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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-K
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES AND EXCHANGE ACT OF 1934
For the fiscal year ended September 30, 2001
Commission File No. 1-14168
Globix Corporation
(Exact name of registrant as specified in its charter)
Delaware 13-3781263
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
139 Centre Street, New York, New York 10013
(address of principal executive offices) (Zip Code)
Registrant's Telephone number, including area code: (212) 334-8500
Securities registered pursuant to Section 12(g) of the Act:
Title of Each Class Name of Each Exchange on Which Registered
------------------- -----------------------------------------
Common Stock, $.01 par value Nasdaq National Market
Indicate by check mark whether registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No
Indicate by checkmark if disclosure of delinquent filers pursuant to item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of the Registrant's knowledge in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [_]
As of December 28, 2001, the aggregate market value of voting stock held by
non-affiliates of the registrant, based upon the closing sales price for the
registrant's common stock, as reported on the Nasdaq National Market, was
approximately $5.6 million (calculated by excluding shares owned beneficially
by directors and named executive officers).
Number of shares of registrant's common stock outstanding as of December 28,
2001 was 41,920,229.
DOCUMENTS INCORPORATED BY REFERENCE: NONE
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GLOBIX CORPORATION
Table of Contents
Page
----
Part I
Item 1. Business.................................................................. 1.
Item 2. Properties................................................................ 6.
Item 3. Legal Proceedings......................................................... 7.
Item 4. Submission of Matters To a Vote of Security Holders....................... 7.
Part II
Item 5. Market For Registrant's Common Equity and Related Stockholder Matters..... 8.
Item 6. Selected Financial Data................................................... 9.
Item 7. Management's Discussion and Analysis of Financial Condition and Results of
Operations.............................................................. 10.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk................ 18.
Item 8. Financial Statements...................................................... 18.
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial
Disclosure.............................................................. 18
Part III
Item 10. Directors and Executive Officers of the Registrant........................ 20.
Item 11. Executive Compensation.................................................... 23.
Item 12. Security Ownership of Certain Beneficial Owners and Management............ 25.
Item 13. Certain Relationships and Related Transactions............................ 28.
Part IV
Item 14. Exhibits and Reports on Form 8-K.......................................... 29.
Signatures 30
Exhibits
PART I
Item 1. Business
We are a leading full-service provider of sophisticated Internet solutions
to businesses. Our solutions include:
. secure and fault-tolerant Internet data centers;
. premium network services, which provide high performance network
connectivity to the Internet;
. complex Internet based managed and application services, which include
dedicated hosting, streaming media, content delivery services, and
messaging services.
These elements of our total Internet solution combine to provide our
customers with the ability to create, operate and scale their increasingly
complex Internet operations in a cost efficient manner.
Our business was recently reorganized into a single operating group to more
effectively utilize our personnel and better serve our customers. This
operating group has two key components, the Technology Services Group and the
Application Services Group. The Technology Services Group is comprised of our
Internet data centers and network services and incorporates our managed
services offerings. The Application Services Group is comprised of our
dedicated hosting, streaming media, content delivery services and messaging
services.
Our customers primarily use our services to maintain complex computer
equipment in a secure, fault-tolerant environment with connectivity to a
high-speed, high-capacity, direct link to the Internet and to support complex
Internet applications. We currently offer our services from our Internet data
center facilities in New York City, London and Santa Clara, California. Our
teams of account managers, computer system and network administrators and
customer support specialists are located at each of these locations. We also
maintain an Internet data center in Atlanta. Our strong local market presence
enables us to evaluate the needs of our customers and quickly respond with
tailored solutions. We also provide our customers the ability to outsource the
systems administration and technical management of their Internet presence. Our
products are flexible and scalable, allowing us to modify the size and breadth
of the services we provide. We believe that our ability to offer a broad range
of Internet services, combined with our local sales and support professionals
and high performance Internet data center facilities and network,
differentiates us from our competitors.
Recent Developments
On December 27, 2001, Globix announced that it is discussions with an
informal committee of bondholders representing approximately 48% of the
Company's outstanding $600 million issuance of 12.5% Senior Notes. The
discussions concern a financial reorganization of the Company through a
pre-packaged bankruptcy proceeding that would be aimed at significantly
reducing the Company's debt burden. The Company is in similar discussions with
its preferred stockholders. While there can be no assurance that these
discussions will lead to an agreement, it is likely that any such agreement
would result in the bondholders and preferred stockholders owning nearly all of
the equity in the reorganized company, resulting in a near total dilution of
the existing common stockholders' interest in the Company.
1
The Globix Solution
Globix provides its customers with a comprehensive range of Internet
solutions. Many of Globix's customers do not have the network infrastructure or
internal Internet expertise to build, maintain and support critical Internet
operations. Globix's comprehensive range of services enable its customers to
address their needs cost-effectively without having to assemble services from
different suppliers, Internet service providers and information technology
firms, thereby significantly increasing the customer's ability to take
advantage of the Internet on a timely basis. Key components of the Globix
solutions are:
Internet Data Centers
Internet Data Centers. Globix built and operates Internet data centers in
New York City, London, and Santa Clara, as follows:
. 340,000 approximate gross square feet facilities located in New York City;
. 244,000 approximate gross square feet facilities located in London's West
End district; and
. 60,000 approximate gross square feet facility located in Santa Clara,
California.
Through the acquisition of Comstar.net, Inc. in August 2000 we also acquired
Internet data centers in Atlanta of approximately 10,000 gross square feet and
the Washington, D.C. suburb of McLean, Virginia of approximately 12,000 gross
square feet. In order to gain operational efficiencies, we have determined that
it would be most cost effective to deactivate our McLean, Virginia data center
and exit our space in 295 Lafayette Street in New York City. In addition we are
in the process of reducing our office space in Atlanta and McLean, Virginia.
These reductions in space will have no effect on the efficiency of our network
and should not result in any significant loss of revenue.
The Globix Internet data centers in New York, Santa Clara and London have
state-of-the-art facilities. Those facilities include electrical
infrastructures, precision environmental control systems, fire suppression
systems and comprehensive security systems. Globix offers co-location solutions
for customers who choose to own and maintain their own servers, but require the
physically secure, climate-controlled environment of the Globix Internet data
centers and connectivity to the Globix network. A Globix customer can choose to
co-locate in a cabinet, a cage or a GLOBOX, Globix's proprietary secured cage.
A data cabinet, the smallest co-location service offering, can house multiple
servers. The cabinet is locked and outfitted for multiple, redundant network
hand-offs and two power feeds. A cage serves the needs of a larger customer
usually deploying more complex solutions. The GLOBOX co-location offering is
identical to the cage except that its walls are solid, two-ply steel and is
available with a variety of security devices for the customer demanding the
highest security and anonymity.
Globix supports a number of leading Internet networking, server, storage and
application platforms, including those from Check Point Software, Cisco,
Compaq, Critical Path, Juniper, Microsoft, MicroMuse, Network Appliance,
Nortel, Storage Technologies and Sun Microsystems. This multi-vendor
flexibility enables Globix to offer its customers a broad range of technology
best suited to serve their particular needs.
Network Services
Network Infrastructure. The Globix network infrastructure is designed to
meet the service and quality requirements of businesses with mission critical
Internet-based operations. Globix's network infrastructure is designed for high
availability and low latency, and utilizes a single autonomous system number
globally performing "cold-potato" routing. Cold potato routing is a technique
whereby Globix's network equipment monitors and interprets additional routing
information supplied by its peers. By using this information, the Globix
infrastructure carries the traffic on its network to common peering or traffic
exchange points nearest the origination point of the traffic request. This way,
traffic is carried on a Globix-controlled network to the greatest extent
possible and therefore does not suffer from the congestion or high latency of
public networks, which causes communications on the Internet to slow. In fact,
the design and performance of the global network allows Globix to offer
superior quality commitments and applications like our EarthCache content
distribution network solution.
2
Backbone. The domestic Globix backbone is a Packet over SONET Network that
will operate at speeds up to OC-48 (2.4Gbs). The OC-48 Globix domestic backbone
connects to the New York and Santa Clara data centers and the backbone points
of presence (POPs) in Atlanta, Boston, Chicago, Los Angeles, Seattle and
Washington, D.C.
The Globix European backbone is a Packet over SONET network currently
connecting London, Amsterdam, Frankfurt, and Paris. The domestic and European
networks are connected by three OC-3 transatlantic crossings.
Both of these Globix network sections interconnect to numerous network
access points, commercial Internet exchanges, and other Internet, application,
and network service providers.
Peering. Globix has established numerous peering relationships with other
Internet, application, and network service providers. These peering
relationships take the form of either public or private peering connections.
Public peering takes place at a network access point or commercial Internet
exchange, designed for the exchange of traffic between service providers.
Private peering involves an agreement between service providers allowing
traffic to pass between each other's networks using connections that do not
have to traverse either the public Internet or public peering points. Globix
currently has agreements to peer with more than 530 organizations that
represent over 1,000 peering connections, making it one of the largest Internet
peering networks.
Network Operations. Globix has constructed a global operations center
located at the Internet data center in New York City. The global operations
center serves as the command, control and communications center for all of
Globix's network operations, customer support centers, and points of presence.
The global operations center is staffed 24X7 by teams dedicated to maintaining
the highest quality of service. Network administrators located in the global
operations center monitor Globix's entire network infrastructure. The network
administrators are able to identify and correct network problems either
themselves or by dispatching system engineers located at Globix's customer
support centers. The global operations center utilizes state-of-the-art
equipment and technologies, including custom applications and commercial
software for the monitoring and management of network and systems services, a
suite of commercial tools customized for problem identification and resolution.
Customer Support Call Center. The customer support call center is operated
24X7, and equipped with advanced telecommunications systems capable of
automatic call distribution, automatic number identification, quality assurance
recording and archiving, and intelligent call routing. A sophisticated trouble
ticketing and knowledge database of customer information and history aids to
ensure that Globix's customer base is well serviced.
Dedicated Internet Access. Globix offers a variety of dedicated Internet
access solutions, which provide businesses high-speed continuous access to the
Internet. Globix provides dedicated Internet access services to customers at
transmission speeds up to 155Mbps. Many of Globix's Internet access customers
purchase 1.5Mbps or higher levels of bandwidth. In addition, Globix provides
other valuable services, such as domain name registration, local loop
provisioning, Internet address assignment, router configuration, e-mail
configuration and management and technical consulting services. Globix also
provides Internet-access technologies, such as digital subscriber lines, and
intends to deploy additional connectivity-related enhanced services as such
services become commercially viable.
Managed Services
Globix provides full-life-cycle system and network administration. At
project inception, Globix installs and configures applications and equipment
designed by Globix solutions architects, as specified by the customer.
Generally, Internet business strategies require dedicated, highly-skilled
technical resources available 24X7. Most of our customers do not have these
resources internally available. Globix offers administration, maintenance, and
problem resolution services for a variety of popular operating systems
databases, Internet-based applications, Internet network devices, and hardware
and software security solutions.
3
Application Services
Dedicated Hosting. Globix offers hosting solutions on both the NT and UNIX
platforms, in a dedicated server environment. Dedicated hosting is designed to
meet a customer's price point and business requirement. This service includes
providing hardware, software, bandwidth and application requests to meet
customer-specific needs. Globix's dedicated hosting services are tailored to
Internet presences that require high availability and scalability without
significant infrastructure and related overhead costs.
Streaming Media. Globix is a leading provider of streaming media services to
corporations who are utilizing this application as a business communications
tool. Our core streaming media services are encoding, hosting and collaboration
solutions, which are the mainstays of streaming media technology. This
technology involves capturing video and/or audio recordings of an event, such
as a music performance, conference calls, sports competitions or business
meetings, converting the recorded or live audio/visual signal content into a
format that can be transmitted over the Internet and providing hosting services
which enable Internet users on the web to access the live or on-demand encoded
content. Globix is certified at the highest level of the RealNetworks
partnership program and is a certified Microsoft Windows Media Service
Provider. Globix has delivered these services to a wide assortment of customers
including: Microsoft, Cisco, Clear Channel, V2 Records, Giorgio Armani,
Practicing Law Institute, MSN, Honeywell, Compaq, Razorfish, Space.com, and
International Television Network (ITN).
EarthCache. The EarthCache content distribution system complements the
existing Globix network infrastructure and provide businesses with improved web
site and application performance, faster content delivery times, and better
customer content management. Globix believes EarthCache has several advantages
over other content delivery networks because of its ability to leverage the
network infrastructure that Globix has built along with its extensive worldwide
peering network of more than 1,000 peering-connection agreements with some 530
organizations. With the source content being transmitted over the Globix
network infrastructure, Globix is able to maintain better control over the
quality of service and the network's ability to redirect and manage customer
content.
Messaging Services. Globix offers a broad set of messaging solutions to meet
its customer's needs. Globix's Messaging Services product line consists of
GlobixMail, Microsoft Hosted Exchange and Value Added Services. GlobixMail is
an open-standard compliant email application with a low cost of ownership. The
GlobixMail service is designed to perform as a high availability application on
a Globix-managed infrastructure. Globix launched its Microsoft Hosted Exchange
service in June 2001 targeting the needs of its enterprise accounts. This
service offers a robust set of messaging and collaboration features including
e-mail, calendaring and instant messaging.
Customers
We have established a diversified base of customers in a variety of
Internet-intensive industries, such as media and publishing, financial
services, retail, healthcare and technology. Since we initiated Internet
services in December 1995, our customer base has grown to over 2,800 business
customer accounts, including Acclaim Entertainment, Clear Channel, Walmart.com,
NY Post, Ebookers.com, EDGAR Online, Microsoft, ITN, Salvation Army, Major
League Soccer, VNU, American Red Cross, BEA Systems, Comedy Central, Juvenile
Diabetes Research Foundation, Charming Shoppes and Lifetime TV.
Business Strategy
Our primary objective is to become the leading provider of sophisticated
Internet solutions to businesses in our three major markets, New York, London
and Santa Clara, California. To achieve this objective, we intend to:
. continue to identify business enterprise customers and grow our customer
base;
. expand our service offerings;
. sell additional services to existing customers; and
. enhance the Globix brand name in those markets.
4
We believe our concentration in these three markets will provide us with a
competitive advantage as we leverage our existing infrastructure and brand
awareness to achieve our goals for revenue growth and profitability.
Government Regulation
In the United States and other countries in which Globix conducts its
business, Globix's Internet services are not currently subject to direct
regulation other than pursuant to laws applicable to businesses operating on
the Internet. In certain jurisdictions in which Globix operates, however,
Globix's provision of Internet-related telecommunications network services (for
example, the provision of telecommunications network facilities used for
Internet access) may be subject to laws and regulations governing
telecommunications services. Such laws, as they apply to Internet-Related
telecommunications facilities, are evolving in many jurisdictions. In
jurisdictions where laws and regulations currently apply to the types of
telecommunications network services that Globix provides, Globix will ensure
that it complies with those laws and regulations, which often require that
companies such as Globix obtain regulatory authorizations and pay fees each
year to regulatory authorities. As these laws and regulations evolve in their
applicability to the provision of Internet-related services, it is possible
that Globix could be subject to further regulations with additional licensing
requirements and/ or fee payment obligations.
In addition to the evolving set of laws and regulations that govern Globix's
telecommunications network services in certain jurisdictions, it is likely that
laws and regulations concerning the provisions of Internet services will be
adopted, implemented, and challenged at the international, federal, state, or
local levels. These laws might cover issues such as 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 are currently being considered
by federal, state, and foreign legislatures with respect to such issues.
The nature of any new international, federal, state or local laws and
regulations and the manner in which existing laws and regulations may be
interpreted and enforced cannot be fully determined. The adoption of any future
laws or regulations or adverse application of existing laws to the Internet
industry might decrease the growth of the Internet, decrease demand for the
services of Globix, impose taxes, fees or other types of charges or other
costly technical requirements or otherwise increase the cost of doing business,
or in some manner have a material adverse effect on Globix or its customers,
each of which could have a material adverse effect on Globix's business,
financial position, results of operations and cash flows.
Employees
As of November 30, 2001, Globix had approximately 605 full-time employees:
approximately 480 in the United States and 125 outside the United States. In
addition to its full-time employees, Globix also employs part-time personnel
from time to time in various departments. None of Globix's employees are
covered by a collective bargaining agreement. Globix believes that its employee
relations are satisfactory.
The following is a list of our executive officers as of November 30, 2001:
Name Age Title
---- --- -----
Peter L. Herzig....... 39 Chief Executive Officer
Marc Jaffe............ 34 Chief Operating Officer
Anthony L. Previte.... 36 Chief Technology Officer
Brian L. Reach........ 46 Chief Financial Officer
Shawn P. Brosnan...... 39 Senior Vice President, Corporate Controller
Christopher D. Peckham 36 Senior Vice President, Information Systems
Richard Rose.......... 55 Senior Vice President, Technology and Applications Services
5
Item 2. Properties
Facilities in Operation
In July 1998, Globix 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 executive, technical, sales and
administrative personnel.
Globix also leases approximately 32,000 gross square feet at 295 Lafayette
Street, New York, New York. To promote cost efficiency, Globix plans to exit
from these premises.
In July 1998, Globix signed a lease commencing January 15, 1999 for
approximately 60,000 gross square feet of space in Santa Clara, California. In
October 1998, Globix 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
and each houses an Internet data center and offices for technical, sales and
administrative personnel.
In July 2000, Globix entered into a lease for its second London Internet
data center, containing approximately 206,000 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 August 2000, Globix completed its acquisition of Comstar.net, Inc. which
resulted in the acquisition of existing leases for Internet data centers
containing approximately 10,000 gross square feet of space in Atlanta and
approximately 12,000 gross square feet of space in the Washington D.C. area.
Also acquired were leases for office facilities in Atlanta. In order to gain
operational efficiencies, Globix has determined that it would be more cost
effective to close its McLean, Virginia data center and to close certain office
facilities in Atlanta. These closings will have no effect on the efficiency of
Globix's network and should not result in any significant loss of revenue.
In September 2000, Globix purchased the land and the approximately 185,000
gross square foot building located at 415 Greenwich Street, New York, New York
to serve as its newest New York City Internet data center. Reconstruction of
two floors of Internet data center space have been completed and Globix opened
the facility to customers in June 2001.
Additionally, leases were entered into during 2000 in Boston, Seattle and
Los Angeles for planned Internet data centers. However, as a result of the
tightening in the capital markets and the increased costs and capital
investment associated with Internet data center construction, Globix has
entered into lease termination agreements with respect to the Boston and Los
Angeles facilities; and it intends to terminate or otherwise reduce its
obligations with respect to the Seattle facility.
6
As of September 30, 2001 the following table sets forth additional
information concerning Globix's facilities:
Approximate
Leased property gross
expiration date square feet
Location --------------- -----------
139 Centre Street Owned 155,000
New York, New York
415 Greenwich Street Owned 185,000
New York, New York
295 Lafayette Street 2007 32,000
New York, New York
2807 Mission College Boulevard 2014 60,000
Santa Clara, California
Prospect House 2014 38,000
80 New Oxford Street
London, England
1 Oliver's Yard 2030 206,000
55-71 City Road
London, England
Data Center and Sales Offices 2004 10,000
Atlanta, Georgia
Washington, DC 2010 12,000
Data Center and Sales Offices
8201 Greensboro Drive
McLean, Virginia
100/150 Andover Park West 2021 201,000
Seattle, Washington
The Company considers that, in general, its physical properties are well
maintained, in good operating condition and adequate for its purposes.
Item 3. Legal Proceedings
We are not party to any material legal proceedings.
Item 4. Submission of Matters to a Vote of Security Holders
During the fourth quarter of Globix's fiscal year ended September 30, 2001
there were no matters submitted to a vote of security holders.
7
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters
(a) Globix's Common Stock is traded on the Nasdaq National Market System
under the symbol GBIX. The following table indicates high and low bid prices
for the periods indicated based upon information supplied by Nasdaq, Inc. Such
over-the-counter market quotations reflect inter-dealer prices, without retail
mark-up, mark-down or commission and may not necessarily represent actual
transactions. The following bid prices are for the fiscal year ended September
30:
Low High
2001 ------ ------
first quarter. $ 2.63 $22.75
second quarter $ 2.56 $ 8.00
third quarter. $ 1.29 $ 3.80
fourth quarter $ 0.42 $ 2.14
Low High
2000 ------ ------
first quarter. $ 7.62 $30.59
second quarter $25.69 $67.13
third quarter. $14.00 $38.50
fourth quarter $18.00 $37.50
(b) Number of Holders of Common Stock. The number of holders of record of
Globix's Common Stock on December 3, 2001 was 240. In addition, management
believes Globix common stock is held by in excess of 33,000 other shareholders
whose shares are held in street name for the beneficial owners by various banks
and securities firms.
(c) Dividends. Globix split its common stock two-for-one in December 1999
and January 2000. These were accomplished by way of a stock dividend. Globix
paid cash dividends totaling $1.5 million on its Series A Convertible Preferred
Stock during the fiscal year ended September 30, 2001 which was accrued and
unpaid at September 30, 2000. In addition, Globix paid "in kind" dividends
totaling 6,173 shares of its Series A Convertible Preferred Stock during the
fiscal year ended September 30, 2001. There were no cash dividends paid by
Globix on its Common Stock during the fiscal year ended September 30, 2001.
Under the terms of the Globix's 12.5% Senior Notes due 2010, Globix's ability
to pay cash dividends is contractually limited. It is not anticipated that cash
dividends will be paid to the holders of Globix's Common Stock in the
foreseeable future.
8
Item 6. Selected Financial Data
The following table sets forth for the periods indicated selected
consolidated financial and operating data for Globix. The consolidated balance
sheet data and consolidated statement of operations data as of and for the
years ended September 30, 1997, 1998, 1999, 2000 and 2001 have been derived
from our Consolidated Financial Statements. The following selected consolidated
financial and operating data are qualified by and should be read in conjunction
with our more detailed Consolidated Financial Statements and notes thereto and
the discussion under "Management's Discussion and Analysis of Financial
Condition and Results of Operations" included in Part II, Items 7 and 8 of this
Form 10-K.
SELECTED CONSOLIDATED FINANCIAL AND OPERATING DATA
(In thousands of U.S. dollars, except share and per share data)
1997 1998 1999 2000 2001
----------- ----------- ----------- ----------- -----------
STATEMENT OF OPERATIONS DATA:
Revenue....................................................... $ 17,400 $ 20,595 $ 33,817 $ 81,287 $ 104,210
Operating costs and expenses:
Cost of revenue............................................ 13,699 13,322 22,184 42,513 40,609
Selling, general and administrative........................ 6,036 10,696 36,495 98,113 128,321
Restructuring charges...................................... -- -- -- -- 56,109
Depreciation and amortization.............................. 675 1,310 6,329 18,228 36,657
----------- ----------- ----------- ----------- -----------
Total operating costs and expenses...................... 20,410 25,328 65,008 158,854 261,696
Loss from operations.......................................... (3,010) (4,733) (31,191) (77,567) (157,486)
Interest and financing expense............................. (177) (8,376) (18,386) (57,831) (65,128)
Interest income............................................ 72 1,953 6,192 24,749 13,282
Other income............................................... -- -- -- 2,816 2,147
Other expense.............................................. -- -- -- (1,037) (3,526)
----------- ----------- ----------- ----------- -----------
Loss before extraordinary loss and cumulative effect of a
change in accounting principle............................... (3,115) (11,156) (43,385) (108,870) (210,711)
Extraordinary loss on early extinguishment of debt......... -- -- -- (17,577) --
Cumulative effect of a change in accounting principle...... -- -- -- -- (2,332)
Net loss...................................................... (3,115) (11,156) (43,385) (126,447) (213,043)
Dividends and accretion on preferred stock................. -- -- -- (5,768) (7,104)
----------- ----------- ----------- ----------- -----------
Net loss attributable to common stockholders.................. $ (3,115) $ (11,156) $ (43,385) $ (132,215) $ (220,147)
=========== =========== =========== =========== ===========
Basic and diluted loss per share attributable to common
stockholders' before extraordinary loss and cumulative effect
of a change in accounting principle.......................... $ (0.25) $ (0.77) $ (1.73) $ (3.23) $ (5.66)
Extraordinary loss per share............................... -- -- -- $ (0.50) --
Cumulative effect of a change in accounting principle...... -- -- -- -- (0.06)
----------- ----------- ----------- ----------- -----------
Basic and diluted loss per share attributable to common
stockholders................................................. $ (0.25) $ (0.77) $ (1.73) $ (3.73) $ (5.72)
=========== =========== =========== =========== ===========
Weighted average common shares outstanding--basic and
diluted...................................................... 12,300,840 14,503,176 25,116,800 35,484,040 38,476,909
=========== =========== =========== =========== ===========
1997 1998 1999 2000 2001
----------- ----------- ----------- ----------- -----------
OTHER FINANCIAL DATA:
Cash flows provided by (used in) operating activities......... $ 2,532 $ 115 $ (36,897) $ (94,318) $ (140,543)
Cash flows used in investing activities....................... $ 1,542 $ 97,387 $ 58,774 $ 149,939 $ 113,271
Cash flows provided by financing activities................... $ 4,133 $ 156,344 $ 135,589 $ 509,395 $ 388
Capital expenditures.......................................... $ 2,082 $ 31,085 $ 98,110 $ 150,876 $ 166,303
1997 1998 1999 2000 2001
----------- ----------- ----------- ----------- -----------
BALANCE SHEET DATA:
Cash, cash equivalents, short term investments and marketable
securities................................................... $ 2,401 $ 76,111 $ 111,412 $ 378,510 $ 113,112
Restricted cash and investments............................... $ 325 $ 60,480 $ 45,039 $ 43,178 $ 33,870
Working capital............................................... $ 1,980 $ 75,859 $ 101,216 $ 366,139 $ 78,340
Total assets.................................................. $ 11,025 $ 182,226 $ 302,518 $ 729,591 $ 552,988
Current portion of long term debt............................. $ 2,336 $ 2,398 $ 2,088 $ 2,173 $ 6,687
Long-term debt, less current portion.......................... $ 923 $ 159,091 $ 161,005 $ 621,809 $ 630,750
Stockholders' (deficit) equity................................ $ 5,014 $ 2,719 $ 106,405 $ (18,030) $ (237,325)
9
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
The following discussion and analysis should be read together with the
consolidated financial statements and notes to the financial statements
appearing elsewhere in this Annual Report. The following discussion contains
forward-looking statements based on Globix's current expectations, assumptions,
estimates and projections about Globix and its industry. Globix's 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 Annual Report and appearing in our other
periodic reports and documents filed with the Securities and Exchange
Commission. The results shown herein are not necessarily indicative of the
results to be expected in any future periods.
Overview
Globix was founded in 1989 as a value-added reseller primarily focused on
providing custom computer hardware and software solutions for desktop
publishing. By 1995, Globix recognized the growing demand by businesses for
electronic information delivery and began to re-shape its corporate strategy to
focus on offering Internet products and services. In early 1996, Globix raised
net proceeds of approximately $7.4 million through an initial public offering
of its common stock and subsequently began to offer Internet access products
and services to business customers. In 1997, Globix expanded its product and
service offerings beyond Internet access and began to offer a range of
end-to-end Internet solutions designed to enable its customers to more
effectively capitalize on the Internet as a business tool.
In 1998, Globix undertook a major expansion plan in order to more
aggressively pursue opportunities resulting from the tremendous growth of the
Internet. In April 1998, Globix completed a $160.0 million offering of 13%
senior notes. In June and July 1999, Globix completed construction of its
initial Internet data center facilities in New York City, London and Santa
Clara, California and began operations at each facility.
In March 1999, Globix completed a public offering of 16,000,000 shares of
its common stock, resulting in net proceeds to Globix of approximately $136.6
million.
In December 1999, Globix completed the private placement of 80,000 shares of
Series A Preferred Stock to affiliates of Hicks, Muse, Tate & Furst
Incorporated, resulting in net proceeds of $75.3 million.
In February 2000, Globix completed a $600.0 million debt financing to fund
(a) the continued expansion of its facilities and network and (b) the tender
offer to purchase all of the outstanding 13% Senior Notes, $160.0 million
principal amount. The purchase price of the tender, completed on February 8,
2000, was 106.5% of principal amount plus all accrued and unpaid interest.
For fiscal periods ended on or before March 31, 2001 Globix reported its
results of operations in two operating segments: the "Internet Division" and
the "Server Sales and Integration Division." The Internet Division provides,
complex managed hosting, dedicated Internet access and application services,
(such as, streaming media, network security and server administration and
network monitoring). The Server Sales and Integration Division provides
Internet-related hardware and software, systems and network integration.
Revenue from the Internet Division has grown significantly as a percentage of
total revenue, increasing from 6% in 1996 to 94% in the three-month period
ended March 31, 2001. Effective April 1, 2001 and for the fiscal year ended
September 30, 2001, Globix reports its results of operations in one operating
segment under the provisions of SFAS No. 131.
The largest component of Globix's total revenue is complex hosting services
and connectivity including both minimum committed amounts and overages. In
addition to fees based on bandwidth usage, Globix charges certain customer's
monthly fees for the use of its physical facilities. Globix's complex hosting
contracts typically range from one to three years. The second largest component
of Globix's total revenue is dedicated Internet
10
access services to business customers. Globix's dedicated access customers
typically sign one or two-year contracts that provide for fixed,
monthly-recurring service fees and a one-time installation fee. Application
services are charged on a monthly, fixed price or time and materials basis.
Cost of revenue consists primarily of telecommunications costs for Internet
access and managed hosting customers. Telecommunications costs include the cost
of providing local loop costs for connecting dedicated access customers to the
Globix network, leased line and associated costs related to connecting with our
peering partners, and costs associated with leased lines connecting our
facilities to our backbone and aggregation points of presence.
Selling, general and administrative expenses consist primarily of sales and
marketing, personnel and related occupancy costs; advertising costs; salaries
and occupancy costs for executive, financial, personnel recruitment and
administrative personnel and related operating expenses associated with network
operations, customer service and field services.
Globix depreciates its capital assets on a straight-line basis over the
useful life of the assets, ranging from 3 to 40 years. Globix amortizes its
identifiable intangible assets (primarily customer lists) on a straight-line
basis over periods ranging up to 36 months. In addition, Globix amortizes debt
issuance costs associated with its debt financings over the term of those
obligations using the effective interest method.
Globix historically has experienced negative cash flow from operations and
has incurred net losses. Globix's ability to generate positive cash flow from
operations and achieve profitability is dependent upon Globix's ability to
continue to grow its revenue base and achieve further operating efficiencies.
For the years ended September 30, 2001, 2000 and 1999 Globix generated negative
cash flows from operations of approximately $140.5 million, $94.3 million and
$36.9 million, respectively, and incurred net losses of approximately $213.0
million, $126.4 million and $43.4 million, respectively. As of September 30,
2001, Globix had an accumulated deficit of approximately $399.1 million.
Year Ended September 30, 2001 As Compared To The Year Ended September 30, 2000
Revenue. Revenue for the year ended September 30, 2001 increased 28.2% to
$104.2 million from $81.3 million for the year ended September 30, 2000. This
increase was primarily attributable to availability of data center space, which
provided the growing number of account managers with an opportunity to increase
the number of customers and up sell existing accounts.
Cost of Revenue. Cost of revenue for the year ended September 30, 2001 was
$40.6 million or 39.0% of revenue as compared to $42.5 million or 52.3% total
revenue for the year ended September 30, 2000. The decrease in cost of revenue
was primarily attributable to a shift in product mix toward recurring revenue
streams with higher margins. As utilization of the network increases in future
years, we expect to realize a reduction in this cost as a percent of revenue
due to the network's scalability and fixed cost structure.
Selling, General and Administrative. Selling, general and administrative
expenses for the year ended September 30, 2001 were $128.3 million or 123.1% of
revenue as compared to $98.1 million or 120.6% of revenue for the year ended
September 30, 2000. Approximately $15.0 million or 49.5% of the increase was
attributable to an increase in salaries and benefits necessitated by the
anticipated growth in the business, however, the downturn in the
telecommunications and technology sectors in the last half of fiscal year ended
September 30, 2001 required a reduction in facilities and personnel. The number
of employees decreased from approximately 850 as of September 30, 2000 to
approximately 650 as of September 30, 2001. The majority of the headcount
reductions occurred in the fourth quarter of the 2001 fiscal year.
Approximately $3.1 million or 10.1% of the increase was attributable to an
increase in rent expense associated with the additional Internet data center
and sales office facilities in the current fiscal year. In addition,
approximately $11.4 million or 37.8% of the increase in SG&A was attributable
to an increase in bad debt expense necessitated by the deterioration in the
11
business environment and increased customer churn throughout the second half of
the fiscal year. Selling, general and administrative expenses for the year
ended September 30, 2001 also includes a one-time non-cash charge of $3.5
million associated with the write-off of certain operating assets associated
with an IRU capacity on a wavelength ring purchased from a supplier whose
financial viability impaired the recoverability of these assets. These
increases in selling, general and administrative expenses were offset by a $5.1
million reduction in marketing expenses and a $3.0 million reduction in
professional fees for the year ended September 30, 2001 as compared to the same
period last year.
Restructuring Expenses. These charges totaling approximately $56.1 million
are attributable to the restructuring expenses associated with the execution of
our revised business plan, whereby we plan to construct fewer Internet data
centers and have taken estimated charges associated with the termination of
certain Internet data center and sales office facilities, reduction of certain
commitments for surplus power and environmental equipment related to the
Internet data center expansion and includes estimated lease termination costs,
employee termination costs, write-off of equipment, capitalized interest,
consulting and legal fees, construction and pre-construction related costs
previously capitalized, as well as, leasehold improvements and intangible
assets and other costs.
Depreciation and Amortization. Depreciation and amortization increased to
$36.7 million for the year ended September 30, 2001 as compared to $18.2
million for the year ended September 30, 2000. The increase was primarily
related to the increase in construction costs and equipment purchases related
to the construction and renovation of Internet data centers facilities and
network infrastructure enhancements.
Interest and Financing Expense and Interest Income. Interest and financing
expense increased to $65.1 million for the year ended September 30, 2001 as
compared to $57.8 million for the year ended September 30, 2000. The increase
is a result of interest costs associated with the $600 million 12.5% senior
notes and the interest costs associated with the $21 million mortgage for the
year ended September 30, 2001 being included for the full year in 2001 compared
to the interest cost associated with this debt for only a portion of the year
ended September 30, 2000, off-set by increased capitalized interest in
connection with the build-out of the network infrastructure and Internet data
centers totaling $12.4 million for the year ended September 30, 2001 as
compared to $2.2 for the year ended September 30, 2000. The decrease in
interest income to $13.3 million for the year ended September 30, 2001 reflects
the reduced cash position derived from the net proceeds of the February 2000
debt financing and the December 1999 issuance of the Series A Convertible
Preferred Stock and the impact of declining interest rates compared to the same
period in the prior year.
Other Income. The decrease in other income to $2.1 million for year ended
September 30, 2001 as compared to $2.8 million for the year ended September 30,
2000 is a result of decreased gains realized on the sale of short-term
investments and marketable securities.
Other Expense. The increase in other expense to $3.5 million for the year
ended September 30, 2001 is a result of the loss recognized on the impairment
of certain strategic investments.
Net Loss and Net Loss Attributable To Common Stockholders. As a result of
the above, Globix reported a net loss of $213.0 million and net loss
attributable to common stockholders of $220.1 million for the year ended
September 30, 2001 or $5.72 per share (including the cumulative effect change
of accounting principle associated with the adoption of SAB No. 101 of $2.3
million or $0.06 per share) as compared to a net loss before extraordinary item
of $108.8 million or $3.23 per share and a net loss attributable to common
stockholders of $132.2 million or $3.73 per share (including the extraordinary
loss associated with the $17.6 million or $0.50 per share impact of the early
extinguishment of the Company's 13% Senior Notes) for the year ended September
30, 2000.
Year Ended September 30, 2000 As Compared To The Year Ended September 30, 1999
Revenue. Total revenue for the year ended September 30, 2000 increased
140.4% to $81.3 million from $33.8 million for the year ended September 30,
1999. Revenue from the Internet Division for the year ended
12
September 30, 2000 increased 307.3% to $53.1 million from $13.0 million for the
year ended September 30, 1999. This increase was primarily attributable to
having a full year of operations for three Internet data centers opened during
the prior year. Availability of new data center space provided the growing
number of account managers with an opportunity to increase the number of
customers and upsell existing accounts. Revenue from the Server Sales and
Integration Division increased 35.7% to $28.2 million for the year ended
September 30, 2000 from $20.8 million for the year ended September 30, 1999.
This increase was primarily attributable to a planned shift in product mix
toward higher priced and higher margin products. The increase in Internet
Division revenue as a percentage of total revenue reflects our continued shift
in product mix toward Internet related sales.
Cost of Revenue. Cost of revenue for the year ended September 30, 2000 was
$42.5 million or 52.3% of total revenue as compared to $22.2 million or 65.6%
of total revenue for the year ended September 30, 1999. The increase in cost of
revenue was primarily attributable to an increase in data transmission costs
because of higher network operating and maintenance expenses associated with
the expansion of the network backbone. As utilization of the network increases
in future years, we expect to realize a reduction in per unit data transmission
costs due to the network's scalability and fixed cost structure.
Selling, General and Administrative. Selling, general and administrative
expenses for the year ended September 30, 2000 were $98.1 million or 120.7% of
total revenue as compared to $36.5 million or 107.9% of total revenue for the
year ended September 30, 1999. Approximately $37.6 million or 61.0% of the
increase was attributable to an increase in sales and marketing, engineering,
recruiting, finance and administrative personnel necessitated by the growth in
Internet-related operations. The number of employees increased from
approximately 450 as of September 30, 1999 to approximately 850 as of September
30, 2000. Marketing expenses increased to $11.5 million for the year ended
September 30, 2000 from $4.8 million for the year ended September 30, 1999. The
marketing increase is primarily attributable to costs related to a branding and
advertising campaign.
Depreciation and Amortization. Depreciation and amortization increased to
$18.2 million for the year ended September 30, 2000 as compared to $6.3 million
for the year ended September 30, 1999. The increase was primarily related to
the increase in construction costs and equipment purchases related to the
network infrastructure enhancements of the three Internet data centers during
the year ended September 30, 2000.
Interest and Financing Expense and Interest Income. Interest and financing
expense increased to $57.8 million for the year ended September 30, 2000 as
compared to $18.4 million for the year ended September 30, 1999. The increase
is a result of interest costs associated with the 13% senior notes being
recorded for six months of fiscal 2000 until the tender offer for such debt in
March 2000 in addition to the interest costs associated with the 12.5% senior
notes from February 2000 through September 2000. The increase in interest
income to $24.7 million for the year ended September 30, 2000 reflects the
increased cash position derived from the net proceeds of the February 2000 debt
financing and the December 1999 issuance of the Series A Convertible Preferred
Stock.
Other Income. The increase in other income to $1.8 million for the year
ended September 30, 2000 is a result of the gain realized on the sale of
investments and marketable securities.
Net Loss and Net Loss Attributable To Common Stockholders. As a result of
the above, Globix reported a net loss of $126.4 million and net loss
attributable to common stockholders of $132.2 million for the year ended
September 30, 2000 or $3.73 per share (including the extraordinary loss of
$17.6 million or $0.50 per share impact from the loss on early extinguishment
of the Company's 13% Senior Notes due in 2005) as compared to a net loss and a
net loss attributable to common stockholders of $43.4 million or $1.73 loss per
share for the year ended September 30, 1999.
Year Ended September 30, 1999 As Compared To The Year Ended September 30, 1998
Revenue. Total revenue for the year ended September 30, 1999 increased 64.2%
to $33.8 million from $20.6 million for the year ended September 30, 1998.
Revenue from the Internet Division for the year ended September 30, 1999
increased 102% to $13.0 million from $6.4 million for the year ended September
30, 1998.
13
This increase was primarily attributable to the opening of three Internet data
centers and the related increase in the number of customers to which we provide
Internet connectivity, hosting and co-location services. Also contributing to
the increase is an improvement in the average annual revenue realized per new
business customer and an increase in the business account retention rate.
Revenue from the Server Sales and Integration Division increased 47% to $20.8
million for the year ended September 30, 1999 from $14.1 million for the year
ended September 30, 1998. This increase was primarily attributable to a planned
shift in product mix toward higher priced and higher margin products. The
increase in Internet Division revenues as a percentage of total revenues
reflects our continued shift in product mix toward Internet related sales.
Cost of Revenue. Cost of revenue for the year ended September 30, 1999 was
$22.2 million or 65.6% of total revenues as compared to $13.3 million or 64.7%
of total revenue for the year ended September 30, 1998. The increase in cost of
revenue was primarily attributable to an increase in data transmission costs
because of higher network operating and maintenance expenses associated with
the expansion of the network backbone. As utilization of the network increases
in future years, we expect to realize a reduction in per unit data transmission
costs due to the network's scalability and fixed cost structure.
Selling, General and Administrative. Selling, general and administrative
expenses for the year ended September 30, 1999 were $36.5 million or 108% of
total revenue as compared to $10.7 million or 51.9% of total revenue for the
year ended September 30, 1998. Approximately $14.0 million or 56% of the
increase was attributable to an increase in sales and marketing, engineering,
training and administration personnel necessitated by the growth in
Internet-related operations. The number of employees increased from
approximately 170 as of September 30, 1998 to approximately 450 as of September
30, 1999. Marketing expenses increased to $4.8 million for the year ended
September 30, 1999 from $1.3 million for the year ended September 30, 1998. The
marketing increase is primarily attributable to costs related to a branding and
advertising campaign.
Depreciation and Amortization. Depreciation and amortization increased to
$6.3 million for the year ended September 30, 1999 as compared to $1.3 million
for the year ended September 30, 1998. The increase was primarily related to
the construction costs and equipment purchased for the network infrastructure
enhancements of the three Internet data centers facilities during the year
ended September 30, 1999. We anticipate that our depreciation and amortization
expenses will continue to increase significantly as we expand our network and
data centers.
Interest and Financing Expense and Interest Income. The increase in interest
expense is a result of interest costs associated with the 13% senior notes
being recorded for a full year in fiscal 1999. This interest expense was
partially offset by an increase in interest income related to the increased
cash position derived from the net proceeds of the public equity offering in
March 1999. We amortized debt discount and issuance costs of $8.9 million
associated with the 13% senior notes over seven years using the effective
interest method.
Net Loss and Loss Per Share. As a result of the above, we reported a net
loss of $43.4 million or $1.73 per share for fiscal 1999 as compared to a net
loss of $11.2 million or $0.77 per share for the year ended September 30, 1998.
Cash Flows for the Years Ended September 30, 2001, 2000 and 1999
Cash flows used in operating activities were $140.5 million in 2001, $94.3
million in 2000 and $36.9 million in 1999. Cash flows from operating activities
can vary significantly from period to period depending upon the timing of
operating cash receipts and payments, especially accounts receivable, prepaid
expenses and other assets, and accounts payable and accrued liabilities. In all
three years, our net losses were the primary component of cash used in
operating activities, offset by non-cash depreciation and amortization expenses
relating to our build out of our network and facilities, non-cash amortization
of debt issuance costs and provisions for uncollectible accounts receivable. In
2001, our net losses were also offset by non-cash restructuring charges, losses
on impairment of certain investments and operating assets and the cumulative
effect of a change in accounting principle.
14
Cash flows used in investing activities were $113.3 million for 2001, $149.9
million for 2000 and $58.8 million for 1999. Investments in capital
expenditures related to our network and facilities were $166.4 million for
2001, $150.9 million for 2000, $98.1 million for 1999. Of this amount, $134.2
million for 2001, $142.6 million for 2000, $83.4 million for 1999 was expended
in cash and the balance was financed under financing arrangements or remained
in accounts payable and accrued liabilities at each year-end.
Cash flows provided by financing activities were $0.39 million for 2001,
$509.4 million for 2000, $135.6 million for 1999. In 2001, Globix received net
proceeds of $2.5 million from the exercise of stock options and a $5.4 million
capital contribution in a minority owned subsidiary, partially offset by
principal payments on mortgage and lease obligations and cash dividends on the
preferred stock. In 2000, Globix received net proceeds from the 12.5% senior
notes of $580.0 million, $75.3 million proceeds from issuance of preferred
stock, $20.1 million net proceeds from mortgage financing and $10.1 million of
proceeds from the exercise of stock options and warrants, partially offset by
the use of cash of $170.4 million associated with the tender offer for the 13%
senior notes, principle payments on mortgage and lease obligations and cash
dividends on the preferred stock. In 1999, Globix received net proceeds from
the issuance of common stock of $136.6 million and $1.9 million of proceeds
from the exercise of stock options and warrants.
Liquidity and Capital Resources
Globix has historically had losses from operations, which have been funded
primarily through the issuance of debt and equity securities. In fiscal 1999,
Globix received net proceeds of approximately $136.6 million from equity
financings.
In December 1999 Globix issued $80.0 million in new Series A Convertible
Preferred Stock to affiliates of Hicks, Muse, Tate & Furst Incorporated ("Hicks
Muse") to expand our build-out of Internet data centers and other facilities.
The Company incurred approximately $4.75 million of issuance costs associated
with the Series A Convertible Preferred Stock transaction, of which $3.2
million was a fee paid to Hicks Muse. The preferred stock is convertible into
common stock at any time and cannot be called for redemption for five years.
Under the agreement, the Series A Convertible Preferred Stock is subject to
mandatory redemption in 2014 and yields an annual dividend rate of 7.5% payable
quarterly in cash or additional preferred stock at the option of Globix.
In January 2000, Globix obtained a $21.0 million loan secured by a first
mortgage on the building at 139 Centre Street housing Globix's New York
Internet data center. The loan accrues interest at a rate of 9.16% (subject to
adjustment on February 11, 2010) annually using a 25-year amortization schedule
and is due February 2010.
In February, 2000, Globix completed its offering for $600.0 million 12.5%
Senior Notes due 2010 in a private placement resulting in net proceeds of
approximately $580.0 million. In March 2000 Globix completed its tender offer
to purchase for cash all of its outstanding 13% Senior Notes due 2005, $160.0
million in principal amount. The purchase price in the tender offer was 106.5%
of the principal amount, plus accrued and unpaid interest.
In addition certain computer and network equipment has been financed through
vendors and financial institutions under capital and operating lease
arrangements. At September 30, 2001 there were no unused equipment financing
arrangements with vendors or financial institutions.
As of September 30, 2001, we had $147.0 million of cash, cash equivalents,
short-term investments, restricted cash, restricted investments and marketable
securities. At September 30, 2001, we had working capital of approximately
$78.3 million.
The Company has incurred net losses and net operating cash deficiencies and
has a significant stockholders' deficiency. With regards to these matters, the
Company is currently exploring restructuring alternatives. However, there can
be no assurance that the Company will be successful in executing a viable
restructuring alternative. These factors raise substantial doubt about the
Company's ability to continue as a going concern. The consolidated financial
statements do not include any adjusments that might result from the outcome of
this uncertainty.
15
Operating losses are expected to decrease in fiscal 2002 versus the prior
year due principally to reductions in headcount and other cost savings
initiatives. However, such cost savings will be insufficient to offset lower
than expected revenue growth in fiscal 2002 resulting from a deteriorating
business climate in the Company's fiscal 2001 fourth quarter. Capital
expenditures for the year ending September 30, 2002 are also expected to be
significantly less than the prior three fiscal years. Not withstanding these
reductions in the use of cash, it is not likely that the cash and cash
equivalents on hand at September 30, 2001 would be sufficient to meet all of
the Company's cash obligations in fiscal 2002 including $75.0 million in cash
pay interest expense on the $600 million 12.5% Senior Notes due 2010. As such,
on December 27, 2001 Globix announced that it is in discussions with an
informal committee of bondholders representing approximately 48% of the
Company's outstanding $ 600 million issuance of 12.5% Senior Notes. The
discussions concern a financial reorganization of the Company through a
pre-packaged bankruptcy proceeding that would be aimed at significantly
reducing the Company's debt burden. The Company is in similar discussions with
its preferred stockholders. While there can be no assurance that these
discussions will lead to an agreement, it is likely that any such agreement
would result in the bondholders and preferred stockholders owning nearly all of
the equity in the reorganized company, resulting in a near total dilution of
the existing common stockholders' interest in the Company.
Segment Information
The Company's activities fall within one operating segment. The following
table sets forth geographic segment information for the years ended September
30, 1999, 2000 and 2001:
Year ended September 30,
-----------------------------
1999 2000 2001
-------- -------- ---------
Revenue:
United States... $ 33,674 $ 73,697 $ 82,020
Europe.......... 143 7,590 22,190
-------- -------- ---------
Consolidated. $ 33,817 $ 81,287 $ 104,210
======== ======== =========
Operating loss:
United States... $(27,590) $(64,477) $(142,713)
Europe.......... (3,601) (13,090) (14,773)
-------- -------- ---------
Consolidated. $(31,191) $(77,567) $(157,486)
======== ======== =========
Tangible assets:
United States... $276,896 $692,075 $ 436,262
Europe.......... 20,039 10,649 89,953
-------- -------- ---------
Consolidated. $296,935 $702,724 $ 526,215
======== ======== =========
Income Taxes
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 $350 million at September 30, 2001. These income
tax loss carryforwards expire between 2011 and 2021. Pursuant to Section 382 of
the Internal Revenue Code, the use of these net operating loss carryforwards
may be limited due to changes in ownership that have occurred. The Company is
evaluating the impact, if any, that changes in ownership could have on net
operating loss carryforwards. As of September 30, 2001, the Company also has
net operating loss carryforwards of approximately $31 million from its United
Kingdom subsidiaries, which do not expire under U.K. tax rules. For financial
reporting purposes, income tax benefits through September 30, 2001 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.
16
Capital Structure
Globix's capital structure at September 30, 2001 consisted of 12.5% Senior
Notes, mortgage and capital lease obligations, Series A Redeemable Convertible
Preferred Stock and common stock. Prior to the December 1999 closing of the
Hicks Muse investment there were no outstanding shares of preferred stock.
Total borrowings at September 30, 2001 were $640.0 million, which included
$6.7 million in current obligations and $633.3 million in Senior Notes,
mortgage and other notes payable and long-term capital lease obligations.
Commitments
As of September 30, 2001, Globix had commitments to certain
telecommunications carriers totaling $36.3 million payable in various years
through 2010. Additionally, as of September 30, 2001, Globix has various
agreements to lease facilities and equipment and is obligated to make future
minimum lease payments of approximately $249.6 million on operating leases
expiring in various years through 2036.
In connection with the construction and maintenance of Internet data
centers, Globix is contractually committed as of September 30, 2001 to various
equipment manufacturers and building contractors for equipment and construction
services totaling approximately $18.0 million.
As of September 30, 2001 Globix had issued collateralized letters of credit
aggregating $24.6 million. The related funds are included in restricted cash
and investments on the consolidated balance sheet.
Conversion to the Euro
On January 1, 1999, eleven of the fifteen member countries of the European
Union established a fixed conversion rate between their existing sovereign
currencies and a new currency called the "Euro." These countries have agreed to
adopt the Euro as their common legal currency on that date. The Euro trades on
currency exchanges and is available for non-cash transactions. Thereafter and
until January 1, 2002, the existing sovereign currencies will remain legal
tender in these countries. On January 1, 2002, the Euro is scheduled to replace
the sovereign legal currencies of these countries.
Globix does not anticipate that the implementation of the Euro will have a
material adverse effect on its business operations as the operations of Globix
expands into other European countries. However there are no assurances that the
implementation of the Euro will not have a material adverse affect on Globix's
business, financial condition and results of operations. In addition, Globix
cannot predict the impact the Euro will have on currency exchange rates or
Globix's currency exchange risk.
Recent Technical Accounting Pronouncements
In August 2001, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 144 entitled "Accounting for the Impairment or Disposal of Long-Lived
Assets". This statement addresses financial accounting and reporting for the
impairment or disposal of long-lived assets. SFAS No. 144 will be effective for
financial statements of fiscal years beginning after December 15, 2001. Globix
expects the adoption of SFAS No. 144 will not have a material impact on the
Globix consolidated financial position results of operations or cash flows.
17
In June 2001, the FASB issued SFAS Nos. 141 and 142 entitled, "Business
Combinations" and "Goodwill and Other Intangible Assets", respectively. SFAS No
141, among other things, eliminates the pooling of interests method of
accounting for business acquisitions entered into after June 30, 2001. SFAS No.
142 requires companies to use a fair-value approach to determine whether there
is an impairment of existing and future goodwill. SFAS No. 142 is effective
beginning October 1, 2002. Globix expects the adoption of SFAS Nos. 141 and 142
will not have a material impact on Globix's consolidated financial position,
results of operations or cash flows.
Item 7A. Quantitative and Qualitative Disclosures about Market Risk
At September 30, 2001, we had financial instruments consisting of fixed rate
debt, mortgage payable marketable securities, short-term investments and other
investments. The substantial majority of our debt obligations consist of the
Senior Notes, which bear interest at 12.5% and mature May 1, 2010. Annual
maturities of our capital lease obligations are as follows: $7.8 million in
2002, $6.8 million in 2003, $3.4 million in 2004, $0.8 million in 2005, $0.3
million in 2006 and thereafter. The mortgage 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.
Marketable securities include Globix's strategic investment in Edgar On-Line
and Globecomm Systems Inc., publicly traded entities, which are recorded at
fair market value. Globix does not hedge its exposure to fluctuations in the
value of its equity securities.
Our other investments are generally fixed rate investment grade and
government securities denominated in U.S. dollars. At September 30, 2001, all
of our investments are due to mature within twelve months except $26.9 million
and the carrying value of such investments approximates fair value. At
September 30, 2001, $24.6 million of our cash and investments were restricted
in accordance with the terms of certain collateral obligations.
We actively monitor the capital and investing markets in analyzing our
capital raising and investing decisions.
Globix is also subject to market risk associated with foreign currency
exchange rates. Globix's business plan includes the expansion of the U.K.
operation. To date, Globix has not utilized financial instruments to minimize
its exposure to foreign currency fluctuations. Globix will continue to analyze
risk management strategies to minimize foreign currency exchange risk in the
future.
Globix believes it has 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 a 100 basis point
increase or decrease in interest rates due mainly to the short-term nature of
the major portion 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.
Item 8. Financial Statements
Financial Statements are attached hereto following page F-2.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
During fiscal years 2001 and 2000 there were no changes in or disagreements
with Globix's independent accountant on accounting or financial disclosure.
18
Forward Looking Information and Risk Factors
This Report on Form 10-K contains certain forward-looking statements
concerning, among other things, the Company's plans and objectives for future
operations, planned products and services, potential expansion into new
markets, and anticipated customer demand for our existing and future products
and services. The Private Securities Litigation Reform Act of 1995 provides a
"safe harbor" for forward-looking statements to encourage the inclusion of
prospective information so long as those statements are accompanied by
meaningful cautionary statements identifying factors that could cause actual
results to differ materially. Among the factors that could cause actual
results, performance or achievement to differ materially from those described
or implied in the forward-looking statements are:
. potential marketplace or technology changes, rendering existing products
and services obsolete,
. changes in or the lack of anticipated changes in the regulatory
environment in various countries, including potential legislation
increasing our exposure to content distribution and intellectual property
liability,
. changes in customer purchasing policies and practices,
. Globix's ability to recruit and retain sufficient and qualified personnel
needed to staff our expanding operations,
. the ability of Globix to raise additional capital to finance expansion,
. the sufficiency of existing cash and cash flow to complete our business
plan and fund our working capital and debt service,
. Globix's large existing debt obligations and history of operating losses,
. the ability of Globix to integrate, operate and further expand and upgrade
our network, and
. the continued growth, use and improvement of the Internet, along with the
risks inherent in new product and service introductions and the entry into
new geographic markets.
19
PART III
Item 10. Directors and Executive Officers of the Registrant
The directors, executive officers, and other key employees of Globix, and
their ages and positions as of November 30, 2001, are as follows:
Name Age Position
---- --- --------
Marc H. Bell.......... 34 Chairman and Director
Peter L. Herzig....... 39 Chief Executive Officer
Marc Jaffe............ 34 Chief Operating Officer
Anthony L. Previte.... 36 Chief Technology Officer
Brian L. Reach........ 46 Chief Financial Officer
Lord Anthony St. John. 44 President of Worldwide Sales and Marketing and
Director
William Austin........ 54 General Counsel and Corporate Secretary
Shawn P. Brosnan...... 39 Senior Vice President and Corporate Controller
Christopher D. Peckham 36 Senior Vice President, Information Systems
Richard Rose.......... 55 Senior Vice President, Technology and
Application Services
Robert B. Bell........ 62 Director
Peter Brodsky......... 30 Director
Martin Fox............ 68 Director
Jack D. Furst......... 41 Director
Sid Paterson.......... 59 Director
Harshad Shah.......... 51 Director
Dr. Richard Videbeck.. 76 Director
Marc H. Bell, has served as non-executive Chairman since August 2001. Prior
to that he served as President and Chief Executive Officer and a Director since
he founded Globix in 1989. Under his leadership and vision, the Company
developed into a leading full-service provider of sophisticated Internet
solutions to businesses, including hosting, network and application services.
Mr. Bell has founded numerous companies in his career and has been a seed
investor in several start-up entities. He has appeared on numerous television
broadcasts and has been quoted in several national publications regarding
Internet-related topics. He is a member of the Board of Trustees of and New
York University and Babson College. He is also a Trustee of the Citizens Budget
Commission. He has a Bachelor of Science degree in accounting from Babson
College and a Masters in real estate from New York University. Mr. Bell is the
son of Robert B. Bell.
Peter L. Herzig, has served as Chief Executive Officer since August 2001.
Prior to that he served as Chief Operating Officer since March 2001 and prior
to that as Senior Vice President and Chief Operating Officer-Application
Services Group since joining Globix in October 2000. Prior to joining Globix,
Mr. Herzig was 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. Previously, Mr. Herzig was a Senior
Managing Director and Head of Global Capital Markets Services for Bear, Stearns
& Co., from 1998 to 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 that he was employed by Goldman Sachs since
1989. Mr. Herzig has a Bachelor of Arts degree from Dartmouth College and a
Masters from Columbia University.
Marc Jaffe, has served as Chief Operating Officer since August 2001. Prior
to that he served as Senior Vice President, Chief Operating Officer--Field
Operations, since joining Globix in January 1995. Prior to joining Globix, Mr.
Jaffe was a department manager at Sid Paterson Advertising Inc. in New York
City, which he joined in 1989. Mr. Jaffe graduated from Colgate University,
where he received a Bachelor of Arts degree.
20
Anthony L. Previte, has served as Chief Technology Officer since joining
Globix in October 1998. From July 1991 to October 1998, Mr. Previte was the
Vice President, Special Projects for Emcor Group, Inc., a publicly traded
electrical and mechanical engineering and construction firm. While at Emcor
Group, Mr. Previte was involved in the design and construction of over one
million square feet of secure data center facilities for companies such as
Prudential Securities, Morgan Stanley and Nomura Securities. Mr. Previte has a
degree in aerospace engineering from Polytechnic Institute of New York.
Brian L. Reach, has served as Chief Financial Officer since joining Globix
in September 1999. From May 1997 to August 1999, Mr. Reach was the Chief
Financial Officer of IPC Communications, a provider of integrated
telecommunications equipment and services to the financial industry. During his
tenure at IPC, Mr. Reach successfully guided IPC through its leveraged
recapitalization and financially restructured IPC enabling it to invest in
strategic acquisitions and next generation technologies. Prior to IPC, Mr.
Reach was the Chief Financial Officer of Celadon Group, Inc. and Cantel
Industries, Inc. Mr. Reach is a certified public accountant and received his
Bachelor of Science degree in accounting from the University of Scranton.
Anthony St. John, Lord St. John of Bletso, has served as President of
Worldwide Sales and Marketing since August 2001. Prior to that he served as
Vice President, Business Development and has been a director of Globix since
October 1997. In September 1999, Lord St. John became Globix's Vice President,
Business Development. Since 1978, Lord St. John has served as a sitting member
of the House of Lords of the Parliament of the United Kingdom and an Extra
Lord-in-Waiting to Her Majesty the Queen. He is also a member of The House of
Lords' European Union Sub-Committee on Economic and Financial Affairs, Trade
and External Relations. Since 1993, he has served as a consultant to Merrill
Lynch and is a Registered Representative of the London Stock Exchange. Lord St.
John is also a director of Globix's U.K. subsidiary and serves as its Director
of Business Development. He received his Bachelor of Arts and Bachelor of
Science degrees from Capetown University and Bachelor of Laws from the
University of South Africa and a Masters of Law from the London School of
Economics.
William Austin, joined Globix in April 2001 as General Counsel and has
served as Corporate Secretary since August 2001. Mr. Austin previously was
General Counsel for the Americas at ING Barings for 10 years. There he helped
convert the American arm of the Amsterdam-based bank into an investment bank
and handled financing work, underwriting, compliance functions, litigation
management and the like. Formerly, Mr. Austin had been Associate General
Counsel for eight years at The Chase Manhattan Bank, where he specialized in
commercial lending. Before that, he worked for Herzog, Calamari & Gleason as an
associate attorney dealing with civil litigation and corporate matters. Mr.
Austin has a law degree from Fordham Law School and a bachelor's degree in
economics from Cornell University.
Shawn P. Brosnan, has served as Senior Vice President and Corporate
Controller since August 2001. Prior to that he served as Vice President and
Corporate Controller since joining Globix in November 1999. Prior to joining
Globix, Mr. Brosnan spent over 15 years with Ernst & Young, one of the leading
professional services organizations worldwide. During his tenure at Ernst &
Young, he was a business advisor with extensive experience in the areas of
accounting, finance, financial reporting, mergers and acquisitions and process
improvement. Mr. Brosnan is a certified public accountant and received his
Bachelor of Science degree in accounting from Providence College.
Christopher D. Peckham, has served as Senior Vice President, Information
Systems since August 2001. Prior to that he served as Vice President,
Information Technology since rejoining Globix in February 1999. From August
1997 to February 1999, Mr. Peckham was Manager of Network Engineering for ICON,
a national Internet service provider. From August 1995 through August 1997, Mr.
Peckham served as Senior Systems and Networking Administrator for Globix. From
May 1995 through August 1995, he held the position of Director of Technology
for the Interactive Media Division of Database America. Mr. Peckham has
Doctoral, Master and Bachelor of Science degrees in electrical engineering from
the New Jersey Institute of Technology.
Richard Rose, has served as Senior Vice President, Technology and
Application Services since August 2001. Prior to that he served as Vice
President, Business Development, since joining Globix in May 2000. Prior to
joining Globix, Mr. Rose was with British Telecom Plc (BT) from September 1995,
working as a General
21
Manager in BT's Outsourcing and Customized Solutions Division, where he led the
successful negotiation and implementation to run the largest telecommunications
outsourced contract in Europe. In May 1997, he joined the International M&A
Development Group where he was responsible for managing a number of European
fixed line and Internet and Multimedia transactions. He has a Masters Degree in
Mathematics from London University.
Robert B. Bell, has served as Director of International Affairs of Globix
since July 2000. Prior to that he served for more than five years as Executive
Vice President of Globix. Mr. Bell is also the Managing Director of Globix's
U.K. subsidiary. Mr. Bell spent three years at Coopers & Lybrand. Thereafter,
he was a practicing attorney in New York City at the firm of Bell, Kalnick,
Beckman, Klee and Green, which Mr. Bell founded in the early 1970s, and
specialized in taxation, investments and international real estate joint
ventures. He is the author of Joint Ventures in Real Estate published by John
Wiley & Sons. Prior to 1994, Mr. Bell was for many years an Adjunct Professor
at New York University. He has a Bachelor of Science degree from New York
University and a J.D. degree from the University of California at Berkeley. Mr.
Bell is the father of Marc H. Bell.
Peter S. Brodsky, has been a director of Globix since October 2001, when he
replaced Mr. Michael Levitt as the second Board member representing HMTF. Mr.
Brodsky is a Partner of Hicks, Muse, Tate & Furst Incorporated ("HMTF") and has
been with HMTF since 1995. At HMTF, Mr. Brodsky has focused on the Firm's media
investments, specifically in radio, television, sports and software. Prior to
joining HMTF, Mr. Brodsky was employed for two years in the investment banking
department of CS First Boston Corporation in New York. Mr. Brodsky serves as a
director of several of the Firm's portfolio companies. He received his Bachelor
of Arts degree from Yale University.
Martin Fox, has been a director of Globix since October 1995. Mr. Fox has
been, for more than five years, the President, Chief Executive Officer, and a
director of Initio, Inc., a publicly owned company, which has been an
electronic commerce and catalogue specialty retailer of consumer products.
Jack D. Furst, has been a director of Globix since December 1999. Mr. Furst
has been a partner of Hicks, Muse, Tate & Furst Incorporated since 1989. Mr.
Furst serves as a director of American Tower Corporation, Cooperative
Computing, Inc., Hedstrom Holdings, Inc., Home Interiors & Gifts, Inc.,
International Wire Group, Inc., LLS Corp., Triton Energy Limited and
Viasystems, Inc. Mr. Furst received his B.S. degree from the College of
Business Administration at Arizona State University and his M.B.A. from the
Graduate School of Business at the University of Texas.
Sid Paterson, has been a director of Globix since February 1998. He has been
President and Chief Executive Officer of Sid Paterson Advertising Inc. for more
than five years.
Harshad Shah, has been a director of Globix since April 2000. Mr. Shah has
been involved in real estate investment and development since 1982. Mr. Shah
has been President of Leyland Equities Corp. since December 1995. From 1982 to
1985, Mr. Shah was President of Crescent Equities, Inc. From 1970 to 1982 he
was a Vice President of Manufacturers Hanover Trust Company (now Chase
Manhattan Bank). Mr. Shah attended the Elphinstone College in Bombay, India
where he received a B.A. in Economics and the Indian Institute of Management
where he received a Masters Degree in Business Administration.
Dr. Richard Videbeck, has been a director of Globix since October 1995.
Since 1983, Dr. Videbeck has been an independent consultant in consumer risk
analysis, particularly for retailers and banks. From 1974 until 1986, he was a
Professor of Sociology at the University of Illinois at Chicago. From 1974
until 1977, Dr. Videbeck was the Dean of the Doctor of Arts Program of the
Graduate College of the University of Illinois at Chicago.
The Securities and Exchange Commission (the "SEC") has adopted rules
relating to the obligation of directors, certain officers and five percent
shareholders to file beneficial ownership reports under Section 16 (A) of the
Securities Exchange Act of 1934. One such rule requires disclosure by the
Registrant of filings which, under the SEC's rules, are not deemed to be
timely. During its review with respect to fiscal 2001, Globix determined that
certain directors (Messrs. Fox, Shah, and St. John) did not file all such
reports on a timely basis.
22
Item 11. Executive Compensation
The following Summary Compensation Table sets forth the total compensation
for the years ended September 30, 2001, 2000 and 1999 for Globix's Chief
Executive Officer and its four most highly compensated executive officers
(other than the Chief Executive Officer) (collectively referred to as the
"Named Executive Officers"):
Summary Compensation Table
Long-Term
Compensation
Annual Compensation Awards
------------------------------------- Securities Restricted
Other Annual Underlying Stock
Name and Principal Position Year Salary ($) Bonus ($) Compensation ($) Options (#) Award ($)
--------------------------- ---- ---------- --------- ---------------- ------------ ----------
Marc H. Bell...................... 2001 323,563 -- -- -- 6,016,852
President and 2000 367,500 831,125 -- -- --
Chief Executive Officer 1999 350,000 331,875 -- 4,788,244 --
Peter L. Herzig................... 2001 200,000 100,000 -- 200,000 --
Chief Executive Officer
Marc Jaffe........................ 2001 250,000 -- -- 120,000 705,000
Chief Operating Officer 2000 250,000 -- -- -- --
1999 215,685 -- -- 480,000 --
Anthony L. Previte................ 2001 200,000 -- -- 90,000 528,750
Chief Technology Officer 2000 200,000 -- -- -- --
1999 141,585 -- -- 400,000 --
Brian L. Reach.................... 2001 250,000 -- -- 100,000 587,500
Chief Financial Officer 2000 250,000 50,000 -- -- --
1999 20,000 -- -- 400,000 --
Richard Rose...................... 2001 247,292 49,500 -- 12,500 73,438
Senior Vice President, Technology 2000 91,456 -- -- 50,000 --
and Application Services
--------
Mr. Bell resigned as Chief Executive Officer on August 1, 2001 and became
non-executive chairman.
Mr. Herzig became Chief Executive Officer on August 1, 2001. Mr. Herzig joined
Globix on October 16, 2000.
Mr. Rose joined Globix on May 9, 2000.
Mr. Reach joined Globix on September 1, 1999.
Option Grants in Last Fiscal Year
The following table summarizes options granted during the year ended
September 30, 2001 to the Named Executive Officers:
Potential Realizable
Value at Assumed
Annual Rates of Stock
Price Appreciation
Individual Grants for Option Term ($)
---------------------- ---------------------
Number of % of Total
Securities Options
Underlying Granted to
Options Employees in Exercise Expiration
Name Granted Fiscal Year Price ($) Date 5% 10%
---- ---------- ------------ --------- ---------- --------- ---------
Marc H. Bell...... -- -- -- -- -- --
Peter L. Herzig... 200,000 7.2 4.00 12/18/10 1,303,116 2,074,994
Marc Jaffe........ 120,000 4.3 2.81 12/21/10 549,263 874,610
Anthony L. Previte 90,000 3.2 2.81 12/21/10 411,947 655,957
Brian L. Reach.... 100,000 3.6 2.81 12/21/10 457,719 728,842
Richard Rose...... 12,500 0.4 2.81 12/21/10 57,215 91,105
23
The options on the preceding table have been granted pursuant to Globix's
Stock Option Plans and vest ratably over a five year period at each anniversary
of the date of the grant. During the year ended September 30, 2001, Globix
granted employees options to purchase 2,784,160 shares of common stock under
the various Stock Option Plans.
The amounts shown as potential realizable value represent hypothetical gains
that could be achieved for the respective options if exercised at the end of
the option term. The 5% and 10% assumed annual rates of compounded stock price
appreciation are mandated by rules of the Securities and Exchange Commission
and do not represent Globix's estimate or projection of Globix's future common
stock prices. These amounts represent certain assumed rates of appreciation in
the value of Globix's common stock from the fair market value on the date of
grant. Actual gains, if any, on stock option exercises are dependent on the
future performance of the common stock. The amounts reflected in the table may
not necessarily be achieved.
Option Exercises and Fiscal Year-End Option Values
The following Named Executive Officers exercised options during the fiscal
year ended September 30, 2001:
Mr. Marc H. Bell, exercised options to purchase 1,426,464 shares at prices
ranging from $2.56 to $3.25 per share which resulted in realized value of
$1,391,230.
The following table shows the number of shares covered by both exercisable
and unexercisable stock options held by the named executive officers as of the
year ended September 30, 2001, and the values for exercisable and unexercisable
options. Options are in-the-money if the market value of the shares covered
thereby is greater than the option exercise price. This calculation is based on
the fair market value at September 30, 2001 of $0.42 per share, less the
exercise price.
Fiscal Year-End Option Values
Number of Value of Unexercised
Securities Underlying In-the-Money Options at
Unexercised Options at September 30, 2001
September 30, 2001 ($)
------------------------- -------------------------
Name Exercisable Unexercisable Exercisable Unexercisable
---- ----------- ------------- ----------- -------------
Marc H. Bell...... 4,207,780 -- -- --
Peter L. Herzig... 40,000 160,000 -- --
Marc Jaffe........ 252,000 488,000 -- --
Anthony L. Previte 160,000 330,000 -- --
Brian L. Reach.... 160,000 340,000 -- --
Richard Rose...... 10,000 52,500 -- --
Employment Agreements
Marc H. Bell. Effective June 1, 1998, Globix entered into a seven year
employment agreement with Mr. Marc H. Bell. Under this agreement his base
salary for fiscal year 2000 was $367,500, which increases annually at the rate
of five percent. In addition, Mr. Bell receives an annual bonus equal to ten
thousand times the increase, if any, of the market price per share of Globix's
common stock on each June 30 over the highest per share market price of
Globix's common stock on any preceding July 1 during the term of the agreement.
During the years ended September 30, 2001,2000 and 1999 Mr. Bell received
bonuses of approximately $0, $853,125, and $331,875, respectively under this
provision of the employment agreement. The employment agreement also provides
that he may require Globix to lend him up to a total of $155,000. Any loan
taken thereunder will mature five years after the date made and bear interest
at the rate of eight percent per annum. However, the interest accruing during
the first two years is not payable until the end of such two-year period. At
September 30, 2001, 2000 and 1999, Mr. Bell had no outstanding borrowings under
such loan arrangement.
24
Pursuant to the terms of the employment agreement, as amended, Mr. Bell is
also entitled to stock option grants to purchase shares of common stock. The
term of such option is ten years from the date of grant. During the years ended
September 30, 2001, 2000, 1999 and 1998 Mr. Bell was granted options to
purchase shares of common stock totaling 0, 0, 4,096,580 and 691,664,
respectively, under this agreement.
In connection with the proposed financial restructuring discussed in the
Recent Developments section, Mr. Bell and the Company have agreed in principle
to a three year employment agreement that will, among other things, reduce his
base salary to $12,000 per year effective August 1, 2001 for his services as
non-executive chairman.
Peter L. Herzig. Effective October 2, 2001, Globix entered into an
employment agreement with Mr. Peter L. Herzig. Under this agreement his base
salary for fiscal year 2002 is $250,000. Pursuant to the terms of the
employment agreement, Mr. Herzig is also entitled to an annual performance
bonus and stock option grants to purchase shares of common stock. The term of
such option grants are ten years from the date of grant.
Marc Jaffe. Effective October 2, 2001, Globix entered into an employment
agreement with Mr. Marc Jaffe. Under this agreement his base salary for fiscal
year 2002 is $250,000. Pursuant to the terms of the employment agreement, Mr.
Jaffe is also entitled to an annual performance bonus and stock option grants
to purchase shares of common stock. The term of such option grants are ten
years from the date of grant.
Directors Compensation
Each non-employee director of Globix, who does not beneficially own more
than 5% of Globix's outstanding common stock, is granted upon election or
re-election at the annual meeting of stockholders, options to purchase 10,000
shares of common stock. These options are exercisable in full beginning 12
months after the date of grant, have a ten-year term, and are exercisable at
fair market value on the date of the grant. Effective April 4, 2000, Globix
implemented a cash compensation program pursuant to which its directors who are
not also officers of or employed by Globix or any of its majority-owned
subsidiaries, will receive fees of $2,000 for personal attendance or $500 for
telephonic attendance at board meeting and $1,250 for personal attendance or
$250 for telephonic attendance at committee meetings. In addition, at the
discretion of the Board of Directors, directors may be reimbursed for
reasonable travel expenses in attending Board and committee meetings.
Item 12. Security Ownership of Certain Beneficial Owners and Management
The following table sets forth certain information regarding the beneficial
ownership of Globix common stock as of December 21, 2001:
. each person or entity who is known by Globix to own beneficially 5% or
more of the outstanding shares of common stock;
. each Named Executive Officer as of December 21, 2001;
. each director; and
. all Named Executive Officers and directors of Globix as a group.
25
The applicable percentage of ownership is based on 41,920,229 shares
outstanding on December 21, 2001. Unless otherwise indicated, the address for
those listed below is c/o Globix Corporation, 139 Centre St., New York, NY
10013.
Number of Shares Percent
Named Executive Officers, Directors and 5% Stockholders Beneficially Owned of Class
------------------------------------------------------- ------------------ --------
Marc H. Bell................................... 7,571,635 16.5
Peter L. Herzig................................ 40,000 *
Marc Jaffe..................................... 631,738 1.5
Anthony L. Previte............................. 366,000 *
Brian L. Reach................................. 390,000 *
Richard Rose................................... 37,500 *
Lord Anthony St. John.......................... 109,500 *
7 Cadogan Gardens
London SW32RE
Robert B. Bell................................. 77,500 *
Peter S. Brodsky............................... -- *
200 Crescent Court
Dallas, Texas 75201
Martin Fox..................................... 117,500 *
10 Henry Street
Teterboro, NJ 07608
Jack D. Furst.................................. 77,500 *
200 Crescent Court
Dallas, Texas 75201
Sid Paterson................................... 162,500 *
99 Madison Avenue
New York, NY 10016
Harshad Shah................................... 15,800 *
145 East 48th Street
New York, New York 10017
Dr. Richard Videbeck........................... 122,700 *
3249 East Angler's Stream
Avon Park, FL 33825
Thomas O. Hicks................................ 8,617,300 17.1
200 Crescent Court
Dallas, Texas 75201
HM4 Globix Qualified Fund, LLC................. 7,824,800 15.7
200 Crescent Court
Dallas, Texas 75201
HMTF Equity Fund IV (1999), L.P................ 7,824,800 15.7
200 Crescent Court
Dallas, Texas 75201
HM4/GP (1999) Partners, L.P.................... 7,880,300 15.8
200 Crescent Court
Dallas, Texas 75201
Hicks, Muse GP (1999) Partners IV, L.P......... 8,200,600 16.4
200 Crescent Court
Dallas, Texas 75201
Hicks, Muse (1999) Fund IV, LLC................ 8,200,600 16.4
200 Crescent Court
Dallas, Texas 75201
26
Number of Shares Percent
Named Executive Officers, Director s and 5% Stockholders Beneficially Owned of Class
-------------------------------------------------------- ------------------ --------
Firsthand Capital Management, Inc................................. 5,030,234 12.0
Kevin Michael Landis
125 South Market
San Jose, California 95113
All Named Executive Officers and directors as a Group (14 persons) 9,719,873 23.1
--------
* Less than 1%
Under the rules of the Securities and Exchange Commission, a person is
deemed to be the beneficial owner of a security if that person has or shares
the power to vote or direct the voting of such security or the power to dispose
or direct the disposition of the security. A person is also deemed to be a
beneficial owner of any securities if that person has the right to acquire
beneficial ownership within 60 days.
The amount shown for Marc H. Bell includes 3,475,055 shares owned directly,
including 2,048,290 shares subject to limitations on transfer and the Company's
right to repurchase at par value, expiring with respect to 25% of such shares
on each of December 27, 2001, 2002, 2003, and 2004, respectively ("Restricted
Shares") and 4,096,580 stock options to purchase shares exercisable within 60
days.
The amount shown for Mr. Herzig includes 40,000 stock options to purchase
shares exercisable within 60 days.
The amount shown for Mr. Jaffe includes 240,000 Restricted Shares and
316,000 stock options to purchase shares exercisable within 60 days and
excludes 666 shares owned by Mr. Jaffe's minor child to which Mr. Jaffe
disclaims beneficial ownership.
The amount shown for Mr. Previte includes 180,000 Restricted Shares and
186,000 stock options to purchase shares exercisable within 60 days.
The amount shown for Mr. Reach includes 200,000 Restricted Shares and
180,000 stock options to purchase shares exercisable within 60 days.
The amount shown for Mr. Rose includes 25,000 Restricted Shares and 12,500
stock options to purchase shares exercisable within 60 days.
The amount shown for Lord St. John includes 25,000 Restricted Shares and
84,500 stock options to purchase shares exercisable within 60 days and excludes
12,000 shares held in trust for the benefit of Lord St. John's wife and
children, to which trust, Lord St. John disclaims beneficial ownership.
The amount shown for Robert B. Bell includes 25,000 Restricted Shares and
52,500 stock options to purchase shares exercisable within 60 days.
The amount shown for Mr. Fox includes 25,000 Restricted Shares and 52,500
stock options to purchase shares exercisable within 60 days.
The amount shown for Mr. Furst includes 25,000 Restricted Shares and 52,500
stock options to purchase shares exercisable within 60 days.
The amount shown for Mr. Paterson includes 25,000 Restricted Shares and
102,500 stock options to purchase shares exercisable within 60 days.
27
The amount shown for Mr. Shah includes 5,000 Restricted Shares and 10,500
stock options to purchase shares exercisable within 60 days.
The amount shown for Dr. Videbeck includes 25,000 Restricted Shares and
52,500 stock options to purchase shares exercisable within 60 days.
The amounts shown for Thomas O. Hicks, HM4 Globix Qualified Fund, LLC, HMTF
Equity Fund IV (1999), L.P., HM4/GP (1999) Partners, L.P., Hicks, Muse GP
(1999) Partners IV, L.P., and Hicks, Muse (1999) Fund IV, LLC are based upon
Form 4s filed by those persons and information provided by Hicks, Muse to the
registrant. The amounts shown assume conversion to common stock of all Series A
7.5% Convertible Preferred Stock beneficially owned by such entities. The
shares shown are subject to shared voting and investment power.
Messrs. Furst and Brodsky, each a director of Globix, were appointed to the
Board of Directors on behalf of the holders of the Series A 7.5% Convertible
Preferred Stock.
The amount shown for Firsthand Capital Management, Inc. and Kevin Michael
Landis are based on a Schedule 13F jointly filed by such persons on September
30, 2001.
The amount shown for all executive officers and directors as a group,
include 5,238,580 stock options to purchase shares exercisable within 60 days.
Item 13. Certain Relationships and Related Transactions
See "Employment Contracts" above for a description of certain loans Globix
had made to Marc H. Bell.
A company owned by a family member of Harshad Shah, a director of Globix
since April 4, 2000, holds a promissory note from Globix in the amount of $2.6
million, carrying an interest rate of 7% that arose from Globix's acquisition
of 139 Centre Street. Interest payments totaled approximately $181,000,
$181,000 and $45,000 in Fiscal 2001, 2000 and 1999, respectively.
See "Liquidity and Capital Resources" section of the Management Discussion
and Analysis above for a description of certain fees paid to Hicks, Muse, Tate
& Furst Incorporated.
28
PART IV
Item 14. Exhibits and Reports on Form 8-K
(a) Exhibits. See index of exhibits annexed hereto.
(b) Reports on Form 8-K. None
29
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
Date: December 31, 2001 GLOBIX CORPORATION
/S/ MARC H. BELL
Marc H. Bell
Chairman and Director
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
Date: December 31, 2001 /S/ PETER L. HERZIG
Peter L. Herzig
Chief Executive Officer
Date: December 31, 2001 /S/ BRIAN L. REACH
Brian L. Reach
Chief Financial Officer
Date: December 31, 2001 /S/ SHAWN P. BROSNAN
Shawn P. Brosnan
Senior Vice President, Corporate Controller
Date: December 31, 2001 Anthony St. John
Anthony St. John
President of Worldwide Sales and Marketing
and Director
Date: December 31, 2001 Robert B. Bell
Robert B. Bell
Director
Date: December 31, 2001 Peter Brodsky
Peter Brodsky
Director
Date: December 31, 2001 /S/ MARTIN FOX
Martin Fox
Director
Date: December 31, 2001 JACK FURST
Jack Furst
Director
Date: December 31, 2001 /S/ SID PATERSON
Sid Paterson
Director
30
Date: December 31, 2001 /S/ HARSHAD SHAH
Harshad Shah
Director
Date: December 31, 2001 /S/ RICHARD VIDEBECK
Richard Videbeck
Director
31
Index to Consolidated Financial Statements
Page
----
Report of Independent Public Accountants......................................................... F-2
Consolidated Balance Sheets--As of September 30, 2001 and September 30, 2000..................... F-3
Consolidated Statements of Operations--For the years ended September 30, 2001, September 30, 2000
and September 30, 1999......................................................................... F-4
Consolidated Statements of Changes in Stockholders' (Deficit) Equity--For the years ended
September 30, 2001, September 30, 2000 and September 30, 1999.................................. F-5
Consolidated Statements of Cash Flows--For the years ended September 30, 2001, September 30,
2000 and September 30, 1999................................................................. F-6
Notes to Consolidated Financial Statements....................................................... F-7
F-1
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.
ARTHUR ANDERSEN LLP
New York, New York
December 31, 2001
F-2
GLOBIX CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(All Dollars in Thousands, Except Share and Per Share Data)
September 30,
--------------------
2001 2000
--------- ---------
Assets
Current assets:
Cash and cash equivalents............................................................ $ 111,502 $ 363,877
Short-term investments............................................................... -- 9,948
Marketable securities................................................................ 1,610 4,685
Accounts receivable, net of allowance for doubtful accounts of $6,852 and $4,072,
respectively....................................................................... 13,809 21,403
Prepaid expenses and other current assets............................................ 7,785 4,441
Restricted cash...................................................................... 6,984 7,093
--------- ---------
Total current assets.............................................................. 141,690 411,447
Investments, restricted.............................................................. 26,886 36,085
Property, plant and equipment, net................................................... 356,149 248,424
Debt issuance costs, net of accumulated amortization of $1,896 and $719, respectively 19,006 20,217
Intangible assets, net of accumulated amortization of $2,485 and $197, respectively.. 4,362 6,650
Other assets......................................................................... 4,895 6,768
--------- ---------
Total assets...................................................................... $ 552,988 $ 729,591
========= =========
Liabilities and Stockholders' Deficit
Current liabilities:
Capital Lease and other obligations.................................................. $ 6,687 $ 2,173
Accounts payable..................................................................... 14,022 16,964
Accrued liabilities.................................................................. 30,141 13,669
Accrued interest..................................................................... 12,500 12,502
--------- ---------
Total current liabilities......................................................... 63,350 45,308
Capital Lease obligations, net of current portion.................................... 10,309 1,135
Mortgage Payable..................................................................... 20,441 20,674
Senior Notes......................................................................... 600,000 600,000
Other long term liabilities.......................................................... 7,577 4,462
--------- ---------
Total liabilities................................................................. 701,677 671,579
Minority interest in subsidiary...................................................... 5,406 --
Redeemable convertible preferred stock............................................... 83,230 76,042
Stockholders' Deficit:
Common stock, $.01 par value; 500,000,000 shares authorized; 41,920,229 and
37,307,315 shares issued and outstanding, respectively............................. 419 373
Additional paid-in capital........................................................... 171,176 165,890
Deferred compensation................................................................ (7,097) --
Accumulated other comprehensive (loss) income........................................ (2,703) 1,784
Accumulated deficit.................................................................. (399,120) (186,077)
--------- ---------
Total stockholders' deficit....................................................... (237,325) (18,030)
--------- ---------
Total liabilities and stockholders' deficit....................................... $ 552,988 $ 729,591
========= =========
The accompanying notes are an integral part of these consolidated financial
statements.
F-3
GLOBIX CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(All Dollars in Thousands, Except Share and Per Share Data)
Year ended September 30,
-------------------------------------
2001 2000 1999
----------- ----------- -----------
Revenue............................................................. $ 104,210 $ 81,287 $ 33,817
Operating costs and expense:
Cost of revenue.................................................. 40,609 42,513 22,184
Selling, general and administrative.............................. 128,321 98,113 36,495
Restructuring charges............................................ 56,109 -- --
Depreciation and amortization.................................... 36,657 18,228 6,329
----------- ----------- -----------
Total operating costs and expenses........................... 261,696 158,854 65,008
----------- ----------- -----------
Loss from operations (157,486) (77,567) (31,191)
Interest and financing expense................................... (65,128) (57,831) (18,386)
Interest income.................................................. 13,282 24,749 6,192
Other Income..................................................... 2,147 2,816 --
Other Expense.................................................... (3,526) (1,037) --
----------- ----------- -----------
Loss before extraordinary loss and cumulative effect of a change in
accounting principle.............................................. (210,711) (108,870) (43,385)
Extraordinary loss on early extinguishment of debt............... -- (17,577) --
Cumulative effect of a change in accounting principle............ (2,332) -- --
----------- ----------- -----------
Net loss............................................................ (213,043) (126,447) (43,385)
Dividends and accretion on preferred stock........................ (7,104) (5,768) --
----------- ----------- -----------
Net loss attributable to common stockholders'....................... $ (220,147) $ (132,215) $ (43,385)
=========== =========== ===========
Basic and diluted loss per share attributable to common
stockholders' before extraordinary loss and cumulative effect of
change in accounting principle.................................... $ (5.66) $ (3.23) $ (1.73)
Extraordinary loss............................................... -- (0.50) --
Cumulative effect of a change in accounting principle............ (0.06) -- --
----------- ----------- -----------
Basic and diluted loss per share attributable to common stockholders $ (5.72) $ (3.73) $ (1.73)
=========== =========== ===========
Weighted average common shares outstanding--basic and diluted....... 38,476,909 35,484,040 25,116,800
=========== =========== ===========
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
GLOBIX CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' (DEFICIT) EQUITY
(All Dollars in Thousands, Except Share and Per Share Data)
Accumulated
Other Total
Common Stock Additional Comprehensive Stockholders'
----------------- Paid-in Deferred (Loss) Accumulated (Deficit)
Shares Amount Capital Comp. Income Deficit Equity
---------- ------ ---------- -------- ------------- ----------- -------------
Balance, October 1, 1998.............. 16,560,464 $166 $ 17,122 $ -- $ 1,676 $ (16,245) $ 2,719
Issuance of common stock in
conjunction with public offering, net
of offering costs of $11,915......... 16,000,000 160 136,458 -- -- -- 136,618
Issuance of common stock upon
exercise of options and warrants, net 739,556 7 1,843 -- -- -- 1,850
Comprehensive Income (Loss):
Net loss............................ -- -- -- -- -- (43,385) --
Unrealized holding gains............ -- -- -- -- 8,523 -- --
Foreign Currency translation
adjustment......................... -- -- -- -- 80 -- --
Total Comprehensive Loss.............. -- -- -- -- -- -- (34,782)
---------- ---- -------- ------- ------- --------- ---------
Balance, September 30, 1999........... 33,300,020 333 155,423 -- 10,279 (59,630) 106,405
Issuance of common stock in
conjunction with acquisition......... 241,236 2 6,180 -- -- -- 6,182
Issuance of common stock upon
exercise of options and warrants, net 3,766,059 38 10,055 -- -- -- 10,093
Dividends and accretion on preferred
stock................................ -- -- (5,768) -- -- -- (5,768)
Comprehensive Income (Loss):
Net loss............................ -- -- -- -- -- (126,447) --
Unrealized holding losses........... -- -- -- -- (5,763) -- --
Foreign Currency translation
adjustment......................... -- -- -- -- (2,732) -- --
Total Comprehensive Loss.............. -- -- -- -- -- -- (134,942)
---------- ---- -------- ------- ------- --------- ---------
Balance, September 30, 2000........... 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
adjustment......................... -- -- -- -- 1,052 -- --
Total Comprehensive Loss.............. -- -- -- -- -- -- (217,530)
---------- ---- -------- ------- ------- --------- ---------
Balance, September 30, 2001........... 41,920,229 $419 $171,176 $(7,097) $(2,703) $(399,120) $(237,325)
========== ==== ======== ======= ======= ========= =========
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
GLOBIX CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(All Dollars in Thousands, Except Share and Per Share Data)
Year ended September 30,
------------------------------
2001 2000 1999
--------- --------- --------
Cash flows from operating activities
Net loss....................................................................................... $(213,043) $(126,447) $(43,385)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization............................................................... 36,657 18,228 6,329
Provision for uncollectible receivables..................................................... 14,119 2,701 460
Cumulative effect of a change in accounting principle....................................... 2,332 -- --
Restructuring charges....................................................................... 22,889 -- --
Amortization of debt discount and issuance costs............................................ 1,177 1,022 849
Amortization of deferred compensation....................................................... 1,638 -- --
Extraordinary loss on early extinguishment of debt.......................................... -- 17,577 --
Gain on sale of short term investments...................................................... (1,459) (1,238) --
Gain on sale of marketable securities....................................................... (663) (601) --
Loss on impairment of investment............................................................ 3,250 -- --
Loss on impairment of operating assets...................................................... 3,500 -- --
Changes in operating assets and liabilities:
Accounts receivable......................................................................... (6,526) (15,922) (3,397)
Inventories................................................................................. -- 1,244 (890)
Prepaid expenses and other current assets................................................... (3,309) (1,471) (950)
Other assets................................................................................ (3,567) 366 (766)
Accounts payable............................................................................ 2,303 (1,270) 3,911
Accrued liabilities......................................................................... 947 7,827 904
Accrued interest............................................................................ (2) 3,539 --
Other....................................................................................... (786) 127 38
--------- --------- --------
Net cash used in operating activities.......................................................... (140,543) (94,318) (36,897)
Cash flows from investing activities
Proceeds from sale of short term investments................................................... 10,180 -- --
Use of restricted cash and investments......................................................... 9,308 17,374 22,269
Investment in restricted cash and investments.................................................. -- (25,002) (6,247)
Proceeds from sale of marketable securities.................................................... 1,426 1,125 14,638
Investment in strategic investments............................................................ -- (1,033) (6,000)
Purchases of property, plant and equipment..................................................... (134,185) (142,589) (83,434)
Purchase of Comstar.net, Inc., net of cash acquired............................................ -- 186 --
--------- --------- --------
Net cash used in investing activities.......................................................... (113,271) (149,939) (58,774)
Cash flows from financing activities
Repayments of mortgage payable and capital lease obligations................................... (6,020) (2,137) (3,179)
Proceeds from exercise of stock options and warrants, net...................................... 2,501 10,093 1,850
Capital contribution in minority-owned subsidiary.............................................. 5,406 -- --
Proceeds from 12.5% Senior Notes offering, net of offering expenses............................ -- 580,000 --
Proceeds from issuance of preferred stock, net................................................. -- 75,250 --
Proceeds from issuance of common stock, net.................................................... -- -- 136,618
Repayment of 13% Senior Notes.................................................................. -- (170,400) --
Payments of dividends on preferred stock....................................................... (1,500) (3,475) --
Shareholder loan repayment..................................................................... -- -- 300
Proceeds from mortgage payable, net............................................................ -- 20,064 --
--------- --------- --------
Net cash provided by financing activities...................................................... 387 509,395 135,589
Effects of exchange rate changes on cash and cash equivalents.................................. 1,052 (2,732) 80
--------- --------- --------
Net (decrease) increase in cash and cash equivalents........................................... (252,375) 262,406 39,998
Cash and cash equivalents, beginning of year................................................... 363,877 101,471 61,473
--------- --------- --------
Cash and cash equivalents, ending of year...................................................... $ 111,502 $ 363,877 $101,471
========= ========= ========
Supplemental disclosure of cash flow information
Cash paid for interest......................................................................... $ 78,289 $ 55,260 $ 21,256
Cash paid for income taxes..................................................................... $ 34 $ 72 $ 38
Non-cash investing and financing activities:
Equipment acquired under capital lease obligations.......................................... $ 19,475 $ -- $ 4,566
Capital expenditures included in accounts payable, accrued liabilities and other long term
liabilities................................................................................ $ 12,557 $ 8,287 $ 10,110
Cumulative dividends and accretion on preferred stock....................................... $ 7,104 $ 2,293 $ --
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
GLOBIX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(All Dollars in Thousands, Except Share and Per Share Data)
1. Basis of Presentation and Management's Plan
The Company has incurred net losses and net operating cash deficiencies and
has a significant stockholders' deficiency. With regards to these matters, the
Company is currently exploring debt restructuring alternatives. However, there
can be no assurance that the Company will be successful in executing a viable
restructuring alternative. These factors raise substantial doubt about the
Company's ability to continue as a going concern. The consolidated financial
statements do not include any adjustments that might result from the outcome of
this uncertainty.
On December 27, 2001, Globix announced that it is in discussions with an
informal committee of bondholders representing approximately 48% of the
Company's outstanding $600 million issuance of 12.5% Senior Notes. The
discussions concern a financial reorganization of the Company through a
pre-packaged bankruptcy proceeding that would be aimed at significantly
reducing the Company's debt burden. The Company is in similar discussions with
its preferred stockholders. While there can be no assurance that these
discussions will lead to an agreement, it is likely that any such agreement
would result in the bondholders and preferred stockholders owning nearly all of
the equity in the reorganized company, resulting in a near total dilution of
the existing common stockholders' interest in the Company.
2. Organization and Significant Accounting Policies
Organization and Nature of Operations
Globix Corporation and Subsidiaries ("Globix" or the "Company") is a leading
full-service provider of sophisticated Internet solutions to businesses. The
Company's solutions include secure and fault-tolerant Internet data centers,
high performance network connectivity to the Internet and complex
Internet-based application services. These three major elements of the total
Internet solution combine to provide customers with the ability to create,
operate and scale their increasingly complex Internet operations in a cost
efficient manner. Customers of Globix primarily use these services to maintain
complex computer equipment in a secure fault-tolerant environment with
connectivity to a high-speed, high-capacity, direct link to the Internet and
support complex Internet applications. The Company currently offers its
services from facilities in New York City, Santa Clara, California, Atlanta,
Georgia and London, England.
Principles of Consolidation
The consolidated financial statements include the accounts of the Company
and its subsidiaries. All significant intercompany accounts and transactions
have been eliminated in consolidation.
Management Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results may differ from those estimates.
F-7
GLOBIX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(All Dollars in Thousands, Except Share and Per Share Data)
Revenue Recognition
Revenue consists primarily of managed hosting and dedicated Internet access
fees, sales of systems administration and application services (such as
streaming media, network security and administration and network monitoring).
Monthly service revenue related to managed hosting and Internet access is
recognized over the period services are provided. Revenue derived from
application services is recognized as the project progresses. Projects are
generally completed within less than one year. Payments received in advance of
providing services are deferred until the period such services are provided.
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 "Revenue Recognition in Financial Statements" ("SAB No. 101"). SAB No. 101
expresses the view of the SEC Staff in applying generally accepted accounting
principles to certain revenue recognition issues. Under the provisions of SAB
No. 101 set up and installation revenue are deferred and recognized over the
estimated life of the underlying service contracts, which range from twelve to
thirty six months. Prior to the 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 $2.3 million or $0.06 per share, which was reflected in the
accompanying consolidated statements of operations. The adoption of SAB No. 101
decreased the net loss $547 for the year ended September 30, 2001. The effect
of the adoption of SAB No. 101 for the years ended September 30, 2000 and 1999
was not material.
Cost of Revenue
Cost of revenue consists primarily of telecommunications costs for Internet
access and managed hosting customers. Telecommunications costs include the cost
of providing local loop costs for connecting dedicated access customers to the
Globix network, leased line and associated costs related to connecting with our
peering partners, and costs associated with leased lines connecting our
facilities to our backbone and aggregation points of presence.
Cash and Cash Equivalents
The Company considers all highly liquid investments with an original
maturity of three months or less to be cash and cash equivalents.
Investments
Investments in marketable securities are reported at fair value. Unrealized
gains and losses from those securities, which are classified as
available-for-sale, are reported as "unrealized holding gains and losses" as a
separate component of stockholders' equity. At September 30, 2001 marketable
securities have a cost basis of approximately $2.7 million.
Property, Plant and Equipment
Property, plant and equipment are stated at cost, less accumulated
depreciation or amortization computed on the straight-line method. Buildings
and building improvements are depreciated over their estimated useful life of
up to forty years. Computer hardware and software, network equipment and
furniture and equipment are depreciated over their estimated useful lives,
ranging from three to seven years. Leasehold improvements are amortized over
the term of the lease or life of the asset, whichever is shorter.
F-8
GLOBIX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(All Dollars in Thousands, Except Share and Per Share Data)
Intangible Assets and Unaudited Proforma Results of Operations
On August 30, 2000, the Company acquired all the outstanding shares of
Comstar.net, Inc., a Georgia Corporation, for a purchase price of approximately
$6.9 million (including transaction costs) in stock and cash. In connection
with the acquisition, the Company assumed liabilities of approximately $3.4
million and acquired assets of approximately $9.8 million. The acquisition was
recorded under the purchase method of accounting. Results of operations for the
acquired business have been included in the consolidated statements of
operations beginning August 31, 2000. The acquisition resulted in identifiable
intangible assets (customer list) totaling approximately $6.8 million. These
intangible assets are amortized over a three-year period using the straight
line method.
The following unaudited pro forma consolidated statements of operations data
for the twelve months ended September 30, 2000 and 1999, gives effect to the
acquisition of Comstar.net, Inc. as if this acquisition had occurred on October
1, 1998:
Twelve months ended
September 30,
-------------------
2000 1999
--------- --------
Revenue................................................. $ 85,600 $ 36,783
Net Loss................................................ $(135,082) $(50,687)
Net loss attributable to common stockholders............ $(140,850) $(50,687)
Basic and diluted, loss per share attributable to common
stockholders.......................................... $ (3.97) $ (2.02)
The above-unaudited pro forma consolidated result of operations data gives
effect to purchase accounting adjustments. These pro forma results have been
prepared for comparative purposes only and do not purport to be indicative of
what operating results would have been had the acquisition actually taken place
on October 1, 1998, and may not be indicative of future operating results.
The following table reconciles the net cash acquired in this acquisition:
Fair value of net assets acquired $ 9,833
Liabilities assumed.............. (3,441)
Common stock issued.............. (6,182)
-------
Net cash paid for acquisition.... 210
Cash acquired in acquisition..... (396)
-------
Net cash acquired in acquisition. $ (186)
=======
Long-Lived Assets
The Company reviews the carrying amount of long lived assets for impairment
whenever events or changes in circumstances indicate that the carrying amount
may not be recoverable. Measurement of any impairment would include a
comparison of estimated future operating cash flows anticipated to be generated
during the remaining life of the asset to the net carrying value of the asset.
Deferred Issuance Costs
Costs incurred to obtain financing through the issuance of long term debt
have been reflected as an asset in the accompanying consolidated balance
sheets. Costs incurred to obtain financing through the issuance of preferred
stock have been reflected as a reduction in the carrying value of the issued
preferred stock. These costs
F-9
GLOBIX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(All Dollars in Thousands, Except Share and Per Share Data)
are amortized over the term of the related financing. In 2000, certain debt was
redeemed at which time the remaining balance of unamortized discount and
issuance costs were written off and included in extraordinary loss on early
extinguishment of debt (See note 5).
Foreign Currency Translation
The financial statements of the Company's foreign subsidiaries have been
translated in accordance with Statement of Financial Accounting Standard No.
52, "Foreign Currency Translation". The 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 for 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.
Income Taxes
Deferred income taxes are provided 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 such assets will not be realized.
Stock-Based Compensation
As permitted by Financial Accounting Standards Board Statement No. 123,
"Accounting or Stock-Based Compensation" ("SFAS No. 123"), which establishes a
fair value based method of accounting for stock-based compensation plans, the
Company has elected to follow Accounting Principal Board Opinion No. 25
"Accounting for Stock Issued to Employees" ("APB No. 25") for recognizing
stock-based compensation expense for financial statement purposes. Under APB
No. 25, the Company applies the intrinsic value method of accounting and
therefore does not recognize compensation expense for options granted, because
options are only granted at a price equal to market value on the day of grant.
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. See Note 9 for the additional disclosures required under SFAS
No. 123.
Loss per Share
Basic 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 loss per share is calculated by dividing
net loss attributable to common shareholders by the weighted average number of
common shares outstanding, adjusted for potentially dilutive securities.
Diluted loss per share has not been presented since the inclusion of
outstanding convertible preferred stock, stock options and warrants would be
antidilutive. The following table summarizes the equivalent number of common
shares assuming the related securities that were outstanding as of September
30, 2001 and 2000 had been converted, but not included in the calculation of
diluted loss per share because such shares are antidilutive:
September 30,
---------------------
2001 2000
---------- ----------
Convertible preferred stock 8,617,300 8,000,000
Stock Options.............. 10,392,800 10,298,100
Warrants................... 194,800 194,800
---------- ----------
19,204,900 18,492,900
========== ==========
F-10
GLOBIX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(All Dollars in Thousands, Except Share and Per Share Data)
The following is a reconciliation of net loss attributable to common
stockholders for the years ended September 30, 2001, 2000 and 1999:
2001 2000 1999
----------- ----------- -----------
Numerator:
Loss before extraordinary loss and cumulative effect of change in
accounting principle........................................... $ (210,711) $ (108,870) $ (43,385)
Dividend and accretion on preferred stock........................ (7,104) (5,768) --
=========== =========== ===========
Net loss attributable to common stockholders before extraordinary
loss and cumulative effect of a change in accounting principle. (217,815) (114,638) (43,385)
Extraordinary loss on early extinguishment of debt............... -- (17,577) --
Cumulative effect of a change in accounting principle............ (2,332) -- --
----------- ----------- -----------
Net loss attributable to common stockholders..................... $ (220,147) $ (132,215) $ (43,385)
=========== =========== ===========
Denominator:
Weighted average shares outstanding--basic and diluted........... 38,476,909 35,484,040 25,116,800
=========== =========== ===========
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 investments, marketable securities and
accounts receivable. The Company maintains cash and cash equivalents,
short-term investments, and restricted cash and 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 and geographic
dispersion of customers comprising the Company's customer base. The Company
performs ongoing credit evaluations of its customers and maintains reserves for
potential losses.
Fair Value of Financial Instruments
For cash and cash equivalents, restricted cash and investments, marketable
securities and accounts receivable, the carrying amount approximates fair value.
Reclassifications
Certain prior year information has been reclassified to conform with fiscal
2001 presentation.
Recent Technical Accounting Pronouncements
In August 2001, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 144 "Accounting for the Impairment or Disposal of Long-Lived Assets".
This statement addresses financial accounting and reporting for the impairment
or disposal of long-lived assets. SFAS No. 144 will be effective for financial
statements of fiscal years beginning after December 15, 2001. Globix expects
the adoption of SFAS No. 144 will not have a material impact on the Company's
consolidated financial position, results of operations or cash flows.
In June 2001, the FASB issued SFAS Nos. 141 and 142 entitled, "Business
Combinations" and "Goodwill and Other Intangible Assets", respectively, SFAS
No. 141, among other things, eliminates the pooling of interests method of
accounting for business acquisitions entered into after June 30, 2001. SFAS No.
142 requires
F-11
GLOBIX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(All Dollars in Thousands, Except Share and Per Share Data)
companies to use a fair-value approach to determine whether there is an
impairment of existing and future goodwill. SFAS No. 142 is effective beginning
October 1, 2002. Globix expects the adoption of SFAS Nos. 141 and 142 will not
have a material impact on the Company's consolidated financial position,
results of operations or cash flows.
3. Property, Plant and Equipment
Property, plant and equipment consist of the following:
September 30,
------------------
2001 2000
-------- --------
Land................................................ $ 1,997 $ 1,997
Building and building improvements.................. 108,216 55,416
Leasehold improvements.............................. 145,617 30,927
Computer hardware and software and network equipment 134,767 67,552
Furniture and equipment............................. 9,693 7,198
-------- --------
400,290 163,090
Less: Accumulated depreciation and amortization..... (54,499) (25,731)
Add: Construction in progress....................... 10,358 111,065
-------- --------
Property, plant and equipment, net.................. $356,149 $248,424
======== ========
Certain computer and network equipment are recorded under capital leases
that aggregated approximately $23.5 million and $6.0 million as of September
30, 2001 and 2000, respectively. Accumulated amortization on the assets
recorded under capital leases aggregated approximately $6.6 million and $3.2
million as of September 30, 2001 and 2000, respectively.
Costs incurred prior to completion of construction of Internet data centers
and network infrastructure upgrades are reflected as construction in progress
in the accompanying consolidated balance sheets and will be recorded as
property, plant and equipment at the date each Internet data center or network
segment becomes operational. Construction in progress includes direct
expenditures for construction of the Internet data center facilities and
related network equipment and network upgrade projects and is stated at cost.
Capitalized costs include costs incurred under the construction contract,
advisory, consulting and legal fees as well as, labor and interest incurred
during the construction phase. Capitalized interest is included in property,
plant and equipment under the provisions of SFAS No. 34 totaling approximately
$12.4 million, $2.2 million and $3.8 million at September 30, 2001, 2000 and
1999, respectively. During the year ended September 30, 2001 certain projects
including two new Internet data centers, expansion projects at several existing
facilities and network infrastructure upgrades became operational. Accordingly,
such assets were placed into service and recorded as a component of the
respective depreciable asset category.
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.
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 of the right to purchase the Centre Street property
is entitled to additional consideration if Globix sells the property. Such
amount will be equal to the greater of (a) $1.0 million (subject to increase
after June 1, 2018 by ten percent and an additional ten percent every fifth
year thereafter), or (b) ten percent of the gross sales price of the property
if such sales price is greater than $17.5 million.
F-12
GLOBIX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(All Dollars in Thousands, Except Share and Per Share Data)
In September 2000, the Company purchased the land and the eight-story
building located at 415 Greenwich Street, New York, New York (the "Property").
The Property, which serves as the Company's second New York City Internet Data
Center, 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 has 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
approximately $14.1 million capital contribution to the LLC. As of September
30, 2001, approximately $5.4 million of such capital contribution has been
received by the LLC. The Company has consolidated the financial statements of
the LLC at September 30, 2001 and for the period from inception to September
30,2001, resulting in a minority interest in subsidiary in the accompanying
consolidated balance sheet. The LLC's results of operations for the period
ending September 30, 2001 were not material.
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 or December 31, 2002, whichever is earlier (the "Certification
Date") the Investor may require the Company to purchase its interest in the LLC
for an amount equal to 25% of the Investor's capital contribution in the LLC.
If the Investor does not exercised 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, taxes payable by
the Investor upon the sale of its investment.
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 cost. Upon 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 Investors capital
contributions up to the termination date and the Investors actual return up to
the termination date.
4. Accrued Liabilities
Accrued liabilities consist of the following:
September 30,
---------------
2001 2000
------- -------
Restructuring reserves.... $ 9,191 --
Deferred revenue.......... 2,692 601
Accrued construction costs 6,490 3,172
Other..................... 11,768 9,896
------- -------
$30,141 $13,669
======= =======
F-13
GLOBIX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(All Dollars in Thousands, Except Share and Per Share Data)
During the quarter ended December 31, 2000 the Company modified its Internet
data center expansion plan to delay, scale back and eliminate certain
facilities. During November 2000, management's plan to terminate 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 were completed and approved by the Board of Directors.
When initiated, the restructuring plan was expected to take approximately one
year to complete. The Company recorded a $38.1 million charge associated with
this restructuring plan in the fiscal quarter ending December 31, 2000.
Approximately $15.7 million 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.
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
(approximately 106 employees), lease obligations and write-off of certain
equipment, leasehold improvements and intangible assets and other costs. In
connection with this modification, additional non-recurring restructuring
charges of $18.0 million were recorded, of which $10.0 million was a write-off
of equipment, leasehold improvements and intangible assets and $1.2 million
associated with employee terminations.
As of September 30, 2001, restructuring charges totaling $46.9 million were
charged against the established restructuring reserves, resulting in a
remaining reserve balance of $9.2 million. The following table displays the
activity and balances of the restructuring reserve account from inception to
September 30, 2001:
Restructuring Charge Activity Amount
----------------------------- --------
Initial charge--November 2000 (balance) $ 38,109
Additions........................... --
Deductions.......................... (27,667)
--------
Balance, December 31, 2000............. 10,442
Additions........................... --
Deductions.......................... (2,662)
--------
Balance, March 31, 2001................ 7,780
Additions........................... --
Deductions.......................... (1,610)
--------
Balance, June 30, 2001................. 16,170
Additions........................... 18,000
Deductions.......................... (14,979)
--------
Balance, September 30, 2001............ $ 9,191
========
The above deductions to the restructuring reserve represent primarily cash
payments and write-offs of previously capitalized costs.
5. Senior Notes
In April 1998, the Company completed a $160.0 million debt financing
(the"13% Senior Notes") 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. The 13% Senior Notes were to
mature on May 1, 2005. Interest on the 13% Senior notes accrued at a rate of
13% per annum and was payable semi-annually in arrears on May 1 and November 1
of each year,
F-14
GLOBIX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(All Dollars in Thousands, Except Share and Per Share Data)
commencing November 1, 1998. Globix deposited $57.0 million with an escrow
agent at closing, which amount, with interest, was sufficient to pay, when due,
the first six interest payments under the 13% Senior Notes. The 13% Senior
Notes were collateralized by a first priority security interest in the escrow
account. The 13% Senior Notes were unsecured obligations of the Company and
ranked pari passu in right of payment with all existing and unsecured an
unsubordinated indebtedness and rank senior in right of payment to any future
subordinated indebtedness. In connection with the warrants issued with the 13%
Senior Notes, the Company had assigned an original issue discount of
approximately $2.3 million.
On January 28, 2000, the Company announced that it had entered into an
agreement to sell $600.0 million 12.5% senior notes (the "12.5% Senior Notes")
due 2010 in a private placement to a group of initial purchasers and in March
2000 completed a tender offer to purchase all of the outstanding 13% Senior
Notes, $160.0 million in principal amount. The purchase price in the tender
offer was 106.5% of the principal amount, plus accrued and unpaid interest. On
February 8, 2000 the Company closed on its offering for the $600.0 million
12.5% Senior Notes due 2010, resulting in net proceeds of approximately $580.0
million, after underwriting fees and offering expenses. The tender offer and
related redemption of the outstanding 13% Senior Notes also resulted in a one
time charge of $17,577 or $0.50 per share which has been recorded as an
extraordinary item in the statement of operations. As a result of the
redemption of the 13% Senior Notes all restrictions related to the escrow
deposit were released and such funds are no longer restricted as to use.
The 12.5% Senior Notes mature on February 1, 2010. Interest on the 12.5%
Senior Notes is payable semiannually on February 1 and August 1 of each year,
commencing August 1, 2000. The 12.5% Senior Notes are unsecured obligations of
the Company and rank pari passu in right of payment with all existing and
future unsecured and unsubordinated indebtedness and rank senior in right of
payment to any future subordinated indebtedness. In connection with the
offering the Company incurred costs of approximately $20.0 million that are
being amortized over ten years using the effective interest method. See
footnote No. 1 for further discussion and impact of management's plan on Senior
Notes.
6. Mortgage Payable
On January 25, 2000, the Company borrowed $21.0 million 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.
7. Redeemable Convertible Preferred Stock
During November 1999 the Company designated 250,000 shares of its authorized
Preferred Stock, $0.01 par value, as a Series A. At September 30, 2001, there
were 86,173 Series A Preferred Shares outstanding and 163,827 Series A
Preferred Shares reserved for issuance. On April 4, 2000 the shareholders of
the Company voted to amend the Company's certificate of incorporation to
increase the Company's authorized preferred stock to 5,000,000 shares.
On December 3, 1999, the Company issued $80.0 million (80,000 shares) in
Series A Convertible Preferred Stock (the "Series A Preferred Stock") to
affiliates of Hicks, Muse, Tate & Furst Incorporated ("Hicks Muse") to expand
the build-out of its Internet data centers and other facilities. The Series A
Preferred Stock is convertible into common stock at $10.00 per share at any
time and may not be called for redemption by the Company for five years. Under
the agreement, the Series A Preferred Stock is subject to mandatory redemption
in 2014 and
F-15
GLOBIX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(All Dollars in Thousands, Except Share and Per Share Data)
yields an annual dividend of 7.5% payable quarterly in cash or additional
Series A Preferred Stock, at the option of the Company. The holders of the
Series A Preferred Stock have a liquidation preference of $1,000 per share and
are entitled to cumulative dividends.
The Series A Preferred Stock is recorded in the accompanying consolidated
balance sheet outside the stockholders equity section due to its mandatory
redemption feature. The Company incurred approximately $4,750 of issuance costs
in connection with the Series A Preferred Stock transaction. Such costs have
been recorded as a reduction of the carrying amount of the Series A Preferred
Stock and are being accreted through a charge to additional paid in capital
over the five-year period to the earliest redemption date.
During the year ended September 30, 2001, the Company's Board of Directors
decreased payment of in kind dividends aggregating 6,173 Series A Preferred
Stock valued at $6,173.
8. Stockholders' Equity
Restricted Stock Grant
In December 2000, Globix granted approximately 3.1 million shares of
restricted stock to certain employees and directors. The restricted stock
awards vest 25% per year over a four-year period on the anniversary date of the
grant. In connection with this restricted stock grant the Company has recorded
a deferred compensation charge of $8,999 in stockholders equity. This deferred
compensation will be recorded as compensation expense over the four-year
vesting period. Compensation expense recorded in the year ended September 30,
2001 was $1,638.
Stock Splits
On December 10, 1999 the Company announced a two-for-one stock split of its
outstanding shares of common stock, which was paid on December 30, 1999. On
January 10, 2000, the Company announced an additional two-for-one stock split
of its outstanding shares of common stock, payable on January 31, 2000.
Stockholders' equity has been restated to give retroactive recognition to both
stock splits for all periods presented in the accompanying financial statements
by reclassifying from additional paid-in-capital to common stock the par value
of the additional shares arising from the splits. In addition, all references
to number of shares, per share amounts and stock options data have been
restated to reflect the stock splits.
Secondary Public Offering
In March 1999,the Company completed a public offering of 16,000,000 shares
of the Company's common stock. The Company received proceeds, net of expenses,
from thepublic offering of approximately $136.6 million. In addition, the
Company received proceeds of $0.9 million resulting from the exercise of 80,790
warrants to purchase 323,160 shares of common stock.
9. Employee Benefits Plan
Stock Option Plans
In April 2001, the Company's stockholders approved, the 2001 Stock Option
Plan (the "2001 Option Plan"), which provides for the grant of stock options to
purchase up to 2,000,000 shares of common stock to any employee, non-employee
director, or consultant at the Board's discretion. Under the 2001 Option Plan,
these
F-16
GLOBIX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(All Dollars in Thousands, Except Share and Per Share Data)
options may not be exercised after ten years from the date of grant. Options
issued to employees are exercisable ratably over a five-year period.
In April 2000, the Company's stockholders approved, the 2000 Stock Option
Plan (the "2000 Option Plan"), which provides for the grant of stock options to
purchase up to 1,675,000 shares of common stock to any employee, non-employee
director, or consultant at the Board's discretion. Under the 2000 Option Plan,
these options may not be exercised after ten years from the date of grant.
Options issued to employees are exercisable ratably over a five-year period.
In April 1999, the Company's stockholders approved, the 1999 Stock Option
Plan (the "1999 Option Plan"), which provides for the grant of stock options to
purchase up to 6,000,000 shares of common stock to any employee, non-employee
director, or consultant at the Board's discretion. Under the 1999 Option Plan,
these options may not be exercised after ten years from the date of grant.
Options issued to employees are exercisable ratably over a five-year period.
In April 1998, the Company's stockholders approved, the 1998 Stock Option
Plan (the "1998 Option Plan"), which provides for the grant of stock options to
purchase up to 4,800,000 shares of common stock to any employee, non-employee
director, or consultant at the Board's discretion. Under the 1998 Option Plan,
these options may not be exercised after ten years from the date of grant.
Options issued to employees are exercisable ratably over a five-year period.
Under the 2001, 2000, 1999 and 1998 Option Plans, options are granted to
non-employee directors upon election at the annual meeting of stockholders at a
purchase price equal to the fair market value on the date of grant. In
addition, the non-employee director stock options shall be exercisable in full
twelve months after the date of grant unless determined otherwise by the
compensation committee.
In 1995, the Company's stockholders approved, the 1995 Stock Option Plan
(the "1995 Option Plan"), which reserved 1,440,000 shares of common stock for
issuance under the 1995 Option Plan. Under the 1995 Option Plan, the term of
the options issued are determined by the stock option committee and range from
five to ten years from the date of the grant. Options issued to directors are
immediately exercisable and options issued to employees are exercisable ratably
over a three-year period.
There were 6,289,812 options available for future grant at September 30,
2001.
Fair Value of Stock Options
For disclosure purposes under SFAS No. 123, the fair value of each option
grant is estimated on the date of grant using the Black-Scholes option
valuation model with the following weighted-average assumptions:
2001 2000 1999
----- ----- ----
Expected life (in years) 6.0 6.0 6.0
Risk-free interest rate. 5.0% 6.3% 5.4%
Volatility.............. 133.0% 122.0% 94.0%
Dividend yield.......... 0.0% 0.0% 0.0%
Utilizing these assumptions, the weighted average fair value of options
granted is $2.83, $20.80 and $6.49 for the years ended September 30, 2001, 2000
and 1999, respectively.
F-17
GLOBIX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(All Dollars in Thousands, Except Share and Per Share Data)
Under the above model, the total value of stock options granted would be
amortized on a pro forma basis over the option-vesting period. Had the Company
determined compensation expense for these stock options under the fair value
method of SFAS No. 123, the Company's net loss attributable to common
stockholders and net loss per share attributable to common stockholders would
have been increased to the following pro forma amounts:
Year ended September 30,
------------------------------
2001 2000 1999
--------- --------- --------
Pro forma net loss attributable to common
stockholders................................. $(228,599) $(139,340) $(76,305)
--------- --------- --------
Pro forma basic and diluted, net loss per share
attributable to common stockholders.......... $ (5.94) $ (3.93) $ (3.04)
--------- --------- --------
The Black-Scholes option valuation model was developed for use in estimating
the fair value of traded options which have no vesting restrictions and are
fully transferable. In addition, option valuation models require the input of
highly subjective assumptions including the expected stock price volatility.
Because the Company's employee stock options have characteristics significantly
different from those of traded options, and because changes in the subjective
input assumptions can materially affect the fair value estimate, in
management's opinion, the existing models do not necessarily provide a reliable
single measure of the fair value of its employee stock options. The effects of
applying SFAS No. 123 in this pro forma disclosure are not indicative of future
amounts as additional stock option awards are anticipated in future years.
Summary Stock Option Activity
The following table summarizes stock option information with respect to all
stock options for the three years ended September 30, 2001:
Weighted
Average
Number of Exercise
Shares Price
---------- --------
Options outstanding, October 1, 1998... 3,680,752 $ 1.60
Granted............................. 7,839,844 8.21
Canceled............................ (532,344) 3.58
Exercised........................... (264,272) 1.52
----------
Options outstanding, September 30, 1999 10,723,980 6.33
Granted............................. 1,864,150 23.30
Canceled............................ (834,403) 12.54
Exercised........................... (1,454,635) 1.79
----------
Options outstanding, September 30, 2000 10,298,692 9.54
Granted............................. 2,784,160 3.10
Canceled............................ (1,130,647) 12.78
Exercised........................... (1,559,424) 1.61
----------
Options outstanding, September 30, 2001 10,392,781 $ 8.67
==========
F-18
GLOBIX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(All Dollars in Thousands, Except Share and Per Share Data)
The following table summarizes information about the outstanding and
exercisable options at September 30, 2001:
Options Outstanding Options Exercisable
---------------------------------------------- --------------------------
Number of Weighted Average Weighted Number of Weighted
Range of Options Remaining Average Options Average
Exercise Prices Outstanding Contractual Life Exercisable Price Outstanding Exercise Price
--------------- ----------- ---------------- ----------------- ----------- --------------
$ 0.42 - $ 1.50 916,249 7.24 $ 1.21 300,549 $ 1.29
$ 1.51 - $ 2.63 340,672 6.09 $ 1.74 200,872 $ 1.67
$ 2.64 - $ 9.24 2,628,810 8.78 $ 3.62 230,560 $ 6.05
$ 9.25 - $ 9.25 4,096,580 7.49 $ 9.25 4,096,580 $ 9.25
$ 9.26 - $12.02 1,682,170 7.87 $11.69 793,150 $11.66
$12.03 - $58.19 728,300 8.53 $29.12 217,820 $29.14
---------- ---- ------ --------- ------
10,392,781 7.96 $ 8.67 5,839,531 $ 9.52
========== ==== ====== ========= ======
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 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 makes discretionary contributions for all eligible employees who
contribute to the Plan in an amount not to exceed 50% of each participant's
first 4% of compensation contributed as elective deferrals for the Plan year.
The Company contributed approximately $0.39 million and $0.27 million to the
Plan during the years ended September 30, 2001 and 2000, respctively.
10. Capital Lease Obligations
Future minimum lease payments due under capital leases are as follows:
Year Ending
September 30 Amount
------------ -------
2002....................................... $ 7,805
2003....................................... 6,804
2004....................................... 3,470
2005....................................... 802
2006....................................... 306
Less: Amount representing interest......... (2,430)
-------
Present value of net minimum lease payments $16,757
=======
11. Commitments and Contingencies
Leases
The Company has minimum monthly usage/maintenance levels with certain of its
telecommunications carriers expiring in various years through 2010. 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, 2001,
2000 and 1999 was $7.1 million, $4.1 million and $1.3 million, respectively.
F-19
GLOBIX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(All Dollars in Thousands, Except Share and Per Share Data)
Future minimum payments due under these operating leases and
telecommunications carrier usage commitments are as follows:
Year Ending
September 30 Telecom. Leases
------------ -------- --------
2002....... $12,819 $ 7,733
2003....... 6,880 11,839
2004....... 5,664 14,008
2005....... 4,368 13,837
2006....... 2,622 13,967
Thereafter. 3,940 188,223
------- --------
Total...... $36,293 $249,607
======= ========
Equipment and Services
In connection with the construction of the Company's Internet data centers
the Company is contractually committed as of September 30, 2001 to various
equipment manufacturers and building contractors for equipment and construction
services totaling approximately $18.0 million.
Letters of Credit
As of September 30, 2001 the Company had collateralized letters of credit
aggregating $24.6 million. The related funds are included in restricted cash
and investments on the accompanying consolidated balance sheet.
Employment and Other Contractual Agreements
Effective June 1, 1998, the Company entered into a seven year employment
agreement, with an Officer and Director providing for a base salary of $0.35
million per year, increasing annually at the rate of five percent starting
October 1, 1999. In addition, the individual will receive an annual bonus equal
to ten thousand times the increase, if any, of the fair market value per share
of the Company's common stock measured during the twelve month period ending on
June 30 of each year of the agreement, commencing with the year beginning July
1, 1998. During the years ended September 30, 2001, 2000 and 1999 the
individual received bonuses of approximately, $0, $0.85 million and $0.33
million, respectively under this provision of the employment agreement. The
employment agreement also provides that he may require the Company to lend such
officer up to a total of $0.155 million. Any loan taken there under will mature
five years after the date made and bear interest at the rate of eight percent
per annum. However, the interest accruing during the first two years is not
payable until the end of such two-year period. At September 30, 2001, 2000 and
1999 the individual had no outstanding borrowings under such loan arrangement.
Pursuant to the terms of the employment agreement, as amended, the individual
is also entitled to stock option grants to purchase shares of common stock. The
term of such option is ten years from the date of grant. During the years ended
September 30, 2001, 2000, 1999 and 1998 the individual was granted options to
purchase shares of common stock totaling 0, 0, 4,096,580, and 691,664,
respectively, under this agreement. In connection with the proposed financial
restructuring discussed in footnote No. 1, the above individual and the Company
have agreed in principle to a three year employment agreement that will, among
other things, reduce his base salary to $12,000 per year effective August 1,
2001 for his services as non-executive chairman.
F-20
GLOBIX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(All Dollars in Thousands, Except Share and Per Share Data)
In connection with employment arrangements with certain other employees the
Company is also committed to minimum compensation obligations under employment
arrangements expiring through 2002. Minimum payments due under these
arrangements aggregate approximately $1.0 million.
Contingencies
From time to time, the Company is a party to litigation arising in the
normal course of its business operations. In the opinion of management and
counsel, it is not anticipated that the settlement or resolution of any such
matters will have a material adverse impact on the Company's financial
condition, results of operations or cash flows.
12. Income Taxes
Significant components of the Company's deferred tax assets and liabilities
are as follows:
Year ended September 30,
-----------------------------
2001 2000 1999
--------- -------- --------
Deferred tax assets (liabilities):
Tax depreciation and amortization (in excess) less than
depreciation and amortization......................... $ 1,316 $ (209) $ (348)
Net operating loss carryforwards (U.S. Federal Tax)..... 158,666 78,622 23,375
Allowance for doubtful accounts......................... 2,395 1,631 283
Deferred Rent........................................... 174 149 149
Deferred compensation................................... 916 641 --
Deferred Revenue........................................ 284 -- --
Restructuring reserve................................... 3,670 -- --
Valuation allowance..................................... (167,421) (80,834) (23,459)
--------- -------- --------
Total net deferred tax liabilities.................. $ -- $ -- $ --
========= ======== ========
The provision for income taxes for the years ended September 30, 2001, 2000,
and 1999 differs from the amount computed by applying the federal statutory
rate due to the following:
Year ended September 30,
----------------------
2001 2000 1999
---- ---- ----
Statutory federal income tax rate............ (34)% (34)% (34)%
State and local taxes, net of federal benefit (11)% (11)% (11)%
Valuation allowance.......................... 45 % 45 % 45 %
--- --- ---
Effective income tax rate.................... -- % -- % -- %
=== === ===
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 $350 million at September 30, 2001. These income
tax loss carryforwards expire between 2011 and 2021. Pursuant to Section 382 of
the Internal Revenue Code, the usage of these net operating loss carryforwards
may be limited due to changes in ownership that have occurred. The Company has
not yet determined the impact, if any, that changes in ownership have had
F-21
GLOBIX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(All Dollars in Thousands, Except Share and Per Share Data)
on net operating loss carryforwards. As of September 30, 2001, the Company also
has net operating loss carryforwards of approximately $31 million from its
United Kingdom Subsidiaries, which do not expire under U.K. tax rules. For
financial reporting purposes, income tax benefits through September 30, 2001
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.
13. Segment Information
The Company reports segment information under SFAS No. 131, which
establishes standards for reporting information about operating segments in
annual financial statements, and requires selected information about operating
segments in interim financial reports issued to stockholders. It also
establishes standards for disclosures about products and services and
geographic areas. Operating segments are components of an enterprise for which
separate financial information is available and which is evaluated regularly by
the Company's chief operating decision-maker, or decision-making group, in
deciding how to allocate resources and assess performance. The Company is a
full service provider of sophisticated Internet solutions. The Company operates
several Internet data centers throughout the United States and Europe. Each
Internet data center provides the same internet related services to similar
type of customers. Effective April 1, 2001 and for the fiscal year ended
September 30, 2001, Globix reports its results of operations in one operating
segment under the provisions of SFAS No. 131. Previously the Company reported
under two operating segments.
The following table sets forth geographic segment information for the years
ended September 30, 2001, 2000 and 1999:
Year ended September 30,
-----------------------------
2001 2000 1999
--------- -------- --------
Revenue:
United States.. $ 82,020 $ 73,697 $ 33,674
Europe......... 22,190 7,590 143
--------- -------- --------
Consolidated... $ 104,210 $ 81,287 $ 33,817
========= ======== ========
Operating loss:
United States.. $(142,713) $(64,477) $(27,590)
Europe......... (14,773) (13,090) (3,601)
--------- -------- --------
Consolidated... (157,486) $(77,567) $(31,191)
========= ======== ========
Tangible assets:
United States.. $ 436,262 $692,075 276,896
Europe......... 89,953 10,649 20,039
--------- -------- --------
Consolidated... $ 526,215 $702,724 $296,935
========= ======== ========
14. Related Party Transactions
The Company utilizes an entity controlled by a Director of the Company, as
its agent to place the Company's advertisements in various print publications.
Amounts paid to this entity for the years ended September 30, 2001, 2000 and
1999 were $0, $0.1 million and $1.5 million, respectively. A substantial
portion of these amounts constitutes the pass-through of amounts payable to the
publishing companies for the Company's advertisements.
F-22
GLOBIX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(All Dollars in Thousands, Except Share and Per Share Data)
15. Selected Quarterly Financial Data (Unaudited)
Three Months Ended
December 31,
------------------------
2000 1999
----------- -----------
Revenue.......................................................... $ 26,237 $ 16,145
Loss from operations............................................. (60,951) (16,963)
Loss before cumulative effect of a change in accounting principle (70,92) (20,811)
Cumulative effect of a change in accounting principle............ (2,332) --
----------- -----------
Net loss......................................................... (73,284) (20,811)
Dividends and accretion on preferred stock....................... (1,735) (531)
----------- -----------
Net loss attributable to common stockholders..................... $ (75,019) $ 21,342
=========== ===========
Basic and diluted net loss per share attributable to common
stockholders before cumulative effect of a change in
accounting principle........................................... $ (1.95) $ (0.64)
Cumulative effect of a change in accounting principle............ (0.06) --
----------- -----------
Basic and diluted net loss per share attributable to common
stockholders................................................... $ (2.01) $ (0.64)
----------- -----------
Weighted average common shares outstanding--basic and
diluted........................................................ 37,328,496 33,557,678
=========== ===========
Three Months Ended
March 31,
------------------------
2001 2000
----------- -----------
Revenue.................................................... $ 26,782 $ 17,913
Loss from operations....................................... (19,957) (19,984)
Loss before extraordinary loss............................. (31,966) (29,548)
Extraordinary loss on early extinguishment of debt......... -- (17,577)
----------- -----------
Net loss................................................... (31,966) (47,125)
Dividends and accretion on preferred stock................. (1,761) (1,762)
----------- -----------
Net loss attributable to common stockholders............... $ (33,727) $ (48,887)
=========== ===========
Basic and diluted net loss per share attributable to common
stockholders before extraordinary loss................... $ (0.87) $ (0.90)
Extraordinary loss per share............................... -- (0.51)
----------- -----------
Basic and diluted net loss per share attributable to common
stockholders............................................. $ (0.87) $ (1.41)
=========== ===========
Weighted average common shares outstanding--basic and
diluted.................................................. 38,709,658 34,617,361
=========== ===========
F-23
GLOBIX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(All Dollars in Thousands, Except Share and Per Share Data)
Three Months Ended
June 30,
------------------------
2001 2000
----------- -----------
Revenue.................................................... $ 26,239 $ 21,376
Loss from operations....................................... (24,055) (19,773)
Net loss................................................... (36,000) (30,112)
----------- -----------
Dividends and accretion on preferred stock................. (1,790) (1,738)
----------- -----------
Net loss attributable to common stockholders............... $ (37,790) $ (31,850)
=========== ===========
Basic and diluted net loss per share attributable to common
stockholders............................................. $ (0.97) $ (0.87)
=========== ===========
Weighted average common shares outstanding--basic and
diluted.................................................. 38,933,135 36,672,360
=========== ===========
Three Months Ended
September 30,
------------------------
2001 2000
----------- -----------
Revenue.................................................... $ 24,952 $ 25,853
Loss from operations....................................... (52,773) (20,847)
Net loss................................................... (71,793) (28,398)
----------- -----------
Dividends and accretion on preferred stock................. (1,818) (1,738)
----------- -----------
Net loss attributable to common stockholders............... $ (73,611) $ (30,136)
=========== ===========
Basic and diluted net loss per share attributable to common
stockholders............................................. $ (1.89) $ (0.81)
=========== ===========
Weighted average common shares outstanding--basic and
diluted.................................................. 38,946,043 37,085,711
=========== ===========
F-24
EXHIBIT INDEX
Exhibit
Number Description
------ -----------
3.1 Certificate of Incorporation of Globix, as amended.(7)
3.2 By-laws of Globix, as amended.(14)
4.1 Specimen Stock Certificate.(2)
4.2 Form of Warrant to purchase Common Stock expiring May 1, 2005.(3)
4.3 Specimen Series A 7.5% Convertible Preferred Stock Certificate.(11)
4.4 Certificate of Designations, Preferences and Rights of Series A 7.5% Convertible Preferred Stock
Certificate.(11)
4.5 Indenture between Globix and HSBC Bank USA, as Trustee, dated as of February 8, 2000.(12)
4.6 Form of 12.5% Senior Note due February 1, 2020.(12)
10.1 Warrant Registration Rights Agreement between Globix and ING Baring, (U.S.) Securities, dated as of
April 30, 1998.(3)
10.2 1995 Stock Option Plan, adopted September 29, 1995.(1)
10.3 1998 Stock Option Plan, adopted April 16, 1998.(4)
10.4 Employment Agreement between Marc H. Bell and Globix, dated as of April 10, 1998.(6)
10.5+ Purchase Agreement between Young Woo and Globix dated as of June 2, 1998.(5)
10.6 Amendment to Marc H. Bell Employment Agreement, dated as of March 2, 1999.(7)
10.7 Stock Option Agreement between Globix and Marc H. Bell, dated as of March 26, 1999.(7)
10.8 1999 Stock Option Plan, adopted April 23, 1999.(8)
10.9 Employment Agreement between Robert B. Bell and Globix, dated as of July 21, 1999.(9)
10.10 Purchase Agreement between Globix and HMTF-IV Acquisition Corp. dated as of November 5,
1999.(10)
10.11 Registration Rights Agreement for 12.5% Senior Notes, dated as of February 8, 2000.(12)
10.12 Trust Agreement between Globix and Arnold N. Bressler, as Trustee, dated as of July 21, 1999.(14)
10.13 2000 Stock Option Plan, adopted April 4, 2000.(13)
10.14 2001 Stock Option Plan, adopted April 26, 2001.(15)
10.15 2001 Restricted Stock Plan, adopted April 26, 2001.(15)
10.16 Amendment No. 2 to Marc H. Bell Employment Agreement, dated as of March 21, 2001.(16)
10.17 Employment Agreement between Peter L. Herzig and Globix dated as of October 2, 2001.*
10.18 Employment Agreement between Marc Jaffe and Globix dated as of October 2, 2001.*
21 List of Subsidiaries.*
23 Consent of Arthur Andersen LLP.*
--------
* Filed herewith.
+ Confidential treatment granted for certain portions of this Exhibit pursuant
to Rule 406 promulgated under the Securities Act.
(1)Incorporated by reference to Globix's Registration Statement on Form SB-2
(File No. 33-98978) filed November 3, 1995.
(2)Incorporated by reference to Amendment No. 2 to Globix's Registration
Statement filed January 23, 1996, declared effective January 24, 1996.
(3)Incorporated by reference to Globix's Report on Form 8-K filed May 11, 1998.
(4)Incorporated by reference to Globix's Proxy Statement on Schedule 14A filed
on March 16, 1998.
(5)Incorporated by reference to Globix's Report on Form 8-K/A filed September
18, 1998.
(6)Incorporated by reference to Globix's Annual Report on Form 10-KSB filed
December 29, 1998.
(7)Incorporated by reference to Globix's Quarterly Report on Form 10-Q filed
May 15, 2000.
(8)Incorporated by reference to Globix's Proxy Statement on Schedule 14A filed
on March 24, 1999.
(9)Incorporated by reference to Globix's Quarterly Report on Form 10-Q filed
August 16, 1999.
(10)Incorporated by reference to Globix's Report on Form 8-K filed November 29,
1999.
(11)Incorporated by reference to Globix's Annual Report on Form 10-K filed
December 29, 1999.
(12)Incorporated by reference to Globix's Report on Form 8-K filed February 14,
2000.
(13)Incorporated by reference to Globix's Proxy Statement on Schedule 14 filed
March 8, 2000.
(14)Incorporated by reference to Globix's Annual Report on Form 10-K filed
December 29, 2000.
(15)Incorporated by reference to Globix's Proxy Statement on Schedule 14 filed
March 23, 2001.
(16)Incorporated by reference to Globix's Quarterly Report on Form 10-Q filed
May 14, 2001.