and investments on the accompanying consolidated balance sheet.
F-35
GLOBIX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in Thousands, Except Share and Per Share Data)
Employment and Other Contractual Agreements
Peter K. Stevenson
Effective April 15, 2002, the Company entered into an employment agreement with
Peter K. Stevenson for his services as the Company's President and Chief
Executive Officer. Mr. Stevenson's employment agreement expired in July 2003,
and was extended until July 31, 2004. Mr. Stevenson's base salary is $308 per
year. Mr. Stevenson is also eligible for an annual bonus equal to up to 50% of
his base salary which is contingent upon the Company meeting certain performance
targets and a bonus contingent on the success the Company may have in the
purchase or sale of certain assets or disposition or acquisition of certain
business in sums to be determined by the Company's compensation committee. In
addition, under the terms of Mr. Stevenson's employment agreement, Mr. Stevenson
was granted options to acquire 548,667 shares of the Company's common stock. As
of September 30, 2003 all of Mr. Stevenson's options have vested.
Mr. Stevenson's employment agreement provides that in the event that the Company
terminates his employment for any reason other than cause, if Mr. Stevenson
terminates his employment for good reason or if Mr. Stevenson's employment
terminates as a result of his death or permanent disability, then Mr. Stevenson
is entitled to a years' salary.
Contingencies
On January 28, 2002, a derivative suit was filed in the United States District
Court for the Southern District of New York against the Company, as nominal
defendant, and certain of its current and former directors and officers. The
Company believes that the allegations in this lawsuit are without merit and
intends to vigorously defend against them. In addition, the plaintiff has not
pursued her claims since the filing of the lawsuit. Although there can be no
assurance as to the outcome or effect of this lawsuit, the Company do not
believe, based on currently available information, that the ultimate
liabilities, if any, resulting from this lawsuit will have a material adverse
impact on its business, financial condition, results of operations or cash
flows.
There is a putative class action lawsuit pending in the United States District
Court for the Southern District of New York entitled In re Globix Corp
Securities Litigation, No. 02-CV-00082. This lawsuit names as defendants the
Company and its former officers Marc Bell, Peter Herzig (who remains a director
of our Company) and Brian Reach, and asserts claims under sections 10(b) and
20(a) of the Securities Exchange Act and Rule 10b-5 promulgated thereunder on
behalf of all persons or entities who purchased our securities between November
16, 2000 and December 27, 2001.
On June 25, 2002, the Company entered into a Stipulation and Order with the lead
plaintiffs in the class action lawsuit. The Stipulation and Order provides that
229,452 shares of our common stock and $1,968 in aggregate principal amount of
the 11% Senior Notes will be held in escrow pending the outcome of the class
action lawsuit. In the event that any judgment or settlement entered into in
connection with the class action lawsuit requires us to pay an amount in excess
of our liability insurance, the Company will be required to issue to the class
action litigants and their attorneys all (in the event that this excess is
$10,000 or greater) or a portion of (in the event that this excess is less than
$10,000) the shares of our common stock and the 11% Senior Notes being held in
escrow.
A consolidated amended complaint was filed in this lawsuit on June 28, 2002. The
Company has filed a motion to dismiss the consolidated amended complaint.
Briefing of that motion is not yet complete. If the motion is denied, the case
will proceed to the discovery stage. The Company believes that the allegations
in this lawsuit are without merit and intends to vigorously defend against them.
Although there can be no assurance as to the outcome or effect of this lawsuit,
Globix do not believe, based on currently available information, that the
ultimate liabilities, if any, resulting from this lawsuit will have a material
adverse impact on our business, financial condition, results of operations or
cash flows.
F-36
GLOBIX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in Thousands, Except Share and Per Share Data)
On June 12, 2002, Robert B. Bell, a former officer and director of the Company,
filed a complaint in the United States District Court for the Southern District
of New York, entitled Robert B. Bell v. Arnold M. Bressler, as Trustee, and
Globix Corporation, alleging breach of contract claims related to the failure to
make payments under a trust, which the Company refers to as the Rabbi Trust,
that Globix formed pursuant to an employment agreement with Mr. Bell. In
addition, in connection with the same underlying issues, on July 24, 2002 the
Company filed a complaint in the United States Bankruptcy Court for the District
of Delaware entitled Globix Corporation v. Arnold N. Bressler, as Trustee of the
Globix Corporation Rabbi Trust and Robert B. Bell. Subsequently, these
litigations were consolidated in the United States Bankruptcy Court matter.
This consolidated action was settled on June 13, 2003. As a result of the
settlement, Mr. Bell received a distribution of approximately $990 and Globix
received a distribution of approximately $1,700 from the Rabbi Trust.
On February 6, 2003, a putative derivative suit was filed in New York State
Supreme Court (County of New York) against the Company, as nominal defendant,
and Lehman Brothers Inc., Chase Securities, Inc., Credit Suisse First Boston
Corporation, Merrill Lynch Pierce Fenner & Smith Incorporation, Salomon Smith
Barney Inc. and ABN Amro Securities LLC (as successor to ING Barings, LLC), the
initial purchasers in our February 2000 offering of the 12.5% Senior Notes. The
suit alleges that the underwriting discount granted to the initial purchasers of
the 12.5% Notes violated Section 5-531 of the New York General Obligations Law,
which limits the amount that can be charged by a loan broker. On March 6, 2003,
the plaintiff and the initial purchasers entered into a tolling agreement that
would result in the dismissal of the action without prejudice pending action on
a motion to dismiss an amended complaint submitted in a similar case involving
debt securities issued by another corporation. On March 13, 2003, the court
dismissed the action without prejudice. On July 17, 2003, the plaintiff and the
initial purchasers extended their tolling agreement to allow the plaintiff to
re-file a complaint against the Company at any time during a period of ten days
following the disposition on appeal in the case involving the other corporation.
The Company does not anticipate that it will incur any liability in connection
with this matter.
On November 12, 2003, the Company was served with a complaint filed in the
United States Court for Southern District of New-York, entitled Alfred G.
Binford v. Globix Corporation, alleging breach of contract claims related to the
failure to make payments under an employment letter, as amended, seeking damages
in the amount of $2,113. Although there can be no assurance as to the outcome or
effect of this lawsuit, we do not believe, based on currently available
information, that the ultimate liabilities, if any, resulting from this lawsuit
will have a material adverse impact on our business, financial condition,
results of operations or cash flows. The Company has accrued its estimated
liability for its insurance deductible.
From time to time Globix is involved in legal proceedings in the ordinary course
of our business operations. Although there can be no assurance as to the outcome
or effect of any legal proceedings to which the Company is a party, the Company
does not believe, based on currently available information, that the ultimate
liabilities, if any, arising from any such legal proceedings would have a
material adverse impact on our business, financial condition, results of
operations or cash flows.
F-37
GLOBIX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in Thousands, Except Share and Per Share Data)
19. Segment Information
The Company reports segment information under SFAS No. 131, "Disclosures about
Segments of an Enterprise and Related Information". Effective April 1, 2001 and
for the fiscal year ended September 30, 2001, the Company began to evaluate its
results of operations based on one operating segment. Previously the Company
reported under two operating segments.
[Enlarge/Download Table]
Successor Company Predecessor Company
---------------------------------------------------------------- ------------------------------
For the Three Months Ended Five Months Seven Months
------------------------------- Year Ended Ended Ended Year Ended
December 31, December 31, September 30, September 30, April 30, September 30,
2003 2002 2003 2002 2002 2001
------------- ----------- ---------- -------------- ------------- -------------
(Unaudited) (Unaudited)
Revenues:
United States .... $ 8,488 $ 10,581 $ 36,833 $ 20,410 $ 37,747 $ 82,020
Europe .......... 5,897 5,899 23,344 10,313 13,526 22,190
--------- --------- --------- --------- --------- ---------
Consolidated .... $ 14,385 $ 16,480 $ 60,177 $ 30,723 $ 51,273 $ 104,210
========= ========= ========= ========= ========= =========
Operating income (loss):
United States .... $ (22,991) $ (5,580) $ (22,631) $ (15,069) $ (54,433) $(142,713)
Europe .......... 872 818 4,230 (39) (29,150) (14,773)
--------- --------- --------- --------- --------- ---------
Consolidated .... $ (22,119) $ (4,762) $ (18,401) $ (15,108) $ (83,583) $(157,486)
========= ========= ========= ========= ========= =========
Tangible assets:
United States ... $ 147,227 $ 198,357 $ 175,864 $ 210,521 $ 439,667
Europe .......... 39,974 45,074 38,260 42,587 89,953
--------- --------- --------- --------- ---------
Consolidated .... $ 187,201 $ 243,431 $ 214,124 $ 253,108 $ 529,620
========= ========= ========= ========= =========
Although the Company operates in one operating segment, there are 4 major
service lines as detailed in the table below. Data for fiscal year 2002 and 2001
has not been provided due to impracticability.
[Enlarge/Download Table]
Successor Company
----------------------------------------------------
For the Three Months Ended
------------------------------- Year Ended
December 31, December 31, September 30,
2003 2002 2003
--------------- ------------- --------------
(Unaudited) (Unaudited)
Internet Hosting and Co-Location.............. $ 5,955 $ 6,997 $ 26,048
Managed Services.............................. 4,172 3,610 13,342
Network Services and Internet Access.......... 4,224 4,849 19,034
Hardware and Software Sales, DSL and Other ... 34 1,024 1,753
--------- ----------- ----------
Revenue, net $ 14,385 $ 16,480 $ 60,177
========= =========== ==========
F-38
GLOBIX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in Thousands, Except Share and Per Share Data)
20. Related Party Transactions
Consulting Agreement with Communication Technology Advisors
The Company and Communication Technology Advisors LLC ("CTA"), are parties to a
consulting agreement. Jared E. Abbruzzese, who was a member of the Company's
board of directors as of September 30, 2002 and resigned during the year ended
September 30, 2003, is the Founder and Chairman of CTA and is actively engaged
in all aspects of CTA's business.
Under this agreement, the Company engaged CTA to act as the Office of the Chief
Restructuring Officer, providing the Company with a wide range of business
advisory services. As consideration for the services provided by CTA, the
Company pays CTA a monthly fee of $65. The Company also reimburses CTA for its
out-of-pocket expenses incurred in connection with rendering services to the
Company during the term of the agreement. In addition to the monthly fee and
expense reimbursement, CTA is also entitled to a success fee in the amount of
$1,500 upon the achievement of certain success milestones. Pursuant to this
agreement no accrual is required as of September 30, 2003.
CTA was originally introduced to the Company as a financial advisor to the
unofficial committee of holders of the 12.5% Senior Notes prior to the
commencement of the Company's Chapter 11 case. CTA received a total of $594 in
fees in connection with its service as financial advisor to the unofficial
committee and to the Company and was reimbursed a total of $46 for out-of-pocket
expenses through September 30, 2002. As a result of this engagement, the Company
was introduced to Peter K. Stevenson, currently the Company's president and
Chief Executive Officer, who was among several CTA representatives providing
advisory services to the unofficial committee and to several other clients of
CTA unrelated to the Company. Mr. Stevenson does not own an equity interest in
CTA, nor is he actively consulting for or employed by CTA.
Neither CTA, nor any of its principals or affiliates as of September 30, 2002 or
thereafter was a stockholder of the Company, nor does it hold any debt of the
Company (other than indebtedness as a result of consulting fees and expense
reimbursement owed to CTA in the ordinary course under its existing agreement
with the Company). See Note 15 for warrant granted by the Company to CTA.
From September 2002 through December 2002, CTA subleased office space from Net
One Group, Inc., a company founded by Mr. Stevenson. CTA paid a total of $4.8 in
rent to Net One Group under the sublease.
CTA has advised the Company that in connection with the conduct of its business
in the ordinary course it routinely advises clients in, and appears in
restructuring cases involving, telecommunications companies throughout the
country. CTA has also advised the Company that certain holders of the Company's
common stock and/or debt securities and/or certain of their respective
affiliates or principals are current clients of CTA in matters unrelated to the
Company, former clients of CTA in matters unrelated to the Company and
affiliates of clients who are (or were) represented by CTA in matters unrelated
to the Company.
The consulting services described above were approved by a majority of the
Company's disinterested directors.
For the fiscal year ended September 30, 2003, the Company recorded in respect of
CTA consulting expenses and reimbursement of expenses of $780 and $30,
respectively. Although CTA continues to provide the Company with ongoing
consulting services, it is no longer considered a related party as of September
30, 2003.
Life Insurance and Disability for Peter K. Stevenson
Peter K. Stevenson, the Company's President and Chief Executive Officer,
receives life insurance and disability insurance benefits in excess of the
benefits that are offered to the Company's other employees. These benefits are
payable to an entity controlled by Mr. Stevenson. The premiums for these
benefits totaled $6.3 for the five month period ended September 30, 2002. No
further amounts were paid during 2003. These benefits were approved by a
majority of the Company's disinterested directors.
F-39
GLOBIX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in Thousands, Except Share and Per Share Data)
21. Subsidiary Guarantors
In November 2002, the FASB issued FASB Interpretation No. 45 ("FIN 45"),
"Guarantors Accounting and Disclosure Requirements for Guarantees, Including
Indirect Guarantees of Indebtedness of Others". FIN 45 requires a liability to
be recognized at the time a company issues a guarantee for the fair value of the
obligations assumed under certain guarantee agreements. Additional disclosures
about guarantee agreements are also required in the interim and annual financial
statements. The adoption of FIN 45 did not have an effect on the Company's
results of operations or financial position.
Under the terms of the indenture governing the 11% Senior Notes, the following
subsidiaries of the Company have fully and unconditionally and jointly and
severally guaranteed the full and prompt performance of the Company's
obligations under the 11% Senior Notes and the Indenture, including the payment
of principal of and premium, if any, on and interest on the 11% Senior Notes:
Bluestreak Digital, Inc., Gamenet Corporation, Naft Computer Service
Corporation, Naft International Ltd., PFM Communications, Inc., GRE Consulting,
Inc., 415 Greenwich GC, LLC, 415 Greenwich GC Tenant, LLC, 415 Greenwich GC MM,
LLC, Comstar.Net, Inc. and Comstar Telecom & Wireless, Inc. The Company merged
each of these subsidiary guarantors, other than 415 Greenwich GC, LLC, 415
Greenwich GC Tenant, LLC and 415 Greenwich GC MM, LLC, with and into the
Company.
22. Disclosure About Fair Value of Financial Instruments
The carrying value of cash, cash equivalents, restricted cash, receivables,
payables, and current portion of capital lease obligation and mortgage payable
included in the consolidated balance sheets approximate their fair value due to
the their short-term maturity.
The fair value of marketable securities and investments are based on quoted
market prices.
The fair market value of the 11% Senior Notes as of September 30, 2003 is
approximately $84,292 based on the repurchase price paid by the Company on
October 3, 2003 (see Note 13).
F-40
GLOBIX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in Thousands, Except Share and Per Share Data)
23. Selected Quarterly Financial Data (Unaudited)
[Enlarge/Download Table]
Successor Company
-------------------------------------------------------------------------------
Quarter Ended
-------------------------------------------------------------------------------
December 31, 2002 March 31, 2003 June 30, 2003 September 30, 2003
------------------- ---------------- ---------------- ------------------
Net revenues $ 16,480 $ 15,368 $ 14,519 $ 13,810
Operating costs and expenses:
Cost of revenues (excluding depreciation,
amortization, payroll and occupancy shown
below) 5,624 5,274 4,601 4,491
Selling, general and administrative 11,891 12,570 9,253 10,716
Restructuring charges -- -- (1,020)
Depreciation and amortization 3,727 4,116 4,057 3,623
------------------- ---------------- ---------------- ------------------
Total operating costs and expenses 21,242 21,960 17,911 17,810
------------------- ---------------- ---------------- ------------------
Other operating income 345
Loss from operations: (4,762) (6,247) (3,392) (4,000)
Interest and financing expense, net (3,516) (3,214) (3,463) (3,769)
Other income (expense) 182 204 220 626
Gain on debt discharge 2,727 2,044 1,154 98
Minority interest in subsidiary 108 120 105 (333)
------------------- ---------------- ---------------- ------------------
Net loss before income taxes (5,261) (7,093) (5,376) (7,378)
Income tax expense 167
------------------- ---------------- ---------------- ------------------
Net loss attributable to common stockholders $ (5,261) $ (7,093) $ (5,376) $ (7,545)
=================== ================ ================ ==================
Basic and diluted loss per share attributed
to common stockholders $ (0.32) $ (0.43) $ (0.33) $ (0.46)
=================== ================ ================ ==================
[Enlarge/Download Table]
Predecessor Company Successor Company
------------------------------------------- ---------------------------
Three Months Three Months One Month Two Months Three Months
Ended Ended Ended Ended Ended
December 31, March 31, April 30, June 30, September 30,
2001 2002 2002 2002 2002
---------- --------- --------- --------- ---------
Net revenues $ 23,379 $ 21,389 $ 6,505 $ 12,702 $ 18,021
Operating costs and expenses:
Cost of revenues (excluding depreciation,
amortization, payroll and occupancy
shown below) 9,663 9,737 2,723 4,505 5,953
Selling, general and administrative 24,748 21,401 11,057 10,749 18,564
Loss (gain) on impairment of assets -- 3,221 (643) -- --
Restructuring charges -- 24,834 -- -- --
Depreciation and amortization 12,012 12,174 3,929 2,454 3,606
--------- --------- --------- --------- ---------
Total operating costs and expenses 46,423 71,367 17,066 17,708 28,123
--------- --------- --------- --------- ---------
Loss from operations: (23,044) (49,978) (10,561) (5,006) (10,102)
Interest and financing expense, net (19,058) (13,161) (268) (2,363) (3,503)
Other income (expense) 110 (506) (113) (145) (12)
Gain on debt discharge -- -- 427,066 -- --
Minority interest in subsidiary 389 955 4,434 -- --
Reorganization items -- (5,598) (2,164) -- --
Fresh start accounting adjustments -- -- (148,569) -- --
--------- --------- --------- --------- ---------
Net (loss) income (41,603) (68,288) 269,825 (7,514) (13,617)
Dividends and accretion on
preferred stock (1,848) (1,329) -- --
--------- --------- --------- --------- ---------
Net (loss) income attributable to
common stockholders $ (43,451) $ (69,617) $ 269,825 $ (7,514) $ (13,617)
========= ========= ========= ========= =========
Basic (loss) earnings per share
attributed to common stockholders $ (1.11) $ (1.75) $ 6.52 $ (0.46) $ (0.83)
========= ========= ========= ========= =========
Diluted (loss) earnings per share
attributed to common stockholders $ (1.11) $ (1.75) $ 5.37 $ (0.46) $ (0.83)
========= ========= ========= ========= =========
F-41
415 GREENWICH STREET GC MM LLC
TABLE OF CONTENTS
PAGE
------
Independent Auditors' Report.............................................. F-43
Consolidated Balance Sheets............................................... F-44
Consolidated Statements of Operations and Member's (Deficit).............. F-45
Consolidated Statements of Cash Flows..................................... F-46
Notes to Consolidated Financial Statements................................ F-47
F-42
INDEPENDENT AUDITORS' REPORT
To the Member of
415 Greenwich Street GC MM LLC
New York, New York
We have audited the accompanying consolidated balance sheets of 415 Greenwich
Street GC MM LLC as of September 30, 2003 and 2002 (Successor Company) and the
related consolidated statements of operations, and Member's (deficit) and cash
flows for the year ended September 30, 2003, the five months ended September 30,
2002 (Successor Company), the seven months ended April 30, 2002 (Predecessor
Company) and for the period from June 11, 2001 (inception) through September 30,
2001 (Predecessor Company). 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 of America. 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 415 Greenwich Street GC MM LLC
as of September 30, 2003 and 2002 (Successor Company), and the results of its
operations and its cash flows for the year ended September 30, 2003, the five
months ended September 30, 2002 (Successor Company), the seven months ended
April 30, 2002 (Predecessor Company) and for the period from June 11, 2001
(inception) through September 30, 2001 (Predecessor Company), in conformity with
accounting principles generally accepted in the United States of America.
/s/ Ehrenkrantz, Sterling & Co. LLC
Livingston, New Jersey
March 16, 2004
F-43
415 GREENWICH STREET GC MM LLC
CONSOLIDATED BALANCE SHEETS
(Amounts in Thousands)
[Enlarge/Download Table]
Successor Company
---------------------------------------
December 31, September 30,
2003 ------------------------
2003 2002
----------- ------------ ----------
(Unaudited)
ASSETS
CURRENT ASSETS
Cash ............................................. $ 538 $ 538 $ 316
Due from Globix Corporation ...................... -- 34 75
Property held for sale ........................... 2,637 -- --
------- ------- -------
TOTAL CURRENT ASSETS ..................... 3,175 573 391
PROPERTY AND EQUIPMENT, net .......................... -- 5,812 4,253
------- ------- -------
TOTAL ASSETS ......................................... $ 3,175 $ 6,385 $ 4,644
======= ======= =======
LIABILITIES AND MEMBER'S (DEFICIT)
CURRENT LIABILITIES
Note payable, Globix Corporation ................. $ 3,151 $ 1,368 $ 3,544
Due to Globix Corporation ........................ 105 -- --
Accrued expenses ................................. 761 721 541
------- ------- -------
TOTAL CURRENT LIABILITIES ............... 4,017 2,089 4,085
NOTE PAYABLE, Globix Corporation, less current portion -- 1,783 3,050
PUT OPTION LIABILITY ................................. 2,968 2,968 --
------- ------- -------
TOTAL LIABILITIES .................................... 6,985 6,840 7,135
------- ------- -------
MINORITY INTEREST IN SUBSIDIARY ...................... 1,652 5,004 --
MEMBER'S (DEFICIT) ................................... (5,462) (5,459) (2,491)
------- ------- -------
TOTAL LIABILITIES AND MEMBER'S (DEFICIT) ............. $ 3,175 $ 6,385 $ 4,644
======= ======= =======
See Notes to Consolidated Financial Statements.
F-44
415 GREENWICH STREET GC MM LLC
CONSOLIDATED STATEMENTS OF OPERATIONS AND MEMBER'S (DEFICIT)
(Amounts in Thousands)
[Enlarge/Download Table]
Successor Company Predecessor Company
----------------------------------------------------- --------------------------
Five Months Seven Months June 11, 2001
For the Three Months Ended Year Ended Ended Ended (Inception) To
------------------------- September 30, September 30, April 30, September 30,
December 31, December 31, 2003 2002 2002 2001
2003 2002 ------------ ------------ ------------ --------------
------------ -----------
(Unaudited) (Unaudited)
RENTAL INCOME ................................. $ 1,925 $ 1,925 $ 7,700 $ 3,208 $ 4,492 $ 2,331
------- ------- ------- ------- ------- -------
OPERATING EXPENSES
Rent expense ............................. 1,850 1,850 7,400 3,083 4,317 2,241
Legal expenses ........................... -- -- -- -- -- 372
Management fees .......................... 3 3 10 4 6 3
Loss on impairment of property held for sale 3,175 -- -- -- -- --
Depreciation and amortization ............ -- 109 475 138 693 296
------- ------- ------- ------- ------- -------
Total operating expenses ............ 5,028 1,962 7,885 3,225 5,016 2,912
------- ------- ------- ------- ------- -------
LOSS FROM OPERATIONS .......................... (3,103) (37) (185) (17) (524) (581)
OTHER DEDUCTION
Fresh start accounting adjustments ....... -- -- -- -- 6,620 --
Interest expense ......................... 49 71 253 178 230 120
------- ------- ------- ------- ------- -------
LOSS BEFORE MINORITY INTEREST ................. (3,152) (108) (438) (195) (7,374) (701)
MINORITY INTEREST ............................. 3,149 108 438 -- 5,078 701
------- ------- ------- ------- ------- -------
NET LOSS ...................................... (3) (*) (*) (195) (2,296) (*)
PUT OPTION .................................... -- -- (2,968) -- -- --
MEMBER'S (DEFICIT), beginning of period ....... (5,459) (2,491) (2,491) (2,296) (*) --
------- ------- ------- ------- ------- -------
MEMBER'S (DEFICIT), end of period ............. $(5,462) $(2,491) $(5,459) $(2,491) $(2,296) $ (*)
======= ======= ======= ======= ======= =======
(*) Represents an amount lower than $1.
See Notes to Consolidated Financial Statements.
F-45
415 GREENWICH STREET GC MM LLC
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in Thousands)
[Enlarge/Download Table]
Successor Company Predecessor Company
------------------------------------------------------ --------------------------
June 11,
For the Three Months Ended Five Months Seven Months 2001
-------------------------- Year Ended Ended Ended (Inception)
December 31, December 31, September 30, September 30, April 30 To September 30,
2003 2002 2003 2002 2002 2001
------------ ------------- ------------ ------------- ----------- ---------------
(Unaudited) (Unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss ......................................... $ (3) $ (*) $ (*) $ (195) $(2,296) $ (*)
Adjustments to reconcile net
loss to net cash provided
by (used in) operating activities
Loss on impairment of property held for sale .... 3,175 -- -- -- -- --
Depreciation and amortization .................. -- 109 475 138 693 296
Fresh Start Accounting Adjustment .............. -- -- -- -- 6,620 --
Minority interest .............................. (3,149) (108) (438) -- (5,078) (701)
Changes in operating assets and liabilities
Due from Globix Corporation .................... 140 (3,856) (3,378) (50) 66 (90)
Accrued liabilities ............................ 40 (459) (375) 182 236 123
------ ------- ------- ------- ------- -------
Net cash provided by (used in)
Operating activities ............................ 203 (4,314) (3,716) 75 241 (372)
------ ------- ------- ------- ------- -------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property equipment .................. -- -- (2,058) -- -- (5,406)
------ ------- ------- ------- ------- -------
Net cash used in investing activities ............ -- -- (2,058) -- -- (5,406)
------ ------- ------- ------- ------- -------
CASH FLOWS FROM FINANCING ACTIVITIES
Member capital contributions .................... -- 4,458 6,094 -- -- 5,778
Capital distribution ............................ (203) (97) (97) -- -- --
------ ------- ------- ------- ------- -------
Net cash provided by financing activities ........ (203) 4,361 5,997 -- -- 5,778
------ ------- ------- ------- ------- -------
NET INCREASE IN CASH AND CASH EQUIVALENTS ........ -- 47 223 75 241 --
CASH AND CASH EQUIVALENTS, beginning of Period ... 538 316 316 241 -- --
------ ------- ------- ------- ------- -------
CASH AND CASH EQUIVALENTS, end of Period ........ $ 538 $ 363 $ 538 $ 316 $ 241 $ --
====== ======= ======= ======= ======= =======
SUPPLEMENTAL DISCLOSURES OF
CASH FLOW INFORMATION
CASH PAID FOR INTEREST .......................... $ -- $ 528 $ 598 $ 177 $ 230 $ 120
====== ======= ======= ======= ======= =======
SIGNIFICANT NON-CASH INVESTING
AND FINANCING ACTIVITIES:
Capital expenditure financed by
note payable to Globix Corporation ............. $ -- $ -- $ -- $ -- $ -- $ 6,594
====== ======= ======= ======= ======= =======
Put-option ...................................... $ -- $ -- $ 2,968 $ -- $ -- $ --
====== ======= ======= ======= ======= =======
See Notes to Consolidated Financial Statements.
F-46
415 GREENWICH STREET GC MM LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in Thousands)
Note 1: ORGANIZATION AND NATURE OF OPERATIONS
415 Greenwich Street GC Tenant, LLC ("Tenant") was organized in New
York on April 27, 2001. The purpose of the Tenant is to operate a
lease, hold, maintain and operate a commercial property, including
equipment, at 415 Greenwich Street, New York, NY (the "Property"),
together with such other activities as may be necessary or advisable in
connection with the ownership of the Property. The Tenant is owned
99.9% by Chevron TCI, Inc. (the "Investor Member") and 0.1% by 415
Greenwich Street GC MM LLC (the "Company" or "Managing Member"), a
wholly owned subsidiary of Globix Corporation ("Globix" or the
"Parent"). Globix reorganized under a Chapter 11 proceeding,
emerging from bankruptcy as of April 25, 2002. In connection with
its Plan of Reorganization, Globix adopted fresh start reporting,
effective April 30, 2002 in accordance with the American Institute
of Certified Public Accountants Statement of Position 90-7
"Financial Reporting by Entities in reorganization under the
Bankruptcy Code." The effect of adopting fresh start accounting
resulted in a revaluation of the Company's property and equipment
(see Note 10).
The Property is owned by 415 Greenwich Street GC LLC (the "Landlord"),
a wholly owned subsidiary of Globix. The Property is leased (the
"Master Lease") to the Tenant for a period of 35 years for
approximately $7,400 per annum, subject to adjustments in the Consumer
Price Index, as defined in the lease after the 10th year of the lease
term. The Property is also subleased (the "Sublease") back to Globix
for a period of twenty years for approximately $7,700 per annum.
During October 2003 Globix reached an agreement to sell the Property
for total cash consideration of approximately $60,000. In connection
with the sale the Company recorded an impairment charge of $3,175 to
write-down its investment in property and equipment to its market value
less cost to sell. The sale of the Property was completed on January
22, 2004 and accordingly the Property is classified as of December 31,
2003 under current assets as property held for sale in accordance with
SFAS No. 144, "Accounting for the Impairment or Disposal of Long Lived
Assets". In connection with the completion of the Property sale, Globix
and the Investor Member agreed on a $7,000 settlement payment to be
made by Globix (See Notes 5 and 6).
The following table describes the periods presented in the financial
statements and related notes thereto:
Period Referred to as
------ --------------
From May 1, 2002 through December 31, 2003 "Successor Company"
From October 1, 2001 through April 30, 2002
and for the fiscal year ended "Predecessor Company"
September 30, 2001
F-47
415 GREENWICH STREET GC MM LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in Thousands)
Note 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
USE OF ESTIMATES
Management uses estimates and assumptions in preparing these financial
statements in accordance with generally accepted accounting principles.
Those estimates and assumptions affect the reported amounts of assets
and liabilities, the disclosure of contingent assets and liabilities,
and the reported amounts of revenues and expenses. Actual results could
differ from those estimates.
INTERIM FINANCIAL INFORMATION
The consolidated financial information as of December 31, 2003 and for
the three months ended December 31, 2003 and 2002 is unaudited, but
includes all adjustments, consisting only of normal and recurring
accruals, that management considers necessary for a fair presentation
of its combined results of operations, financial position and cash
flows. Results for the three months ended December 31, 2003 and 2002
are not necessarily indicative of results to be expected for the entire
fiscal year.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the
Company and its subsidiary. Included in the Company's consolidated
results is a 0.01% owned subsidiary, 415 Greenwich GC Tenant, LLC. The
Company controls all financial aspects of this entity. All significant
intercompany accounts and transactions have been eliminated in
consolidation.
CASH AND CASH EQUIVALENTS
All highly liquid investments with an original maturity of three months
or less are considered to be cash and cash equivalents.
REVENUE RECOGNITION
The Company recognizes revenue from minimum base rents on a monthly
basis.
INCOME TAXES
The Company is treated as a partnership for Federal and State income
tax purposes. Consequently, Federal and State income taxes are not
payable by or provided for the Company. The members account for their
share of the Company's earnings, losses, deductions and credits on
their Federal and State income tax returns.
PROPERTY AND EQUIPMENT
Property and equipment is stated at historical cost for the Predecessor
Company adjusted for impairment and includes fresh start adjustments
for the Successor Company. All identifiable assets recognized in
accordance with fresh start accounting were recorded at the Effective
Date based upon an independent appraisal. Depreciation is provided
using the straight-line method for financial reporting purposes and
accelerated methods for income tax purposes. Equipment and furniture is
depreciated over their estimated useful lives ranging from 3 to 7
years, leasehold improvements are depreciated over their estimated
useful life - approximately 16 years.
RECENT ACCOUNTING PRONOUNCEMENTS
In April 2003, the FASB issued SFAS No. 149, "Amendment of Statement
133 on Derivative Instruments and Hedging Activities". SFAS No. 149
clarifies under what circumstances a contract with an initial net
investment meets the characteristics of a derivative as discussed in
Statement No. 133. It also specifies when a derivative contains a
financing component that warrants special reporting in the Consolidated
Statement of Cash Flows. SFAS No. 149 amends certain other existing
pronouncements in order to improve consistency in reporting these types
of transactions. The new guidance is effective for contracts entered
into or modified after June 30, 2003, and for hedging relationships
designated after June 30, 2003. The adoption of this standard did not
have a material impact on the Company's consolidated financial
statements.
F-48
415 GREENWICH STREET GC MM LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in Thousands)
Note 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
In May 2003, the FASB issued SFAS No. 150, "Accounting for Certain
Financial Instruments with Characteristics of Both Liabilities and
Equity". SFAS No. 150 specifies that instruments within its scope
embody obligations of the issuer and that, therefore, the issuer must
classify them as liabilities. SFAS No. 150 requires issuers to classify
as liabilities the following three types of free standing financial
instruments: (1) mandatorily redeemable financial instruments; (2)
obligations to repurchase the issuer's equity shares by transferring
assets and (3) certain obligations to issue a variable number of
shares. SFAS No. 150 defines a "freestanding financial instrument" as a
financial instrument that (1) is entered into separately and apart from
any of the entity's other financial instruments or equity transactions
or (2) is entered into in conjunction with some other transaction and
can be legally detached and exercised on a separate basis. For all
financial instruments entered into or modified after May 31, 2003, SFAS
No. 150 is effective immediately. For all other instruments of public
companies, SFAS No. 150 goes into effect at the beginning of the first
interim period beginning after June 15, 2003. For contracts that were
created or modified before May 31, 2003 and still exist at the
beginning of the first interim period beginning after June 15, 2003,
entities should record the transition to SFAS No. 150 by reporting the
cumulative effect of a change in an accounting principle. SFAS No. 150
prohibits entities from restating financial statements for earlier
years presented. The adoption of SFAS No. 150 did not have a material
impact on the Company's consolidated financial statements.
In January 2003, the FASB issued FIN No. 46, "Consolidation of Variable
Interest Entities, an Interpretation of Accounting Research Bulletin
(ARB) No. 51", which relates to the identification of, and financial
reporting for, variable-interest entities (VIEs). FIN No. 46 requires
that if an entity is the primary beneficiary of a variable interest
entity, the assets, liabilities and results of operations of the
variable interest entity should be included in the consolidated
financial statements of the entity. The provisions of FIN No. 46 are
effective immediately for all arrangements entered into after January
31, 2003. For those arrangements entered into prior to February 1,
2003, the provisions of FIN No. 46 are required to be adopted at the
beginning of the first interim or annual period beginning after June
15, 2003. In October 2003, FASB Staff Position deferred the effective
date for existing VIE arrangements created before February 1, 2003 to
the first interim or annual reporting period that ends after December
15, 2003. The adoption of this standard did not have a material impact
on the Company's consolidated financial statements.
In November 2002, the FASB issued FASB Interpretation No. 45 ("FIN
45"), "Guarantors Accounting and Disclosure Requirements for
Guarantees, Including Indirect Guarantees of Indebtedness of Others".
FIN 45 requires a liability to be recognized at the time a company
issues a guarantee for the fair value of the obligations assumed under
certain guarantee agreements. Additional disclosures about guarantee
agreements are also required in the interim and annual financial
statements. The adoption of FIN 45 did not have an effect on the
Company's results of operations or financial position.
CONCENTRATIONS OF CREDIT RISK
Financial instruments that potentially subject the Company to
concentrations of credit risk consist primarily of cash and cash
equivalents
IMPAIRMENT OF LONG-LIVED ASSETS
Long-lived assets are reviewed for impairment whenever changes in
circumstances indicate that the carrying amount cannot be recoverable.
An impairment loss is recognized when the carrying amount of a
long-lived asset exceeds the sum of the undiscounted cash flows
expected to result from the asset's use and eventual disposition. An
impairment loss is measured as the amount by which the carrying amount
exceeds its fair value, which is typically calculated using discounted
expected future cash flows. The discount rate applied to these cash
flows is based on the Company's weighted average cost of capital, which
represents the blended after-tax costs of debt and equity. For the
three months ended December 31, 2003 impairment charges amounted to
$3,175 see Note 1.
F-49
415 GREENWICH STREET GC MM LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in Thousands)
Note 3: PROPERTY AND EQUIPMENT
Property and equipment is as follows:
Successor Company
--------------------------
September 30,
--------------------------
2003 2002
----------- -----------
Equipment ........................... $ 73 $ 117
Furniture ........................... 31 31
Leasehold improvements .............. 6,302 4,243
----------- ----------
6,406 4,391
Less: Accumulated depreciation ...... 594 138
----------- ----------
$ 5,812 $4,253
=========== ==========
Note 4: ACCRUED LIABILITIES
Accrued liabilities consist of the following:
Successor Company
----------------------
September 30
----------------------
2003 2002
---------- --------
Priority return .................. $ 555 $ --
Management expenses .............. 17 13
Interest ......................... 149 528
---------- --------
$ 721 $ 541
========== ========
F-50
415 GREENWICH STREET GC MM LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in Thousands)
Note 5: CAPITAL CONTRIBUTIONS
In accordance with the operating agreement of the Company (the
"Agreement") the Investor Member's committed capital contribution is
$14,497. An additional commitment to capital totaling $2,052 in
2003, raised the committed amount to $16,549. The Investor Member's
initial capital contribution was equal to $5,406 plus organizational
expenses of $372 for a total of $5,778.
The remainder of the capital contribution was to be paid based on a
payment schedule ending no later than January 1, 2007 and until paid,
is reflected as a capital contribution receivable in Members' Equity in
the accompanying financial statements. The balance of the funding under
the capital contribution is based upon the completion of future project
related events, as defined in the Operating Agreement.
The additional capital commitment noted in the preceding paragraph was
paid in 2003 and other amounts were received timely accordingly to the
payment schedule. The remaining balances of capital contributions due
from the Investor Member as of September 30, 2003 are as follows:
Year Ending September 30,
---------------------------------
2004............................... $ 1,557
2005............................... 1,479
2006............................... 1,400
2007............................... 241
----------
Total $ 4,677
==========
The Agreement provides that in exchange for its capital contribution,
the Investor Member will utilize the Historic Tax Credits generated
from the Property renovation (see Note 7).
As a result of the sale of the Property the Company will not receive
the remaining balance of capital contributions - see Note 1.
F-51
415 GREENWICH STREET GC MM LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in Thousands)
Note 6: MEMBERS' EQUITY
Equity interests are 99.9% and 0.1% for the Investor Member and the
Managing Member, respectively. In general, the Operating Agreement
stipulates that the profits and losses generated by the Company will be
allocated to each member in proportion to each member's equity
interest. However, in accordance with the Operating Agreement, certain
special allocations shall be allocated differently.
The Operating Agreement provides any Cash Flow, as defined, to be
distributed or applied, within 90 days after each fiscal year as
follows:
First, to the members to provide for taxes resulting from the
operations of the Company.
Second, to the payment of the $10 annual Asset Management Fee to the
Investor Member for the current year and any outstanding Assets
Management Fee for any prior year.
Third, to the payment of the Priority Return to the Investor Member for
the current year and any outstanding Priority Return for any prior
years (the Priority Return equals 3% of the Investor Member's Adjusted
Capital Contribution, as defined).
On October 7, 2002, the Company made a priority payment of $97 to the
Investor Member of which approximately $53 pertained to September 30,
2001. The Company has not paid a priority return for the year ended
September 30, 2002 and September 30, 2003 but estimates additional
amounts due are approximately $555.
Fourth, to the payment of any Project Expense Loans, (see note 9).
Fifth, to the payment of the Incentive Management Fee, as defined.
Sixth, any balance shall be distributed 99.9% to the Investor Member
and 0.1% to the Managing Member.
In connection with the above transaction, the Investor Member has a put
option with the Company. The put option provides that during the six
months following the 61st month after the date of the certification
of the qualifying rehabilitation expenditures) (the "Certification
Date"), which occurred on September 17, 2002, the Investor Member
may require the Company to purchase the Investor Members' interest
in the LLC for an amount equal to 25% of the Investor Members'
capital contribution in the LLC. If the Investor Member does not
exercise its put option, the Company may exercise a call option
during a period of 24 months following the 73rd month after the
Certification Date. The call option allows the Company to acquire
the Investor Members' interest in the LLC for the greater of the
fair market value of the Investor interest in the LLC or an amount
equal, on an after tax basis, to taxes payable by the Investor
Member upon the sale of its investment.
The Put option that the Company has written has been recorded at its
fair value and will be marked to fair value through member's deficit.
At September 30, 2003 and 2002, the fair value of this option
approximated $2,968 and $0, respectively.
F-52
415 GREENWICH STREET GC MM LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in Thousands)
Note 6: MEMBERS' EQUITY (Continued)
Upon certain events including the sale of the Property at any time
after 2007 (to the extent the above mentioned put/call options have not
been exercised), the Company is obligated to pay the Investor Member
30% of any proceeds received in excess of the cost of the Property. In
the event that the Property is sold anytime before 2007, the Company is
obligated to pay to the Investor Member its capital contribution (less
any unrecaptured Tax Credits available to the Investor Member), plus
any loss attributable to the projected economic benefits to the
Investor Member and any other amounts owed to the Investor Member (as
defined). The above potential commitment is mitigated during the
initial 60 months following the Certification Date by the Company's
right to terminate the transaction by paying the difference between a
20% annual return on the Investor Members' capital contribution up to
the termination date and the Investor Members' actual return up to the
termination date.
See also Note 1 regarding the sale of the Property during October 2003.
Note 7: HISTORIC TAX CREDIT
The Property is listed on the National Register of Historic Places.
Consequently, renovation expenditures to the Property, made by the
Tenant, qualify for Federal tax credits as defined by the Internal
Revenue Code ("IRC"). The Property qualifies for an IRC Section 205
historic tax credit, estimated to be approximately $16,500. The
Company has entered into an agreement with the Landlord whereby the
Landlord has filed an election with the Internal Revenue Service,
whereby the tax credits generated from the renovation to the Property
will be passed through to the Company under the Master Lease.
Note 8: RELATED PARTY TRANSACTIONS
Commencing June 11, 2001, the Tenant entered into the Master Lease
with the Landlord, an affiliated company through common control. The
lease terms provide for a term of 35 years, with a set base annual rent
of approximately $7,400 to be paid monthly for a ten year period,
through June 11, 2011. Payments of rent have been made through an
intercompany account between the two companies and Globix. At the end
of the ten year period under a net lease arrangement, an adjustment
will be made to reflect the cumulative change in the Consumer Price
Index. There will be an additional adjustment after 20, 25 and 30
years. The Lease has a provision allowing the Landlord to terminate the
lease under certain conditions upon a payment of a certain Lease
Termination Payment, as defined.
Commencing June 11, 2001 the Tenant entered into a sublease with
Globix for a 20 year period. The Sublease provides for a fixed annual
rent of approximately $7,700, payable monthly, for the first ten
years and is subject to an increase to reflect the cumulative change
in the Consumer Price Index. At expiration, the Property can be
leased to Globix or some other party at fair market value.
The Tenant has purchased equipment in the amount of $12,000 from
Globix. In connection with the purchase, the Tenant issued Globix a
note payable (the "Note"). The Note will be paid based on a payment
schedule ending no later than January 1, 2006. The Note bears interest
at 6% per annum. The Note calls for principal payments of $1,368,
$1,372 and $411 during 2004, 2005 and 2006 respectively.
As a result of the sale of the Property in January 2004, the debt due
to Globix was classified as a current liability as it is expected to be
settled within 12 months from the date of sale.
F-53
415 GREENWICH STREET GC MM LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in Thousands)
Note 9: GUARANTEE
In connection with the consummation of the Parents' Plan of
Reorganization, the 415 Greenwich Street GC Tenant, LLC became a
guarantor of 11% Senior Secured Notes issued by Globix Corporation.
On March 3, 2004 Globix paid $44,000 of the 11% Senior Notes with the
proceeds obtained through the sale of its 415 Greenwich Street property
(see Note 1). Subsequent to the repurchase, $68,000 of 11% Senior Notes
remain outstanding.
F-54
415 GREENWICH STREET GC MM LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in Thousands)
Note 10: FRESH START ADJUSTMENTS
The total reorganization value as of April 30, 2002 assigned to the
entity was based upon an independent appraisal of the property. The
effect of the implementation of the Globix Plan of reorganization on
its subsidiary is as follows:
[Enlarge/Download Table]
ASSETS
Pre-Fresh Start (Successor
Balance Sheet Fresh-Start Company)
April 30, 2002 Adjustment April 30, 2002
--------------- ------------- ---------------
Cash $ 241 $ -- $ 241
-------- -------- --------
Due from affiliate 25 -- 25
-------- -------- --------
Property and equipment 12,000 (7,609) 4,391
Accumulated depreciation (989) 989 --
-------- -------- --------
--
11,011 (6,620) 4,391
-------- -------- --------
TOTAL ASSETS $ 11,277 $ (6,620) $ 4,657
========= ======== ========
LIABILITIES AND MEMBERS' EQUITY (DEFICIT)
CURRENT LIABILITIES
Accrued expenses $ 359 $ -- $ 359
Note payable to Globix Corporation -
current portion 3,544 -- 3,544
-------- -------- --------
Total current liabilities 3,903 -- 3,903
-------- -------- --------
Note payable to Globix Corporation,
less current portion 3,050 -- 3,050
-------- -------- --------
Total liabilities 6,953 -- 6,953
-------- -------- --------
MEMBERS' EQUITY
Members' Equity 13,043 (6,620) 6,423
Less: Capital contribution receivable-
Investor Member (8,719) -- (8,719)
-------- -------- --------
Total members' equity (DEFICIT) 4,324 (6,620) (2,296)
-------- -------- --------
TOTAL LIABILITIES AND $ 11,277 $ (6,620) $ 4,657
======== ======== ========
MEMBERS' EQUITY
Note 11: PROJECT EXPENSE LOANS
The Managing Member agrees that, if at any time, the Company requires
funds to eliminate any operating deficit, the Managing Member shall
loan to the Company the funds required. Such loans, which will bear
interest at an annual rate equal to the Designated Prime Rate plus 1%,
shall be evidenced by unsecured promissory notes of the Company, and
are referred to as "Project Expense Loans". Any Project Expense Loans
shall be repaid as specified and no recourse for the payment thereof
may be had against any other property of the Company or against any
member. At September 30, 2003 there are no Project Expense Loans
outstanding.
F-55
415 GREENWICH STREET GC TENANT LLC
TABLE OF CONTENTS
PAGE
-------
Independent Auditors' Report.............................................. F-57
Balance Sheets............................................................ F-58
Statements of Operations.................................................. F-59
Statements of Member's Equity (Deficit)................................... F-60
Statements of Cash Flows.................................................. F-61
Notes to Financial Statements............................................. F-62
F-56
INDEPENDENT AUDITORS' REPORT
To the Members of
415 Greenwich Street GC Tenant LLC
New York, New York
We have audited the accompanying balance sheets of 415 Greenwich Street GC
Tenant LLC as of September 30, 2003 and 2002 (Successor Company) and the related
statements of operations, members' equity (deficit) and cash flows for the year
ended September 30, 2003, the five months ended September 30, 2002 (Successor
Company), the seven months ended April 30, 2002 (Predecessor Company) and for
the period from June 11, 2001 (inception) through September 30, 2001
(Predecessor Company). These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. 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 415 Greenwich Street GC Tenant
LLC as of September 30, 2003 and 2002 (Successor Company), and the results of
its operations and its cash flows for the year ended September 30, 2003, the
five months ended September 30, 2002 (Successor Company), the seven months ended
April 30, 2002 (Predecessor Company) and for the period from June 11, 2001
(inception) through September 30, 2001 (Predecessor Company), in conformity with
accounting principles generally accepted in the United States of America.
/s/ Ehrenkrantz, Sterling & Co. LLC
Livingston, New Jersey
March 16, 2004
F-57
415 GREENWICH STREET GC TENANT LLC
BALANCE SHEETS
(Amounts in Thousands)
[Enlarge/Download Table]
Successor Company
----------------------------------------
December 31, September 30,
2003 -------------------------
-------------- 2003 2002
(Unaudited) ----------- -----------
ASSETS
CURRENT ASSETS
Cash .............................................. $ 538 $ 538 $ 316
Due from Globix Corporation ....................... -- 34 75
Property held for sale ............................ 2,637 -- --
------- ------- -------
TOTAL CURRENT ASSETS ...................... 3,175 573 391
PROPERTY AND EQUIPMENT, net ........................... -- 5,812 4,253
------- ------- -------
TOTAL ASSETS .......................................... $ 3,175 $ 6,385 $ 4,644
======= ======= =======
LIABILITIES AND MEMBER'S (DEFICIT)
CURRENT LIABILITIES
Note payable, Globix Corporation .................. $ 3,151 $ 1,368 $ 3,544
Due to Globix Corporation ......................... 105 -- --
Accrued expenses .................................. 761 721 541
------- ------- -------
TOTAL CURRENT LIABILITIES ................ 4,017 2,089 4,085
NOTE PAYABLE, Globix Corporation, less current portion -- 1,783 3,050
PUT OPTION LIABILITY .................................. 2,968 2,968 --
------- ------- -------
TOTAL LIABILITIES ..................................... 6,985 6,840 7,135
------- ------- -------
MEMBERS' (DEFICIT)
Members' Equity ....................................... 867 4,222 6,228
Less: Capital contribution receivable - Investor Member (4,677) (4,677) (8,719)
------- ------- -------
Total members' deficit ................................ (3,810) (455) (2,491)
------- ------- -------
TOTAL LIABILITIES AND MEMBER'S (DEFICIT) .............. $ 3,175 $ 6,385 $ 4,644
======= ======= =======
See Notes to Financial Statements.
F-58
415 GREENWICH STREET GC TENANT LLC
STATEMENTS OF OPERATIONS
(Amounts in Thousands)
[Enlarge/Download Table]
Successor Company Predecessor Company
-------------------------------------------------------- -------------------------
Five Seven June 11,
For the Three Months Ended Year Months Months 2001
--------------------------- Ended Ended Ended (Inception) To
December 31, December 31, September 30, September 30, April 30, September 30,
2003 2002 2003 2002 2002 2001
------------ ------------- ------------- ------------ ---------- -------------
(Unaudited) (Unaudited)
RENTAL INCOME ................................. $ 1,925 $ 1,925 $ 7,700 $ 3,208 $ 4,492 $ 2,331
------- ------- ------- ------- ------- -------
OPERATING EXPENSES
Rent expense ............................. 1,850 1,850 7,400 3,083 4,317 2,241
Legal expenses ........................... -- -- -- -- -- 372
Management fees .......................... 3 3 10 4 6 3
Loss on impairment of property held for sale 3,175 -- -- -- -- --
Depreciation and amortization ............ -- 109 475 138 693 296
------- ------- ------- ------- ------- -------
Total operating expenses ............ 5,028 1,962 7,885 3,225 5,016 2,912
------- ------- ------- ------- ------- -------
LOSS FROM OPERATIONS .......................... (3,103) (37) (185) (17) (524) (581)
OTHER DEDUCTION
Fresh start accounting adjustments ....... -- -- -- -- 6,620 --
Interest expense ......................... 49 71 253 178 230 120
------- ------- ------- ------- ------- -------
NET LOSS ...................................... $(3,152) $ (108) $ (438) $ (195) $(7,374) $ (701)
======= ======= ======= ======= ======= =======
See Notes to Financial Statements.
F-59
415 GREENWICH STREET GC TENANT LLC
STATEMENTS OF MEMBERS' EQUITY (DEFICIT)
(Amounts in Thousands)
[Download Table]
Investor Managing
Member Member Total
---------- ---------- ---------
MEMBERS' EQUITY, as of June 11, 2001 (Inception) $ -- $ -- $ --
Capital contributions .......................... 14,497 -- 14,497
Less: Capital contributions receivable ......... (8,719) -- (8,719)
Net loss ....................................... (700) (*) (701)
-------- ------- --------
MEMBERS' EQUITY as of September 30,
2001 (Predecessor Company) ..................... 5,078 (*) 5,078
Net loss ....................................... (5,078) (2,296) (7,374)
-------- ------- --------
MEMBERS' (DEFICIT) as of April 30, 2002
(Successor Company) ......................... -- (2,296) (2,296)
Net loss ....................................... -- (195) (195)
-------- ------- --------
MEMBERS' (DEFICIT) as of September 30,
2002 (Successor Company) ....................... -- (2,491) (2,491)
Capital contributions .......................... 6,094 -- 6,094
Capital distribution ........................... (97) -- (97)
Unpaid priority return ......................... (555) -- (555)
Put - option ................................... -- (2,968) (2,968)
Net loss ....................................... (438) (*) (438)
-------- ------- --------
MEMBERS' EQUITY, (DEFICIT) as of September 30,
2003 (Successor Company) ....................... 5,004 (5,459) (455)
Capital distribution (Unaudited) ............... (203) -- (203)
Net loss (Unaudited) ........................... (3,149) (3) (3,152)
-------- ------- --------
MEMBERS' EQUITY, (DEFICIT) as of December 31,
2003 (Successor Company) (Unaudited) ........... $ 1,652 $(5,462) $ (3,810)
======== ======= ========
MEMBERS' (DEFICIT) as of September 30,
2002 (Successor Company) ....................... $ -- $(2,491) $ (2,491)
Capital contributions (Unaudited) .............. 4,458 -- 4,458
Capital distribution (Unaudited) ............... (97) -- (97)
Net loss (Unaudited) ........................... (108) (*) (108)
-------- ------- --------
MEMBERS' EQUITY, (DEFICIT) as of December 31,
2002 (Successor Company) (Unaudited) ........... $ 4,253 $(2,491) $ 1,762
======== ======= ========
(*) Represents an amount less than $1.
See Notes to Financial Statements.
F-60
415 GREENWICH STREET GC TENANT LLC
STATEMENTS OF CASH FLOWS
(Amounts in Thousands)
[Enlarge/Download Table]
Successor Company Predecessor Company
------------------------------------------------------ ------------------------
June 11,
For the Three Months Ended Five Months Seven Months 2001
-------------------------- Year Ended Ended Ended (Inception)
December December 31, September 30, September 30, April 30, To September
31, 2003 2002 2003 2002 2002 30, 2001
------------ ------------- ------------- ------------- ----------- -----------
(Unaudited) (Unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss ........................................ $(3,152) $ (108) $ (438) $ (195) $(7,374) $ (701)
Adjustments to reconcile net loss to
net cash provided
by (used in) operating activities
Loss on impairment of property held for sale ... 3,175 -- -- -- -- --
Depreciation and amortization ................. -- 109 475 138 693 296
Fresh Start Accounting Adjustment ............. -- -- -- 6,620 --
Changes in operating assets and liabilities
Due from Globix Corporation ................... 140 (3,856) (3,378) (50) 66 (90)
Accrued liabilities ........................... 40 (459) (375) 182 236 123
------- ------- ------- ------- ------- -------
Net cash provided by (used in)
Operating activities .......................... 203 (4,314) (3,716) 75 241 (372)
------- ------- ------- ------- ----- -------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property equipment ................. -- -- (2,058) -- -- (5,406)
------- ------- ------- ------- ----- -------
Net cash used in investing activities ........... -- -- (2,058) -- --
------- ------- ------- ------- ----- -------
CASH FLOWS FROM FINANCING ACTIVITIES
Member capital contributions ................... -- 4,458 6,094 -- -- 5,778
Capital distribution ........................... (203) (97) (97) -- -- --
------- ------- ------- ------- ----- -------
Net cash provided by financing activities ....... (203) 4,361 5,997 -- -- 5,778
------- ------- ------- ------- ----- -------
NET INCREASE IN CASH AND CASH EQUIVALENTS ....... -- 47 223 75 241 --
CASH AND CASH EQUIVALENTS, beginning of Period .. 538 316 316 241 -- --
------- ------- ------- ------- ----- -------
CASH AND CASH EQUIVALENTS, end of Period ........ $ 538 $ 363 $ 538 $ 316 $ 241 $ --
======= ======= ======= ======= ===== =======
SUPPLEMENTAL DISCLOSURES OF
CASH FLOW INFORMATION
CASH PAID FOR INTEREST .......................... $ -- $ 528 $ 598 $ 177 $ 230 $ 120
======= ======= ======= ======= ===== =======
SIGNIFICANT NON-CASH INVESTING
AND FINANCING ACTIVITIES:
Capital expenditure financed
by note payable to Globix Corporation ......... $ -- $ -- $ -- -- -- $ 6,594
======= ======= ======= ======= ===== =======
Put-option ...................................... $ -- $ -- $ 2,968 $ -- $ -- $ --
======= ======= ======= ======= ===== =======
See Notes to Financial Statements
F-61
415 GREENWICH STREET GC TENANT LLC
NOTES TO FINANCIAL STATEMENTS
(Amounts in Thousands)
Note 1: ORGANIZATION AND NATURE OF OPERATIONS
415 Greenwich Street GC Tenant, LLC (the "Company") was organized in
New York on April 27, 2001. The purpose of the Company is to operate
a lease, hold, maintain and operate a commercial property, including
equipment, at 415 Greenwich Street, New York, NY (the "Property"),
together with such other activities as may be necessary or advisable
in connection with the ownership of the Property. The Company is
owned 99.9% by Chevron TCI, Inc. (the "Investor Member") and 0.1% by
415 Greenwich Street GC MM LLC (the "Managing Member"), a wholly
owned subsidiary of Globix Corporation ("Globix" or the "Parent").
Globix reorganized under a Chapter 11 proceeding, emerging from
bankruptcy as of April 25, 2002. In connection with its Plan of
Reorganization, Globix adopted fresh start reporting, effective April
30, 2002 in accordance with the American Institute of Certified
Public Accountants Statement of Position 90-7 "Financial Reporting by
Entities in reorganization under the Bankruptcy Code." The effect of
adopting fresh start accounting resulted in a revaluation of the
Company's property and equipment (see Note 8).
The property is owned by 415 Greenwich Street GC LLC (the
"Landlord"), a wholly owned subsidiary of Globix. The Property is
leased (the "Master Lease") to the Company for a period of 35 years
for approximately $7,400 per annum, subject to adjustments in the
Consumer Price Index, as defined in the lease after the 10th year of
the lease term. The Property is also subleased (the "Sublease") back
to Globix for a period of twenty years for approximately $7,700 per
annum.
During October 2003 Globix reached an agreement to sell the Property
for total cash consideration of approximately $60,000. In connection
with the sale the Company recorded an impairment charge of $3,175 to
write-down its investment in property and equipment to its market
value less cost to sell. The sale of the Property was completed on
January 22, 2004 and accordingly the Property is classified as of
December 31, 2003 under current assets as property held for sale in
accordance with SFAS No. 144, "Accounting for the Impairment or
Disposal of Long Lived Assets". In connection with the completion of
the Property sale, Globix and the Investor Member agreed on a $7,000
settlement payment to be made by Globix (See Notes 5 and 6).
The following table describes the periods presented in the financial
statements and related notes thereto:
Period Referred to as
------ --------------
From May 1, 2002 through December 31, 2003 "Successor Company"
From October 1, 2001 through April 30, 2002 "Predecessor Company"
and for the fiscal year
ended September 30, 2001
Note 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
USE OF ESTIMATES
Management uses estimates and assumptions in preparing these
financial statements in accordance with generally accepted accounting
principles. Those estimates and assumptions affect the reported
amounts of assets and liabilities, the disclosure of contingent
assets and liabilities, and the reported amounts of revenues and
expenses. Actual results could differ from those estimates.
INTERIM FINANCIAL INFORMATION
The consolidated financial information as of December 31, 2003 and
for the three months ended December 31, 2003 and 2002 is unaudited,
but includes all adjustments, consisting only of normal and recurring
accruals, that management considers necessary for a fair presentation
of its combined results of operations, financial position and cash
flows. Results for the three months ended December 31, 2003 and 2002
are not necessarily indicative of results to be expected for the
entire fiscal year.
F-62
415 GREENWICH STREET GC TENANT LLC
NOTES TO FINANCIAL STATEMENTS
(Amounts in Thousands)
Note 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
CASH AND CASH EQUIVALENTS
All highly liquid investments with an original maturity of three months
or less are considered to be cash and cash equivalents.
REVENUE RECOGNITION
The Company recognizes revenue from minimum base rents on a monthly
basis.
INCOME TAXES
The Company is treated as a partnership for Federal and State income
tax purposes. Consequently, Federal and State income taxes are not
payable by or provided for the Company. The members account for their
share of the Company's earnings, losses, deductions and credits on
their Federal and State income tax returns.
PROPERTY AND EQUIPMENT
Property and equipment is stated at historical cost for the
Predecessor Company adjusted for impairment and includes fresh start
adjustments for the Successor Company. All identifiable assets
recognized in accordance with fresh start accounting were recorded at
the Effective Date based upon an independent appraisal. Depreciation
is provided using the straight-line method for financial reporting
purposes and accelerated methods for income tax purposes. Equipment
and furniture is depreciated over their estimated useful lives
ranging from 3 to 7 years, leasehold improvements are depreciated
over their estimated useful life - approximately 16 years.
RECENT ACCOUNTING PRONOUNCEMENTS
In April 2003, the FASB issued SFAS No. 149, "Amendment of Statement
133 on Derivative Instruments and Hedging Activities". SFAS No. 149
clarifies under what circumstances a contract with an initial net
investment meets the characteristics of a derivative as discussed in
Statement No. 133. It also specifies when a derivative contains a
financing component that warrants special reporting in the
Consolidated Statement of Cash Flows. SFAS No. 149 amends certain
other existing pronouncements in order to improve consistency in
reporting these types of transactions. The new guidance is effective
for contracts entered into or modified after June 30, 2003, and for
hedging relationships designated after June 30, 2003. The adoption of
this standard did not have a material impact on the Company's
consolidated financial statements.
In May 2003, the FASB issued SFAS No. 150, "Accounting for Certain
Financial Instruments with Characteristics of Both Liabilities and
Equity". SFAS No. 150 specifies that instruments within its scope
embody obligations of the issuer and that, therefore, the issuer must
classify them as liabilities. SFAS No. 150 requires issuers to
classify as liabilities the following three types of free standing
financial instruments: (1) mandatorily redeemable financial
instruments; (2) obligations to repurchase the issuer's equity shares
by transferring assets and (3) certain obligations to issue a
variable number of shares. SFAS No. 150 defines a "freestanding
financial instrument" as a financial instrument that (1) is entered
into separately and apart from any of the entity's other financial
instruments or equity transactions or (2) is entered into in
conjunction with some other transaction and can be legally detached
and exercised on a separate basis. For all financial instruments
entered into or modified after May 31, 2003, SFAS No. 150 is
effective immediately. For all other instruments of public companies,
SFAS No. 150 goes into effect at the beginning of the first interim
period beginning after June 15, 2003. For contracts that were created
or modified before May 31, 2003 and still exist at the beginning of
the first interim period beginning after June 15, 2003, entities
should record the transition to SFAS No. 150 by reporting the
cumulative effect of a change in an accounting principle. SFAS No.
150 prohibits entities from restating financial statements for
earlier years presented. The adoption of SFAS No. 150 did not have a
material impact on the Company's consolidated financial statements.
F-63
415 GREENWICH STREET GC TENANT LLC
NOTES TO FINANCIAL STATEMENTS
(Amounts in Thousands)
Note 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
In January 2003, the FASB issued FIN No. 46, "Consolidation of
Variable Interest Entities, an Interpretation of Accounting Research
Bulletin (ARB) No. 51", which relates to the identification of, and
financial reporting for, variable-interest entities (VIEs). FIN No.
46 requires that if an entity is the primary beneficiary of a
variable interest entity, the assets, liabilities and results of
operations of the variable interest entity should be included in the
consolidated financial statements of the entity. The provisions of
FIN No. 46 are effective immediately for all arrangements entered
into after January 31, 2003. For those arrangements entered into
prior to February 1, 2003, the provisions of FIN No. 46 are required
to be adopted at the beginning of the first interim or annual period
beginning after June 15, 2003. In October 2003, FASB Staff Position
deferred the effective date for existing VIE arrangements created
before February 1, 2003 to the first interim or annual reporting
period that ends after December 15, 2003. The adoption of this
standard did not have a material impact on the Company's consolidated
financial statements.
In November 2002, the FASB issued FASB Interpretation No. 45 ("FIN
45"), "Guarantors Accounting and Disclosure Requirements for
Guarantees, Including Indirect Guarantees of Indebtedness of Others".
FIN 45 requires a liability to be recognized at the time a company
issues a guarantee for the fair value of the obligations assumed
under certain guarantee agreements. Additional disclosures about
guarantee agreements are also required in the interim and annual
financial statements. The adoption of FIN 45 did not have an effect
on the Company's results of operations or financial position.
CONCENTRATIONS OF CREDIT RISK
Financial instruments that potentially subject the Company to
concentrations of credit risk consist primarily of cash and cash
equivalents
IMPAIRMENT OF LONG-LIVED ASSETS
Long-lived assets are reviewed for impairment whenever changes in
circumstances indicate that the carrying amount any not be
recoverable. An impairment loss is recognized when the carrying
amount of a long-lived asset exceeds the sum of the undiscounted cash
flows expected to result from the asset's use and eventual
disposition. An impairment loss is measured as the amount by which
the carrying amount exceeds its fair value, which is typically
calculated using discounted expected future cash flows. The discount
rate applied to these cash flows is based on the Company's weighted
average cost of capital, which represents the blended after-tax costs
of debt and equity. For the three months ended December 31, 2003
impairment charges amounted to $3,175 see Note 1.
Note 3: PROPERTY AND EQUIPMENT
Property and equipment is as follows:
Successor Company
----------------------------
September 30,
----------------------------
2003 2002
------------ -----------
Equipment ......................... $ 73 $ 117
Furniture ......................... 31 31
Leasehold improvements ............ 6,302 4,243
----------- ----------
6,406 4,391
Less: Accumulated depreciation .... 594 138
----------- ----------
$ 5,812 $ 4,253
=========== ==========
F-64
415 GREENWICH STREET GC TENANT LLC
NOTES TO FINANCIAL STATEMENTS
(Amounts in Thousands)
Note 4: ACCRUED LIABILITIES
Accrued liabilities consist of the following:
Successor Company
-------------------------
September 30
-------------------------
2003 2002
---------- ----------
Priority return ................... $ 555 $ --
Management expenses ............... 17 13
Interest .......................... 149 528
---------- ----------
$ 721 $ 541
========== ==========
Note 5: CAPITAL CONTRIBUTIONS
In accordance with the operating agreement of the Company (the
"Agreement") the Investor Member's committed capital contribution is
$14,497. An additional commitment to capital totaling $2,052 in
2003, raised the committed amount to $16,549. The Investor Member's
initial capital contribution was equal to $5,406 plus organizational
expenses of $372 for a total of $5,778.
The remainder of the capital contribution was to be paid based on a
payment schedule ending no later than January 1, 2007 and until paid,
is reflected as a capital contribution receivable in Members' Equity in
the accompanying financial statements. The balance of the funding under
the capital contribution is based upon the completion of future project
related events, as defined in the Operating Agreement.
The additional capital commitment noted in the preceding paragraph was
paid in 2003 and other amounts were received timely accordingly to the
payment schedule. The remaining balances of capital contributions due
from the Investor Member as of September 30, 2003 are as follows:
Year Ending September 30,
---------------------------------
2004............................... $ 1,557
2005............................... 1,479
2006............................... 1,400
2007............................... 241
----------
Total $ 4,677
==========
The Agreement provides that in exchange for its capital contribution,
the Investor Member will utilize the Historic Tax Credits generated
from the Property renovation (see Note 7).
As a result of the sale of the Property the Company will not receive
the remaining balance of capital contributions - see Note 1.
F-65
415 GREENWICH STREET GC TENANT LLC
NOTES TO FINANCIAL STATEMENTS
(Amounts in Thousands)
Note 6: MEMBERS' EQUITY
Equity interests are 99.9% and 0.1% for the Investor Member and the
Managing Member, respectively. In general, the Operating Agreement
stipulates that the profits and losses generated by the Company will be
allocated to each member in proportion to each member's equity
interest. However, in accordance with the Operating Agreement, certain
special allocations shall be allocated differently.
The Operating Agreement provides any Cash Flow, as defined, to be
distributed or applied, within 90 days after each fiscal year as
follows:
First, to the members to provide for taxes resulting from the
operations of the Company.
Second, to the payment of the $10 annual Asset Management Fee to the
Investor Member for the current year and any outstanding Assets
Management Fee for any prior year.
Third, to the payment of the Priority Return to the Investor Member for
the current year and any outstanding Priority Return for any prior
years (the Priority Return equals 3% of the Investor Member's Adjusted
Capital Contribution, as defined).
On October 7, 2002, the Company made a priority payment of $97 to the
Investor Member of which approximately $53 pertained to September 30,
2001. The Company has not paid a priority return for the year ended
September 30, 2002 and September 30, 2003 but estimates additional
amounts due are approximately $555.
Fourth, to the payment of any Project Expense Loans, (see note 9).
Fifth, to the payment of the Incentive Management Fee, as defined.
Sixth, any balance shall be distributed 99.9% to the Investor Member
and 0.1% to the Managing Member.
In connection with the above transaction, the Investor Member has a put
option with the Company. The put option provides that during the six
months following the 61st month after the date of the certification of
the qualifying rehabilitation expenditures) (the "Certification Date"),
which occurred on September 17, 2002, the Investor Member may require
the Company to purchase the Investor Members' interest in the LLC for
an amount equal to 25% of the Investor Members' capital contribution in
the LLC. If the Investor Member does not exercise its put option, the
Company may exercise a call option during a period of 24 months
following the 73rd month after the Certification Date. The call option
allows the Company to acquire the Investor Members' interest in the LLC
for the greater of the fair market value of the Investor interest in
the LLC or an amount equal, on an after tax basis, to taxes payable by
the Investor Member upon the sale of its investment.
The Put option that the Company has written has been recorded at its
fair value and will be marked to fair value through member's deficit.
At September 30, 2003 and 2002, the fair value of this option
approximated $2,968 and $0, respectively.
F-66
415 GREENWICH STREET GC TENANT LLC
NOTES TO FINANCIAL STATEMENTS
(Amounts in Thousands)
Note 6: MEMBERS' EQUITY (Continued)
Upon certain events including the sale of the Property at any time
after 2007 (to the extent the above mentioned put/call options have not
been exercised), the Company is obligated to pay the Investor Member
30% of any proceeds received in excess of the cost of the Property. In
the event that the Property is sold anytime before 2007, the Company is
obligated to pay to the Investor Member its capital contribution (less
any unrecaptured Tax Credits available to the Investor Member), plus
any loss attributable to the projected economic benefits to the
Investor Member and any other amounts owed to the Investor Member (as
defined). The above potential commitment is mitigated during the
initial 60 months following the Certification Date by the Company's
right to terminate the transaction by paying the difference between a
20% annual return on the Investor Members' capital contribution up to
the termination date and the Investor Members' actual return up to the
termination date.
See also Note 1 regarding the sale of the Property during October 2003.
Note 7: HISTORIC TAX CREDIT
The Property is listed on the National Register of Historic Places.
Consequently, renovation expenditures to the Property, made by the
Company, qualify for Federal tax credits as defined by the Internal
Revenue Code ("IRC"). The Property qualifies for an IRC Section 205
historic tax credit, estimated to be approximately $16,500. The Company
has entered into an agreement with the Landlord whereby the Landlord
has filed an election with the Internal Revenue Service, whereby the
tax credits generated from the renovation to the Property will be
passed through to the Company under the Master Lease.
F-67
415 GREENWICH STREET GC TENANT LLC
NOTES TO FINANCIAL STATEMENTS
(Amounts in Thousands)
Note 8: FRESH START ADJUSTMENTS
The total reorganization value as of April 30, 2002 assigned to the
entity was based upon an independent appraisal of the property. The
effect of the implementation of the Globix Plan of reorganization on
its subsidiary is as follows:
ASSETS
[Enlarge/Download Table]
Pre-Fresh Start (Successor
Balance Sheet Fresh-Start Company)
April 30, 2002 Adjustment April 30, 2002
-------------- ----------- --------------
Cash $ 241 $ -- $ 241
-------- -------- --------
Due from affiliate 25 -- 25
-------- -------- --------
Property and equipment 12,000 (7,609) 4,391
Accumulated depreciation (989) 989 --
-------- -------- --------
11,011 (6,620) 4,391
-------- -------- --------
TOTAL ASSETS $ 11,277 $ (6,620) $ 4,657
========= ======== ========
LIABILITIES AND MEMBERS' EQUITY (DEFICIT)
CURRENT LIABILITIES
Accrued expenses $ 359 $ -- $ 359
Note payable to Globix Corporation -
current portion 3,544 -- 3,544
-------- -------- --------
Total current liabilities 3,903 -- 3,903
Note payable to Globix Corporation,
less current portion 3,050 -- 3,050
-------- -------- --------
Total liabilities 6,953 -- 6,953
-------- -------- --------
MEMBERS' EQUITY
Members' Equity 13,043 (6,620) 6,423
Less: Capital contribution receivable -
Investor Member (8,719) -- (8,719)
-------- -------- --------
Total members' equity (DEFICIT) 4,324 (6,620) (2,296)
-------- -------- --------
TOTAL LIABILITIES AND MEMBERS' EQUITY $ 11,277 $ (6,620) $ 4,657
======== ======== ========
Note 9: GUARANTEE
In connection with the consummation of the Parents' Plan of
Reorganization, the 415 Greenwich Street GC Tenant, LLC became a
guarantor of 11% Senior Secured Notes issued by Globix Corporation. On
March 3, 2004 Globix paid $44,000 of the 11% Senior Notes with the
proceeds obtained through the sale of its 415 Greenwich Street property
(see Note 1). Subsequent to the repurchase, $68,000 of 11% Senior Notes
remain outstanding.
F-68
415 GREENWICH STREET GC TENANT LLC
NOTES TO FINANCIAL STATEMENTS
(Amounts in Thousands)
Note 10: RELATED PARTY TRANSACTIONS
Commencing June 11, 2001, the Company entered into the Master Lease
with the Landlord, an affiliated company through common control. The
lease terms provide for a term of 35 years, with a set base annual
rent of approximately $7,400 to be paid monthly for a ten year
period, through June 11, 2011. Payments of rent have been made
through an intercompany account between the two companies and Globix.
At the end of the ten-year period under a net lease arrangement, an
adjustment will be made to reflect the cumulative change in the
Consumer Price Index. There will be an additional adjustment after
20, 25 and 30 years. The Lease has a provision allowing the Landlord
to terminate the lease under certain conditions upon a payment of a
certain Lease Termination Payment, as defined.
Commencing June 11, 2001 the Company entered into a sublease with
Globix for a 20-year period. The Sublease Lease provides for a fixed
annual rent of approximately $7,700, payable monthly, for the first
ten years and is subject to an increase to reflect the cumulative
change in the Consumer Price Index. At expiration, the Property can
be leased to Globix or some other party at fair market value.
The Company has purchased equipment in the amount of $12,000 from
Globix. In connection with the purchase, the Company issued Globix a
note payable (the "Note"). The Note will be paid based on a payment
schedule ending no later than January 1, 2006. The Note bears
interest at 6% per annum. The note calls for principal payments of
$1,368, $1,372, and $411 during 2004, 2005 and 2006, respectively.
As a result of the sale of the Property in January 2004, the debt due
to Globix was classified as a current liability as it is expected to
be settled within 12 months from the date of sale.
Note 11: PROJECT EXPENSE LOANS
The Managing Member agrees that, if at any time, the Company requires
funds to eliminate any operating deficit, the Managing Member shall
loan to the Company the funds required. Such loans, which will bear
interest at an annual rate equal to the Designated Prime Rate plus
1%, shall be evidenced by unsecured promissory notes of the Company,
and are referred to as "Project Expense Loans". Any Project Expense
Loans shall be repaid as specified and no recourse for the payment
thereof may be had against any other property of the Company or
against any member. At September 30, 2003 there are no Project
Expense Loans outstanding.
F-69
415 GREENWICH GC, LLC
TABLE OF CONTENTS
PAGE
------
Independent Auditors' Report............................................. F-71
Balance Sheets........................................................... F-72
Statements of Operations and Member's Equity (Deficit)................... F-73
Statements of Cash Flows................................................. F-74
Notes to Financial Statements............................................ F-75
F-70
INDEPENDENT AUDITORS' REPORT
To The Member
415 Greenwich GC, LLC
New York, New York
We have audited the accompanying balance sheets of 415 Greenwich GC, LLC as of
September 30, 2003 and 2002 (Successor Company), and the related statements of
operations and member's equity/(deficit)and cash flows for the year ended
September 30, 2003, the five months ended September 30, 2002 (Successor
Company), the seven months ended April 30, 2002 (Predecessor Company) and for
the period from June 11, 2001 (inception) through September 30, 2001
(Predecessor Company). These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. 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 415 Greenwich GC, LLC as of
September 30, 2003 and 2002 (Successor Company) and the results of its
operations and its cash flows for the year ended September 30, 2003, the five
months ended September 30, 2002 (Successor Company), the seven months ended
April 30, 2002 (Predecessor Company) and for the period from June 11, 2001
(inception) through September 30, 2001 (Predecessor Company), in conformity with
accounting principles generally accepted in the United States of America.
/s/ Ehrenkrantz, Sterling & Co. LLC
Livingston, New Jersey
March 16, 2004
F-71
415 GREENWICH STREET GC, LLC
BALANCE SHEETS
(Amounts in Thousands)
[Enlarge/Download Table]
Successor Company
-------------------------------------------
December 31, September 30,
2003 ---------------------------
-------------- 2003 2002
(Unaudited) ------------ -----------
ASSETS
CURRENT ASSETS
Property held for sale .................... $ 35,427 $ -- $ --
--------- --------- --------
TOTAL CURRENT ASSETS .............. 35,427 -- --
Property, net ................................. -- 35,427 36,223
Due from affiliated company ................... 18,891 17,041 9,641
--------- --------- --------
TOTAL ASSETS .................................. $ 54,318 $ 52,468 $ 45,864
========= ========= ========
LIABILITIES AND MEMBER'S EQUITY (DEFICIT)
Long-term liability to Globix Corporation ..... $ 47,395 $ 47,395 $ 47,395
Member's Equity (Deficit) ..................... 6,923 5,073 (1,531)
--------- --------- --------
TOTAL LIABILITIES AND MEMBER'S EQUITY (DEFICIT) $ 54,318 $ 52,468 $ 45,864
========= ========= ========
See Notes to Financial Statements.
F-72
415 GREENWICH STREET GC, LLC
STATEMENTS OF OPERATIONS AND MEMBER'S EQUITY (DEFICIT)
(Amounts in Thousands)
[Enlarge/Download Table]
Successor Company Predecessor Company
------------------------------------------------------ --------------------------
June 11,
For the Three Months Ended Five Months Seven Months 2001
-------------------------- Year Ended Ended Ended (Inception)
December 31, December 31, September 30, September 30, April 30, To September 30,
2003 2002 2003 2002 2002 2001
------------ ------------ ------------ ------------- ----------- --------------
(Unaudited) (Unaudited)
RENTAL INCOME ................................ $ 1,850 $ 1,850 $ 7,400 $ 3,083 $ 4,317 $2,240
------- ------- ------- ------- ------- ------
OPERATING EXPENSES
Depreciation ............................ -- 199 796 331 691 296
------- ------- ------- ------- ------- ------
Total operating expenses ........... -- 199 796 331 691 296
------- ------- ------- ------- ------- ------
INCOME FROM OPERATIONS ....................... 1,850 1,651 6,604 2,752 3,626 1,944
OTHER DEDUCTION
Fresh start accounting adjustments ....... -- -- -- -- 9,853 --
------- ------- ------- ------- ------- ------
NET INCOME (LOSS) ............................ 1,850 1,651 6,604 2,752 (6,227) 1,944
MEMBER'S EQUITY (DEFICIT), beginning of period
5,073 (1,531) (1,531) (4,283) 1,944 --
------- ------- ------- ------- ------- ------
MEMBER'S EQUITY (DEFICIT), end of period ..... $ 6,923 $ 120 $ 5,073 $(1,531) $(4,283) $1,944
======= ======= ======= ======= ======= ======
See Notes to Financial Statements.
F-73
415 GREENWICH STREET GC, LLC
STATEMENTS OF CASH FLOWS
(Amounts in Thousands)
[Enlarge/Download Table]
Successor Company Predecessor Company
------------------------------------------------------ ------------------------
For the Three Months Ended Five Months Seven Months June 11,
-------------------------- Year Ended Ended Ended 2001
December 31, December 31, September 30, September 30, April 30, To September 30,
2003 2002 2003 2002 2002 2001
------------ ------------ ------------ ------------- ----------- -----------
(Unaudited) (Unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) ................................ $ 1,850 $ 1,651 $ 6,604 $ 2,752 $(6,227) $ 1,944
Adjustments to reconcile net loss to
net cash provided by (used in)
operating activities
Depreciation and amortization .................. -- 199 796 331 691 296
Fresh Start Accounting Adjustment .............. -- -- -- -- 9,853 --
Changes in operating assets
and liabilities
Due from related companies ..................... (1,850) (1,850) (7,400) (3,083) (4,317) (2,240)
------- ------- ------- ------- ------- -------
Net cash provided by (used in)
Operating activities ........................... -- -- -- -- -- --
------- ------- ------- ------- ------- -------
NET INCREASE IN CASH AND CASH EQUIVALENTS ........ -- -- -- -- -- --
CASH AND CASH EQUIVALENTS, beginning of Period ... -- -- -- -- -- --
------- ------- ------- ------- ------- -------
CASH AND CASH EQUIVALENTS, end of Period ......... $ -- $ -- $ -- $ -- $ -- $ --
======= ======= ======= ======= ======= =======
See Notes to Financial Statements.
F-74
415 GREENWICH STREET GC, LLC
NOTES TO FINANCIAL STATEMENTS
(Amounts in Thousands)
Note 1: ORGANIZATION AND NATURE OF OPERATIONS
415 Greenwich GC, LLC was formed June 11, 2000 for the purpose of
acquiring commercial property at 415 Greenwich Street, New York, NY
("the Property"). Acquisition of the property occurred in September
2000 at a cost of $47,395. The parent company (see Note 7) advanced
the funds for the purchase. The Company remained inactive until June
11, 2001, when they entered into a 35 year lease with its tenant, 415
Greenwich GC Tenant LLC (a related company) for $7,400 per annum,
subject to adjustments in the Consumer Price Index, as defined in the
lease after the 10th year of the lease term.
During October 2003 Globix reached an agreement to sell the Property
for total cash consideration of approximately $60,000. The sale of
the Property was completed on January 22, 2004 and accordingly the
Property is classified as of December 31, 2003 under current assets
as property held for sale in accordance with SFAS No. 144,
"Accounting for the Impairment or Disposal of Long Lived Assets". In
connection with the completion of the Property sale, Globix and an
investor member of a related party agreed on a $7,000 settlement
payment to be made by Globix.
The Company is a wholly owned subsidiary of Globix Corporation
("Globix"), which reorganized under a Chapter 11 proceeding,
emerging from bankruptcy as of April 25, 2002. In connection with
its Plan of reorganization, Globix adopted Fresh Start Reporting,
effective April 30, 2002 in accordance with the American Institute
of Certified Public Accountants Statement of Position 90-7,
"Financial Reporting by Entities in reorganization under the
Bankruptcy Code." The effect of adopting Fresh Start Accounting
resulted in a revaluation of the Company's Property, which is
described in Note 5.
The following table describes the periods presented in the financial
statements and related notes thereto:
Period Referred to as
------ --------------
From May 1, 2002 through December 31, 2003 "Successor Company"
From October 1, 2001 through April 30, "Predecessor Company"
2002 and for the fiscal year
ended September 30, 2001
Note 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
USE OF ESTIMATES
Management uses estimates and assumptions in preparing these
financial statements in accordance with generally accepted accounting
principles. Those estimates and assumptions affect the reported
amounts of assets and liabilities, the disclosure of contingent
assets and liabilities, and the reported amounts of revenues and
expenses. Actual results could differ from those estimates.
INTERIM FINANCIAL INFORMATION
The consolidated financial information as of December 31, 2003 and
for the three months ended December 31, 2003 and 2002 is unaudited,
but includes all adjustments, consisting only of normal and recurring
accruals, that management considers necessary for a fair presentation
of its combined results of operations, financial position and cash
flows. Results for the three months ended December 31, 2003 and 2002
are not necessary indicative of results to be expected for the entire
fiscal year.
F-75
415 GREENWICH STREET GC, LLC
NOTES TO FINANCIAL STATEMENTS
(Amounts in Thousands)
Note 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
REVENUE RECOGNITION
The Company recognizes revenue from minimum base rents on a monthly
basis under a net lease arrangement, whereby the Tenant is
responsible for all operating costs of the lease.
INCOME TAXES
The Company is treated as a partnership for Federal and State income
tax purposes. Consequently, Federal and State income taxes are not
payable by or provided for the Company. The members account for their
share of the Company's earnings, losses, deductions and credits on
their Federal and State income tax returns.
PROPERTY
Property and equipment is stated at historical cost for the
Predecessor Company adjusted for impairment and includes fresh start
adjustments for the Successor Company. All identifiable assets
recognized in accordance with fresh start accounting were recorded
at the Effective Date based upon an independent appraisal. The
building is depreciated using the straight-line method over the
Property's useful life of 44 years. Prior to the revaluation of the
property, based upon an independent appraisal, the useful life of
the property was deemed to be 40 years. Leasehold improvements made
to the property since inception were purchased by the tenant and are
not the property of the Company.
RECENT ACCOUNTING PRONOUNCEMENTS
In April 2003, the FASB issued SFAS No. 149, "Amendment of Statement
133 on Derivative Instruments and Hedging Activities". SFAS No. 149
clarifies under what circumstances a contract with an initial net
investment meets the characteristics of a derivative as discussed in
Statement No. 133. It also specifies when a derivative contains a
financing component that warrants special reporting in the
Consolidated Statement of Cash Flows. SFAS No. 149 amends certain
other existing pronouncements in order to improve consistency in
reporting these types of transactions. The new guidance is effective
for contracts entered into or modified after June 30, 2003, and for
hedging relationships designated after June 30, 2003. The adoption of
this standard did not have a material impact on the Company's
consolidated financial statements.
In May 2003, the FASB issued SFAS No. 150, "Accounting for Certain
Financial Instruments with Characteristics of Both Liabilities and
Equity". SFAS No. 150 specifies that instruments within its scope
embody obligations of the issuer and that, therefore, the issuer must
classify them as liabilities. SFAS No. 150 requires issuers to
classify as liabilities the following three types of free standing
financial instruments: (1) mandatorily redeemable financial
instruments; (2) obligations to repurchase the issuer's equity shares
by transferring assets and (3) certain obligations to issue a
variable number of shares. SFAS No. 150 defines a "freestanding
financial instrument" as a financial instrument that (1) is entered
into separately and apart from any of the entity's other financial
instruments or equity transactions or (2) is entered into in
conjunction with some other transaction and can be legally detached
and exercised on a separate basis. For all financial instruments
entered into or modified after May 31, 2003, SFAS No. 150 is
effective immediately. For all other instruments of public companies,
SFAS No. 150 goes into effect at the beginning of the first interim
period beginning after June 15, 2003. For contracts that were created
or modified before May 31, 2003 and still exist at the beginning of
the first interim period beginning after June 15, 2003, entities
should record the transition to SFAS No. 150 by reporting the
cumulative effect of a change in an accounting principle. SFAS No.
150 prohibits entities from restating financial statements for
earlier years presented. The adoption of SFAS No. 150 did not have a
material impact on the Company's consolidated financial statements.
F-76
415 GREENWICH STREET GC, LLC
NOTES TO FINANCIAL STATEMENTS
(Amounts in Thousands)
Note 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
In January 2003, the FASB issued FIN No. 46, "Consolidation of
Variable Interest Entities, an Interpretation of Accounting Research
Bulletin (ARB) No. 51", which relates to the identification of, and
financial reporting for, variable-interest entities (VIEs). FIN No.
46 requires that if an entity is the primary beneficiary of a
variable interest entity, the assets, liabilities and results of
operations of the variable interest entity should be included in the
consolidated financial statements of the entity. The provisions of
FIN No. 46 are effective immediately for all arrangements entered
into after January 31, 2003. For those arrangements entered into
prior to February 1, 2003, the provisions of FIN No. 46 are required
to be adopted at the beginning of the first interim or annual period
beginning after June 15, 2003. In October 2003, FASB Staff Position
deferred the effective date for existing VIE arrangements created
before February 1, 2003 to the first interim or annual reporting
period that ends after December 15, 2003. The adoption of this
standard did not have a material impact on the Company's consolidated
financial statements.
In November 2002, the FASB issued FASB Interpretation No. 45 ("FIN
45"), "Guarantors Accounting and Disclosure Requirements for
Guarantees, Including Indirect Guarantees of Indebtedness of Others".
FIN 45 requires a liability to be recognized at the time a company
issues a guarantee for the fair value of the obligations assumed
under certain guarantee agreements. Additional disclosures about
guarantee agreements are also required in the interim and annual
financial statements. The adoption of FIN 45 did not have an effect
on the Company's results of operations or financial position.
IMPAIRMENT OF LONG-LIVED ASSETS
Long-lived assets are reviewed for impairment whenever changes in
circumstances indicate that the carrying amount any not be
recoverable. An impairment loss is recognized when the carrying
amount of a long-lived asset exceeds the sum of the undiscounted cash
flows expected to result from the asset's use and eventual
disposition. An impairment loss is measured as the amount by which
the carrying amount exceeds its fair value, which is typically
calculated using discounted expected future cash flows. The discount
rate applied to these cash flows is based on the Company's weighted
average cost of capital, which represents the blended after-tax costs
of debt and equity. The Company did not record any impairment charges
for all periods presented.
Note 3: PROPERTY
Property is as follows:
Successor Company
-------------------------
September 30,
-------------------------
2003 2002
---------- ----------
Land................................ $ 1,543 $ 1,543
Building ........................... 35,012 35,012
---------- ----------
36,555 36,555
Less: Accumulated depreciation ..... 1,128 332
---------- ----------
$ 35,427 $ 36,223
========== ==========
F-77
415 GREENWICH STREET GC, LLC
NOTES TO FINANCIAL STATEMENTS
(Amounts in Thousands)
Note 4: HISTORIC TAX CREDIT
The Property is listed on the National Register of Historic Places.
Consequently, renovation expenditures to the Property, made by the
tenant, qualify for Federal tax credits as defined by the Internal
Revenue Code ("IRC"). The Property qualifies for an IRC Section 205
historic tax credit, estimated to be approximately $16,500. The
Company has filed an election with the Internal Revenue Services,
whereby the tax credits generated from renovation expenditures to
the Property will be passed to the tenant.
Note 5: FRESH START ADJUSTMENTS
The total reorganization value as of April 30, 2002 assigned to the
entity was based upon an independent appraisal of the property. The
effect of the implementation of the Globix Plan of reorganization on
its subsidiary is as follows:
ASSETS
[Enlarge/Download Table]
Pre-Fresh Start (Successor
Balance Sheet Fresh-Start Company)
April 30, 2002 Adjustment April 30, 2002
-------------- ------------ --------------
Land $ 1,543 $ -- $ 1,543
Building 45,852 (10,840) 35,012
Accumulated depreciation (987) 987 --
Due from affiliated company 6,557 -- 6,557
--------- -------- ---------
TOTAL ASSETS $ 52,965 $ (9,853) $ 43,112
========= ======== =========
LIABILITIES AND MEMBERS' EQUITY (DEFICIT)
Long-term liability to Globix Corporation 47,395 -- 47,395
Member's Equity 5,570 (9,853) (4,283)
--------- -------- ---------
TOTAL LIABILITIES AND MEMBER'S EQUITY $ 52,965 $ (9,853) $ 43,112
========= ======== =========
Note 6: GUARANTEE
In connection with the consummation of the Parents' Plan of
Reorganization, the 415 Greenwich Street GC Tenant, LLC became a
guarantor of 11% Senior Secured Notes issued by Globix Corporation.
On March 3, 2004 Globix paid $44,000 of the 11% Senior Notes with the
proceeds obtained through the sale of its 415 Greenwich Street property
(see Note 1). Subsequent to the repurchase, $68,000 of the 11% Senior
Notes remain outstanding.
F-78
415 GREENWICH STREET GC, LLC
NOTES TO FINANCIAL STATEMENTS
(Amounts in Thousands)
Note 7: RELATED PARTY TRANSACTIONS
Commencing June 11, 2001, the Company entered into a Master Lease
with its tenant, an affiliated company through common control. The
lease terms provide for a term of 35 years, under a net lease
arrangement, with a base annual rent of approximately $7,400 to be
paid monthly for a ten year period ending June 11, 2011. Payments of
rent have been made through an intercompany account between the two
companies.
At the end of the ten-year period an adjustment will be made to
reflect the cumulative change in the Consumer Price Index. There will
be an additional adjustment after 20, 25 and 30 years. The lease has
a provision allowing the Company to terminate the lease under certain
conditions, provided that the Company makes a lease termination
payment to the tenant, as defined in the lease. Commencing June 11,
2001, the tenant entered into a sublease with Globix (the parent
company) for a 20-year period. The sublease provides for a fixed
annual rent of approximately $7,700, payable monthly, for the first
ten years and is then subject to an increase to reflect the
cumulative change in the Consumer Price Index.
F-79
Schedule II - Valuation and Qualifying Accounts
[Enlarge/Download Table]
Column A Column B Column C Column D Column E
-------------------------------------- --------------- ----------------------------- ------------- -------------
Additions
-----------------------------
Balance At Charges to Charges Balance At
Beginning of Costs and to Other End of
Period Expenses Accounts Deductions Period
--------------- ------------- ------------ ------------- -------------
Allowance for Doubtful Accounts
Predecessor Company (October 1,
2001 to April 30, 2002) .............. 8,052 4,284 94 (9,618) 2,812
Successor Company (May 1, 2002 to
September 30, 2002) .................. 2,812 1,904 80 (2,231) 2,565
Successor Company (October 1,
2002 to September 30, 2003) .......... 2,565 1,997 24 (1,940) 2,646
Deferred Tax Valuation Allowance
Predecessor Company (October 1,
2001 to April 30, 2002) .............. 167,421 40,400 66,021 (193,402) 80,440
Successor Company (May 1, 2002 to
September 30, 2002) .................. 80,440 9,737 -- -- 90,177
Successor Company (October 1,
2002 to September 30, 2003) .......... 90,177 6,898 -- -- 97,075
S-1
[GLOBIX LOGO]
GLOBIX CORPORATION
4,797,442 Shares of Common Stock
$19,146,306 11% Senior Notes Due 2008
__________________
PROSPECTUS
__________________
Until ___________, all dealers that effect transactions in these
securities, whether or not participating in this offering, may be required to
deliver a prospectus. This is in addition to the dealers' obligation to deliver
a prospectus when acting as underwriters and with respect to their unsold
allotments or subscriptions.
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the expenses payable by our company in
connection with this registration statement. All of these expenses are
estimates, other than the filing and quotation fees payable to the Securities
and Exchange Commission.
Filing fee-Securities and Exchange Commission.......................... $
Fees and expenses of legal counsel..................................... $
Printing expenses...................................................... $
Fees and expenses of accountants....................................... $
Miscellaneous expenses................................................. $
Total $
________________
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the Delaware General Corporation Law, or DGCL, empowers
a corporation to indemnify any person who was or is a party or is threatened to
be made a party to any threatened, pending or completed action, suit or
proceeding, whether civil, criminal, administrative or investigative (other than
an action by or in the right of the corporation) by reason of the fact that he
or she was or is a director, officer, employee or agent of the corporation, or
was or is serving at the request of the corporation as a director, officer,
employee or agent of another corporation or other enterprise against expenses
(including attorneys' fees), judgments, fines and amounts paid in settlement
actually and reasonably incurred in connection with such action, suit or
proceeding if the person identified acted in good faith and in a manner he or
she reasonably believed to be in or not opposed to the best interests of the
corporation, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his or her conduct was unlawful. Section 145 of the
DGCL further empowers a corporation to indemnify any person who was or is a
party or is threatened to be made a party to any threatened, pending or
completed action or suit by or in the right of the corporation to procure a
judgment in its favor by reason of the fact that he or she was or is a director,
officer, employee or agent of the corporation, or was or is serving at the
request of the corporation as a director, officer, employee or agent of another
corporation or other enterprise against expenses (including attorneys' fees)
actually and reasonably incurred in connection with the defense or settlement of
such action or suit if the person identified acted in good faith and in a manner
he or she reasonably believed to be in or not opposed to the best interests of
the corporation, except that no indemnification may be made in respect of any
claim, issue or matter as to which such person shall have been adjudged to be
liable to the corporation unless and only to the extent that the court in which
such action or suit was brought shall determine that despite the adjudication of
liability such person is fairly and reasonably entitled to indemnity for such
expenses that the court shall deem proper. Section 145 further provides that to
the extent a director or officer of a corporation has been successful in the
defense of any action, suit or proceeding referred to above or in the defense of
any claim, issue or matter therein, he or she shall be indemnified against
expenses (including attorneys' fees) actually and reasonably incurred by him or
her in connection therewith. The statute provides that indemnification pursuant
to its provisions is not exclusive of other rights of indemnification to which a
person may be entitled under any bylaw, agreement, vote of stockholders or
disinterested directors or otherwise.
Our Amended and Restated Certificate of Incorporation and Amended and
Restated Bylaws, provide, in effect, that to the full extent and under the
circumstances permitted by Section 145 of the DGCL, we shall indemnify any
person who was or is a party or is threatened to be made a party to any action,
suit or proceeding of the type described above by reason of the fact that he or
she was or is a director, officer, employee or agent of our company.
Our Amended and Restated Certificate of Incorporation relieves our
directors from monetary damages to our company or our stockholders for breach of
such director's fiduciary duty as a director to the fullest extent permitted by
the DGCL. Under Section 102(b)(7) of the DGCL, a corporation may relieve its
directors from personal liability to such corporation or its stockholders for
monetary damages for any breach of their fiduciary duty as directors except (i)
for any breach of the director's duty of loyalty to our company or our
stockholders, (ii) for acts or omissions not in good faith or which involve
intentional misconduct or knowing violation of law, (iii) under Section 174 of
the DGCL or (iv) for any transaction from which the director derived an improper
personal benefit.
II-1
In addition, we carry an insurance policy for the protection of our
directors and executive officers against any liability asserted against them in
their official capacities.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
Effective April 25, 2002 all of our issued and outstanding securities
were cancelled by order of the United States Bankruptcy Court for the District
of Delaware and our company, in furtherance of the plan of reorganization,
issued new securities as follows: (a) each holder of the 12.5% senior notes
became entitled to receive, in exchange for its 12.5% senior notes, its pro rata
share of (i) $120 million in aggregate principal amount of the 11% senior notes
and (ii) 13,991,000 shares of our common stock, representing approximately 85%
of the shares of our common stock issued and outstanding following the effective
date of the plan of reorganization, subject to dilution by the exercise of
management incentive options representing up to 10% of the shares of our issued
and outstanding common stock on a fully-diluted basis following the effective
date of the plan of reorganization; (b) each holder of shares of our preferred
stock outstanding immediately prior to the effective date of the plan of
reorganization became entitled to receive, in exchange for its shares of
preferred stock, its pro rata share of 2,304,400 shares of our common stock,
representing approximately 14% of the shares of our common stock issued and
outstanding following the effective date of the plan of reorganization, subject
to dilution by the exercise of management incentive options representing up to
10% of the shares of our issued and outstanding common stock on a fully-diluted
basis following the effective date of the plan of reorganization and (c) each
holder of shares of our common stock outstanding immediately prior to the
effective date of the plan of reorganization became entitled to receive, in
exchange for these shares of common stock, its pro rata share of 164,600 shares
of our common stock, representing approximately 1% of the shares of our common
stock issued and outstanding following the effective date of the plan of
reorganization, subject to dilution by the exercise of management incentive
options representing up to 10% of the shares of our issued and outstanding
common stock on a fully-diluted basis following the effective date of the plan
of reorganization.
The foregoing issuances and sales were conducted without registration
of the securities under the Securities Act of 1933, as amended, in reliance upon
the exemption from registration afforded by Section 1145(a)(2) of the United
States Bankruptcy Code. Section 1145(a)(1) of the United States Bankruptcy Code
exempts the offer and sale of securities under a plan of reorganization from
registration under the Securities Act of 1933 and state laws if:
- the securities are offered and sold under a plan of reorganization;
- the securities are of a debtor, of an affiliate participating in a joint
plan with the debtor, or of a successor to the debtor under the plan; and
- the recipients of the securities are issued such securities entirely in
exchange for the recipient's claim against or interest in the debtor or
principally in such exchange and partly for cash or property.
Section 1145(a)(2) of the United States Bankruptcy Code exempts the
offer of a security through any warrant, option or right to subscribe that was
sold in the manner specified in Section 1145(a)(1) of the United States
Bankruptcy Code and the sale of a security upon exercise of such warrant, option
or right to subscribe.
II-2
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits
[Enlarge/Download Table]
Exhibit No. Exhibit Description
2.1 Amended Joint Prepackaged Plan of Globix and certain of the Globix's subsidiaries, dated April 8, 2002 (3)
3.1 Amended and Restated Certificate of Incorporation of Globix (4)
3.2 Amended and Restated Bylaws of Globix (4)
4.1 Indenture, dated as of April 23, 2002, between Globix, as issuer, the Subsidiary Guarantors of Globix
named therein and HSBC Bank USA, as trustee, relating to the 11% senior notes due 2008 (4)
4.2 Form of Pledge and Security Agreement, dated as of April 23, 2002, between each Subsidiary Guarantor
of Globix and HSBC Bank USA, as Collateral Agent/Trustee (4)
4.3 Form of Warrant issued to affiliates of Communication Technology Advisors (5)
5 Opinion of Day, Berry & Howard LLP as to the validity of the shares of common stock and the notes***
10.1 Purchase Agreement between Young Woo and Globix, dated as of June 2, 1998 **(1)
10.4 Employment Agreement between Peter L. Herzig and Globix, dated as of October 2, 2001 (2)
10.8 Consulting Agreement, dated as of April 19, 2002, between Globix and Communication Technology Advisors LLC (5)
10.9 Agreement between Globix and Communication Technology Advisors, dated as of November 1, 2002 (5)
10.10 Agreement between Globix and Communication Technology Advisors, dated as of February 1, 2003 (5)
10.11 Registration Rights Agreement between Globix and the holders of Globix's securities party thereto,
dated as of April 23, 2002 (5)
10.12 Employment Agreement between Globix and Peter K. Stevenson, dated as of April 15, 2002 (5)
10.13 Letter Agreement between Globix and Reid Meintzer, dated July 15, 2002 (5)
10.14 Letter Agreement between Globix and H. Jameson Holcombe, dated July 15, 2002 (5)
10.15 Amendment, dated as of August 1, 2003, to the Employment Agreement between Globix and Peter K. Stevenson (6)
10.16 Contract of Sale, dated as of October 10, 2003, between Globix and Heritage Partners LLC (6)
12 Computation of Ratio of Earnings to Fixed Charges*
16 Letter re: Change in Certifying Accountant (7)
21 List of Subsidiaries (6)
II-3
[Enlarge/Download Table]
Exhibit No. Exhibit Description
23.1 Consent of PriceWaterhouseCoopers LLP *
23.2 Consent of Amper, Politziner & Mattia PC *
23.3 Consent of Ehrenkrantz Sterling & Co. L.L.C *
23.4 Consent of Day, Berry & Howard LLP (included in Exhibit 5).
25 Statement of Eligibility and Qualification of Trustee***
* Filed herewith.
** Confidential treatment granted for certain portions of this Exhibit pursuant to Rule 406 promulgated
under the Securities Act of 1933.
*** To be filed by amendment.
(1) Incorporated by reference to the Company's Report on Form 8-K/A filed on September 18, 1998.
(2) Incorporated by reference to the Company's Annual Report on Form 10-K filed on December 31, 2001.
(3) Incorporated by reference to the Company's Current Report on Form 8-K filed on April 23, 2002.
(4) Incorporated by reference to the Company's Quarterly Report on Form 10-Q filed on May 15, 2002.
(5) Incorporated by reference to the Company's Annual Report on Form 10-K filed on March 26, 2003.
(6) Incorporated by reference to the Company's Annual Report on Form 10-K filed on December 18, 2003.
(7) Incorporated by reference to the Company's Report on Form 8-K filed on September 19, 2003.
(c) Financial Statement Schedules See Schedule II - Valuation and Qualifying
Accounts contained on page S-1.
ITEM 17. UNDERTAKINGS
The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made,
a post-effective amendment to this registration statement:
(i) To include any prospectus required by section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most
recent post-effective amendment thereof) which, individually
or in the aggregate, represent a fundamental change in the
information in the registration statement. Notwithstanding the
foregoing, any increase or decrease in volume of securities
offered (if the total dollar value of securities offered would
not exceed that which was registered) and any deviation from
the low or high end of the estimated maximum offering range
may be reflected in the form of prospectus filed with the
Securities and Exchange Commission pursuant to Rule 424(b) if,
in the aggregate, the changes in volume and price represent no
more than a 20% change in the maximum aggregate offering price
set forth in the "Calculation of Registration Fee" table in
the effective registration statement;
II-4
(iii) To include any material information with respect to the plan
of distribution not previously disclosed in the registration
statement or any material change to such information in the
registration statement;
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be
deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at
that time shall be deemed to be the initial bona fide offering
thereof; and
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to section 13(a) or section 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
The undersigned registrant hereby undertakes to deliver or cause to be
delivered with the prospectus, to each person to whom the prospectus is sent or
given, the latest annual report to security holders that is incorporated by
reference in the prospectus and furnished pursuant to and meeting the
requirements of Rule 14a-3 or Rule 14c-3 under the Securities Exchange Act of
1934; and, where interim financial information required to be presented by
Article 3 of Regulation S-X are not set forth in the prospectus, to deliver, or
cause to be delivered to each person to whom the prospectus is sent or given,
the latest quarterly report that is specifically incorporated by reference in
the prospectus to provide such interim financial information.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the registrant pursuant to the foregoing provisions or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission,
such indemnification is against public policy as expressed in the Securities Act
1933 and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Securities
Act of 1933 and will be governed by the final adjudication of such issue.
II-5
SIGNATURES
Pursuant to the requirements of the Securities Act of 1934, the
registrant has duly caused this Registration Statement on Form S-1 to be signed
on its behalf by the undersigned, thereunto duly authorized.
Date: March 22, 2004 GLOBIX CORPORATION
/s/ Peter K. Stevenson
---------------------------
Peter K. Stevenson
President, Chief Executive Officer
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature
appears below hereby constitutes and appoints Peter K. Stevenson or Robert M.
Dennerlein, or any one of them, his true and lawful attorneys-in-fact and
agents, with full power of substitution and resubstitution, for him and in his
name, place, and stead, in any and all capacities, to sign any and all
amendments to this Registration Statement on Form S-1 and all documents relating
thereto, and to file the same with the Securities and Exchange Commission,
hereby ratifying and confirming all that said attorneys-in-fact and agents, or
any of them, or their or his substitutes, may lawfully do or cause to be done by
virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement on Form S-1 has been signed below by the following
persons on behalf of the registrant and in the capacities and on the dates
indicated.
Date: March 22, 2004 /s/ Peter K. Stevenson
---------------------------
Peter K. Stevenson
President, Chief Executive Officer and Director
(principal executive officer)
Date: March 22, 2004 /s/ Robert M. Dennerlein
---------------------------
Robert M. Dennerlein
Chief Financial Officer
(principal financial and accounting officer)
Date: March 22, 2004 /s/ Peter S. Brodsky
---------------------------
Peter S. Brodsky
Director
Date: March 22, 2004 /s/ Peter L. Herzig
---------------------------
Peter L. Herzig
Director
Date: March 22, 2004 /s/ Steven Lampe
---------------------------
Steven Lampe
Director
Date: March 22, 2004 /s/ Steven G. Singer
---------------------------
Steven G. Singer
Director
Date: March 22, 2004 /s/ Raymond L. Steele
---------------------------
Raymond L. Steele
Director
Date: March , 2004
---------------------------
Steven A. Van Dyke
Director
II-6
Dates Referenced Herein and Documents Incorporated by Reference
| Referenced-On Page |
|---|
| This ‘S-1’ Filing | | Date | | First | | Last | | | Other Filings |
|---|
| |  |
| | 6/1/18 | | 114 |
| | 6/11/11 | | 142 | | 168 |
| | 2/11/10 | | 120 |
| | 5/1/08 | | 6 | | 119 |
| | 1/1/07 | | 140 | | 154 |
| | 5/1/06 | | 6 | | 60 |
| | 1/1/06 | | 142 | | 158 |
| | 11/15/05 | | 118 |
| | 5/1/05 | | 6 |
| | 7/31/04 | | 50 | | 125 |
| | 5/1/04 | | 6 |
| Filed on: | | 3/23/04 | | 1 |
| | 3/22/04 | | 1 | | 176 |
| | 3/17/04 | | 11 | | 60 |
| | 3/16/04 | | 132 | | 160 | | | RW |
| | 3/4/04 | | 35 | | 41 |
| | 3/3/04 | | 35 | | 167 | | | SC 13G/A |
| | 2/25/04 | | 33 |
| | 2/12/04 | | 52 | | | | | SC 13G/A |
| | 2/3/04 | | 53 | | | | | SC 13G/A |
| | 1/26/04 | | 33 | | | | | 8-K |
| | 1/22/04 | | 26 | | 164 | | | 8-K |
| | 1/16/04 | | 51 |
| | 12/31/03 | | 8 | | 164 | | | 10-Q, 10-Q/A |
| | 12/18/03 | | 174 | | | | | 10-K |
| | 12/15/03 | | 36 | | 166 |
| | 12/8/03 | | 91 |
| | 11/30/03 | | 41 |
| | 11/12/03 | | 42 | | 126 |
| | 11/1/03 | | 100 |
| | 10/31/03 | | 33 | | 100 | | | 8-K |
| | 10/27/03 | | 53 | | | | | 3, 4 |
| | 10/10/03 | | 173 | | | | | 8-K, SC 13G, SC 13G/A |
| | 10/3/03 | | 33 | | 129 |
| | 9/30/03 | | 5 | | 169 | | | 10-K, 10-K/A |
| | 9/19/03 | | 174 | | | | | 8-K |
| | 9/12/03 | | 37 | | | | | 8-K |
| | 8/13/03 | | 37 |
| | 8/11/03 | | 47 | | 49 |
| | 8/1/03 | | 50 | | 173 |
| | 7/31/03 | | 50 |
| | 7/17/03 | | 126 | | | | | SC 13G |
| | 7/15/03 | | 37 |
| | 7/12/03 | | 49 | | 54 |
| | 6/30/03 | | 36 | | 165 | | | 10-Q, NTN 10Q |
| | 6/24/03 | | 122 |
| | 6/15/03 | | 36 | | 166 |
| | 6/13/03 | | 118 | | 126 |
| | 5/31/03 | | 36 | | 165 |
| | 5/12/03 | | 47 | | 49 | | | 3 |
| | 5/1/03 | | 6 | | 119 |
| | 4/15/03 | | 50 |
| | 3/31/03 | | 130 | | | | | 10-Q |
| | 3/26/03 | | 174 | | | | | 10-K, 10-Q |
| | 3/14/03 | | 48 | | 122 |
| | 3/13/03 | | 126 |
| | 3/6/03 | | 126 |
| | 2/6/03 | | 126 |
| | 2/3/03 | | 92 | | 93 |
| | 2/1/03 | | 36 | | 173 |
| | 1/31/03 | | 36 | | 166 |
| | 12/31/02 | | 8 | | 164 | | | 10-Q, 10-Q/A, NT 10-K, NT 10-Q |
| | 12/15/02 | | 45 |
| | 11/1/02 | | 173 |
| | 10/7/02 | | 141 | | 155 |
| | 10/1/02 | | 169 | | | | | 3 |
| | 9/30/02 | | 8 | | 169 | | | 10-K, 10-K/A, NT 10-K |
| | 9/17/02 | | 115 | | 155 |
| | 7/31/02 | | 37 | | | | | 8-K |
| | 7/25/02 | | 1 | | | | | S-1 |
| | 7/24/02 | | 126 |
| | 7/15/02 | | 50 | | 173 |
| | 6/28/02 | | 42 | | 125 | | | T-3/A |
| | 6/25/02 | | 42 | | 125 |
| | 6/12/02 | | 126 |
| | 5/15/02 | | 174 | | | | | 10-Q |
| | 5/1/02 | | 8 | | 169 |
| | 4/30/02 | | 8 | | 169 |
| | 4/25/02 | | 5 | | 172 |
| | 4/23/02 | | 55 | | 174 | | | 8-K |
| | 4/19/02 | | 173 |
| | 4/15/02 | | 48 | | 173 | | | 3 |
| | 4/8/02 | | 5 | | 173 |
| | 3/31/02 | | 16 | | 117 | | | 10-Q, 10-Q/A |
| | 3/1/02 | | 5 | | 119 | | | 8-K |
| | 1/28/02 | | 42 | | 125 | | | SC 13G |
| | 1/1/02 | | 122 |
| | 12/31/01 | | 93 | | 174 | | | 10-K, 10-Q |
| | 12/27/01 | | 42 | | 125 | | | 8-K |
| | 10/2/01 | | 173 |
| | 10/1/01 | | 100 | | 169 |
| | 9/30/01 | | 8 | | 164 | | | 10-K |
| | 9/11/01 | | 28 |
| | 7/12/01 | | 47 | | 49 |
| | 6/11/01 | | 88 | | 168 |
| | 4/30/01 | | 115 |
| | 4/27/01 | | 136 | | 151 |
| | 4/1/01 | | 127 |
| | 3/21/01 | | 118 |
| | 3/5/01 | | 49 |
| | 12/31/00 | | 117 | | | | | 10-Q |
| | 11/16/00 | | 42 | | 125 |
| | 10/1/00 | | 24 | | 107 |
| | 9/30/00 | | 8 | | 94 | | | 10-K |
| | 6/11/00 | | 164 |
| | 1/25/00 | | 120 |
| | 9/30/99 | | 8 | | 20 | | | 10-K |
| | 7/21/99 | | 118 |
| | 1/15/99 | | 41 |
| | 9/18/98 | | 174 |
| | 6/2/98 | | 173 |
| List all Filings |
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