<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 26, 1997.
REGISTRATION NO. 333-34281
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------------
AMENDMENT NO. 2
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
----------------------
RSL COMMUNICATIONS, LTD.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
BERMUDA 4813 N/A
(STATE OR OTHER (PRIMARY STANDARD (I.R.S.EMPLOYER
JURISDICTION OF INDUSTRIAL IDENTIFICATION NUMBER)
INCORPORATION OR CLASSIFICATION CODE NUMBER)
ORGANIZATION)
----------------------
CLARENDON HOUSE
CHURCH STREET
HAMILTON HM CX BERMUDA
(441) 295-2832
(ADDRESS AND TELEPHONE NUMBER OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
----------------------
ITZHAK FISHER
PRESIDENT AND CHIEF EXECUTIVE OFFICER
RSL COMMUNICATIONS, N. AMERICA, INC.
767 FIFTH AVENUE, SUITE 4300
NEW YORK, NY 10153
(212) 317-1800
(NAME, ADDRESS AND TELEPHONE NUMBER OF AGENT FOR SERVICE)
----------------------
Copies to:
ROBERT L. KOHL, ESQ. WILLIAM P. ROGERS, JR., ESQ.
MARK D. FISCHER, ESQ. CRAVATH, SWAINE & MOORE
ROSENMAN & COLIN LLP WORLDWIDE PLAZA
575 MADISON AVENUE 825 EIGHTH AVENUE
NEW YORK, NY 10022 NEW YORK, NY 10019
----------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement.
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. / /
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / /
If this form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
----------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
PROPOSED MAXIMUM
AMOUNT PROPOSED MAXIMUM AGGREGATE AMOUNT OF
TITLE OF EACH CLASS OF TO BE OFFERING PRICE OFFERING REGISTRATION
SECURITIES TO BE REGISTERED REGISTERED(1) PER UNIT(2) PRICE(2) FEE(2)
--------------------------- ------------- ---------------- ---------------- ------------
<S> <C> <C> <C> <C>
Class A Common Shares, per value
$.00457............................... 8,280,000 $22.00 $182,160,000 $ 55,200(3)
</TABLE>
- ------------
(1) Includes 1,080,000 Class A Common Shares of the Registrant which may be sold
pursuant to options granted to the Underwriters to cover over-allotments.
(2) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(a) under the Securities Act of 1933.
(3) Includes $45,455 previously paid.
----------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
CROSS REFERENCE SHEET TO FORM S-1
PURSUANT TO REGULATION S-K, ITEM 501(B)
ITEM NUMBER AND CAPTION CAPTION OR LOCATION IN PROSPECTUS
- ------------------------------------------ -------------------------------------
1. Forepart of Registration Statement and
Outside Front Cover Page of
Prospectus.......................... Forepart of the Registration
Statement and Outside Front Cover
Page
2. Inside Front and Outside Back Cover
Pages of Prospectus................. Inside Front and Outside Back Cover
Pages; Available Information
3. Summary Information, Risk Factors and
Ratio of Earnings to Fixed
Charges............................. Prospectus Summary; Risk Factors;
Selected Consolidated Financial Data
4. Use of Proceeds....................... Prospectus Summary; Use of Proceeds
5. Determination of Offering Price....... Underwriting
6. Dilution.............................. Dilution
7. Selling Security Holders.............. (1)
8. Plan of Distribution.................. Outside Front Cover; Underwriting
9. Description of Securities to be
Registered.......................... Outside Front Cover; Description of
Capital Stock; Underwriting
10. Interests of Named Experts and
Counsel............................. (1)
11. Information with Respect to the
Registrant.......................... Outside Front Cover; Prospectus
Summary; Dividend Policy;
Capitalization; Selected Financial
Data; Management's Discussion and
Analysis of Financial Condition and
Results of Operations; Business;
Management; Certain Relationships
and Related Transactions; Principal
Shareholders; Shares Eligible for
Future Sale; Description of Capital
Stock; Consolidated Financial
Statements
12. Disclosure of Commission Position on
Indemnification for Securities Act
Liabilities......................... (1)
- ------------------------
(1) Omitted from Prospectus because the item is inapplicable or the answer is in
the negative.
<PAGE>
EXPLANATORY NOTE
This Registration Statement contains two forms of prospectus: one to be
used in connection with a U.S. offering of shares of Common Stock (the 'U.S.
Prospectus') and one to be used in connection with a concurrent international
offering of shares of Common Stock (the 'International Prospectus'). The U.S.
Prospectus and the International Prospectus are identical except that they
contain different front and back cover pages and different descriptions of the
plan of distribution (contained under the caption 'Underwriting' in each of the
U.S. and International Prospectuses). The form of U.S. Prospectus is included
herein and is followed by those pages to be used in the International Prospectus
which differ from, or are in addition to, those in the U.S. Prospectus. Each of
the pages for the International Prospectus included herein is labeled 'Alternate
Page for International Prospectus.'
<PAGE>
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any State in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such State.
SUBJECT TO COMPLETION, DATED SEPTEMBER 26, 1997
[LOGO] 7,200,000 SHARES
RSL COMMUNICATIONS, LTD.
CLASS A COMMON SHARES
(PAR VALUE $.00457 PER SHARE)
----------------------
Of the 7,200,000 Class A common shares, par value $.00457 per share (the
'Class A Common Stock'), offered by RSL Communications, Ltd. (the 'Company'),
5,760,000 shares are being offered hereby in the United States (the 'U.S.
Offering') and 1,440,000 shares are being offered in a concurrent international
offering outside the United States (the 'International Offering' and, together
with the U.S. Offering, the 'Offerings'). The initial public offering price and
the aggregate underwriting discount per share will be identical for both
Offerings. See 'Underwriting.'
The shares of Class A Common Stock offered hereby are being sold by the
Company.
Prior to the Offerings, there has been no public market for the Class A
Common Stock of the Company. It is currently anticipated that the initial public
offering price of the Class A Common Stock will be between $19.00 and $22.00 per
share. For factors considered in determining the initial public offering price,
see 'Underwriting.'
As of the date of this Prospectus, the Company has two classes of authorized
common shares, the Class A Common Stock and Class B common shares (the 'Class B
Common Stock', and together with the Class A Common Stock, the 'Common Stock').
The holders of both classes of Common Stock have identical rights, except that
(i) holders of Class A Common Stock are entitled to one vote per share and
holders of Class B Common Stock are entitled to 10 votes per share, (ii) shares
of Class B Common Stock are convertible at any time at the option of the holders
into shares of Class A Common Stock on a share-for-share basis and (iii) shares
of Class B Common Stock may only be transferred to other original holders of
Class B Common Stock and certain related parties. The Company also has
outstanding convertible preferred shares (the 'Preferred Stock') which will be
automatically converted into shares of Class B Common Stock on a share-for-share
basis upon the closing of the Offerings. See 'Description of Capital Stock.'
SEE 'RISK FACTORS' BEGINNING ON PAGE 13 FOR CERTAIN CONSIDERATIONS RELEVANT
TO AN INVESTMENT IN THE CLASS A COMMON STOCK.
The Class A Common Stock has been approved for quotation on the Nasdaq
National Market under the symbol 'RSLC.'
----------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
----------------------
<TABLE>
<CAPTION>
INITIAL PUBLIC UNDERWRITING PROCEEDS TO
OFFERING PRICE DISCOUNT(1) COMPANY(2)
-------------- ------------ ------------
<S> <C> <C> <C>
Per Share...... $ $ $
Total (3)...... $ $ $
</TABLE>
- ------------------
(1) The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933. See
'Underwriting.'
(2) Before deducting estimated expenses of $1,000,000 payable by the Company.
(3) The Company has granted the U.S. Underwriters an option for 30 days to
purchase up to an additional 864,000 shares of Class A Common Stock at the
initial public offering price per share, less the underwriting discount,
solely to cover over-allotments. Additionally, the Company has granted the
International Underwriters a similar option with respect to an additional
216,000 shares of Class A Common Stock as part of the concurrent
International Offering. If such options are exercised in full, the total
initial public offering price, underwriting discount and proceeds to the
Company will be , and , respectively. See
'Underwriting.'
----------------------
The shares offered hereby are offered severally by the U.S. Underwriters, as
specified herein, subject to receipt and acceptance by them and subject to their
right to reject any order in whole or in part. It is expected that certificates
for the shares will be ready for delivery through the facilities of The
Depository Trust Company on or about September , 1997, against payment
therefor in immediately available funds.
GOLDMAN, SACHS & CO.
MERRILL LYNCH & CO.
MORGAN STANLEY DEAN WITTER
SBC WARBURG DILLON READ INC.
----------------------
The date of this Prospectus is September , 1997.
<PAGE>
[On the inside front cover is a map showing the Company's European
operations, switching facilities (current and planned), the existing and planned
circuit links between such switches and the Company's Internet gateways (current
and planned), and photos of RSL phone cards from around the world. On the inside
of the gatefold is a global map showing the sites of the Company's switches
(current and planned) and the existing and planned cable and satellite links
between such switches and a list of the Company's operating agreements.]
2
<PAGE>
----------------------
FOOTNOTES TO FOREGOING MAPS
+ The Company is negotiating to purchase ownership interests in the identified
undersea fiber optic cables.
++ The Company intends to install switches in the identified markets.
* The Company intends to lease international circuits in the identified
markets.
** The Company has signed non-binding agreements with local entities in the
identified markets to install Internet gateways.
*** A single operating agreement applies to each of these countries.
There can be no assurances that the Company will complete any purchase of
undersea fiber optic cables, any negotiation of a lease for international
circuits or any installation of switches or Internet gateways.
----------------------
CERTAIN PERSONS PARTICIPATING IN THE OFFERINGS MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE CLASS A COMMON
STOCK, INCLUDING OVER-ALLOTMENT, STABILIZING AND SHORT-COVERING TRANSACTIONS IN
SUCH SECURITIES, AND THE IMPOSITION OF A PENALTY BID, IN CONNECTION WITH THE
OFFERINGS. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE 'UNDERWRITING.'
----------------------
The Company intends to furnish to its members (hereinafter referred to as
'shareholders') annual reports containing audited consolidated financial
statements, prepared in accordance with United States generally accepted
accounting principles ('U.S. GAAP'), examined and reported upon by its
independent auditors.
The consolidated financial statements of the Company (the 'Consolidated
Financial Statements') and the notes thereto appearing elsewhere in this
Prospectus are presented in accordance with U.S. GAAP, and amounts originally
measured in foreign currencies for all periods presented have been translated
into U.S. dollars in accordance with the methodology set forth in Note 3 to the
Consolidated Financial Statements of the Company.
----------------------
In this Prospectus, references to 'dollars' and '$' are to United States
dollars. For purposes of the balance sheet data included in this Prospectus,
conversions of foreign currencies to U.S. dollars have been calculated on the
basis of exchange rates in effect on the balance sheet dates. Conversions of
foreign currencies to U.S. dollars in the pro forma and historical financial
information included herein have been calculated, for purposes of the statements
of operations, on the basis of average exchange rates over the periods
presented. Exchange rates per United States dollar as of certain dates for
certain currencies are set forth below.
<TABLE>
<CAPTION>
RATE AS OF RATE AS OF RATE AS OF RATE AS OF
CURRENCY DECEMBER 31, 1995 DECEMBER 31, 1996 JUNE 30, 1997 SEPTEMBER 25, 1997
- --------------------- ----------------- ----------------- ------------- ------------------
<S> <C> <C> <C> <C>
Australian Dollar.... (1) 1.26 1.33 1.38
British Pound........ .65 .58 .60 .61
Dutch Guilders....... (1) 1.74 1.96 2.00
Finnish Markka....... 4.37 4.60 5.19 5.27
French Franc......... 4.95 5.19 5.87 5.91
German Mark.......... 1.44 1.54 1.74 1.76
Swedish Krona........ 6.64 6.89 7.73 7.53
Danish Krone......... (1) (1) 6.63 6.75
</TABLE>
- ------------------
(1) The Company had no business activity in these countries during the periods
indicated.
3
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by reference to the more
detailed information and the Consolidated Financial Statements and the notes
thereto, appearing elsewhere in this Prospectus. Unless the context otherwise
requires, the term 'Company' means RSL Communications, Ltd., a Bermuda
corporation, its predecessors and all of its subsidiaries. Unless otherwise
indicated in this Prospectus, all information in this Prospectus, including all
adjusted and pro forma financial information, has been adjusted to give
retroactive effect to the Recapitalization described below in this Summary and
under the heading 'Description of Capital Stock.' Industry data used throughout
this Prospectus was obtained from industry publications and has not been
independently verified by the Company. Certain of the information contained in
this Prospectus, including information with respect to the Company's plans and
strategy for its business and related financing, are forward-looking statements.
For a discussion of important factors that could cause actual results to differ
materially from the forward-looking statements, see 'Risk Factors.' Unless
otherwise indicated, the information in this Prospectus assumes no exercise of
the over-allotment options granted to the U.S. and International Underwriters.
THE COMPANY
OVERVIEW
The Company is a rapidly growing multinational telecommunications company
which provides a broad array of international and domestic telephone services to
both carrier and commercial accounts. These services include international long
distance calling to over 200 countries and calling card, private line and
value-added telecommunications services. The Company focuses on providing
international long distance voice services to small and medium-sized businesses
in key markets. The Company currently has revenue generating operations in the
United States, the United Kingdom, France, Germany, Sweden, Finland, the
Netherlands, Denmark and Australia. The Company is in the process of commencing
operations through its investments in majority-owned entities in Italy, Austria,
Venezuela and Japan, and through its 30% investment in a Portuguese
telecommunications company. In 1995, approximately 62% of all international long
distance telecommunications minutes originated in these markets. The Company
plans to expand its operations and network into additional key markets which
account for a significant portion of the world's remaining international
traffic. The Company's consolidated revenues for the year ended December 31,
1996 were $113.3 million and for the six months ended June 30, 1997 were $109.4
million.
The Company was formed by Ronald S. Lauder and Itzhak Fisher in 1994 to
capitalize on the opportunities created by the growth, deregulation and
profitability of the international long distance market. The Company has grown
rapidly through acquisitions, strategic investments and joint ventures, as well
as through the start-up of its own operations in key markets. The Company began
its operations in the United States in order to establish a presence in the
largest and one of the most deregulated telecommunications markets in the world,
and has since expanded its presence to key European countries in anticipation of
continued telecommunication deregulation in the European Union (the 'EU'). In
order to pursue opportunities in Latin America, the Company recently formed a
joint venture with entities controlled by the Cisneros Group of Companies (the
'Cisneros Group'), a privately held conglomerate with significant interests in,
among other things, the Latin American media and communications industry. The
Company intends to continue to expand rapidly by establishing or acquiring
operations in additional countries as they deregulate, including countries in
Asia.
The Company's strategic objective is to create a low-cost facilities-based
global network that provides high quality international telecommunications
services to small and medium-sized businesses in key markets. The Company
employs a 'first to market' entry strategy to establish a presence in targeted
markets ahead of full deregulation by (i) investing in new or existing
facilities-based networks (which are then integrated into the Company's existing
network) while (ii) developing multiple marketing and distribution channels for
telecommunications services.
4
<PAGE>
ADVANCED AND LOW COST NETWORK INFRASTRUCTURE
The core of the Company's operations is 'RSL-NET,' its integrated digital
telecommunications network, which is being developed to minimize the overall
transmission costs of carrying telecommunications traffic while maintaining high
('toll') quality. RSL-NET is comprised of (i) the Company's owned facilities,
which consist of international and domestic switches and ownership interests in
international fiber optic cables, (ii) operating agreements to exchange traffic
directly with telecommunications carriers in other countries and (iii)
transmission capacity leased from other carriers and satellite providers. The
connection of the Company's switching facilities is a critical element of
RSL-NET. This connection allows the Company to bypass the costs associated with
transporting the international portion of a call through a third party carrier,
which provides the Company with an advantage in applying least cost routing for
calls which are originated and terminated utilizing the Company's switches. All
of the Company's current switches, other than its switches in Australia and
Portugal, are directly or indirectly linked. The Company's existing
international gateway switches conform to international signaling and
transmission standards provided for in International Telegraph and Telephone
Consultative Committee ('CCITT') recommendations and allow the Company to
interconnect its network to existing government-owned post, telegraph and
telephone monopolies ('PTT') and carrier networks around the world while
maintaining quality and dependable services. The Company presently has eight
international gateway switches located in New York, Los Angeles, London,
Stockholm, Paris, Frankfurt, Helsinki and Sydney, and eight domestic switches in
Rotterdam, Amsterdam, New York, London, Lisbon, Melbourne, Brisbane and Caracas.
The Company generally utilizes state-of-the-art Ericsson AXE-10 switches for its
international gateway switches. The Company believes that a single switch
platform allows the Company to develop new services and upgrade network software
on a more efficient basis when compared to other global carriers which may
employ multiple switch technologies. The Company is also pursuing alternative
transmission technologies such as the Internet in order to minimize its
operating costs. See 'Recent Developments-- Acquisition of Majority Interest in
Delta Three' and 'Business--Internet Telephony Operation.'
DEVELOPMENT OF MARKETING AND DISTRIBUTION CHANNELS
The Company is developing a wide range of marketing and distribution
channels in order to expand its customer base, particularly in its target market
of small to medium-sized businesses. The Company markets its products and
services through (i) its direct sales forces; (ii) networks of independent
agents and distributors; and (iii) telemarketing organizations. The Company's
services are currently marketed independently by the Company's local operations
in each country ('Local Operators'). The Company is in the process of developing
a universal brand name to provide uniformity of image and to create worldwide
name recognition for the Company.
MARKET OPPORTUNITY
The international long distance public switched telecommunications market,
consisting of telephone calls between countries, generated an estimated $55
billion in revenue and 60.3 billion minutes of use in 1995 and is currently
recognized as one of the fastest growing and most profitable segments of the
long distance telecommunications industry. The Company currently has
significantly less than a 1% share of this market. International long distance
minutes are projected to grow between approximately 10% and 17% per annum
through the year 2000, with growth spurred by (i) the continued deregulation of
telecommunications markets throughout the world, (ii) increased capacity,
improved quality and lower operating costs attributable to technological
improvements, (iii) the expansion of telecommunications infrastructure and (iv)
the globalization of the world's economies and free trade. International
settlement rates (the rates paid to other carriers to terminate an international
call) have declined over the past five years and, in connection with a recent
U.S. Federal Communications Commission (the 'FCC') initiative to balance the
U.S. settlement deficit, are expected to continue to decline. The costs for
leased transmission capacity have also declined and are expected to continue to
decline. Furthermore, the trend towards deregulation is expected to further
reduce carriers' costs of originating and terminating calls by allowing carriers
in some jurisdictions to interconnect with the domestic public switched
telephone network ('PSTN') in each deregulated market. However, these are
forward-looking statements and there can be no assurances in this regard.
5
<PAGE>
COMPANY OPERATIONS
Each of the Company's operations is at a different stage of development.
The following table shows the Company's principal operations by country, the
principal subsidiary conducting such operations, the percentage of each such
subsidiary owned by the Company, the date of acquisition or start-up of such
operations and the date each such operation began (or is anticipated to begin)
generating revenues (which may, in certain circumstances, have been prior to the
Company's acquisition of such operation):
<TABLE>
<CAPTION>
COMPANY'S DATE OF
PERCENTAGE ACQUISITION OR COMMENCEMENT OF
COUNTRY OPERATING ENTITY OWNERSHIP START-UP DATE(1) OPERATIONS(2)
- --------------- ----------------------------------- ---------- ---------------- ----------------
<S> <C> <C> <C> <C>
United States RSL COM U.S.A., Inc................ 98%(3) March 1995 May 1990
United Kingdom RSL COM Europe Ltd................. 100% August 1995 May 1996
Sweden RSL COM Sweden AB.................. 100% November 1995 May 1996
Finland RSL COM Finland OY................. 100% November 1995 May 1996
France RSL COM France S.A................. 100% May 1996 January 1994
Germany RSL COM Deutschland GmbH........... 100% May 1996 November 1993
The Netherlands Belnet Nederland B.V............... 75%(4) October 1996 October 1995
Australia RSL COM Australia Pty. Ltd......... 100% October 1996 April 1997
Denmark RSL COM Denmark A/S................ 75%(4) November 1996 May 1997
Japan RSL COM Japan K.K.................. 100% March 1997 January 1998(5)
Portugal Maxitel Servicos e Gestao de
Telecomunicacoes, SA............. 30% April 1997 November 1997(5)
Italy DECADE Communications S.r.l.(6).... 85%(7) August 1997 January 1998(5)
Venezuela Sprintel de Venezuela C.A.(8)...... 51%(9) August 1997 January 1998(5)
Austria Newtelco Telekom AG(10)............ 90%(7) August 1997 January 1998(5)
</TABLE>
- ------------------------
(1) Acquisition date refers to the Company's initial purchase of an interest in
the operating entity.
(2) Such date refers to the date upon which the operating entity began or is
currently expected to begin generating revenues from the sale of its
facilities-based international telecommunications services, although
certain of the operating entities may have been generating revenues from
other activities prior to the date of the Company's investment therein.
(3) The Company owns approximately 98% of International Telecommunications
Group, Ltd. ('ITG'), which in turn owns 100% of RSL COM U.S.A., Inc.
(formerly known as International Telecommunications Corporation) ('RSL
USA'). In September 1995, the Company gained majority control of ITG and
began consolidating its U.S. operations into RSL USA. The Company acquired
a 92% interest in ITG over a 30 month period commencing March 1995,
purchased approximately 6% more for approximately $18.4 milion in September
1997 and has entered into an agreement with ITG's remaining minority
shareholder, to acquire the remaining interests in ITG. Such transaction is
expected to close concurrently with the closing of the Offerings. ITG in
turn owns 100% of Cyberlink, Inc. ('Cyberlink'), which was acquired in a
series of transactions from September 1995 through March 1997.
(4) The Company currently owns 75% of Belnet Nederland B.V. ('RSL
Netherlands'), which in turn owns 100% of RSL COM Denmark A/S; however, the
sole minority shareholder of RSL Netherlands has agreed to exchange his
entire interest in RSL Netherlands for cash and shares of Class A Common
Stock, effective upon the closing of the Offerings, at which time the
Company will own 100% of each of RSL Netherlands and RSL COM Denmark A/S.
(5) Such date refers to the anticipated date of commencement of operations. The
projected dates are forward-looking statements and, in the event the
Company does not timely receive regulatory approvals, switches cannot be
installed or become operational on a timely basis or the Company is unable
to hire necessary personnel, among other reasons, there can be no assurance
that such operations will commence generating revenues on such dates, if at
all.
(6) The Company intends to change the name of DECADE Communications S.r.l. to
RSL COM Italy S.r.l. ('RSL Italy').
(7) The minority shareholders of these operating entities have the right, but
not the obligation, to exchange their ownership interests in each
respective subsidiary entity for shares of Class A Common Stock or, under
certain circumstances, cash, at the Company's option. Any such exchange
would result in an increase in the Company's ownership interest in the
relevant subsidiary of up to 100%. The rights held by the minority
shareholders of RSL Italy currently are not exercisable. The minority
shareholder of Newtelco Telekom AG ('RSL Austria') has waived its current
right to exchange his rights in connection with the Offerings.
(8) The Company intends to change the name of Sprintel de Venezuela C.A. to RSL
COM Venezuela C.A.
(9) The Company owns 51% of RSL Communications Latin America, Ltd. ('RSL Latin
America'), which in turn currently owns 49% of Sprintel de Venezuela C.A.
('Sprintel'). The remaining 51% interest in Sprintel will be transferred to
RSL Latin America upon receipt of the required approval of the appropriate
regulatory authorities. The minority shareholder of RSL Latin America has
the right, including in connection with the Offerings, to exchange its 49%
ownership interest in RSL Latin America for either shares of Class A Common
Stock or cash, at the Company's option. The minority shareholder has waived
such right in connection with the Offerings.
(10) The Company intends to change the name of Newtelco Telekom AG to RSL
Austria AG.
6
<PAGE>
COMPANY STRATEGY
The Company's strategic objective is to create a low-cost facilities-based
global network that provides high quality international telecommunications
services to small and medium-sized businesses in key markets. The key elements
of the Company's strategy to achieve this objective are as follows:
FOCUS ON PROVIDING INTERNATIONAL LONG DISTANCE SERVICES
The international long distance public switched telecommunications market
is currently recognized as one of the fastest growing and most profitable
segments of the long distance industry. The Company provides a broad array of
international and domestic services, but focuses on providing services to end-
users which generate significant calling traffic between countries to capitalize
on (i) the continued growth of international traffic and (ii) the margin
opportunity created by the high end-user rates currently maintained by PTTs and
other dominant carriers.
ESTABLISH OPERATIONS IN KEY MARKETS
The Company establishes operations in markets that (i) originate or
terminate significant levels of international traffic and (ii) are, or are in
the process of being, deregulated. The Company has structured its Local
Operators to be managed independently and expects its Local Operators to be
separately profitable, while benefiting from the centralized strategic,
financial and network support provided by the Company.
ENTER MARKETS EARLY
The Company seeks to enter new markets ahead of full deregulation in an
attempt to gain competitive advantages over carriers which attempt to enter a
market after deregulation is complete. These advantages include (i) the
development of multiple sales channels and the establishment of a customer base
prior to widespread competition, (ii) the early acquisition of scarce
experienced technical and marketing personnel and distribution channels and
(iii) the achievement of name recognition as one of the early competitors to the
incumbent PTTs. The Company employs multiple marketing and distribution
channels, including direct sales forces, telemarketing organizations, agents and
resellers, while also forming marketing alliances with other service providers,
such as Internet service providers and mobile service providers.
TARGET SMALL AND MEDIUM-SIZED BUSINESSES
The Company focuses on offering high quality products and services to small
and medium-sized businesses that originate in excess of $500 in international
telephone calls per month. The Company believes that this segment offers
significant market opportunities because it has traditionally been underserved
by the major global telecommunications carriers and the PTTs. The Company
believes that in most markets, small and medium-sized businesses account for a
significant percentage of international calling traffic and will continue to do
so in the future.
DEVELOP A COST COMPETITIVE GLOBAL NETWORK
Most of the Local Operators have network switching facilities, known as
points of presence ('POPs'), to provide international voice and other
telecommunications services in their markets. By integrating its current and
future POPs into RSL-NET, the Company believes that it will be able to
originate, transport and terminate traffic utilizing its own network, thereby
bypassing the high costs associated with the transport of the international
portion of a call through a third party carrier. This is expected to enable the
Company to reduce significantly its operating costs for calls that originate and
terminate in markets in which the Company has Local Operators, as well as its
overall operating costs.
PURSUE STRATEGIC ACQUISITIONS AND ALLIANCES
The Company intends to enter additional markets and expand its operations
through acquisitions, joint ventures, strategic alliances and the establishment
of new operations. The Company is continuously reviewing acquisition
opportunities, and seeks to acquire control of businesses with an established
customer base, compatible operations, licenses to operate as an international
carrier,
7
<PAGE>
experience with additional or emerging telecommunications products and
technologies and/or experienced management. In addition, the Company seeks to
enter into strategic alliances which the Company believes will enhance its
ability to expand and grow its business. For example, the Company has recently
entered into a joint venture with the Cisneros Group and a strategic alliance
with L.M. Ericsson A.B. ('Ericsson'), a leading global provider of
telecommunications equipment, and has acquired a majority interest in Delta
Three, Inc. ('Delta Three'), a telecommunications provider utilizing the
Internet and networks based on Internet Protocols to provide telecommunications
services. See '-- Recent Developments.'
LEVERAGE EXPERTISE OF MANAGEMENT TEAM
The Company has retained a number of experienced management personnel in
the telecommunications industry, many of whom have had significant experience
with incumbent providers, as well as early competitors in deregulating markets.
As a result, the Company believes that it is well positioned to manage the rapid
growth of its customer base and network infrastructure.
MANAGE NETWORK INVESTMENTS
The Company seeks to manage the investment of capital within its network on
an incremental basis in order to maximize the efficiency of its capital
expenditures program. In general, the Company transmits traffic by leasing
capacity on a variable cost per minute basis until it believes that a direct
investment in facilities or a fixed cost lease arrangement between countries or
on a particular route is warranted. When the cost of owning facilities is
justified relative to leasing facilities and the Company invests in such
facilities, the Company generally experiences higher gross margins and lower
overall transmission costs.
RECENT DEVELOPMENTS
ACQUISITION OF MAJORITY INTEREST IN DELTA THREE
In July 1997, the Company acquired a majority interest in Delta Three.
Delta Three utilizes the Internet, traditionally a device for data
communications, as a transmission medium for voice communications. The service
offered by Delta Three allows customers to place long distance and international
phone calls using standard telephones, without requiring any additional
equipment. Delta Three also provides wholesale call termination services to
other telecommunications service providers.
The Company and Delta Three also entered into a services agreement pursuant
to which, among other things, Delta Three provides the Company with discounted
carrier telephony services and the Company provides Delta Three with termination
services at preferred rates and the co-location of Delta Three's Internet
gateway servers with the Company's facilities. The Company believes that the
acquisition of a majority interest in Delta Three positions the Company at the
forefront of the rapidly emerging Internet telephony industry. See 'Business--
Delta Three Operations.'
PRIVATE PLACEMENT OF NOTES AND EXCHANGE OFFER
In October 1996, the Company and RSL Communications PLC (the 'Note
Issuer'), a wholly owned subsidiary of the Company, completed the private
offering (the 'Debt Offering') of 300,000 units, each unit consisting of one
12 1/4% Senior Note due 2006 of the Note Issuer guaranteed by the Company and
one warrant to purchase 3.975 shares of Class A Common Stock at $0.00457 per
share (the 'Warrants'). The units were sold for an aggregate purchase price of
$300.0 million. In May 1997, in accordance with the indenture governing such
notes (the 'Indenture'), the Company and the Note Issuer consummated an exchange
offer pursuant to which the notes issued in the Debt Offering were exchanged for
substantially identical notes registered under the Securities Act of 1933, as
amended (the 'Securities Act'). The notes issued in the Debt Offering and the
exchange offer are referred to collectively as the 'Notes.'
8
<PAGE>
PENDING ACQUISITIONS
The Company is currently engaged in negotiations with several parties in
various markets with respect to potential strategic acquisitions and alliances.
There can be no assurance, however, that the Company will successfully complete
any of these transactions.
THE RECAPITALIZATION
Prior to the consummation of the Offerings, the Company will revise its
capital structure (the 'Recapitalization'), in part to (i) effect a 2.19-for-one
stock split for each outstanding share of each class of Common Stock and each
outstanding share of Preferred Stock, (ii) increase the number of authorized
shares of its Class A Common Stock and Class B Common Stock to an aggregate of
200,000,000 shares, (iii) increase the number of authorized shares of its
Preferred Stock to 30,000,000 and (iv) eliminate the Company's Class C common
shares.
CERTAIN MINORITY INTERESTHOLDER RIGHTS
The Company has granted to a number of minority shareholders of ITG, RSL
Netherlands, RSL Austria, RSL Italy, Delta Three, RSL Latin America and
PrimeCall Services B.V. ('PrimeCall Europe') and officers of certain of its
other subsidiaries (the 'Minority Interestholders') options which allow the
Minority Interestholders to exchange their shares or interests in the respective
subsidiary for shares of the Class A Common Stock (the 'Roll-Up Rights').
Certain of the Minority Interestholders have waived their Roll-Up Rights,
and the Company intends to enter into agreements with other Minority
Interestholders in connection with their exercise or waiver of their rights. See
'Shares Eligible for Future Sale' for a detailed discussion of the Minority
Interestholders' exercise or waiver of Roll-Up Rights.
Additionally, the Company has granted to a number of Minority
Interestholders certain piggyback registration rights with respect to shares of
Class A Common Stock acquired pursuant to an exercise of their Roll-Up Rights.
HEADQUARTERS
The Company's headquarters are located at Clarendon House, Church Street,
Hamilton HM CX Bermuda (telephone number: 441-295-2832). The Company also
maintains executive offices with respect to some of its operations at 767 Fifth
Avenue, Suite 4300, New York, New York 10153 (telephone number: 212-317-1800).
9
<PAGE>
THE OFFERINGS
Class A Common Stock offered by the
Company(1):
U.S. Offering.................... 5,760,000 shares
International Offering........... 1,440,000 shares
Total....................... 7,200,000 shares
Common Stock to be Outstanding
after the Offerings(1):
Class A Common Stock(2).......... 8,669,322 shares
Class B Common Stock(3)(4)....... 30,760,726 shares
Total(2)(3)(4).............. 39,430,048 shares
Use of Proceeds.................... The Company intends to use the net proceeds
from the Offerings for (i) strategic merger
and acquisition activities, including
certain potential acquisitions which the
Company currently is pursuing, (ii) the
purchase of additional interests in
international cable systems and additional
transmission and switching equipment, (iii)
the purchase of minority interests in its
subsidiaries and (iv) working capital
purposes relating to the expansion of the
Company's operations. Depending on the size
and timing of any acquisitions, the Company
may also use a portion of such proceeds to
reduce its outstanding debt, including
prepayment of a portion of the principal
amount of the Notes.
Voting Rights(5)................... The holders of Class A Common Stock are
entitled to one vote per share. The holders
of Class B Common Stock are entitled to 10
votes per share.
Proposed Nasdaq National Market
symbol........................... RSLC
- ------------------
(1) Assumes the Underwriters' over-allotment options are not exercised. See
'Underwriting.' If the Underwriters exercise such over-allotment options in
full, the number of shares of Class A Common Stock sold in the U.S. Offering
and the International Offering will be 6,624,000 and 1,656,000,
respectively.
(2) Does not include (i) 2,792,888 shares of Class A Common Stock issuable upon
the exercise of outstanding stock options (including 1,271,380 shares
issuable upon the exercise of currently exercisable options and stock
options expected to be issued in connection with the exercise of certain
Roll-Up Rights), (ii) 3,750,000 shares of Class A Common Stock to be
reserved for issuance pursuant to future option grants under the Company's
proposed stock option and compensation plans, (iii) 30,760,726 shares of
Class A Common Stock issuable upon the conversion of the shares of Class B
Common Stock (which includes Class B Common Stock to be issued upon the
conversion of the Preferred Stock), (iv) 459,900 shares of Class A Common
Stock issuable upon the conversion of the same number of shares of Class B
Common Stock which are issuable upon the exercise of warrants issued to
Ronald S. Lauder, the Chairman of the Company and the Company's largest and
controlling shareholder (the 'Lauder Warrants'), (v) 1,192,455 shares of
Class A Common Stock issuable on exercise of the Warrants, and (vi) 384,683
shares of Class A Common Stock which are expected to be issued to the
Minority Interestholders upon the exercise of their Roll-Up Rights (assuming
an initial public offering price of $20.50 per share). See 'Certain
Relationships and Related Transactions' and 'Shares Eligible for Future
Sale.'
(3) Shares of the Class B Common Stock are convertible at any time into shares
of the Class A Common Stock on a share-for-share basis.
(4) Includes 20,231,839 shares issuable upon conversion of the outstanding
shares of Preferred Stock. The outstanding shares of Preferred Stock will be
automatically converted into shares of Class B Common Stock on a
share-for-share basis upon the closing of the Offerings.
(5) Holders of Preferred Stock are entitled to a number of votes equal to the
number of votes to which the underlying shares of Class B Common Stock would
be entitled. The outstanding shares of Preferred Stock will be automatically
converted into shares of Class B Common Stock upon the closing of the
Offerings.
RISK FACTORS
See 'Risk Factors' for a discussion of certain risks that should be
considered in connection with an investment in the Class A Common Stock offered
hereby.
10
<PAGE>
SUMMARY OF SELECTED CONSOLIDATED FINANCIAL DATA
The following tables set forth certain summary consolidated financial data
for the Company for each of the three years in the period ended December 31,
1996 and for the six month periods ended June 30, 1996 and 1997, which have been
derived from the Consolidated Financial Statements and notes thereto. The
information as of and for the year ended December 31, 1994 was derived from the
Consolidated Financial Statements of the Company's predecessor entity, ITG. The
Company's Historical Financial Statements for the years ended December 31, 1996
and 1995 and the six months ended June 30, 1997 and the Company's predecessor's
1994 Historical Financial Statements have been audited by Deloitte & Touche LLP,
independent auditors, as stated in their reports appearing herein.
In the opinion of management, the unaudited Consolidated Financial
Statements have been prepared on the same basis as the audited Consolidated
Financial Statements and include all adjustments, which consist only of normal
recurring adjustments, necessary for a fair presentation of the financial
position and the results of operations for these periods. Operating results for
the six months ended June 30, 1997 are not necessarily indicative of the results
that may be expected for the full year. The Company has experienced rapid growth
over the periods set forth below, which rate may not necessarily continue.
Accordingly, the financial and operating results set forth below may not be
indicative of future performance.
The pro forma consolidated statement of operations data for the year ended
December 31, 1996 include the historical results of operations for the Company
and are prepared as though the acquisitions of RSL Netherlands and the
international voice operations of Sprint Corporation in France and Germany had
occurred on January 1, 1996. The summary consolidated financial and operating
data presented below should be read along with 'Management's Discussion and
Analysis of Financial Condition and Results of Operations' and the Consolidated
Financial Statements and the related notes included elsewhere in this
Prospectus.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31, SIX MONTHS ENDED
--------------------------------------------------- JUNE 30,
PREDECESSOR HISTORICAL HISTORICAL PRO FORMA ----------------------
1994 1995(1) 1996 1996 1996 1997
----------- ---------- ---------- ----------- ----------- --------
(UNAUDITED) (UNAUDITED)
($ IN THOUSANDS, EXCEPT LOSS PER SHARE)
<S> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF
OPERATIONS DATA:
Revenues........................... $ 4,702 $ 18,617 $ 113,257 $ 124,236 $ 39,764 $109,361
Cost of services................... (4,923) (17,510) (98,461) (106,157) (35,657) (96,797)
----------- ---------- ---------- ----------- ----------- --------
Gross profit (loss)................ (221) 1,107 14,796 18,079 4,107 12,564
Selling, general and administrative
expense.......................... (2,395) (9,639) (38,893) (41,700) (13,656) (38,213)
Depreciation and amortization...... (240) (849) (6,655) (9,228)(2) (2,175) (8,960)
----------- ---------- ---------- ----------- ----------- --------
Loss from operations............... (2,856) (9,381) (30,752) (32,849) (11,724) (34,609)
Interest income.................... -- 173 3,976 3,976 80 7,124
Interest expense................... (225) (194) (11,359) (11,359) (635) (19,252)
Other income (expense)............. -- -- (288) (288) -- 6,874(3)
Foreign currency transaction gain
(loss)........................... -- -- 758 758 -- (268)
Minority interest.................. -- -- (180) (389) -- (229)
Income taxes....................... -- -- (395) (395) -- (357)
----------- ---------- ---------- ----------- ----------- --------
Net loss........................... $(3,081) $ (9,402) $ (38,240) $ (40,546) $ (12,279) $(40,717)
----------- ---------- ---------- ----------- ----------- --------
----------- ---------- ---------- ----------- ----------- --------
Loss per share(4)(5)............... $(15.41) $ (3.65) $ (11.24) $ (11.92) $ (4.19) $ (8.14)
Weighted average number of shares
of Common Stock outstanding(5)... 200 2,576 3,401 3,401 2,928 5,003
OTHER FINANCIAL DATA:
EBITDA(6).......................... $(2,616) $ (8,532) $ (23,807) $ (23,540) $ (9,549) $(19,272)
Capital expenditures(7)............ 1,126 6,074 23,880 26,162 4,887 13,870
Cash (used in) provided by
operating
activities....................... (1,987) 3,554 (10,475) -- (8,177) (45,247)
Cash (used in) provided by
investing
activities....................... (478) (16,537) (225,000) -- (15,408) 26,862
Cash (used in) provided by
financing
activities....................... 2,888 18,143 335,031 -- 24,308 (2,807)
</TABLE>
11
<PAGE>
<TABLE>
<CAPTION>
JUNE 30, 1997
-----------------------
ACTUAL AS ADJUSTED
-------- -----------
(UNAUDITED)
($ IN THOUSANDS)
<S> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents(8)................... $ 81,992 $ 205,928
Marketable securities.......................... 50,797 50,797
Restricted marketable securities............... 84,728 84,728
Total assets................................... 436,519 560,455
Short-term debt and current portion of capital
lease obligations............................ 9,204 2,006
Long-term debt and capital lease obligations... 318,088 312,222
Shareholders' equity........................... 13,359 150,359
</TABLE>
- ------------------
(1) Effective with the acquisition of a majority equity interest in ITG in
September 1995, the Company began to consolidate ITG's operations. From
March 1995 (the date of the Company's initial investment) to September 1995,
the Company accounted for its investment in ITG using the equity method of
accounting.
(2) Pro forma depreciation and amortization expense reflect approximately $2.1
million of additional amortization of goodwill, using an amortization period
of 15 years, recognized in connection with the Company's acquired
subsidiaries.
(3) Other income includes the reversal of certain liabilities accrued in
connection with the Company's obligations under an agreement that required
the Company to meet a carrier vendor's minimum usage requirements, which
agreement was entered into by a subsidiary of the Company prior to the
Company's acquisition of such subsidiary. During May 1997, the Company
renegotiated the contract with this carrier vendor resulting in the
elimination of approximately $7.0 million of previously accrued charges.
(4) Loss per share is calculated by dividing the loss attributable to the Common
Stock by the weighted average number of shares of Common Stock outstanding.
Shares issuable pursuant to outstanding stock options, exchange rights,
Roll-Up Rights and warrants are not included in the loss per share
calculation as their effect is anti-dilutive.
(5) Loss per share and the weighted average number of shares outstanding do not
give effect to the Recapitalization.
(6) EBITDA consists of loss before interest, income taxes, depreciation and
amortization. EBITDA is provided because it is a measure commonly used in
the telecommunications industry. It is presented to enhance an understanding
of the Company's operating results and is not intended to represent cash
flow or results of operations in accordance with U.S. GAAP for the periods
indicated. The Company's use of EBITDA may not be comparable to similarly
titled measures used by other companies due to the use by other companies of
different financial statement components in calculating EBITDA.
(7) Capital expenditures include assets acquired through capital lease financing
and other debt.
(8) The as adjusted figure includes approximately $6.6 million which the Company
has agreed to pay to certain Minority Interestholders in connection with the
exercise of their Roll-Up Rights.
12
<PAGE>
RISK FACTORS
An investment in the Class A Common Stock offered hereby is subject to a
number of risks. Prospective investors should carefully consider the following
factors as well as the more detailed descriptions cross-referenced to the body
of this Prospectus and the other matters described in this Prospectus before
purchasing shares of Class A Common Stock.
SHORT OPERATING HISTORY; ENTRANCE INTO NEWLY OPENING MARKETS; MARGINS
The Company acquired its principal operations in the United States in 1995,
in France, Germany and the Netherlands in 1996 and in Italy and a minority
interest in its Portuguese operations in 1997, and commenced start-up operations
in the United Kingdom, Sweden and Finland in 1996, and Denmark and Australia in
1997. Therefore, the Company has limited experience in operating these
businesses. The businesses which now constitute the Company's principal
operations commenced operations on various dates during 1990 through 1997 and,
therefore, have limited operating histories. In addition, the Company has
recently made investments in Venezuela, Austria and Japan and the Company plans
to acquire or start-up operations in markets where it currently does not have
operations. Furthermore, in many of its existing and future markets, the Company
plans to offer services that have been provided in the past only by PTTs, as
well as newly developed services. Accordingly, the Company may face difficulties
in establishing or expanding such businesses, including difficulties in hiring
personnel that have experience in providing such telecommunications services in
such markets. See '--Risks Associated with Anticipated Growth and Acquisitions.'
The Company's prospects must, therefore, be considered in light of the risks,
expenses, problems and delays inherent in establishing a new business in an
evolving industry.
As a new entrant in its markets, the Company may need to grant substantial
discounts in order to attract a significant customer base. The Company has and
will continue to provide services to carrier customers at discounted prices,
resulting in lower gross margins than margins related to sales to other
customers. In addition, the Local Operators may incur significant costs
developing their network infrastructures (including the purchase of minimum
investment units ('MIUs') and indefeasible rights of use ('IRUs') in fiber optic
cable systems, switches and leased capacity) as their business grows. The fixed
costs and expenses incurred under these circumstances may result in low or
negative operating margins. See 'Management's Discussion and Analysis of
Financial Condition and Results of Operations--Overview.'
HISTORICAL AND FUTURE NET OPERATING LOSSES AND NEGATIVE EBITDA; NEED FOR
ADDITIONAL CAPITAL; SUBSTANTIAL INDEBTEDNESS; ABILITY TO SERVICE INDEBTEDNESS
The Company will need to continue to enhance and expand its operations and
meet the increasing demands for service quality, availability of value added
services and competitive pricing in order to establish and maintain a
competitive position in its existing markets and the additional markets it
enters. The Company has incurred, and during the next several years expects to
continue to incur, significant and increasing operating and net losses, negative
EBITDA and negative cash flow from operating activities due to the start-up
nature of the Company's business and the Company's need to expand its
operations, develop RSL-NET and build its customer base and marketing
operations. Even after receipt of the net proceeds of the Offerings, the Company
may need to raise substantial additional capital in the future to fund its
acquisitions, strategic alliances, start-up operations, capital expenditures and
anticipated substantial operating losses. The net proceeds from the Offerings
and the net proceeds from the Debt Offering, together with borrowings under the
Company's $7.5 million revolving credit facility with The Chase Manhattan Bank
(the 'Revolving Credit Facility') and vendor financing, are expected to fund the
Company's planned expansion of its existing operations and operating losses for
15 to 20 months. The foregoing is a forward-looking statement and, therefore,
there can be no assurance in this regard. If the Company's plans or assumptions
change or prove to be inaccurate, if the Company consummates acquisitions in
addition to those currently contemplated, if the Company experiences
unanticipated costs or competitive pressures or if the net proceeds from the
Offerings and the Debt Offering, together with the proceeds of the Revolving
Credit Facility and such vendor financing
13
<PAGE>
otherwise prove to be insufficient, the Company may be required to seek
additional capital. The Company may seek to raise such additional capital from
public or private equity or debt sources. There can be no assurance that the
Company will be able to raise such capital on satisfactory terms or at all. If
the Company decides to raise additional funds through the incurrence of debt,
the Company may become subject to additional or more restrictive financial
covenants. If the Company is unable to obtain such additional capital or is
unable to obtain such additional capital on acceptable terms, the Company may be
required to reduce the scope of its presently anticipated expansion, which could
materially adversely affect the Company's business, results of operations and
financial condition and its ability to compete.
The Company has a significant level of indebtedness. As of June 30, 1997,
the Company had consolidated indebtedness of $313.1 million and shareholders'
equity of $13.4 million. The Indenture limits, but does not prohibit, the
incurrence of additional indebtedness by the Company. The Company expects to
incur substantial amounts of additional indebtedness in the future. On a pro
forma basis, after giving effect to the Company's acquisition of Sprint
Corporation's international voice operations in France and Germany in May 1996
(the 'Sprint Acquisitions'), the Company's acquisition of interests in ITG in
1996 (the 'ITG 1996 Acquisition'), the Company's acquisition of 75% of RSL
Netherlands in October 1996 (the 'RSL Netherlands Acquisition') and the issuance
of the Notes in the Debt Offering for a full year, the Company would have had
interest expense, negative EBITDA, operating losses and net losses of
approximately $38.3 million, $23.5 million, $32.9 million and $68.3 million,
respectively, for the year ended December 31, 1996. The Company expects to incur
substantial and increasing interest expense, negative EBITDA, negative cash flow
from operations, deficiencies of earnings to fixed charges, operating losses and
net losses for future periods.
In 1996, after giving effect to the Sprint Acquisitions, the ITG 1996
Acquisition and the RSL Netherlands Acquisition, the Company made capital
expenditures of approximately $26.2 million. In 1997, the Company expects to
make capital expenditures of approximately $30 million. The Company has also
experienced a consistently increasing working capital deficit. The Company's
interest expense may exceed its EBITDA and cash flow from operations. If the
Company's EBITDA is insufficient to meet its future debt service obligations and
fund its operating losses, the Company will face substantial liquidity problems.
If the Company is unable to generate sufficient EBITDA or cash flow from
operations, or otherwise obtain funds necessary to make required payments, or if
the Company otherwise fails to comply with the material terms of its
indebtedness, it would be in default thereunder, which would permit the holders
of such indebtedness to accelerate the maturity thereof. The ability of the
Company to meet its obligations is dependent upon the future performance of the
Company, which is subject to prevailing economic conditions (in each market,
country and region in which the Company operates, as well as globally) and to
financial, business and other factors, including factors beyond the Company's
control.
The Company's indebtedness could have important consequences to holders of
the Class A Common Stock, including the following: (i) the debt service
requirements of any additional indebtedness could make it more difficult for the
Company to make payments on its existing debt; (ii) the Company's level of
indebtedness could limit the ability of the Company to obtain any necessary
financing in the future for working capital, capital expenditures, debt service
requirements or other purposes; (iii) a substantial portion of the Company's
future cash flow from operations, if any, will be dedicated to the payment of
principal and interest on the Notes, its other indebtedness and other
obligations and will not be available for the Company's business; (iv) the
Company's level of indebtedness could limit its flexibility in planning for, or
reacting to changes in, its business; (v) the Company is more highly leveraged
than certain of its competitors, which may place it at a competitive
disadvantage; and (vi) the Company's high degree of indebtedness could make it
more vulnerable in the event of a downturn in its business. See 'Selected
Consolidated Financial Data' and 'Management's Discussion and Analysis of
Financial Condition and Results of Operations.'
14
<PAGE>
RISKS ASSOCIATED WITH ANTICIPATED GROWTH AND ACQUISITIONS
The Company has experienced rapid growth and intends to continue to grow
through further expansion of its existing operations, through acquisitions,
joint ventures, strategic alliances and through the establishment of new
operations. The Company constantly evaluates acquisition and joint venture
opportunities. The Company's ability to manage its anticipated future growth
will depend on its ability to evaluate new markets and investment vehicles,
monitor operations, control costs, maintain effective quality controls, obtain
satisfactory and cost-effective lease rights from, and interconnection
agreements with, competitors that own transmission lines (in many cases
intra-national transmission lines may be available from only one dominant
competitor) and significantly expand the Company's internal management,
technical and accounting systems. The Company's growth will also depend on its
ability to purchase successfully MIUs and IRUs, which ability may be adversely
affected by, among other factors, competition to purchase such rights and
regulatory restrictions on ownership. The Company's rapid growth has placed, and
its planned future growth will continue to place, a significant and increasing
strain on the Company's financial, management and operational resources,
including the identification of acquisition targets and joint venture partners,
the negotiation of acquisition and joint venture agreements and the maintenance
of satisfactory relations, including, when necessary, the resolution of disputes
with its joint venture partners and minority investors in acquired entities. In
addition, acquisitions and the establishment of new operations will entail
considerable expenses in advance of anticipated revenues and may cause
substantial fluctuations in the Company's operating results.
The Company may, as a result of legal restrictions or other reasons,
acquire a minority interest in strategic targets, in which case the Company
would lack control over the target company's operations and strategies. There
can be no assurance that such lack of control will not interfere with the
Company's growth and integration of its operations.
The Company may also acquire interests in operations for strategic reasons,
despite the fact that such operations have operational or managerial problems.
In such cases, there can be no assurance that such operational or managerial
problems will not cause significant problems or consume substantial monetary,
management and other resources of the Company.
The Company's planned new businesses will need to be integrated with its
existing operations. For acquired businesses, this will entail, among other
things, integration of switching, transmission, technical, sales, marketing,
billing, accounting, quality control, management, personnel, payroll, regulatory
compliance and other systems and operating hardware and software, some or all of
which may be incompatible. For example, the Company's U.S. operations only
recently began to utilize RSL-NET. Furthermore, acquired businesses generally
suffer from employee and customer attrition and turnover at higher rates during
the period commencing when employees and customers learn of a proposed
transaction and ending after the transaction has been completed. The Company has
experienced high levels of customer attrition and turnover in certain acquired
businesses in the United States, France and Germany. In countries where the
Company expands by establishing a new business, it must, among other things,
recruit, hire and train personnel, establish offices, obtain regulatory
authorization, lease transmission lines from, and obtain interconnection
agreements with, competitors that own intra-national transmission lines, and
install hardware and software. See '--Competition.' In addition, since the
Company operates businesses in several countries and intends to expand into
additional countries and regions, including Europe, Asia, the Pacific Rim and
Latin America, the Company must manage the problems associated with integrating
a culturally and linguistically diverse workforce. The Company has limited
experience dealing with these problems.
RISKS ASSOCIATED WITH RAPIDLY CHANGING INDUSTRY
The international telecommunications industry is changing rapidly due to,
among other things, deregulation, privatization of PTTs, technological
improvements, expansion of telecommunications infrastructure and the
globalization of the world's economies and free trade. There can be no assurance
that one or more of these factors will not vary unpredictably, which could have
a material adverse effect
15
<PAGE>
on the Company. There can also be no assurance, even if these factors turn out
as anticipated, that the Company will be able to implement its strategy or that
its strategy will be successful in this rapidly evolving market. Furthermore,
there can be no assurance that the Company will be able to compete effectively
or adjust its contemplated plan of development to meet changing market
conditions.
Much of the Company's planned growth is predicated upon the deregulation of
telecommunications markets. There can be no assurance that such deregulation
will occur when or as anticipated, if at all, or that the Company will be able
to grow in the manner or at the rates currently contemplated.
The telecommunications industry is in a period of rapid technological
evolution, marked by the introduction of new product and service offerings and
increased satellite and fiber optic cable transmission capacity for services
similar to those provided by the Company, including utilization of the Internet
for international voice and data communications. The Company cannot predict
which of the many possible future product and service offerings will be
important to establish and maintain a competitive position or what expenditures
will be required to develop and provide such products and services. The
Company's profitability will depend, in part, on its ability to anticipate and
adapt to rapid technological changes occurring in the telecommunications
industry and on its ability to offer, on a timely basis, services that meet
evolving industry standards and customer preferences. There can be no assurance
that the Company will be able to adapt to such technological changes or offer
such services on a timely basis or establish or maintain a competitive position.
As a result of existing excess international transmission capacity, the
marginal cost of carrying an additional international call is often very low for
carriers that own MIUs or IRUs. Industry observers have predicted that these low
marginal costs may result in significant pricing pressures and that, within a
few years after the end of this century, there may be no charges based on the
distance a call is carried. Certain of the Company's competitors have introduced
calling plans that provide for flat rates on calls within the U.S. and Canada,
regardless of time of day or distance of the call. If this type of pricing were
to become prevalent, it would likely have a material adverse effect on the
Company's prospects, financial condition and results of operations and its
ability to make payments on its indebtedness. See '--Dependence on Other
Carriers.'
INABILITY TO PREDICT TRAFFIC VOLUME
The Company may enter into long-term agreements for leased capacity in
anticipation of traffic volumes which do not reach expected levels and,
therefore, be obligated to pay for transmission capacity without adequate
corresponding revenues. Conversely, the Company may underestimate its need for
leased capacity and, therefore, be required to obtain transmission capacity
through more expensive means. The Company's U.S. operations have, in the past,
both overestimated and underestimated their need for leased capacity and,
therefore, have been forced to obtain capacity for overflow traffic at a higher
cost and have also leased capacity which was under-utilized and, in some
instances, led to under-utilization charges. See 'Management's Discussion and
Analysis of Financial Condition and Results of Operations.' If the Company is
unable to accurately project its needs for leased capacity in the future, such
inability may have a material adverse effect on the Company's business and
profitability.
DEPENDENCE ON OTHER CARRIERS
The Company does not own any intra-national telecommunications lines for
any country in which it provides services and does not intend to construct or
acquire any of its own intra-national transmission facilities. Consequently, the
Company must continue to rely on providers of intra-national transmission
facilities. All of the telephone calls made by the Company's customers are and
will continue to be connected, at least in part, through transmission lines that
the Company leases. In all of the jurisdictions in which the Company conducts
business (other than the U.S. and the United Kingdom) or plans to conduct
business, the only current provider of significant intra-national transmission
facilities is the PTT. Accordingly, prior to full deregulation, there may be
only one source of intra-national transmission lines in these countries and the
Company may be required to lease transmission capacity at artificially high
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rates from a provider that occupies a monopoly or near monopoly position. In
fact, Deutsche Telekom AG ('Deutsche Telekom'), the German PTT, earlier this
year raised the rates charged to the Company and other carriers with respect to
intra-national transmissions and there can be no assurance that other PTTs will
not also do so. Such rates may be too high to allow the Company to generate
gross profit on intra-national calls or international calls routed to a Company
switch by means of such intra-national lines. In addition, PTTs will not
necessarily be required by law to allow the Company to lease transmission lines
upon which the Company depends. To the extent that applicable law requires PTTs
to lease transmission lines to the Company, delays may nevertheless be
encountered with respect to the commencement of operations and extensive delays
can be expected with respect to the negotiation of leases and interconnection
agreements. See '--Government Regulatory Restrictions.' In addition, ongoing
disputes can be expected with respect to pricing terms and billing.
Many of the international telephone calls made by the Company's customers
are and will continue to be transported through transmission lines that the
Company leases. The lessors of such facilities are competitors of the Company,
including American Telephone & Telegraph, Inc. ('AT&T'), MCI Communications
Corporation ('MCI'), Teleglobe Canada, Inc. ('Teleglobe'), British
Telecommunications PLC ('British Telecom'), France Telecom S.A. ('France
Telecom'), Deutsche Telekom and Cable and Wireless Communications PLC
('Mercury'). The Company generally leases lines on a short-term basis. These
include leases on a per-minute basis (some with minimum volume commitments) and,
where the Company anticipates higher volumes of traffic, leases of transmission
capacity for point-to-point circuits on a monthly or longer-term fixed cost
basis. The negotiation of lease agreements involves estimates regarding future
supply and demand for transmission capacity as well as estimates of the calling
patterns and traffic levels of the Company's existing and future customers. When
there has been excess transmission capacity, as was the case for many years in
the United States, lease rates have declined and short term leases have been
advantageous. Recently, capacity has been somewhat constrained in the United
States and the decline in lease rates has slowed. As a result, longer term
leases may become more attractive. Should the Company fail to meet its minimum
volume commitments pursuant to long-term leases, it will be obligated to pay
'under-utilization' charges. See '--Inability to Predict Traffic Volume.' For
these reasons, the Company would suffer competitive disadvantages if it entered
into leases with inappropriate durations or leases based on per-minute charges
for high volume routes (or leases with fixed monthly rates for low volume
routes), or if it failed to meet its minimum volume requirements. The Company is
also vulnerable to service interruptions and poor transmission quality from
leased lines. The deterioration or termination of the Company's relationships
with one or more of its carrier vendors could have a material adverse effect
upon the Company's business, financial condition and results of operations.
DEPENDENCE ON EFFECTIVE INFORMATION SYSTEMS
Sophisticated information systems are vital to the Company's growth and its
ability to monitor costs, bill and receive payments from customers, reduce
credit exposure, effect least cost routing and achieve operating efficiencies.
The Company currently operates separate network management information systems
for its U.S. and European operations. The Company intends to integrate and
operate the information services for all of its Local Operators from a central
location. A failure of any of the Company's current systems, the failure of the
Company to implement or integrate new systems without difficulty, if at all, the
failure of any new systems or the failure to upgrade systems as necessary could
have a material adverse effect on the Company, its financial condition and the
results of operations.
COMPETITION
The provision of telecommunications services is and will continue to be
extremely competitive. Prices for long distance calls have decreased
substantially over the last few years in most of the markets in which the
Company does business and prices are expected to decline substantially over the
next several years in all of the markets where the Company does business or
expects to do business. In addition, all of the Company's markets and expected
future markets have deregulated or are in the process of deregulating telephone
services. Customers in most of these markets are not familiar with
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obtaining services from competitors to the PTTs and may be reluctant to use new
providers, such as the Company. In particular, the Company's target customers,
small and medium-sized businesses, may be reluctant to entrust their
telecommunications needs to new and unproven operators or may switch to other
service providers as a result of price competition. The Company has experienced,
and expects to continue to experience, high levels of customer attrition and
turnover as a result of the highly competitive nature of most of its markets.
The Company's success will depend upon the Company's ability to compete
with a variety of other telecommunications providers in each of its markets,
including (i) the PTTs, (ii) alliances such as AT&T's alliance with Unisource
(itself an alliance currently among PTT Telecom Netherlands, Telia AB and Swiss
Telecom PTT) and 'Uniworld' and the corresponding alliance with WorldPartners,
MCI's alliance (and proposed consolidation) with British Telecom and Telefonica
de Espana, S.A., known as 'Concert,' and Sprint Corporation's ('Sprint')
alliance with Deutsche Telekom and France Telecom, known as 'Global One,' (iii)
companies offering resold international telecommunications services, (iv)
companies such as WorldCom, Inc. ('WorldCom') offering local exchange service in
conjunction with domestic long distance and international long distance services
and (v) other companies with business plans similar to that of the Company. The
Company expects that competition will increase in the future as the deregulation
of telecommunications markets worldwide accelerates. Many of the Company's
competitors have significantly greater financial, management and operational
resources and more experience than the Company. If any of the Company's
competitors were to devote additional resources to the provision of
international long distance voice telecommunication services to the Company's
target customer base of small and medium-sized businesses, there could be an
adverse effect on the Company's business. In addition, certain of the Company's
competitors may target discounts in one market to gain an advantage in another
market or with a particular customer. The Company may be unable to compete with
such discounts on an economically feasible basis.
Each of the Company's Local Operators is expected to separately compete
within their respective countries. There can be no assurance that any of the
Local Operators will be able to do so effectively and the success of the
Company's strategy in any one market is not necessarily indicative of its
ability to succeed in any other market.
Competition for customers is primarily on the basis of price and, to a
lesser extent, on the type and quality of services offered and customer service.
The Company attempts to price its services at a discount to the prices charged
by the PTT or major carriers in each of its markets. The Company has no control
over the prices set by its competitors and some of the Company's larger
competitors may be able to use their substantial financial resources to cause
severe price competition in the countries in which the Company operates. There
can be no assurance that severe price competition will not occur. Any price
competition could have a material adverse effect on the Company's business,
financial condition and results of operations. In addition, certain of the
Company's competitors will provide potential customers with a broader range of
services than the Company currently offers or can offer due to regulatory
restrictions. See 'Business--Industry Overview' and '--European Operations.'
In addition to these competitive factors, recent and pending deregulation
in each of the Company's markets may encourage new entrants. For example, as a
result of both legislation recently enacted in the United States and regulatory
initiatives taken by the FCC, regional Bell operating companies ('RBOCs') may
provide international telecommunications services, are allowed to offer domestic
long distance service through an affiliate outside their service areas as
'non-dominant' carriers and are allowed to provide long distance service within
their service areas, provided certain competition related conditions are met.
AT&T, MCI and other long distance carriers are allowed to enter the local
telephone services market, and any entity, including cable television companies
and utilities, may enter the United States domestic long distance
telecommunications market. In addition, the FCC had, on several occasions since
1984, approved or required price reductions by AT&T because it was a 'dominant'
carrier. However, the FCC reclassified AT&T as a 'non-dominant' carrier for
domestic purposes in October 1995 and for international purposes in May 1996.
These FCC actions substantially reduced the regulatory constraints on AT&T. As
the Company expands its geographic coverage, it will encounter additional
regional competitors and increased competition. Moreover, the Company believes
that
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competition in non-U.S. markets will increase and begin to resemble the
competitive landscape in the United States.
The PTTs generally have certain competitive advantages that the Company and
its other competitors do not have, due to such PTTs' control over the
intra-national transmission lines and connection to them, their ability to delay
access to lines and the reluctance of some regulators to adopt policies and
grant regulatory approvals that will result in increased competition for the
local PTT. If the PTT in any jurisdiction uses its competitive advantages to
their fullest extent, the Local Operator in such jurisdiction would be adversely
affected.
GOVERNMENT REGULATORY RESTRICTIONS
National and local laws and regulations differ significantly among the
countries in which the Company currently operates and plans to operate. The
interpretation and enforcement of such laws and regulations vary and could limit
the Company's ability to provide certain telecommunications services, including
Internet telephony services. Furthermore, there can be no assurance that changes
in current or future laws or regulations or future judicial intervention in the
United States or in any other country would not have a material adverse effect
on the Company or that FCC or other regulatory investigation or intervention
would not have a material adverse effect on the Company. In addition, the
Company's strategy is based in large part upon the expected deregulation of the
EU markets based on European Commission directives. Such deregulation of the EU
markets has already experienced substantial delays. Accordingly, there can be no
assurance that the EU will proceed with the expected deregulation in the
immediate future, if at all, or that the trend towards deregulation will not be
stopped or reversed. In addition, even if the EU does act to deregulate its
telecommunications markets on the current schedule, the national governments of
EU member states must pass legislation to deregulate the markets within their
countries. The national governments may not necessarily pass such legislation in
the form required, if at all, or may pass such legislation only after a
significant delay. Even if a national legislature enacts appropriate regulations
within the time frame established by the EU, there may be significant resistance
to the implementation of such legislation from PTTs, regulators, trade unions
and other sources. For example, in the United Kingdom, Mercury took legal action
against the Post Office Engineering Union because the union refused to connect
Mercury's customers. In France, the telecommunications union has stated its
objection to the current move towards deregulation. These and other potential
obstacles to deregulation would have a material adverse effect on the Company's
operations by preventing the Company from expanding its operations as currently
anticipated.
In addition, the telecommunications services provided by the Company in the
United Kingdom are subject to and affected by regulations introduced by the
Office of Telecommunications ('Oftel'). Oftel has imposed mandatory rate
reductions on British Telecom in the past and is expected to continue to do so
for the foreseeable future. This will have the effect of reducing the prices the
Company can charge its U.K. customers.
Also, the Internet telephony services provided by the Company through Delta
Three may be subject to and affected by regulations introduced by the
authorities in each country where Delta Three has or will have operations. The
regulation of Delta Three's activities may have a material adverse effect on
Delta Three's financial condition and results of operations.
The Company is currently authorized or otherwise allowed to provide
intrastate, interexchange service in 33 states and the District of Columbia in
the United States and relies on third party carriers to originate traffic in all
other states, although the Company is applying for authority to originate
traffic in all other states. The Company believes its use of a third party
carrier in such other states is permissible, but any adverse action taken
against the Company by a state authority due to such activity could have a
material adverse effect on the Company, its financial condition and its results
of operations. RSL Italy has filed a declaration and a request for authorization
with the Ministry for Communications, which is required to offer the
international long distance services currently provided by RSL Italy, and is
currently waiting for the Ministry's approval and acknowledgement thereof. The
failure by the Company to receive such approval or to respond to any additional
request for information by the Ministry could have a material adverse effect on
the ability of the Company to offer international long distance services in
Italy.
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RISK OF LOSS, OR DIMINUTION OF VALUE, OF OPERATING AGREEMENTS
Although the Company's U.S. operation has operating agreements which enable
the Company to connect with 17 foreign carriers, the Company presently only
utilizes six such agreements. These agreements are with carriers in the
Dominican Republic, the United Kingdom, Denmark, the Netherlands, Finland and
Norway. In order to utilize the remaining operating agreements, the Company
would have to make an investment in transmission facilities to each of these
countries, which the Company is unlikely to do unless and until it originates
sufficient calling volume to such countries to justify an investment. The
Company's failure to utilize these operating agreements may result in these
foreign carriers terminating such agreements in order to secure more profitable
agreements with carriers other than the Company and may limit the Company's
ability to secure operating agreements with additional foreign carriers. The
loss of the Company's operating agreements could have a material adverse effect
on its business, and the failure to enter into additional operating agreements
or other favorable arrangements in the future could limit the Company's ability
to increase its revenues on a positive gross margin basis. There can be no
assurance that the Company will be able to enter into additional operating and
other interconnection agreements or other favorable arrangements in the future.
In addition, the Company's operating agreements may become less valuable to
the Company. As increasing numbers of international carriers emerge, operating
agreements may become more available. Moreover, as telecommunications markets
deregulate, particularly in Europe, an increasing proportion of international
traffic is being carried outside of the traditional operating agreement/
settlement rate system.
DEPENDENCE ON CARRIER CUSTOMERS
The Company provides telecommunication services to carrier customers
principally in the United States. Revenues derived from the provision of such
services accounted for 42% of the Company's revenues for the six months ended
June 30, 1997. Accordingly, the loss of revenue from carrier customers could
have a material adverse effect upon the Company's business, financial condition
and results of operations. Carrier customers are extremely price sensitive,
generate very low margin business and frequently choose to move their business
based solely on small price changes. In addition, certain of the Company's
carrier customers are unprofitable or are only marginally profitable, resulting
in a higher risk of delinquency or non-payment than in the case of more
creditworthy customers. In February 1996, the Company terminated service to a
carrier customer that accounted for 11% of ITG's 1995 U.S. revenues for failure
to pay for past services. As a result, although the Company is attempting to
recover the amounts owed by such customer, the Company booked a $4.9 million
write-off for bad debt on its 1995 financial statements. While the Company
instituted revised credit criteria to enable the Company to reduce its exposure
to the higher risks associated with carrier customers, no assurance can be given
that such criteria and methods will afford adequate protection against such
risks.
RISKS RELATED TO HOLDING COMPANY STRUCTURE
The Company is a holding company and its only material assets, other than
existing cash and the net proceeds of the Offerings, consist of the stock of its
subsidiaries. The Company intends to loan or contribute a substantial majority
of the net proceeds of the Offerings to its subsidiaries. The Company relies on
dividends, loan repayments and other intercompany cash flows from its
subsidiaries to generate the funds necessary to meet its debt service
obligations. The payment of dividends and the repayment of loans and advances by
the Company to its subsidiaries are subject to statutory, taxation and other
restrictions, are dependent upon the earnings of such subsidiaries and are
subject to various business considerations. In addition, dividends and other
payments to the Company from the subsidiaries, in certain jurisdictions, may
have adverse tax consequences to the subsidiaries or the Company, and the
subsidiaries' ability to declare and pay dividends or make other payments to the
Company are, in certain circumstances, subject to restrictions contained in
their respective organizational documents or loan agreements. As of June 30,
1997, the total outstanding indebtedness
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of the Company's subsidiaries not eliminated in the Company's consolidated
financial statements was approximately $313.1 million. Moreover, claims of
creditors of the Company's subsidiaries, including tax authorities and trade
creditors, will generally have a priority claim to the assets of such
subsidiaries over the claims of the Company. In addition, certain subsidiaries
have outstanding minority equity owners who will have a pro rata claim with the
Company to any dividends or other distributions by subsidiaries. See
'Description of Certain Indebtedness' and 'Shares Eligible for Future Sale.'
DEPENDENCE UPON KEY PERSONNEL
The success of the Company is dependent, in part, upon its key management.
In particular, the Company is highly dependent upon certain of its personnel,
including Ronald S. Lauder, Chairman of the Board of the Company and its largest
and controlling shareholder, and Itzhak Fisher, the President and Chief
Executive Officer of the Company. The loss of services of Mr. Lauder, Mr. Fisher
or any of the other members of the Company's senior management team could have a
material adverse effect on the Company. The degree of Mr. Lauder's involvement
in the activities of the Company varies from time to time based on the needs of
the Company. Mr. Lauder's involvement with the Company, in addition to his
activities as Chairman of its Board of Directors and Executive Committee,
includes identifying potential local strategic partners, capital allocation,
corporate governance, setting compensation policy and recruiting top management.
However, he is not an employee of the Company and he spends a majority of his
business time on other matters. While Mr. Fisher has an employment agreement
with the Company, the Company does not have employment agreements with many of
the other members of its senior management team.
The Company believes its future success will depend in large part upon its
ability to attract, retain and motivate highly skilled employees. Such employees
are in great demand and are often subject to offers for competitive employment.
There can be no assurance that the Company can retain its key managerial
employees or that it can attract, integrate or retain such employees in the
future.
DEPENDENCE ON EQUIPMENT SUPPLIER
The Company purchases most of its switches from Ericsson, which has granted
the Company volume discounts and also provides lease financing for, and
maintenance of, this equipment. Although switches of comparable quality may be
obtained from several alternative suppliers, the failure of the Company to
acquire compatible switches from an alternative source, or the failure to
acquire additional switches (regardless of the vendor) on a timely basis or on a
similar price basis, could result in delays, operational problems or increased
expenses, which could have a material adverse effect on the Company's business,
results of operations and financial condition.
CONTROLLING SHAREHOLDERS; NEGATIVE EFFECTS OF ANTI-TAKEOVER PROVISIONS
Upon completion of the Offerings, certain of the executive officers and
directors of the Company, companies and partnerships they control and members of
their immediate families will control, in the aggregate, approximately 97.8% of
the voting power and approximately 82.3% of the outstanding capital stock of the
Company, respectively, and approximately 97.4% and 80.2%, respectively, if the
U.S. and International Underwriters' over-allotment options are exercised in
full. As a result, the existing shareholders will be able to control the
election of all of the directors and the results of other shareholder votes.
Ronald S. Lauder, Chairman of the Company, will beneficially own, in the
aggregate, approximately 71.7% of the voting power and approximately 57.8% of
the outstanding capital stock of the Company, respectively, and approximately
71.5% and 56.3%, respectively, if the U.S. and International Underwriters'
over-allotment options are exercised in full. As a result, Mr. Lauder will have
majority control of the Company, the ability to approve certain fundamental
corporate transactions and to elect all members of the Company's Board of
Directors. The exercise of the voting power by Mr. Lauder and such other persons
may present conflicts of interest between them and the other owners of the
Company's capital shares. See 'Principal Shareholders.'
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The concentration of ownership in the Company and Mr. Lauder's intention to
maintain a controlling interest in the Company may have the effect of delaying,
deferring or preventing a change of control of the Company, a transaction which
might otherwise be beneficial to shareholders. In addition, the Company's
Memorandum of Association and Bye-Laws contain provisions that could delay,
defer or prevent a change in control without the approval of the incumbent Board
of Directors. Such a provision could impede the ability of the shareholders to
replace management even if factors warrant such a change. See 'Principal
Shareholders' and 'Description of Capital Stock--Anti-Takeover Protections.'
BERMUDA CORPORATE LAW
The Company is a Bermuda corporation and, accordingly, is governed by The
Companies Act 1981 of Bermuda. The Companies Act 1981 of Bermuda differs in
certain aspects from laws generally applicable to United States corporations and
shareholders, including with respect to the provisions relating to interested
directors, mergers and similar arrangements, takeovers, shareholders suits,
indemnification of directors and inspection of corporate records. See
'Description of Capital Stock-- Certain Provisions of Bermuda Law.'
NO PRIOR MARKET; POSSIBLE VOLATILITY OF STOCK PRICE
There has been no public market for the shares of Class A Common Stock
prior to the Offerings, and there is no assurance that a significant public
market for the Class A Common Stock will develop or be sustained after the
Offerings. The initial public offering price of the Class A Common Stock will be
determined by negotiations among the Company and the representatives of the U.S.
Underwriters and the International Underwriters. See 'Underwriting.' The market
price of the Class A Common Stock may be extremely volatile. Factors such as
adverse regulatory changes, acquisitions by the Company, significant
announcements by the Company and its competitors, quarterly fluctuations in the
Company's operating results and general conditions in the telecommunications
market may have a significant impact on the market price of the Class A Common
Stock. In addition, in recent years the stock market has experienced extreme
price and volume fluctuations. These fluctuations have had a substantial effect
on the market prices for many high technology and telecommunications companies,
often unrelated to the operating performance of the specific companies.
SHARES ELIGIBLE FOR FUTURE SALE
Sales of substantial amounts of Class A Common Stock in the public market
after the Offerings could adversely affect prevailing market prices.
Upon completion of the Offerings, 39,430,048 shares of Common Stock will be
outstanding (40,510,048 shares if the Underwriters' over-allotment options are
exercised in full). Of such shares, the 7,200,000 shares (8,280,000 shares if
the Underwriters' over-allotment options are exercised in full) of Class A
Common Stock offered by the Company in the Offerings will be freely tradeable
without restriction or further registration. In addition, beginning 180 days
after the date of this Prospectus, following the expiration of certain lock-up
agreements between the Underwriters, the Company's executive officers and
directors and certain other shareholders of the Company, 30,114,915 additional
outstanding shares of Class A Common Stock (assuming the conversion of Class B
Common Stock into Class A Common Stock on a one-for-one basis (including the
shares of Class B Common Stock to be issued upon the conversion of the Preferred
Stock)) will be tradeable subject to the provisions of Rule 144 promulgated
under the Securities Act of 1933, other than the holding period requirements
thereunder. Additionally, 1,192,455 shares of Class A Common Stock issuable upon
conversion of the Warrants will be registered for sale within 180 days after the
closing of the Offerings, 27,641,933 shares of Class A Common Stock are expected
to be entitled to demand registration rights which are exercisable, with certain
restrictions, starting 180 days after the closing of the Offerings and
33,389,862 (including shares which would also be subject to demand rights)
shares of Class A Common Stock would be entitled to piggyback registration
rights. See 'Description of Capital Stock' and 'Shares Eligible for Future
Sale.'
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The Company is in the process of adopting stock option and incentive
compensation plans which would provide for the grant of options to acquire up to
3,750,000 shares of Class A Common Stock, and options to acquire up to 2,792,888
shares of Class A Common Stock are outstanding under the Company's existing
option plan. The Company intends to register all or a portion of the shares
underlying all such options (the 'Option Shares') for resale in the public
market. Options with respect to 1,271,380 of the Option Shares are currently
exercisable. Approximately 384,683 shares of Class A Common Stock are issuable
upon the exercise of the Roll-Up Rights (the 'Roll-Up Shares') and certain
holders of such rights have certain piggyback registration rights with respect
to their Roll-Up Shares. See 'Management-- Executive Compensation of Executive
Officers,' 'Principal Shareholders' and 'Shares Eligible for Future Sale.'
DILUTION
Purchasers of the Class A Common Stock offered hereby will suffer immediate
dilution of $19.82 per share (assuming a public offering price of $20.50 per
share), and present shareholders will receive a substantial increase in the net
tangible book value per share of the Class A Common Stock. See 'Dilution.'
ABSENCE OF DIVIDENDS
The Company has never paid dividends on any class of the Common Stock and
does not anticipate paying any such dividends in the foreseeable future. In
addition, the Company's debt facilities and the Indenture contain restrictions
on the Company's ability to declare and pay dividends on each class of the
Common Stock. See 'Description of Certain Indebtedness' and 'Dividend Policy.'
DEVALUATION AND CURRENCY RISKS
An increasing portion of the Company's revenues and expenses will be
denominated in non-U.S. currencies, although a disproportionate portion of the
Company's expenses, including interest and principal on the Notes, will be
denominated in U.S. dollars. In addition, the Company, in the future, may
acquire interests in entities that operate in countries where the expatriation
or conversion of currency is restricted. The Company currently does not hedge
against foreign currency exchange translation risks but may in the future
commence such hedging against specific foreign currency transaction risks.
Because of the number of currencies involved, the Company's constantly changing
currency exposure and the fact that all foreign currencies do not fluctuate in
the same manner against the United States dollar, the Company cannot quantify
the effect of exchange rate fluctuations on its future financial condition or
results of operations.
FOREIGN PERSONAL HOLDING COMPANY AND PASSIVE FOREIGN INVESTMENT COMPANY RULES
The Company will seek to manage its affairs and the affairs of its
subsidiaries so that neither the Company nor any of its foreign corporate
subsidiaries would be classified as a passive foreign investment company
('PFIC') or, once such a subsidiary is profitable, as a foreign personal holding
company ('FPHC') under the U.S. Internal Revenue Code of 1986, as amended. If
the Company or any such subsidiary were an FPHC, the undistributed foreign
personal holding company income (generally, the taxable income, with certain
adjustments), if any, of the Company or of its foreign corporate subsidiaries
would be included in the income of a U.S. shareholder of the Company as a
dividend on a pro rata basis. If the Company were a PFIC, then each U.S. holder
of Class A Common Stock would, upon certain distributions by the Company, or
upon disposition of the Class A Common Stock at a gain, be liable to pay tax at
the then prevailing rates on ordinary income plus an interest charge, generally
as if the distribution or gain had been recognized ratably over the U.S.
shareholder's holding period (for PFIC purposes) for the Class A Common Stock,
or if a 'qualified electing fund' election were made by a U.S. holder of Class A
Common Stock, a pro rata share of the Company's ordinary earnings and net
capital gain would be required to be included in such U.S. shareholder's income
each year. Also, effective for years beginning after 1997, a U.S. shareholder
may be able to make a mark-to-market election whereby annual increases and
decreases in share value are included as ordinary income or deducted from
ordinary income by marking-to-market the value of the shares at the close of
each year. While the Company intends to manage its affairs and the affairs of
its corporate subsidiaries so as to avoid PFIC status or, once profitable, FPHC
status, there can be no assurance that the Company would be successful in this
endeavor. See 'Certain United States Federal Income Tax Considerations.'
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USE OF PROCEEDS
The proceeds to be received by the Company from the sale of the 7,200,000
shares of Class A Common Stock in the Offerings (net of underwriting discounts
and estimated offering expenses) are estimated to be approximately $137.0
million ($157.7 million if the Underwriters' over-allotment options are
exercised in full) assuming a public offering price of $20.50 per share.
The Company intends to use the net proceeds from the Offerings for (i)
strategic merger and acquisition activities, including certain potential
acquisitions which the Company currently is pursuing, although there can be no
assurance that any such acquisition can be completed, (ii) the purchase of
additional interests in international cable systems and additional transmission
and switching equipment, (iii) the purchase of minority interests in its
subsidiaries and (iv) working capital purposes relating to the expansion of the
Company's operations. Depending on the size and timing of any acquisitions, the
Company may also determine to use a portion of such proceeds to reduce its
outstanding debt, including prepayment of a portion of the principal amount of
the Notes. Pending such uses, the net proceeds to the Company from the Offerings
will be placed in interest-bearing bank accounts or invested in United States
government securities or other interest-bearing investment grade securities.
DIVIDEND POLICY
The Company has never paid dividends on any class of Common Stock and does
not anticipate paying any dividends on the Class A Common Stock or any other
class of Common Stock in the foreseeable future. Certain of the Company's credit
facilities and the Indenture contain restrictions on the Company's ability to
declare and pay dividends on the Common Stock. See 'Description of Certain
Indebtedness.' The declaration and payment of dividends by the Company are
subject to the discretion of the Board of Directors. Any determination as to the
payment of dividends in the future will depend upon results of operations,
capital requirements, restrictions in loan agreements, if any, and any such
other factors as the Board of Directors may deem relevant.
24
<PAGE>
DILUTION
As of June 30, 1997, the net tangible book value of the Common Stock was
$(107.0) million, or $(2.89) per share after giving effect to the
Recapitalization. Net tangible book value per share represents the amount of the
Company's tangible net worth (total tangible assets less total liabilities)
divided by the total number of shares of Common Stock outstanding. The following
table demonstrates the increase in the net tangible book value per share to the
Company's existing shareholders and the dilution to the new investors if the
7,200,000 shares of Class A Common Stock offered by the Company in the Offerings
had been sold at June 30, 1997, assuming an initial public offering price of
$20.50 per share.
<TABLE>
<S> <C> <C>
Initial public offering price per share........... $ 20.50
Net tangible book value per share before the
Offerings(1)................................. $ (2.89)
Increase per share attributable to the
Offerings.................................... 3.57
---------
Net tangible book value per share after the
Offerings(1).................................... 0.68
---------
Dilution of net tangible book value per share to
new investors................................... $ 19.82
---------
---------
</TABLE>
- ------------------
(1) Includes (i) 2,792,888 shares of Class A Common Stock issuable upon exercise
of outstanding stock options (including 1,271,380 shares issuable upon the
exercise of currently exercisable options) and stock options expected to be
issued in connection with the exercise of certain Roll-Up Rights, (ii)
1,652,355 shares of Class A Common Stock issuable upon the exercise of the
Warrants and the Lauder Warrants (which is comprised of 459,900 shares of
Class A Common Stock issuable in connection with the Lauder Warrants and
1,192,455 issuable on exercise of the Warrants) and (iii) 384,683 shares of
Class A Common Stock expected to be issued to the Minority Interestholders
upon the exercise of their Roll-Up Rights.
The following table summarizes, as of June 30, 1997, the differences
between the existing shareholders and the new investors with respect to the
number of shares of Class A Common Stock and Class B Common Stock to be
purchased from the Company in the Offerings, the total consideration paid
therefor and the average price per share paid by the existing shareholders and
the new investors (assuming an initial public offering price of $20.50 per
share).
<TABLE>
<CAPTION>
SHARES TOTAL
PURCHASED(1) CONSIDERATION AVERAGE
--------------------- ------------------------ PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
---------- ------- ------------ ------- ---------
<S> <C> <C> <C> <C> <C>
Existing shareholders.... 37,059,975 83.73% $ 97,787,000(2) 39.85% $ 2.64
New investors............ 7,200,000 16.27 147,600,000 60.15 20.50
---------- ------- ------------ -------
Total.................... 44,259,975 100.00 $245,387,000 100.00
---------- ------- ------------ -------
---------- ------- ------------ -------
</TABLE>
- ------------------
(1) Includes (i) 2,792,888 shares of Class A Common Stock issuable upon exercise
of outstanding stock options (including 1,271,380 shares issuable upon the
exercise of currently exercisable options) and stock options expected to be
issued in connection with the exercise of certain Roll-Up Rights, (ii)
1,652,355 shares of Class A Common Stock issuable upon the exercise of the
Warrants and the Lauder Warrants (which is comprised of 459,900 shares of
Class A Common Stock issuable in connection with the Lauder Warrants and
1,192,455 issuable on exercise of the Warrants) and (iii) 384,683 shares of
Class A Common Stock expected to be issued to the Minority Interestholders
upon the exercise of their Roll-Up Rights.
(2) Includes the fair value of the shares in a subsidiary exchanged by a
Minority Interestholder for shares in the Company. A fair value of
$32,582,000 was ascribed to such shares.
25
<PAGE>
CAPITALIZATION
The following table sets forth the consolidated cash and cash equivalents,
marketable securities, restricted marketable securities and capitalization of
the Company as of June 30, 1997 on an actual basis and as adjusted, giving
effect to the sale of 7,200,000 shares of Class A Common Stock offered by the
Company at an assumed public offering price of $20.50 per share and the
application of the estimated net proceeds from the Offerings as described in
'Use of Proceeds.' The table should be read in conjunction with the Consolidated
Financial Statements and the related notes thereto and the other information
included elsewhere in this Prospectus. See 'Use of Proceeds' and 'Management's
Discussion and Analysis of Financial Condition and Results of Operations.'
<TABLE>
<CAPTION>
AS OF JUNE 30, 1997
--------------------------
ACTUAL AS ADJUSTED
----------- -----------
(UNAUDITED)
(IN THOUSANDS, EXCEPT
SHARE DATA)
--------------------------
<S> <C> <C>
Cash and cash equivalents(1)...................... $ 81,992 $ 205,928
----------- -----------
----------- -----------
Marketable securities............................. $ 50,797 $ 50,797
----------- -----------
----------- -----------
Restricted marketable securities(2)............... $ 84,728 $ 84,728
----------- -----------
----------- -----------
Short-term debt and current portion of long-term
debt and current portion of capital lease
obligations..................................... $ 9,204 $ 2,006
Long-term debt and capital lease obligations:
Capital leases.................................. 15,922 15,922
12 1/4% Senior Notes due 2006 (net of
unamortized discount of $3.7 million)......... 296,300 296,300
----------- -----------
Other long-term debt............................ 5,866 --
----------- -----------
Total long-term debt, short-term debt and
capital lease obligations(3)................ 327,292 314,228
----------- -----------
Shareholders' equity:
Common Stock, $.01 par value ($.00457 par value
as adjusted); 20,000,000 shares authorized and
200,000,000 authorized as adjusted; 665,340
shares of Class A Common Stock outstanding and
8,669,322 shares outstanding as adjusted(4)... 7 40
4,807,711 shares of Class B Common Stock
outstanding and 30,760,726 shares
outstanding as adjusted..................... 48 141
Preferred Stock, $.01 par value; 20,000,000
shares authorized and 30,000,000 authorized as
adjusted; 9,243,866 shares outstanding and no
shares outstanding as adjusted................ 93 --
Warrants--Common Stock.......................... 5,544 5,544
Additional paid-in capital...................... 97,639 234,606
Accumulated deficit............................. (88,457) (88,457)
Foreign currency translation adjustment......... (1,129) (1,129)
Deferred financing costs........................ (386) (386)
----------- -----------
Total shareholders' equity.................... 13,359 150,359
----------- -----------
Total capitalization.......................... $ 340,651 $ 464,587
----------- -----------
----------- -----------
</TABLE>
- ------------------
(1) The as adjusted figure includes approximately $6.6 million which the Company
has agreed to pay to certain Minority Interestholders in connection with the
exercise of their Roll-Up Rights.
(2) The restricted marketable securities consist of U.S. government securities
pledged to secure the payment of interest on the principal amount of the
Notes. See 'Description of Certain Indebtedness--Description of the Notes.'
(3) As of June 30, 1997, the Company had $72.9 million of available (undrawn)
borrowing capacity under its current bank and vendor facilities. Immediately
following the Offerings, the Company expects to have $38.3 million of
available borrowing capacity under such facilities as a result of the
termination of a $35.0 million loan facility upon the closing of the
Offerings.
(4) Does not include (i) 2,792,888 shares of Class A Common Stock issuable upon
exercise of outstanding stock options (including 1,271,380 shares issuable
upon the exercise of currently exercisable options) and stock options
expected to be issued in connection with the exercise of certain Roll-Up
Rights, (ii) 3,750,000 shares of Class A Common Stock be reserved for
issuance pursuant to future option grants under the Company's proposed stock
option and compensation plans, (iii) 1,652,355 shares of Class A Common
Stock issuable on the exercise of the Warrants and the Lauder Warrants, (iv)
384,683 shares of Class A Common Stock which are expected to be issued to
the Minority Interestholders upon the exercise of their Roll-Up Rights or
(v) 30,760,726 shares of Class A Common Stock issuable upon the conversion
of the shares of Class B Common Stock (which includes Class B Common Stock
to be issued upon the conversion of the Preferred Stock). See 'Certain
Relationship and Related Transactions' and 'Shares Eligible for Future
Sale.'
26
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
Set forth below are selected consolidated financial data for each of the
years in the three year period ended December 31, 1996 and for the six months
ended June 30, 1996 and 1997. The selected consolidated financial data presented
below with respect to the years ended December 31, 1996 and 1995 and the six
months ended June 30, 1996 and 1997 have been derived from the Consolidated
Financial Statements appearing elsewhere in this Prospectus. The Consolidated
Financial Statements for the three year period ended December 31, 1996 and the
six months ended June 30, 1997 have been audited by Deloitte & Touche LLP,
independent auditors. In the opinion of management, the unaudited Consolidated
Financial Statements have been prepared on the same basis as the audited
Consolidated Financial Statements and include all adjustments, which consist
only of normal recurring adjustments, necessary for a fair presentation of the
financial position and the results of operations for these periods. Operating
results for the six months ended June 30, 1997 are not necessarily indicative of
the results that may be expected for the full year. The information as of and
for the year ended December 31, 1994 has been derived from the financial
statements of the Company's predecessor entity, ITG, appearing elsewhere in this
Prospectus, which financial statements have been audited by Deloitte & Touche
LLP, independent auditors as stated in their reports appearing herein. The
information set forth below is qualified by reference to and should be read in
conjunction with the Consolidated Financial Statements and the notes thereto and
'Management's Discussion and Analysis of Financial Condition and Results of
Operations' included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED DECEMBER 31, ENDED JUNE 30,
----------------------------------- ----------------------
PREDECESSOR
1994 1995(1) 1996 1996 1997
----------- -------- -------- ----------- --------
(UNAUDITED)
($ IN THOUSANDS, EXCEPT LOSS PER SHARE)
<S> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENTS OF OPERATIONS DATA:
Revenues................................... $ 4,702 $ 18,617 $113,257 $ 39,764 $109,361
Cost of services........................... (4,923) (17,510) (98,461) (35,657) (96,797)
----------- -------- -------- ----------- --------
Gross profit (loss)........................ (221) 1,107 14,796 4,107 12,564
Selling, general and administrative
expenses................................. (2,395) (9,639) (38,893) (13,656) (38,213)
Depreciation and amortization.............. (240) (849) (6,655) (2,175) (8,960)
----------- -------- -------- ----------- --------
Loss from operations....................... (2,856) (9,381) (30,752) (11,724) (34,609)
Interest income............................ -- 173 3,976 80 7,124
Interest expense........................... (225) (194) (11,359) (635) (19,252)
Other income (expense)..................... -- -- (288) -- 6,874(2)
Foreign currency transaction gain (loss)... -- -- 758 -- (268)
Minority interest.......................... -- -- (180) -- (229)
Income taxes............................... -- -- (395) -- (357)
----------- -------- -------- ----------- --------
Net loss................................... $(3,081) $ (9,402) $(38,240) $ (12,279) $(40,717)
----------- -------- -------- ----------- --------
----------- -------- -------- ----------- --------
Loss per share(3)(4)....................... $(15.41) $ (3.65) $ (11.24) $ (4.19) $ (8.14)
Weighted average number of shares of Common
Stock outstanding(4)..................... 200 2,576 3,401 2,928 5,003
</TABLE>
27
<PAGE>
<TABLE>
<CAPTION>
SIX MONTHS
AS OF DECEMBER 31, ENDED JUNE 30,
----------------------------------- ----------------------
PREDECESSOR
1994 1995 1996 1996 1997
----------- -------- -------- ----------- --------
(IN THOUSANDS) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
OTHER FINANCIAL DATA:
EBITDA(5).................................. $(2,616) $ (8,532) $(23,807) $ (9,549) $(19,272)
Capital expenditures(6).................... 1,126 6,074 23,880 4,887 13,870
Cash (used in) provided by operating
activities............................... (1,987) 3,554 (10,475) (8,177) (45,247)
Cash (used in) provided by investing
activities............................... (478) (16,537) (225,000) (15,408) 26,862
Cash (used in) provided by financing
activities............................... 2,888 18,143 335,031 24,308 (2,807)
</TABLE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31, AS OF JUNE 30,
----------------------------------------- -----------------------
PREDECESSOR
1994 1995 1996 1996 1997
----------- -------- -------------- ----------- --------
(IN THOUSANDS) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents.................. $ 452 $ 5,163 $104,068 $ 5,886 $ 81,992
Restricted marketable securities........... -- -- 104,370 -- 84,728
Total assets............................... 3,682 53,072 427,969 77,711 436,519
Short-term debt and current portion of
capital lease obligations................ 2,645 5,506 6,974 30,871 9,204
Long-term debt and capital lease
obligations.............................. 1,404 6,648 314,425 5,687 318,088
Shareholders' (deficiency) equity.......... (3,651) 5,705 20,843 (6,574) 13,359
</TABLE>
- ------------------
(1) Effective with the acquisition of a majority equity interest in ITG in
September 1995, the Company began to consolidate ITG's operations. From
March 1995 (the date of the Company's initial investment) to September 1995,
the Company accounted for its investment in ITG using the equity method of
accounting.
(2) Other income includes the reversal of certain liabilities accrued in
connection with the Company's obligations under an agreement that required
the Company to meet a carrier vendor's minimum usage requirements, which
agreement was entered into by a subsidiary of the Company prior to the
Company's acquisition of such subsidiary. During May 1997, the Company
renegotiated the contract with this carrier vendor resulting in the
elimination of approximately $7.0 million of previously accrued charges.
(3) Loss per share is calculated by dividing the loss attributable to Common
Stock by the weighted average number of shares of Common Stock outstanding.
Outstanding stock options, exchange rights and Warrants are not included in
the loss per common share calculation as their effect is anti-dilutive.
(4) Loss per share and the weighted average number of shares outstanding do not
give effect to the Recapitalization.
(5) EBITDA consists of loss before interest, income taxes, depreciation and
amortization. EBITDA is provided because it is a measure commonly used in
the telecommunications industry. It is presented to enhance an understanding
of the Company's operating results and is not intended to represent cash
flow or results of operations in accordance with U.S. GAAP for the periods
indicated. The Company's use of EBITDA may not be comparable to similarly
titled measures used by other companies due to use by other companies of
different financial statement components in calculating EBITDA.
(6) Capital expenditures include assets acquired through capital lease financing
and other debt.
28
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with
the Consolidated Financial Statements, including the notes thereto, appearing
elsewhere in this Prospectus. The following contains statements which constitute
forward-looking statements regarding the intent, belief or current expectations
of the Company or its officers with respect to, among other things, the
Company's financing plans, trends affecting the Company's financial condition or
results of operations, the impact of competition, the start-up of certain
operations and acquisition opportunities. The Company's actual future results
could differ materially from those discussed herein. Prospective investors are
cautioned that any such forward-looking statements are not guarantees of future
performance and involve risks and uncertainties, and that actual results may
differ materially from those in the forward-looking statements as a result of
various factors. Information contained in this Prospectus, including, without
limitation, information contained in this section of this Prospectus and
information under 'Risk Factors' and 'Business,' identifies important factors
that could cause such differences.
OVERVIEW
GENERAL
The Company is a rapidly growing multinational telecommunications company
which provides a broad array of international and domestic telephone services to
both carrier and commercial (including business and residential) accounts. These
services include international long distance calling to over 200 countries and
calling card, private line and value-added telecommunications services. The
Company focuses on providing international long distance voice services to small
and medium-sized businesses in key markets. The Company currently has revenue
generating operations in the United States, the United Kingdom, France, Germany,
Sweden, Finland, the Netherlands, Denmark and Australia. The Company is in the
process of commencing start-up operations through its investments in
majority-owned entities in Italy, Austria, Venezuela and Japan, and through its
30% investment in a Portuguese telecommunications company. In 1995,
approximately 62% of all international long distance telecommunications minutes
originated in these markets. The Company plans to expand its operations and
network into additional key markets which account for a significant portion of
the world's remaining international traffic. The Company's consolidated revenues
for the year ended December 31, 1996 were $113.3 million and for the six months
ended June 30, 1997 were $109.4 million.
THE UNITED STATES. The Company's initial operations were established in
the United States through the acquisition of interests in ITG in March 1995 and
Cyberlink in September 1995. ITG and Cyberlink had growing businesses in New
York and California, respectively, each with an established customer base and
sales channels, but both had operational problems which prevented these entities
from realizing their profit potential. These problems included costly
transmission capacity arrangements, vendor disputes and inadequate credit and
pricing policies. Each of ITG and Cyberlink was also unable to obtain funding
for working capital which limited their ability to purchase transmission
capacity on a cost-efficient basis which, coupled with the foregoing problems,
limited their operating performance.
Following the ITG 1996 Acquisition, which brought the Company's ownership
in ITG to 87%, the Company obtained full operational control and took further
steps to streamline and improve operations, including finance, network
provisioning, pricing and selling functions. During the first quarter of 1997,
the Company completed the consolidation of its U.S. operations into one entity,
RSL USA.
The Company has implemented solutions designed to improve RSL USA's
operations. For example, the Company added key members to its management and
purchased and developed additional management software systems which provide
current traffic provisioning and an enhanced ability to predict future traffic
volume. The Company also successfully negotiated and continues to negotiate rate
reductions and more appropriate transmission capacity arrangements based on the
Company's current and anticipated capacity requirements. In addition, the
Company's U.S. operations began to utilize the Company's own facilities in the
second quarter of 1997. The Company anticipates that expanded utilization of its
own facilities (as such component of RSL-NET continues to grow) will result in
more cost-efficient methods of transport for its U.S. business. The Company also
improved
29
<PAGE>
vendor relations by paying bills on a more timely basis and has implemented
stricter financial controls, including ongoing customer credit reviews and
managerial procedures to reduce credit exposure, and settled certain disputes
and claims with certain of its vendors.
Although the Company's U.S. gross margin decreased slightly for the six
month period ended June 30, 1997 as compared to the six month period ended June
30, 1996 due to the rapid expansion of its operations, the Company expects that
its gross margin will improve as a result of the operational efficiencies
implemented to date and to be derived from continued growth, the continued
development of RSL-NET and the resulting economies of scale. See 'Risk
Factors--Short Operating History; Entrance into Newly Opening Markets; Margins',
'--Inability to Predict Traffic Volume' and '--Risks Associated with Rapidly
Changing Industry.'
The Company has recorded approximately $89.3 million of goodwill in
connection with its U.S. acquisitions (including ITG and Cyberlink). Goodwill
represents the excess of cost over the fair value of the net assets of acquired
entities. The Company's component cost and purchase price allocation for U.S.
acquisitions are as follows:
<TABLE>
<CAPTION>
COMPONENT COST AND
PURCHASE PRICE ALLOCATION
-------------------------
($ IN MILLIONS)
<S> <C>
ASSETS ACQUIRED:
Cash and cash equivalents.......................... $ 7.4
Accounts receivable................................ 8.9
Telecommunications equipment....................... 4.5
Deposits and others................................ 2.0
Intangible assets--goodwill........................ 89.3
LIABILITIES ASSUMED:
Accounts payable and other long-term liabilities... 52.4
Long-term debt..................................... 4.7
EQUITY:
Acquisition of minority interest................... 22.4
Increase to shareholders' equity................... 32.6
</TABLE>
EUROPE. RSL COM Europe, Ltd. ('RSL Europe') is a wholly-owned subsidiary
of the Company. RSL Europe was formed in March 1995 to implement the Company's
pan-European strategy. In November 1995, RSL Europe acquired a 51% interest in
Cyberlink Communications Europe Limited ('Cyberlink Europe') which, through its
wholly-owned subsidiaries, RSL COM Finland OY ('RSL Finland') and RSL COM Sweden
AB ('RSL Sweden'), commenced operations in May 1996. In May 1996, the Company
acquired Sprint's international long distance voice businesses in France and
Germany. In October 1996, RSL Europe acquired a 75% interest in the operations
of RSL Netherlands, an international reseller which had been operating in the
Netherlands since October 1995. A start-up wholly-owned subsidiary of RSL
Netherlands commenced operations in Denmark in May 1997. In April 1997, RSL
Europe acquired a 30.4% interest in Maxitel Servicos e Gestao de
Telecomunicacoes S.A. ('Maxitel'), a Portuguese international telecommunications
carrier. In August 1997, RSL Europe acquired an 85% interest in the operations
of RSL Italy, an international telecommunications reseller that had been
operating in Italy since 1995. In August 1997, RSL Europe also acquired a 50%
interest in RSL Austria, which will initially operate as a switchless
international telecommunications reseller. After the completion, in September
1997, of certain corporate formalities, the Company's interest was increased to
90% of RSL Austria.
Most EU member states are in the initial stages of deregulation.
Deregulation in these countries may occur either because the member state
decides to open up its own market (e.g., the United Kingdom, Sweden and Finland)
or because it is directed to do so by the European Commission ('EC') through one
or more directives issued thereby. In the latter case, such an EC directive
would be
30
<PAGE>
addressed to the national legislative body of each member state, calling for
such legislative body to implement such directive through the passage of
national legislation.
Although it is not expected that interconnection will be available and
implemented in most EU countries by January 1, 1998 (as called for by an EC
directive), the current regulatory scheme in Europe nevertheless provides an
opportunity for the Company to provide a range of services immediately in many
countries, while putting in place adequate infrastructure to capitalize on final
deregulation if and when it occurs on or after January 1, 1998. The Company can
provide value-added services before 1998 and, in certain EU countries beginning
in 1998 but prior to interconnection, the Company can provide dial-in access,
coupled, when possible, with autodialers or the programming of customers' phone
systems to dial access codes, to route traffic over the public switched
telephone network ('PSTN') to the Company's switches. See '--International Long
Distance Mechanics.'
The Company has recorded an aggregate of approximately $23.5 million of
goodwill in connection with its European acquisitions. Goodwill represents the
excess of cost over the fair value of the net assets of acquired entities. The
Company's component cost and purchase price allocation for its European
acquisitions are:
<TABLE>
<CAPTION>
COMPONENT COST AND
PURCHASE PRICE ALLOCATION
-------------------------
($ IN MILLIONS)
<S> <C>
ASSETS ACQUIRED:
Cash............................................... $ 2.3
Accounts receivable................................ 0.8
Telecommunications equipment....................... 2.2
Deposits and others................................ 0.3
Intangible assets--goodwill........................ 23.5
LIABILITIES ASSUMED:
Accounts payable and other long-term liabilities... 5.5
Lease commitments.................................. 2.4
</TABLE>
REVENUES
The Company provides both domestic and international long distance services
and derives its revenues principally from the provision of international long
distance voice telecommunication services. Revenues are derived from the number
of minutes of use (or fractions thereof) billed by the Company ('revenue
minutes') and are recorded upon completion of calls. In addition, the Company
derives revenues from prepaid calling cards. These revenues are recognized at
the time of usage or upon expiration of the card. The Company maintains local
market pricing structures for its services and generally prices its services at
a discount to the prices charged by the local PTTs and major carriers. The
Company has experienced, and expects to continue to experience, declining
revenue per minute in all of its markets as a result of increasing competition
in telecommunications, which the Company expects will be offset by increased
minute volumes and decreased operating costs per minute. See 'Risk
Factors--Risks Associated With Rapidly Changing Industry' and '--Competition.'
31
<PAGE>
U.S. OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS ENDED
DECEMBER 31, JUNE 30,
------------------------------ ------------------
1994 1995 1996 1996 1997
------- ------- -------- ------- -------
(IN THOUSANDS, EXCEPT PERCENTAGE OF CONSOLIDATED
REVENUES)
<S> <C> <C> <C> <C> <C>
Revenues....................................... $ 4,702 $18,461 $ 85,843 $35,411 $69,889
Percentage of consolidated revenues............ 100.0% 99.2% 75.8% 89.1% 63.9%
Cost of services............................... (4,923) (17,367) (76,892) (32,042) (63,928)
------- ------- -------- ------- -------
Gross profit (loss)............................ (221) 1,094 8,951 3,369 5,961
Selling, general and administrative expenses... (2,395) (7,444) (17,606) (7,893) (11,550)
Depreciation and amortization.................. (240) (619) (3,047) (1,248) (2,580)
------- ------- -------- ------- -------
Loss from operations........................... $(2,856) $(6,969) $(11,702) $(5,772) $(8,169)
------- ------- -------- ------- -------
------- ------- -------- ------- -------
</TABLE>
Prior to 1997, the Company's revenues had been primarily derived from its
operations within the United States. The Company's U.S. revenues result
primarily from the sale of long distance voice services on a wholesale basis to
other carriers, on a retail basis to commercial customers and on a bulk discount
basis to distributors of prepaid calling cards. The Company has experienced, and
expects to continue to experience, significant month to month changes in
revenues generated by its carrier customers. The Company believes such carrier
customers will react to temporary price fluctuations and spot market
availability that will impact the Company's carrier revenues. The Company has
shifted its marketing focus in the United States to small and medium-sized
businesses and has restructured its pricing of wholesale services to other
carriers. The Company has derived increased revenues from its small and
medium-sized business customers, as it has been reducing its reliance on
wholesale carrier revenues. See 'Risk Factors--Dependence on Carrier Customers'
and '--Overview.'
EUROPEAN OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS ENDED
DECEMBER 31, JUNE 30,
------------------- -----------------------
1995 1996 1996 1997
------- -------- ----------- --------
(IN THOUSANDS, EXCEPT PERCENTAGE OF
CONSOLIDATED REVENUES)
<S> <C> <C> <C> <C>
Revenues....................................... $ 156 $ 27,414 $ 4,353 $ 32,286
Percentage of consolidated revenues............ 0.8% 24.2% 10.9% 29.5%
Cost of services............................... (143) (21,569) (3,615) (26,252)
------- -------- ----------- --------
Gross profit................................... 13 5,845 738 6,034
Selling, general and administrative expenses... (539) (16,619) (4,390) (20,606)
Depreciation and amortization.................. (12) (1,906) (380) (2,405)
------- -------- ----------- --------
Loss from operations........................... $ (538) $(12,680) $(4,032) $(16,977)
------- -------- ----------- --------
------- -------- ----------- --------
</TABLE>
The Company commenced European operations with the introduction of
operations in the United Kingdom, Finland and Sweden in the second quarter of
1996. In addition, the Company acquired operations in France and Germany during
the second quarter of 1996 and acquired operations in the Netherlands in the
fourth quarter of 1996. During the six months ended June 30, 1997, the Company
commenced operations in Denmark. In the third quarter of 1997, the Company
commenced start-up operations in Italy, Austria and, through its 30% investment
in Maxitel, in Portugal. Each of the countries in which the Company operates has
experienced different levels of deregulation, resulting in various levels of
competition and differing ranges of services which the Company is permitted to
offer. The Company also believes that as it pursues its strategic growth
strategy it will continue to encounter various degrees of start-up time.
Substantially all revenues from the Company's European operations are
derived from commercial sales to end-users, which often generate a higher gross
profit than wholesale sales to carriers. Sales are targeted at small and
medium-sized corporate customers, as well as to niche consumer markets
(including selected ethnic communities). To reduce its credit risk, the Company
primarily offers prepaid products to its targeted consumer markets.
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EFFECT OF DEREGULATION ON EUROPEAN REVENUES. The Company operates or will
soon operate in various countries in Europe, each of which is in a different
state of deregulation. In certain of these countries, current regulatory
restrictions limit the Company's ability to offer a broader array of products
and services and limit the availability of those services to customers.
Accordingly, the Company anticipates that deregulation will have a favorable
impact on revenues because (i) customers will be able to access the Company's
services more easily and (ii) the Company will have the ability to provide a
broader array of products and services. It is anticipated that most European
countries will deregulate various aspects of the telecommunications industry
beginning in 1998. The Company believes that, with established operations in
nine European countries by the end of 1997, it will be well positioned to
benefit from the anticipated deregulation of European markets. However, there
can be no assurance regarding the timing or extent of deregulation in any
particular country. See 'Risk Factors--Risks Associated with Rapidly Changing
Industry,' '--Government Regulatory Restrictions,' and 'Business--European
Operations--Regulatory Environment.'
OTHER OPERATIONS
During April 1997, the Company acquired a customer base of approximately
1,700 customers from Pacific Star Communications Limited, an Australian-based
switchless reseller, and has since generated revenues of approximately $7.2
million through its Australian operations. The Company also acquired operations
in Venezuela in May 1997 as a result of the Latin American joint venture with
the Cisneros Group. To date, the Company's start-up operations in Venezuela have
not generated revenues.
In addition, during the second quarter of 1997, the Company incorporated
RSL COM Japan K.K. ('RSL Japan') and recruited a Managing Director to oversee
its operations in Japan. To date, the Company's Japanese operations also have
not generated revenues. The Company anticipates generating revenues from its
operations in Japan during 1998.
The other countries in which the Company operates or will soon operate also
have experienced different levels of deregulation. As a result, the level of
competition in each country varies. The Company believes that as it pursues its
strategic growth strategy, the commencement of new operations will entail
varying degrees of time and cost.
COST OF SERVICES
The Company's cost of services is comprised of costs associated with
gaining local access and the transport and termination of calls over RSL-NET.
The majority of the Company's cost of services are variable, including local
access charges and transmission capacity leased on a per-minute of use basis.
The Company expects that an increasing amount of its total operating costs will
be fixed in the future, as the volume of the Company's calls carried over its
IRUs, MIUs and point-to-point fixed cost leases increases. The depreciation
expense with respect to the Company's MIUs and IRUs is not accounted for in cost
of services. In addition, the Company intends to lower its variable cost of
termination as a percentage of revenues by carrying traffic pursuant to more of
its existing operating agreements and by negotiating additional operating
agreements on strategic routes. The Company has directly linked certain of its
Local Operators in Europe and the United States utilizing lines leased on a
fixed cost point to point basis and MIUs and IRUs. To the extent traffic can be
transported between two Local Operators over MIUs or IRUs, there is only
marginal cost to the Company with respect to the international portion of a call
other than the fixed lease payment or the capital expenditure incurred in
connection with the purchase of the MIUs or IRUs. The Company's cost of
transport and termination will decrease to the extent that it is able to bypass
the settlement rates associated with the transport of international traffic. By
integrating its operations in this manner, the Company expects to continue to
improve its gross margins. For a discussion of important factors that adversely
affect the Company's gross margins, see 'Risk Factors--Short Operating History;
Entrance into Newly Opening Markets; Margins,' '--Inability to Predict Traffic
Volume' and '--Dependence on Carrier Customers,' '--Overview' and 'Business--
Network Strategy.' However, the Company does not intend to purchase or construct
its own intra-national transmission facilities in any of its markets.
Accordingly, variable costs will continue to be a majority of the Company's cost
of services for the foreseeable future.
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The Company's cost of services is affected by the volume of traffic
relative to its owned facilities and facilities leased on a point-to-point fixed
cost basis and capacity leased on a per minute basis with volume discounts. To
the extent that volume exceeds capacity on leased facilities that have been
arranged for in advance, the Company is forced to acquire capacity from
alternative carriers on a spot rate per-minute ('overflow') basis at a higher
cost. Acquiring capacity on an overflow basis has a negative impact on margins,
but enables the Company to maintain uninterrupted service to its customers. See
'Risk Factors--Short Operating History; Entrance into Newly Opening Markets;
Margins,' '--Inability to Predict Traffic Volume.'
EFFECT OF DEREGULATION ON EUROPEAN COST OF SERVICES
The Company's current cost structure varies from country to country as a
result of the different level of regulatory policies in place in each country.
In general, the Company's cost structure is lower in countries that have been
fully deregulated than in those which are partially deregulated. In countries
that are not fully deregulated, the Company's access to the local exchange
network is subject to more expensive means (i.e., leased lines or dial-in
access). This results in higher costs to the Company for carrying international
traffic originating within a country and terminating in another country. In
addition, local regulations in many countries restrict the Company from
purchasing capacity on international cable and fiber systems. The Company must
instead either enter into long-term lease agreements for international capacity
at a high fixed cost or purchase per-minute of use termination rates from the
dominant carrier. Deregulation in countries in which the Company operates is
expected to permit the Company to (i) interconnect its switches with the local
exchange network and (ii) purchase its own international facilities. The Company
believes that as a result of deregulation, its cost structure will improve.
Deregulation is also expected to permit the Company to terminate international
inbound traffic in a country which will result in an improved cost structure for
the Company as a whole. However, the foregoing is a forward looking statement
and there can be no assurance that deregulation will proceed as expected or
lower the Company's cost of services.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
The Company's selling, general and administrative expenses consist of costs
incurred to support the continued expansion of RSL-NET, the introduction of new
services and the provision of ongoing customer service. These costs are
principally comprised of costs associated with employee compensation, occupancy,
insurance, professional fees, sales and marketing (including sales commissions)
and bad debt expenses. In addition, as the Company commences operations in
different countries, it incurs significant start-up costs, particularly for
hiring, training and retention of personnel, leasing of office space and
advertising. In addition, the Company's selling, general and administrative
expense includes the settlement of various claims and disputes relating to
pre-acquisition periods.
The Company has grown and intends to continue to grow by establishing
operations in countries that are in the process of being deregulated and that
originate and terminate large volumes of international traffic or offer other
strategic benefits. Each of the Company's operations is in a different stage of
development. The early stages of development of a new operation involve
substantial start-up costs in advance of revenues. Upon the commencement of such
operations, the Company generally incurs additional fixed costs to facilitate
growth. The Company expects that during periods of significant expansion,
selling, general and administrative expenses will increase materially.
Accordingly, the Company's consolidated results of operations will vary
depending on the timing and speed of the Company's expansion strategy and,
during a period of rapid expansion, will not necessarily reflect the performance
of the more established Local Operators.
FOREIGN EXCHANGE
The Company is exposed to fluctuations in foreign currencies relative to
the U.S. dollar, as its revenues, costs, assets and liabilities are, for the
most part, denominated in local currencies. The results of operations of the
Company's subsidiaries, as reported in U.S. dollars, may be significantly
affected by fluctuations in the value of the local currencies in which the
Company transacts business.
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The Company incurs settlement costs when it exchanges traffic via operating
agreements with foreign correspondents. These costs currently represent a small
portion of total costs; however, as the Company's international operations
increase, it expects that these costs will become a more significant portion of
its cost of services. Such costs are settled by utilizing a net settlement
process with the Company's foreign correspondents comprised of special drawing
rights ('SDRs'). SDRs are the established method of settlement among
international telecommunications carriers. The SDRs are valued based upon a
basket of foreign currencies and the Company believes that this mitigates, to
some extent, its foreign currency exposure. As the Company establishes
operations in countries the currencies of which are not represented in SDRs, the
Company will consider the implementation of hedging policies, as appropriate.
The Company has monitored and will continue to monitor its currency
exposure. See 'Risk Factors--Devaluation and Currency Risks.'
ACQUISITION ACCOUNTING
Since its formation in 1994, the Company has expanded its revenues,
customer base and network through internal growth and acquisitions. All of its
acquisitions were negotiated on an arm's length basis with unaffiliated third
parties. The Company accounted for all of its acquisitions of controlling
interests using the purchase method of accounting and, accordingly, the
respective purchase prices have been allocated to the assets acquired and
liabilities assumed based on their estimated fair values at their dates of
acquisition. The excess of the purchase price over the estimated fair values of
the net assets acquired has been recorded as goodwill, which is being amortized
over a 15-year period. For periods prior to April 1, 1996, the Company had
included 100% of the losses of its loss generating subsidiaries in its results
of operations because the book value of the minority interests in these
subsidiaries has been reduced to below zero. The Company records minority
interest for its minority partners' ownership interest in RSL Netherlands. The
Company's non-U.S. subsidiaries denominate revenues, costs, assets and
liabilities for the most part in local currencies. All of the subsidiaries,
however, report their financial results in U.S. dollars pursuant to U.S. GAAP.
See '--Foreign Exchange.'
RESULTS OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1997 AND 1996
REVENUES. Revenues increased to $109.4 million for the six months ended
June 30, 1997 compared to $39.8 million for the six months ended June 30, 1996,
an increase of 175%. This increase is due primarily to an increase in the
Company's U.S. revenues to $69.9 million for the six months ended June 30, 1997
from $35.4 million for the six months ended June 30, 1996 and the Company's
European revenues which increased to $32.3 million for the six months ended June
30, 1997 from $4.4 million for the six months ended June 30, 1996. The Company
generated revenues in the United States, in seven European countries and in
Australia during the second quarter of 1997. The Company had revenue producing
operations in only the United States and five European countries in the first
half of 1996. The increase in U.S. revenues was primarily due to both increased
traffic volume from existing customers and significant increases in the
Company's U.S. commercial customer base. Revenues from the Company's European
operations increased as a result of the generation of revenues by its start-up
operations in the United Kingdom, Sweden and Finland and the operations it
acquired in Germany, France and the Netherlands.
COST OF SERVICES. Cost of services increased to $96.8 million for the six
months ended June 30, 1997 from $35.7 million for the six months ended June 30,
1996, an increase of 171%. This increase is primarily due to increased traffic
and increased rates paid to the Company's carrier vendors. As a percentage of
revenues, cost of services decreased to 88.5% for the six months ended June 30,
1997 from 89.7% for the six months ended June 30, 1996. The decrease in cost of
services as a percentage of revenues is primarily attributable to the Company's
growing European revenues which represented 29.5% of the Company's total
revenues for the six months ended June 30, 1997 as compared to 10.9% of the
Company's total revenues for the same period in 1996 and, to a lesser extent, to
a decrease in overflow traffic. In addition, European operations generated
higher gross margins (18.7% for the six
35
<PAGE>
months ended June 30, 1997) as compared to the Company's U.S. operations (8.5%
for the six months ended June 30, 1997). The Company is currently seeking to
purchase additional capacity on routes on which it has experienced, or
anticipates experiencing, overflow traffic, in order to further reduce costs. In
addition, the Company's prices to customers utilizing these routes are often
adjusted to take into account an increased expectation of overflow traffic.
GROSS MARGINS. The Company's consolidated gross margins increased to 11.5%
for the six months ended June 30, 1997 from 10.3% for the six months ended June
30, 1996. Gross margins in the United States decreased to 8.5% from 9.5% for the
six months ended June 30, 1997 as compared to the same period in 1996, while
gross margins in the Company's European operations increased to 18.7% for the
six months ended June 30, 1997 from 17.0% for the six months ended June 30,
1996. Historically, the Company's U.S. gross margins were adversely affected
because of pre-existing deficiencies in operational procedures in businesses
acquired by the Company and more recently by its rapid expansion of its U.S.
operations.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSE. Selling, general and
administrative expenses for the six months ended June 30, 1997 increased by
$24.5 million, or 179%, to $38.2 million from $13.7 million for the six months
ended June 30, 1996. This increase is primarily attributable to the Company's
investment in sales personnel and marketing expense in order to generate
increased revenue. As a percent of U.S. revenues, the Company's U.S. selling,
general and administrative expense decreased to 16.5% for six months ended June
30, 1997 from 22.3% in the comparable period last year. The Company's European
operations generated $20.6 million or 53.9% of the Company's consolidated
selling, general and administrative expense, although such operations accounted
for 29.5% of the Company's total revenues due to a greater proportion of
start-up costs in Europe. Selling, general and administrative expense as a
percentage of revenues will continue to increase as a result of start-up costs
attributable to new local operations.
DEPRECIATION AND AMORTIZATION EXPENSE. Depreciation and amortization
expense increased 309% to $9.0 million for the six months ended June 30, 1997
from $2.2 million for the six months ended June 30, 1996. For the six month
periods ended June 30, 1997 and 1996, amortization of goodwill amounted to $3.4
million and $1.1 million, respectively. This increase is primarily attributable
to the increased amortization of goodwill recorded as a result of acquisitions.
Depreciation and amortization expense is expected to increase in the future as
the Company acquires additional businesses and assets.
INTEREST INCOME. Interest income increased to $7.1 million for the six
months ended June 30, 1997 from $80,000 for the six months ended June 30, 1996,
primarily as a result of interest earned on the remaining net proceeds of the
Debt Offering.
INTEREST EXPENSE. Interest expense increased to $19.3 million for the six
months ended June 30, 1997 from $635,000 for the six months ended June 30, 1996,
an increase of approximately $18.7 million, as a result of interest related to
the Notes.
CURRENCY FLUCTUATIONS. During the six months ended June 30, 1997, the U.S.
dollar experienced a significant increase in value relative to most European
currencies. The translation of the Company's European results of operations was
adversely affected by changes in exchange rates.
NET LOSS. Net loss increased to $40.7 million for the six months ended
June 30, 1997, as compared to a net loss of $12.3 million for the six months
ended June 30, 1996, due to the factors described above.
YEARS ENDED DECEMBER 31, 1996 AND 1995
REVENUES. Revenues increased to $113.3 million for the year ended December
31, 1996 from $18.6 million for the year ended December 31, 1995, an increase of
509%. This increase is due primarily to the full year of U.S. operations that is
consolidated in the 1996 results of operations compared to only three months of
the Company's U.S. operations consolidated in the historical statement of
operations for 1995. The Company experienced an increase in commercial customers
at each of the Company's operations. The Company's Swedish, Finnish and U.K.
operations began
36
<PAGE>
generating revenues in May 1996 and contributed approximately $7.8 million to
1996 revenues. The Company purchased Sprint's international voice operations in
France and Germany in May 1996. These operations contributed approximately $13.1
million to 1996 revenues. The Company's European operations generated minimal
revenues in 1995. For the year ended December 31, 1996, approximately 24% of the
Company's revenues were generated from the Company's European operations. The
Company expects European operations to increase as a percentage of its total
consolidated revenues as the Company proceeds with its expansion of its
operations in geographic areas outside the U.S. The foregoing is a
forward-looking statement and there can be no assurance in this regard. Factors
which could affect such statement include (i) changes to or the Company's
inability to effect its growth strategy, (ii) regulatory actions or inactions
which adversely affect the Company's existing operations or ability to expand
outside of the U.S. and (iii) changes in the competitive and economic
environments in each of the Company's existing and new markets.
In connection with the Company's shift in marketing focus to small and
medium-sized businesses, the Company determined in December 1995 that certain
carrier customers provided the Company with margins below its targeted levels
for margin contribution. Accordingly, the Company established new pricing
structures and terminated service to the low or zero margin customers which did
not agree to the new pricing structures. In addition, the Company terminated
service in February 1996 to its largest wholesale customer because of such
customer's inability to pay for past services. This customer represented
approximately 11% of ITG's revenues in 1995. The Company has commenced legal
proceedings to recover amounts owed to the Company by such customer. The Company
has also instituted stricter credit criteria to reduce its bad debt exposure.
To compensate for the loss of such revenues, the Company accelerated its
U.S. sales efforts to small and medium-sized businesses during 1996, resulting
in increased sales to this segment.
COST OF SERVICES. Cost of services increased to $98.5 million for the year
ended December 31, 1996 from $17.5 million for the year ended December 31, 1995,
an increase of 463%. This increase is due primarily to the full year of U.S.
operations that is consolidated in the 1996 results of operations compared to
only three months of the Company's U.S. operations consolidated in the
historical statement of operations for 1995. As a percentage of revenues, cost
of services decreased to 86.9% for the year ended December 31, 1996 from 94.1%
for the year ended December 31, 1995. The decrease in cost of services as a
percentage of revenues is primarily attributable to the Company's growing
European revenues which generate greater gross margins (21.3% in 1996) than the
Company's U.S. operations (10.4% in 1996) and, to a lesser extent, to a decrease
in overflow traffic and increased utilization of the Company's operating
agreements. The Company is currently seeking to purchase additional capacity on
routes on which it has experienced, or anticipates experiencing, overflow
traffic. In addition, the Company's prices to customers utilizing these routes
are often adjusted to take into account an increased expectation of overflow
traffic.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSE. Selling, general and
administrative expense for the year ended December 31, 1996 increased to $38.9
million from $9.6 million for the year ended December 31, 1995. This increase is
primarily attributable to the Company's investment in sales personnel and
marketing expense in order to generate increased revenue. Costs for start-up and
expansion of the Company's U.K., Dutch, Finnish and Swedish Local Operators
represented 30.1% and 5.6% of the Company's total selling, general and
administrative expense for the years ended December 31, 1996 and 1995,
respectively, although they only accounted for 9.9% and less than 1.0% of the
Company's total revenues for the same periods. Selling, general and
administrative expense as a percentage of revenues will vary from period to
period as a result of new Local Operators' start-up costs. For existing Local
Operators however, such costs are not expected to increase in proportion to
revenues.
DEPRECIATION AND AMORTIZATION EXPENSE. Depreciation and amortization
expense increased 689% to $6.7 million for the year ended December 31, 1996 from
$849,000 for the year ended December 31, 1995. This increase is primarily
attributable to the increased amortization of goodwill recorded as a result of
acquisitions. For the years ended December 31, 1996 and 1995, amortization of
goodwill amounted to approximately $2.9 million and $548,000, respectively.
Depreciation and
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<PAGE>
amortization expense is expected to increase in the future as the Company
acquires additional businesses and assets. The Company depreciates its switches
over a five- to seven-year life, office equipment is depreciated over their
estimated useful lives which range from three to seven years and its investments
in MIUs and IRUs are depreciated over a 15-year life. Goodwill is amortized over
15 years.
INTEREST INCOME. Interest income increased to $4.0 million for the year
ended December 31, 1996 from $173,000 for the year ended December 31, 1995,
primarily as a result of interest earned on the net proceeds from the Debt
Offering.
INTEREST EXPENSE. Interest expense increased to $11.4 million for the year
ended December 31, 1996 from $194,000 for the year ended December 31, 1995, an
increase of approximately $11.2 million, as a result of interest related to the
Notes ($9.2 million) and borrowings under the Revolving Credit Facility
($748,000) and the remaining amounts due to interest related to capital leases.
Interest expense will increase substantially in future periods due to the
interest payments on the Notes.
PERIODS PRIOR TO JANUARY 1, 1995
The Company had no operations in 1994 other than insignificant salary
expense. The Company's predecessor, ITG, had $4.7 million of revenue and a net
loss of $3.1 million for the year ended December 31, 1994. In 1995, the Company
had virtually no operations other than its initial investments in its U.S.
operations and an investment in Cyberlink Europe, which had no material
operations. The majority of the Company's investments (in terms of acquisition
value) were made at the end of the third quarter of 1996. Therefore, a
comparison of historical results for 1995 compared to 1994 would not be
meaningful. Accordingly, the discussion set forth above focuses on the
historical information for the six month periods ended June 30, 1996 and 1997
and the years ended December 31, 1995 and 1996.
LIQUIDITY AND CAPITAL RESOURCES
The Company has incurred significant operating and net losses, due in large
part to the start-up and development of the Company's operations and RSL-NET.
The Company expects that such losses will increase as the Company implements its
growth strategy. Historically, the Company has funded its operating losses and
capital expenditures through capital contributions, borrowings and a portion of
the net proceeds of the Debt Offering.
Cash used in operating activities for the six months ended June 30, 1997
totaled $45.2 million compared with $8.2 million for the same period in 1996.
Capital expenditures for the six months ended June 30, 1997 were $13.9 million
compared with $4.9 million for the comparable period in 1996. Funds expended for
acquisitions were $5.5 million during the six months ended June 30, 1997 and
$10.6 million for the six months ended June 30, 1996. Cash provided by operating
activities for the year ended December 31, 1995 and cash used in operating
activities for the year ended December 31, 1996 equaled $3.6 million and $10.5
million, respectively. Capital expenditures for the year ended December 31, 1995
and the year ended December 31, 1996 were $6.1 million and $23.9 million,
respectively. Funds expended for acquisitions during the year ended December 31,
1995 and the year ended December 31, 1996 were $15.4 million and $38.6 million,
respectively. During 1996, the Company funded such operating losses, capital
expenditures and acquisitions with borrowings of $44.5 million and a portion of
the net proceeds of the Debt Offering. During the six month period ended June
30, 1997, the Company funded such operating losses, capital expenditures and
acquisitions with a portion of the net proceeds of the Debt Offering. At June
30, 1997, the Company had $90.7 million of working capital as compared to a
$46.1 million of working capital deficiency at June 30, 1996.
Capital expenditures for the year ended 1996 and the six month period ended
June 30, 1997 were $23.9 million and $13.9 million, respectively. These capital
expenditures are principally for switches and related telecommunications
equipment. The Company is contractually committed to the purchase of three
international gateway and two domestic switches. This commitment amounts to
approximately $8.0 million, all of which is being financed under the Company's
existing $50.0 million facility provided by Ericsson.
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<PAGE>
The Company had 'other income' in the amount of approximately $6.9 million,
primarily as a result of favorable amendments to certain transmission capacity
agreements entered into by the Company which resulted in elimination of
previously accrued charges.
The Company's indebtedness was approximately $313.1 million at June 30,
1997, of which $305.9 million represents long-term debt and $7.2 million
represents short-term debt.
On October 3, 1996, in the Debt Offering, the Company and the Note Issuer
issued 300,000 units, each unit consisting of one Note and one Warrant. The
units were sold for an aggregate purchase price
of $300.0 million.
The Notes, which are guaranteed by the Company, are redeemable, at the Note
Issuer's option, subsequent to November 15, 2001, initially at 106.1250% of
their principal amount, declining to 103.0625% of their principal amount for the
calendar year subsequent to November 15, 2002, and at 100% of the principal
amount subsequent to November 15, 2003. In addition, at any time on or before
November 15, 1999, the Company may redeem up to $90.0 million of the original
aggregate principal amount of the Notes with the net proceeds of a sale of
common equity at a redemption price equal to 112.25% of the principal amount
thereof, plus accrued and unpaid interest thereon, if any, to the date of
redemption, provided that at least $210.0 million of aggregate principal amount
of Notes remains outstanding immediately after such redemption. See 'Use of
Proceeds.'
The Indenture contains certain restrictive covenants which impose
limitations on the Company and certain of its subsidiaries ability to, among
other things: (i) incur additional indebtedness, (ii) pay dividends or make
certain other distributions, (iii) issue capital stock of certain subsidiaries,
(iv) guarantee debt, (v) enter into transactions with shareholders and
affiliates, (vi) create liens, (vii) enter into sale-leaseback transactions, and
(viii) sell assets.
In connection with the issuance of the Notes, the Company was required to
purchase and maintain restricted marketable securities, which are held by the
trustee under the Indenture, in order to secure the payment of the first six
scheduled interest payments on the Notes. The market value of such restricted
marketable securities was approximately $84.8 million at June 30, 1997. On May
15, 1997, the Company made its first required semi-annual interest payment in
the amount of approximately $22.7 million. The funds required for the interest
payment were released from the restricted securities portfolio.
The Company has a $7.5 million Revolving Credit Facility and a $35.0
million subordinated Shareholder Standby Facility (as defined below). There were
no amounts outstanding under these facilities at June 30, 1997 or as of the date
of this Prospectus. The Revolving Credit Facility is payable on April 1, 1998
and accrues interest, at the Company's option, at (i) the lender's prime rate
per annum or (ii) LIBOR plus 1% per annum. Ronald S. Lauder, the Company's
Chairman and largest and controlling shareholder, has provided a guarantee in
connection with the Company's borrowings under the Revolving Credit Facility. In
September 1996, the Company borrowed $35.0 million from Mr. Lauder (the
'Subordinated Shareholder Loan'). In connection with the subsequent prepayment
of the Subordinated Shareholder Loan, Mr. Lauder agreed to provide (or arrange
for a bank to provide) the Company with up to $35.0 million of subordinated debt
(the 'Shareholder Standby Facility'). The Shareholder Standby Facility
terminates upon the closing of the Offerings. See 'Management-- Compensation
Committee Interlocks and Insider Participation' and 'Description of Certain
Indebtedness.'
Ericsson has also provided to the Company a $50.0 million vendor financing
facility to fund the purchase of additional switching and related
telecommunications capital equipment. At June 30, 1997, approximately $30.2
million was available under this facility. Borrowings from Ericsson accrue
interest at a rate of LIBOR plus either 5.25% or 4.5% depending on the equipment
purchased. See 'Description of Certain Indebtedness.'
The Company believes that the net proceeds of the Offerings and the
remaining net proceeds of the Debt Offering, together with the available
borrowings under the Revolving Credit Facility, vendor financing and short-term
lines of credit and overdraft facilities from local banks, are expected to fund
the Company's planned expansion of its existing operations and operating losses
for 15 to 20 months;
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<PAGE>
however, this is a forward-looking statement and there can be no assurance in
this regard. If the Company's plans or assumptions change, if its assumptions
prove to be inaccurate, if the Company consummates acquisitions in addition to
those currently contemplated, if the Company experiences unanticipated costs or
competitive pressures or if the net proceeds from the Offerings together with
the remaining proceeds of the Debt Offering and the proceeds from the Revolving
Credit Facility and the Company's vendor financing otherwise prove to be
insufficient, the Company may be required to seek additional capital sooner than
currently anticipated. See 'Risk Factors--Historical and Future Operating Losses
and Negative EBITDA; Need for Additional Capital; Substantial Indebtedness;
Ability to Service Indebtedness.'
EFFECTS OF RECENTLY ISSUED ACCOUNTING STANDARDS
In February 1997, the Financial Accounting Standards Board ('FASB') issued
Statement of Financial Accounting Standards ('SFAS') No. 128 'Earnings per
Share.' This statement is effective for financial statements issued for periods
ending after December 15, 1997. Management has evaluated the effect on its
financial reporting from the adoption of this statement and does not believe it
to be significant.
In June 1997, the FASB issued SFAS No. 130 'Reporting Comprehensive
Income.' This statement is effective for financial statements issued for periods
ending after December 15, 1997. Management has evaluated the effect on its
financial reporting from the adoption of this statement and has found the
majority of required disclosures to be not applicable and the remainder to be
not significant.
In June 1997, the FASB issued SFAS No. 131 'Disclosure about Segments of an
Enterprise and Related Information.' SFAS No. 131 requires the reporting of
profit and loss, specific revenue and expense items, and assets for reportable
segments. It also requires the reconciliation of total segment revenues, total
segment profit or loss, total segment assets, and other amounts disclosed for
segments to the corresponding amounts in the general purpose financial
statements. SFAS No. 131 is effective for fiscal years beginning after December
15, 1997. The Company has not yet determined what additional disclosures may be
required in connection with adopting SFAS No. 131.
INFLATION
The Company does not believe that inflation has had a significant impact on
the Company's consolidated operations.
SEASONALITY
The Company's European operations experience seasonality during July and
August, December and January, and, to a lesser extent, March, as these months
are traditional holiday months in most European countries and many European
businesses, which are the Company's principal European customers, are closed
during portions of these months.
40
<PAGE>
BUSINESS
COMPANY OVERVIEW
The Company is a rapidly growing multinational telecommunications company
which provides a broad array of international and domestic telephone services to
both carrier and commercial (including business and residential) accounts. These
services include international long distance calling to over 200 countries and
calling card, private line and value-added telecommunications services. The
Company focuses on providing international long distance voice services to small
and medium-sized businesses in key markets. The Company currently has revenue
generating operations in the United States, the United Kingdom, France, Germany,
Sweden, Finland, the Netherlands, Denmark and Australia. The Company is in the
process of commencing start-up operations through its investments in
majority-owned entities in Italy, Austria, Venezuela and Japan, and through its
30% investment in a Portuguese telecommunications company. In 1995,
approximately 62% of all international long distance telecommunications minutes
originated in these markets. The Company plans to expand its operations and
network into additional key markets which account for a significant portion of
the world's remaining international traffic.
The Company was formed by Ronald S. Lauder and Itzhak Fisher in 1994 to
capitalize on the opportunities created by the growth, deregulation, and
profitability of the international long distance market. The Company has grown
rapidly through acquisitions, strategic investments and joint ventures, as well
as through the start-up of its own operations in key markets. The Company began
its operations in the United States in order to establish a presence in the
largest and one of the most deregulated telecommunications markets in the world,
and has since expanded its presence to key European countries in anticipation of
continued telecommunication deregulation in the EU. In order to pursue
opportunities in Latin America, the Company recently formed a joint venture with
entities controlled by the Cisneros Group. The Company intends to continue to
expand rapidly by establishing or acquiring operations in additional countries
as they deregulate, including countries in Asia.
COMPANY STRUCTURE
The Company was incorporated under the laws of Bermuda in March 1996. The
Company is the successor in interest to RSL Communications Inc., a British
Virgin Islands corporation ('RSL BVI'), which was amalgamated into the Company
in July 1996. RSL BVI is the successor in interest to RSL Communications, Inc.,
a Delaware corporation ('RSL Delaware'), which was merged into RSL BVI in April
1995. RSL Delaware and RSL BVI were incorporated in July 1994 and April 1995,
respectively.
UNITED STATES. The Company operates in the United States through ITG, an
international carrier which operates through its 100% owned subsidiary, RSL USA.
The Company owns 97.7% of ITG, and has entered into a definitive agreement to
acquire an additional 2.3% from the one remaining minority shareholder
concurrently with the closing of the Offerings. RSL USA in turn owns 100% of
Cyberlink. See 'Certain Relationships and Related Transactions.'
EUROPE. RSL Europe is a United Kingdom limited liability company and a
wholly-owned subsidiary of the Company, which was formed in March 1995 to
implement the Company's pan-European strategy. RSL Europe also serves as the
Company's Local Operator in the United Kingdom. In addition, RSL Europe owns RSL
Sweden and RSL Finland.
In May 1996, the Company acquired the international long distance voice
businesses of Sprint in France and Germany through its indirectly wholly-owned
subsidiaries RSL COM France S.A., a French corporation ('RSL France'), and RSL
COM Deutschland GmbH, a German limited liability company ('RSL Germany').
In October 1996, RSL Europe acquired a 75% interest in the operations of
RSL Netherlands, an international reseller which had been operating in the
Netherlands since October 1995. The Company has recently entered into an
agreement to acquire the remaining interest in RSL Netherlands, which is
expected to close upon completion of the Offerings. RSL Netherlands in turn owns
100% of RSL COM Denmark A/S ('RSL Denmark'). RSL Denmark commenced operations in
Denmark in May 1997.
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<PAGE>
In April 1997, RSL Europe acquired a 30.4% interest in Maxitel, a
Portuguese international telecommunications carrier. RSL Europe and the other
two principal shareholders of Maxitel entered into a shareholders' agreement
pursuant to which, among other things, (i) certain major decisions by the Board
of Directors of Maxitel can only be approved with the consent of RSL Europe and
(ii) RSL Europe has the right to designate two directors to the Board of
Directors of Maxitel.
In August 1997, RSL Europe acquired an 85% interest in the operations of
RSL Italy, an international telecommunications reseller that had been operating
in Italy since 1995.
In August 1997, the Company acquired 50% of RSL Austria, which is initially
commencing its operations as a switchless international telecommunications
reseller. After the completion in September 1997 of certain corporate
formalities, the Company's interest was increased to 90% of RSL Austria. The
Company anticipates that RSL Austria will commence offering services by January
1998.
OTHER REGIONS
The Company will conduct its operations in Latin America through RSL Latin
America. RSL Latin America is a joint venture which is 51% owned by the Company
and 49% owned by the Cisneros Group of Companies. RSL Latin America recently
acquired a 49% interest in Sprintel, a Venezuelan operation, and will acquire
the remaining 51% of Sprintel upon receipt of the required approval from
appropriate regulatory authorities. To date, the Company has not generated
revenues in Latin America. The Company expects to commence generating revenues
in Latin America in early 1998.
In Asia, the Company carries on its operations through its wholly-owned
subsidiary, RSL COM Asia, Ltd. ('RSL Asia'). In October 1996, the Company
established RSL COM Australia Pty Ltd. ('RSL Australia') to carry on its
Australian operations. In March 1997, the Company also incorporated RSL Japan, a
wholly-owned subsidiary of RSL Asia, to initiate the Company's operations in
Japan. To date, the Company has not generated revenues in Japan. The Company
expects to commence generating revenues in Japan in early 1998.
INDUSTRY OVERVIEW
International telecommunications involves the transmission of voice and
data from the domestic telephone network of one country to that of another.
According to industry sources, international long distance switched
telecommunications traffic worldwide increased from 28 billion minutes in 1989
to 60.3 billion minutes in 1995 and is projected to reach between approximately
99 and 151 billion minutes by the year 2000. The market for these services is
highly concentrated in more developed countries, with Europe and the United
States accounting for approximately 44% and 27%, respectively, of the industry's
1995 total worldwide minutes of use.
International telecommunications is currently recognized as one of the
fastest growing and most profitable segments of the long distance
telecommunications industry, having experienced a compounded growth in total
minutes of 13.4% per annum from 1989 to 1995. The industry has been undergoing
rapid change due to the continued deregulation of the telecommunications market,
the construction of additional infrastructure and the introduction of new
technologies, which has resulted in increased competition and demand for
telecommunications services worldwide. Forecasts by the International
Telecommunications Union (the 'ITU'), a worldwide telecommunications
organization under the auspices of the United Nations, and Analysys Ltd., a
telecommunications industry consulting group, project this trend to continue
with an annual growth rate between approximately 10% and 17% through the year
2000.
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The size of each market in which the Company currently operates or is in
the process of commencing operations is set forth below.
<TABLE>
<CAPTION>
COUNTRY'S COUNTRY'S PERCENTAGE
1995 MARKET OF 1995 GLOBAL
COUNTRY OF SIZE IN INTERNATIONAL
OPERATION MINUTES(1) TRAFFIC
- ------------------- ----------- --------------------
<S> <C> <C>
USA................ 16,057 26.6
Germany............ 5,244 8.7
UK................. 4,015 6.7
France............. 2,805 4.7
Italy.............. 1,908 3.2
Japan.............. 1,638 2.7
The Netherlands.... 1,459 2.4
Australia.......... 1,024 1.7
Austria............ 901 1.5
Sweden............. 900 1.5
Denmark............ 533 .9
Finland............ 315 .5
Portugal........... 284 .5
Venezuela.......... 129 .2
----------- --------
37,212 61.7%
</TABLE>
- ------------------
(1) All data, with the exception of U.S. outbound traffic, were taken from
Telegeography 1996/1997, which is published by Telegeography, Inc. and the
International Telecommunications Union. U.S. data were derived from FCC Rule
Section 43.61 filings which are publicly available.
The increasing pace of deregulation in telecommunications is evidenced by
the recent World Trade Organization's Group on Basic Telecommunications
Agreement (the 'GBT Agreement'). The GBT Agreement, signed by 69 countries,
calls for relaxed restrictions on foreign ownership and a commitment to
deregulate telecommunications and allow competition. Of the 69 signatories to
the GBT Agreement, 65 have agreed to adopt certain regulatory principles which
call for deregulation of telecommunications markets and the initiation of
competition based on the following actions: (i) pro-competitive regulation; (ii)
creation of favorable interconnect terms, (iii) standard licensing criteria,
(iv) establishment of an independent regulator, and (v) non-discriminatory
allocation of scarce resources (e.g., rights of way, frequencies, telephone
numbers). Each signatory nation has accepted these principles to varying degrees
and has set a different timetable for the enactment of such principles, although
there can be no assurance of such enactment. A rulemaking proceeding to consider
implementation of provisions of the GBT Agreement in the United States is
currently pending before the FCC.
Deregulation has coincided with technological innovation in the telephone
industry. New technologies include fiber optic cable and improvements in
computer software, digital compression and processing technology. Fiber optic
cable, which has widely replaced traditional wire lines, has dramatically
increased the capacity, speed and flexibility of telephone lines. In addition,
recent developments in software and hardware enable the transmission of voice
over the Internet through the use of special access servers, although the
quality of the call is not yet comparable to the quality of calls made over
traditional cable lines. In part as a result of these technological innovations,
lack of capacity is a less significant barrier to entry for new international
telephone companies and the transmission costs per minute of an international
call have decreased substantially.
Deregulation and privatization of telecommunications services and the onset
of competition have also resulted in (i) the broadening of service offerings,
including advanced and enhanced services (such as global voicemail, faxmail and
electronic mail, itemized and multicurrency billing and the ability to allow
customers to pay for long distance calls made from any telephone using a single
account (e.g., calling cards)) and (ii) lower end-user prices. These factors
have contributed to an increase in the
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<PAGE>
volume of both inbound and outbound call traffic. Despite falling prices, the
overall market for international long distance traffic has been growing and the
decline in prices generally has been more than offset by an increase in
telecommunications usage.
PROJECTED GROWTH OF INTERNATIONAL LONG DISTANCE VOICE TRAFFIC
[CHART]
Billions of Outgoing Minutes
____________________________
| |
| Compound Annual |
| Growth Rate |
| 16.6% of Minutes of Use* |
|____________________________|
Europe USA & Canada Asia/Pacific Rim Other Total
------ ------------ ---------------- ----- -----
1996 29.4 23.7 12.2 15.8 81.1
1997 33.2 27.9 14.8 18.6 94.5
1998 37.7 32.8 17.8 21.9 110.2
1999 42.9 38.5 21.6 25.8 128.8
2000 48.8 45.4 26.2 30.5 150.9
- ------------------
Source: Analysys Ltd.
* Prices have declined and are expected to continue to decline. Accordingly,
growth in revenues is expected to be substantially less than growth in
minutes. The data presented above constitutes a forward-looking statement.
Important factors that could cause actual minutes of use to differ materially
from the forward-looking data above are noted herein. See 'Risk Factors--Risks
Associated with Rapidly Changing Industry' and '--Government Regulatory
Restrictions.'
U.S. INTERNATIONAL LONG DISTANCE MARKET
The U.S. international long distance switched telecommunications market
accounted for approximately 27% of global international long distance call
originations in 1995 based on minutes of use. The industry is large and growing,
with revenues for U.S.-originated international long distance telephone services
rising from approximately $6.9 billion (6.8 billion minutes) in 1989 to
approximately $14.2 billion (16.1 billion minutes) in 1995. The growth of the
U.S.-originated international long distance market was initially attributable to
deregulation and the decrease in prices which accompanied the onset of
competition. Deregulation and the resulting competition also led to improvement
in service offerings and customer service. More recently, in addition to further
U.S. deregulation, the growth of the U.S.-
44
<PAGE>
originated international long distance market has been attributable to (i) the
continued deregulation of other telecommunications markets throughout the world,
(ii) the privatization of PTTs, (iii) increased capacity, improved quality and
lower operating costs attributable to technological improvements, (iv) the
expansion of telecommunications infrastructure and (v) the globalization of the
world's economies and free trade.
The profitability of the traditional U.S.-originated international long
distance market is principally driven by the difference between settlement rates
(i.e., the rates paid to other carriers to terminate an international call) and
billed revenues. Increased competition arising from deregulation and
privatization and pressure arising from increased global trade have brought
about reductions in settlement rates and end-user prices, reducing termination
costs for United States based carriers. Based on FCC data for the period 1989
through 1995, per minute settlement payments by United States based carriers to
foreign PTTs fell 33%, from $.70 per minute to $.47 per minute. However, over
this same period, per minute international billed revenues fell only 14%, from
$1.02 in 1989 to $.88 in 1995. As a result, gross profit per outbound
international minute (before local access charges) grew from $.32 in 1989 to
$.41 in 1995, a 25% increase. The FCC has recently issued benchmark levels for
settlement rates, of between $.15 and $.23 per minute, in an effort to reduce
the settlement rates charged and paid by U.S. carriers. Such benchmark rates are
substantially lower than the current settlement rates. The FCC has encouraged
carriers to use alternative measures to terminate international traffic other
than through operating agreements and the international settlement process. The
Company believes that as settlement rates and costs for leased capacity continue
to decline, international long distance will continue to provide high revenue
and gross profit per minute, although there can be no assurance in this regard.
Although the Company focuses on the international telecommunications
market, it also provides domestic long distance services to many of its
customers. According to the FCC, the U.S. domestic long distance market grew in
total minutes at an annual compound rate of approximately 7.6% from 1989 to 1995
while the U.S.-originated international long distance market grew in total
minutes at an annual compound rate of approximately 15.4% during the same
period. Although the domestic market is much larger, the profit per minute of
use for international traffic has generally been higher than for domestic
traffic. See '--U.S. Operations.'
EUROPEAN INTERNATIONAL LONG DISTANCE MARKET
The European international long distance market is the largest in the
world, accounting for approximately 26 billion minutes or approximately 44% of
worldwide minute originations in 1995 based on minutes. Of the total minutes,
72.4% were generated from calls between European nations and 7.2% were
terminated in the United States.
The European PTTs have historically had monopolies on providing telephone
services, making the cost of international telephone calls from Europe much
higher than similar calls from the United States. In addition, the Company
believes that many PTTs have used profits from international traffic to
subsidize domestic calling. Customers in many European markets are not able to
obtain a number of value-added features taken for granted in the United States,
such as itemized billing, touch tone dialing, voice mail and other enhanced
services. Deregulation, together with significant advances in technology that
have decreased the cost of providing services and allowed the provision of more
sophisticated value-added features, have made it possible for other telephone
companies to compete with the PTTs in providing international voice
telecommunications services.
A 1990 EC directive (the '1990 Directive') required each EU member state to
liberalize by 1992 all telephony services offered over its PSTN, with the
exception of basic 'voice telephony' and specified other services. The effect of
the 1990 Directive was that value-added services and the delivery of voice
telephony to closed user groups (i.e., to a specified group of people) were
liberalized to the extent that they do not come within the 1990 Directive's
definition of basic 'voice telephony.' Different interpretations as to whether a
service should be regarded as a value-added service or as a basic 'voice
telephony' service, and as to what constitutes a closed user group, have led to
variations among the EU member states as to what services may be delivered and
the manner in which they can be provided. In addition, certain EU member states
are late in enacting the relevant legislation
45
<PAGE>
implementing the 1990 Directive, which has created further regulatory
uncertainty. Under a 1996 EC directive (the 'Full Competition Directive'), voice
telephony services should be liberalized by January 1, 1998 in most of the EU
member states. As a condition to the FCC granting approval for the Global One
joint venture, the regulatory authorities of France and Germany agreed to enact
legislation to liberalize their respective markets by January 1998. However, it
is unlikely that the non-liberalized EU markets, including most European markets
in which the Company operates, will meet the January 1, 1998 requirement of the
Full Competition Directive and there can be no assurance regarding the timing or
extent of liberalization in any particular country or the EU in general. See
'--European Operations' for a more detailed discussion of the Full Competition
Directive and related regulatory matters.
In response to these European regulatory changes, a number of different
competitors, including the Company, are emerging to compete with the European
PTTs. At one end of the scale, the large U.S. telecommunications service
providers and European PTTs have begun to form 'mega-carrier' alliances to
compete in offering value-added services and the resale of calling services
across Europe. At the other end of the scale, a number of competitors have
emerged that primarily provide long distance 'call back' telephone service.
Other companies are developing networks in Europe to service specific markets.
The Company believes, along with many industry observers, that the
deregulation currently underway in many countries in continental Europe will
lead to market developments similar to those that occurred in the United States
and the United Kingdom upon deregulation of long distance telecommunications
services. Such deregulation in the United States and the United Kingdom has
resulted in an increase in call traffic and the emergence of multiple new
telecommunications services providers of varying sizes. In addition, significant
reductions in prices, particularly for domestic long distance calls, as well as
improvement in both the services offered and the level of overall responsiveness
to customers, have occurred. Although pricing has become competitive in both
countries, pricing levels continue to permit services to be profitably provided.
There can be no assurance, however, that this will continue to be the case.
LATIN AMERICAN INTERNATIONAL LONG DISTANCE MARKET
Various countries in Latin America have taken initial steps towards
deregulation in the telecommunications market during the last few years. Certain
countries have competitive local and/or long distance sectors, most notably
Chile, which has competitive operators in all sectors. Colombia is scheduled to
license three international service providers in addition to its PTT by the end
of 1997, although the Colombian deregulation process is currently being reviewed
under Colombian law and, therefore, such schedule may be modified. In addition,
various Latin American countries have completely or partially privatized their
national carriers, including Argentina, Chile, Mexico, Peru and Venezuela.
Venezuela has also legalized value-added services and has targeted January 1,
2000 as the date for full deregulation. Brazil has adopted a constitutional
amendment requiring the privatization of its PTT, the establishment of an
independent regulator and the opening of the telecommunications market to
competition. In Mexico, the former PTT has been privatized, its exclusive long
distance concession expired in August 1996 and it has been obligated to
interconnect with the networks of competitors since January 1997. Competition in
Mexico has been initiated and an independent regulator has been established.
Three countries in the region, Chile, Mexico and the Dominican Republic, have
already opened their long distance telecommunications markets to competition.
OTHER MARKETS
Deregulation is spreading throughout many of the major markets in Asia and
the Pacific Rim. A significant number of countries in these regions are
signatories of the GBT Agreement and have committed to open their markets to
competition. Australia, the Philippines and New Zealand have already opened
their markets to full competition and Hong Kong, Indonesia, Japan, South Korea
and Malaysia have legalized the provision of value added services. Hong Kong has
also recently licensed three new carriers to provide local service and Singapore
will be licensing two new operators in 1998.
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<PAGE>
Despite the growth and deregulatory trends in the global telecommunications
market, the pace of change and emergence of competition in many countries,
particularly in parts of Africa, remains slow, with domestic and international
traffic still dominated by the government-controlled PTTs. The Company believes
that international carriers, such as itself, which have already established, or
are in negotiations to establish, operating agreements with the PTTs in many
such countries will be well-positioned to capture the benefits of increasing
traffic flows as the telecommunications infrastructure in these countries is
expanded.
The Company believes that the trend towards deregulation creates numerous
opportunities for international carriers such as itself to increase their access
to developing telecommunications markets and to increase their market share for
calls both into and out of these emerging markets. The Company believes that
many of the emerging carriers in developing countries, as well as certain
recently privatized PTTs, are likely to seek alliances, partnerships or joint
ventures with other international carriers to expand their global networks, and
that the size of many of the markets may lead them to seek alliances with
carriers like the Company as opposed to the mega-carriers, such as Uniworld,
Concert and Global One. Although there is a general trend towards deregulation
worldwide, there can be no assurance regarding the timing or the nature of
deregulation, whether any deregulation will occur at all or whether any trend
towards deregulation will not be reversed in any particular country.
INTERNATIONAL LONG DISTANCE MECHANICS
A long distance telephone call generally consists of three segments:
origination, transport and termination.
[CHART]
- --------------------- ----------------------------- ---------------------
| ORIGINATION | | TRANSPORT | | TERMINATION |
- --------------------- ----------------------------- ---------------------
Satellite Connection
/\
Originating Country / \ Terminating Country
/ \
Private Line / \ Private Line
|--------------------| / \ |--------------------|
| | / \ | |
- ------------ ----------------- / \ ----------------- ------------
| Calling | | International |/ Half Circuit \| International | | Called |
| Customer | | Switch |----------------| Switch | | Customer |
- ------------ ----------------- ----------------- ------------
| | | |
| | | |
|------( PSTN )------| |------( PSTN )------|
Cable Connection
o Resale/Lease
o MIU/IRU
A typical international long distance call originates on a local exchange
network or private line and is carried to the international gateway switch of a
long distance carrier. The call is then transported along a fiber optic cable or
a satellite connection to an international gateway switch in the terminating
country and finally to another local exchange network or private line where the
call is terminated. A domestic long distance call is similar to an international
long distance call, but typically involves only one long distance carrier, which
transports the call on fiber, microwave radio or via a satellite connection
within the country of origination and termination. Generally, only a small
number of carriers are licensed by a foreign country for international long
distance and, in many countries, only the PTT is licensed to provide
international long distance service. Although the Company is licensed or
otherwise permitted (or
47
<PAGE>
not prohibited) to operate as an international long distance carrier in most of
its current markets, the range of services that may be offered pending further
deregulation is, in certain countries, limited to value-added services and
closed-user group services. See '--European Operations'. Any carrier that
desires to transport switched calls to or from a particular country must, in
addition to obtaining a license or other permission (if required), enter into
operating agreements or other arrangements with the PTT or another international
carrier in that country or lease capacity from a carrier that already has such
arrangements.
ORIGINATION
The Company can originate calls in all countries where it currently has
revenue-generating operations and route them to its local switch through a
dedicated telephone line between the customer and the Company's switch (commonly
known as 'direct access'). In addition, depending on local regulations, the
Company can originate calls by using the PSTN. In the United States, all
licensed long distance carriers are provided with 'equal access,' which allows
such carriers to directly interconnect with the PSTN on the same basis. As a
result of equal access, all long distance calls from a customer are routed
directly to the Company's local switch without requiring the customer to dial
any special access numbers. This is accomplished by the local telephone company
in the customer's territory programming its network to direct all of the
Company's customers' long distance calls to the selected switch. Outside the
United States, certain restrictions require the Company to utilize one of the
following methods to originate a call via the PSTN.
PREFIX DIALING. Prefix dialing allows a customer to access the Company's
switch via the PSTN by dialing a multiple digit access code (the 'prefix')
assigned to the Company prior to dialing the destination telephone number.
Prefix dialing requires direct interconnection with the operator of the PSTN,
typically the PTT or another major carrier, in order to allow the PSTN to
recognize the prefix and direct the call to the Company's switch. In order to
make the use of prefix dialing service transparent to the customer, the Company
can either program the customer's telephone system or install an auto-dialer
device to automatically dial the prefix on behalf of the customer when
appropriate. The auto-dialer device is purchased, installed and maintained by
the Company.
In Europe, prefix dialing is currently provided only by the Company's
operations in the United Kingdom, Sweden and Finland because prefix dialing
service requires interconnection with the PSTN, which is not currently permitted
or implemented in the remainder of Europe. Prefix dialing is scheduled to be
provided in the remainder of the EU after January 1, 1998, when deregulation is
required under the Full Competition Directive, but such schedule is unlikely to
be met, for the most part, until the second half of 1998, at the earliest. See
'Risk Factors--Government Regulatory Restrictions.' Prefix dialing requires the
Company to incur a substantial up-front fixed fee that is payable to the PTT or
other operator of the PSTN for interconnection. The Company is then charged a
variable local access charge to route each call to the Company's switch. Despite
such fees, for customers generating relatively low volumes of calls or in remote
locations, prefix dialing is a more cost-effective form of call origination than
through a direct access line.
DIRECT ACCESS. Direct access allows a customer to connect its phone system
directly to the Company's switch utilizing a dedicated phone line. Dedicated
phone lines are leased on a monthly or longer-term fixed cost basis from the PTT
or other local exchange carrier. This method of origination is only
cost-effective for those customers which generate substantial volumes of
international traffic, given the fixed cost of leasing a dedicated line.
DIAL-IN. In countries where interconnection with the PTT or other operator
of the PSTN is currently not available, the Company can provide dial-in services
to closed user groups by allowing the customer to directly call the Company's
switch via the PSTN by dialing a pre-assigned telephone number (local or
toll-free), followed by a pin-code (which allows the switch to recognize the
customer) and the destination telephone number. The mechanics of this service
are substantially similar to calling card services currently provided by the
Company and other carriers in the United States. What constitutes a closed user
group has been the subject of a fair degree of interpretation among EU member
states, but is generally interpreted as meaning that the customer can only call
a limited predetermined group of destinations. As with prefix dialing, the
Company can make this service more
48
<PAGE>
transparent to the customer by programming the customer's telephone system or
installing an auto-dialer, subject to local regulation. Given the greater number
of digits required to be dialed by the customer, however, a slight delay in
placing a call cannot be avoided by this service. Dial-in service involves a
variable local access charge to route the call to the Company's switch.
TRANSPORT
The transport of telephone calls is accomplished via land-based cables or
undersea cables, which are usually fiber optic, or by microwave radios or
satellites. A carrier can obtain half circuits on cable systems through MIUs,
IRUs or leases. In instances where a carrier has not purchased interests in a
cable prior to the time when the cable was placed in service, the carrier is
only permitted to acquire capacity on the cable through the purchase, by way of
a lump sum payment, of an IRU. The fundamental difference between an IRU holder
and an owner of MIUs is that the IRU holder is not entitled to participate in
management decisions relating to the cable system. Between two countries, a
carrier from each country owns a 'half-circuit' of a cable, essentially dividing
the ownership of the cable into two equal components. In the event that the
Company commences utilizing its remaining operating agreements, it will have to
either invest in additional IRUs or MIUs, or acquire satellite capacity, to
enable it to connect to a carrier in such countries. Additionally, any carrier
may generally lease circuits on a cable from another carrier with an MIU or IRU.
Satellite circuits are also obtained on a leased basis.
Traditionally, international long distance traffic is exchanged under
bilateral operating agreements between international carriers which own MIUs or
IRUs on the same fiber optic cable system in two countries or through leased
satellite capacity. Operating agreements provide for the termination of traffic
in, and return of traffic to, the carriers' respective countries at negotiated
accounting rates. Operating agreements typically provide that carriers will
return to their correspondents a percentage of the minutes received from such
correspondents ('return traffic'). In the United States, this percentage is set
by the FCC to be the relative ratio of U.S. inbound traffic to U.S. outbound
traffic to each country. In addition, operating agreements provide for network
coordination and accounting and settlement procedures between the carriers.
Accounting rates are reciprocal between each party to an operating
agreement. For example, if a foreign carrier charges a U.S. carrier $0.30 per
minute to terminate a call in the foreign country, the U.S. carrier would charge
the foreign carrier the same $0.30 per minute to terminate a call in the United
States. All U.S. carriers face a single accounting rate for each country unless
otherwise permitted by the FCC.
The term 'settlement' rates arises because carriers pay each other for
traffic exchanged utilizing the accounting rate structure on a net basis
determined by the difference between inbound and outbound traffic between them.
Settlement rates differ between countries. For example, a U.S. carrier may have
a settlement rate of $.30 to terminate a call in one country and $.35 in another
country while a U.K. carrier may have settlement rates of $.45 and $.40 to
terminate calls in the same countries. By linking its Local Operators over owned
and leased facilities, the Company bypasses this traditional settlement process
and lowers its cost of transporting its international traffic.
The FCC has established a policy that effectively prohibits foreign
carriers from discriminating among U.S. carriers (the 'International Settlements
Policy'). The International Settlements Policy requires: (1) the equal division
of accounting rates; (2) non-discriminatory treatment of U.S. carriers; and (3)
proportionate return of inbound traffic. In December 1996, the FCC modified its
rules to allow alternative payment arrangements that deviate from the
International Settlements Policy between any U.S. carrier and any foreign
correspondent in a country that satisfies the FCC's effective competitive
opportunities test. The FCC also stated that it would allow alternative
settlement arrangements between a U.S. carrier and a foreign correspondent in a
country that does not satisfy the effective competitive opportunities test, if
the U.S. carrier can demonstrate that deviation from the International
Settlements Policy will promote market-oriented pricing and competition while
precluding abuse of market power by the foreign correspondent.
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Recently, the FCC adopted new lower benchmark rates that U.S. carriers must
pay to foreign carriers in order to settle calls originating from the U.S. The
benchmark rates were adopted to remedy a growing U.S. settlement deficit, which
results from the imbalance between outbound and inbound call volume, which is
estimated to be approximately 70% higher than the actual cost of terminating
international calls. Three benchmarks were established to fit the income level
of foreign countries, with a low of $0.15 per minute for high income countries
and a high of $0.23 per minute for low income countries. Implementation periods,
ranging from one year for high income nations to five years for nations with
less than one telephone line for every 100 inhabitants, were also adopted. The
FCC also determined that a grant of authorization to provide international
facilities-based switched service from the United States to an affiliated market
would be conditioned on the carrier's foreign affiliate offering U.S.
international carriers a settlement rate at or below the relevant benchmark. If,
after the carrier has commenced service to an affiliated market, the FCC learns
that the carrier's service offering has distorted market performance, the FCC
will take enforcement action. The new benchmarks are intended to promote a
competitive environment in which rates will more closely reflect costs;
officials also hope that the FCC's order will encourage multilateral
negotiations and lead to an international agreement to reduce costs further.
A carrier which does not have an operating agreement with a carrier in a
particular country is able to provide international service to that country by
leasing capacity from a carrier which does. Until recently, in many foreign
countries there was only one operating agreement in place between that country's
PTT and a foreign based international carrier as a result of monopolies held by
such PTTs. For example, in the United States, before the deregulation of
telecommunications services, AT&T was the only carrier that had operating
agreements with foreign carriers. However, after deregulation, MCI and Sprint,
over a period of years, each negotiated its own operating agreements with
foreign carriers. Since then, a limited number of other U.S.-based companies,
including the Company, have been able to secure operating agreements with
foreign carriers. Operating agreements are expected to become increasingly
available as international markets deregulate and new carriers that are seeking
business partners emerge in countries previously subject to a PTT monopoly or
other limited competition market. See 'Risk Factors--Risks Associated with
Rapidly Changing Industry' and '--Risk of Loss, or Diminution of Value, of
Operating Agreements.'
For an international long distance company without operating agreements or
its own international network, the profitability of originating international
traffic is a function of, among other things, the difference between its billing
rates and the rates it must pay another carrier to transport and terminate such
traffic.
For a company with operating agreements that provide for return traffic,
the profitability of originating international traffic will be a function of,
among other things, the volume of its originating traffic and its billing rates,
as well as the relative volume of its originating and return traffic minutes.
Under the settlement process, a carrier which originates more traffic than it
receives, will, on a net basis, make payments to the corresponding carrier,
while a carrier which receives more traffic than it originates will receive
payments from the corresponding carrier. If the incoming and outgoing flows of
traffic are equal in the number of minutes transmitted, there is no net
settlement payment to either carrier. Therefore, in addition to all of the other
factors that can influence the profitability of a long distance carrier, the
profitability of an international carrier is dependent on its relative flows of
incoming and outgoing traffic.
Return traffic can be more profitable than outgoing traffic when there is a
significant disparity in the cost of terminating traffic between the two
countries that are party to an operating agreement. This is particularly true
for a U.S. carrier because the actual cost for a U.S. carrier to terminate a
call in the United States generally is less expensive than the settlement cost
under an operating agreement with any foreign carrier and return traffic does
not involve any origination costs. The receipt of more profitable return traffic
reduces the aggregate cost to a carrier to transport traffic pursuant to an
operating agreement, and carriers with significant levels of return traffic can
price their international transport and termination services at a discount to
the settlement cost and recover the discount on the return traffic.
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TERMINATION
The termination of an international call occurs after the call has been
transported to an international carrier in the destination country. The
international carrier then transports the call to a local exchange network where
it is then terminated. In many countries, only the PTT is licensed to provide
international long distance service and local exchange services.
COMPANY STRATEGY
The Company's strategic objective is to create a low-cost facilities-based
global network that provides high quality international telecommunications
services to small and medium-sized businesses in key markets. The key elements
of the Company's strategy to achieve this objective are as follows.
FOCUS ON PROVIDING INTERNATIONAL LONG DISTANCE SERVICES
The international long distance public switched telecommunications market
generated an estimated $55 billion in revenue and 60 billion minutes in 1995
with minutes of use projected to grow at a rate of between approximately 10% and
approximately 17% per annum through the year 2000. The Company currently has
significantly less than a 1% share of this market. Although prices are expected
to decline, resulting in substantially slower growth in revenues, the
international long distance switched telecommunications market is currently
recognized as one of the fastest growing and most profitable segments of the
long distance industry. The Company provides a broad array of international and
domestic services but focuses on providing services to end-users which generate
significant calling traffic between countries to capitalize on (i) the continued
growth of international traffic and (ii) the margin opportunity created by the
high end-user rates currently maintained by PTTs and other dominant carriers. If
any of the factors contributing to the growth of traffic or the pricing scheme
by the PTTs and other major carriers should cease to apply, growth and
profitability in the international market and the Company's prospects would be
negatively impacted. The United States market, one of the most deregulated and
competitive markets in the world, illustrates the greater profitability of
international traffic versus domestic traffic in the current market and
regulatory environment. Based on FCC statistics and other available information,
the Company estimates that industry-wide gross profit (before access charges) in
1995 for U.S.-originated traffic averaged $.41 per minute of international use,
compared to $.08 per minute of domestic use, although the actual gross profit
per minute of use may vary significantly depending on the destination, route and
time of day of a particular call. From 1989 to 1995, per minute settlement
payments by United States based carriers to foreign PTTs fell approximately 33%
from $.70 to $.47. However, over this same period, per minute international
billed revenues fell only about 14%, from $1.02 in 1989 to $.88 in 1995.
Therefore, gross profit per international minute (before local access charges)
grew from $.32 in 1989 to $.41 in 1995, a 25% increase. Despite declining costs,
dominant carriers and PTTs have maintained high end-user rates for international
long distance services, allowing them to provide domestic services at lower
rates. The Company believes that as settlement rates and costs for purchased
capacity continue to decline, international long distance should continue to
provide high revenue and gross profit per minute, although increased competition
may, to a certain extent, moderate such revenues and gross profits. See
'--Industry Overview.'
ESTABLISH OPERATIONS IN KEY MARKETS
The Company establishes operations in markets that (i) originate or
terminate significant levels of international traffic and (ii) are, or are in
the process of being, deregulated. The Company has structured its Local
Operators to be managed independently and expects its Local Operators to be
separately profitable, while benefiting from centralized strategic, financial
and network support provided by the Company. The Local Operators are each
developed to be stand-alone operations shaped by local market conditions and
preferences. The Company currently provides each Local Operator with centralized
business development, financial, and marketing support and has commenced a plan
of operation to provide billing and RSL-NET management. See '--Headquarters
Operations.' The Company currently operates or is in the process of commencing
operations in 14 markets that, in the aggregate, accounted for approximately 62%
of all international long distance telecommunications
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minutes in 1995. By expanding its operations into additional key markets, in
which significant volumes of international traffic are originated and terminated
and which are in the process of deregulation, the Company seeks to rapidly
establish a broad market coverage. The Company currently plans to initiate
operations in five to 10 additional countries over the next two years which,
together with the markets in which the Company currently operates, accounted for
approximately 72% of the 1995 worldwide international long distance minutes of
use.
The Company enters additional countries primarily by acquiring a
controlling interest in existing companies that are either operating in or are
in the process of establishing operations in the international
telecommunications industry in that country or by means of a start-up operation
which the Company funds and manages on its own or together with a local
strategic partner. In the case of an acquisition, the Company seeks to acquire
an international carrier which matches the criteria set forth below. In the case
of the establishment of new operations, the Company identifies an experienced
and professional management team to develop the new operation. In the formation
of a joint venture, the Company identifies a local strategic partner with a good
reputation and knowledge of the local marketplace.
ENTER MARKETS EARLY
The Company seeks to enter new markets ahead of full deregulation in an
attempt to gain competitive advantages over carriers which attempt to enter a
market after deregulation is complete. These advantages include (i) the
development of multiple sales channels and the establishment of a customer base
prior to widespread competition, (ii) the early acquisition of scarce
experienced technical and marketing personnel and distribution channels and
(iii) the achievement of name recognition as one of the early competitors to the
incumbent PTTs. The Company employs multiple marketing and distribution
channels, including direct sales forces, telemarketing organizations, agents and
resellers, while also forming marketing alliances with other service providers,
such as Internet service providers and mobile service providers.
The Company believes that its early entry into deregulating markets will
provide it with an advantage in obtaining licenses as they become available over
carriers which attempt to enter the market after deregulation is complete. The
securing of necessary licenses, which is limited in some circumstances to a
small number of entrants into the deregulating market, is essential to the
Company's strategy and the Company will endeavor to enter into arrangements with
a licensee to gain access to such market if the Company cannot secure
successfully the license.
In countries that are in the process of deregulating, competition is often
restricted to a limited number of specific services. In such cases, the Company
employs a two-stage market penetration strategy whereby initially the Company
takes advantage of current market conditions and, within the context of its
established strategy and service offerings, provides the fullest range of
services permissible under local regulation. The Company thereby gains an early
toehold in the market, affording it the opportunity to become a recognized
international carrier and to begin to build its own marketing channels and
customer base prior to the opening of markets to broader competition.
Subsequently, as deregulation permits, the Company expands its service offerings
thereby giving the Company the opportunity to increase the amount of business it
does with its existing customers and to increase its market penetration by
building on its name recognition, marketing channels and expanded service
offerings to attract additional customers. However, there can be no assurance
regarding the timing or extent of deregulation in any particular country. See
'Risk Factors--Government Regulatory Restrictions.'
TARGET SMALL AND MEDIUM-SIZED BUSINESSES
The Company focuses on offering high quality products and services to small
and medium-sized businesses that originate in excess of $500 in international
telephone calls per month. The Company believes that this segment offers
significant market opportunities because it has traditionally been underserved
by the major global telecommunications carriers and the PTTs, which offer their
lowest rates and best services primarily to higher volume multinational business
customers. The Company
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believes that in most markets, small and medium-sized businesses account for a
significant percentage of international calling traffic and will continue to do
so in the future.
Small and medium-sized businesses account for the majority of all
businesses. For example, the EU estimates that there are 15 million small and
medium-sized businesses in the EU and that the businesses that employ fewer than
100 workers in the aggregate account for more than one half of all EU employment
and almost half of all business revenue. In addition, Europe's small to
medium-sized businesses are projected to produce total telecommunications
revenues larger than those of the major multinational business sector. For the
six-month period ended June 30, 1997, approximately 42% of the Company's
revenues were derived from sales to other carriers, 41% were derived from
commercial customers, including small and medium-sized businesses, and 18% were
derived from calling card customers.
DEVELOP A COST COMPETITIVE GLOBAL NETWORK
Most of the Local Operators maintain network switching facilities to
establish POPs to provide international voice and other telecommunications
services in their markets. The Company presently has an international gateway or
domestic switch located in each of New York, Los Angeles, London, Paris,
Frankfurt, Rotterdam, Amsterdam, Stockholm, Helsinki, Sydney, Melbourne,
Brisbane, Lisbon and Caracas. The Company intends to link its current and future
switches via owned international facilities or leased capacity to form an
integrated network for international telecommunications. By integrating its
current and future POPs into RSL-NET, the Company believes that it will be able
to originate, transport and terminate traffic utilizing its own network, thereby
bypassing the high costs associated with the transport of the international
portion of a call through a third party carrier. This is expected to enable the
Company to reduce significantly its operating costs for calls that originate and
terminate in markets in which the Company has Local Operators, as well as its
overall operating costs. See '--Network' and '--Network Strategy.'
The Company uses state-of-the-art technology in its switching facilities.
The Ericsson switches used by the Company allow the Company to interconnect its
switches to existing PTT and carrier networks around the world and to develop
new services and upgrade network software on an efficient basis.
PURSUE STRATEGIC ACQUISITIONS AND ALLIANCES
The Company intends to enter additional markets and expand its operations
through acquisitions, joint ventures, strategic alliances and the establishment
of new operations. The Company is continuously reviewing acquisition
opportunities and seeks to acquire control of businesses with an established
customer base, compatible operations, licenses to operate as an international
carrier, experience with additional or emerging telecommunications products and
technologies and/or experienced management. The Company intends to pursue
acquisitions which it believes will expand or enhance its current operations by
providing the Company with the opportunity to enter additional key markets or to
strengthen its operations in an existing market. The Company also seeks to enter
into joint ventures and strategic alliances which the Company believes will
enhance its ability to grow its business. For example, the Company has recently
entered into a joint venture with the Cisneros Group and a strategic alliance
with Ericsson.
The Company believes that many of the emerging carriers in developing
countries, as well as certain recently privatized PTTs, are likely to seek
alliances, partnerships or joint ventures to compete more effectively in their
local markets and abroad. The Company actively seeks out opportunities for
alliances with such carriers to expand the scope of its network and improve its
competitive abilities. The Company believes that it is uniquely positioned as an
attractive alternative strategic partner for such carriers as opposed to the
mega-carriers such as Uniworld, Concert and Global One.
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LEVERAGE EXPERTISE OF MANAGEMENT TEAM
The Company has retained a number of experienced management personnel in
the telecommunications industry, many of whom have had significant experience
with incumbent providers, as well as early competitors in deregulating markets.
As a result, the Company believes that it is well positioned to manage the rapid
growth of its customer base and network infrastructure.
MANAGE NETWORK INVESTMENTS
The Company seeks to manage the investment of capital within its network on
an incremental basis in order to maximize the efficiency of its capital
expenditures program. In general, the Company transmits traffic by leasing
capacity on a variable cost per minute basis until it believes that a direct
investment in facilities or a fixed cost lease arrangement between countries or
on a particular route is warranted. When the cost of owning facilities is
justified relative to leasing facilities, and the Company invests in such
facilities, the Company generally experiences higher gross margins and lower
overall transmission costs. See 'Risk Factors--Short Operating History; Entrance
Into Newly Opening Markets; Margins' and 'Management's Discussion and Analysis
of Financial Condition and Results of Operations--Overview.'
NETWORK
The Company generally utilizes a single switch technology platform for its
international gateway switches comprised of state-of-the-art Ericsson AXE-10
switches. The Company believes that a single switch platform allows the Company
to develop new services and upgrade network software on a more efficient basis
when compared to other global carriers which may employ multiple switch
technologies. The Company is also pursuing alternative transmission technologies
such as the Internet in order to minimize its operating costs. See 'Prospectus
Summary--Recent Developments--Acquisition of Majority Interest in Delta Three'
and '--Internet Telephony Operation--General.'
OWNED FACILITIES
The Company's owned facilities include switches and interests in
international fiber optic cable systems. The Company's eight international
gateway switches are located in New York, Los Angeles, London, Stockholm, Paris,
Frankfurt, Helsinki and Sydney. In addition, the Company operates eight domestic
switches in Rotterdam, Amsterdam, New York, London, Melbourne, Brisbane, Lisbon
and Caracas, although the Company's Australian switches cannot be used until
they are interconnected with the Australian PSTN. The Company's existing
international gateway switches conform to international signaling and
transmission standards provided for in CCITT recommendations and allow the
Company to interconnect its network to existing PTT and carrier networks around
the world while maintaining quality and dependable services. The Company's
switch and related equipment purchases have been financed by Ericsson and the
Company believes it has developed a favorable working relationship with Ericsson
which will enable the Company to benefit from Ericsson financing for future
Ericsson purchases, although there can be no assurance that this will be the
case. See 'Risk Factors-- Dependence on Equipment Supplier.' The Company's
switching facilities are easily expandable to accommodate growth.
The Company also owns capacity on certain international digital fiber optic
cable systems. The Company's United States operations currently own IRUs on
three undersea fiber optic cable systems, which are CANUS-1, CANTAT-3 and PTAT-1
and owns MIUs on four undersea fiber optic cable systems, which are Antillas I,
Odin, Rioja and the TAT-12/TAT-13 systems. The Company also is currently in
negotiations to purchase IRUs for its United States operations on the Columbus
II, TPC-5, America's One, T-C and Eurafrica Systems and on APCN, Ariane-2,
Aphrodite, JASAURUS and NPC undersea fiber optic cable systems and on the CMC
and MCC terrestrial fiber optic cables and GEMINI undersea fiber optic cable
systems. The Company's Swedish operation owns IRUs on the CANTAT-3 and MIUs on
the KATTEGAT-1 transoceanic cables. The Company purchased for its United Kingdom
operations IRUs on the UK-NL 14 transoceanic cable system and the Company's
United Kingdom operations owns PTAT-1 undersea fiber optic cable systems and
plans to purchase MIUs on the FLAG
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and GEMINI transoceanic cable systems. The Company's Australian operation plans
to purchase IRUs on the APCN, JASAURUS and NPC undersea fiber optic cable
systems and on the CMC and MCC terrestrial fiber optic cables.
OPERATING AGREEMENTS
The Company's operating agreements provide the Company with the ability to
transmit traffic directly to foreign carriers over jointly-owned facilities
rather than utilizing leased capacity. The Company's U.S. operations currently
hold 15 operating agreements (one of which allows the Company to transmit
traffic into three countries), which provide potential direct access to
Australia, Azerbaijan, Bolivia, Chile, Denmark, the Dominican Republic, Finland,
Japan, Jordan, the Netherlands, New Zealand, Norway, Russia, Sweden,
Switzerland, Suriname and the United Kingdom. The Company currently only
transmits and terminates traffic pursuant to operating agreements in the
Dominican Republic, the United Kingdom, Denmark, the Netherlands, Finland and
Norway. See '--U.S. Operations--U.S. Network Architecture.' The Company believes
that these agreements constitute significant assets and that the Company is one
of only a limited number of carriers within the United States that has been able
to secure a significant number of operating agreements with non-U.S. carriers.
The Company's Swedish operation currently utilizes two operating agreements
which enable it to exchange traffic with Denmark and Norway. Operating
agreements lower the cost of transmitting traffic by allowing the Company to
utilize its MIUs and IRUs to correspond directly with its foreign carriers,
thereby eliminating the cost of transmitting a call through leased capacity. In
addition, if the Company can develop sufficient traffic into another country, it
can potentially develop an additional source of revenue through return traffic
or other settlement arrangements with the PTT or other carriers in that country.
See 'Risk Factors--Risk of Loss, or Diminution of Value, of Operating
Agreements.'
LEASED CAPACITY
For all routes where the Company does not own facilities or utilize
operating agreements, the Company utilizes leased capacity. In addition, the
Company has arrangements with local carriers in each country in which it
originates traffic to transmit domestic calls from its end-users to its switch.
The Company does not own or intend to own intra-national transmission facilities
networks due to the general availability of such facilities for lease and the
high cost associated with the development and operation of a transmission line
infrastructure. Leased capacity is typically obtained on a per minute basis or a
point-to-point fixed cost basis. The Company utilizes leased satellite
facilities for traffic to and from those countries where digital undersea fiber
optic cables are not available or cost-effective. Leased satellite facilities
are also used for redundancy when digital undersea cable service is temporarily
interrupted. See 'Risk Factors--Dependence on Other Carriers.'
NETWORK MANAGEMENT SYSTEMS
The Company generally utilizes redundant, highly automated state-of-the-art
telecommunications equipment in its network and can, in cases of component or
facility failure, use the network management facilities to redirect calls to
another carrier's facilities. Back-up power systems and automatic traffic
re-routing enable the Company to provide a high level of reliability to its
customers. Computerized automatic network monitoring equipment allows fast and
accurate analysis and resolution of service problems. The Company maintains
separate network management facilities for its U.S. and European operations
which maintain separate least cost routing systems. U.S. network management is
operated from the Company's facilities in New York and Los Angeles. European
network management for the United Kingdom, Sweden and Finland is operated
centrally from the Company's switching center in London. The Company expects
that France and Germany will be monitored from this facility by the fourth
quarter of 1997. See 'Risk Factors--Risks Associated with Rapidly Changing
Industry,' '--Dependence on Effective Information Systems' and '--Dependence on
Equipment Supplier.'
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NETWORK STRATEGY
The Company has switches in most of the countries in which it operates. The
Company has connected its current switches and expects to connect its future
switches by investing in IRUs and MIUs or fixed point to point leases, subject
to local regulatory conditions. In countries in which the Company currently
operates without a switch and in each new market the Company enters, the Company
intends to install its own switching facilities which will then be integrated
into RSL-NET to improve the Company's overall cost structure. The Company
transmits traffic from its Local Operators on capacity leased on a variable cost
per minute basis until it believes an investment in owned facilities or fixed
cost lease arrangements between countries or on a particular route is warranted.
To the extent traffic can be transported between two Local Operators over MIUs
and IRUs or lines leased on a fixed cost point-to-point basis, there is almost
no marginal cost to the Company. In such cases, the Company will be able to
bypass the traditional settlement process for the transport and termination of
international traffic. The settlement rates for international correspondence are
based on negotiated rates which are, according to the FCC, up to 70% higher than
the actual cost. The Company expects that it will realize significant cost
savings by routing an increasing portion of its international traffic over its
owned and leased facilities as opposed to corresponding via operating
agreements, in particular, once the markets in which the Company operates
deregulate sufficiently to allow interconnect. See 'Management's Discussion and
Analysis of Financial Condition and Results of Operations--Effect of
Deregulation on European Cost of Services.' In addition, each of the Local
Operators maintains an independent cost structure for all other traffic. By
directly linking its operations, the Company will be better able to implement a
least cost routing system. See '--International Long Distance Mechanics,' 'Risk
Factors--Short Operating History; Entrance into Newly Opening Markets; Margins,'
'--Inability to Predict Traffic Volume' and '-- Dependence on Other Carriers.'
For calls to countries where the Company does not have a Local Operator,
the Company seeks to establish and utilize an operating agreement with a local
carrier. While this method generates higher costs than transporting calls
between the Local Operators, it has the potential to generate higher margin
return minutes. The Company has not generated significant return minutes to
date. In addition, by strategically establishing its Local Operators and
obtaining operating agreements, the Company will seek to arbitrage the
differential in settlement rates between countries.
Origination and termination of traffic is accomplished through transmission
capacity leased on a per minute basis, except where the Company provides private
line service. As the Company's operations in a given country grow, the Company
generally will install additional POPs and lease transmission capacity (on a
point-to-point fixed cost basis) to connect the new POP to its international
gateway switch. This will enable the Company to reduce its dependence on
relatively high cost-per-minute leases by reducing the distance calls will
travel over capacity leased on that basis.
PRODUCTS AND SERVICES
The Company offers a variety of long distance products and services to its
customers, as well as certain value-added services. Although the Company focuses
on providing international service, it also provides domestic long distance
services, where permitted under relevant regulations, to accommodate customer
demands.
The Company provides the services described below to the extent permitted
by local regulation in each of its markets. See 'Risk Factors--Government
Regulatory Restrictions' and '--Industry Overview,' '--International Long
Distance Mechanics,' '--U.S. Operations' and '--European Operations.'
LONG DISTANCE SERVICES
The Company provides domestic and international long distance service to
its customers. Currently, the Company provides domestic services in the United
States, the United Kingdom, Sweden, Finland and Australia. In the United States,
the Company is certified and tariffed or otherwise authorized to originate
intrastate, interexchange calls from 33 states and the District of Columbia and
can terminate calls throughout the United States.
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PRIVATE LINE SERVICE
The Company can provide dedicated point-to-point connections to businesses
requiring dedicated private telephone lines for high volumes of voice and data
between the customer's offices in all countries where the Company has revenue
generating operations.
CALLING CARDS
The Company's calling cards are either prepaid cards or post paid cards
(for which calls are billed in arrears). The Company's calling cards provide
international call access to or between all countries that have direct dial
service with the United States. Prepaid calling cards are similar products to
other calling cards, but differ in marketing focus as well as the method of
payment. A customer purchases a prepaid card that entitles the customer to make
phone calls on the card up to some limit. The Company also offers prepaid
calling cards that are rechargeable. In all cases, the card number is
proprietary to the customer and is secured by means of a personal identification
number. The Company currently offers these products only in the United States,
the United Kingdom, the Netherlands, Denmark and Venezuela. The Company plans to
offer these products in the rest of its existing European operations through
PrimeCall Europe during 1998 and throughout its global operations in subsequent
years, to the extent permitted under the laws and regulations of each market.
VALUE-ADDED SERVICES
The Company currently offers facsimile services in all of its operations,
toll-free dialing in the United States, the United Kingdom and Sweden and
Internet access in Sweden and, in the future, intends to offer most of these
services in all markets where it is allowed to do so. The Company also intends
to introduce the following services: (i) voice mail, (ii) video-teleconferencing
and (iii) international directory assistance. In addition, with the acquisition
of a majority interest in Delta Three, the Company can offer international long
distance voice service to niche markets utilizing the Internet at discounts to
standard international calls.
INTERNATIONAL TERMINATION AND TRANSIT
International termination on a wholesale basis involves the sale of long
distance services to another long distance company that resells the services to
its customers. Selling bulk capacity to other carriers generates traffic
sufficient to allow the Company to obtain volume discounts when it leases
capacity on a per-minute basis and allows it to generate revenues from otherwise
unused capacity on its MIUs, IRUs and point-to-point leases. See 'Risk
Factors--Dependence On Carrier Customers.' Transit traffic originates and
terminates outside of a particular country, but is transported through that
country on a carrier's network to take advantage of lower costs.
MARKETING AND SALES
The Company markets its services on a retail basis to business customers
and residential customers and on a wholesale basis to other carriers and
resellers. The Company markets its products and services utilizing its direct
sales forces, networks of independent agents and distributors and telemarketing
organizations. The Company's services are currently marketed independently by
the Local Operators. The Company is in the process of developing a universal
brand name to provide uniformity of image and brand and to create worldwide name
recognition for the Company.
CUSTOMERS
SMALL AND MEDIUM-SIZED BUSINESSES. The Company's target customers are
small and medium-sized businesses with significant international telephone usage
(i.e., generally in excess of $500 in international phone calls per month). The
Company has focused on industries which traditionally have significant volumes
of international traffic. The Company believes that small and medium-sized
businesses have generally been underserved by the major global
telecommunications carriers and the PTTs, which have focused on offering their
lowest rates and best services primarily to higher volume multinational business
customers. The Company offers these companies significantly
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discounted international calling rates as compared to the standard rates charged
by the major carriers and PTTs.
Small and medium-sized businesses account for the majority of all
businesses and the Company believes that in most markets they account for a
significant percentage of the international long distance traffic originated in
those markets. For example, the EU estimates that in 1996 there were 15 million
small and medium-sized businesses in the EU and that businesses that employ
fewer than 100 workers accounted for more than one half of all EU employment in
1996, almost half of all business revenue and about $30 billion per year in
total telecommunications revenue. Consistent with that, it is estimated that in
the United Kingdom, companies employing fewer than 250 people spend about $6
billion to $7 billion per year on telecommunications services as compared to
about $8 billion to $9 billion per year for businesses employing in excess of
250 people and only $3 billion per year for the multinationals.
CARRIERS. The Company offers international termination and transit traffic
services to other carriers, including resellers, on a wholesale basis, as a
'carriers' carrier.' The Company's carrier customers as a group currently
provide the Company with a relatively stable customer base and thereby assist
the Company in projecting potential utilization of its network facilities. In
addition, the significant levels of traffic volume generated by such carrier
customers enable the Company to obtain large usage discounts based on volume
commitments. The Company believes that revenues from its carrier customers will
continue to represent a significant portion of the Company's overall revenues in
the future. See 'Risk Factors--Inability to Predict Traffic Volume' and
'--Dependence on Carrier Customers.'
RESIDENTIAL CUSTOMERS. The Company targets customers with high
international calling patterns. The Company intends to capitalize on global
immigration patterns to target ethnic communities, primarily for its prepaid
calling cards.
LARGE CORPORATIONS. The Company services a number of large corporations
through its French and German operations (acquired as part of the Sprint
Acquisitions) and the Company intends to continue to target large corporations
on those routes where the Company's cost structure allows it to compete
effectively. See '--French Operations.'
SALES CHANNELS
The Company markets its services through a variety of channels, including
sales by the Company's own direct sales force, indirect sales through
independent agents, sales through distributors and telemarketing sales by
outside organizations, depending, in part, on local business practices and
business environment. Residential customers are targeted in neighborhoods with
large immigrant populations, utilizing resource materials and third party market
research companies, among other things, as resources for this information.
Carriers typically approach the Company directly to inquire about the Company's
transit and termination rates.
DIRECT SALES. Most Local Operators maintains their own direct sales force.
Generally, sales representatives are compensated on a commission basis. The
Company intends to expand its direct sales force as it expands existing
operations and commences additional operations.
INDEPENDENT AGENTS. The Company also markets its services through an
indirect sales force comprised of independent agents. These agents include,
among others, companies which have a sales force or individuals marketing
related services such as telephone systems, copiers, fax machines or other
office equipment to the Company's targeted customer segments. The Company's
indirect sales force will be an increasingly important sales channel to access
the local market.
DISTRIBUTORS. The Company has relationships with a small number of
distributors in the United States as well as the Netherlands for the sale of
prepaid cards and will seek such arrangements in its other markets.
TELEMARKETING SALES. The Company's European operations use the services of
independent telemarketing sales organizations in certain of their markets.
Telemarketing sales are targeted to cover small to medium-sized business and
niche residential customers. Commercial customers are offered long distance
services while residential customers are offered long distance services and a
blend of prepaid and similar products.
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CUSTOMER MANAGEMENT
The Company strives to provide competitive pricing, high quality services
and superior customer service and believes that these factors are important to
its ability to compete effectively. The Company works closely with its customers
to develop competitively priced telecommunications and value-added services
(such as customized billing) that are tailored to their needs. The Company has
invested significant resources in developing information systems to allow it to
provide accurate and timely responses to customer inquiries. In addition, each
of the Local Operators has customer service and engineering personnel available
to address service and technical problems as they arise.
HEADQUARTERS OPERATIONS
The Company directs the operations of its subsidiaries, including the
management of the growth of current operations, the expansion of operations into
new markets, the formation of potential joint ventures and strategic alliances
and the execution of acquisitions. Identification of key markets, determination
of the vehicles through which, as well as the manner in which, the Company will
enter such markets and oversight of the implementation of these plans is also
done at the Company level. The Company is continuously reviewing and considering
investment and acquisition opportunities. The Company intends to pursue
acquisitions which it believes will expand or enhance its current operations.
All such acquisitions will be identified, negotiated and consummated at the
Company level, generally working together with local and regional management in
cases where the acquisitions supplement existing operations. In addition, the
Company seeks alliances with carriers to expand the scope of the Company's
network and improve its competitive profile.
The Company currently provides centralized financial services for all of
the Local Operators, including financial planning and analysis, cost control and
network management. The Company attempts to coordinate the acquisition of
additional transmission capacity (either leased or purchased) with the growth of
traffic volumes of each Local Operator. The Company assists in securing
financing and discounts for these expenditures as well as other capital
expenditures through its arrangements with particular vendors. The Company also
maintains global treasury functions, including the management of cash flows
between the Local Operators for the transmission of traffic between them, as
well as the allocation of working capital.
The Company will eventually link all of its switching facilities to a
central billing system administered at the Company level. The Company will
provide the billing information to Local Operators which will then invoice the
customers directly. The invoice will be branded with the Company's name and will
be payable to a Company account in the Local Operator's country.
The Company manages the expansion of RSL-NET, including the acquisition of
additional capacity for existing operations and the integration of developing
and new Local Operators into RSL-NET. The Company will coordinate the routing of
traffic on RSL-NET to effect routing on a least cost basis. Least cost routing
involves the programming of the Company's switches to transport international
calls over the route which is most likely to produce the lowest cost to the
Company without compromising on call quality. The Company consolidates the least
cost routing information of each of its Local Operators to allow them to take
advantage of each others' cost structure.
The Company is in the process of coordinating the marketing activities of
the Local Operators and defining its own unique approach to branding and
marketing its services on a global basis. In addition, the Company intends to
direct the service offerings of the Local Operators to enable the Company to
provide services to a single customer in more than one country. The Company
intends to then provide the customer with a single bill and designate a primary
customer service representative to address the customer's overall needs.
U.S. OPERATIONS
OVERVIEW
The United States is the largest single market in terms of international
long distance call terminations and originations. The top seven destinations for
U.S.-originated calls in 1995 were Canada, Mexico, the United Kingdom, Germany,
Japan, France and the Dominican Republic. The
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Company initiated its U.S. operations in March 1995 with its initial investment
in ITG and has grown the business significantly since then. The Company operates
in the United States as a full service international long distance carrier with
multiple '214' licenses issued under the Communications Act, which permit it to
provide international telecommunications services. The Company currently has
offices located in the New York, Los Angeles and Miami metropolitan areas. The
Company is planning to open additional offices in several large metropolitan
areas by the end of 1998.
The Company primarily operates in the United States through RSL USA. The
Company's operations in the United States have shown considerable growth.
Revenues for the Company's U.S. operations on a consolidated basis were
approximately $18.5 million for the year ended December 31, 1995, $85.8 million
for the year ended December 31, 1996 and $69.9 million for the six months ended
June 30, 1997. International traffic carried by RSL USA has experienced
substantial growth from 3.6 million minutes in December 1995 to 14.6 million
minutes in December 1996. The Company's U.S. operations have grown from a total
of 24 employees in December 1994 to 151 employees in June 1997.
During 1996, the Company initiated a program focused on enhancing
profitability, revenues and the quality of services to its customers. The
Company shifted the marketing focus of its U.S. operations from wholesale
'carrier's carrier' business to higher margin services targeted at end-user
customers in an effort to increase operating margins. In connection with this
effort, the Company determined that the rates offered to certain customers
provided the Company with inadequate margins. Accordingly, the Company increased
rates to these customers and, as a result, these customers either accepted the
rate increases or terminated their arrangements with the Company, thus reducing
the Company's exposure to low or negative margin business. Beginning in the
fourth quarter of 1996, the Company began restructuring its U.S. operations and
recorded a charge of $750,000 in connection with such restructuring.
Operational, managerial and technical functions were consolidated under a single
organization. The Company has hired experienced management, implemented new
managerial and financial controls, and introduced a new marketing focus and
plan. Although these activities, in conjunction with the Company's investment in
MIUs, IRUs and switches, receipt of multiple international operating agreements
and increased focus on customer service, have resulted in rapid growth of the
business, gross margins for the U.S. operations were slightly down for the six
month period ended June 30, 1997 compared to the six month period ended June 30,
1996 due to the rapid expansion of the Company's operations. See 'Risk
Factors--Short Operating History; Entrance into Newly Opening Markets; Margins'
and 'Dependence on Other Carriers' and 'Management's Discussion and Analysis of
Financial Condition and Results of Operations.'
SERVICES AND CUSTOMERS
The Company offers its customers in the United States international and
domestic long distance, private line, calling card and value added services.
Since the first quarter of 1996, the Company has been refocusing its U.S.
operations from providing international long distance services to other carriers
to providing international and domestic long distance services to small and
medium-sized businesses as well as certain residential markets. As of June 30,
1997, the Company had 67 carrier customers, approximately 5,000 business
customers and approximately 21,000 residential customers.
In addition, through RSL COM PrimeCall, Inc. ('RSL PrimeCall'), the Company
specializes in the provision of prepaid calling cards for niche ethnic markets
and for promotional use by large corporate subscribers in entertainment, retail,
banking and other industries.
MARKETING AND SALES
The Company markets its services and products in the United States through
a variety of channels, including direct sales, indirect sales through
independent agents and distributors. As of June 30, 1997, the Company's U.S.
operations employed 21 sales and marketing employees and had relationships with
approximately 390 master agents with an underlying network in excess of 2,000
independent agents and six distributors. In addition, the Company employs a
retail and wholesale sales force dedicated to the sale of promotional post and
prepaid card products. The Company intends to expand its direct sales force as a
part of its growth strategy by adding sales personnel to its New York City, Los
Angeles and Miami metropolitan area sales offices and by opening additional
sales offices in several
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other large metropolitan areas by the end of 1998. The Company believes that,
due to the existence of a competitive marketplace in the United States for over
a decade, it can hire capable, experienced sales representatives and managers
and that use of a direct sales force is the most efficient means for it to grow
its business.
U.S. NETWORK ARCHITECTURE
The Company operates two international gateway switches in the United
States, an Ericsson AXE-10 located in New York and a Northern Telecom DMS
250/300 located in Los Angeles. The Company plans to replace the Northern
Telecom switch with an Ericsson AXE-10 by the end of the first quarter of 1998.
The Company's New York international gateway switch and Los Angeles
international gateway switch conform to CCITT recommendations and are directly
connected to each other via leased lines on a fixed cost, point-to-point basis.
The Company also operates a domestic switch and a prepaid card platform in each
of New York and Los Angeles. The Company is developing a plan for installation
of additional switches in strategic sites throughout the United States, which
may include a third international gateway switch in Florida. Traffic to Asia and
the Pacific Rim is generally routed via the Company's Los Angeles international
gateway switch and traffic to Europe, Africa and Latin America is generally
routed via the Company's New York international gateway switch.
The Company currently has investments in IRUs in three undersea fiber optic
cable systems which are CANUS-1, CANTAT-3, and PTAT-1 and owns MIUs on four
undersea fiber optic cable systems, which are Antillas I Odin, Rioja and the
TAT-12/TAT-13 systems. The Company also is currently involved in negotiations to
purchase IRUs for its United States operations on the Columbus II, TPC-5,
America's One, T-C and Eurafrica transoceanic cable systems and on the APCN,
Ariane-2, Aphrodite and GEMINI undersea fiber optic cable systems.
The Company currently is a party to 15 operating agreements (one of which
allows the Company to transmit traffic into three countries), which provide
potential direct access from the U.S. to Australia, Azerbaijan, Bolivia, Chile,
Denmark, the Dominican Republic, Finland, Japan, Jordan, New Zealand, the
Netherlands, Norway, Russia, Sweden, Switzerland, Suriname and the United
Kingdom. The Company believes that it is one of only a limited number of
carriers within the United States that has been able to secure a significant
number of operating agreements with carriers outside the United States. The
Company currently only transmits and terminates traffic pursuant to the
operating agreements in the Dominican Republic, the United Kingdom, Denmark,
Finland, Netherlands and Norway. The Company transmits call traffic bound for
all other destinations through leased capacity. The remaining operating
agreements are inactive because the Company has not yet invested in
international transmission capacity for those routes, in certain cases because
call volume on such routes does not warrant such an investment. By activating
these operating agreements as well as any additional operating agreements it may
obtain, the Company believes it will be able to significantly lower its costs of
terminating international traffic. The Company's failure to begin transmitting
traffic pursuant to any such operating agreement could lead to the termination
of the agreement. See 'Risk Factors--Risk of Loss, or Diminution of Value, of
Operating Agreements.'
The Company also operates the network management control facilities from
which the Company administers and monitors the Company's switches and facilities
and provides customer service, 24-hour network monitoring, trouble reporting and
response procedures, service implementation and billing assistance. The Company
designates a specific customer service representative for each commercial
customer to oversee the installation and maintenance of the phone equipment, the
start-up of service and problem resolution.
INFORMATION SYSTEMS AND BILLING
The Company owns and operates an Electronic Data Systems ('EDS') IXPlus
System that runs on an IBM A5/400 hardware platform. The Company is utilizing
the EDS system in the U.S. to: (i) provide sophisticated billing information
that can be tailored to meet a specific customer's requirements, (ii) provide
high quality customer service, (iii) detect and reduce fraud, (iv) integrate
efficiently additions to its customer base and (v) provide real time traffic and
call detail management. The EDS IXPlus System is operated and maintained by the
Company in its Los Angeles office. The Company has also
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implemented a customer care and trouble management system, as well as developed
a state of the art information system that produces, among other things,
profitability margin analysis, routing statistics and overall traffic trends by
country, customer, vendor and switch. In addition, the Company has installed a
Wide Area Network linking all of its offices in the U.S. enabling the use of its
systems within the organization. The Company's information systems are important
to its operations as they allow the Company to assess and determine quickly
customer billing and collection problems, production by and compensation or
commissions owed to agents, sales representatives and distributors, proper
pricing for the Company's services and other matters which are important to the
operation of the Company. See 'Risk Factors--Dependence on Effective Information
Systems.'
COMPETITION
The Company competes with AT&T, MCI, Sprint, WorldCom and other United
States-based and foreign carriers, many of which have considerably greater
financial and other resources than the Company. Certain of the larger United
States based carriers have entered into joint ventures with foreign carriers to
provide international services. In addition, certain foreign carriers have
entered into joint ventures with other foreign carriers to provide international
services and have begun to compete or invest in the United States market,
creating greater competitive pressures on the Company. The Company believes that
its services are competitive in terms of price and quality with the service
offerings of its U.S. competitors.
REGULATORY ENVIRONMENT
The Company's United States operations are subject to extensive federal and
state regulation. Federal laws and FCC regulations apply to interstate
telecommunications (including international telecommunications that originate or
terminate in the United States), while particular state regulatory authorities
have jurisdiction over telecommunications originating and terminating within the
state. There can be no assurance that future regulatory, judicial and
legislative changes will not have a material adverse effect on the Company, that
domestic or international regulators or third parties will not raise material
issues with regard to the Company's compliance or noncompliance with applicable
regulations or that regulatory activities will not have a material adverse
effect on the Company.
FEDERAL. The FCC currently regulates the Company as a non-dominant carrier
with respect to both its domestic and international long distance services.
Generally, the FCC has chosen not to exercise its statutory power to closely
regulate the charges, practices or classifications of non-dominant carriers.
Nevertheless, the FCC acts upon complaints against such carriers for failure to
comply with statutory obligations or with the FCC's rules, regulations and
policies. The FCC also has the power to impose more stringent regulation
requirements on the Company, to change its regulatory classification, to impose
monetary forfeiture and to revoke its authority. In the current regulatory
atmosphere, the Company believes that the FCC is unlikely to do so with respect
to the Company's domestic service offerings. With respect to the Company's
international services, however, it is possible that the FCC could classify the
Company as dominant for the provision of services on specific international
routes on the basis of the Company's foreign ownership and affiliations or a
determination that the Company had the ability to discriminate against U.S.
competitors. Recently, for example, the FCC classified Sprint as a dominant
carrier for the provision of U.S. international services on the U.S.-France and
U.S.-Germany routes in connection with investments in Sprint by France Telecom
and Deutsche Telekom.
Among domestic carriers, local exchange carriers ('LECs') are currently
classified as dominant carriers with respect to the local exchange services they
provide, and no interstate, interexchange carriers, including RBOCs which are
permitted to offer long distance service outside their service areas, are
classified as dominant. Until recently, AT&T was classified as a dominant
carrier, but AT&T successfully petitioned the FCC for non-dominant status in the
domestic interstate, interexchange and international markets. Therefore, certain
pricing restrictions that once applied to AT&T have been eliminated, likely
making AT&T's prices more competitive than the Company's. Nonetheless, the FCC
placed certain conditions on AT&T's reclassification to promote the development
of vigorous competition in the international services marketplace.
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The Company has the authority to provide domestic, interstate
telecommunications services. The Company has also been granted authority by the
FCC to provide switched international telecommunications services through the
resale of switched services of United States facilities based carriers, to
generally resell international private lines not connected to the PSTN or which
are connected to the PSTN in Canada, New Zealand, Sweden or the United Kingdom,
and to provide international telecommunication services by acquiring circuits on
various undersea cables or leasing satellite facilities. The FCC reserves the
right to condition, modify or revoke such domestic and international authority
for violations of the Communications Act or the FCC's regulations, rules or
policies promulgated thereunder. Although the Company believes the probability
to be remote, a rescission by the FCC of the Company's domestic or international
authority or a refusal by the FCC to grant additional international authority
would have a material adverse effect on the Company.
Both domestic and international non-dominant carriers must maintain tariffs
on file with the FCC. The Company must file tariffs containing detailed actual
rate schedules. In reliance on the FCC's past relaxed tariff filing requirements
for non-dominant domestic carriers, the Company and most of its competitors did
not maintain detailed rate schedules for domestic offerings in their tariffs, as
the FCC's rules currently require. Until the two year statute of limitations
expires, the Company could be held liable for damages for its past failure to
file tariffs containing actual rate schedules. The Company believes that such an
outcome is remote and would not have a material adverse effect on its financial
condition or results of operations. The Company has always been required to
include detailed rate schedules in its international tariffs.
In February 1996, the Telecommunications Act of 1996 was signed into law.
Under the Telecommunications Act, the RBOCs will be permitted to provide long
distance services in competition with the Company. The law includes safeguards
against anti-competitive conduct which could result from a RBOC having access to
all customers on its existing network as well as its ability to cross-subsidize
its services and discriminate in its favor against its competitors.
Except with respect to transit agreements, authorizations held under
Section 214 of the Communications Act (such as those held by the Company) for
international services are limited to providing services or using facilities
between the United States and countries specified in the authorizations. The
Company holds all necessary Section 214 authorizations for conducting its
present business but may need additional authority in the future. Additionally,
carriers may not lease private lines between the United States and an
international point for the purpose of offering switched services unless the FCC
has first determined that the foreign country affords resale opportunities to
United States carriers equivalent to those available under United States law.
The FCC has made such a determination with respect to New Zealand, Canada,
Sweden and the United Kingdom and the Company is authorized to resell
international private lines to these points for the provision of basic services
interconnected to the PSTN.
The FCC has promulgated certain rules governing the offering of
international switched telecommunications. Such calls typically involve a
bilateral, correspondent relationship between a carrier in the United States and
a carrier in the foreign country. Until recently, the United States was one of a
few countries to allow multiple carriers to handle international calls; almost
all foreign countries authorized only a single carrier, often a state-owned
monopoly, to provide telecommunication services. In light of the disparate
bargaining positions of the United States carriers, the FCC imposed certain
requirements to try to minimize the opportunities that dominant foreign
telecommunications providers would have to favor one United States carrier over
another. These policies include provisions of the International Settlement
Policy, which requires the equal division of accounting rates, non-
discriminatory treatment of U.S. carriers, and that return minutes from a
foreign carrier must be proportional to the traffic that the United States
carrier terminates to a foreign carrier. In December 1996, the FCC modified its
rules to allow payment arrangements that deviate from the International
Settlements Policy between any U.S. carrier and any foreign correspondent in a
country that satisfies the FCC's effective competitive opportunities test. The
FCC also stated that it would allow alternative settlement arrangements between
a U.S. carrier and a foreign correspondent in a country that does not satisfy
the effective opportunities test if the U.S. carrier can demonstrate that
deviation from the International Settlement Policy will promote market-oriented
pricing and competition, while precluding
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abuse of market power by the foreign correspondent. The Company has numerous
agreements with foreign carriers providing for the handling of switched calls.
Recently, the FCC adopted lower benchmarks for settlement rates that U.S.
carriers must pay to foreign carriers in order to settle calls originating from
the U.S. The benchmark rates were adopted to remedy a growing U.S. settlement
deficit, which results from the imbalance outbound and inbound call volume which
is estimated to be approximately 70% higher than the actual cost of terminating
international calls. Three benchmarks were established to fit the income level
of foreign countries, with a low of $0.15 per minute for high income countries
and a high of $0.23 per minute for low income countries. Implementation periods,
ranging from one year for high income nations to five years for nations with
less than one telephone line for every 100 inhabitants, were also adopted. The
FCC also determined that it would condition any carrier's authorization to
provide international facilities-based switched service from the United States
to an affiliated market on the carrier's foreign affiliate offering U.S.
international carriers a settlement rate at or below the relevant benchmark. If,
after the carrier has commenced service to an affiliated market, the FCC learns
that the carrier's service offering has distorted market performance, the FCC
will take enforcement action. The new benchmarks are intended to promote a
competitive environment in which rates will more closely reflect costs;
officials also hope that the FCC's order will encourage multilateral
negotiations and lead to an international agreement to reduce costs further.
Additionally, the FCC enforces certain requirements which derive from the
regulations of the ITU. These regulations may further circumscribe the
correspondent relationships described above. In addition to settlement rates,
these regulations govern certain aspects of transit arrangements, wherein the
originating carrier may contract with an interim carrier in a second country to
terminate service in a third country. The Company has transit agreements with
foreign carriers. Such agreements may allow the Company to pay less than the
full accounting rate it would have to pay if it had a direct operating agreement
with the terminating country. However, the Company is unaware of any instance in
which a terminating country has objected with respect to any of the Company's
traffic. If a terminating country objects in the future to such transit
arrangements, the Company may be required to secure alternative arrangements.
STATE. The intrastate, long distance telecommunications operations of the
Company are also subject to various state laws, regulations, rules and policies.
Currently, the Company is certified and tariffed or otherwise authorized to
provide intrastate, interexchange service in 33 states and the District of
Columbia and uses a third party carrier to originate calls in states where it
needs, but does not have, authorization to provide services. Ultimately, the
Company intends to apply for authorization in substantially all of the states
that require certification or registration. See 'Risk Factors--Government
Regulatory Restrictions.'
The vast majority of states require carriers to apply for certification to
provide telecommunications services before commencing intrastate service and to
file and maintain detailed tariffs listing the rates for intrastate service.
Many states also impose various reporting requirements and require prior
approval for all transfers of control of certified carriers, assignments of
carrier assets, carrier stock offerings and the incurrence by carriers of
certain debt obligations. In some states, regulatory approval may be required
for acquisitions of telecommunications operations. In the past, the Company has
sought and successfully obtained such approval for its acquisitions.
EUROPEAN OPERATIONS--GENERAL
OVERVIEW
RSL Europe is a wholly-owned subsidiary of the Company. RSL Europe was
formed in March 1995 to implement the Company's pan-European strategy. In
November 1995, RSL Europe acquired a 51% interest of Cyberlink Europe, which,
through its wholly-owned subsidiaries, RSL Finland and RSL Sweden, commenced
operations in May 1996. During the period from August 1996 through March 1997,
RSL Europe acquired the remaining 49% interest in Cyberlink Europe. In May 1996,
the Company acquired the international long distance voice businesses of Sprint
in France and Germany. In October 1996, RSL Europe acquired a 75% interest in
the operations of RSL Netherlands, an
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international reseller which had been operating in the Netherlands since October
1995. The Company has entered into an agreement to acquire the remaining
interest in RSL Netherlands and expects to close such transaction on the closing
date of the Offerings. RSL Denmark, a start-up subsidiary of RSL Netherlands,
commenced operations in Denmark in May 1997.
In April 1997, RSL Europe entered into an agreement with Gerard van Leest,
the founder, general manager and minority shareholder of RSL Netherlands, and
the First Worldwide Network Management & Consultant N.V. ('FWN'), a corporation
wholly-owned by Mr. van Leest, pursuant to which RSL Europe and FWN are to
jointly develop, market and distribute a prepaid calling card product targeted
at select customers throughout Europe.
In April 1997, RSL Europe acquired a 30.4% interest in Maxitel, a
Portuguese international telecommunications carrier. RSL Europe and the other
two principal shareholders of Maxitel entered into a shareholders' agreement,
pursuant to which, among other things, (i) certain major decisions by the Board
of Directors of Maxitel can only be approved with the consent of RSL Europe and
(ii) RSL Europe has the right to designate two directors to the Board of
Directors of Maxitel.
In August 1997, RSL Europe acquired an 85% interest in the operations of
RSL Italy, an international telecommunications reseller that had been operating
in Italy since 1995.
In August 1997, the Company acquired 50% of RSL Austria, which is initially
expected to commence operations by January 1998 as a switchless international
telecommunications reseller. After the completion, in September of 1997, of
certain corporate formalities, the Company's interest was increased to 90% of
RSL Austria.
As of June 30, 1997, the Company had 311 employees in Europe.
INFORMATION SERVICES, SYSTEMS AND BILLING
RSL Europe has developed its own proprietary information and billing system
employing a Hewlett Packard 9000 UNIX server and a Sybase, Inc. ('Sybase')
developed customized software package (collectively, the 'System'). The System
provides for billing, customer service, management information, financial
reporting and related functions. The Company has invested significant resources
into the development of the System and the Company's management worked closely
with Sybase to develop software which reflects the experiences of the Company's
management in the telecommunications industry. The System has been designed to
be easily integrated into the operations of each of its current, planned and
future European Local Operators and may ultimately be used as the centralized
information system for the Company. The System currently provides centralized
billing, customer service, and information systems to the Company's United
Kingdom, Sweden and Finland operations, with France and Germany expected to be
brought online by the end of 1997. The Company believes that the System is a key
asset of the Company and an important advantage in the management of its growth.
The System provides for sophisticated, automatic, itemized billing that can
be tailored to meet each customer's specific requirements, including customized
tariffs and discount schemes. The Company expects that the System will also
facilitate integration and central oversight of its European operations through
automated data entry by its Local Operators and through easily generated
financial status, sales information, performance and sales commission reports.
REGULATORY ENVIRONMENT
Most EU member states are in the initial stages of deregulation.
Deregulation in these countries may occur either because the member state
decides to open up its own market (e.g., the United Kingdom, Sweden and Finland)
or because it is directed to do so by the European Commission ('EC') through one
or more directives issued thereby. In the latter case, such an EC directive
would be addressed to the national legislative body of each member state,
calling for such legislative body to implement such directive through the
passage of national legislation.
Since most European countries currently restrict competition to a limited
number of specific services, the Company has developed a two stage market
penetration strategy to capitalize on the current and future opportunities in
Europe. The first step is to take advantage of current market
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conditions and, within the parameters of the Company's established service
offerings, to provide the fullest range of services permissible under local
regulation. The Company thereby seeks to become a recognized international
carrier in the targeted countries as its operations grow. The second step, as
deregulation permits, is to build on its name recognition, marketing channels
and existing customer base in the market to expand its service offerings to both
existing and new customers. By the time that the telecommunications markets
throughout Europe are open to broader competition, the Company intends to have
established Local Operators in all major European telecommunications markets.
However, there can be no assurance regarding the timing or extent of
deregulation in any particular country. See 'Risk Factors--Government Regulatory
Restrictions.'
The EC issued in 1997 an interconnect directive (the 'Interconnect
Directive'), which is expected to be implemented in 1998 and is expected to
require the incumbent PTTs to interconnect to other carriers using CCITT C-7
signaling standards. Such connection will provide 'Calling Line Identity'
('CLI'), also known as ANI or PIC, which will allow the Company's customers to
access more easily the Company's local switch (e.g., through prefix dialing
instead of dial-in access) and will remove the local access fee levied in
addition to the Company's charge for the call. After interconnection, rates
charged by the PTT for the PSTN portion of the call are expected to be incurred
by carriers at wholesale rates and it is expected that carriers will be allowed
to compete against the PTT in the domestic long distance market, as well as the
international market. However, the implementation of this or any EC directive by
member states is subject to substantial delay. See 'Risk Factors--Government
Regulatory Restrictions.'
Member states have limited flexibility to interpret EC directives. If the
EC determines that a member state's legislation implementing an EC directive
does not adequately do so, the EC tests such interpretation through legal
proceedings in a court of law. This process is time consuming. Accordingly,
while a date has been set for the liberalization of voice telephony services
within the EU, the actual date on which liberalization actually occurs could be
months or years later. See 'Risk Factors--Government Regulatory Restrictions.'
There also may be practical considerations in implementing a directive
which could result in a delay of its implementation, as there are considerable
doubts as to the preparedness of many EC countries for a wide-ranging change.
For example, the negotiation of interconnection agreements can take a
significant amount of time. Even after such agreements are negotiated and
implemented, substantial ongoing disputes with the incumbent PTTs regarding
prices and billing are to be expected.
In an attempt to speed up the market entry of new operators despite the
obstacles referred to above, the Full Competition Directive allowed alternative
entities to the PTTs (typically utility and cable television companies) to
supply infrastructure, beginning July 1, 1996. This permits the Company to
purchase cable capacity from companies other than the local PTTs as such
companies build transmission facilities. To date, however, there has not been
substantial construction of such facilities by competitors to the PTTs in EU
countries, although several member states have enacted national legislation to
adopt the Full Competition Directive.
Although it is not expected that interconnect will be available and
implemented in most countries of interest by January 1, 1998, the current
regulatory scheme in Europe nevertheless provides an opportunity for the Company
to provide a range of services immediately in many countries, while putting in
place adequate infrastructure to capitalize on final deregulation when it occurs
on or after January 1, 1998. The Company can provide value-added services before
1998 and, in certain EC countries beginning in 1998 but prior to
interconnection, the Company can provide dial-in access, coupled, when possible,
with autodialers or the programming of customers' phone systems to dial access
codes, to route traffic over the PSTN to the Company's switches. See
'--International Long Distance Mechanics.'
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U.K. OPERATIONS
OVERVIEW
The United Kingdom originated approximately four billion minutes of
international traffic in 1995. The Company's UK operations began generating
revenues in May 1996 and generated $6.3 million in revenues for the year ended
December 31, 1996, its first year of operations, and $11.3 million for the six
months ended June 30, 1997.
SERVICES AND CUSTOMERS
The Company offers its customers in the United Kingdom international and
domestic long distance services. Customers access these services by direct
access, prefix dialing and dial-in. Direct access services are provided by
connecting customers to the Company's London switches by means of lines leased
from British Telecom or Mercury. Prefix dialing services are provided by means
of access to the Company's London switches by way of the PSTN using the
Company's access codes. As of June 30, 1997, the Company's customer base in the
United Kingdom consisted of 12 carriers and in excess of 2,700 commercial
customers and 11,000 pre-paid account customers. The Company's current
commercial customers include multinationals, large national companies, as well
as small and medium-sized businesses.
MARKETING AND SALES
The Company markets its services in the United Kingdom through a variety of
channels, including direct sales, indirect sales through independent agents and
telemarketing sales. The Company has three professionals dedicated to marketing.
As of June 30, 1997, RSL Europe employed 13 full-time and 23 part-time sales
employees in the United Kingdom dedicated to commercial and residential
customers. RSL Europe intends to expand its direct sales force as a part of its
growth strategy by adding sales representatives to its London office as well as
establishing additional sales offices in the United Kingdom. The Company relies
heavily on its network of approximately 42 agents to sell its long distance
calling services in the United Kingdom. The Company believes that several of the
agents have existing relationships with businesses in the Company's target
market which better position them to identify and sell services to prospective
customers. The Company has acquired one of these agents and is negotiating to
acquire a second, with the strategic aim of providing the Company with local
presence in certain regions of the U.K.
U.K. NETWORK ARCHITECTURE
RSL UK operates two Ericsson switches, one an international gateway switch,
the other a domestic switch, located in London. Prior to December 1996, the
Company was prohibited from owning interests in fiber optic cable coming in or
out of the United Kingdom. As a result, the Company had been transmitting call
traffic bound for destinations outside of the United Kingdom through leased
capacity provided by British Telecom and Mercury. The Company has since
purchased IRUs on the UK-NL14 and PTAT-1 undersea fiber optic cable systems and
continues to utilize leased capacity for all other international destinations.
The Company is currently in negotiations to purchase IRUs on the CMC and MCC
terrestrial fiber optic cables and MIUs on the FLAG and GEMINI transoceanic
cable systems. The Company will attempt to acquire additional MIUs and IRUs as
warranted.
COMPETITION
The Company's principal competitors in the United Kingdom are British
Telecom, the dominant supplier of telecommunications services in the United
Kingdom, and Mercury. The Company also faces competition from emerging licensed
public telephone operators (who are constructing their own facilities-based
networks) such as Energis, and from resellers including ACC Corporation,
WorldCom, Esprit and Global One. The Company believes its services are
competitive, in terms of price and quality, with the service offerings of its UK
competitors.
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REGULATORY ENVIRONMENT
The Company was awarded an International Facilities Based
Telecommunications License (an 'IFBTL') in the United Kingdom in December 1996.
An IFBTL entitles the Company to acquire IRUs and MIUs on international
satellite and cable systems, resell international private lines, as well as
interconnect with, and lease capacity at, wholesale rates from British Telecom
and Mercury. In addition, the Company holds an International Simple Resale
('ISR') license in the United Kingdom. An ISR license allows the Company to
resell international private lines, as well as interconnect with, and lease
capacity at wholesale rates from, British Telecom and Mercury.
GERMAN OPERATIONS
OVERVIEW
Germany originated 5.2 billion minutes of international traffic in 1995.
RSL Germany was formed in April 1996 for the purpose of acquiring Sprint's
international voice business in Germany. Sprint was required to divest itself of
its German and French international voice businesses pursuant to the terms of
the Global One joint venture agreement.
Sprint commenced its German voice business in 1993. Revenues for such
operation for the years ended December 31, 1996 and 1995 were $8.6 million and
$6.4 million, respectively, and $5.1 million and $4.0 million for the six months
ended June 30, 1997 and 1996, respectively. The Company's German operations
generated pro forma revenues of $11.7 million for the year ended December 31,
1996 and actual revenues of $5.1 million for the six months ended June 30, 1997.
SERVICES AND CUSTOMERS
National and international long distance services are offered by the
Company to members of closed user groups. International long distance services
are further offered to customers that are not members of closed user groups
utilizing direct access over leased lines from Deutsche Telekom. As of June 30,
1997 the Company's customer base in Germany consisted of one reseller in Austria
that provides international traffic from Austria to Germany and other countries,
two German resellers, one of which is the largest service provider of mobile
phone service and approximately 175 commercial customers. The Company's current
customer base primarily consists of large national or multinational corporations
and a larger number of small and medium-sized business customers. See
'--Products and Services.'
MARKETING AND SALES
As of August 1997, the Company employed 26 sales and marketing employees in
Germany. RSL Germany is expanding its direct sales force as a part of its growth
strategy by adding sales representatives. The Company continues to develop a
network of independent sales agents to sell its services in Germany.
GERMAN NETWORK ARCHITECTURE
RSL Germany currently operates a Wyatts MRX 2000 domestic switch in its
offices in Frankfurt, and recently installed an Ericsson AXE 10 international
gateway switch, which has been operational since August 1, 1997. The Company
also plans to install POPs in additional German cities to lower its cost of
providing services in these cities. International transmissions facilities are
leased from Deutsche Telekom. The Company has interconnect agreements with
Teleglobe International Inc. for termination of its international traffic, and
with TelDaFax GmbH for termination of domestic traffic. The Company is
integrating these services into its own systems and is making such other
arrangements as are necessary to ensure these services are provided to the
Company.
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COMPETITION
In Germany, the Company competes with facilities-based carriers and
resellers. The Company's principal competitor in Germany is Deutsche Telekom,
the dominant supplier of telecommunications services in Germany. The Company
also faces competition from emerging public telephone operators (who are
constructing their own facilities-based networks) such as Arcor (Mannesmann and
DBKom), O.telo (RWE and VEBA) and VIAG Interkom (VIAG and British Telecom), from
resellers including Worldcom and Viatel and call-back providers such as Tele
Passport. Assuming deregulation in 1998, it is expected that alternative
networks currently under construction will become available to route and
terminate voice traffic. The Company believes its services are competitive, in
terms of price and quality, with the service offerings of its German
competitors.
REGULATORY ENVIRONMENT
The German Parliament passed the German Telecommunications Act 1996 (the
'German Act'), which became effective August 1, 1996, in order to liberalize the
German telecommunications market. Until January 1998, 'voice telephony' as
defined in the German Act in accordance with the 1990 Directive may only be
provided by Deutsche Telekom. 'Voice telephony' as defined in the German Act
does not, however, include the delivery of voice telephony to 'closed user
groups'. International direct dialing services offered to customers utilizing
direct access over leased lines also do not come within the German Act's
definition of 'voice telephony '.
Under the German Act, licenses for the offering of voice telephony services
are issued to an applicant unless (i) such applicant fails to meet certain good
standing requirements, (ii) such applicant lacks the competence to run a
telecommunications business or (iii) the offering of telecommunications services
by such applicant would be regarded as a danger to public safety. Under the
German Act, Deutsche Telekom is required to permit competitors to be
interconnected to its network. RSL Germany has applied for a Germany-wide, class
4 license (public switched telephony services) with the Federal Ministry of
Posts and Telecommunications.
DUTCH OPERATIONS
OVERVIEW
The Netherlands originated 1.5 billion minutes of international traffic in
1995. The Company operates in the Netherlands through RSL Netherlands. RSL
Netherlands is an international carrier with switches installed in Rotterdam and
Amsterdam.
RSL Netherlands initiated operations in October 1995 and generated
approximately $7.9 million in revenues for the year ended December 31, 1996, its
first full year of operations, a gross margin of approximately 47%, and a pretax
profit of approximately $2.0 million. Revenues for the six month period ended
June 30, 1997 were approximately $8.1 million.
SERVICES AND CUSTOMERS
The Company offers its customers in the Netherlands international long
distance services utilizing direct access, prefix dialing and dial-in access,
and prepaid calling cards (which represented approximately 54% of RSL
Netherlands' total revenues for the six months ended June 30, 1997). As of June
30, 1997, the Company's customer base in the Netherlands consisted of
approximately 1,440 commercial customers.
MARKETING AND SALES
The Company markets its services in the Netherlands through a variety of
channels, including through six direct sales representatives, and indirect sales
through independent agents and an outside telemarketing company. The Company
believes that many of the agents have existing relationships with businesses in
the Company's target market which better position them to identify and sell
services to
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prospective customers. The Company sells its prepaid calling card through seven
independent distributors.
DUTCH NETWORK ARCHITECTURE
In the Netherlands, the Company operates two Nortel Meridian switches,
directly linked by leased capacity, from its offices in Rotterdam and Amsterdam.
RSL Netherlands is linked directly to the Company's London gateway by leased
facilities and resells the services of British Telecom and Global One on all
routes where it is economical to do so.
COMPETITION
The Company's principal competitor in the Netherlands is PTT Telecom
Netherlands, the dominant supplier of telecommunications services in the
Netherlands. The Company also faces competition from emerging licensed public
telephone operators (who are constructing their own facilities-based networks)
such as WorldCom, and from mega-carriers including Concert and Global One. The
Company believes its services are competitive, in terms of price and quality,
with the service offerings of its competitors in the Netherlands.
REGULATORY ENVIRONMENT
As of July 1, 1997, restrictions on voice telephony services over cable
infrastructure were liberalized, in effect bringing about full liberalization of
the telecommunications market in the Netherlands.
Under the current licensing regime, two new licensees other than the Dutch
PTT may operate nationwide fixed telecommunications networks: Telfort, a joint
venture between British Telecom and the Dutch Railway Company, and Enertel, a
consortium of Dutch electricity companies and a large Dutch cable television
company. Furthermore, hundreds of licenses to operate regional fixed networks
have been granted mainly to electricity and cable television companies.
Nevertheless, neither the use of leased lines capacity and other leased
facilities, nor the services provided by the Company, requires a license.
A new telecommunications act is expected to take effect by the end of the
first quarter of 1998. The new act is expected to consolidate the full
liberalization of the Dutch telecommunications market and introduce a new
licensing regime. Although the details of that new regime are not yet certain,
the Company expects it will be required to obtain a registration from the new
Regulatory Authority in order to provide its current services. Such a
registration is, however, mainly a formality, and is not intended to restrict
access to the market. Notably, the new telecommunications act may require an
individual license for the provision of voice telephony services between the
Netherlands and non-EU countries. The Company, however, does not believe such a
license will be required for the services it provides in the Netherlands,
although there can be no assurance in this regard.
FRENCH OPERATIONS
OVERVIEW
France originated 2.8 billion minutes of international traffic in 1995. RSL
France was formed in April 1996 for the purpose of acquiring Sprint's
international voice business in France. Sprint was required to divest itself of
its French and German international voice businesses under the terms of the
Global One joint venture agreement.
Sprint commenced its international voice business in France in 1994.
Revenues for such operation for the years ended December 31, 1996 and 1995 were
$11.1 million and $8.0 million, respectively, and $3.9 million and $5.3 million
for the six months ended June 30, 1997 and 1996, respectively. This decline in
the Company's revenues for the six month period ended June 30, 1997 is due
primarily to customer attrition from the customer base of Sprint France
(consisting solely of large national and
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multinational customers acquired in the Sprint Acquisitions), as well as the
deterioration in the Dollar-Franc exchange rate.
SERVICES AND CUSTOMERS
The Company offers its customers in France international long distance
services utilizing direct access over leased lines and restricted dial-in for
customers in closed-user groups. Direct access is provided via a leased line
connection between the customer's phone system and the Company's switch in
Paris. Following deregulation, the Company plans to offer long distance
services, which are presently restricted to closed user groups, with prefix
dialing and value-added services. As of June 30, 1997, the Company's French
customer base consisted of three carrier customers and 48 direct access and
approximately 134 dial-in access commercial customers. The Company's customers
in France include small and medium-sized businesses, a government agency with
heavy international calling patterns, as well as certain large national and
multinational businesses that were part of Sprint France's customer base and
which remain customers of the purchased business.
MARKETING AND SALES
The Company markets its services through a variety of channels, including
direct sales and indirect sales through independent agents. As of June 30, 1997,
the Company's French operations employed 19 sales representatives and had
relationships with 15 independent agents. The Company intends to expand its
direct sales force and agent network as a part of its growth strategy.
FRENCH NETWORK ARCHITECTURE
RSL France operates an Ericsson AXE-10 international gateway switch in its
offices in Paris. RSL France also operates two POPs, one located in Paris and
another located in Nice-Sophia Antipolis. In addition the Company intends to
install additional POPs in major business centers outside Paris to lower its
cost of providing services in these areas. French regulations currently do not
allow the Company to purchase its own international transmission facilities and
it is uncertain when or if the law will be changed. As a result, international
transmission facilities are leased from France Telecom. The Company connected
its French operations to RSL-NET in December 1996.
COMPETITION
The Company's principal competitor in France is France Telecom, the
dominant supplier of telecommunications services in France, and its
International Colisee program which offers discount long distance services to
the largest commercial customers. The Company also faces competition from
emerging licensed public telephone operators (who are constructing fiber
networks in major metropolitan areas) such as AT&T, Bouygues and CEGETEL and
from resellers including Esprit and Viatel, Inc. ('Viatel'). Upon deregulation,
alternative networks currently under construction are expected to become
available to route and terminate traffic domestically. The Company believes its
services are competitive, in terms of price and quality, with the service
offerings of its French market competitors.
REGULATORY ENVIRONMENT
The services currently provided by the Company in France do not require a
license. In accordance with the Telecommunications Laws passed in July 1996, the
liberalization process is regulated by a new government authority, the French
Telecommunications Authority ('Autorite de regulation des Telecommunications'),
which was established in January 1997. The telecommunications market in France
is scheduled to be liberalized on January 1, 1998 along with the markets of most
other EU member states. In accordance with the standard terms and conditions and
price lists for interconnection with France Telecom duly approved by the French
Telecommunications Authority on April 9, 1997, new operators would be able to
interconnect with France Telecom's PSTN starting on January 1, 1998. The Company
has applied for a license which will permit it to provide international long
distance services utilizing direct access or dial-in access in those areas where
the Company establishes POPs. In the areas where the Company has not established
POPs, the Company may not have the opportunity to participate in the lower
interconnection prices. If this license is granted, the French government is
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expected to require the Company to commit approximately $10 million in capital
expenditures for infrastructure over the next three to five years, which is in
excess of amounts the Company believes it will spend on capital expenditures in
all of its other European operations. See 'Risk Factors-- Government Regulatory
Restrictions.'
SWEDISH OPERATIONS
OVERVIEW
Sweden originated 900 million minutes of international traffic in 1995. The
Company operates in Sweden through RSL Sweden, in which the Company acquired a
majority interest in November 1995. RSL Sweden is licensed as an international
carrier in Sweden, which permits it to transmit long distance services
nationally and internationally. The Company's Swedish operations began operating
and generating revenues in May 1996 and generated approximately $895,000 for the
year ended December 31, 1996, its first year of operations, and $1.8 million for
the six months ended June 30, 1997.
SERVICES AND CUSTOMERS
The Company offers long distance and value added services to its customers
in Sweden. Customers access the Company's switch utilizing prefix dialing and
direct access. As of June 30, 1997, the Company's customer base in Sweden
consisted of 1,011 commercial customers and 3,519 residential customers as well
as an agreement to terminate international traffic for a mobile service provider
in Sweden.
MARKETING AND SALES
The Company's Swedish operation markets its services through a variety of
channels, including direct sales, indirect sales through independent agents and
telemarketing sales. As of June 30, 1997, the Company employed five full-time
sales and marketing employees in Sweden, although the Company intends to expand
its direct sales force as a part of its growth strategy. The Company primarily
relies on its network of approximately 20 independent sales agents to sell its
long distance calling services in Sweden. In addition, the Company sells its
services through a chain of 12 independent telecommunications stores with
locations throughout Sweden, as well as through a large association comprised of
individuals and businesses. The Company believes that many of its agents have
existing relationships with businesses in the Company's target market which
better position them to identify, and sell services to, prospective customers.
SWEDISH NETWORK ARCHITECTURE
In Sweden, the Company operates an Ericsson AXE-10 international gateway
switch from its offices outside of Stockholm. RSL Sweden is connected to RSL-NET
by leased facilities. RSL Sweden utilizes its IRUs on the CANTAT-3 transoceanic
cable and resells services from WorldCom and Telia (the former monopoly PTT in
Sweden). RSL Sweden also owns MIUs on the KATTEGAT-1 transoceanic cable system.
RSL Sweden currently has operating agreements with carriers in Denmark and
Norway, as well as direct connections to the Company's operations in the United
Kingdom, United States and Finland.
COMPETITION
The Company's principal competitor in Sweden is Telia, the dominant
supplier of telecommunications services in Sweden. The Company also faces
competition from emerging licensed public telephone operators (which are
constructing their own fiber networks) such as Tele 2 and WorldCom, and from
resellers including Telenordia, Telecom Finland and Tele 8. Upon the completion
of the construction of the new fiber networks, the Company will have alternative
means of routing and terminating calls. The Company believes its services are
competitive, in terms of price and quality, with the service offerings of its
Swedish competitors.
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REGULATORY ENVIRONMENT
All types of telecommunications services were liberalized in Sweden in
1993. Through RSL Sweden, the Company holds an unrestricted license to provide
national and international telephony in the Swedish market. As a licensed
carrier, the Company may buy IRUs or lease fixed capacity from other providers,
or utilize the former PTT network to originate and terminate its traffic. The
Company's services are accessed primarily by prefix dialing. It is generally
believed that the Swedish Parliament will amend the Swedish Telecom Act to
facilitate equal access for all carriers after 1998.
FINNISH OPERATIONS
OVERVIEW
Finland originated 315 million minutes of international traffic in 1995 and
is an important market because it serves as a gateway to Russia. The Company
operates in Finland through RSL Finland, in which the Company acquired a
majority interest in November 1995. RSL Finland is a fully licensed
international long distance carrier in Finland. The Company's Finnish operations
began operating and generating revenues in May 1996 and generated approximately
$598,000 in revenues for the year ended December 31, 1996, its first year of
operations, and $1.2 million for the six months ended June 30, 1997.
SERVICES AND CUSTOMERS
The Company offers its customers in Finland international and domestic long
distance services utilizing direct access, prefix dialing and dial-in access. As
of June 30, 1997, the Company's customer base in Finland consisted of
approximately 1,895 commercial customers and 950 residential customers.
MARKETING AND SALES
The Company markets its services in Finland through a variety of channels,
including direct sales and indirect sales through independent agents. As of June
30, 1997, the Company employed nine sales and marketing employees in Finland.
The Company relies heavily on its network of approximately 20 independent sales
agents to sell its long distance calling services in Finland. The Company
believes that many of the agents have existing relationships with businesses in
the Company's target market which better position them to identify and sell
services to prospective customers.
FINNISH NETWORK ARCHITECTURE
In Finland, the Company operates an Ericsson AXE-10 international gateway
switch in its offices in Helsinki. RSL Finland primarily utilizes RSL Europe's
network for international termination. International termination is also
achieved by RSL Finland through connections to Telecom Finland's and other
carriers' international circuits.
COMPETITION
The Company's principal competitor in Finland is Telecom Finland, the
dominant supplier of telecommunications services in Finland. The Company also
faces competition from emerging licensed public telephone operators (who are
constructing their own facilities-based networks) such as Global One, Finnet and
Telivo, a subsidiary of Telia, and from resellers including Tele 1. The Company
believes its services are competitive, in terms of price and quality, with the
service offerings of its Finnish competitors.
REGULATORY ENVIRONMENT
There are two classes of operators in Finland, (i) network operators, which
have their own network of domestic transmission lines, and (ii) service
operators, which cannot own domestic transmission lines or IRUs, but can have
their own switching facilities. RSL Finland was granted a license to provide
services as a network operator in March 1997.
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In August 1997, the New Telecommunications Market Law was enacted, which
removes the last restrictions applicable to telecommunications and enforces
competition. As a result, network operators are obligated to rent full network
capacity, including local loops, to other operators. In addition, the New
Telecommunications Market Law provides that companies will only need to hold a
license in order to provide services as a mobile phone network operator.
DANISH OPERATIONS
Denmark originated 533 million minutes of international traffic in 1995.
The Company operates in Denmark through RSL Denmark, a wholly owned subsidiary
of RSL Netherlands, which initiated its operations in April 1997 and began
generating revenues in May 1997.
SERVICES AND CUSTOMERS
RSL Denmark currently offers its customers prefix dialing. The services are
offered to commercial customers as a subscription service and to private
customers by prepaid cards.
MARKETING AND SALES
The services are distributed through direct sales by the Company and
through a third party marketing company. The Company's interconnect prefix,
which was recently installed, provides the customers with the option of using
the Company's direct line, without requiring a physical connection.
DANISH NETWORK ARCHITECTURE
All traffic is transmitted through leased lines terminating at RSL
Netherlands' domestic switches located in Rotterdam and Amsterdam. The Company
routes all calls through Tele Danmark's network via the interconnect agreement
between the Company and Tele Danmark.
COMPETITION
The Company's principal competitor in Denmark is Tele Danmark, the dominant
PTT supplier of telecommunications services in Denmark. The Company also faces
competition from various other carriers, primarily Telia (the Swedish PTT), the
smaller Netcom Services and Global One, which are all connected to Tele
Danmark's fixed line network via interconnect agreements.
Tele Danmark offers full scale telephony in all areas. Telia offers both
long distance services through prefix dialing and other related services such as
call center solutions and data services.
REGULATORY ENVIRONMENT
All telecommunications services in Denmark were liberalized in 1996.
Currently, the Company may, through RSL Denmark, provide national and
international telephony in the Danish market, except mobile telephony which
requires a license. The Company currently can only either buy or lease fixed
lines from the PTT operator, Tele Danmark, which has an effective (but not
legal) monopoly on the ownership and construction of fixed lines. It is
expected, however, that pending regulation will limit Tele Danmark's market
control, although there can be no assurance in this regard.
PORTUGUESE OPERATIONS
Portugal originated 284 million minutes of international traffic in 1995.
The Company operates in Portugal through its 30.4% investment in Maxitel, which
the Company acquired in April 1997.
Maxitel commenced operations in the international voice and data business
in December 1994.
SERVICES AND CUSTOMERS
Maxitel offers international and long distance voice services to closed
user groups of companies utilizing autodialers and direct access. In addition,
Maxitel offers store and forward fax services. The target market for the Company
is small to medium-sized business. At June 30, 1997, Maxitel believes it had
approximately 154 commercial customers and subscriptions from an additional
approximately 100 customers.
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MARKETING AND SALES
Maxitel markets its services through a direct sales force and is developing
an indirect sales force through independent agents. It is using its existing fax
customer base to sell voice telephony services. As of June 30, 1997, Maxitel
employed three sales representatives.
PORTUGUESE NETWORK ARCHITECTURE
Maxitel operates an Ericsson domestic switch in its offices in Lisbon,
which is in the process of being upgraded to an Ericsson AXE-10 international
gateway switch. In addition, the Company is in the process of installing an
Ericsson domestic switch in Oporto. The upgraded switch and the new switch are
expected to be operational by the end of the third quarter of 1997.
Additionally, Maxitel leases satellite transmission capacity on Orion, Hispasat
and Intelsat.
COMPETITION
Maxitel's primary competitor is Portugal Telecom, the dominant supplier of
telecommunications services in Portugal. The Company also competes with the
local Portuguese affiliates of global carriers such as Global One, and with
resellers in the Portuguese market.
REGULATORY ENVIRONMENT
Fixed voice telephony services, except mobile, were subject to a monopoly
until March 1997. A second GSM mobile operator has been licensed since 1992 and
a request for applications for a third license was issued by the government in
July 1997. Under the terms of the current legislation it is possible for
companies other than the PTT to offer both national and international voice
services to closed user groups. Interconnection to the Portugal Telecom PSTN is
permitted for such services. Portugal Telecom is expected to be fully privatized
by the end of 1997. Full market liberalization is now expected to occur by
January 1, 2000, but there can be no assurance in this regard.
ITALIAN OPERATIONS
OVERVIEW
Italy originated 1.9 billion minutes of international traffic in 1995. The
Company operates in Italy through RSL Italy (DECADE Communications S.r.l.) in
which it acquired an 85% interest in August 1997. RSL Italy, under its former
ownership, commenced operations in 1995.
SERVICES AND CUSTOMERS
RSL Italy offers its customers in Italy international long distance
services utilizing dial-in access via autodialers. RSL Italy will begin selling
domestic long distance service to its customers in Italy upon obtaining the
additional appropriate regulatory approvals necessary to provide such national
service. RSL Italy's current customer base consists of 125 small and
medium-sized businesses.
MARKETING AND SALES
RSL Italy markets its services through a direct sales force and is
developing an indirect sales force of independent agents. As of August, 1997,
RSL Italy had two agents in an office in Milan and three agents in an office in
Rome.
ITALIAN NETWORK ARCHITECTURE
RSL Italy currently operates as a switchless reseller, purchasing wholesale
facilities from other Italian carriers. RSL Italy plans to install an
international gateway switch in Milan and a POP in Rome by the end of the first
quarter of 1998. At such time the Company will link RSL Italy with RSL-NET.
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COMPETITION
RSL Italy's primary competitor is Telecom Italia S.p.A. ('Telecom Italia'),
the dominant supplier of telecommunications services in Italy. The Company also
competes with the local Italian affiliates of global carriers such as BT and
Global One. In addition, the Company competes with resellers in the Italian
market such as Infostrada and Skipper.
REGULATORY ENVIRONMENT
Currently, 'voice telephony' may only be provided by Telecom Italia. The
international voice services presently offered by RSL Italy do not fall within
the definition of 'voice telephony' as construed by Italian authorities. Under
the current regime, in order to render certain liberalized services, RSL Italy
is required to file a declaration with, or obtain an ad hoc authorization from,
the Italian Ministry for Communications. Whether RSL needs the declaration or
the authorization depends on the type of links to the PSTN actually used to
render the services. In fact, for liberalized services offered through switched
links to the PSTN, the declaration is required, whereas only an authorization is
needed for services offered through dedicated links. RSL Italy has filed a
declaration and authorization to offer the services that it currently offers or
for those that it plans to offer, and is waiting for approval and
acknowledgement from the Ministry although there can be no assurances that such
approval will be received.
In July 1997, the Italian Parliament passed Law No. 249/97 for the creation
of the National Regulatory Authority ('NRA') in the telecommunications field.
The NRA is not established yet. However, when the NRA is actually established
and operative, it will assume most of the regulatory and supervisory functions
currently carried out by the Italian Ministry for Communications. The NRA will
ensure the application of EU liberalization principles in Italy.
In August 1997, the Italian Government approved the text of a decree that
will implement a number of EC directives (including the Full Competition
Directive and the Interconnect Directive) aimed at creating a fully competitive
environment also with respect to 'voice telephony.' The decree has not been
published on the Italian Official Gazette as yet. If and when effective, the
decree should gradually assure 'full competition' starting from January 1, 1998.
AUSTRIAN OPERATIONS
OVERVIEW
Austria originated 901 million minutes of international traffic in 1995.
The Company will operate in Austria through RSL Austria in which it currently
holds a 90% interest.
SERVICES AND CUSTOMERS
RSL Austria intends to offer international voice services utilizing
autodialers and direct access beginning in the fourth quarter of 1997. RSL
Austria's targeted customers are small to medium-sized businesses.
MARKETING AND SALES
RSL Austria intends to market its services through both a direct and
indirect sales force as well as independent agents.
AUSTRIAN NETWORK ARCHITECTURE
RSL Austria anticipates that it will begin offering services by January
1998 as a switchless reseller. The Company has placed an order for an Ericsson
AXE-10 international gateway switch which it anticipates will be installed by
the end of the first quarter of 1998. The installation in Austria of a switch
will enable RSL Austria to expand the products and services it offers.
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COMPETITION
RSL Austria's primary competitor will be Post und Telecom Austria (the
'PTA'), the dominant supplier of telecommunications services in Austria. The
Company will compete with the local Austrian affiliates of global carriers such
as the BT and Global One. In addition, the Company expects to compete with
resellers in the Austrian market.
REGULATORY ENVIRONMENT
The telecommunications monopoly has remained largely intact and the PTA has
a legal monopoly on voice telephony, telex and telegram services. New
telecommunications legislation, however, was passed in July 1997 which will
permit interconnection with the PTA's PSTN beginning on January 1, 1998,
allowing competition in voice telephony services. Telecommunications services
will be subject to licenses granted by an Austrian regulatory authority to
applicants with sufficient technical and economic facilities. The Company
intends to apply for such a license at such time.
LATIN AMERICAN OPERATIONS--GENERAL
RSL Latin America was formed in May 1997 as a joint venture pursuant to a
shareholders' agreement (the 'Joint Venture Agreement'), between the Company and
Coral Gate Investments Ltd., a British Virgin Islands corporation ('Coral
Gate'), which is an affiliate of Inversiones Divtel, D.T., C.A. ('Divtel'), a
Venezuelan corporation, and a member of the Cisneros Group. RSL Latin America is
51% owned by RSL and 49% owned by the Cisneros Group. To date, RSL Latin America
has not generated revenues.
RSL Latin America's primary purpose is to develop, through local operating
companies formed in conjunction with local partners, a pan-Latin American
network and operations spanning Mexico, Central and South America and the
Caribbean.
Concurrently with the execution of the Joint Venture Agreement with the
Cisneros Group, RSL Latin America acquired 49% of Sprintel, from Divtel and
Megatel Telecomunicaciones, C.A. ('Megatel'). Divtel will transfer its remaining
51% interest in Sprintel to RSL Latin America upon the receipt of approval from
the appropriate regulatory authorities for the transfer of control of Sprintel
to RSL Latin America. Sprintel has terminated its agreements with each of Sprint
and Global One to distribute each of their products in Venezuela and has begun
to provide calling cards and enhanced fax services for RSL Latin America.
Various countries in Latin America have taken initial steps towards
deregulation in the telecommunications market during the last few years. Certain
countries have competitive local and/or long distance sectors, most notably
Chile, which has competitive operators in all sectors. In addition, various
Latin American countries have completely or partially privatized their national
carriers, including Argentina, Brazil, Chile, Mexico, Peru and Venezuela.
Since most Latin American countries currently restrict competition to a
limited number of specific services, the Company has developed a two stage
market penetration strategy to capitalize on the current and future
opportunities in Latin America. The first step is to take advantage of current
market conditions and, within the parameters of the Company's product line, to
provide the fullest range of services permissible under the local regulation.
The Company seeks to build a customer base within its target segments prior to
full market liberalization, and when the market opens to competition, the
Company will have an established base in its target areas.
VENEZUELAN OPERATIONS
OVERVIEW
Venezuela originated 129 million minutes of international traffic in 1995.
The Company operates in Venezuela through Sprintel and provides value-added
telecommunications services for RSL Latin America. Sprintel was organized in
1992.
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SERVICES AND CUSTOMERS
Sprintel offers its customers in Venezuela international long distance
voice services utilizing dedicated access along with prepaid and postpaid cards.
Sprintel has not yet developed a significant customer base.
MARKETING AND SALES
Sprintel markets its services through a direct sales force, telemarketing
and use of distributors to market its prepaid product. As of June 30, 1997,
Sprintel employed four sales representatives.
VENEZUELAN NETWORK ARCHITECTURE
Sprintel currently operates an Ericsson MD 110 switch directly linked via a
Panamsat-1 satellite circuit to the Company's New York international gateway
switch.
COMPETITION
Sprintel's primary competitor is CANTV, the dominant supplier of
telecommunications services in Venezuela. Sprintel also competes with local
Venezuelan affiliates of global carriers such as British Telecom, Global One,
Cable & Wireless, regional competitors such as Telefonica de Espana, Impsat,
Texcom S.A. and Charter Communications, and callback operators.
REGULATORY ENVIRONMENT
The Venezuelan telecommunications market is regulated by the Ministry of
Transportation and Telecommunications, by means of the National
Telecommunications Commission ('Conatel'). CANTV holds an exclusive monopoly on
the provision of local, domestic and international switched fixed telephone
services within Venezuela until October 2000. However, certain value-added
services are open to competition with a concession. Sprintel currently holds
Concessions for Value Added and Data Services which allow it to provide
international voice services via dedicated access provided on a private network.
Sprintel is not required to obtain a concession to provide prepaid and post paid
card services.
AUSTRALIAN OPERATIONS
OVERVIEW
Australia originated 1.0 billion minutes of international traffic in 1995.
The Company operates in Australia through RSL COM Australia Pty. Ltd. ('RSL
Australia'), a wholly-owned subsidiary of RSL COM Asia Ltd. The Company began
generating revenues in Australia in April 1997. From April 1, 1997 through June
30, 1997, RSL Australia generated $7.2 million of revenues.
SERVICES AND CUSTOMERS
In April 1997, the Company entered into an agreement with Pacific Star
Communications Limited ('Pac Star'), an Australian based switchless reseller,
pursuant to which the Company acquired substantially all of the commercial
customer contracts of Pac Star. As a result of such transaction, the Company's
customer base in Australia currently consists of approximately 1,450 commercial
customers. The Company offers these customers local services and domestic and
international long distance services.
MARKETING AND SALES
The Company plans to market its services in Australia through a variety of
channels, including direct sales and indirect sales through independent agents.
The Company's current revenues are generated from the customer base acquired
from Pac Star.
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AUSTRALIAN NETWORK STRUCTURE
The Company has installed an Ericsson AXE-10 international gateway switch
in its offices in Sydney and two domestic switches in Melbourne and Brisbane
which are directly linked to each other. These switches are expected to be
operational in the fourth quarter of 1997. The Company plans to purchase for its
Australian operation IRUs on the APCN, JASAURUS and NPC undersea fiber optic
cable systems and on the CMC and MCC terrestrial fiber optic cables.
COMPETITION
The Company's principal competitors in Australia are the two licensed
general carriers Telstra Corporation Limited (the former PTT) and Optus
Communications Pty. Limited. Each of these competitors provides a bundle of
services including mobile, local, and domestic and international long distance.
In addition the Company faces competition from switch-based and switchless
resellers such as Spectrum Network Systems Limited, Axicorp Pty. Limited, Call
Australia Pty. Limited and AAPT Pty. Limited.
REGULATORY ENVIRONMENT
RSL Australia has been enrolled with the Australian Telecommunications
Authority ('Austel') under the provisions of the International Service Providers
Class License as a provider of services with double-ended interconnection. The
Telecommunications Act 1991 allows enrollment as a provider of services with
double-ended interconnection, provided that Austel is satisfied that the
services to be offered are in the public interest. Double-ended interconnection
allows the Company to interconnect with the Australian PSTN, to resell general
carrier services, and to transmit international calls over owned international
transmission facilities. Customers are able to access the Company's network from
the PSTN utilizing a four digit prefix code issued by Austel and via 'equal
access' pursuant to the Telstra Interconnect Agreement. International long
distance services may be provided by the use of satellite based facilities or
international cable capacity. Full deregulation of the Australian
telecommunications market occurred in July 1997 with the repeal of the
Telecommunications Act 1991 and the introduction of the Telecommunications Act
1997. RSL Australia has been granted full international carrier status under the
new act. However, there have been delays in implementing the new act and,
therefore, the Company has continued to operate as it has under the old act
pursuant to the transitional provisions of the new act.
ASIA AND PACIFIC RIM OPERATIONS
RSL Asia is a wholly-owned subsidiary of the Company, based in Hong Kong.
RSL Asia was formed to expand the Company's operations into the Asian/Pacific
Rim market and, in March 1997, the Company incorporated RSL Japan to initiate
the Company's operations in Japan. RSL Asia intends to capitalize on the trend
toward deregulation within the region to establish operations in key countries.
The Company has hired a Regional Manager to oversee and develop RSL Japan's
operations. RSL Japan has also applied for a Type II value added network
provider license and will be able to provide services following approval of such
application. The Company plans to install an Ericsson AXE-10 international
gateway switch in its offices in Tokyo.
INTERNET TELEPHONY OPERATION--GENERAL
In July 1997, the Company acquired a 51% interest in Delta Three, a
telecommunications provider utilizing the Internet and networks based on
Internet protocols to provide telecommunications services and to transmit voice
communications. Since July 1997, the Company has acquired an additional
approximately 5% interest in Delta Three. Concurrently with the execution of the
acquisition agreement, the Company and Delta Three entered into a services
agreement, pursuant to which, among other things, Delta Three will provide the
Company with discounted Internet telephony services and the Company will provide
Delta Three with termination services at preferred rates and the co-location of
Delta Three's servers with the Company's facilities.
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The Internet is an interconnected global computer network of tens of
thousands of packet-switched networks using Internet protocols. Technology
trends over the past decade have removed the distinction between voice and data
segments. Traditionally, voice conversations have been routed on analog lines.
Today, voice conversations are routinely converted into digital signals and sent
together with other data over high-speed lines. In order to satisfy the high
demand for low-cost communication, software and hardware developers began to
develop technologies capable of allowing the Internet to be utilized for voice
communications.
Several companies, including Delta Three, now offer services that provide
real-time voice conversations over the Internet ('Internet Telephony'). These
services work by the use of an Internet gateway server ('Internet Gateway'),
which provides a connection between the PSTN and the Internet and converts
analog voice signals into digital signals. These signals are in turn compressed
and split into packets which are sent over the Internet like any other packets
and reassembled by a second Internet Gateway as audio output at the receiving
end. The packets are converted back into analog format and transferred to the
PSTN and then to the telephone number dialed.
Most Internet Telephony software today requires both users to use computers
that are connected to the Internet at the time of the call, but services
provided by Delta Three allows both parties to use their ordinary telephones.
Current Internet Telephony does not provide comparable sound quality to
traditional long distance service. The quality of Internet Telephony, however,
has increased over the past few years, and the Company expects such quality to
continue to improve, although there can be no assurance in this regard.
DELTA THREE OPERATIONS
OVERVIEW
Delta Three began operations in May 1996 and began offering commercial
voice over the Internet telecommunications services in January 1997. Delta Three
currently offers commercial service between 10 countries and it plans to extend
the service to several additional countries within the next two years.
SERVICE AND CUSTOMERS
Delta Three utilizes the Internet, traditionally a device for data
communications, as a transmission medium for ordinary telephone calls. The
service offered by Delta Three enables customers to place long distance and
international phone calls while using a standard telephone, without an
additional equipment. Delta Three offers these calls at a significant discount
to standard international calls.
Delta Three operates as a wholesale carrier for international long distance
resellers on a point-to-point basis and as a retail carrier, servicing its own
network and marketing the use of its network to consumers in designated areas.
MARKETING AND SALES
Delta Three's strategy is initially to utilize wholesale contracts to
increase the volume on its network and then to add retail and corporate clients
onto the network, which it will market under its name. Delta Three focuses on
supplying its services to high-margin international niches. Delta Three also
offers the Company the ability to purchase minutes wholesale at preferred rates.
DELTA THREE NETWORK
The Delta Three network consists of 12 Internet Gateways, located within
key metropolitan areas in target countries. A Delta Three customer dials an
access number where a Delta Three system prompts the customer for an access code
and the desired phone number. The system then opens a connection with a remote
Internet Gateway and instructs the Internet Gateway to place a local call to the
telephone the customer has dialed. Once the local call is transmitted, the
Internet Gateway converts the call into a form which can be routed over the
Internet and transfers the call to a second Internet Gateway. The Internet
Gateway may be connected by (i) the Internet accessed through an Internet
service provider,
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(ii) capacity leased on a private Intranet and (iii) leased private lines. By
routing calls in such a manner, Delta Three is able to avoid the high costs
associated with the settlement process.
REGULATORY ENVIRONMENT
While regulation still plays a significant role in traditional
telecommunications markets, the Internet is largely unregulated, permitting
business opportunities to flourish and to rapidly follow technological
developments. To date, the FCC has never directly exercised regulatory
jurisdiction over Internet-based services. The rapid development of the
Internet, however, raises the question of whether the language of the
Communications Act of 1934, as amended by the Telecommunications Act of 1996, or
existing FCC regulations, covers particular services offered over the Internet.
The FCC and most foreign regulators have not yet attempted to regulate the
companies that provide the software and hardware for Internet Telephony, the
access providers that transmit their data, or the service providers, as common
carriers or telecommunications services providers. Therefore, the existing
systems of access charges and international accounting rates, to which
traditional long distance carriers are subject, are not imposed on providers of
Internet Telephony services. As a result, such providers may offer calls at a
significant discount to standard international calls. There can be no assurance,
however, that the FCC and foreign regulators will not regulate Internet
Telephony or Internet service providers in the future.
The level of regulation of Internet Telephony differs significantly in
other countries and, in many countries, Internet Telephony is not regulated any
differently than other Internet service. In some countries Internet Telephony is
illegal. There can be no assurance that regulation of Internet Telephony will
not increase around the world.
EMPLOYEES
As of September 1, 1997, the Company employed approximately 475 people,
including officers, administrative and salaried selling personnel. The Company
considers its relationship with its employees to be good.
PROPERTIES
The Company's principal office is at Clarendon House, Church Street,
Hamilton, Bermuda.
The Company maintains executive offices at 767 Fifth Avenue, New York, New
York, where the Company occupies 2,589 square feet under a lease which expires
on January 31, 2002, although the Company has the option to terminate such lease
beginning in February 1998. The lease provides for annual lease payments of
$110,000.
The Company also maintains a 3,040 square foot office at 60 Hudson Street,
New York, New York which houses the Company's international gateway and domestic
switches located in New York. The lease extends until September 30, 1997 and
provides for annual lease payments of $262,000.
The Company has entered into a lease to maintain a 14,000 square foot
office at 430 Park Avenue, New York, New York for RSL USA's Eastern United
States offices. The lease extends until June 29, 2001 and provides for annual
lease payments of $375,000.
The Company maintains a 15,000 square foot office at 5550 Topanga Canyon
Boulevard, Woodland Hills, California which houses RSL USA's western offices.
The lease for such space extends until January 15, 2003 and provides for annual
lease payments of $333,000.
The Company maintains an office at Churchill House, 142-146 Old Street,
London, England which is used as the location for the London international
gateway switch and the London domestic switch. The lease extends until October
1, 2005 and provides for annual lease payments of $83,000 until March 1998 and
may be increased thereafter.
In addition, the Company maintains offices with respect to its other
foreign operations, the aggregate annual lease payments for which equal
approximately $2.1 million.
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The Company, through its direct and indirect subsidiaries, also leases
additional office spaces for its operations.
LEGAL PROCEEDINGS
AT&T recently filed with the FCC an opposition to the Company's requests
for modification of the International Settlement Policy to implement the
Company's accounting rates for international long distance service between the
United States and each of Denmark, the Dominican Republic, Finland, Norway and
the United Kingdom. AT&T has alleged, inter alia, that the requests violate the
principles underlying the International Settlement Policy and the FCC's
non-discrimination policy. The Company does not believe that the FCC's
resolution of this matter reasonably can be expected to have a material adverse
effect on its business or results of operations.
The Company also is, from time to time, a party to litigation that arises
in the normal course of its business operations. The Company is not presently a
party to any such litigation that the Company believes could reasonably be
expected to have a material adverse effect on its business or results of
operations.
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MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
Certain information concerning directors and executive officers of the
Company and certain of its subsidiaries is set forth below:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ------------------------------------------------ --- ------------------------------------------------
<S> <C> <C>
Ronald S. Lauder................................ 53 Director and Chairman of the Board
Itzhak Fisher................................... 41 Director, President and Chief Executive Officer
Andrew Gaspar................................... 49 Director and Vice Chairman of the Board
Jacob Z. Schuster............................... 48 Director, Executive Vice President, Chief
Financial Officer, Assistant Secretary and
Treasurer
Richard E. Williams............................. 45 President and Chief Executive Officer of RSL
Europe
Paul G. Black................................... 40 President of RSL USA
Adrian Coote.................................... 43 Managing Director of RSL Australia
Karen van de Vrande............................. 47 Vice President of Marketing
Nir Tarlovsky................................... 31 Vice President of Business Development
Nesim N. Bildirici.............................. 30 Vice President of Mergers and Acquisitions
Mark J. Hirschhorn.............................. 33 Vice President--Finance, Global Controller and
Assistant Secretary
Roland T. Mallcott.............................. 50 Vice President of Engineering
Andrew C. Shields............................... 41 Vice President of International Carrier
Relations
Avery S. Fischer................................ 30 Legal Counsel
Tucker Hall..................................... 41 Secretary
Gustavo A. Cisneros............................. 52 Director
Fred H. Langhammer.............................. 52 Director
Leonard A. Lauder............................... 64 Director
Eugene Sekulow.................................. 66 Director
Nicolas G. Trollope............................. 50 Director
</TABLE>
All directors hold office, subject to death, removal or resignation, until
the next annual meeting of shareholders and thereafter until their successors
have been elected and qualified. Officers of the Company serve at the pleasure
of their respective Boards of Directors, subject to any written arrangements
with the Company. See '--Employment Arrangements.' Set forth below is certain
information with respect to the directors, executive officers and other senior
management of the Company.
Ronald S. Lauder co-founded the Company, has served as its Chairman since
1994 and is its largest and controlling shareholder. He is also a founder and
has served as the non-executive Chairman of the Board of Central European Media
Enterprises Ltd. ('CME'), an owner and operator of commercial television
stations and networks in Central and Eastern Europe since 1994. Mr. Lauder is a
principal shareholder of The Estee Lauder Companies Inc. ('Estee Lauder') and
has served as Chairman of Estee Lauder International, Inc. and Chairman of
Clinique Laboratories, Inc. since returning to the private sector from
government service in 1987. From 1983 to 1986, Mr. Lauder served as Deputy
Assistant Secretary of Defense for European and NATO affairs. From 1986 to 1987,
Mr. Lauder served as U.S. Ambassador to Austria. Mr. Lauder is a director of
Estee Lauder. He is
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Chairman of the Board of Trustees of the Museum of Modern Art, and Treasurer of
the World Jewish Congress.
Itzhak Fisher, a co-founder of the Company, has been a director, President
and Chief Executive Officer of the Company since its inception in 1994. Mr.
Fisher is also the President and Chief Executive Officer of ITG, the Chief
Executive Officer of RSL USA and the Chairman of RSL Europe. From 1992 to 1994,
Mr. Fisher served as General Manager of Clalcom Inc., the telecommunications
subsidiary of Clal (Israel), Ltd., Israel's largest investment corporation
('Clal'). Prior to joining Clalcom, from 1990 to 1992, Mr. Fisher served as the
Special Consultant to the President of Bezeq the Israel Telecomunication Corp.
Ltd., Israel's national telecommunications company. From 1990 to 1991, Mr.
Fisher was a consultant to Mobil Oil Corporation, in the telecommunications
field. In 1989, Mr. Fisher co-founded Medic Media, Inc., a company engaged in
the business of renting telephone and television systems in hospitals throughout
Israel, and was a director and its President and Chief Executive Officer through
1991. Mr. Fisher remains a director of Medic Media.
Andrew Gaspar has served as a director and Vice Chairman of the Board of
the Company since its inception in 1994. Mr. Gaspar has been (through a limited
liability company) the managing member of Lauder Gaspar Ventures LLC ('LGV')
since its inception in September 1996 and has been President of the corporate
general partner of R.S. Lauder, Gaspar & Co., L.P. ('RSLAG') since 1991. Both
RSLAG and LGV are venture capital companies. Mr. Gaspar has also been a director
of CME since June 1994. From 1982 until 1991, Mr. Gaspar was a partner of
Warburg, Pincus & Co., a venture capital firm, in which Mr. Gaspar specialized
in start-up ventures in the telecommunications industry. From 1973 until 1981,
Mr. Gaspar served in various executive capacities at RCA Global Communications,
Inc. and its affiliates. Mr. Gaspar is Chairman of Auto Info Inc., a financial
services company. Mr. Gaspar played a significant role in developing the initial
concept for the Company's global network and guided its initial strategy,
formation and financings.
Jacob Z. Schuster has been a director, Secretary or Assistant Secretary,
Treasurer and Executive Vice President of the Company since 1994 and has been
Chief Financial Officer of the Company since February 1997. From 1986 to 1992,
Mr. Schuster was a General Partner and the Treasurer of Goldman, Sachs & Co.
('Goldman Sachs'). Mr. Schuster has been President and Treasurer of RSL
Management Corporation since November 1995 and Executive Vice President of RSL
Investments Corporation since March 1994. Mr. Schuster joined Goldman Sachs in
1980, served as Treasurer of the firm from 1985 until his retirement from the
firm in 1992 and was made a General Partner in 1986. In 1993, Mr. Schuster
served as a consultant to Goldman Sachs.
Richard E. Williams has served as President and Chief Executive Officer of
RSL Europe since August 1995. From 1992 through 1994, Mr. Williams served as a
director of IDB WorldCom, with responsibility for sales and marketing. From 1990
to 1992, Mr. Williams served as Managing Director and Vice President of
Operations (Europe, Africa and Middle East) of WICAT Systems, a computer systems
company. From 1968 to 1990, Mr. Williams served in various technical, research,
sales, and management capacities at British Telecom, most recently serving as a
General Manager from 1988 to 1990.
Paul G. Black has been the President of RSL USA since March 1997. Mr. Black
joined the Company as President and Chief Executive Officer of Cyberlink in
October 1996. From 1995 to 1996, Mr. Black served as Vice President,
International Business Development of Pacific Gateway Exchange, Inc. From 1993
through 1995, Mr. Black was President and Chief Operating Officer of
SERSA/GEOCOMM, a provider of dedicated international communications services.
From 1990 to 1993, Mr. Black was Manager, Western Region for GTE Spacenet (now
known as GTE Telecom).
Adrian Coote has been Managing Director of RSL Australia since October
1996. From May 1993 to October 1996, Mr. Coote served as Director of Engineering
and Operations of Vodafone Pty. Limited, an Australian mobile carrier,
responsible for the design, implementation and operation of its mobile network
and subscriber administration systems. From 1987 to 1993, Mr. Coote was General
Manager, Sales of British Telecom Australasia responsible for introducing and
managing its private switching
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systems and global data networks. Prior to joining British Telecom Australasia,
Mr. Coote served in various capacities at Philips Telecommunications Systems.
Karen van de Vrande has been Vice President of Marketing of the Company
since March 1996. From March 1993 to February 1996, Ms. van de Vrande served as
Managing Director of AT&T's Consumer Communications Services for Europe, the
Middle East and Africa. From 1990 to 1993, Ms. van de Vrande served as Managing
Director of AT&T's Israeli operations. She served in various marketing and sales
capacities at AT&T from 1981 to 1990.
Nir Tarlovsky has been Vice President of Business Development of the
Company since April 1995 and served as a director of the Company from April 1,
1995 until March 1997. Mr. Tarlovsky is also Vice President of ITG. From 1992 to
March 1995, Mr. Tarlovsky served as Senior Economist of Clal, where he was
responsible for oversight of the operations and budgets of 150 of Clal
subsidiaries. While at Clal, he was also responsible for the development of new
international telecommunications ventures. Prior to 1992, Mr. Tarlovsky served
as an officer in the Israeli Army, where he was responsible for management and
financial oversight of international research and development projects.
Nesim N. Bildirici has been Vice President of Mergers and Acquisitions of
the Company since 1995 and served as a director of the Company from April 1995
until March 1997. From August 15, 1993 to December 31, 1996, Mr. Bildirici was
employed by both RSLAG and the Company. Mr. Bildirici is also a Managing
Director of RSLAG. Prior to joining RSLAG, Mr. Bildirici was an investment
banker at Morgan Stanley & Co. Incorporated from 1989 to 1991. From 1991 to
1993, Mr. Bildirici was a graduate student at Harvard Business School, where he
received his MBA.
Mark J. Hirschhorn has been Vice President-Finance of the Company since
August 1997 and has been Global Controller of the Company since January 1996.
Mr. Hirschhorn has also served as the Assistant Secretary of the Company since
September 1996. From October 1987 to December 1995, Mr. Hirschhorn was employed
at Deloitte & Touche LLP, most recently as a Senior Manager specializing in
emerging business and multinational consumer product companies.
Roland T. Mallcott has been Vice President of Engineering of the Company
since February 1997. From December 1995 until January 1997, Mr. Mallcott served
as Director of Joint Ventures of Concert, through British Telecom and MCI, in
Canada, Mexico and Germany. From January 1991 to December 1995, Mr. Mallcott
served as Director of Engineering and Operations for British Telecom (US)
responsible for building and managing the British Telecom and Concert global
data and voice networks. Prior to 1991, Mr. Mallcott served in various network
engineering capacities for British Telecom.
Andrew C. Shields has been Vice President of International Carrier
Relations since August 1997. From October 1993 until August 1997, Mr. Shields
served as Vice President of International Business Development of LCI
International, with responsibility for international business development and
international carrier relations. From June 1991 until October 1993, Mr. Shields
served as Director of Global Alliances for Northern Telecom responsible for
international infrastructure expansion. Mr. Shields also served as Northern
Telecom's Director of International Marketing from June 1989 until June 1991.
From 1984 to 1989, Mr. Shields served as Senior Manager, International Relations
for MCI International responsible for negotiating bilateral direct operating
agreements with international carriers. Mr. Shields also served, in various
capacities at MCI International, MCI Telecommunications, and ITT World
Communications from 1979 to 1984.
Avery S. Fischer has served as Legal Counsel of the Company since January
1997. From 1994 to 1997, Mr. Fischer was an associate with the law firm of
Rosenman & Colin LLP, New York, New York, with a practice concentrating in
mergers and acquisitions, securities and general corporate counseling. From 1993
to 1994, Mr. Fischer was an associate with the law firm of Shea & Gould, New
York, New York, with a practice concentrating in commercial and securities
litigation. From 1990 to 1993, Mr. Fischer was a student at Brooklyn Law School,
where he received his Juris Doctor.
Tucker Hall, Secretary of the Company since March 1997, has been a manager
of Codan Services Limited, Hamilton, Bermuda, a corporate service company, since
1989.
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Gustavo A. Cisneros has been a director of the Company since March 1997.
For more than five years, Mr. Cisneros, together with other members of his
family, and trusts established for their benefit have owned direct or indirect
beneficial interests in certain companies that own or are engaged in a number of
diverse commercial enterprises principally in Venezuela, the United States,
Brazil, Chile and Mexico. Mr. Cisneros has also been the Chairman of the Board
of Directors of Pueblo Xtra International, Inc. since June 1993 and a Director
of Univision Communications Inc. since May 1994.
Fred H. Langhammer, a director of the Company since September 1997, has
been President of Estee Lauder since 1995, and Chief Operating Officer of Estee
Lauder since 1985, and was Executive Vice President of Estee Lauder from 1985
until 1995. Mr. Langhammer joined Estee Lauder in 1975 as President of its
operations in Japan. In 1982, he was appointed Managing Director of Estee
Lauder's operations in Germany. Prior to joining Estee Lauder, Mr. Langhammer
was General Manager of Dodwell (Japan), a global trading company. He is a member
of the Board of Directors of the Cosmetics, Toiletries and Fragrance
Association, an industry group, and serves on the Board of the American
Institute for Contemporary German Studies at Johns Hopkins University.
Leonard A. Lauder has been a director of the Company since March 1997. Mr.
Lauder is a principal shareholder and has served as Chief Executive Officer of
Estee Lauder since 1982 and as President of Estee Lauder from 1972 until 1995.
He became Chairman of the Board of Directors of Estee Lauder in 1995. He has
been a director of Estee Lauder since 1958. Mr. Lauder formally joined Estee
Lauder in 1958 after serving as an officer in the United States Navy. He is
Chairman of the Board of Trustees of the Whitney Museum of American Art, a
Charter Trustee of the University of Pennsylvania and a Trustee of The Aspen
Institute. He also served as a member of the White House Advisory Committee on
Trade Policy and Negotiations under President Reagan.
Eugene Sekulow has been a director of the Company since September 1995.
Until his retirement in December 1993, Mr. Sekulow served as Executive Vice
President-International of NYNEX Corporation, having served as President of
NYNEX International Company from 1986 to 1991. Prior to joining NYNEX
International Company, Mr. Sekulow had served as President of RCA International,
Ltd. since 1973. Mr. Sekulow previously served as a member of the United States
State Department Advisory Committee on International Communications and
Information Policy and on the State Department Task Force on Telecommunications
in Eastern Europe.
Nicolas G. Trollope, a director of the Company since July 1996, has been a
partner with the law firm of Conyers, Dill & Pearman, Hamilton, Bermuda, since
1991.
Other than Ronald S. Lauder and Leonard A. Lauder, who are brothers, no
family relationship exists between any director or executive officer of the
Company.
COMMITTEES OF THE BOARD
The Company's Board of Directors (the 'Board of Directors') has an
Executive Committee (the 'Executive Committee'), a Compensation Committee (the
'Compensation Committee') and, within 90 days after the completion of the
Offerings, will establish an Audit Committee (the 'Audit Committee').
EXECUTIVE COMMITTEE
The Executive Committee is composed of Ronald S. Lauder, Andrew Gaspar,
Itzhak Fisher, Jacob Schuster and Eugene Sekulow. A majority of the members of
the Executive Committee must approve any action taken by the Executive
Committee. During the period between meetings of the Board of Directors, the
Executive Committee has all powers and authority of the Board of Directors to
manage the Company's business, except that the Executive Committee, acting
alone, cannot (i) amend the Company's Memorandum of Association or Bye-laws
(which also require shareholder approval); (ii) adopt an agreement of merger or
consolidation or approve the sale, lease or exchange of all or substantially all
of the Company's property and assets; or (iii) approve or recommend to the
Company's shareholders a dissolution of the Company.
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COMPENSATION COMMITTEE
The Compensation Committee currently is composed of Ronald S. Lauder,
Andrew Gaspar and Itzhak Fisher. The Board of Directors intends to change the
composition of the Compensation Committee subsequent to the Offerings, so that
the Compensation Committee will be composed solely of 'non-employee directors'
within the meaning of Rule 16b-3(b)(1) promulgated under the U.S. Securities
Exchange Act of 1934, as amended and 'outside directors' within the meaning of
Section 162(m)(4)(C)(i) of the U.S. Internal Revenue Code of 1986, as amended.
The Compensation Committee is responsible for determining executive compensation
policies and guidelines and for administering the Company's stock option and
compensation plans.
AUDIT COMMITTEE
Within 90 days after completion of the Offerings, the Board of Directors
will establish an Audit Committee. The Audit Committee will be comprised solely
of independent directors and will be charged with (i) recommending the
engagement of independent accountants to audit the Company's financial
statements, (ii) discussing the scope and results of the audit with the
independent accountants, (iii) reviewing the functions of the Company's
management and independent accountants pertaining to the Company's financial
statements and (iv) performing such other related duties and functions as are
deemed appropriate by the Audit Committee and the Board of Directors.
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COMPENSATION OF EXECUTIVE OFFICERS
SUMMARY COMPENSATION TABLE
The following table summarizes all plan and non-plan compensation awarded
to, earned by, or paid to (i) the Company's Chief Executive Officer, (ii) its
five most highly compensated executive officers, other than the Chief Executive
Officer, whose total annual salary and bonus exceed $100,000 and who were
serving as executive officers at the end of the Company's last fiscal year and
(iii) Charles M. Piluso, a former executive officer of the Company (together,
the 'Named Executive Officers'), for services rendered in all capacities to the
Company for the year ended December 31, 1996.
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION
COMPENSATION AWARDS
------------------- ---------------
SALARY BONUS OPTIONS
NAME AND PRINCIPAL POSITION $ $ #
- ----------------------------------------------------------------------- -------- -------- ---------------
<S> <C> <C> <C>
Itzhak Fisher
President and Chief Executive Officer................................ 350,000 150,000 0
Nir Tarlovsky
Vice President of Business Development............................... 178,000 75,000 0
Richard E. Williams (1)
President and Chief Executive Officer of RSL Europe.................. 172,000 50,000 0
Nesim N. Bildirici (2)
Vice President of Mergers and Acquisitions........................... 165,000 75,000 0
Charles M. Piluso (3)
Chairman of ITG...................................................... 230,000 0 0
Mark Hirschhorn
Vice President--Finance.............................................. 140,000 50,000 93,294
Karen van de Vrande
Vice President of Marketing.......................................... 120,000 50,000 131,400
</TABLE>
- ------------------
(1) Mr. Williams' salary has been converted to U.S. dollars for the purposes of
this table based upon the average exchange rate of British pounds to U.S.
dollars for the periods covered.
(2) Mr. Bildirici is employed by the Company but, during 1996, was employed by
both the Company and RSLAG. For purposes of this Prospectus, he is treated as an
employee of the Company only for the relevant periods. See '--Fiscal Year-End
Option Values,' '--Compensation Committee Interlocks and Participation.'
(3) Mr. Piluso, the former President of ITG and RSL USA, has not, since November
1996, served as an executive officer of the Company.
No other annual compensation, restricted stock awards, stock appreciation
rights or long-term incentive plan payouts or other compensation (all as defined
in the regulations of the Securities and Exchange Commission (the 'Commission'))
were awarded to, earned by or paid to the Named Executive Officers during 1996.
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STOCK OPTION AND COMPENSATION PLANS
AMENDED AND RESTATED 1995 STOCK OPTION PLAN
In April 1995, the Board of Directors of the Company authorized, and the
shareholders of the Company approved, the 1995 Stock Option Plan (as amended and
restated, the '1995 Plan'). Under the 1995 Plan, the Company's Compensation
Committee is authorized to grant options (after giving effect to the
Recapitalization) for up to 2,847,000 shares of the Company's Class A Common
Stock. As of September 4, 1997, the Company had granted options to purchase
2,792,888 shares of the Company's Class A Common Stock under the 1995 Plan. In
general, options granted under the 1995 Stock Option Plan terminate on the tenth
anniversary of the date of grant. The 1995 Plan was developed to provide
incentives to employees of the Company and to attract new employees and non-
employee directors. The Company will not grant further options under the 1995
Plan.
1997 STOCK INCENTIVE PLAN
Prior to the consummation of the Offerings, the Board of Directors intends
to adopt, and the shareholders of the Company are expected to approve, the 1997
Stock Incentive Plan (the '1997 Plan'). All future grants of options following
the consummation of the Offerings will be under the 1997 Plan. Options will be
granted under the 1997 Plan for the purposes of attracting and motivating key
employees of the Company.
The 1997 Plan will be administered by the Compensation Committee and will
provide for the grant of (i) incentive and non-incentive stock options to
purchase Class A Common Stock; (ii) stock appreciation rights ('SARs'), which
may be granted in tandem with stock options, in addition to stock options, or
freestanding; (iii) restricted stock and restricted units; (iv) incentive stock
and incentive units; (v) deferred stock units; and (vi) stock in lieu of cash
(hereinafter referred to as 'Awards'). The maximum number of shares of Common
Stock which shall be available for Awards granted under the 1997 Plan during its
term is expected to be approximately 7.0% of the total number of shares of Class
A Common Stock outstanding on a fully diluted basis. The maximum number of
shares for which options or stock appreciation rights may be granted to any one
participant in a calendar year is 500,000. At the consummation of the Offerings,
the Company expects to grant to Itzhak Fisher pursuant to his new employment
agreements options to acquire Common Stock under the 1997 Plan representing 1%
of the common shares of the Company, on a fully-diluted basis. See '--Employment
Arrangements'.
STOCK OPTIONS. Under the 1997 Plan, the exercise price of the options
generally will initially equal the fair market value of the Class A Common Stock
on the date of grant and will be increased on the first day of each calendar
quarter by an amount, compounded annually, based on the yield to maturity of
United States Treasury Securities with a maturity approximately equal to the
term of such options. The exercise price will not be less than fair market value
on the date of grant.
The options will generally have a term of seven years and will generally
become exercisable in three equal annual installments commencing on the first
anniversary of the date of grant.
The Compensation Committee may provide that a participant who delivers
shares of Class A Common Stock to exercise an option when the market value of
the Class A Common Stock exceeds the exercise price of the option will be
automatically granted new options for the number of shares delivered to exercise
the option ('reload options'). Reload options will be subject to the same terms
and conditions as the related option except that the exercise price is the fair
market value on the date the reload option is granted and such reload options
will not be exercisable for six months.
STOCK APPRECIATION RIGHTS. The 1997 Plan authorizes the Compensation
Committee to grant SARs in tandem with a stock option, in addition to a stock
option, or freestanding and unrelated to a stock option. SARs entitle the
participant to receive the excess of the fair market value of a stated number of
shares of Class A Common Stock on the date of exercise over the base price of
the SAR. The base price may not be less than 100% of the fair market value of
the Class A Common Stock on the date the SAR is granted. The Compensation
Committee will determine when an SAR is exercisable, the
89
<PAGE>
method of exercise, and whether settlement of the SAR is to be made in cash,
shares of Class A Common Stock or a combination of the foregoing.
RESTRICTED STOCK AND RESTRICED UNITS. The 1997 Plan authorizes the
Compensation Committee to grant Awards in the form of restricted stock and
restricted units. For purposes of the 1997 Plan, restricted stock is an Award of
Class A Common Stock and a restricted unit is a contractual right to receive
Class A Common Stock (or cash based on the fair market value of Class A Common
Stock). Such awards will be subject to such terms and conditions, if any, as the
Compensation Committee deems appropriate. Unless otherwise determined by the
Compensation Committee, participants shall be entitled to receive either
currently or at a future date, dividends or other distributions paid with
respect to restricted stock and, if and to the extent determined by the
Compensation Committee, either to be credited with or receive currently an
amount equal to dividends paid with respect to the corresponding number of
shares covered by restricted units. Restricted stock and restricted units become
vested and nonforfeitable and the restricted period shall lapse upon the third
anniversary of the date of grant unless the Compensation Committee determines
otherwise. If a participant's employment terminates because of death,
disability, early retirement (with the Compensation Committee's consent) or
normal retirement, during the period in which the transfer of shares is
restricted, the restricted stock or restricted units become vested and
nonforfeitable as to that percentage of the shares based upon the days worked as
a percentage of total days in the restricted period. Unless nonforfeitable on
the date of termination or otherwise determined by the Compensation Committee, a
restricted stock or restricted unit award is forfeited on termination.
INCENTIVE STOCK AND INCENTIVE UNITS. The 1997 Plan allows for the grant of
Awards in the form of incentive stock and incentive units. For purposes of the
1997 Plan, incentive stock is an Award of Class A Common Stock and an incentive
unit is a contractual right to receive Class A Common Stock. Such awards will be
contingent upon the attainment, in whole or in part, of certain performance
objectives over a period to be determined by the Compensation Committee. With
regard to a particular performance period, the Compensation Committee shall have
the discretion, subject to the 1997 Plan's terms, to determine the terms and
conditions of such Awards, including the performance objectives to be achieved
during such period and the determination of whether and to what degree such
objectives have been attained. Unless otherwise determined by the Compensation
Committee, participants shall be entitled to receive, either currently or at a
future date, all dividends and other distributions paid with respect to the
incentive stock and, if and to the extent determined by the Compensation
Committee, either to be credited with or receive currently an amount equal to
dividends paid with respect to the corresponding number of shares covered by the
incentive units. If a participant's employment terminates because of death,
disability, early retirement (with the Committee's consent) or normal retirement
during the measurement period, an Award of incentive stock or incentive units
shall become vested and nonforfeitable as to that percentage of the award that
would have been earned based on the attainment of performance objectives for the
days worked as a percentage of total days in the performance period. Unless
nonforfeitable on the date of termination, any incentive stock or incentive unit
award is forfeited on termination.
DEFERRED STOCK. An Award of deferred stock confers upon a participant the
right to receive shares of Class A Common Stock at the end of a specified
deferral period. On such date or dates established by the Compensation Committee
and subject to such terms and conditions as the Compensation Committee shall
determine, a participant may be permitted to defer receipt of all or a portion
of his annual compensation and/or annual incentive bonus ('Deferred Annual
Amount') and receive the equivalent amount in elective stock units based on the
fair market value of the Class A Common Stock on the date of grant. To the
extent determined by the Compensation Committee, a participant may also receive
supplemental stock units for a percentage of the Deferred Annual Amount. If the
participant elects to receive any portion of a bonus in Class A Common Stock in
lieu of cash as allowed by the 1997 Plan, the Compensation Committee may grant
an Award of deferred stock as free standing stock units, in such number and on
such terms as the Compensation Committee may determine. Deferred stock units
carry no voting rights until the shares have been issued. The Compensation
Committee shall determine whether any dividend equivalents attributable to
deferred
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<PAGE>
units are paid currently or credited to the participant's account and deemed
reinvested in deferred stock units. Deferred stock units and dividend
equivalents with respect thereto are fully vested at all times. Unless the
Compensation Committee provides otherwise, supplemental stock units and dividend
equivalents with respect thereto will become fully vested on the third
anniversay of the date the corresponding deferred amount would have been paid
and free standing stock units and dividend equivalents with respect thereto will
become fully vested on the third anniversary of the corresponding Class A Common
Stock in lieu of cash Award. Free standing units may be forfeited if the
corresponding Class A Common Stock is not held for a specified holding period.
STOCK IN LIEU OF CASH. The 1997 Plan authorizes the Compensation Committee
to grant Awards of Class A Common Stock to executive officers in lieu of all or
a portion of an award otherwise payable in cash pursuant to any bonus or
incentive compensation plan of the Company, based on the fair market value of
the Class A Common Stock.
1997 PERFORMANCE INCENTIVE COMPENSATION PLAN
Prior to the consummation of the Offerings, the Board of Directors intends
to adopt, and the shareholders of the Company are expected to approve, the 1997
Performance Incentive Compensation Plan (the '1997 Performance Plan'). The 1997
Performance Plan will be administered by the Compensation Committee. Awards
under the 1997 Performance Plan may be made to key employees recommended by the
Chief Executive Officer, selected by the Compensation Committee and approved by
the Board of Directors, including officers of the Company and its subsidiaries.
Directors who are not also employees of the Company or any of its subsidiaries
will not be eligible for awards under the 1997 Performance Plan. The 1997
Performance Plan will be effective for 1997 and each of calendar years 1998,
1999 and 2000, unless extended or earlier terminated by the Board of Directors.
With respect to calendar year 1997, a cash bonus pool of $2,675,000 would
be established if the Company achieves certain specified performance targets for
1997 to be established after the adoption of such Plan. In the event that all of
these performance targets are achieved, $650,000 will be awarded to the
Company's Chief Executive Officer, Mr. Itzhak Fisher and the remainder will be
awarded to key employees of the Company and its subsidiaries based upon the
recommendation of the Company's Chief Executive Officer and approved by the
Compensation Committee and the Board of Directors, with no individual receiving
more than $650,000. Any such award will be payable promptly following the
completion of the audit of the Company's 1997 financial statements.
Bonuses will be payable under the 1997 Performance Plan for a year if the
Company meets any one or more of the performance criteria for such year selected
by the Compensation Committee from among the following: (i) amount of or
increase in consolidated EBITDA; (ii) revenues; (iii) earnings per share; (iv)
net income; (v) gross profit margin; (vi) maximum capital expenditures; (vii)
return on equity; (viii) return on total capital; and/or (ix) completion of the
Offerings (applicable to 1997 only).
With respect to calendar years 1998 and thereafter, bonus amounts shall be
determined as follows: if 100% of such pre-established target or targets are
achieved, participants will generally be eligible to receive a bonus equal to
their base salary for such year. If 120% of such target is achieved, the bonus
potentially payable to participants will generally equal twice their base salary
for such year and, if 80% of such target is achieved, 25% of such base salary.
In the case of the Company's Chief Executive Officer, the amount of such
potential bonus will be 150% of base salary if 100% of the target is achieved,
250% of base salary if 120% of the target is achieved and 25% of such base
salary if 80% of the target is achieved. To the extent the Company's results
exceed 80% of the target but are less than 120% of the target, the amount of the
bonus payable to participants will be adjusted proportionately based on where
such results fall within the ranges set forth above. Any such bonus will consist
of two components. Fifty percent of the amount determined pursuant to the
formula described above will be payable if the applicable target is achieved. Up
to an additional 50% of such amount will be payable in the discretion of the
Compensation Committee. In addition, the 1997 Performance Plan will permit the
Compensation Committee to grant discretionary bonuses to participants,
notwithstanding that a bonus would not otherwise be payable under such Plan, to
recognize extraordinary individual performance.
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Under the 1997 Performance Plan, the Company will have the right to pay up
to 50% of a participant's bonus in Class A Common Stock (based on the fair
market value of such Common Stock at the time of payment). In addition, the 1997
Performance Plan will permit a participant to elect, in a time and manner
acceptable to the Compensation Committee, to receive all or a portion of his
bonus in Class A Common Stock or to defer payment of his bonus on terms and
conditions established by the Committee. No more than 400,000 shares of Class A
Common Stock may be issued under the 1997 Performance Plan.
Because the 1997 Performance Plan will be in existence before the
completion of the Offerings, the $1,000,000 deductibility limit of Section
162(m) of the Code generally will not apply to payments under the 1997
Performance Plan until the first meeting of the Company's shareholders at which
directors will be elected after the close of the third calendar year following
the calendar year in which the Offerings occur. The Board of Directors or the
Compensation Committee may at any time amend, suspend, discontinue or terminate
the 1997 Performance Plan; provided, however, that no such action shall be
effective without approval by the shareholders of the Company to the extent
necessary to continue to qualify the amounts payable as deductible under Section
162(m) of the Code.
SPECIAL OPTIONS
The Company intends to award options for the purchase of shares of Class A
Common Stock with an aggregate fair market value on the date of grant of up to
$100,000 to employees and other persons who have been instrumental in the
Company's development. Such options will be awarded by the Compensation
Committee at the recommendation of the Company's Chief Executive Officer.
OTHER PLANS
The Company is in the process of developing both short and long-term
programs for the employees of its subsidiaries which will be designed to reward
for outstanding performance, retain key employees, and align employees'
interests with those of the Company's shareholders. The Company's goals are also
to make its employee compensation packages competitive and to provide employees
with the opportunity to share in the long-term equity appreciation of the
Company.
OPTION GRANTS IN LAST FISCAL YEAR
The following table sets forth information with respect to grants of stock
options to purchase shares of Class A Common Stock pursuant to the 1995 Plan
granted to the Named Executive Officers during the year ended December 31, 1996.
No stock appreciation rights have been granted by the Company.
<TABLE>
<CAPTION>
PERCENT OF TOTAL
OPTIONS GRANTED
TO EMPLOYEES IN
FISCAL YEAR
OPTIONS ----------------- EXERCISE
GRANTED INDIVIDUAL PRICE EXPIRATION GRANT DATE
NAME # GRANTS $/SH DATE PRESENT VALUE $(1)
- ------------------------------------------ ------- ----------------- -------- ---------- ------------------
<S> <C> <C> <C> <C> <C>
Itzhak Fisher............................. 0 -- -- -- --
Nir Tarlovsky............................. 0 -- -- -- --
Richard E. Williams....................... 0 -- -- -- --
Charles M. Piluso......................... 0 -- -- -- --
Mark Hirschhorn........................... 93,294 33.6% 1.60 1/01/06 25,000
Nesim N. Bildirici........................ 0 -- -- -- --
Karen van de Vrande....................... 131,400 46.3% 1.60 4/01/06 35,000
</TABLE>
- ------------------
(1) The grant date present value has been calculated as of the grant date (which
dates were January 1, 1996 and April 1, 1996 for Mark Hirschhorn and Karen
van de Vrande, respectively) in accordance with the Black-Scholes model.
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FISCAL YEAR-END OPTION VALUES
The following table sets forth information with respect to the value at
December 31, 1996 of unexercised stock options held by the Named Executive
Officers. No stock appreciation rights have been granted by the Company and no
stock options were exercised during the fiscal year ended December 31, 1996 by
the Named Executive Officers.
<TABLE>
<CAPTION>
VALUE OF UNEXERCISED OPTIONS
NUMBER OF UNEXERCISED IN-THE-MONEY AT FISCAL YEAR-
OPTIONS AT FISCAL YEAR-END END (1)
--------------------------- ----------------------------
EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
NAME # $
- ------------------------------------------------------ --------------------------- ----------------------------
<S> <C> <C>
Itzhak Fisher......................................... 0/0 0/0
Nir Tarlovsky (2)..................................... 88,851/787,149 1,078,742/9,556,858
Richard E. Williams................................... 0/0 0/0
Charles M. Piluso..................................... 0/0 0/0
Mark Hirschhorn....................................... 0/93,294 0/983,634
Nesim N. Bildirici (3)................................ 88,851/458,649 1,078,742/5,568,508
Karen van de Vrande................................... 0/131,400 0/1,385,900
</TABLE>
- ------------------
(1) Fair market value of securities underlying the options at fiscal year-end
minus the exercise price of the options. Fair market value was determined by
the last prior sale of the Company's equity securities by the Company in
October 1996.
(2) Mr. Tarlovsky's options to acquire Class A Common Stock vest such that he
will not be able to exercise options to acquire more than 2% of the
outstanding capital stock as of the date on which his current employment
agreement expires.
(3) Mr. Bildirici is employed by the Company, but during 1996, was employed by
both the Company and RSLAG. For purposes of this Prospectus, he is treated
as an employee of the Company only for the relevant periods. See
'--Compensation Committee Interlocks and Participation.'
COMPENSATION OF DIRECTORS
The Company believes that the interests of its non-employee directors
should be aligned with the interests of the Company's shareholders. To this end,
the Company intends to require such directors to make 'meaningful' investments
in the Class A Common Stock (based on each director's financial means) and to
compensate such directors for their services to the Company principally through
the grant of stock options and stock awards.
With respect to the ownership of Class A Common Stock future directors
generally will be required, based on each such director's financial means, prior
to joining the Board, to purchase at the then fair market value a meaningful
number of shares of Class A Common Stock.
1997 DIRECTORS COMPENSATION PLAN
Prior to the consummation of the Offerings, the Company's Board of
Directors intends to adopt, and the current shareholders of the Company are
expected to approve, the 1997 Directors Compensation Plan (the 'Directors
Plan'). Under the Directors Plan, on the closing date of the Offerings and on
the first business day following each annual meeting of the Company's
shareholders during the 10-year term of the Directors Plan, each non-employee
Director (including for these purposes, the Chairman and Vice Chairman of the
Board of Directors) (a 'Non-Employee Director'), will be granted options to
acquire a number of shares of Class A Common Stock with an aggregate fair market
value on the date of grant equal to $50,000 ($150,000 and $75,000 in the case of
Ronald S. Lauder and Andrew Gaspar, respectively, in their respective capacities
as Chairman and Vice Chairman of the Board of Directors). Each such option will
have a 10-year term. The exercise price of the options initially will equal the
fair market value of the Class A Common Stock on the date of grant and will be
increased on the first day of each calendar quarter by an amount, compounded
annually, based on the yield to maturity of United States Treasury Securities
having a maturity approximately equal to the term of such options.
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The options will become exercisable in five equal annual installments
commencing on the first anniversary of the date of grant. The maximum number of
shares that may be issued under the Directors Plan will be 250,000.
The Directors Plan will also provide that, unless a Non-Employee Director
elects to defer receipt of such shares, he will receive, at or about the time of
the annual meeting of shareholders of the Company in each of 1998 through 2007,
for each full year of service as a Non-Employee Director (measured from one
annual meeting to the next), a number of shares of Class A Common Stock with a
fair market value equal to $30,000 (an 'Annual Share Award'). Pro rata awards
will generally be made for partial years of service greater than six months. Any
shares of Class A Common Stock granted to Non-Employee Directors as
compensation, while not restricted, are expected to be held by such persons
until they are no longer serving as a director, although there is no requirement
or assurance that they will do so.
On or before December 31 of any calendar year prior to December 31, 2007, a
Non-Employee Director may elect to defer receipt of all or any part of the value
of any Annual Share Award (the 'Share Value') payable in respect of the calendar
year following the year in which such election is made. The Share Value deferred
will be deemed invested in a stock account and will be deemed to be invested in
a number of notional shares of Class A Common Stock based on the fair market
value of the Class A Common Stock. Dividends (if any) will be deemed reinvested
in additional Units on the related dividend payment date. In the event of any
change in the Class A Common Stock by reason of any recapitalization,
reorganization, merger, consolidation, stock split or any similar change
affecting the Class A Common Stock (other than a stock dividend), the Board will
make an appropriate adjustment in the number of Units credited to the stock
account.
Each Non-Employee Director will elect whether (i) the aggregate amounts
credited to his account will be distributed wholly in cash, in the greatest
number of whole shares of Class A Common Stock or a combination of cash and
whole shares (with any fractional interest payable in cash), (ii) such
distribution will commence immediately following the date he ceases to be a
director or on the first business day of any calendar year following the
calendar year in which he ceases to be a director and (iii) such distribution
will be in one lump-sum payment or in such number of annual installments (not to
exceed 10) as he may designate. Each Non-Employee Director also may elect to
receive a distribution of all or any portion of the amounts credited to his
account as of a date which is at least one full year after the date of such
election. Any Non-Employee Director who elects to receive such a distribution
will cease to be eligible to make any additional deferrals for the two
immediately following calendar years.
KEY MAN LIFE INSURANCE
The Company maintains $5.0 million key man life insurance policies on the
lives of each of Itzhak Fisher and Richard E. Williams. The Company is the sole
beneficiary of such policies.
EMPLOYMENT ARRANGEMENTS
Each of the Company and ITG are parties to Employment Agreements, dated as
of September 15, 1995, with Itzhak Fisher, the President and Chief Executive
Officer of the Company and the President and Vice Chairman of ITG, the initial
terms of which are scheduled to expire on December 31, 1998. These agreements
will be replaced by the agreements described below upon the closing of the
Offerings. If the Closing of the Offerings does not occur, the terms of the
existing agreements will be automatically extended for successive one-year
periods unless they are terminated (i) by either party by September 30, 1997 or
September 30 of any subsequent year, (ii) for cause pursuant to a majority vote
of the Company's and ITG's Board of Directors, respectively, or (iii) or by Mr.
Fisher for good reason upon 30 days' notice. The existing employment agreements
provide that Mr. Fisher's aggregate initial base salary is $350,000 per annum,
which amount may be increased at the sole discretion of the respective Board of
Directors of each of the Company and ITG. The existing agreements contain non-
compete covenants having a term of one year following the termination of the
agreements and a confidentiality covenant. The existing agreement with the
Company relates to services to be provided by Mr. Fisher solely outside of the
United States, while the existing agreement with ITG relates to services to be
provided by Mr. Fisher solely within the United States.
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On September 2, 1997, each of the Company and ITG entered into new
employment agreements to replace the existing employment agreements with Itzhak
Fisher, which will commence on the date of the closing of the Offerings and
terminate on December 31, 2002. The employment agreements will provide that Mr.
Fisher will serve as President and Chief Executive Officer of the Company and
will specify certain of his other duties and reporting responsibilities. The
Company will use its best efforts to ensure that Mr. Fisher continues to serve
as a director and member of the Executive Committee of the Company and ITG will
use its best efforts to ensure that Mr. Fisher continues to serve as a director
of ITG. Under the employment agreements, Mr. Fisher will be entitled to receive,
in the aggregate, a base salary of $400,000, increased by not less than $50,000
on each January 1, commencing January 1, 1999, plus an additional amount based
on the increase in the consumer price index in the New York metropolitan area.
In no event will Mr. Fisher's base salary, in the aggregate, be less than
$50,000 more than the aggregate base salary of any other executive officer of
the Company. The employment agreements will also provide that Mr. Fisher will be
a participant in the 1997 Performance Plan, and that Mr. Fisher will receive
additional bonuses of $1,500,000 and $1,000,000 if the total return to the
Company's shareholders from the closing of the Offerings to December 31, 2000
and December 31, 2007, respectively, exceeds the return to shareholders of peer
companies for the same periods. If Mr. Fisher's employment is terminated for any
reason other than by the Company for Cause (as defined) or by Mr. Fisher without
Good Reason (as defined, including in the event of a change in control), Mr.
Fisher will be entitled to a pro-rated bonus if the total return objective is
achieved through the date of such termination. The employment agreements will
provide that Mr. Fisher will be awarded options under the 1997 Plan at the time
of the Company's initial public offering to acquire shares of Class A Common
Stock representing 1% of the Common Stock on a fully-diluted basis. 40% of such
options will be exercisable on December 31, 2000, an additional 30% on December
31, 2001, and an additional 30% on December 31, 2001, except that all such
options will become exercisable in the event that Mr. Fisher's employment is
terminated by the Company without Cause or Mr. Fisher terminates his employment
for Good Reason or by reason of his death or Disability (as defined). The
employment agreement will also contain noncompetition provisions applicable
during the term of the employment agreement and for one-year thereafter. In the
event that Mr. Fisher's employment is terminated by the Company without Cause,
or by Mr. Fisher for Good Reason, the employment agreements will provide that
Mr. Fisher will be entitled to receive benefits and his salary (in addition to
any vested benefits and previously earned but unpaid salary) for the balance of
the term of the employment agreement or for at least 12 months, whichever is
longer, plus an amount equal to his bonus under the 1997 Performance Plan for
the immediately preceding year. In the event of Mr. Fisher's death or
Disability, he (or his representative or estate or beneficiary) will be paid, in
addition to any previously earned but unpaid salary and vested benefits, 12
months salary (reduced, in the case of disability, by any disability benefits he
receives). If Mr. Fisher's employment is terminated for any other reason, he
will be entitled to receive any previously earned but unpaid salary and any
vested benefits.
The Company and ITG have also entered into Employment Agreements, dated as
of April 1, 1995, with Nir Tarlovsky, the Vice President of Business Development
of the Company and a Vice President of ITG, the terms of which expire on March
31, 1998. Mr. Tarlovsky's employment agreements provide that his aggregate
initial base salary will be $150,000 per annum, which amount may be increased at
the sole discretion of the respective Board of Directors of each of the Company
and ITG. Pursuant to the agreement with the Company, the Company granted to Mr.
Tarlovsky options under its 1995 Plan to acquire up to 876,000 shares of the
Class A Common Stock. Mr. Tarlovsky's options to acquire shares of Class A
Common Stock vest in an amount no greater than 2% of the outstanding shares of
capital stock as of the date on which his current employment agreement expires.
The agreements contain non-compete covenants having a term of one year following
the termination of the agreements and a confidentiality covenant. The agreement
with the Company relates to services to be provided by Mr. Tarlovsky solely
outside of the United States, while the agreement with ITG relates to services
to be provided by Mr. Tarlovsky solely within the United States.
RSL Europe has entered into an employment agreement, dated as of August 5,
1995, with Richard E. Williams, the Chief Executive Officer of RSL Europe, the
term of which expires in August 1998. The employment agreement provides that Mr.
Williams' base salary shall be pounds 100,000 (approximately
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<PAGE>
$160,000) per annum, which amount may be increased at the sole discretion of RSL
Europe's Board of Directors. Pursuant to the agreement, RSL Europe granted to
Mr. Williams the option to purchase shares of capital stock of RSL Europe equal
to up to 2% of the outstanding capital stock of RSL Europe (the 'RSL Europe
Option Rights'). In addition, Mr. Williams is, under circumstances more fully
described in the agreement, entitled to receive certain annual bonus payments.
The agreement contains a non-compete covenant having a term of nine months
following the termination of the agreement and a confidentiality covenant. The
Company expects to enter into an agreement pursuant to which the Company, in
consideration for his waiver of the RSL Europe Option Rights, will grant to Mr.
Williams options to purchase 350,400 shares of the Company's Class A Common
Stock, which options will be exercisable upon the earlier of the closing date of
the Offerings or October 15, 1997, at an exercise price per share of $.00457.
The Company has also entered into, or is in the process of entering into,
employment agreements with other executive officers of the Company and the
country managers of its Local Operators in the United States, the United
Kingdom, France, Sweden, Finland, Australia, Italy, Japan and the Netherlands.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The members of the Compensation Committee for the fiscal year ended
December 31, 1996 were Ronald S. Lauder, Andrew Gaspar and Itzhak Fisher. Since
1994, Mr. Fisher has served as the President and Chief Executive Officer of the
Company.
RSL Management Corporation ('RSL Management'), which is wholly-owned by
Ronald S. Lauder, the Chairman of the Board of the Company and its largest and
controlling shareholder, leases an aggregate of 2,670 square feet of office
space to the Company at an annual rent of $180,000 per annum. In addition, RSL
Management provides payroll and benefits services to the Company for an annual
fee of $6,000. During 1996, Jacob Z. Schuster, Chief Financial Officer,
Executive Vice President, Treasurer and a director of the Company, was the
President and Treasurer of RSL Management. Mr. Schuster received compensation in
1996 only for his services to RSL Management (and such compensation was paid by
RSL Management). As of August 1, 1997, Mr. Schuster became a full time employee
of the Company and is being compensated by the Company.
In September 1996, the Company borrowed $35.0 million from Ronald S.
Lauder, the Chairman of the Board of the Company and its largest and controlling
shareholder, bearing interest at the rate of 11% per annum (the 'Subordinated
Shareholder Loan'). The Company repaid the Subordinated Shareholder Loan with
the proceeds of the Shareholder Equity Investment (described below).
The Company used the proceeds of the Subordinated Shareholder Loan to repay
$35.0 million of the amounts outstanding under the Revolving Credit Facility and
reduced the outstanding commitment amount under the Revolving Credit Facility to
$15.0 million. The Revolving Credit Facility is personally guaranteed by Ronald
S. Lauder, the Chairman of the Board of the Company and the its largest and
controlling shareholder, shareholder of the Company.
Prior to the closing of the Debt Offering, Ronald S. Lauder, Leonard A.
Lauder, a director of the Company and Ronald S. Lauder's brother, and LGV, an
investment vehicle the principal investors of which are Ronald S. Lauder and
Leonard A. Lauder and the managing member (through a wholly-owned company) of
which is Andrew Gaspar, a director of the Company, purchased an aggregate of
4,117,521 shares of Class B Common Stock (approximately 11.6% of the outstanding
common shares of the Company on a fully diluted basis) for $50.0 million (the
'Shareholder Equity Investment'). LGV purchased one-half of such shares and
Ronald S. Lauder and Leonard A. Lauder each purchased one-quarter of such
shares. The Company has applied the proceeds of the Shareholder Equity
Investment to the repayment in full of the Subordinated Shareholder Loan,
together with accrued interest.
In addition, Ronald S. Lauder will, upon the request of the Company,
provide (or arrange for a bank to provide) the Company with the Shareholder
Standby Facility. If this facility is provided by a bank, Mr. Lauder will
personally guarantee the Company's obligations under the facility up to $35.0
million. Under the terms of the Indenture, the Company may borrow, repay, and
reborrow any amounts under the Shareholder Standby Facility at any time or from
time to time. As of the date of this Prospectus, the
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<PAGE>
Shareholder Standby Facility has not been utilized. The Shareholder Standby
Facility will expire upon the closing of the Offerings.
As consideration for the Shareholders Standby Facility and Mr. Lauder's
continuing guarantee of the Revolving Credit Facility, Mr. Lauder received, in
the aggregate, warrants to purchase 459,900 shares of Class B Common Stock, of
the Company. The exercise price, exercise period and other terms of the Lauder
Warrants are substantially the same as the terms of the Warrants, other than
with respect to the class of stock which will be issued upon their exercise. The
Warrants and the Lauder Warrants become exercisable beginning on October 3,
1997.
During 1996, Nesim N. Bildirici, the Vice President of Mergers and
Acquisitions of the Company, was an employee of both the Company and RSLAG, a
venture capital company of which Ronald S. Lauder, the Company's Chairman and
its largest and controlling shareholder, and Leonard A. Lauder are the principal
investors. Andrew Gaspar, the Company's Vice Chairman, is the president of
RSLAG's corporate general partner. In the past, Mr. Bildirici's salary was paid
by RSLAG and the Company reimbursed RSLAG for the services Mr. Bildirici
provided to the Company. In 1996, the Company reimbursed RSLAG approximately
$130,000 for Mr. Bildirici's services. Mr. Bildirici currently dedicates
substantially all of his business time to the business of the Company and, as of
January 1, 1997, became a full-time employee of the Company. Mr. Bildirici is
treated as an employee of the Company only for purposes of this Prospectus.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company entered into a consulting agreement as of September 1, 1995
with Eugene Sekulow, a director of the Company. The consulting agreement expired
August 31, 1997. The consulting agreement provided that Mr. Sekulow receive a
$24,000 annual fee, as well as an annual grant of options to purchase 21,900
shares of the Company's Class A Common Stock, for services rendered as a
consultant to the Company.
The Company intends to avoid entering into agreements and arrangements
(such as consulting agreements) with its non-employee directors or their
affiliates which, directly or indirectly, would result in compensation being
received by such directors.
The law firm of Conyers, Dill & Pearman, of which Nicolas Trollope is a
partner, was engaged as the Company's counsel in Bermuda for the fiscal year
ended December 31, 1996 and will continue to be so engaged for the fiscal year
ending December 31, 1997.
For additional disclosure with respect to certain transactions between the
Company and certain of its directors, see 'Management Compensation--Committee
Interlocks and Insider Participation.'
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PRINCIPAL SHAREHOLDERS
The following table sets forth certain information with respect to the
beneficial ownership of the Class A Common Stock, the Class B Common Stock and
the Preferred Stock as of September 26, 1997 by (i) each person known by the
Company to own beneficially more than 5% of the outstanding shares of either the
Class A Common Stock, Class B Common Stock or Preferred Stock, (ii) each
director of the Company and each Named Executive Officer who owns shares of any
class of the Company's capital stock and (iii) the directors and executive
officers as a group. Except as otherwise noted below, each of the shareholders
identified in the table has sole voting and investment power over the shares
beneficially owned by such person.
<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP
OF CLASS A
COMMON STOCK# BENEFICIAL OWNERSHIP
----------------------------------- OF CLASS B
PERCENT COMMON STOCK+ PREFERRED STOCK (1)
--------------------- -------------------- --------------------
NAME AND ADDRESS NUMBER PRIOR TO AFTER NUMBER NUMBER
OF BENEFICIAL OWNER OF SHARES OFFERINGS OFFERINGS OF SHARES PERCENT OF SHARES PERCENT
- ----------------------------------- --------- --------- --------- ---------- ------- ---------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Ronald S. Lauder (2)(3)(4)(5)...... 48,465 3.3% * 4,602,390 41.9 % 18,400,091 90.9%
Andrew Gaspar (2)(3)(4)(6)......... -- -- -- 2,983,224 28.3 15,703,267 77.6
R.S. Lauder, Gaspar & Co., L.P.
(2)(4)........................... -- -- -- 924,465 8.8 15,703,267 77.6
Itzhak Fisher (2)(7)............... -- -- -- 4,408,862 41.9 182,125 *
Leonard A. Lauder (2)(3)(4)(8)..... -- -- -- 4,012,605 38.1 16,056,518 79.4
Lauder Gaspar Ventures LLC
(2)(3)........................... -- -- -- 2,058,759 19.6 -- --
Jacob Z. Schuster (2)(9)........... -- -- -- 919,296 8.7 801,422 4.0
Gustavo A. Cisneros (13)........... 1,408,630 95.9 16.2 % -- -- -- --
Nir Tarlovsky (2).................. 509,580(10) 25.8 5.6 28,862(11) * 316,440 1.6
Nesim N. Bildirici (2)............. 202,561(12) 12.1 2.3 -- -- 178,514 *
Karen van de Vrande (14)........... 43,800 2.9 * -- -- -- --
Mark J. Hirschhorn (2)(15)......... 31,098 2.1 * -- -- -- --
Eugene Sekulow (16)(17)............ 43,800 2.9 * -- -- -- --
Fred H. Langhammer................. 12,227 * * -- -- -- --
All directors, and executive
officers as a group (13
persons)......................... 2,300,161 100.0% 10,988,788 100.0 % 20,231,839 100.0%
<CAPTION>
POST OFFERINGS
--------------------------
NAME AND ADDRESS % VOTING % OWNERSHIP OF
OF BENEFICIAL OWNER POWER COMMON STOCK
- ----------------------------------- ---------- --------------
<S> <C> <C>
Ronald S. Lauder (2)(3)(4)(5)...... 71.7 % 57.8%
Andrew Gaspar (2)(3)(4)(6)......... 59.1 47.4
R.S. Lauder, Gaspar & Co., L.P.
(2)(4)........................... 52.6 42.2
Itzhak Fisher (2)(7)............... 14.5 11.6
Leonard A. Lauder (2)(3)(4)(8)..... 63.5 50.9
Lauder Gaspar Ventures LLC
(2)(3)........................... 6.5 5.2
Jacob Z. Schuster (2)(9)........... 5.4 4.4
Gustavo A. Cisneros (13)........... * 3.6
Nir Tarlovsky (2).................. 1.3 2.1
Nesim N. Bildirici (2)............. * 1.0
Karen van de Vrande (14)........... * *
Mark J. Hirschhorn (2)(15)......... * *
Eugene Sekulow (16)(17)............ * *
Fred H. Langhammer................. * *
All directors, and executive
officers as a group (13
persons)......................... 97.8 % 82.3%
</TABLE>
- ------------------
# Does not include 31,220,627 shares of Class A Common Stock issuable upon
conversion of shares of Class B Common Stock (including 20,231,839 shares of
Class B Common Stock issuable upon conversion of the Preferred Stock). Shares
of Class B Common Stock are convertible at any time into shares of Class A
Common Stock for no additional consideration on a share-for-share basis, and
shares of Preferred Stock are convertible at any time into shares of Class B
Common Stock for no additional consideration on a share-for-share basis.
+ Does not include shares of Class B Common Stock issuable upon conversion of
shares of Preferred Stock.
* Less than 1%.
(1) Shares of Preferred Stock are convertible at any time into shares of Class
B Common Stock and are mandatorily convertible into such shares immediately
upon the closing of the Offerings.
(2) The business address of each of the indicated holders of the Company's
securities is 767 Fifth Avenue, New York, New York 10153.
(3) Andrew Gaspar (through a limited liability company) is the managing member
of LGV, Ronald S. Lauder and Leonard A. Lauder are both members with
substantial ownership interests in LGV, and as such each may be deemed to
beneficially own all of the shares of Class B Common Stock owned by LGV.
Such shares, however, are only included once in the computations of shares
beneficially owned by directors, nominees for director and executive
officers of the group. The managing member of LGV has executed an
irrevocable proxy in favor of Ronald S. Lauder to vote his allocable
interest. Ronald S. Lauder, Leonard A. Lauder and Andrew Gaspar each
disclaim beneficial ownership of some of such shares.
(4) Andrew Gaspar is president of the corporate general partner of RSLAG, and
Ronald S. Lauder is directly and indirectly the owner of a majority of the
limited partnership interests in RSLAG, and, as such, may be deemed to
beneficially own all of the shares of Class B Common Stock and Preferred
Stock owned by RSLAG. Such shares, however, are only included once in the
computations of shares beneficially owned by directors, nominees for
director and executive officers of the group. In addition, Leonard A.
Lauder owns limited partnership interests in RSLAG. The general partner of
RSLAG has executed an irrevocable proxy in favor of Ronald S. Lauder to
vote his partnership interests. Ronald S. Lauder, Leonard A. Lauder and
Andrew Gaspar each disclaim beneficial ownership of some of such shares.
(5) Includes 2,983,224 shares of Class B Common Stock owned by RSLAG and LGV
(see notes 3 and 4), 1,159,266 shares of Class B Common Stock owned
directly by Ronald S. Lauder, 459,900 shares of Class B Common Stock
issuable upon exercise of the Lauder Warrants, 15,703,267 shares of
Preferred Stock owned by RSLAG (see note 4) and 2,696,824 shares of
Preferred Stock owned directly by Ronald S. Lauder.
(Footnotes continued on next page)
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<PAGE>
(Footnotes continued from previous page)
(6) Includes 15,703,267 shares of Preferred Stock owned by RSLAG (see note 4)
and an aggregate of 2,983,224 shares of Class B Common Stock owned by RSLAG
and LGV (see notes 3 and 4).
(7) Such shares are owned by Fisher Investment Partners, L.P., a Delaware
limited partnership, of which Itzhak Fisher is the sole general partner and
the Fisher 1997 Family Trust is the sole limited partner. Mr. Fisher
disclaims beneficial ownership of such shares.
(8) Includes 2,983,224 shares of Class B Common Stock owned by RSLAG and LGV
(see notes 3 and 4), 1,029,381 shares of Class B Common Stock owned
directly by Leonard A. Lauder, 15,703,267 shares of Preferred Stock owned
by RSLAG and 353,251 shares of preferred stock owned directly by Leonard A.
Lauder (see note 4).
(9) Such shares are owned by Schuster Family Partners I, L.P., a New York
limited partnership, of which Jacob Z. Schuster is the sole general partner
and the limited partners of which are certain of Mr. Schuster's children.
Mr. Schuster disclaims beneficial ownership of such shares.
(10) Consists of 509,580 shares of Class A Common Stock issuable upon exercise
of an equal number of presently exercisable options granted to Mr.
Tarlovsky under the Company's 1995 Plan.
(11) Such shares are owned by Tarlovsky Investment Partners, L.P., a Delaware
limited partnership of which Nir Tarlovsky is the sole general partner and
the Tarlovsky 1997 Family Trust is the sole limited partner. Mr. Tarlovsky
disclaims beneficial ownership of such shares.
(12) Consists of 202,561 shares of Class A Common Stock issuable upon exercise
of an equal number of presently exercisable options granted to Mr.
Bildirici under the Company's 1995 Plan.
(13) Such shares are owned by Coral Gate, an investment business company
organized under the laws of the British Virgin Islands, which is
beneficially owned by Gustavo A. Cisneros and his brother, Ricardo
Cisneros. Mr. Gustavo Cisneros disclaims beneficial ownership of 704,315 of
such shares.
(14) Consists of 43,800 shares of Class A Common Stock issuable upon exercise of
an equal number of presently exercisable options granted to Ms. van de
Vrande under the Company's 1995 Plan.
(15) Consists of 31,098 shares of Class A Common Stock issuable upon exercise of
an equal number of presently exercisable options granted to Mr. Hirschhorn
under the Company's 1995 Plan.
(16) The business address of Mr. Sekulow is Westchester Financial Center, 50
Main Street, 10th Floor, White Plains, New York 10606.
(17) Consists of 43,800 shares of Class A Common Stock issuable upon the
exercise of an equal number of presently exercisable options granted to Mr.
Sekulow under the Company's 1995 Plan.
In September 1997, (i) Itzhak Fisher, an officer and director of the
Company, on behalf of a trust for the benefit of his family, sold to Leonard A.
Lauder, a director of the Company, 352,156 shares of Preferred Stock, (ii) Nir
Tarlovsky, an officer of the Company, on behalf of a trust for the benefit of
his family, sold to (a) Ronald S. Lauder, the Chairman and largest and
controlling shareholder of the Company, 204,519 shares of Preferred Stock, (b)
Leonard A. Lauder, a director of the Company, 1,095 shares of Preferred Stock
and (c) Fred H. Langhammer, a director of the Company, 12,227 shares of Class A
Common Stock (following conversion of an equal number of shares of Preferred
Stock into an equal number of shares of Class B Common Stock and the conversion
of such shares of Class B Common Stock into such number of shares of Class A
Common Stock) and (iii) Nesim Bildirici, an officer of the Company, sold to
Ronald S. Lauder, 88,040 shares of Preferred Stock. The aggregate purchase price
of the securities sold in such transactions was approximately $13.5 million.
In September 1997, Charles Piluso sold to (i) Coral Gate, a company
beneficially owned by Gustavo Cisneros, a director of the Company, and his
brother, Ricardo Cisneros, 1,408,630 shares of Class A Common Stock and (ii)
Ronald S. Lauder, Chairman and the largest and controlling shareholder of the
Company, 48,465 shares of Class A Common Stock. The aggregate purchase price for
all of Mr. Piluso's shares of Class A Common Stock was approximately $30
million.
EMPLOYEE AND AFFILIATE EQUITY INVESTMENTS
In order to align the interests of employees with those of the Company's
shareholders and to reward them and other persons who have been instrumental in
the establishment and development of the Company, the non-executive employees
and other friends of the Company will be eligible for one-time bonus plan grants
of no more than $500 of Class A Common Stock based on the initial public
offering price.
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DESCRIPTION OF CAPITAL STOCK
The following description of the capital stock of the Company is qualified
in its entirety by reference to the provisions of the Company's Memorandum of
Association and Bye-Laws, copies of which have been filed with the Commission.
The Company is authorized to issue 20,000,000 shares of Common Stock, which
may be issued as shares of Class A Common Stock, Class B Common Stock or Class C
common shares. The Company is also authorized to issue 20,000,000 shares of
Preferred Stock. The Company has in the past used and intends in the future to
use shares of its capital stock to pay for acquisitions.
Prior to the consummation of the Offerings, the Company will revise its
capital structure, in part to (i) effect a 2.19-for-one stock split, (ii)
increase the number of authorized shares of its Class A Common Stock and Class B
Common Stock to an aggregate 200,000,000, (iii) increase the number of
authorized shares of its Preferred Stock to 30,000,000 and (iv) eliminate the
Company's Class C Common Stock.
CLASS A COMMON STOCK
As of the date of this Prospectus, 1,469,322 shares of Class A Common Stock
had been issued. The holders of the Class A Common Stock are entitled to one
vote per share and are entitled to vote as a single class together with the
holders of the Class B Common Stock and the Preferred Stock on all matters
subject to shareholder approval, except that the holders of the Class A Common
Stock will vote as a separate class on any matter requiring class voting by The
Companies Act 1981 of Bermuda. The holders of the outstanding shares of Class A
Common Stock are entitled to receive dividends as and when declared by the Board
of Directors, pari passu with the holders of the Class B Common Stock, out of
funds legally available therefor after the payment of any dividends declared but
unpaid on any shares of Preferred Stock then outstanding. The holders of the
Class A Common Stock have no preemptive or cumulative voting rights and no
rights to convert their shares of Class A Common Stock into any other
securities. On liquidation, dissolution or winding up of the Company, the
holders of Class A Common Stock are entitled to receive, pari passu with the
holders of Class B Common Stock, pro rata the net assets of the Company
remaining after preferential distribution to holders of Preferred Stock and the
payment of all creditors and liquidation preferences, if any.
TRANSFER AGENT AND REGISTRAR
The Company's transfer agent and registrar for the Class A Common Stock
will be American Stock Transfer & Trust Company.
CLASS B COMMON STOCK
As of the date of this Prospectus, there were seven holders of Class B
Common Stock and 10,528,888 shares of Class B Common Stock were issued and
outstanding. The holders of the Class B Common Stock are entitled to 10 votes
per share and are entitled to vote as a single class together with the holders
of the Class A Common Stock and the Preferred Stock on all matters subject to
shareholder approval, except that the holders of the Class B Common Stock vote
as a separate class on any matter requiring class voting by The Companies Act
1981 of Bermuda. The holders of the outstanding shares of Class B Common Stock
are entitled to receive dividends as and when declared by the Board of
Directors, pari passu with the holders of Class A Common Stock, out of funds
legally available therefor. The holders of the Class B Common Stock can convert
their shares of Class B Common Stock on a share-for-share basis into Class A
Common Stock. Shares of Class B Common Stock may be transferred only to other
original holders of Class B Common Stock or to members of the family of the
original holder by gift, devise or otherwise through laws of inheritance,
descent, distribution or to a trust established by the holder for the holder's
family members, to corporations the majority of beneficial owners of which are
or will be owned by the holders of Class B Common Stock and from corporations or
partnerships which are the holders of Class B Common Stock, to their
shareholders or partners, as the case may be (each a 'Permitted Transferee').
Any other transfer of Class B Common Stock is void, although the Class B Common
Stock may be converted at any time into Class A Common Stock on a one to one
basis and then sold, subject to the conditions and restrictions of Rule 144.
On liquidation or winding up of the Company, the holders of the Class B
Common Stock are entitled to share ratably, pari passu with the holders of Class
A Common Stock, the assets remaining after
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payment of all debts and other liabilities and after distribution in full of the
preferential amounts to be distributed to the holders of Preferred Stock.
PREFERRED STOCK
As of the date of this Prospectus, 20,231,839 shares of Preferred Stock
were outstanding and there were six holders of record of Preferred Stock.
Dividends accrue on the Preferred Stock on a cumulative basis at a rate of 8% of
the liquidation preference amount per share per annum. Cumulative dividends are
not payable and are to be deemed cancelled and waived upon conversion of the
shares of Preferred Stock.
Each holder of Preferred Stock is entitled to the number of votes per share
equal to the number of votes to which the shares of Class B Common Stock into
which each share of Preferred Stock is convertible would be entitled. Holders of
the Preferred Stock vote together with the holders of Class A Common Stock and
Class B Common Stock as a single class on all matters subject to shareholder
approval, except that the holders of the Preferred Stock vote as a separate
class on any matter requiring class voting by the Companies Act 1981 of Bermuda.
In the event of the liquidation, dissolution or winding up of the Company,
holders of Preferred Stock are entitled to receive $456.62 per share (to the
extent a share is paid up) plus an amount per share equal to the accrued and
unpaid dividends thereon. Subject to Board approval, the liquidation preference
on the Preferred Stock will be reduced to $.457 per share. Each share of
Preferred Stock is convertible into one share of Class B Common Stock at the
option of the holder, and each share of Preferred Stock will be automatically
converted into one share of Class B Common Stock on a one-for-one basis upon the
closing of the Offerings.
WARRANTS
SHAREHOLDER WARRANTS
As consideration for the Shareholders Standby Facility and Mr. Lauder's
continuing guarantee of the Revolving Credit Facility, Mr. Lauder received, in
the aggregate, warrants to purchase 459,900 shares of Class B Common Stock, of
the Company. The exercise price, exercise period and other terms of the Lauder
Warrants are substantially the same as the terms of the Warrants, other than
with respect to the class of stock which will be issued upon their exercise. The
Warrants and the Lauder Warrants become exercisable beginning on October 3,
1997.
WARRANTS ISSUED IN DEBT OFFERING
The Company issued an aggregate of 300,000 Warrants to the purchasers of
the units in the Debt Offering. The Warrants were issued pursuant to a Warrant
Agreement (the 'Warrant Agreement'), between the Company and The Chase Manhattan
Bank, as the warrant agent (the 'Warrant Agent').
Each Warrant is evidenced by a certificate which entitles the holder
thereof to purchase 3.975 shares of Class A Common Stock from the Company at an
exercise price of $.00457 per share, subject to adjustment as provided in the
Warrant Agreement. The Warrants may be exercised at any time
beginning on October 3, 1997 and ending prior to the close of business on
October 3, 2007. Warrants that are not exercised by such date will expire.
The aggregate number of shares of Class A Common Stock issuable upon
exercise of the Warrants is equal to approximately 2.7% of the outstanding
shares of Class A Common Stock, on a fully diluted basis, as of the date of this
Prospectus, giving effect to the number of shares of Class A Common Stock
anticipated to be sold in the Offerings.
CERTAIN TERMS
The Warrant Agreement contains provisions (to which there are certain
exceptions) adjusting the exercise price and the number of shares of Class A
Common Stock or other securities issuable upon exercise of a Warrant in the
event of (i) a division, consolidation or reclassification of the shares of
Class A Common Stock, (ii) the issuance of rights, options, warrants or
convertible or exchangeable securities to all holders of shares of Class A
Common Stock entitling such holders to subscribe for or purchase shares of Class
A Common Stock at a price per share which is lower than the then current value
per share of Class A Common Stock, subject to certain exceptions, (iii) the
issuance of shares of
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Class A Common Stock at a price per share that is lower than the then current
value of such shares, except for issuances in connection with an acquisition,
merger or similar transaction with a third party, (iv) certain distributions to
all holders of shares of Class A Common Stock of evidences of indebtedness or
assets and (v) in the discretion of the Company's Board of Directors, in certain
other circumstances.
In addition, the Warrant Agreement contains provisions designed to protect
holders of Warrants in the event of a consolidation, merger or sale of assets.
The Warrant Agreement also provides that the shares of Class A Common Stock
exercisable upon conversion of the Warrants must be registered for sale within
180 days after an initial public offering of the Class A Common Stock and that
holders of Warrants (and shares of Class A Common Stock issued upon the exercise
of Warrants) may participate in any public offering of Class A Common Stock in
which any shareholder sells shares and in priority to all selling shareholders.
ANTI-TAKEOVER PROTECTIONS
The voting provisions of the Class A Common Stock, Class B Common Stock and
the Preferred Stock could substantially impede the ability of one or more
shareholders (acting in concert) to acquire sufficient influence over the
election of directors and other matters to effect a change in control or
management of the Company. As a result, such provision may be deemed to have an
anti-takeover effect and may delay, defer or prevent a tender offer or takeover
attempt that a shareholder might consider in such shareholder's best interest,
including attempts that might result in a premium over the market price for the
Class A Common Stock held by shareholders.
CERTAIN PROVISIONS OF BERMUDA LAW
The Company has been designated as a non-resident under the Exchange
Control Act of 1972 (the 'Control Act') by the Bermuda Monetary Authority whose
permission for the issuance of shares of Class A Common Stock has been obtained.
This designation allows the Company to engage in transactions in currencies
other than the Bermuda dollar. The permission of the Bermuda Monetary Authority
does not constitute a guarantee by the Bermuda Monetary Authority as to the
performance or creditworthiness of the Company and in giving such permission the
Bermuda Monetary Authority will not be liable for the correctness of any
opinions expressed herein.
The transfer of shares of Class A Common Stock between persons regarded as
resident outside Bermuda for exchange control purposes and the issuance of such
shares after the completion of the Offerings to or by such persons may be
effected without specific consent under the Control Act and regulations
thereunder. Issues and transfers of shares involving any person regarded as
resident in Bermuda for exchange control purposes require specific prior
approval under the Control Act.
Non-Bermuda owners of shares of Class A Common Stock are not restricted in
the exercise of the rights to hold or vote their shares. Because the Company has
been designated as a non-resident for Bermuda exchange control purposes there
are no restrictions on its ability to transfer funds in and out of Bermuda or to
pay dividends to United States residents who are holders of Class A Common
Stock, other than in respect of local Bermuda currency.
In accordance with Bermuda law, share certificates are only issued in the
names of corporations, partnerships or individuals. In the case of an applicant
acting in a special capacity (for example as a trustee), certificates may, at
the request of the applicant, record the capacity in which the applicant is
acting. Notwithstanding the recording of any such special capacity the Company
is not bound to investigate or incur any responsibility in respect of the proper
administration of any such trust.
The Company will take no notice of any trust applicable to any of its
shares whether or not it had notice of such trust.
As an 'exempted company', the Company is exempt from Bermuda laws which
restrict the percentage of share capital that may be held by non-Bermudians but,
as an exempted company, the Company may not participate in certain business
transactions including: (1) the acquisition or holding of land in Bermuda
(except that required for its business and held by way of lease or tenancy for
terms of not more than 21 years); (2) the taking of mortgages on land in Bermuda
to secure an amount in excess of $50,000 without the consent of the Minister of
Finance of Bermuda; (3) the acquisition of securities created or issued by, or
any interest in, any local company or business, other than certain types of
Bermuda government securities or another 'exempted' company, partnership or
other corporation resident in Bermuda but incorporated abroad; or (4) the
carrying on of business of any kind in Bermuda, except in furtherance of the
business of the Company carried on outside Bermuda or with the permission of, or
under a license granted by, the Minister of Finance of Bermuda.
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DESCRIPTION OF CERTAIN INDEBTEDNESS
BANK REVOLVING CREDIT FACILITY
On October 5, 1995, The Chase Manhattan Bank, N.A. (the 'Bank') extended a
$10 million revolving credit facility to Ronald S. Lauder, Chairman of the Board
of the Company and its largest and controlling shareholder. On June 26, 1996,
the Bank replaced the original Revolving Credit Facility, which had been
increased to $25 million, by extending a $40 million Revolving Credit Facility
directly to the Company which was increased to $50 million in August 1996.
Pursuant to the Subordinated Shareholder Loan, $35 million of this facility was
repaid and the Revolving Credit Facility was reduced to $7.5 million. The
remaining outstanding amounts under the Revolving Credit Facility were repaid
with a portion of the proceeds of the Shareholder Equity Investment. The Company
intends to maintain the Revolving Credit Facility and, accordingly, such amounts
may be subsequently reborrowed. Mr. Lauder has guaranteed the Company's
obligations under the Revolving Credit Facility. The Revolving Credit Facility
accrues interest on all amounts outstanding at the Company's option at either
(i) the Bank's publicly announced prime rate per annum or (ii) LIBOR plus 1% per
annum, with such interest rate to be determined by the Company. As of December
31, 1996, the full amount of the Revolving Credit Facility was available to the
Company. The Revolving Credit Facility is payable on demand or is otherwise due
and payable by the Company on June 30, 1998.
VENDOR FINANCING
Ericsson has provided to certain of the Company's subsidiaries an aggregate
of approximately $50 million in financing commitments to fund the purchase of
additional switches and related equipment. At June 30, 1997, approximately $30.2
million of this facility was available. Borrowings from this equipment vendor
will accrue interest at a rate of LIBOR plus either 5.25% or 4.5% depending on
the equipment purchased.
SHAREHOLDER STANDBY FACILITY
Ronald S. Lauder, Chairman of the Board of the Company and its largest and
controlling shareholder, has agreed, upon the Company's request, to provide (or
arrange for a bank to provide) the Company with the $35.0 million subordinated
Shareholder Standby Facility. If the Shareholder Standby Facility is provided by
a bank, Mr. Lauder will personally guarantee the Company's obligations under the
facility up to $35.0 million. Under the terms of the Indenture, the Company may
borrow, repay and reborrow any amounts under the Shareholder Standby Facility at
any time and from time to time. The Shareholder Standby Facility will expire
upon the closing of the Offerings.
DESCRIPTION OF THE NOTES
GENERAL
The Company and the Note Issuer (together, the 'Issuers') issued $300.0
million of 12 1/4% Senior Notes pursuant to the Indenture among the Issuers and
The Chase Manhattan Bank, as trustee (the 'Trustee'). On May 22, 1997, the
Company consummated an offer (the 'Exchange Offer') to exchange the Notes issued
in the Debt Offering for $300 million of Notes that had been registered under
the Securities Act.
PRINCIPAL, MATURITY AND INTEREST
The Notes are limited in aggregate principal amount to $300.0 million and
will mature on October 3, 2006. Interest on the Notes accrues at 12 1/4% per
annum and is payable semiannually in arrears on May 15 and November 15 of each
year. Interest is computed on the basis of a 360-day year comprised of 12 30-day
months. At the closing of the Debt Offering, the Company used $102.8 million of
the net proceeds of the Debt Offering to purchase a portfolio of securities,
initially consisting of U.S. government securities (including any securities
substituted in respect thereof, the 'Pledged Securities'), to pledge as security
for payment of interest on the principal of the Notes. Proceeds from the Pledged
Securities may be used by the Company to make interest payments on the Notes
through November 15, 1999. The Pledged Securities are being held by the Trustee
pending disbursement. The Company is under no obligation to escrow additional
securities.
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RANKING
The Notes are unsecured senior obligations of the Issuers, rank pari passu
in right of payment with all existing and future senior obligations of the
Issuers, and rank senior in right of payment to all future subordinated
obligations of the Issuers.
REDEMPTION
The Notes are not redeemable at the Company's option prior to November 15,
2001. Thereafter, the Notes are subject to redemption at the option of the
Company, in whole or in part, at the redemption prices (expressed as percentages
of principal amount) set forth below plus accrued and unpaid interest thereon to
the applicable redemption date, if redeemed during the 12-month period beginning
on November 15 of the years indicated below:
<TABLE>
<CAPTION>
YEAR PERCENTAGE
- ----------------------------------------------------------------------------------------- -----------
<S> <C>
2001..................................................................................... 106.125%
2002..................................................................................... 103.0625%
2003 and thereafter...................................................................... 100.000%
</TABLE>
In addition, at any time on or before November 15, 1999, the Company may
redeem up to $90.0 million of the original aggregate principal amount of the
Notes with the net proceeds of a sale of common equity at a redemption price
equal to 112.25% of the principal amount thereof, plus accrued and unpaid
interest thereon, if any, to the date of redemption, provided that at least
$210.0 million of aggregate principal amount of Notes remains outstanding
immediately after such redemption, and such redemption occurs within 180 days of
the related sale of common equity. See 'Use of Proceeds.'
COVENANTS
The Indenture restricts, among other things, the Company's ability to incur
additional indebtedness, pay dividends or make certain other restricted
payments, incur certain liens to secure pari passu or subordinated indebtedness,
engage in any sale and leaseback transaction, sell, assign, transfer, lease,
convey or otherwise dispose of substantially all of the assets of the Company,
enter into certain transactions with affiliates, or incur indebtedness that is
subordinated in right of payment to any senior indebtedness and senior in right
of payment to the Notes. The Indenture permits, under certain circumstances, the
Company's subsidiaries to be deemed unrestricted subsidiaries and thus not
subject to the restrictions of the Indenture.
EVENTS OF DEFAULT
The Indenture contains standard events of default, including (i) defaults
in the payment of principal, premium or interest, (ii) defaults in the
compliance with covenants contained in the indenture, (iii) cross defaults on
more than $10 million of other indebtedness, (iv) failure to pay more than $10
million of judgments that have not been stayed by appeal or otherwise and (v)
the bankruptcy of the Company or certain of its subsidiaries.
SHARES ELIGIBLE FOR FUTURE SALE
Immediately upon completion of the Offerings, the Company will have
8,669,322 shares of Class A Common Stock outstanding (assuming no exercise of
the Underwriters' over-allotment option). This amount does not include (i)
2,792,888 shares of Class A Common Stock issuable upon the exercise of an equal
number of options granted by the Company's Compensation Committee to certain
employees and non-employee directors of the Company under the 1995 Plan
(1,271,380 of which are presently exercisable) and stock options expected to be
issued in connection with the exercise of certain Roll-Up Rights, (ii) 3,750,000
shares of Class A Common Stock to be reserved for issuance pursuant to future
option grants under the Company's proposed stock option and compensation plans,
(iii) 30,760,726 shares of Class A Common Stock issuable upon conversion of
shares of Class B Common Stock (which includes shares of Class B Common Stock
issuable upon conversion of the Preferred Stock); Shares of Class B Common Stock
are convertible at any time into shares of Class A Common Stock for no
additional consideration on a share-for-share basis, and shares of Preferred
Stock are convertible at any time into shares of Class B Common Stock for no
additional consideration on a share-for-share basis, (iv) 459,900 shares of
Class A Common Stock issuable upon the conversion of the Class B Common Stock
issuable on exercise of the Lauder Warrants, (v) 1,192,445 shares of
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Class A Common Stock issuable upon the exercise at any time beginning October 3,
1997 and ending prior to the close of business on October 3, 2007, of an
aggregate of 300,000 Warrants by purchasers of units in the Debt Offering, (vi)
shares of Class A Common Stock issuable upon conversion of the 459,900 shares of
Class B Common Stock issuable upon the exercise of the Lauder Warrants, and
(vii) 384,683 shares of Class A Common Stock which are expected to be issued to
the Minority Interest holders upon exercise of their Roll-Up Rights. Of these
shares, the 7,200,000 shares of Class A Common Stock sold in the Offerings will
be freely transferable and tradeable without restriction or further registration
under the Securities Act of 1933 except for any shares purchased by any
'affiliate', as defined below, of the Company which will be subject to the
resale limitations in Rule 144 adopted under the Securities Act of 1933. All the
remaining shares of Class A Common Stock held by existing shareholders are
'restricted' securities within the meaning of Rule 144 and may only be sold in
the public market pursuant to an effective registration statement under the
Securities Act of 1933 or pursuant to an applicable exemption from registration,
including Rule 144.
In general, under Rule 144 as currently in effect, a person (or persons
whose shares are required to be aggregated) who has been deemed to have
beneficially owned shares for at least one year, including an 'affiliate', is
entitled to sell, within any three-month period, a number of shares that does
not exceed the greater of 1% of the then outstanding number of shares of Class A
Common Stock of the Company or the average weekly trading volume in shares of
Class A Common Stock during the four calendar weeks preceding the filing of the
required notice of such sale. Sales under Rule 144 may also be subject to
certain manner of sale provisions, notice requirements and the availability of
current public information about the Company. A person (or persons whose shares
are required to be aggregated) who is not deemed to have been an affiliate of
the Company during the three months preceding a sale, and who has beneficially
owned shares within the definition of 'restricted securities' under Rule 144 for
at least two years is entitled to sell such shares under Rule 144 without regard
to the volume limitation, manner of sale provisions, notice requirements or
public information requirements of Rule 144. Affiliates continue to be subject
to such limitations. As defined in Rule 144, an 'affiliate' of an issuer is a
person that directly or indirectly, through one or more intermediaries,
controls, or is controlled by, or is under common control with, such issuer.
Immediately upon completion of the Offerings, up to approximately
30,114,915 shares of Class A Common Stock (assuming the conversion of the Class
B Common Stock into Class A Common Stock on a one-for-one basis (including the
shares of Class B Common Stock to be issued upon the conversion of the Preferred
Stock)), which are beneficially held by certain existing shareholders of the
Company, may be eligible for sale under Rule 144. The Company and certain
directors, officers and shareholders will agree that, subject to certain
exceptions, during the period beginning from the date of this Prospectus and
continuing to and including the date 180 days after the date of the Prospectus,
they will not offer, sell, contract to sell or otherwise dispose of any
securities of the Company or which are convertible into or exchangeable for
shares of Class A Common Stock offered in connection with the Offerings. See
'Underwriting.'
No prediction can be made as to the effect, if any, that future sales of
Class A Common Stock, or the availability of shares of Class A Common Stock for
future sale, will have on the market price of the Class A Common Stock
prevailing from time to time. Sales of substantial numbers of shares of Class A
Common Stock, pursuant to a registration statement, Rule 144 or otherwise, or
the perception that such sales may occur, could adversely affect the prevailing
market price of the Class A Common Stock. See 'Risk Factors--No Prior Market;
Possible Volatility of Stock Price' and '--Shares Eligible for Future Sale.'
The Company has granted to Minority Interestholders of ITG, RSL
Netherlands, RSL Austria, RSL Italy, Delta Three, RSL Latin America, and
PrimeCall Europe and officers of certain of its other subsidiaries Roll Up
Rights which allow the Minority Interestholders to exchange their shares or
interests in such entities for shares of Class A Common Stock upon the
occurrence of, and at certain times following, the Offerings. Based upon
agreements with the Minority Interestholders of RSL Austria, RSL Italy, Delta
Three, PrimeCall Europe, RSL Netherlands and RSL Latin America, the number of
shares of Class A Common Stock to be exchanged upon the exercise of a Roll-Up
Right in connection with the Offerings will be determined at the pricing of the
Offerings based on an agreed upon valuation of such Minority Interestholder's
shares or interests. If a Roll-Up Right is exercised by a Minority
Interestholder in RSL Austria, RSL Italy or Delta Three, the Company may, in its
sole discretion (and only under certain circumstances), choose to exchange cash
for the Minority Interestholder's shares or interests rather than the Company's
Class A Common Stock.
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All of the Roll-Up Rights are currently exercisable in connection with the
Offerings, with the exception of the Roll-Up Rights held by the Minority
Interestholder of RSL Italy. The Minority Interestholders of RSL Austria, Delta
Three, RSL Latin America and PrimeCall Europe have waived their rights to
exchange their interests in the relevant subsidiaries on the occurrence of the
Offerings, but have maintained their future Roll-Up Rights. The sole Minority
Interestholder of ITG has agreed to waive its Roll-Up Rights and exchange its
shares of ITG for a combination of approximately 140,125 shares (based upon an
assumed initial offering price of $20.50 per share) of Class A Common Stock and
$2,179,273 cash. The Minorrity Interestholder of RSL Netherlands has agreed to
exchange his 25% interest in RSL Netherlands for a combination of approximately
167,759 shares (based upon an assumed initial offering price of $20.50 per
share) of Class A Common Stock and approximately $3.8 million in cash.
The Company also has entered or intends to enter into agreements with
certain Minority Interestholders of RSL Europe, RSL COM PrimeCall and RSL
USA pursuant to which the Company may grant to such Minority Interestholders one
or more of the following in exchange for all or some of their interests in the
relevant subsidiaries: (i) shares of Class A Common Stock, (ii) options to
purchase shares of Class A Common Stock and (iii) cash solely for the payment of
federal, state or local taxes in connection with such agreements.
The Company anticipates issuing up to 384,683 shares in connection with the
exercise of Roll-Up Rights of certain Minority Interestholders (based upon an
assumed initial offering price of $20.50 per share), which include the 140,125
shares of Class A Common Stock and the 167,759 shares of Class A Common Stock
mentioned above.
Additionally, the Company has granted to a number of Minority
Interestholders certain registration rights with respect to shares of Class A
Common Stock acquired by the Minority Interestholders pursuant to an exercise of
their Roll-Up Rights. If, at any time after the consummation of the Offerings
or, in the case of RSL Netherlands, ITG and PrimeCall Europe, at least 12 months
after consummation of the Offerings, the Company files with the Commission a
registration statement on Form S-3, which registration statement includes shares
being sold by or for the account of shareholders of the Company, the Company
will, at the option of Minority Interestholders who are then registered owners
of Class A Common Stock and subject to certain limitations, register all or any
portion of their Class A Common Stock concurrently with the registration of such
other securities. In addition, certain Minority Interestholders in RSL Latin
America have demand registration rights on or after the Company becomes eligible
to file a registration statement on Form S-3 under the Securities Act.
REGISTRATION RIGHTS AGREEMENT
Ronald S. Lauder, the Company's Chairman and largest and controlling
shareholder, Itzhak Fisher, President and Chief Executive Officer of the
Company, the other holders of Class B Common Stock, Coral Gate and the Company
have entered into a Registration Rights Agreement (the 'Registration Rights
Agreement'), pursuant to which Ronald S. Lauder has been granted three demand
registration rights exercisable at any time after 180 days after consummation of
the Offerings and Itzhak Fisher has been granted two demand registration rights
exercisable after termination of his employment with the Company, other than as
a result of a termination by the Company for Cause (as defined) or a termination
by Itzhak Fisher without Good Reason (as defined) (a 'Qualified Severance
Event'). Ronald S. Lauder and Itzhak Fisher, such holders of Class B Common
Stock, Coral Gate, and such additional holders of Class A Common Stock as Mr.
Lauder and Mr. Fisher may jointly designate to the Company have an unlimited
number of piggyback registration rights that will allow such holders to include
their shares of Class A Common Stock in any registration statement filed by the
Company, subject to certain limitations. Prior to the occurrence of a Qualified
Severance Event, Itzhak Fisher may not register any shares pursuant to his
piggyback registration rights if, after giving effect to the sale of such
shares, Mr. Fisher and his family members and certain entities controlled by
family members ('Family Members') would hold less than 70% of the shares of
Class A Common Stock held as of the closing date of the Offerings. Ronald S.
Lauder, Itzhak Fisher, and the other holders of Class B Common Stock, may assign
their rights under the Registration Rights Agreement to their respective Family
Members and entities controlled by Family Members, Coral Gates and Messrs.
Cisneros may assign their rights to entities owned by Messrs. Cisneros, and all
such holders may assign their rights to lenders to whom shares of Class A Common
Stock may be pledged.
The Company will pay all expenses (other than legal expenses, underwriting
discounts and commissions of the selling stockholders and taxes payable by the
selling stockholders) in connection with any registration pursuant to the
exercise of demand registration rights and piggyback registration rights. The
Company will also agree to indemnify such persons against certain liabilities,
including liabilities arising under the Securities Act.
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CERTAIN UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS
In the opinion of Rosenman & Colin LLP, U.S. counsel to the Company, the
following correctly describes certain material U.S. federal income tax
consequences to the Company and its subsidiaries and to the ownership and
disposition of Class A Common Stock by an initial U.S. and non-U.S. shareholder.
For purposes of this discussion, the term 'U.S. shareholder' includes (i) a U.S.
citizen or resident, (ii) a U.S. corporation or other U.S. entity taxable as a
corporation, (iii) a trust if a U.S. court is able to exercise primary
supervision over the administration of the trust and one or more U.S.
fiduciaries have the authority to control all substantial decisions of the
trust, and (iv) an estate that is subject to U.S. federal income tax on its
income regardless of its source. A 'non-U.S. shareholder' is any shareholder
other than a U.S. shareholder. The discussion is based upon provisions of the
U.S. Internal Revenue Code of 1986, as amended (the 'Code'), its legislative
history, judicial authority, current administrative rulings and practice, and
existing and proposed Treasury Regulations, all as in effect and existing on the
date hereof. Legislative, judicial or administrative changes or interpretations
may be forthcoming that could alter or modify the conclusions set forth below,
possibly on a retroactive basis, which could adversely affect a holder of Class
A Common Stock. This discussion assumes that such Class A Common Stock will be
held as capital assets (as defined in Section 1221 of the Code) by the holders
thereof.
The following discussion generally does not address the tax consequences to
a person who holds (or will hold), directly or indirectly, shares in the Company
giving the holder the right to exercise 10% or more of the total voting power of
the Company's outstanding stock (a '10% Shareholder'). 10% Shareholders are
advised to consult their own tax advisors regarding the tax considerations
incident to an investment in the Class A Common Stock. In addition, this
discussion does not purport to deal with all aspects of U.S. federal income
taxation that might be relevant to particular holders in light of their personal
investment circumstances or status, nor does it discuss the U.S. federal income
tax consequences to certain types of holders that may be subject to special
rules under the U.S. federal income tax laws, such as financial institutions,
insurance companies, dealers in securities or foreign currency, tax-exempt
organizations, foreign corporations or nonresident alien individuals or persons
whose functional currency is not the U.S. dollar. Moreover, the effect of any
applicable state, local or foreign or other tax laws is not discussed.
THE FOLLOWING DISCUSSION IS FOR GENERAL INFORMATION ONLY. EACH PURCHASER IS
STRONGLY URGED TO CONSULT WITH ITS OWN TAX ADVISORS TO DETERMINE THE IMPACT OF
SUCH PURCHASER'S PERSONAL TAX SITUATION ON THE ANTICIPATED TAX CONSEQUENCES,
INCLUDING THE TAX CONSEQUENCES UNDER STATE, LOCAL, FOREIGN OR OTHER TAX LAWS, OF
THE OWNERSHIP AND DISPOSITION OF CLASS A COMMON STOCK.
TAXATION OF THE COMPANY AND ITS SUBSIDIARIES
In general, the Company and its foreign (non-U.S.) subsidiaries will be
subject to U.S. federal income tax only to the extent they have income which has
its source in the United States or is effectively connected with a U.S. trade or
business. Except with respect to interest on pledged securities, it is
anticipated that the Company and its foreign subsidiaries will derive
substantially all of their income from foreign sources and that none of their
income will be effectively connected with a U.S. trade or business. As a result,
the Company and its foreign subsidiaries should not be subject to material U.S.
federal income tax. On the other hand, the domestic (U.S.) subsidiaries of the
Company will be subject to U.S. federal income tax on their worldwide income
regardless of its source (subject to reduction by allowable foreign tax
credits), and distributions by such U.S. subsidiaries to the Company or its
foreign subsidiaries generally will be subject to U.S. withholding taxes.
TAXATION OF U.S. SHAREHOLDERS
A U.S. shareholder receiving a distribution on Class A Common Stock
generally will be required to include such distribution in gross income as a
taxable dividend to the extent such distribution is paid from the current or
accumulated earnings and profits of the Company as determined under U.S. federal
income tax principles. Distributions in excess of the earnings and profits of
the Company generally will
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first be treated, for U.S. federal income tax purposes, as a nontaxable return
of capital to the extent of the U.S. shareholder's basis in the Class A Common
Stock and then as gain from the sale or exchange of a capital asset. Dividends
received on the Class A Common Stock by U.S. corporate shareholders will not be
eligible for the corporate dividends received deduction.
A U.S. shareholder will be entitled to claim a foreign tax credit with
respect to income received from the Company only for foreign taxes (such as
withholding taxes), if any, imposed on dividends paid to such U.S. shareholder,
and not for taxes, if any, imposed on the Company or on any entity in which the
Company has made an investment. It is not anticipated, however, under current
Bermuda law that any such withholding taxes would be imposed by Bermuda on
distributions made by the Company to a U.S. shareholder. See 'Certain Bermuda
Tax Considerations.' For so long as the Company is a 'U.S.-owned foreign
corporation,' distributions with respect to the Class A Common Stock that are
taxable as dividends generally will be treated as foreign source passive income
(or, for U.S. shareholders that are 'financial service entities' as defined in
the Treasury Regulations, foreign source financial services income) or U.S.
source income for U.S. foreign tax credit purposes, in proportion to the
earnings and profits of the Company in the year of such distribution allocable
to foreign and U.S. sources, respectively. For this purpose, the Company will be
treated as a U.S.-owned foreign corporation so long as stock representing 50
percent or more of the voting power or value of the Company is owned, directly
or indirectly, by 'U.S. shareholders.'
With certain exceptions, gain or loss on the sale or exchange of the Class
A Common Stock will be treated as U.S. source capital gain or loss. Such capital
gain or loss will be long-term capital gain or loss if the U.S. shareholder has
held the Class A Common Stock for more than one year at the time of the sale or
exchange. (Recently enacted legislation reduces the tax rate of long-term
capital gain applicable to non-corporate taxpayers from the sale of capital
assets held for more than 18 months.)
Various provisions contained in the Code impose special taxes in certain
circumstances on U.S. or foreign corporations and their stockholders. The
following is a summary of certain provisions which could have an adverse impact
on the Company and the U.S. shareholders.
PERSONAL HOLDING COMPANIES
A corporation that is a personal holding company ('PHC') is subject to a
39.6% tax on its undistributed personal holding company income (generally, U.S.
taxable income with certain adjustments, reduced by distributions to
shareholders). A corporation that is neither a foreign personal holding company
nor a passive foreign investment company, discussed below, generally is a PHC if
(i) more than 50% of the stock of which measured by value is owned, directly or
indirectly, by five or fewer individuals (without regard to their citizenship or
residence) and (ii) it receives 60% or more of gross income, as specifically
adjusted, form certain passive sources. For purposes of this gross income test,
a foreign corporation generally only includes taxable income derived from U.S.
sources or income that is effectively connected with a U.S. trade or business.
More than 50% of the outstanding shares of the Company and each of its
corporate subsidiaries, by value, is currently owned, directly or indirectly, by
five or fewer individuals. It is expected that this will remain the case on a
going forward basis. Since it is anticipated that the Company will derive
substantially all of its U.S. source gross income from interest on its pledged
securities, which the Company believes may constitute undistributed personal
holding company income for PHC purposes, the Company may be subject to PHC tax
with respect to a taxable year in which the Company is not treated as either a
foreign personal holding company or a passive foreign investment company and
during which the Company has held or continues to hold pledged securities.
However, if any of the Company's foreign corporate subsidiaries were to derive
any income from U.S. sources, less than 50% of any such income can be expected
to be from passive sources. Accordingly, the Company believes that none of such
subsidiaries will satisfy the foregoing income test and therefore none of them
will be classified as a PHC. In addition, since it is anticipated that the
Company's U.S. subsidiaries will derive most or all of their income from
non-passive sources, the Company further believes that none of such subsidiaries
will satisfy the foregoing income test and, thus, none of them will be
classified as a PHC. The Company intends to manage its affairs and the affairs
of its subsidiaries so as to attempt to avoid or
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minimize the imposition of the PHC tax, to the extent such management of its
affairs is consistent with its other business goals.
FOREIGN PERSONAL HOLDING COMPANIES
In general, if the Company or any of its foreign corporate subsidiaries
were to be classified as a FPHC the undistributed foreign personal holding
company income (generally, taxable income with certain adjustments) of the
Company or such subsidiary would be imputed to all of the U.S. shareholders who
were deemed to hold the Company's stock or the stock of such subsidiary on the
last day of its taxable year. Such income would be taxable to such persons as a
dividend, even if no cash dividend were actually paid. U.S. shareholders who
dispose of their Class A Common Stock prior to such date generally would not be
subject to U.S. federal income tax under these rules. If the Company were to
become an FPHC, U.S. shareholders who acquire Class A Common Stock from
decedents would, in certain circumstances, be denied the step-up of the income
tax basis for such Class A Common Stock to fair market value at the date of
death which would otherwise have been available and instead would have a tax
basis equal to the lower of the fair market value or the decedent's basis.
A foreign corporation will be classified as an FPHC if (i) five or fewer
individuals, who are U.S. citizens or residents, directly or indirectly, own
more than 50% of the corporation's stock (measured either by voting power or
value) (the 'stockholder test') and (ii) the corporation receives at least 60%
of its gross income (regardless of source), as specifically adjusted, from
certain passive sources (the 'income test'). After a corporation becomes an
FPHC, the income test percentage for each subsequent taxable year is reduced to
50%.
Five or fewer individuals who are U.S. citizens or residents currently own
a beneficial interest of more than 50% of the voting power of the outstanding
Class A Common Stock of the Company and its foreign corporate subsidiaries for
purposes of the FPHC rules, and the Company believes that the stockholder test
will likely be met on a going forward basis. The Company believes, however, that
neither the Company nor its foreign corporate subsidiaries, once profitable,
should be classified as a FPHC because the Company and each of the subsidiaries
should not then satisfy the foregoing income test.
While the Company currently believes that neither it nor any of its foreign
corporate subsidiaries would be classified as an FPHC once profitable, it is
possible that the Company or one or more of such subsidiaries would meet the
foregoing income test in a given taxable year and would qualify as a FPHC for
that year. If the Company concludes that it or any of its foreign corporate
subsidiaries would be classified as an FPHC for any profitable taxable year, the
Company intends to manage its affairs and the affairs of the subsidiaries so as
to attempt to avoid or minimize having income imputed to the U.S. shareholders
under these rules, to the extent such management of its affairs is consistent
with its other business goals.
PASSIVE FOREIGN INVESTMENT COMPANIES
If 75% or more of the gross income of the Company (taking into account
under an income 'look-through' rule, the Company's pro rata share of the gross
income of any company of which the Company is considered to own 25% or more of
the stock by value) in a taxable year is passive income, or if at least 50% of
the average percentage of assets of the Company (also taken into account, under
an asset 'look-through' rule, the pro rata share of the assets of any company of
which the Company is considered to own 25% or more of the stock by value) in a
taxable year produce or are held for the production of passive income, the
Company would be classified as a PFIC. Passive income for purposes of the PFIC
rules generally includes dividends, interest and other types of investment
income and would include amounts derived by reason of the investment of a
portion of the funds raised in the Offerings. If the Company were a PFIC at any
time during a U.S. shareholder's holding period, each U.S. shareholder
(regardless of the percentage of stock owned) would, upon certain distributions
by the Company and upon disposition of the Class A Common Stock at a gain, be
liable to pay tax plus an interest charge. The tax would be determined by
allocating such distribution or gain ratably to each day of the U.S.
shareholder's holding period for the Class A Common Stock. The amount allocated
to years prior to the taxable year of the distribution or disposition would be
taxed at the highest marginal rates for
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ordinary income for such years (if the Company was a PFIC during such years).
The U.S. shareholder would also be liable for interest on the amount of such
additional tax due with respect to such prior years in which the Company was a
PFIC. The amount allocated to the current taxable year and any non-PFIC years
would be taxed in the same manner as other ordinary income earned in the current
taxable year.
Under certain circumstances, if the Company were to become a PFIC,
distributions and dispositions in respect of shares in a direct or indirect
foreign corporate subsidiary of the Company may be attributed in whole or in
part to a U.S. investor, and such U.S. investor may be taxed under the PFIC
rules with respect to such distributions or dispositions.
If the Company were to become a PFIC, U.S. shareholders who acquire Class A
Common Stock from decedents could be denied the step-up of the income tax basis
for such Class A Common Stock to fair market value at the date of death which
would otherwise have been available and instead could have a tax basis equal to
the lower of the fair market value of the decedent's basis.
The above results may be eliminated (at least in part) if a U.S.
shareholder permanently elects to treat the Company as a 'qualified electing
fund' ('QEF') for U.S. federal income tax purposes. A stockholder of a QEF is
required for each taxable year to include in income a pro rata share of the
ordinary income of the QEF as ordinary income and a pro rata share of the net
capital gain of the QEF as long-term capital gain. If a U.S. shareholder in a
PFIC has made a QEF election in a year subsequent to the year in which such
investor acquired an interest in the PFIC, the U.S. shareholder must agree in
the year of such election to either (1) recognize gain equal to such U.S.
shareholder's unrealized appreciation in such stock or (2) assuming the Company
is a controlled foreign corporation (discussed below) include in income as a
dividend his pro rata share of the Company's earnings and profits up to the
first day of the tax year for which such election was made (in each case subject
to the tax consequences discussed above for non-QEF PFICs) so that thereafter
any additional gain on the sale of such stock in the future generally will be
characterized as capital gain and the denial of basis step-up at death and the
interest charge (as well as the other PFIC tax consequences described above)
would not continue to apply.
Effective for taxable years beginning after December 31, 1997, a U.S.
shareholder of a PFIC may, in lieu of making a QEF election, also avoid the
above results by electing to 'mark-to-market' the PFIC stock as of the close of
each taxable year so long as such stock is 'marketable'. The Company expects
that the Class A Common Stock will be 'marketable' for this purpose. Under this
election, the U.S. shareholder will include in income each year as ordinary
income, an amount equal to the excess, if any, of the fair market value of the
stock at the close of the year over such U.S. shareholders adjusted basis. If
the stock declines in value during any year, such U.S. shareholder will be
entitled to a deduction from ordinary income the excess of such U.S.
shareholder's adjusted basis over the stock's value at the close of such year
but only to the extent of net mark-to-market gains previously included in
income. Any gain or loss on the sale of the stock of the PFIC will be ordinary
income or ordinary loss (but only to the extent of the previously included net
mark-to-market gains). In the case of a U.S. shareholder who makes this
mark-to-market election for PFIC stock as to which a QEF election was not in
effect during his period of ownership, a coordination rule applies to ensure
that the shareholder does not avoid the interest charge for periods prior to
this election. An election to mark-to-market applies to the year for which the
election is made and following years unless the PFIC stock ceases to be
marketable or the Internal Revenue Service consents to the revocation of such
election.
The Company intends to manage its business and the businesses of the
subsidiaries so as to attempt to avoid PFIC status. The Company will notify U.S.
shareholders in the event that it concludes that it will be treated as a PFIC
for any taxable year to enable U.S. shareholders to consider whether to elect to
treat the Company as a QEF for U.S. federal income tax purposes or to make the
mark-to-market election. In addition, the Company will, at the request of a U.S.
shareholder who elects to have the Company treated as a QEF, comply with the
applicable information reporting requirements.
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CONTROLLED FOREIGN CORPORATIONS
If 10% Shareholders, who are also U.S. persons, own, in the aggregate,
directly or indirectly, more than 50% (measured by voting power or value) of the
shares of a foreign corporation, that foreign corporation would be a controlled
foreign corporation ('CFC'). If a foreign corporation were characterized as a
CFC, then some portion of the undistributed income of the foreign corporation
may be imputed to such 10% Shareholders, and some portion of the gains
recognized by such 10% Shareholders on the disposition of their shares in the
foreign corporation (which would otherwise qualify for capital gains treatment)
may be converted into ordinary dividend income. The Company is currently a CFC,
and it is likely that 10% Shareholders who are also U.S. persons will continue
to own (or be deemed to own) more than 50% of the voting power of the
outstanding Common Stock of the Company and, thus, that the Company will
continue to be characterized as a CFC. However, the CFC rules referred to above
only apply with respect to such 10% Shareholders. For 1997, because the Company
is a CFC, the asset test to determine whether the Company would be a PFIC is
made by comparing the relative adjusted tax bases of the Company's assets and
not the relative fair market values of such assets, making it more difficult for
the Company to manage its affairs so as to avoid PFIC status. However, for
taxable years beginning after December 31, 1997, in the case of CFC's with
publicly traded shares, the asset test to determine whether the CFC is a PFIC
will be made on the basis of the relative fair market values of such assets. The
Company expects to be publicly traded for this purpose so that this more
favorable asset test will be applicable in 1998 and later years.
TAXATION OF NON-U.S. SHAREHOLDERS
For U.S. federal income tax purposes, a non-U.S. shareholder should not be
subject to tax on distributions made with respect to, and gains realized from
the disposition of, Class A Common Stock unless such distributions and gains are
attributable to an office or fixed place of business maintained by such non-U.S.
shareholder in the U.S. A non-U.S. shareholder generally will not be subject to
U.S. federal income or withholding tax in respect of gain recognized in the
disposition of Class A Common Stock.
UNITED STATES BACKUP WITHHOLDING AND INFORMATION REPORTING
U.S. SHAREHOLDERS
Under certain circumstances, a U.S. shareholder who is an individual may be
subject to backup withholding at a 31% rate on dividends received on Class A
Common Stock. This withholding generally applies only if such individual U.S.
shareholder (i) fails to furnish his or her taxpayer identification number
('TIN') to the U.S. financial institution or any other person responsible for
the payment of dividends on the Class A Common Stock, (ii) furnishes an
incorrect TIN, (iii) is notified by the U.S. Internal Revenue Service ('IRS')
that such U.S. shareholder has failed to properly report payments of interest
and dividends and the IRS has notified the Company that such U.S. shareholder is
subject to backup withholding, or (iv) fails, under certain circumstances, to
provide a certified statement, signed under penalty or perjury, that the TIN
provided is such U.S. shareholder's correct number and that such U.S.
shareholder is not subject to backup withholding rules.
Amounts withheld under the backup withholding rules do not constitute a
separate U.S. Federal income tax. Rather, any amounts withheld under the backup
withholding rules will be refunded or allowed as a credit against the U.S.
shareholder's U.S. federal income tax liability, if any, provided the required
information or appropriate claim for refund is filed with the Internal Revenue
Service.
NON-U.S. SHAREHOLDERS
Currently, U.S. information reporting requirements and backup withholding
will not apply to dividends on the Class A Common Stock paid to non-U.S.
shareholders at an address outside the U.S. (provided that the payor does not
have definite knowledge that the payee is a U.S. person). As a general matter,
information reporting and backup withholding will not apply to a payment of the
proceeds of a sale effected outside the U.S. of the Class A Common Stock by a
foreign office of a foreign holder. However, information reporting requirements
(but not backup withholding) will apply to a
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payment of the proceeds of a sale effected outside the U.S. of the Class A
Common Stock through a 'U.S. Broker', unless the U.S. Broker has documentary
evidence in its records that the non-U.S. shareholder is not a U.S. person and
has no actual knowledge that such evidence is false, or the non-U.S. shareholder
otherwise establishes an exemption. For purposes of the preceding sentence, a
U.S. Broker is a broker that (i) is a U.S. person, (ii) is a foreign person that
derives 50% or more of its gross income for certain periods from the conduct of
a trade or business in the U.S. or (iii) is a Controlled Foreign Corporation.
Payment by a broker of the proceeds of a sale of the Shares effected inside the
United States is subject to both backup withholding and information reporting
unless the non-U.S. shareholder certifies under penalties of perjury that such
non-U.S. shareholder is not a United States person and provides such non-U.S.
shareholder's name and address or the non-U.S. shareholder otherwise establishes
an exemption. Any amounts withheld under the backup withholding rules from a
payment to a non-U.S. shareholder will be allowed as a refund or a credit
against such non-U.S. shareholder's U.S. Federal income tax, provided that the
required information or appropriate claim for refund is furnished to the IRS.
The United States Treasury issued proposed regulations on April 22, 1996
(the 'Proposed Withholding Regulations') which would, if adopted, alter the
information reporting and backup withholding rules applicable to non-U.S.
shareholders. Among other things, the Proposed Withholding Regulations would
provide certain presumptions under which a non-U.S. shareholder would be subject
to backup withholding and information reporting until the Company receives
certification from such shareholder of non-U.S. status. The Proposed Withholding
Regulations are generally proposed to be effective with respect to dividends
paid after December 31, 1997, subject to certain transition rules. The foregoing
discussion is not intended to be a complete discussion of the provisions of the
Proposed Withholding Regulations, and prospective shareholders are urged to
consult their tax advisors with respect to the effect that the Proposed
Withholding Regulations would have if adopted.
CERTAIN BERMUDA TAX CONSIDERATIONS
In the opinion of Conyers, Dill & Pearman, the following correctly
describes a summary of certain material anticipated tax consequences of an
investment in the Class A Common Stock under current Bermuda tax laws. This
discussion does not address the tax consequences under non-Bermuda tax laws and,
accordingly, each prospective investor should consult his or her tax advisor
regarding the tax consequences of an investment in the Class A Common Stock. The
discussion is based upon laws and relevant interpretation thereof in effect as
of the date of this Prospectus, all of which are subject to change.
BERMUDA TAXATION
At the date hereof, there is no Bermuda income, corporation or profits tax,
withholding tax, capital gains tax, capital transfer tax, estate duty or
inheritance tax payable by the Company or its shareholders other than those who
are ordinarily resident in Bermuda. The Company is not subject to stamp or other
similar duty on the issue, transfer or redemption of its Class A Common Stock.
The Company has obtained an assurance from the Minister of Finance of
Bermuda under the Exempted Undertakings Tax Protection Act 1966 that, in the
event there is enacted in Bermuda any legislation imposing tax computed on
profits or income or computed on any capital assets, gain or appreciation or any
tax in the nature of estate duty or inheritance tax, such tax shall not be
applicable to the Company or to its operations, or to the shares or other
obligations of the Company until March 28, 2016 except insofar as such tax
applies to persons ordinarily resident in Bermuda and holding such shares or
other obligations of the Company or any real property or leasehold interests in
Bermuda owned by the Company. No reciprocal tax treaty affecting the Company
exists between Bermuda and the United States.
As an exempted company, the Company is liable to pay in Bermuda a
registration fee based upon its authorized share capital and the premium on its
issued shares at a rate not exceeding $25,000 per annum.
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LEGAL MATTERS
The validity of the Class A Common Stock offered in the Offerings will be
passed upon for the Company and the Underwriters by the Company's counsel,
Conyers, Dill & Pearman, Hamilton, Bermuda. Certain legal matters under U.S. and
New York law will be passed upon for the U.S. Underwriters and the International
Underwriters by their United States counsel, Cravath, Swaine & Moore. Statements
with respect to, or involving matters of, Bermuda law in this Prospectus under
'Service of Process of And Enforcement of Liabilities', 'Certain Bermuda Tax
Considerations' and 'Description of Capital Stock--Certain Provisions of Bermuda
Law,' have been passed upon by Conyers, Dill & Pearman, Bermuda and are stated
herein on their authority.
Robert L. Kohl, a member of Rosenman & Colin LLP, has been granted an
option to purchase up to 4,380 shares of Class A Common Stock, which shares have
a fair market value (assuming an initial public offering price of $20.50 per
share) of $89,790.
There is no minimum amount which in the opinion of the directors of the
Company must be raised by the offer of the shares of Class A Common Stock in
order to provide for the matters referred to in Section 28 of The Companies Act
1981 of Bermuda.
EXPERTS
The Consolidated Financial Statements of RSL Communications, Ltd. as of and
for the years ended December 31, 1995 and December 31, 1996 and the six months
ended June 30, 1997, and International Telecommunications Group, Ltd. as of and
for the year ended December 31, 1994 and as of and for the nine months ended
September 30, 1995, included in this Prospectus, have been audited by Deloitte &
Touche LLP, independent auditors, as stated in their reports appearing herein
and are included in reliance upon the reports of such firm given upon their
authority as experts in accounting and auditing.
The Consolidated Financial Statements of Cyberlink, Inc. as of August 31,
1995 and for the eight months then ended, included in this Prospectus, have been
audited by Brown, Leifer, Slatkin + Berns, independent auditors, as stated in
their report appearing herein.
SERVICE OF PROCESS AND ENFORCEMENT OF LIABILITIES
The Company is a Bermuda corporation. Certain of its directors and
officers, and certain of the experts named herein, are not residents of the
United States. All or a substantial portion of the assets of such persons are or
may be located outside the United States. As a result, it may not be possible
for investors to effect service of process within the United States upon such
persons or to enforce against them judgments obtained in the United States
courts. The Company has been advised by its legal counsel in Bermuda, Conyers,
Dill & Pearman, that there is doubt as to the enforcement in Bermuda, in
original actions or in actions for enforcement of judgments of United States
courts, of liabilities predicated upon U.S. Federal securities laws, although
Bermuda courts will enforce foreign judgments for liquidated amounts in civil
matters, subject to certain conditions and exceptions.
ADDITIONAL INFORMATION
The Company has filed with the Commission a Registration Statement on Form
S-1 under the Securities Act of 1933 with respect to the shares of Class A
Common Stock being offered by this Prospectus. This Prospectus, which
constitutes a part of the Registration Statement, does not contain all of the
information set forth in the Registration Statement, certain items of which are
contained in exhibits and schedules to the Registration Statement as permitted
by the rules and regulations of the Commission. For further information with
respect to the Company and the Class A Common Stock offered hereby, reference is
made to the Registration Statement, including the exhibits thereto, and the
financial statements and notes filed as a part thereof. Statements made in this
Prospectus concerning the contents of any contract, agreement or other document
filed with the Commission as an exhibit are not necessarily complete. With
respect to each such contract, agreement or other document filed with
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the Commission as an exhibit, reference is made to the exhibit for a more
complete description of the matter involved, and each such statement shall be
deemed qualified in its entirety by such reference. The Registration Statement
and the exhibits may be inspected and copied at the public reference facilities
maintained by the Commission at Judiciary Plaza, 450 Fifth Street, N.W.,
Washington, D.C. 20549, and at the Commission's Regional Offices at 7 World
Trade Center, New York, New York 10048 and the Northwestern Atrium Center, 500
West Madison Street, Room 1400, Chicago, Illinois 60661. Copies of such material
can be obtained at prescribed rates from the Public Reference Section of the
Commission at Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549.
The Commission maintains a Web site at http://www.sec.gov that contains reports,
proxy and information statements and other information regarding issuers that
file electronically with the Commission.
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934 and, in accordance therewith, files reports, proxy
statements and other information with the Commission. Reports, proxy statements
and other information filed by the Company may be inspected and copied at the
public reference facilities maintained by the Commission at the address and in
the manner set forth in the foregoing paragraph.
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INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<S> <C>
RSL COMMUNICATIONS, LTD.
Independent Auditors' Report.............................................................................. F-2
Consolidated Financial Statements
Consolidated Balance Sheets as of December 31, 1995, December 31, 1996 and June 30, 1997.................. F-3
Consolidated Statements of Operations for the Fiscal Years Ended December 31, 1995, December 31, 1996 and
for the Six Month Period Ended June 30, 1997 and the unaudited six month period ended June 30, 1996..... F-4
Consolidated Statements of Shareholders' Equity for the Fiscal Years Ended
December 31, 1995, December 31, 1996 and for the Six Month Period Ended June 30, 1997................... F-5
Consolidated Statements of Cash Flows for the Fiscal Years Ended December 31, 1995, December 31, 1996 and
for the Six Month Period Ended June 30, 1997 and the unaudited six month period ended June 30 1996...... F-6
Notes to Consolidated Financial Statements................................................................ F-7
INTERNATIONAL TELECOMMUNICATIONS GROUP LTD. AND SUBSIDIARIES
Independent Auditors' Report.............................................................................. F-25
Consolidated Financial Statements for the Nine Months Ended September 30, 1995
Consolidated Statement of Operations and Accumulated Deficit for the Nine Months Ended September 30,
1995.................................................................................................... F-26
Consolidated Statement of Cash Flows for the Nine Months Ended September 30, 1995......................... F-27
Notes to Consolidated Financial Statements................................................................ F-28
Independent Auditors' Report.............................................................................. F-32
Consolidated Financial Statements for the Year Ended December 31, 1994
Consolidated Statement of Operations and Accumulated Deficit for the Year Ended December 31, 1994......... F-33
Consolidated Statement of Cash Flows for the Year Ended December 31, 1994................................. F-34
Notes to Consolidated Financial Statements................................................................ F-35
CYBERLINK, INC. AND SUBSIDIARIES
Independent Auditors' Report.............................................................................. F-39
Consolidated Financial Statements
Consolidated Balance Sheet as of August 31, 1995.......................................................... F-40
Consolidated Statement of Operations for the Eight Month Period Ended August 31, 1995..................... F-41
Consolidated Statement of Cash Flows for the Eight Month Period Ended
August 31, 1995......................................................................................... F-42
Notes to Consolidated Financial Statements................................................................ F-43
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Shareholders of
RSL Communications, Ltd.
We have audited the accompanying consolidated balance sheets of RSL
Communications, Ltd., a Bermuda corporation, and its subsidiaries (together, the
'Company'), as of June 30, 1997 and December 31, 1996 and 1995, and the related
consolidated statements of operations, shareholders' equity and cash flows for
the six months ended June 30, 1997 and the years ended December 31, 1996 and
1995. Our audits also included the consolidated financial statement schedules
listed in the Index at Item 21(b). These consolidated financial statements and
the consolidated financial statement schedules are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements and the consolidated financial statement
schedules based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the consolidated financial position of the Company and
its subsidiaries at June 30, 1997 and December 31, 1996 and 1995, and the
results of their operations and their cash flows for the six months ended June
30, 1997 and the years ended December 31, 1996 and 1995 in conformity with
accounting principles generally accepted in the United States of America. Also,
in our opinion, such consolidated financial statement schedules, when considered
in relation to the basic consolidated financial statements taken as a whole,
present fairly in all material respects the information set forth therein.
DELOITTE & TOUCHE LLP
NEW YORK, NEW YORK
SEPTEMBER 19, 1997
F-2
<PAGE>
RSL COMMUNICATIONS, LTD.
CONSOLIDATED BALANCE SHEETS
($ IN THOUSANDS, EXCEPT FOR SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31, JUNE 30,
1995 1996 1997
------------ ------------ -----------
<S> <C> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents......................................... $ 5,163 $104,068 $ 81,992
Accounts receivable............................................... 6,140 26,479 44,012
Marketable securities--available for sale......................... -- 67,828 50,797
Prepaid expenses and other current assets......................... 856 3,969 12,341
------------ ------------ -----------
Total current assets................................................ 12,159 202,344 189,142
------------ ------------ -----------
Marketable Securities--Held to maturity............................. -- 104,370 84,728
------------ ------------ -----------
Property and Equipment:
Telecommunications equipment...................................... 9,844 29,925 38,518
Furniture, fixtures and other..................................... 989 5,926 9,710
------------ ------------ -----------
10,833 35,851 48,228
Less accumulated depreciation..................................... (302) (3,513) (6,917)
------------ ------------ -----------
Property and equipment--net....................................... 10,531 32,338 41,311
------------ ------------ -----------
Goodwill--and other intangible assets net of accumulated
amortization...................................................... 29,398 87,605 120,312
------------ ------------ -----------
Deposits and Other Assets........................................... 984 1,312 1,026
------------ ------------ -----------
Total Assets........................................................ $ 53,072 $427,969 $ 436,519
------------ ------------ -----------
------------ ------------ -----------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable.................................................. $ 20,788 $ 49,370 $ 67,658
Accrued expenses.................................................. 2,277 12,701 13,942
Notes payable..................................................... 5,236 6,538 7,198
Deferred revenue.................................................. 745 3,570 4,628
Other liabilities................................................. 2,712 5,236 4,968
------------ ------------ -----------
Total current liabilities........................................... 31,758 77,415 98,394
------------ ------------ -----------
Other Liabilities--noncurrent....................................... 8,962 15,286 6,678
------------ ------------ -----------
Long-term Debt--less current portion................................ 1,604 6,032 5,866
------------ ------------ -----------
Senior Notes, 12 1/4% due 2006, net................................. -- 296,000 296,300
------------ ------------ -----------
Capital Lease Obligations--less current portion..................... 5,043 12,393 15,922
------------ ------------ -----------
Total Liabilities................................................... 47,367 407,126 423,160
------------ ------------ -----------
Commitments and Contingencies
Shareholders' Equity
Common stock, Class A--par value $.01; 665,340 issued and
outstanding at June 30, 1997.................................... -- -- 7
Common stock, Class B--par value $.01; 2,927,564, 4,807,711 and
4,807,711 issued and outstanding at December 31, 1995, December
31, 1996 and June 30, 1997, respectively........................ 29 48 48
Common stock Class C--par value $.01; no shares issued............ -- -- --
Preferred stock par value $.01; 20,000,000 shares authorized,
9,243,866 shares issued and outstanding at December 31, 1995,
December 31, 1996 and June 30, 1997, respectively............... 93 93 93
Warrants--Common Stock, exercise price of $.01.................... -- 5,544 5,544
Additional paid-in capital........................................ 15,083 65,064 97,639
Accumulated deficit............................................... (9,500) (47,740) (88,457)
Foreign currency translation adjustment........................... -- (622) (1,129)
Deferred financing costs.......................................... -- (1,544) (386)
------------ ------------ -----------
Total shareholders' equity.......................................... 5,705 20,843 13,359
------------ ------------ -----------
Total Liabilities and Shareholders' Equity.......................... $ 53,072 $427,969 $ 436,519
------------ ------------ -----------
------------ ------------ -----------
</TABLE>
See notes to consolidated financial statements.
F-3
<PAGE>
RSL COMMUNICATIONS, LTD.
CONSOLIDATED STATEMENTS OF OPERATIONS
($ IN THOUSANDS, EXCEPT LOSS PER SHARE)
<TABLE>
<CAPTION>
SIX MONTHS SIX MONTHS
YEAR ENDED YEAR ENDED ENDED ENDED
DECEMBER 31, DECEMBER 31, JUNE 30, JUNE 30,
1995 1996 1996 1997
------------ ------------ ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C>
Revenues.............................................. $ 18,617 $ 113,257 $ 39,764 $ 109,361
Cost of services...................................... 17,510 98,461 35,657 96,797
------------ ------------ ----------- -----------
Gross profit........................................ 1,107 14,796 4,107 12,564
Selling, general and administrative expenses.......... 9,639 38,893 13,656 38,213
Depreciation and amortization......................... 849 6,655 2,175 8,960
------------ ------------ ----------- -----------
Loss from operations.................................. (9,381) (30,752) (11,724) (34,609)
Interest income....................................... 173 3,976 80 7,124
Interest expense...................................... (194) (11,359) (635) (19,252)
Other (expense) income................................ -- (288) -- 6,874
Foreign currency transaction gain (loss).............. -- 758 -- (268)
Minority interest..................................... -- (180) -- (229)
Income taxes.......................................... -- (395) -- (357)
------------ ------------ ----------- -----------
Net loss.............................................. $ (9,402) $ (38,240) $ (12,279) $ (40,717)
------------ ------------ ----------- -----------
------------ ------------ ----------- -----------
Loss per share........................................ $ (3.65) $ (11.24) $ (4.19) $ (8.14)
Weighted average number of shares of common stock
outstanding......................................... 2,576 3,401 2,928 5,003
</TABLE>
See notes to consolidated financial statements.
F-4
<PAGE>
RSL COMMUNICATIONS, LTD.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
($ AND SHARES IN THOUSANDS)
<TABLE>
<CAPTION>
CLASS A CLASS B COMMON STOCK FOREIGN
COMMON STOCK COMMON STOCK PREFERRED STOCK WARRANTS ADDITIONAL CURRENCY
--------------- --------------- --------------- --------------- PAID-IN ACCUMULATED TRANSLATION
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT CAPITAL DEFICIT ADJUSTMENT
------ ------ ------ ------ ------ ------ ------ ------ ---------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE,
January 1, 1995... -- $-- -- $ -- -- $ -- -- $ -- $ -- $ (98)* $ --
Issuance of
Preferred Stock... -- -- -- -- 9,244 93 -- -- 13,261 -- --
Issuance of Common
Stock............. -- -- 2,928 29 -- -- -- -- 1,822 -- --
Net loss........... -- -- -- -- -- -- -- -- -- (9,402) --
--
------ ------ ------ ------ ------ ------ ------ ---------- ----------- ----------
BALANCE, December
31, 1995.......... -- -- 2,928 29 9,244 93 -- -- 15,083 (9,500) --
Issuance of
warrants in
connection with
Notes Offering.... -- -- -- -- -- -- 300 4,000 -- -- --
Issuance of
warrants in
connection with
shareholder
standby facility
and revolving
credit facility... -- -- -- -- -- -- 210 1,544 -- -- --
Issuance of Common
Stock............. -- -- 1,880 19 -- -- -- -- 49,981 -- --
Foreign Currency
Translation
Adjustment........ -- -- -- -- -- -- -- -- -- -- (622)
Net loss........... -- -- -- -- -- -- -- -- -- (38,240) --
--
------ ------ ------ ------ ------ ------ ------ ---------- ----------- ----------
BALANCE, December
31, 1996.......... -- -- 4,808 48 9,244 93 510 5,544 65,064 (47,740) (622)
Issuance of Class A
Common Stock...... 665 7 -- -- -- -- -- -- 32,575 -- --
Foreign Currency
Translation
Adjustment........ -- -- -- -- -- -- -- -- -- -- (507)
Amortization of
deferred financing
costs............. -- -- -- -- -- -- -- -- -- -- --
Net loss........... -- -- -- -- -- -- -- -- -- (40,717) --
--
------ ------ ------ ------ ------ ------ ------ ---------- ----------- ----------
BALANCE
June 30, 1997..... 665 $7 4,808 $ 48 9,244 $ 93 510 $5,544 $ 97,639 $ (88,457) $ (1,129)
--
--
------ ------ ------ ------ ------ ------ ------ ---------- ----------- ----------
------ ------ ------ ------ ------ ------ ------ ---------- ----------- ----------
<CAPTION>
DEFERRED
FINANCING
COSTS TOTAL
--------- --------
<S> <C> <C>
BALANCE,
January 1, 1995... $ -- $ (98)
Issuance of
Preferred Stock... -- 13,354
Issuance of Common
Stock............. -- 1,851
Net loss........... -- (9,402)
--------- --------
BALANCE, December
31, 1995.......... -- 5,705
Issuance of
warrants in
connection with
Notes Offering.... -- 4,000
Issuance of
warrants in
connection with
shareholder
standby facility
and revolving
credit facility... (1,544) --
Issuance of Common
Stock............. -- 50,000
Foreign Currency
Translation
Adjustment........ -- (622)
Net loss........... -- (38,240)
--------- --------
BALANCE, December
31, 1996.......... (1,544) 20,843
Issuance of Class A
Common Stock...... -- 32,582
Foreign Currency
Translation
Adjustment........ -- (507)
Amortization of
deferred financing
costs............. 1,158 1,158
Net loss........... -- (40,717)
--------- --------
BALANCE
June 30, 1997..... $ (386) $ 13,359
--------- --------
--------- --------
</TABLE>
* Deficit at January 1, 1995 consists of pre-operating expenses.
See notes to consolidated financial statements.
F-5
<PAGE>
RSL COMMUNICATIONS, LTD.
CONSOLIDATED STATEMENTS OF CASH FLOWS
($ IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS SIX MONTHS
YEAR ENDED YEAR ENDED ENDED ENDED
DECEMBER 31, DECEMBER 31, JUNE 30, JUNE 30,
1995 1996 1996 1997
------------ ------------ ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C>
Cash flows provided by (used in) operating activities:
Net loss..................................................... $ (9,402) $ (38,240) $ (12,279) $ (40,717)
Adjustments to reconcile net loss to net cash provided by
(used in) operating activities, net of effects of
purchase of subsidiaries and accretion of interest
receivable on restricted marketable securities........... -- (1,562) -- (3,023)
Depreciation and amortization............................ 848 6,655 2,175 8,960
Foreign currency transaction (loss) gain................. -- (788) -- 161
Loss on disposal of fixed assets......................... -- 368 -- --
Provision for losses on accounts receivable.............. 149 2,830 877 2,469
Reduction in other long-term liabilities................. -- -- -- (7,000)
Changes in assets and liabilities:
Increase in accounts receivable.......................... (2,453) (17,034) (9,461) (21,192)
Decrease (increase) in deposits and other assets......... 366 (3,249) 91 286
Decrease (increase) in prepaid expenses and other current
assets................................................. 297 (925) (2,094) (6,988)
Increase in accounts payable and accrued expenses........ 3,511 44,243 10,243 19,630
Increase in deferred revenue and other current
liabilities............................................ 1,501 4,279 2,327 1,938
Increase (decrease) in other liabilities................. 8,737 (7,052) (56) 229
------------ ------------ ----------- -----------
Net cash provided by (used in) operating activities............ 3,554 (10,475) (8,177) (45,247)
------------ ------------ ----------- -----------
Cash flows (used in) provided by investing activities:
Acquisition of subsidiaries.................................. (15,413) (38,552) (10,616) (5,455)
Purchase of marketable securities............................ -- (82,529) -- --
Proceeds from marketable securities.......................... -- 14,701 -- 17,031
Purchase of restricted marketable securities................. -- (102,808) -- --
Proceeds from restricted marketable securities............... -- -- -- 22,665
Purchase of property and equipment........................... (1,124) (15,983) (4,792) (7,511)
Proceeds from sale of equipment.............................. -- 171 -- 132
------------ ------------ ----------- -----------
Net cash (used in) provided by investing activities............ (16,537) (225,000) (15,408) 26,862
------------ ------------ ----------- -----------
Cash flows provided by (used in) financing activities:
Proceeds from issuance of common and preferred stock and
Warrants................................................... 15,205 50,000 -- --
Proceeds from notes payable.................................. 3,000 -- 24,461 --
Payment of notes payable..................................... -- (3,000) -- (1,012)
Proceeds from issuance of 12 1/4% Senior Notes and Warrants.. -- 300,000 -- --
Payments of offering costs................................... -- (10,989) -- --
Proceeds from long-term debt................................. -- 44,000 -- --
Payments of long-term debt................................... -- (44,598) -- (975)
Principal payments under capital lease obligations........... (62) (382) (153) (820)
------------ ------------ ----------- -----------
Net cash provided by (used in) financing activities............ 18,143 335,031 24,308 (2,807)
------------ ------------ ----------- -----------
Increase (decrease) in cash and cash equivalents............... 5,160 99,556 723 (21,192)
Effects of foreign currency exchange rates on cash............. -- (651) -- (884)
Cash and cash equivalents at beginning of period............... 3 5,163 5,163 104,068
------------ ------------ ----------- -----------
Cash and cash equivalents at end of period..................... $ 5,163 $ 104,068 $ 5,886 $ 81,992
------------ ------------ ----------- -----------
------------ ------------ ----------- -----------
Supplemental disclosure of cash flows information:
Cash paid for:
Interest................................................... $ 31 $ 1,639 $ 634 $ 23,089
------------ ------------ ----------- -----------
------------ ------------ ----------- -----------
Supplemental schedule of noncash investing and financing
activities--
Assets acquired under capital lease obligations.............. $ 4,950 $ 7,897 $ 95 $ 6,359
------------ ------------ ----------- -----------
------------ ------------ ----------- -----------
Issuance of notes to acquire stock........................... $ -- $ 9,328 $ -- $ --
------------ ------------ ----------- -----------
------------ ------------ ----------- -----------
Issuance of warrants for shareholder standby facility........ $ -- $ 1,544 $ -- $ --
------------ ------------ ----------- -----------
------------ ------------ ----------- -----------
Issuance of Class A Common Stock............................. $ -- $ -- $ -- $ 32,582
------------ ------------ ----------- -----------
------------ ------------ ----------- -----------
</TABLE>
See notes to consolidated financial statements.
F-6
<PAGE>
RSL COMMUNICATIONS, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1996
AND FOR THE SIX MONTH PERIOD ENDED JUNE 30, 1997
AND FOR THE UNAUDITED SIX MONTH PERIOD ENDED
JUNE 30, 1996
1. BUSINESS DESCRIPTION
RSL Communications, Ltd. ('RSL'), a Bermuda corporation, is the successor
in interest to RSL Communications Inc., a British Virgin Islands corporation,
which is the successor in interest to RSL Communications, Inc., a Delaware
corporation. RSL, together with its direct and indirect subsidiaries are
referred to herein as the 'Company.' The Company is a multinational
telecommunications company which provides an array of international and domestic
telephone services. The Company focuses on providing international long distance
voice services to small and medium-sized businesses in key markets. The Company
currently has revenue producing operations and provides services in the United
States, the United Kingdom, France, Germany, the Netherlands, Sweden, Finland,
Australia and Denmark. In 1995, approximately 54% of the world's international
long distance telecommunications minutes originated in these markets.
In August 1997, the Board of Directors of the Company approved the issuance
of Class A common shares in an initial public offering to be filed with the
Securities and Exchange Commission on or about August 22, 1997. Concurrent with
such offering, the Board has authorized a 2.19 to 1 stock split. Upon the
closing of the offering, the Preferred Stock will be automatically converted
into Class B common shares.
2. ACQUISITIONS
On March 10, 1995, the Company entered into a stock purchase agreement (the
'Agreement') with International Telecommunications Group, Ltd. ('ITG') and RSL
COM U.S.A., Inc. (formerly known as International Telecommunications
Corporation) ('RSL USA'), pursuant to which the Company initially purchased from
ITG 66,667 shares of ITG's Series A convertible preferred stock (which
represented 25% of ITG's then outstanding stock, including common and preferred
shares) for $3,000,000, subject to increase, to a maximum of $4,750,000. Such
increase was predicated upon the attainment of certain financial targets and
ratios. Based on the terms of the Agreement, the adjusted purchase price of the
shares totaled $4,750,000. The Company subsequently purchased additional shares
of ITG's common stock at various times during 1995 and 1996 for a total purchase
price of cash and secured notes aggregating $12,870,000 and $24,975,000 at
December 31, 1995 and 1996, respectively and the assumption of net liabilities
resulting in recorded goodwill of $25,030,000. At December 31, 1996 and at June
30, 1997, the Company's investment in ITG was $54,204,000 and $67,647,000,
respectively, which represented in excess of 87% (at December 31, 1996) and 92%
(at June 30, 1997) of the outstanding shares of ITG.
Effective September 1, 1995, ITG's subsidiary RSL USA, purchased 51% of the
capital stock of Cyberlink, Inc. ('Cyberlink'). During the period August 1996
through December 1996, RSL USA purchased 1,023,807 shares of the capital stock
of Cyberlink for approximately $7,200,000. In addition, through March 1997, the
Company acquired the remaining outstanding shares.
The total purchase price consisted of approximately $9,485,000, and
assumption of net liabilities of $21,131,000. In connection with the purchase of
Cyberlink, the Company recorded approximately $30,616,000 of goodwill.
In November 1995, the Company, through its wholly-owned subsidiary RSL COM
Europe, Ltd. ('RSL COM Europe') completed the acquisition of 51% of Cyberlink
Communications Europe Ltd. ('Cyberlink Europe'). Cyberlink Europe is a holding
company which owned 100% of the shares of RSL COM Sweden AB, Cyberlink
International Telesystems Germany GmbH and RSL COM Finland OY.
F-7
<PAGE>
RSL COMMUNICATIONS, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1996
AND FOR THE SIX MONTH PERIOD ENDED JUNE 30, 1997
AND FOR THE UNAUDITED SIX MONTH PERIOD ENDED
JUNE 30, 1996
2. ACQUISITIONS--(CONTINUED)
During the period August 1996 through March 1997, RSL COM Europe purchased the
remaining 49% of the Cyberlink Europe shares for approximately $2,062,000. The
total cash paid was approximately $3,658,000. In connection with the purchase of
Cyberlink Europe, the Company recorded approximately $2,914,000 of goodwill in
connection with this purchase.
In May 1996, the Company acquired the net assets, principally
telecommunications equipment and facilities, constituting the international long
distance voice businesses of Sprint in France and Germany through its wholly-
owned subsidiaries RSL COM France S.A., a French corporation ('RSL France'), and
RSL COM Deutschland GmbH, a German limited liability company ('RSL Germany').
Pursuant to the applicable asset purchase agreements, the Company can not
disclose the purchase price of the net assets. In connection with this
transaction, the Company recorded approximately $7,905,000 of goodwill.
In October 1996, the Company acquired 38,710 shares of Belnet Nederland
B.V. ('Belnet/RSL'), representing 75% of the outstanding stock for $10,000,000.
In connection with the purchase of Belnet/RSL, the Company recorded
approximately $8,250,000 of goodwill.
In August 1996, the Company acquired the assets and assumed certain limited
liabilities of Incom (UK) Limited ('Incom'), a United Kingdom reseller, for
$500,000 plus 3,954 non-voting shares of ITG (the 'Purchased Shares'). In
addition, 3,333 voting shares of ITG currently held by Incom were exchanged for
an equal number of non-voting shares. The Company has also entered into a
consulting agreement with an affiliate of Incom calling for payments of $10,000
per month for seven years and has paid such affiliate $280,000 for its agreement
not to compete for a period of seven years and has agreed to make a $660,000,
seven-year loan to such affiliate, bearing interest at a rate of 7% per annum.
In connection with this acquisition, the Company recorded approximately
$3,840,000 of goodwill.
The acquisitions have been accounted for by the purchase method of
accounting and, accordingly, the purchase prices have been allocated to the
assets acquired, primarily fixed assets and accounts receivable, and liabilities
assumed based on their estimated fair values at the dates of acquisition. The
excess of the purchase price over the estimated fair values of the net assets
acquired has been recorded as goodwill, which is amortized over fifteen years.
The December 31, 1995 consolidated statements of operations, shareholders'
equity and cash flows include the results of ITG, Cyberlink and Cyberlink Europe
from their dates of acquisition, respectively, through December 31, 1995. The
1996 consolidated statements of operations, shareholders' equity and cash flows
also include the results of RSL COM France and RSL COM Germany as of May 1996
(date of commencement of operations), Incom as of August 1996 (date of
acquisition), and Belnet/RSL from October 1996 (date of acquisition) through
December 31, 1996.
The following presents the unaudited pro forma consolidated statements of
operations data of the Company for the years ended December 31, 1995 and 1996 as
though the acquisitions of ITG, Cyberlink, Cyberlink Europe, RSL COM France, RSL
COM Germany and Belnet/RSL had occurred on January 1, 1995. The acquisition of
Incom is excluded as it is not significant. The consolidated
F-8
<PAGE>
RSL COMMUNICATIONS, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1996
AND FOR THE SIX MONTH PERIOD ENDED JUNE 30, 1997
AND FOR THE UNAUDITED SIX MONTH PERIOD ENDED
JUNE 30, 1996
2. ACQUISITIONS--(CONTINUED)
statements do not necessarily represent what the Company's results of operations
would have been had such acquisitions actually occurred on such date.
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, 1995 DECEMBER 31, 1996
----------------- -----------------
(UNAUDITED)
($ IN THOUSANDS, EXCEPT LOSS PER
SHARE)
<S> <C> <C>
Revenues...................................................... $ 72,778 $ 124,236
----------------- -----------------
----------------- -----------------
Net loss...................................................... $ (38,008) $ (41,277)
----------------- -----------------
----------------- -----------------
Net loss per share............................................ $ (14.76) $ (12.14)
----------------- -----------------
----------------- -----------------
</TABLE>
In April 1997, the Company acquired a 30% interest in a company operating
in Portugal. The total cash paid was approximately $1,200,000.
In April 1997, the Company acquired substantially all of the commercial
customer contracts of an Australian based company. The Company paid
approximately $1,500,000 in cash and will amortize the contracts over a three
year period.
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation and Basis of Presentation--As of June 30, 1997
the consolidated financial statements include the accounts of RSL
Communications, Ltd. and its majority-owned subsidiaries: its 92% owned
subsidiary ITG and its wholly-owned subsidiary, Cyberlink, Inc. and RSL COM
Europe and its 100% owned subsidiary Cyberlink Communications Europe Ltd. and
Belnet/RSL a 75% owned subsidiary of RSL COM Europe. The Company has included
100% of its subsidiaries' operating losses since the minority interests'
investments have been reduced to zero. Minority interest represents another
entity's ownership interest in Belnet/RSL, at December 31, 1996 and June 30,
1997. All material intercompany accounts and transactions have been eliminated.
All of the Company's subsidiaries' years end December 31.
Management Assumptions--The preparation of the consolidated financial
statements requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosure of contingent assets
and liabilities and the reported amounts of revenues and expenses. Such
estimates primarily relate to reserves recorded for doubtful accounts and
accruals for other claims. Actual results could differ from these estimates.
Foreign Currency Translation--Assets and liabilities of foreign entities
have been translated into United States dollars using the exchange rates in
effect at the balance sheet dates. Results of operations of foreign entities are
translated using the average exchange rates prevailing throughout the period.
Local currencies are considered the functional currencies of the Company's
foreign operating entities. The Company utilizes a net settlement process with
its correspondents comprised of special drawing rights ('SDRs'). SDRs are the
established method of settlements among international telecommunications
carriers. The SDRs are valued based upon the values of a basket of foreign
currencies. Translation effects are accumulated as part of the cumulative
foreign currency translation adjustment in equity which at December 31, 1995
were not significant. Gains and losses from foreign currency transactions are
included in the consolidated statements of operations for each respective
period.
F-9
<PAGE>
RSL COMMUNICATIONS, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1996
AND FOR THE SIX MONTH PERIOD ENDED JUNE 30, 1997
AND FOR THE UNAUDITED SIX MONTH PERIOD ENDED
JUNE 30, 1996
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
Cash and Cash Equivalents--The Company considers all highly liquid
investments purchased with an original maturity of three months or less to be
cash equivalents.
Accounts Receivable--Accounts receivable are stated net of the allowance
for doubtful accounts of $1,600,000, $3,900,000 and $3,951,000 at December 31,
1995, December 31, 1996 and June 30, 1997, respectively. The Company recorded
bad debt expense of $149,000, $2,830,000 and $2,469,000 for the years ended
December 31, 1995 and 1996 and for the six months ended June 30, 1997,
respectively.
Accrued Expenses--Accrued expenses for the six months ended June 30, 1997
and for the years ended December 31, 1996 and 1995 consist primarily of accrued
interest. Accrued interest as of December 31, 1995 and 1996 and June 30, 1997
was $92,000, $9,447,000 and $5,428,000, respectively.
Marketable Securities--Marketable securities consist principally of US.
Treasury bills, commercial paper and corporate notes with a maturity date
greater than three months when purchased. Available for sale securities are
stated at market and the held to maturity securities are stated at amortized
costs. Gains and losses, both realized and unrealized, are measured using the
specific identification method. Market value is determined by the most recently
traded price of the security at the balance sheet date. Marketable securities
are defined as either available for sale or held to maturity securities under
the provisions of SFAS No. 115, 'Accounting for Certain Investments in Debt and
Equity Securities', depending on the security.
Property and Equipment and Related Depreciation--Property and equipment are
stated at cost or fair values at the date of acquisition, and in the case of
equipment under capital leases, the present value of the future minimum lease
payments, less accumulated depreciation. Depreciation is calculated using the
straight-line method over the estimated useful lives of the depreciable assets,
which range from five to fifteen years. Improvements are capitalized, while
repair and maintenance costs are charged to operations as incurred. Depreciation
expense was $302,000, $3,462,000 and $3,404,000 for the years ended December 31,
1995 and 1996 and the six months ended June 30, 1997, respectively.
Goodwill and Related Amortization--Goodwill represents the excess of cost
over the fair value of the net assets of acquired entities, and is being
amortized using the straight-line method over fifteen years. The Company
periodically reviews the value of its goodwill to determine if an impairment has
occurred. The Company measures the potential impairment of recorded goodwill by
the undiscounted value of expected future cash flows in relation to its net
capital investment in the subsidiary. Based on its review, the Company does not
believe that an impairment of its goodwill has occurred.
Deferred Financing Costs--The deferred financing costs incurred in
connection with the Senior Notes are being amortized on a straight line basis
over ten years.
Deposits and Other Assets--Deposits consist principally of amounts paid to
the Company's carrier vendors.
Revenue Recognition and Deferred Revenue--The Company records revenue based
on minutes (or fractions thereof) of customer usage.
The Company records payments received in advance for prepaid calling card
services and services to be supplied under contractual agreements as deferred
revenues until such related services are provided.
Cost of Services--Cost of services is comprised primarily of transmission
costs.
F-10
<PAGE>
RSL COMMUNICATIONS, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1996
AND FOR THE SIX MONTH PERIOD ENDED JUNE 30, 1997
AND FOR THE UNAUDITED SIX MONTH PERIOD ENDED
JUNE 30, 1996
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
Selling Expenses--Selling costs such as commissions, marketing costs, and
other customer acquisition costs are treated as period costs. Such costs are
recorded in selling, general and administrative expenses in the Company's
consolidated statement of operations.
Income Taxes--The Company accounts for income taxes under the provisions of
Statement of Financial Accounting Standards ('SFAS') No. 109, Accounting for
Income Taxes. SFAS No. 109 establishes financial accounting and reporting
standards for the effect of income taxes that result from activities during the
current and preceding years. SFAS No. 109 requires an asset and liability
approach for financial reporting for income taxes. The Company's foreign
subsidiaries file separate income tax returns in the jurisdiction of their
operations. The Company's United States subsidiaries file stand-alone United
States income tax returns.
Loss per Common Share--Loss per common share is calculated by dividing the
loss attributable to common shares by the weighted average number of shares
outstanding. Outstanding common stock options and warrants are not included in
the loss per common share calculation as their effect is anti-dilutive.
New Accounting Standards--During 1995, the Company adopted SFAS No. 121,
Impairment of Long-Lived Assets. There was no adjustment recorded as a result of
adopting this standard. The Company periodically compares the carrying value of
its long-lived assets, principally property and equipment, to undiscounted cash
flows expected to be generated by the long-lived assets. The Company's estimate
of future undiscounted cash flows exceed the carrying value of its long-lived
assets.
EFFECTS OF RECENTLY ISSUED ACCOUNTING STANDARDS
In February 1997, the Financial Accounting Standards Board ('FASB') issued
Statement of Financial Accounting Standards ('SFAS') No. 128, 'Earnings per
Share'. This statement is effective for financial statements issued for periods
ending after December 15, 1997. Management has evaluated the effect on its
financial reporting from the adoption of this statement and does not believe it
to be significant.
In June 1997, the FASB issued SFAS No. 130, 'Reporting Comprehensive
Income.' This statement is effective for financial statements issued for periods
ending after December 15, 1997. Management has evaluated the effect on its
financial reporting from the adoption of this statement and has found the
majority of required disclosures to be not applicable and the remainder to be
not significant.
In June 1997, the FASB issued SFAS No. 131, 'Disclosure about Segments of
an Enterprise and Related Information.' SFAS No. 131 requires the reporting of
profit and loss, specific revenue and expense items, and assets for reportable
segments. It also requires the reconciliation of total segment revenues, total
segment profit or loss, total segment assets, and other amounts disclosed for
segments to the corresponding amounts in the general purpose financial
statements. SFAS No. 131 is effective for fiscal years beginning after December
15, 1997. The Company has not yet determined what additional disclosures may be
required in connection with adopting SFAS No. 131.
4. CONCENTRATION OF CREDIT RISK
The Company is subject to significant concentrations of credit risk which
consist principally of trade accounts receivable, cash and cash equivalents, and
marketable securities. The Company's US
F-11
<PAGE>
RSL COMMUNICATIONS, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1996
AND FOR THE SIX MONTH PERIOD ENDED JUNE 30, 1997
AND FOR THE UNAUDITED SIX MONTH PERIOD ENDED
JUNE 30, 1996
4. CONCENTRATION OF CREDIT RISK--(CONTINUED)
subsidiaries sell a significant portion of their services to other carriers and,
as a result, maintains significant receivable balances with certain carriers. If
the financial condition and operations of these customers deteriorate below
critical levels, the Company's operating results could be adversely affected.
The Company maintains its cash with high quality credit institutions, and
its cash equivalents and marketable securities are in high quality securities.
5. MARKETABLE SECURITIES
A summary of the Company's available for sale marketable securities at
December 31, 1996 and June 30, 1997 is as follows (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31, 1996 JUNE 30, 1997
-------------------- --------------------
AMORTIZED MARKET AMORTIZED MARKET
COST VALUE COST VALUE
--------- ------- --------- -------
<S> <C> <C> <C> <C>
Corporate notes........................................ $40,728 $40,678 $32,657 $32,514
Medium term notes...................................... 10,951 10,938 8,651 8,653
Commercial Paper....................................... 10,261 10,257 -- --
Federal agency notes................................... 5,888 5,884 9,489 9,497
--------- ------- --------- -------
$67,828 $67,757 $50,797 $50,664
--------- ------- --------- -------
--------- ------- --------- -------
</TABLE>
The Company has recorded its available for sale marketable securities at
amortized cost as the difference between amortized cost and market value is
immaterial to the consolidated financial statements.
The carrying value of the available for sale marketable securities by
maturity date as of December 31, 1996 and June 30, 1997 is as follows (in
thousands):
<TABLE>
<CAPTION>
DECEMBER 31, 1996 JUNE 30, 1997
----------------- -------------
<S> <C> <C>
Matures in one year................................................ $57,548 $47,240
Matures after one year through three years......................... 10,280 3,557
----------------- -------------
Total.............................................................. $67,828 $50,797
----------------- -------------
----------------- -------------
</TABLE>
Proceeds from the sale of available for sale marketable securities for the
year ended December 31, 1996 and the six months ended June 30, 1997 were
$14,701,000 and $2,832,000, respectively. Gross gains (losses) of $56,000 and
($1,000) were realized on these sales for the year ended December 31, 1996 and
the six months ended June 30, 1997.
Securities classified as held to maturity, which are comprised of Federal
agency notes, are stated at amortized cost. Such securities are restricted in
order to make the first six scheduled interest payments on the 12 1/4% Senior
Notes (see Note 7). The held to maturity securities at December 31, 1996 and
June 30, 1997 are as follows (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31, 1996 JUNE 30, 1997
--------------------- ----------------------
AMORTIZED MARKET AMORTIZED MARKET
COST VALUE COST VALUE
--------- -------- --------- ---------
<S> <C> <C> <C> <C>
Matures in one year................................. $ 39,692 $ 39,738 $35,456 $35,481
Matures after one year through three years.......... 64,678 65,002 49,272 49,280
--------- -------- --------- ---------
Total............................................... $ 104,370 $104,740 $84,728 $84,761
--------- -------- --------- ---------
--------- -------- --------- ---------
</TABLE>
F-12
<PAGE>
RSL COMMUNICATIONS, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1996
AND FOR THE SIX MONTH PERIOD ENDED JUNE 30, 1997
AND FOR THE UNAUDITED SIX MONTH PERIOD ENDED
JUNE 30, 1996
6. INCOME TAXES
The Company has incurred losses since inception for both book and tax
purposes. The Company's Netherlands subsidiary recorded income tax expense of
approximately $359,000 for the six months ended June 30, 1997 and $395,000 for
the year ended December 31, 1996. As of December 31, 1996 and June 30, 1997, the
Company had net operating loss carryforwards generated primarily in the United
States of approximately $47,000,000 and $88,000,000, respectively. The net
operating loss carryforwards will expire at various dates beginning in 2009
through 2012 if not utilized.
In accordance with SFAS No. 109, the Company has computed the components of
deferred income taxes as of December 31, 1995 and 1996 and June 30, 1997, as
follows (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------ JUNE 30,
1995 1996 1997
------------ -------- --------
<S> <C> <C> <C>
Deferred tax assets............................................ $ 6,900 $ 18,800 $ 35,200
Less valuation allowance....................................... (6,900) (18,800) (35,200)
------------ -------- --------
Net deferred tax assets........................................ $ -- $ -- $ --
------------ -------- --------
------------ -------- --------
</TABLE>
The Company's net operating losses and legal reserves generated the
deferred tax assets. At December 31, 1995, 1996 and June 30, 1997, a valuation
allowance of $6,900,000, $18,800,000 and $35,200,000, respectively, is provided
as the realization of the deferred tax benefits are not likely.
7. NOTES PAYABLE AND LONG-TERM DEBT
On October 3, 1996, RSL Communications PLC ('RSL PLC'), a wholly-owned
subsidiary of RSL, issued (the 'Debt Offering') 300,000 Units, each consisting
of an aggregate of one $1,000 Senior Note (collectively, the 'Notes') due 2006
bearing interest at the rate of 12 1/4% and one warrant to purchase 1.815 Class
A common shares which expire in ten years (collectively, the 'Warrants'). The
exercise price of such Warrants is $.01.
The value ascribed to the Warrants was $4,000,000. The unamortized discount
is recorded as a reduction against the face value of the Notes, and is amortized
over the life of the Notes. Such discount was $4,000,000 and $3,700,000 at
December 31, 1996 and June 30, 1997, respectively.
The Notes, which are guaranteed by RSL, are redeemable, at RSL PLC's
option, subsequent to November 15, 2001, initially at 106.1250% of their
principal amount, declining to 103.0625% of their principal amount for the
calendar year subsequent to November 15, 2002, and at 100% of the principal
amount subsequent to November 15, 2003.
The indenture pursuant to which the Notes were issued contains certain
restrictive covenants which impose limitations on RSL and certain of its
subsidiaries ability to, among other things: (i) incur additional indebtedness,
(ii) pay dividends or make certain other distributions, (iii) issue capital
stock of certain subsidiaries, (iv) guarantee debt, (v) enter into transactions
with shareholders and affiliates, (vi) create liens, (vii) enter into
sale-leaseback transactions, and (viii) sell assets.
At December 31, 1996 and June 30, 1997, the Company is in compliance with
the above restrictive covenants.
In connection with the issuance of the Notes, the Company is required to
maintain restricted marketable securities in order to make the first six
scheduled interest payments on the Notes. Such restricted marketable securities
amounted to $104,370,000 and $84,728,000 at December 31, 1996 and June 30, 1997,
respectively.
F-13
<PAGE>
RSL COMMUNICATIONS, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1996
AND FOR THE SIX MONTH PERIOD ENDED JUNE 30, 1997
AND FOR THE UNAUDITED SIX MONTH PERIOD ENDED
JUNE 30, 1996
7. NOTES PAYABLE AND LONG-TERM DEBT--(CONTINUED)
At December 31, 1996 and June 30, 1997, the Company had a $35,000,000
shareholder standby facility with the Company's Chairman and a $7,500,000
revolving credit facility with a bank (the 'Revolving Credit Facility'),
guaranteed by the Company's Chairman, all of which was available.
The shareholder standby facility bears interest at the rate of 11% per
annum. In connection with this facility and the Company's Chairman's personal
guarantee of the Revolving Credit Facility, the Company's Chairman received
warrants, which vest over one year, to purchase 210,000 Class B common shares of
the Company (the 'Class B Common Stock'). The Company recorded $1,544,000 as the
value of the warrants at the time of their issuance. At June 30, 1997, the
deferred financing costs recorded will continue to be amortized, over the
vesting period, through October 3, 1997. The Revolving Credit Facility bears
interest at the rate of LIBOR plus 1%.
The warrants become exercisable on October 3, 1997 at an exercise price of
$.01 per share and expire in October 2006.
In connection with the September 1996 purchase of additional shares of
ITG's common stock, the Company issued secured notes totaling approximately
$9,328,000. Such notes and interest are secured by the common stock acquired,
and are payable in annual and quarterly installments, respectively, and bear
interest at the rate of 6%.
During August 1996, the Company obtained a $50,000,000 revolving credit
facility with a bank, guaranteed by the Company's Chairman, and utilized this
facility to repay the bank for all amounts due under the previously outstanding
Revolving Loan Facility provided by the bank and guaranteed by the Company's
Chairman, which was $44,000,000 at the time of repayment. Immediately prior to
the Debt Offering, the Company repaid $35,000,000 of the $44,000,000 borrowed
under the Revolving Credit Facility with the proceeds of the Subordinated
Shareholder Loan (see Note 11) and reduced the outstanding commitment under the
Revolving Credit Facility to $7,500,000.
At June 30, 1997 RSL USA has a series of current notes payable to different
vendors in the amount of $4,234,000, which bear interest at the rates from 8% to
14.5%. At December 31, 1995 and 1996, such amounts were $565,000 and $4,282,000,
respectively.
The Company has a credit agreement which provides for up to $5,000,000 in
committed credit lines to finance its accounts receivable. Interest is payable
at 2 1/4% over the prime rate of interest (prime being 8 1/4% and 8 1/2% at
December 31, 1996 and June 30, 1997, respectively). A second credit line
provides for up to $2,000,000 in capital expenditure financing. Interest on this
line is payable at 2 1/2% over the prime rate of interest. During the six months
ended June 30, 1997, the lines of credit were reduced to $570,000 and $-0-,
respectively. The total amounts outstanding at December 31, 1995 from the above
credit lines were $1,566,000 and $470,000, respectively, and $680,000 and
$606,000, at December 31, 1996, respectively, and June 30, 1997 was $364,000.
The remaining credit line terminates on August 31, 1998. Borrowings under both
of these credit lines are collateralized by a letter of credit.
One of the Company's primary equipment vendors has provided to certain of
the Company's subsidiaries an aggregate of approximately $50 million in vendor
financing commitments to fund the purchase of additional capital equipment. At
December 31, 1996 and June 30, 1997, approximately $39.0 million and $30.2
million was available, respectively. Borrowings under this agreement are
recorded as capital lease obligations.
F-14
<PAGE>
RSL COMMUNICATIONS, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1996
AND FOR THE SIX MONTH PERIOD ENDED JUNE 30, 1997
AND FOR THE UNAUDITED SIX MONTH PERIOD ENDED
JUNE 30, 1996
7. NOTES PAYABLE AND LONG-TERM DEBT--(CONTINUED)
Long-term debt maturities at December 31, 1996 and June 30, 1997 are as
follows (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31, 1996 JUNE 30, 1997
----------------- -------------
<S> <C> <C>
1997..................................................... $ 6,538 $ --
1998..................................................... 3,099 7,198
1999..................................................... 2,933 3,016
2000..................................................... -- 2,850
2001..................................................... -- --
2002..................................................... -- --
2003 and thereafter...................................... 300,000 300,000
----------------- -------------
Total.................................................... 312,570 313,064
Less current maturities.................................. (6,538) (7,198)
----------------- -------------
Long Term Debt and 12 1/4% Senior Notes.................. $ 306,032 $ 305,866
----------------- -------------
----------------- -------------
</TABLE>
RSL's notes payable had fair values that approximated their carrying
amounts.
Interest expense on the above notes was approximately $461,000, $10,457,000
and $18,708,000 for the years ended December 31, 1995 and 1996 and the six
months ended June 30, 1997, respectively.
F-15
<PAGE>
RSL COMMUNICATIONS, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1996
AND FOR THE SIX MONTH PERIOD ENDED JUNE 30, 1997
AND FOR THE UNAUDITED SIX MONTH PERIOD ENDED
JUNE 30, 1996
8. GOODWILL AND OTHER INTANGIBLE ASSETS
Intangible assets at December 31, 1995 and 1996 and June 30, 1997 consist
of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
------------------ JUNE 30,
1995 1996 1997
------- ------- -------------
<S> <C> <C> <C>
Goodwill.............................................. $29,425 $79,732 $ 115,698
Deferred financing costs.............................. -- 10,988 11,296
Organization costs and others......................... 521 626 903
------- ------- -------------
29,946 91,346 127,897
Less accumulated amortization......................... (548) (3,741) (7,585)
------- ------- -------------
Intangible assets-net................................. $29,398 $87,605 $ 120,312
------- ------- -------------
------- ------- -------------
</TABLE>
Amortization expense for the years ended December 31, 1995 and 1996 and the
six months ended June 30, 1997 was $548,000, $3,193,000 and $3,844,000,
respectively.
9. SHAREHOLDERS' EQUITY
Common Stock
Pursuant to an agreement and plan of reorganization between the Company,
the Note Issuer and Charles Piluso ('Piluso'), Piluso elected to exchange his
shares in International Telecommunications Group, Ltd. ('ITG'), a subsidiary of
the Company, for shares in the Company. Accordingly, the Company issued Piluso
665,340 of the Class A Common Stock (the 'RSL Shares'), par value $0.01 per
Share, of the Company in exchange for 15,619 shares of common stock of ITG and
recorded approximately $32,575,000 as additional paid in capital. The RSL Shares
were issued pursuant to a private placement exemption under Section 4(2) of the
Securities Act of 1933, as amended, and the certificates evidencing the RSL
Shares have been legended as restricted securities.
During 1996, the Company issued 1,880,147 shares of Class B Common Stock
for cash aggregating $50,000,000. During 1995, 2,927,564 shares of Class B
Common Stock were issued for $1,851,000. The Company is authorized to issue
20,000,000 shares in aggregate of its common stock.
Preferred Stock
During 1995, the Company issued 9,243,866 shares of its preferred stock to
the holders of its Class B Common Stock for cash of $13,354,000. The preferred
stock ranks senior to the Company's common stock as to dividends and a
liquidation preference of $1.00 per share. Each share is convertible at the
holder's option into one share of Class B Common Stock. All preferred shares
will be automatically converted into the Company's Class B Common Stock in the
event of the consummation of a public offering that yields proceeds in excess of
$25,000,000. Dividends, at the rate of 8%, are cumulative. Upon conversion of
the shares of the preferred stock, the cumulative dividends are not payable and
are to be deemed cancelled and waived. The cumulative amount of such dividends
is approximately $16,000.
F-16
<PAGE>
RSL COMMUNICATIONS, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1996
AND FOR THE SIX MONTH PERIOD ENDED JUNE 30, 1997
AND FOR THE UNAUDITED SIX MONTH PERIOD ENDED
JUNE 30, 1996
10. CAPITAL LEASE OBLIGATIONS
Future minimum annual payments applicable to assets held under capital
lease obligations for years subsequent to December 31, 1996 and June 30, 1997
are as follows (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
- --------------------------------------------------------------
<S> <C>
1997.......................................................... $ 1,237
1998.......................................................... 2,852
1999.......................................................... 4,356
2000.......................................................... 3,692
2001.......................................................... 2,627
2002 and thereafter........................................... 3,769
---------
Total minimum lease obligations............................... 18,533
Less interest................................................. (5,704)
---------
Present value of future minimum lease obligations............. 12,829
Less current portion, included in other current liabilities... (436)
---------
Long-term lease obligations at December 31, 1996.............. $12,393
---------
---------
</TABLE>
<TABLE>
<CAPTION>
TWELVE MONTHS ENDED
JUNE 30,
- --------------------------------------------------------------
<S> <C>
1998.......................................................... $ 1,913
1999.......................................................... 5,785
2000.......................................................... 6,029
2001.......................................................... 3,536
2002.......................................................... 3,168
2003 and thereafter........................................... 2,435
---------
Total minimum lease obligations............................... 22,866
Less interest................................................. (4,938)
---------
Present value of future minimum lease obligations............. 17,928
Less current portion, included in other current liabilities... (2,006)
---------
Long-term lease obligations at June 30, 1997.................. $15,922
---------
---------
</TABLE>
The assets and liabilities under capital leases are recorded at the present
value of the minimum lease payments using effective interest rates ranging from
9% to 11% per annum.
Assets held under capital leases aggregated $5,326,000, $13,225,000 and
$18,578,000 at December 31, 1995 and 1996 and June 30, 1997, respectively. The
related accumulated depreciation was $82,000, $825,000 and $1,322,000,
respectively.
11. RELATED PARTY TRANSACTIONS
In September 1996, the Company borrowed $35,000,000 from Ronald S. Lauder,
the Chairman of the Board of the Company and the principal shareholder of the
Company, bearing interest at the rate of 11% per annum (the 'Subordinated
Shareholder Loan'). The Company repaid the Subordinated Shareholder Loan with
the proceeds of the Shareholder Equity Investment (described below).
The Company used the proceeds of the Subordinated Shareholder Loan to repay
$35,000,000 of the amounts outstanding under the Revolving Credit Facility
available in August 1996 (see Note 7) and
F-17
<PAGE>
RSL COMMUNICATIONS, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1996
AND FOR THE SIX MONTH PERIOD ENDED JUNE 30, 1997
AND FOR THE UNAUDITED SIX MONTH PERIOD ENDED
JUNE 30, 1996
11. RELATED PARTY TRANSACTIONS--(CONTINUED)
reduced the outstanding commitment amount under the Revolving Credit Facility to
$15,000,000 at December 31, 1996 and $7,500,000 at June 30, 1997. The Revolving
Credit Facility is personally guaranteed by the Company's Chairman.
Prior to the closing of the Debt Offering, Ronald S. Lauder, the Company's
Chairman, Leonard A. Lauder, a director of the Company and Ronald S. Lauder's
brother, and Lauder Gaspar Venture LLC ('LGV'), an investment vehicle the
principal investors of which are Ronald S. Lauder and Leonard A. Lauder and the
managing member (through a wholly owned company) of which is Andrew Gaspar, a
director of the Company, purchased an aggregate of 1,880,147 shares of Class B
Common Stock (approximately 11.6% of the outstanding common shares of the
Company on a fully diluted basis) for $50,000,000 (the 'Shareholder Equity
Investment'). LGV purchased one-half of such shares and Ronald S. Lauder and
Leonard A. Lauder each purchased one-quarter of such shares.
In addition, Ronald S. Lauder will, upon the request of the Company,
provide (or arrange for a bank to provide) the Company with the Shareholder
Standby Facility (see Note 7). If this facility is provided by a bank, Mr.
Lauder will personally guarantee the Company's obligations under the facility up
to $35,000,000. Under the terms of the indenture which governs the Notes, the
Company may borrow, repay, and reborrow any amounts under the Shareholder
Standby Facility at any time or from time to time. However, the lender will be
obligated to make loans thereunder at the request of the Company up to
$35,000,000, without conditions and regardless of any default thereunder, until
such time as the Company has received $35,000,000 of net cash proceeds from the
issuance of common shares of the Company (the 'Common Stock'). The Shareholder
Standby Facility will expire on the earlier of December 15, 2006 or the receipt
of $35,000,000 of net cash proceeds from the issuance of Common Stock and will
provide that interest may not be paid in cash until December 15, 2001.
Nesim N. Bildirici, a director and the Vice President of Mergers and
Acquisitions of the Company, is an employee of both the Company and R.S. Lauder,
Gaspar & Co., L.P. ('RSLAG'), a venture capital company owned and controlled by
Ronald S. Lauder and Andrew Gaspar. During 1996 Mr. Bildirici's salary was paid
by RSLAG and the Company reimbursed RSLAG for the services Mr. Bildirici
provided to the Company. During the year ended December 31, 1996 and the six
months ended June 30, 1997, the Company reimbursed RSLAG approximately $130,000
and $0, respectively, for Mr. Bildirici's services. Mr. Bildirici became a full
time employee of the Company as of January 1, 1997.
RSL Management Corporation ('RSL Management'), which is wholly owned by
Ronald S. Lauder, the Chairman of the Board of the Company and the principal
shareholder of the Company, leases an aggregate of 2,670 square feet of office
space to the Company at an annual rent of $180,000 per annum. In addition, RSL
Management provides payroll and benefit services to the Company for an annual
fee of $6,000.
The Company has employment contracts with certain of its executive
officers. These agreements expire beginning April 1998 through August 2000
unless terminated earlier by the executive or the Company, and provide for
annual salaries and bonuses based on the performance of the Company. Salary
expense for these officers was approximately $646,000, $1,419,000 and $998,000
for the years ended December 31, 1995, 1996 and the six months ended June 30,
1997, respectively. The aggregate commitment for annual future salaries at
December 31, 1996, excluding bonuses, is approximately $1,728,000, $1,051,000,
$448,000, and $67,000 for 1997, 1998, 1999 and 2000, respectively, and at June
30, 1997, excluding bonuses, is approximately $1,942,000, $1,066,000, $468,000
and $27,000 for 1998, 1999, 2000 and 2001, respectively.
F-18
<PAGE>
RSL COMMUNICATIONS, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1996
AND FOR THE SIX MONTH PERIOD ENDED JUNE 30, 1997
AND FOR THE UNAUDITED SIX MONTH PERIOD ENDED
JUNE 30, 1996
12. DEFINED CONTRIBUTION PLAN
In 1996, the Company instituted a defined contribution plan which provides
retirement benefits for most of its domestic employees. The Company's
contributions to the defined contribution which are based on a percentage of the
employee's annual compensation subject to certain limitations, were not
significant for the year ended December 31, 1996 and the six months ended June
30, 1997.
13. STOCK INCENTIVE PLAN
In April 1995, the Company established an Incentive Stock Option Plan (as
amended and restated, the '1995 Plan') to reward employees, nonemployee
consultants and directors for service to the Company and to provide incentives
for future service and enhancement of shareholder value. The 1995 Plan is
administered by the Compensation Committee of the Board of Directors of the
Company (the 'Committee'). The Committee consists of three members of the Board
of Directors. The Plan provides for awards of up to 1,000,000 shares of Class A
Common Stock of the Company.
The options granted in 1995 vest over a period of three years commencing on
the first anniversary of the date of grant such that the option holder may not
acquire more than 2% of the outstanding capital stock as of the date upon which
the related employment agreement expires. The options granted in 1996 vest in
one-third increments on each of the first, second and third anniversaries of the
grant date. Further, the options granted under the 1995 Plan terminate on the
tenth anniversary of the date of grant.
<TABLE>
<CAPTION>
WEIGHTED
NUMBER OF AVERAGE
OPTIONS EXERCISE PRICE EXERCISE PRICE
--------- -------------- --------------
<S> <C> <C> <C>
Outstanding at January 1, 1995
Granted................................................ 650,000 $ 0.001 $0.001
Exercised.............................................. -- -- --
Rescinded/Canceled..................................... -- -- --
--------- -------------- --------------
Outstanding at December 31, 1995......................... 650,000 0.001 0.001
Granted................................................ 129,600 3.50-5.50 3.79
Exercised.............................................. -- -- --
Rescinded/Canceled..................................... -- -- --
--------- -------------- --------------
Outstanding at December 31, 1996......................... 779,600 0.001-5.50 0.63
Granted................................................ 181,400 0.01-26.59 18.18
Exercised.............................................. -- -- --
Rescinded/Canceled..................................... -- -- --
--------- -------------- --------------
Outstanding at June 30, 1997............................. 961,000 $ 0.001-26.59 $ 3.94
--------- -------------- --------------
--------- -------------- --------------
</TABLE>
<TABLE>
<CAPTION>
WEIGHTED
RESERVED FOR AVERAGE
EXERCISABLE FUTURE GRANTS EXERCISE PRICE
----------- ------------- --------------
<S> <C> <C> <C>
December 31, 1995........................................ -- 350,000 $ --
December 31, 1996........................................ 81,142 220,400 0.001
June 30, 1997............................................ 375,378 39,000 0.53
</TABLE>
F-19
<PAGE>
RSL COMMUNICATIONS, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1996
AND FOR THE SIX MONTH PERIOD ENDED JUNE 30, 1997
AND FOR THE UNAUDITED SIX MONTH PERIOD ENDED
JUNE 30, 1996
The Company has elected to follow Accounting Principles Board Opinion No.
25, 'Accounting for Stock Issued to Employees' ('APB 25') and related
Interpretations in accounting for its employee stock options. The Company has
issued its options at fair market value at the date of grant. Under APB 25,
because the exercise price of the Company's employee stock options equals the
market price of the underlying stock on the date of grant, no compensation
expense is recognized.
SFAS Statement No. 123, 'Accounting for Stock Based Compensation' ('SFAS
123') was issued by the FASB in 1995 and if fully adopted, changes the methods
for recognition of costs on plans similar to those of the Company. Adoption of
the recognition provisions of SFAS No. 123 is optional; however, pro forma
disclosures as if the Company adopted the cost recognition requirements under
SFAS No. 123 are presented below.
Under SFAS No. 123, for options granted, the fair value at the date of
grant was estimated using the Black-Scholes option pricing model. The fair value
was estimated using the minimum value method. Under this method, the expected
volatility of the Company's common stock is not estimated, as there is no market
for the Company's common stock in which to monitor stock price volatility.
The following weighted average assumptions were used in calculating the
fair value of the options granted in the years ended December 31, 1995, 1996 and
the six months ended June 30, 1997, respectively: risk-free interest rates of
5.85%; no dividends are expected to be declared; expected life of the options
are between 30 and 42 months, between 39 and 51 months and between 36 and 48
months, respectively; and a maximum contractual life of 10 years.
For purposes of the pro forma disclosures the estimated fair value of the
options granted is amortized to compensation expense over the options' vesting
period. The Company's pro forma information is as follows:
<TABLE>
<CAPTION>
($ IN THOUSANDS, EXCEPT LOSS PER COMMON SHARE
AND WEIGHTED AVERAGE FAIR VALUE OF OPTIONS
GRANTED)
YEAR ENDED SIX MONTHS
DECEMBER 31, ENDED
----------------------------- JUNE 30,
1995 1996 1997
----------- ------------ -----------
<S> <C> <C> <C>
Net loss
As reported................................... $ (9,402) $ (38,240) $ (40,717)
Pro forma..................................... $ (9,404) $ (38,315) $ (41,717)
Net loss per common share:
As reported................................... $ (3.65) $ (11.24) $ (8.14)
Pro forma..................................... $ (3.65) $ (11.26) $ (8.34)
Weighted average fair value of options granted
during the Period............................. $ 0.0004 $ 0.58 $ 11.76
</TABLE>
F-20
<PAGE>
RSL COMMUNICATIONS, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1996
AND FOR THE SIX MONTH PERIOD ENDED JUNE 30, 1997
AND FOR THE UNAUDITED SIX MONTH PERIOD ENDED
JUNE 30, 1996
14. COMMITMENTS AND CONTINGENCIES
At June 30, 1997, the Company was committed to unrelated parties for the
rental of office space under operating leases. Minimum annual lease payments
with respect to the leases is as follows (in thousands):
<TABLE>
<CAPTION>
TWELVE MONTHS ENDED JUNE 30,
- --------------------------------------------------------------------
<S> <C>
1998................................................................ $ 2,243
1999................................................................ 1,984
2000................................................................ 1,907
2001................................................................ 1,732
2002................................................................ 1,486
2003 and thereafter................................................. 1,290
--------------
$ 10,642
--------------
--------------
</TABLE>
Rent expense for the six months ended June 30, 1997 was $1,494,000 and for
the years ended December 31, 1995 and 1996 was $210,000 and $2,276,000,
respectively.
The Company is committed to pay for transmission capacity under certain
operating leases. The minimum annual lease payments with respect to these
agreements is as follows (in thousands):
<TABLE>
<CAPTION>
TWELVE MONTHS ENDED JUNE 30,
- --------------------------------------------------------------------
<S> <C>
1998................................................................ $ 9,000
1999................................................................ 6,000
2000................................................................ 6,000
2001................................................................ 6,000
2002................................................................ 6,000
2003................................................................ 2,970
--------------
$ 35,970
--------------
--------------
</TABLE>
Commitments and Contingencies--The Company is involved in various claims
that arose in the ordinary course of its acquired businesses prior to the
Company's acquisition of such businesses. The expected settlements from these
matters have been accrued and are recorded as 'Other Liabilities.' In
management's opinion, the settlement of such claims would not have a material
adverse effect on the Company's consolidated financial position or results of
its operations.
In connection with the acquisition of one of its United States
subsidiaries, the Company recorded what management believed to be its best
estimate of the unfavorable portion related to certain transmission capacity
agreements. During the six months ended June 30, 1997, the Company successfully
amended such transmission capacity agreements. The resulting settlement of
approximately $7,000,000 has been recorded as other income.
The Company is contractually committed to the purchase of three
international gateway and two domestic switches. This commitment amounts to
approximately $8.0 million, all of which will be financed under the Company's
existing $50.0 million facility provided by one of the Company's primary
equipment vendors.
Letters of Credit--The Company has outstanding letters of credit
aggregating $550,000 and $6,100,000 at December 31, 1996 and June 30, 1997,
respectively, expiring at various dates. Such
F-21
<PAGE>
RSL COMMUNICATIONS, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1996
AND FOR THE SIX MONTH PERIOD ENDED JUNE 30, 1997
AND FOR THE UNAUDITED SIX MONTH PERIOD ENDED
JUNE 30, 1996
14. COMMITMENTS AND CONTINGENCIES--(CONTINUED)
letters of credit, which were issued as deposits to vendors or security on
leased premises, are fully secured by certificates of deposit, and are
classified as current assets.
15. SIGNIFICANT CUSTOMER
For the six months ended June 30, 1997 and the year ended December 31, 1996
no customer accounted for more than 10% of the Company's revenues. For the year
ended December 31, 1995, one customer accounted for 26% of the Company's
revenues.
16. REVENUES BY GEOGRAPHIC AREA
The following table provides certain geographic data on the Company's
operations for the years ended December 31, 1995 and 1996 and for the six months
ended June 30, 1997 (in thousands).
<TABLE>
<CAPTION>
OPERATING IDENTIFIABLE
REVENUE INCOME (LOSS) ASSETS
-------- ------------- ------------
<S> <C> <C> <C>
Year ended December 31, 1995
US..................................................................... $ 18,460 $ (6,969) $ 37,760
Corporate and other.................................................... 157 (2,412) 15,312
-------- ------------- ------------
$ 18,617 $ (9,381) $ 53,072
-------- ------------- ------------
-------- ------------- ------------
Year ended December 31, 1996
US..................................................................... $ 85,843 $ (12,146) $ 54,509
Germany................................................................ 8,844 (2,250) 9,776
France................................................................. 7,346 (886) 10,423
UK..................................................................... 6,260 (8,256) 18,994
Netherlands............................................................ 3,471 1,087 8,606
Corporate and other.................................................... 1,493 (8,301) 325,661
-------- ------------- ------------
$113,257 $ (30,752) $427,969
-------- ------------- ------------
-------- ------------- ------------
Six Months Ended June 30, 1997
US..................................................................... $ 69,889 $ (8,169) $ 78,737
Germany................................................................ 6,051 (4,781) 9,772
France................................................................. 3,850 (2,289) 9,191
UK..................................................................... 11,347 (9,094) 28,331
Netherlands............................................................ 8,060 1,189 12,095
Australia.............................................................. 7,186 (865) 11,496
Corporate and other.................................................... 2,978 (10,600) 286,897
-------- ------------- ------------
$109,361 $ (34,609) $436,519
-------- ------------- ------------
-------- ------------- ------------
</TABLE>
F-22
<PAGE>
RSL COMMUNICATIONS, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1996
AND FOR THE SIX MONTH PERIOD ENDED JUNE 30, 1997
AND FOR THE UNAUDITED SIX MONTH PERIOD ENDED
JUNE 30, 1996
16. REVENUES BY GEOGRAPHIC AREA--(CONTINUED)
Intersegment and intergeographic revenue are not significant to the revenue
of any business segment or geographic location. There is no export revenue from
the United States. Corporate and other assets consist principally of cash and
cash equivalents, and goodwill.
17. SUMMARIZED FINANCIAL INFORMATION
The following presents summarized financial information of RSL
Communications PLC a company incorporated in 1996 ('RSL PLC') as of December 31,
1996 and June 30, 1997. RSL PLC is a 100% wholly owned subsidiary of the
Company. RSL PLC had no independent operations other than serving solely as a
foreign holding company for the Company's U.S. and European operations. The
Notes issued by RSL PLC are fully and unconditionally guaranteed by the Company.
The Company's financial statements are, except for the Company's capitalization,
corporate overhead expenses, operations in Australia and available credit
facilities, identical to the financial statements of RSL PLC (in thousands).
<TABLE>
<CAPTION>
DECEMBER 31, 1996 JUNE 30, 1997
----------------- ----------------
<S> <C> <C>
Current Assets........................................................... $ 201,734 $178,260
Non-current Assets....................................................... 225,131 242,259
Current Liabilities...................................................... 74,949 91,081
Non-current Liabilities.................................................. 394,556 387,728
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS ENDED
DECEMBER 31, 1996 JUNE 30, 1997
----------------- ----------------
<S> <C> <C>
Net Revenue.............................................................. $ 113,257 $102,175
Gross Profit............................................................. 14,796 11,995
Net Loss................................................................. (34,309) (33,738)
</TABLE>
18. SUBSEQUENT EVENTS
In July 1997, the Company acquired a majority interest in Delta Three, Inc.
('Delta Three'), a telecommunications provider utilizing the Internet and
networks based on Internet Protocols to provide telecommunications services. The
Company paid $6.4 million for a 55% ownership of the Company. Delta Three
utilizes the Internet, traditionally a device for communications between
computers, as a transmission medium for ordinary telephone calls.
The Company and Delta Three also entered into a services agreement pursuant
to which, among other things, Delta Three will provide the Company with
discounted carrier telephony services and the Company will provide Delta Three
with termination services at preferred rates and the co-location of Delta
Three's servers with the Company's facilities.
In August 1997, the Company purchased 85% of Decade Communications S.r.l.
('DECADE'), an Italian telecommunications company that commenced operations in
Italy in 1995. The Company paid approximately $1.7 million for its investment in
DECADE.
The Company purchased 90% of Newtelco Telecom AG ('Newtelco') in August
1997. Newtelco is an Austrian start-up telecommunications company that intends
on becoming the Company's Austrian local operator. The Company paid
approximately $800,000 for its investment in Newtelco.
F-23
<PAGE>
RSL COMMUNICATIONS, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1996
AND FOR THE SIX MONTH PERIOD ENDED JUNE 30, 1997
AND FOR THE UNAUDITED SIX MONTH PERIOD ENDED
JUNE 30, 1996
18. SUBSEQUENT EVENTS--(CONTINUED)
In September 1997, the Company purchased additional shares in ITG from
certain minority shareholders for approximately $18,442,000, which consisted of
cash and cancellation of a note receivable of approximately $733,000. In
connection with the purchase of these shares, the Company satisfied the
remaining loan obligations with such minority shareholders.
F-24
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Stockholders of
International Telecommunications Group Ltd. And Subsidiaries
We have audited the consolidated statements of operations and accumulated
deficit and of cash flows of International Telecommunications Group Ltd. and
subsidiaries for the nine months ended September 30, 1995. These consolidated
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
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 audit provides a reasonable basis for our opinion.
In our opinion, such consolidated financial statements of International
Telecommunications Group Ltd. and subsidiaries present fairly, in all material
respects, the results of their operations and their cash flows for the nine
months ended September 30, 1995 in conformity with generally accepted accounting
principles.
DELOITTE & TOUCHE LLP
New York, New York
March 14, 1997
F-25
<PAGE>
INTERNATIONAL TELECOMMUNICATIONS GROUP LTD.
AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS AND ACCUMULATED DEFICIT
NINE MONTHS ENDED SEPTEMBER 30, 1995
<TABLE>
<S> <C>
Revenues......................................................................................... $ 26,351,634
Cost of Services................................................................................. 24,614,337
------------
Gross Profit................................................................................... 1,737,297
Selling, General and Administrative Expenses..................................................... 6,299,188
------------
Loss from Operations............................................................................. (4,561,891)
Interest Income.................................................................................. 56,148
Interest Expense................................................................................. (345,212)
------------
Net Loss......................................................................................... (4,850,955)
Accumulated Deficit, January 1, 1995............................................................. (5,153,000)
------------
Accumulated Deficit, September 30, 1995.......................................................... $(10,003,955)
------------
------------
</TABLE>
See notes to consolidated financial statements.
F-26
<PAGE>
INTERNATIONAL TELECOMMUNICATIONS GROUP LTD.
AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
NINE MONTHS ENDED SEPTEMBER 30, 1995
<TABLE>
<S> <C>
Cash Flows from Operating Activities:
Net loss........................................................................................ $(4,850,955)
Adjustments to reconcile net loss to net cash provided by operating activities, net of effects
of purchase of subsidiaries:
Depreciation and amortization.............................................................. 379,782
Provision for losses on accounts receivable................................................ 2,881,440
Changes in operating assets and liabilities:
Increase in accounts receivables........................................................ (9,204,455)
Decrease in accounts receivables-affiliates............................................. 111,434
Increase in prepaid expenses and other current assets................................... (325,013)
Increase in deposits and other assets................................................... (398,003)
Increase in accounts payable and accrued expenses....................................... 11,849,193
Increase in other current liabilities................................................... 601,084
Increase in other liabilities........................................................... 1,355,703
Decrease in due to affiliates........................................................... (534,941)
-----------
Net cash provided by operating activities............................................. 1,865,269
-----------
Cash Flows From Investing Activities:
Acquisition of subsidiary, net of cash acquired.............................................. (1,500,000)
Purchase of marketable debt securities....................................................... (2,200,000)
Purchase of property and equipment........................................................... (446,517)
-----------
Net cash used in investing activities................................................. (4,146,517)
-----------
Cash Flows from Financing Activities:
Repayment of short-term note payable......................................................... (1,000,000)
Proceeds from issuance of common stock....................................................... 5,749,300
Proceeds from issuance of preferred stock.................................................... 3,000,000
Principal payments under capital lease obligations........................................... (100,166)
Repayment of long-term debt.................................................................. (241,080)
-----------
Net cash provided by financing activities............................................. 7,408,054
-----------
Increase in Cash.................................................................................. 5,126,806
Cash at January 1, 1995........................................................................... 451,865
Cash at September 30, 1995........................................................................ $ 5,578,671
-----------
-----------
Supplemental Disclosure of Cash Flows Information:
Cash paid for:
Interest................................................................................... $ 185,996
-----------
-----------
Supplemental Schedule of Noncash Investing Activities-
Assets acquired under capital lease obligation............................................... $ 443,710
-----------
-----------
</TABLE>
See notes to consolidated financial statements.
F-27
<PAGE>
INTERNATIONAL TELECOMMUNICATIONS GROUP LTD.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NINE MONTHS ENDED SEPTEMBER 30, 1995
1. BUSINESS DESCRIPTION
International Telecommunications Group Ltd. and its subsidiaries ('ITG')
operate a domestic and international communications network which provides
international and domestic long distance telephone services for businesses and
individuals in the United States and abroad.
2. ACQUISITION
Effective September 1, 1995, ITG's subsidiary International
Telecommunications Corporation ('RSL USA') (collectively, 'ITG') consummated a
stock purchase agreement with Cyberlink, Inc. ('Cyberlink') and Cyberlink's
principal stockholder.
The agreement provided for the purchase of 51% of the capital stock of
Cyberlink. The purchase price consisted of $1,500,000 paid to Cyberlink and
assumption of net liabilities of $14,131,000. In connection with the purchase of
Cyberlink, the Company recorded approximately $15,631,000 of goodwill as of
September 30, 1995.
In connection with the acquisition of Cyberlink, the 49% minority
stockholders of Cyberlink may sell their shares to RSL USA at fair market value
if RSL USA consummates an initial public offering of its securities. RSL USA can
call the 49% minority stockholders shares at any time after December 31, 1996
for a price equal to 49% of the sum of eight times Cyberlink's average monthly
revenues of the last quarter prior to exercise date plus cash minus long-term
liabilities.
The acquisition has been accounted for by the purchase method of
accounting, and accordingly, the purchase price has been allocated to the assets
acquired and liabilities assumed based on their estimated fair values at the
date of acquisition. The excess of the purchase price over the estimated fair
values of the net assets acquired has been recorded as goodwill, which will be
amortized over fifteen years.
The accompanying consolidated statements of operations and accumulated
deficit and cash flows include the results of Cyberlink from its date of
acquisition through September 30, 1995.
The following presents the unaudited pro forma consolidated statement of
operations of the Company for the nine months ended September 30, 1995, assuming
the Company had purchased Cyberlink at January 1, 1995. The consolidated
statement does not necessarily represent what the Company's results of
operations would have been had such acquisition actually occurred on such date,
or of results to be achieved in the future:
<TABLE>
<CAPTION>
PRO FORMA FOR THE NINE
MONTHS ENDED
SEPTEMBER 30, 1995
----------------------
(UNAUDITED)
<S> <C>
Revenue.................................................... $ 40,504,172
Cost of services........................................... 37,087,243
----------------------
Gross Profit............................................... 3,416,929
Selling, general and administrative expenses............... 23,555,216
----------------------
Loss from operations....................................... (20,138,287)
Interest income............................................ 56,148
Interest expense........................................... (738,496)
----------------------
Net loss................................................. $(20,820,635)
----------------------
----------------------
</TABLE>
F-28
<PAGE>
INTERNATIONAL TELECOMMUNICATIONS GROUP LTD.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NINE MONTHS ENDED SEPTEMBER 30, 1995
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation and Basis of Presentation--The consolidated
financial statements include the accounts of International Telecommunications
Group Ltd. and its majority-owned subsidiaries. The Company has included 100% of
its subsidiaries' operating losses since the minority interests' investment has
been reduced to zero. All material intercompany accounts and transactions have
been eliminated. All of the Company's subsidiaries' fiscal years end December
31.
Management Assumptions--The preparation of the consolidated financial
statements requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosure of contingent assets
and liabilities and the reported amounts of revenues and expenses. Such
estimates primarily relate to reserves recorded for doubtful accounts and
accruals for litigation and other claims. Actual results could differ from these
estimates.
Revenue Recognition--The Company records revenue based on minutes (or
fractions thereof) of customer usage.
The Company records payments received in advance for prepaid calling card
services and services to be supplied under contractual agreements as deferred
revenues until such related services are provided. Deferred revenue is included
in other current liabilities.
Goodwill--Goodwill represents the excess of cost over the fair value of the
net assets of acquired entities, and is being amortized using the straight-line
method over fifteen years. The Company periodically reviews the value of its
goodwill to determine if an impairment has occurred. The Company measures the
potential impairment of recorded goodwill by the undiscounted value of expected
future cash flows in relation to its net capital investment in the subsidiary.
Based on its review, the Company does not believe that an impairment of its
goodwill has occurred.
Amortization expense for the nine months ended September 30, 1996 was
$86,838.
Property and Equipment and Related Depreciation--Property and equipment are
stated at cost or fair values at the date of acquisition, and in the case of
equipment under capital leases, the present value of the future minimum lease
payments, less accumulated depreciation. Depreciation is calculated using the
straight-line method over the estimated useful lives of the depreciable assets,
which range from five to fifteen years. Improvements are capitalized, while
repair and maintenance costs are charged to operations as incurred. Construction
in progress represents costs incurred in connection with the building of a
switch facility center.
Deposits--Deposits consist principally of amounts paid to the Company's
providers of telephone access lines.
Income Taxes--The Company accounts for income taxes under the provisions of
Statement of Financial Accounting Standards ('SFAS') No. 109, Accounting for
Income Taxes. SFAS No. 109 establishes financial accounting and reporting
standards for the effect of income taxes that result from activities during the
current and preceding years. SFAS No. 109 requires an asset and liability
approach for financial reporting for income taxes.
New Accounting Standards--During 1995, the Company adopted SFAS No. 121,
Impairment of Long-Lived Assets. There was no adjustment recorded as a result of
adopting this standard. The Company periodically compares the carrying value of
its long-lived assets, principally property and equipment, to undiscounted cash
flows generated by the long-lived assets. The Company's undiscounted cash flows
exceed the carrying value of its long-lived assets.
F-29
<PAGE>
INTERNATIONAL TELECOMMUNICATIONS GROUP LTD.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NINE MONTHS ENDED SEPTEMBER 30, 1995
4. CONCENTRATION OF CREDIT RISK
The Company is subject to significant concentrations of credit risk which
consist principally of trade accounts receivable. The Company sells a
significant portion of its services to other carriers and, as a result,
maintains significant receivable balances with certain carriers. If the
financial condition and operations of these customers deteriorate below critical
levels, the Company's operating results could be adversely affected. During
1995, one of the Company's customers, which represented approximately 18% of the
Company's sales for the nine months ended September 30, 1995, failed to meet
minimum payments schedules and, as a result, the Company terminated services to
this customer. Consequently, the customer refused to pay outstanding receivable
balances totaling approximately $4,653,000. At September 30, 1995, the Company
had written off the entire $4,653,000. The Company has commenced legal
proceedings to recover amounts owed to the Company.
The Company now performs ongoing credit evaluations of its customer's
financial condition and requires collateral in the form of deposits in certain
circumstances.
5. INCOME TAXES
No provision for income taxes has been made because the Company has
sustained cumulative losses since the commencement of its operations in 1994.
For the nine months ended September 30, 1995, the Company had net operating loss
carryforwards generated primarily in the United States of approximately
$10,000,000. The net operating loss carryforwards will expire at various dates
beginning in 2009 through 2010 if not utilized.
In accordance with SFAS No. 109, the Company has computed the components of
deferred income taxes as follows:
<TABLE>
<S> <C>
Deferred tax assets................................................. $ 8,120,000
Less valuation allowance............................................ (8,120,000)
-----------
Net deferred tax assets........................................... $ --
-----------
-----------
</TABLE>
The Company's net operating losses and legal reserves generated the
deferred tax assets. At September 30, 1995, a valuation allowance of $8,120,000
is provided as the realization of the deferred tax benefits is not likely.
6. NOTES PAYABLE AND LONG-TERM DEBT
RSL USA has a series of notes payable to different vendors in the amount of
$1,136,712 which bear interest at rates from 8% to 14.5%, of which $874,066 is
current.
Cyberlink has a credit agreement which provides for up to $5,000,000 in
committed credit lines to finance its accounts receivable. Interest is payable
at 2 1/4% over the prime rate of interest (prime being 8.75% at September 30,
1995). A second credit line provides for up to $2,000,000 in capital expenditure
financing with interest payable at 2 1/2% over the prime rate. The total amounts
outstanding at September 30, 1995 from the above credit lines are $1,713,296 and
$0, respectively. The credit lines terminate on August 31, 1998.
Cyberlink has a long-term note payable to a vendor in the amount of
$1,000,000 which bears interest at the rate of 10%, commencing January 1, 1997.
ITG's notes payable had fair values that approximated their carrying
amounts.
Interest expense on the above notes was approximately $190,603 for the nine
months ended September 30, 1995.
F-30
<PAGE>
INTERNATIONAL TELECOMMUNICATIONS GROUP LTD.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NINE MONTHS ENDED SEPTEMBER 30, 1995
7. EMPLOYMENT AGREEMENTS
The Company has employment contracts with certain of its executive
officers. These agreements expire beginning April 1998 through May 2000 unless
terminated earlier by the executive or the Company, and provides for an annual
base salary. Salary expense for the officers was $253,750 for the nine months
ended September 30, 1995. The aggregate commitment for annual future salaries at
September 30, 1995, excluding bonuses, was approximately $453,750 for 1996,
$454,500, $300,000, $200,000 and $116,667 for 1997, 1998, 1999 and 2000,
respectively.
8. COMMITMENTS AND CONTINGENCIES
At September 30, 1995, the Company is committed to unrelated parties for
the purchase of certain capital assets and the rental of office space under
operating leases. Minimum annual lease payments with respect to the leases and
capital commitment is as follows:
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
- -----------------
<S> <C>
1996................................................................. $ 849,435
1997................................................................. 808,300
1998................................................................. 546,760
1999................................................................. 366,998
2000................................................................. 305,226
2001 and thereafter.................................................. 431,612
----------
$3,308,331
----------
----------
</TABLE>
Rent expense for the nine months ended September 30, 1995 was $173,072.
The Company is committed to the rental of transmission capacity under
certain operating leases. The minimum annual lease payments with respect to
these agreements is as follows:
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
- -----------------
<S> <C>
1996................................................................ $20,400,000
1997................................................................ 38,000,000
1998................................................................ 7,500,000
-----------
$65,900,000
-----------
-----------
</TABLE>
The Company is currently negotiating the termination of these operating
leases.
Litigation and Other Claims--The Company is involved in various litigation
and other claims that arose in the ordinary course of its acquired businesses
prior to the Company's acquisition of such businesses. The expected settlements
from these matters have been accrued and are recorded as 'Other Liabilities.' In
management's opinion, the settlement of such litigation and claims would not
have a material adverse effect on the Company's consolidated financial position
or results of its operations.
Letters of Credit--The Company has outstanding letters of credit
aggregating approximately $76,000 at September 30, 1995, expiring at various
dates between June 1, 1996 and August 8, 1996. Such letters of credit, which
were issued as deposits to vendors or security on leased premises, are fully
secured by certificates of deposit and are classified as current assets.
9. SIGNIFICANT CUSTOMER
For the nine months ended September 30, 1995, one customer accounted for
18% of the Company's revenues.
F-31
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Stockholders of
International Telecommunications Group Ltd. and Subsidiaries
We have audited the consolidated statements of operations and accumulated
deficit and of cash flows of International Telecommunications Group Ltd. and
subsidiaries for the year ended December 31, 1994. These consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
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 audit provides a reasonable basis for our opinion.
In our opinion, such consolidated financial statements of International
Telecommunications Group Ltd. and subsidiaries present fairly, in all material
respects, the results of their operations and their cash flows for the year
ended December 31, 1994 in conformity with generally accepted accounting
principles.
DELOITTE & TOUCHE LLP
New York, New York
March 14, 1997
F-32
<PAGE>
INTERNATIONAL TELECOMMUNICATIONS GROUP LTD.
AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS AND ACCUMULATED DEFICIT
YEAR ENDED DECEMBER 31, 1994
<TABLE>
<S> <C>
Revenues.......................................................................................... $ 4,701,886
Cost of services.................................................................................. 4,922,545
-----------
Gross loss...................................................................................... (220,659)
Selling, general and administrative expenses...................................................... 2,635,115
-----------
Loss from operations.............................................................................. (2,855,774)
Interest expense-net.............................................................................. (225,069)
-----------
Net loss.......................................................................................... (3,080,843)
Accumulated deficit, January 1, 1994.............................................................. (2,072,157)
-----------
Accumulated deficit, December 31, 1994............................................................ $(5,153,000)
-----------
-----------
</TABLE>
See notes to consolidated financial statements.
F-33
<PAGE>
INTERNATIONAL TELECOMMUNICATIONS GROUP LTD.
AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
YEAR ENDED DECEMBER 31, 1994
<TABLE>
<S> <C>
Cash flow from Operating Activities:
Net loss........................................................................................ $ (3,080,843)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation.................................................................................... 239,663
Gain on the sale of equipment................................................................... (6,781)
Provision for losses on accounts receivable..................................................... 13,237
Changes in operating assets and liabilities:
Decrease in accounts receivables................................................................ 75,785
Increase in inventories......................................................................... (426,431)
Decrease in prepaid expenses and other current assets........................................... 41,271
Decrease in due from affiliates................................................................. 235,804
Increase in employee loans...................................................................... (209,596)
Increase in deposits............................................................................ (71,395)
Increase in accounts payable and accrued expenses............................................... 1,183,149
Increase in other current liabilities........................................................... 19,108
------------
Net cash used in operating activities........................................................ (1,987,029)
------------
Cash flows used in Investing Activities:
Proceeds from sale of property and equipment.................................................... 544,890
Purchase of property and equipment.............................................................. (1,022,783)
------------
Net cash used in investing activities........................................................ (477,893)
------------
Cash flows provided by Financing Activities:
Proceeds from long-term debt.................................................................... 1,454,094
Payments of long-term debt...................................................................... (686,868)
Principal payments under capital lease obligations.............................................. (440,330)
Due to affiliate................................................................................ 60,913
Proceeds from issuance of common stock.......................................................... 1,499,700
Proceeds from short-term note payable to RSL Communications, Inc................................ 1,000,000
------------
Net cash provided by financing activities....................................................... 2,887,509
------------
Increase in cash................................................................................ 422,587
Cash at January 1, 1994......................................................................... 29,278
------------
Cash at December 31, 1994....................................................................... $ 451,865
------------
------------
Supplemental Disclosure of Cash Flows Information:
Cash paid for:
Interest..................................................................................... $ 234,100
------------
------------
Supplemental Schedule of Noncash Investing Activities:
Assets acquired under capital lease obligations................................................. $ 103,230
------------
------------
</TABLE>
See notes to consolidated financial statements.
F-34
<PAGE>
INTERNATIONAL TELECOMMUNICATIONS GROUP LTD.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEAR ENDED DECEMBER 31, 1994
1. BUSINESS DESCRIPTION
International Telecommunications Group Ltd. and its subsidiaries ('ITG')
operate a domestic and international communications network which provides
international and domestic long distance telephone services for businesses and
individuals in the United States and abroad.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation and Basis of Presentation--The consolidated
financial statements include the accounts of International Telecommunications
Group Ltd. and its majority-owned subsidiaries. The Company has included 100
percent of its subsidiaries' operating losses since the minority interests'
investment has been reduced to zero. All material intercompany accounts and
transactions have been eliminated. All of the Company's subsidiaries' fiscal
years end December 31.
Revenue Recognition--The Company records revenue based on minutes (or
fractions thereof) of customer usage.
Property and Equipment and Related Depreciation--Property and equipment are
stated at cost or in the case of equipment under capital leases, the present
value of the future minimum lease payments, less accumulated depreciation.
Depreciation is calculated using the straight-line method over the estimated
useful lives of the depreciable assets, which range from five to fifteen years.
Improvements are capitalized, while repair and maintenance costs are charged to
operations as incurred.
Deposits--Deposits consist principally of amounts paid to the Company's
providers of telephone access lines.
Income Taxes--The Company accounts for income taxes under the provisions of
Statement of Financial Accounting Standards ('SFAS') No. 109, Accounting for
Income Taxes. SFAS No. 109 establishes financial accounting and reporting
standards for the effect of income taxes that result from activities during the
current and preceding years. SFAS No. 109 requires an asset and liability
approach for financial reporting for income taxes.
3. RELATED PARTY TRANSACTIONS
The Company engaged in certain transactions with certain companies in which
stockholders of the Company are significant shareholders. Such transactions are
in the normal course of business. For the year ended December 31, 1994, the
Company had receivables with respect to those related parties as follows:
<TABLE>
<CAPTION>
ACCOUNTS
AFFILIATES RECEIVABLES
- -------------------------------------------------------------------------------- -----------
<S> <C>
Litco........................................................................... $ 1,649
Income UK....................................................................... 191,255
ITC America..................................................................... 18,285
Intelco Europe, Ltd............................................................. 195,909
Intelco Russia.................................................................. 295,270
Intelco Ukraine................................................................. 284,486
Interactive Telephone........................................................... 4,565
-----------
Total........................................................................... 991,419
Less provision for doubtful affiliate receivables............................... (776,417)
-----------
Due from affiliates-net......................................................... $ 215,002
-----------
-----------
</TABLE>
Due to affiliate, aggregating $60,913 at December 31, 1994, consists of a
loan from Income UK.
F-35
<PAGE>
INTERNATIONAL TELECOMMUNICATIONS GROUP LTD.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
YEAR ENDED DECEMBER 31, 1994
4. INCOME TAXES
No provision for Federal, state and local income taxes has been made
because the Company has sustained cumulative losses since commencement of its
operations. For the year ended December 31, 1994, the Company had net operating
loss carryforward of approximately $4,266,000. Such net operating loss
carryforwards begin expiring in 2006.
In accordance with SFAS No.109, the Company has computed the components of
deferred income taxes as follows:
<TABLE>
<S> <C>
Deferred tax benefit...................................... $ 1,500,000
Less valuation allowance.................................. (1,500,000)
-----------
Net deferred tax benefit.................................. $ --
-----------
-----------
</TABLE>
At December 31, 1994, a valuation allowance of $1,500,000 is provided as
the realization of the deferred tax benefits are not more likely than not. The
Company's net operating losses, primarily generated the deferred tax benefits.
5. LONG-TERM DEBT
Notes payable at December 31, 1994 consists of the following:
<TABLE>
<S> <C>
Term note payable in monthly installments of $54,357 plus interest at 8.0 percent per
annum through the date of maturity, January 15, 1996................................... $ 674,728
Term note payable in monthly installments of $3,729 plus interest at 8.25 percent per
annum through the date of maturity, July 1, 1996....................................... 82,237
Term note payable in monthly installments of $4,628 plus interest at 8.25 percent per
annum through the date of maturity, September 15, 1996................................. 64,795
Term note payable in monthly installments of $43,745 plus interest at 10.0 percent per
annum through the date of maturity, June 1, 1996....................................... 1,355,703
Term note payable in monthly installments of $23,750 plus interest at 14.5 percent per
annum through date of maturity, January 12, 1997....................................... 517,575
Term note payable at 10.0 percent per annum due January 1, 1995.......................... 2,688
----------
Total.................................................................................... $2,697,726
----------
----------
</TABLE>
The scheduled repayment of long-term debt from years subsequent to December
31, 1994 is as follows:
<TABLE>
<S> <C>
1995...................................................... $ 1,580,457
1996...................................................... 805,522
1997...................................................... 311,747
-----------
2,697,726
Less current maturities................................... (1,500,457)
-----------
$ 1,197,269
-----------
-----------
</TABLE>
F-36
<PAGE>
INTERNATIONAL TELECOMMUNICATIONS GROUP LTD.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
YEAR ENDED DECEMBER 31, 1994
6. CAPITAL LEASE OBLIGATIONS
Future minimum annual payments applicable to assets held under capital
lease obligations for years subsequent to December 31, 1994 are as follows:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
- ------------
<S> <C>
1995........................................................ $ 181,447
1996........................................................ 159,359
1997........................................................ 66,399
---------
Total minimum lease obligations............................. 407,205
Less interest............................................... (55,930)
---------
Present value of future minimum lease obligations........... 351,275
Less current portion........................................ (144,610)
---------
Long-term lease obligations at December 31, 1994............ $ 206,665
---------
---------
</TABLE>
Assets held under capital leases aggregated $276,643 (net of accumulated
depreciation of $201,679).
The assets and liabilities under capital leases are recorded at the present
value of the minimum lease payments using effective interest rates ranging from
9 percent to 11 percent per annum.
7. COMMITMENTS AND CONTINGENCIES
At December 31, 1994, the Company is committed to the rental of office
space under an operating lease. Minimum annual lease payments with respect to
this lease are as follows:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
- ------------
<S> <C>
1995......................................................... $115,927
1996......................................................... 115,927
1997......................................................... 115,927
1998......................................................... 115,927
1999......................................................... 115,927
Thereafter................................................... 173,891
--------
$753,526
--------
--------
</TABLE>
Rent expense for the year ended December 31, 1994 was $106,049.
The Company is currently in litigation with one of its vendors. The Company
has provided for an amount equal to the vendor's original invoices, prior to the
filing of this claim and has recorded such amounts in long-term debt. The
Company has not made any payments on this debt since June 1994. ITG's subsidiary
International Telecommunications Corporation ('RSL USA') outside counsel had
advised RSL USA that at this time, the extent of RSL USA's liability, if any, is
not determinable.
The Company has outstanding letters of credit aggregating $167,772 at
December 31, 1994, expiring at various dates during 1995. Such letters of
credit, which were issued as deposits to vendors or security on leased premises,
are fully secured by certificates of deposit, such certificates of deposit are
classified as long-term assets and included in the balance sheet caption
'Deposits.'
F-37
<PAGE>
INTERNATIONAL TELECOMMUNICATIONS GROUP LTD.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
YEAR ENDED DECEMBER 31, 1994
8. SUBSEQUENT EVENTS
On March 10, 1995, International Telecommunications Group Ltd., sold 66,667
shares of its convertible preferred stock to RSL Communications Inc. (RSL) for
$3,000,000 subject to increase to a maximum of $4,750,000, as provided for in
the terms of the transactions. The convertible preferred stock is convertible at
RSL's option into common stock, in a one-for-one basis. Additionally, RSL has
the option of redeeming such preferred stock, at any time, through 1998 for
$4,750,000. ITG utilized $1,000,000 of the proceeds from the transaction to
repay the short-term note payable to RSL subsequent to December 31, 1994.
In conjunction with the March 10th sale of shares, ITG reorganized Intelco
Russia and Ukraine; the ITG ownership in these two entities was transferred to
the Chairman of the Company. The Company continues to do business with these two
entities. Fair market value of these two entities was nominal.
On September 1, 1995, ITG issued additional shares of common stock to RSL
for $6,000,000.
In September 1995, RSL USA purchased 51% of Cyberlink, Inc., a Delaware
Corporation, for $6,000,000. Two percent of the total purchase price is held in
escrow until certain requirements are satisfied by Cyberlink.
RSL USA has begun the installation of new telecommunication switching
facilities. In conjunction with these installations, RSL USA will enter into a
long-term capital lease agreement for approximately $6,000,000.
F-38
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders
Cyberlink, Inc. and Subsidiaries
Woodland Hills, California
We have audited the accompanying consolidated balance sheet of Cyberlink, Inc.
and subsidiaries as of August 31, 1995, and the related consolidated statements
of operations and accumulated deficit, and cash flows for the eight months then
ended. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
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 audit provides 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 Cyberlink, Inc. and
Subsidiaries as of August 31, 1995, and the results of its operations and cash
flows for the eight months then ended in conformity with generally accepted
accounting principles.
BROWN, LEIFER, SLATKIN + BERNS
August 30, 1996
Studio City, California
F-39
<PAGE>
CYBERLINK, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AUGUST 31, 1995
<TABLE>
<S> <C>
ASSETS
Current Assets:
Cash............................................................................................ $ 7,324
Accounts receivable, less allowance for doubtful accounts of $2,438,000......................... 2,195,483
Prepaid expenses................................................................................ 71,430
-----------
Total current assets......................................................................... 2,274,237
-----------
Property and Equipment.......................................................................... 2,558,200
-----------
Other Assets.................................................................................... 671,302
-----------
$ 5,503,739
-----------
-----------
LIABILITIES AND NET SHAREHOLDER'S DEFICIT
Current Liabilities:
Checks outstanding in excess of balance in bank................................................. $ 131,012
Advances under accounts receivable financing line............................................... 1,472,889
Current maturities of long-term debt............................................................ 1,226,168
Accounts payable................................................................................ 7,541,228
Accrued expenses and other current liabilities.................................................. 9,994,564
Advances from stockholder....................................................................... 200,000
-----------
Total current liabilities.................................................................... 20,565,861
-----------
Long-term Debt.................................................................................... 2,611,526
-----------
Commitments and Contingencies (Note 7)
Net Stockholders' Deficit:
Common stock, authorized 10,000,000 shares; issued and outstanding 1,000 shares................. 1,200
Additional paid-in capital...................................................................... 796,214
Accumulated deficit............................................................................. (18,471,062)
-----------
(17,673,648)
-----------
$ 5,503,739
-----------
-----------
</TABLE>
See accompanying notes to consolidated financial statements.
F-40
<PAGE>
CYBERLINK, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS AND ACCUMULATED DEFICIT
FOR THE EIGHT MONTHS ENDED AUGUST 31, 1995
<TABLE>
<S> <C>
Revenue.......................................................................................... $ 14,152,538
Cost Of Revenue.................................................................................. 12,472,906
------------
Gross Profit..................................................................................... 1,679,632
Operating Expenses:
Selling........................................................................................ 2,356,714
General and Administrative..................................................................... 6,117,255
------------
8,473,969
------------
Loss from Operations............................................................................. (6,794,337)
Other Expenses:
Interest....................................................................................... 405,875
Reserve for lawsuits and contingencies......................................................... 7,810,000
------------
8,215,875
------------
Loss before Provision for Income Taxes........................................................... (15,010,212)
Provision for Income Taxes....................................................................... 1,600
------------
Net Loss......................................................................................... (15,011,812)
Accumulated Deficit, beginning of Period......................................................... (3,459,250)
------------
Accumulated Deficit, end of Period............................................................... $(18,471,062)
------------
------------
</TABLE>
See accompanying notes to consolidated financial statements.
F-41
<PAGE>
CYBERLINK, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE EIGHT MONTHS ENDED AUGUST 31, 1995
<TABLE>
<S> <C>
Cash flows from operating activities:
Net loss....................................................................................... $(15,011,812)
Adjustments to reconcile net loss to net cash used by operating activities:
Depreciation and amortization............................................................... 221,620
Provision for uncollectible accounts........................................................ 1,528,938
Increase in accounts receivable............................................................. (1,152,942)
Increase in prepaid expenses................................................................ (71,430)
Increase in accounts payable, accrued expenses, and other current liabilities............... 13,436,607
------------
Net cash used by operating activities............................................................ (1,049,019)
Cash flows from investing activities:
Capital expenditures........................................................................... (1,276,888)
Deposits paid.................................................................................. (142,764)
Advances to affiliates......................................................................... (500,000)
------------
Net cash used by investing activities............................................................ (1,919,652)
------------
Cash flows from financing activities:
Net borrowings on accounts receivable financing line........................................... 951,091
Loans from officer/stockholder................................................................. 1,600,000
Principal payments on long-term debt........................................................... (27,225)
Other borrowings............................................................................... 131,012
------------
Net cash provided by financing activities........................................................ 2,654,878
------------
Net decrease in cash............................................................................. (313,793)
Cash and cash equivalents, beginning of period................................................... 321,117
------------
Cash and cash equivalents, end of period......................................................... $ 7,324
------------
------------
Supplemental disclosures of cash flows information:
Cash paid during the period for:
Interest.................................................................................... $ 293,991
------------
------------
</TABLE>
During the period, the Company incurred capital lease obligations in the amount
of $131,595.
See accompanying notes to consolidated financial statements.
F-42
<PAGE>
CYBERLINK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AUGUST 31, 1995
1. NATURE OF OPERATIONS
Cyberlink, Inc. and its subsidiaries (the 'Company') provide domestic
common carrier service by leasing a mix of telephone services from a variety of
underlying common carriers. In addition, the Company resells international
switched and private line telecommunications services between the United States
and various international points. The Company is also authorized to resell
private line services to provide non-interconnected private line services to
various foreign countries and to resell private line services to provide
switched services to the United Kingdom. Furthermore, the Company is authorized
to provide international data, voice and television services via satellite
systems.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation--The accompanying consolidated financial
statements include the accounts of Cyberlink, Inc. and its wholly-owned
subsidiaries Cyberlink-Nevada, Inc. and Cyberlink-California, Inc. All material
intercompany transactions and balances have been eliminated in consolidation.
Concentrations of Credit Risk--Financial instruments that potentially
subject the Company to concentrations of credit risk consist principally of
trade accounts receivable and uninsured cash balances. Concentrations of credit
risk with respect to accounts receivable are limited due to the number of
customers comprising the Company's customer base and their geographic
dispersion. The Company requires no collateral from its customers and performs
ongoing credit evaluations.
The Company places its cash deposits with high-credit quality financial
institutions. At times, balances in the Company's cash accounts may exceed the
Federal Deposit Insurance Corporation (FDIC) limit of $100,000.
Property and Equipment--Property and equipment are stated at cost.
Depreciation is provided on the straight-line method over the estimated useful
lives of the assets. The estimated useful lives of the assets are as follows:
<TABLE>
<S> <C>
Leasehold improvements..................................... 4 years
Network equipment.......................................... 7 years
Dialers.................................................... 4 years
Computer equipment......................................... 5 years
Office furniture and equipment............................. 5 years
Equipment held under capital leases........................ 4-5 years
</TABLE>
Expenditures for maintenance and repairs are charged to operations as
incurred, while renewals and betterments are capitalized.
Capital Lease Obligations--The Company capitalizes certain equipment under
lease obligations which, by their terms, are equivalent to installment
purchases.
Income Taxes--The Company has elected to be taxed as an S Corporation,
whereby the entire Federal and California taxable income or loss of the Company
is reportable by the stockholder. The Company will not be responsible for
Federal income tax, but will incur a 1.5% California surtax.
Income taxes are provided for the tax effects of transactions reported in
the financial statements and consist of taxes currently due plus deferred taxes.
Deferred income taxes are provided for temporary differences with respect
to balance sheet items that result from different reporting practices for
financial statements and income tax purposes. Deferred tax assets and
liabilities represent the future tax return consequences of those differences,
which will either be taxable or deductible when the assets and liabilities are
recovered or settled. Deferred taxes are also recognized for operating losses
that are available to offset future taxable income and tax credits that are
available to offset future federal income taxes. Valuation allowances are
established when necessary to reduce deferred tax assets to the amount expected
to be realized.
F-43
<PAGE>
CYBERLINK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
AUGUST 31, 1995
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
Deferred taxes are classified as current or noncurrent, depending on the
classification of the assets and liabilities to which they relate. Deferred
taxes arising from temporary differences that are not related to an asset or
liability are classified as current or noncurrent depending on the periods in
which the temporary differences are expected to reverse.
The principal source of temporary differences is the use of the cash method
of accounting for income tax purposes which results in immaterial deferred
income taxes. Consequently, the provision for income taxes consists of taxes
currently payable (minimum state franchise taxes).
3. COMPOSITION OF CERTAIN BALANCE SHEET ACCOUNTS
Property and Equipment:
<TABLE>
<S> <C>
Leasehold improvements..................................... $ 3,818
Network equipment.......................................... 1,761,277
Dialers.................................................... 564,499
Computer equipment......................................... 171,003
Office furniture and equipment............................. 142,956
Equipment held under capital leases........................ 267,452
----------
2,911,005
Accumulated depreciation, including $44,264 for equipment
held under capital leases................................ (352,805)
----------
$2,558,200
----------
----------
</TABLE>
Depreciation expense charged to operations amounted to $221,620 including
$25,768 for capital leases.
Accrued Expenses and Other Current Liabilities:
<TABLE>
<S> <C>
Lawsuit and contingency reserves........................... $7,550,000
Utility taxes.............................................. 990,742
Commissions................................................ 640,965
Unearned revenue........................................... 400,000
Other...................................................... 412,857
----------
$9,994,564
----------
----------
</TABLE>
Other Assets:
<TABLE>
<S> <C>
Advances to European affiliates............................ $ 500,000
Deposits................................................... 171,302
----------
$ 671,302
----------
----------
</TABLE>
4. ADVANCES UNDER ACCOUNTS RECEIVABLE FINANCING LINE
The Company has a credit agreement with a factor for a revolving line of
credit of up to $1,200,000 for financing of its accounts receivable. Advances
are based on 60% of eligible accounts receivable and are secured by
substantially all assets of the Company and the personal guarantee of the
officer/stockholder. Interest is payable monthly at the rate of 2 3/4% per
month.
5. ADVANCES FROM STOCKHOLDER
Advances from stockholder represent a non-interest bearing advance, due on
demand.
F-44
<PAGE>
CYBERLINK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AUGUST 31, 1995
6. LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<S> <C>
Note payable to officer/stockholder unsecured, interest payable quarterly at the rate of 8% per
annum with all principal and interest due December 15, 1997. The repayment of the note may be
accelerated upon the Company achieving a total stockholder's equity of at least $7,500,000. The
note is subordinated to substantially all obligations of the Company and has been assigned as
collateral by the officer/stockholder of the Company (See Notes 7 and 9)......................... $2,500,000
Demand note payable unsecured, non-interest bearing. The note is subordinated to the advances under
the factoring agreement (Note 4) and is convertible into 187,254 shares of the Company's common
stock (See Note 9)............................................................................... 1,150,000
Capital lease obligations, due in monthly installments aggregating $8,928 including $187,694
interest at rates ranging from 13% to 28.1%...................................................... 187,694
----------
3,837,694
Current maturities, including $45,000 for capital lease obligations................................ 1,226,168
----------
$2,611,526
----------
----------
</TABLE>
The following is a schedule of aggregate annual maturities of long-term
debt:
<TABLE>
<S> <C>
1996................................................................. $1,226,168
1997................................................................. 2,550,860
1998................................................................. 35,477
1999................................................................. 16,670
2000................................................................. 8,519
----------
$3,837,694
----------
----------
</TABLE>
7. COMMITMENTS AND CONTINGENCIES
Leases--The Company leases its facilities and equipment under
non-cancelable operating and capital leases expiring in various years through
September 30, 2004 and is committed to minimum rental payments (exclusive of
real estate taxes, maintenance, etc.) as follows:
<TABLE>
<CAPTION>
OPERATING CAPITAL
LEASES LEASES
---------- --------
<S> <C> <C>
1996.............................................................. $ 783,361 $ 96,006
1997.............................................................. 787,579 60,477
1998.............................................................. 551,350 36,826
1999.............................................................. 186,120 18,176
2000.............................................................. 89,220 6,708
Thereafter........................................................ 364,315 --
---------- --------
Total minimum lease payments...................................... $2,761,945 218,193
----------
----------
Less amounts representing interest................................ 30,499
--------
Present value of net minimum lease payments....................... $187,694
--------
--------
</TABLE>
Rent expense charged to operations amounted to $371,236 for the eight
months ended August 31, 1995.
F-45
<PAGE>
CYBERLINK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
AUGUST 31, 1995
7. COMMITMENTS AND CONTINGENCIES--(CONTINUED)
Subordinated Note Payable to Officer/Stockholder--As described in Note 6,
the Company is obligated under a note payable to the officer/stockholder of the
Company, which has been assigned to collateralize a loan secured by the
officer/stockholder. In connection with the underlying financing for the loan,
the Company was required to enter into an agreement whereby it was required to
adhere to various affirmative and negative covenants with respect to the
operations of the Company, disposition of assets, issuance of stock, payment of
dividends, conversion of debt and other actions as defined in the agreement. In
addition, the Company was required to issue stock warrants as described in Note
8.
Litigation--On December 9, 1994 the Company filed suit against one of its
suppliers for breach of contract and unfair business practices, damages to be
proved at trial. A counterclaim in the approximate amount of $3,000,000 has been
filed by the defendant alleging breach of contract and unfair business
practices, among other allegations. Outside counsel for the Company have advised
that at this stage in the proceedings settlement discussions are in progress and
they cannot offer an opinion as to the probable outcome. The Company however,
has provided a reserve in the amount of $4,500,000 in the accompanying financial
statements.
In addition to the litigation noted above, the Company is, from time to
time, subject to routine litigation incidental to its business. The Company
believes that adequate reserves have been provided where appropriate.
8. COMMON STOCK WARRANTS
At August 31, 1995 Cyberlink, Inc. had outstanding warrants to purchase
33 1/3% of the outstanding shares of Cyberlink, Inc. common stock at $.10 per
share. The warrants were subsequently cancelled as discussed in Note 9 to the
financial statements.
9. SUBSEQUENT EVENTS
Additional Financing--On September 8, 1995 the Company refinanced its
factoring arrangement (Note 4) and entered into a credit facility providing a
$5,000,000 revolving line of credit and a $2,000,000 equipment line. The term
loan bears interest at prime plus 2 1/2%. Advances under the revolving line bear
interest at prime plus 2 1/2%.
Conversion of Subordinated Debt--On September 1, 1995 the
officer/stockholder of the Company and the Company entered into an exchange
agreement whereby notes payable aggregating $2,500,000 were exchanged for
349,837 shares of Cyberlink, Inc. common stock. In addition, the warrants, as
described in Note 8 were cancelled.
In addition, on September 1, 1995 the note payable in the amount of
$1,150,000 was converted into 187,294 shares of Cyberlink, Inc. common stock.
Issuance of Common Stock--On September 1, 1995, Cyberlink, Inc. sold
1,213,719 shares of its common stock for $1,500,000 plus an additional capital
contribution of $2,029,397.
F-46
<PAGE>
CYBERLINK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
AUGUST 31, 1995
9. SUBSEQUENT EVENTS--(CONTINUED)
In addition, on September 1, 1995 the Company issued 71,396 shares in
exchange for services and cancellation of certain rights estimated at
approximately $176,000. Warrants to purchase an additional 47,597 shares at
$.001 per share were also issued for services and cancellation of certain rights
at an estimated cost of approximately $118,000.
Termination of S Corporation Election--Effective September 1, 1995 the
Company's status as an S corporation was terminated when it sold 1,213,719 of
its shares as described above. Consequently, the Company will be taxed as a C
corporation and any deferred income taxes will be reinstated at the corporate
level.
F-47
<PAGE>
UNDERWRITING
Subject to the terms and conditions of the Underwriting Agreement (U.S.
Version) (the 'U.S. Underwriting Agreement'), the Company has agreed to sell to
each of the U.S. Underwriters named below, and each of such U.S. Underwriters,
for whom Goldman, Sachs & Co., Merrill Lynch, Pierce, Fenner & Smith
Incorporated, Morgan Stanley & Co. Incorporated, and SBC Warburg Dillon Read
Inc. are acting as representatives, has severally agreed to purchase from the
Company, the respective number of shares of Class A Common Stock set forth
opposite its name below:
NUMBER OF
SHARES OF
CLASS A
UNDERWRITER COMMON STOCK
------------------- ------------
Goldman, Sachs & Co.............................................
Merrill Lynch, Pierce, Fenner & Smith Incorporated..............
Morgan Stanley & Co. Incorporated...............................
SBC Warburg Dillon Read Inc.....................................
------------
Total ..................................................... 5,760,000
------------
------------
Under the terms and conditions of the U.S. Underwriting Agreement, the U.S.
Underwriters are committed to take and pay for all of the shares offered hereby,
if any are taken.
The U.S. Underwriters propose to offer the shares of Class A Common Stock
in part directly to the public at the initial public offering price set forth on
the cover page of this Prospectus and in part to certain securities dealers at
such price less a concession of $ per share. The U.S. Underwriters
may allow, and such dealers may reallow, a concession not in excess of
$ per share to certain brokers and dealers. After the shares of Class
A Common Stock are released for sale to the public, the offering price and other
selling terms may from time to time be varied by the representatives.
The Company has entered into an underwriting agreement (the 'International
Underwriting Agreement') with the underwriters of the International Offering
(the 'International Underwriters' and together with the U.S. Underwriters, the
'Underwriters') providing for the concurrent offer and sale of 1,440,000 shares
of Class A Common Stock in an international offering outside the United States.
The offering price and aggregate underwriting discounts and commissions per
share for the two offerings are identical. The closing of the U.S. Offering is a
condition to the closing of the International Offering, and vice versa. The
representatives of the International Underwriters are Goldman Sachs
International, Merrill Lynch International, Morgan Stanley & Co. International
Limited and Swiss Bank Corporation, acting through its Division, SBC Warburg
Dillon Read.
Pursuant to an Agreement between the U.S. and International Underwriting
Syndicates (the 'Agreement Between Syndicates') relating to the Offerings, each
of the U.S. Underwriters named herein has agreed that, as a part of the
distribution of the shares offered hereby and subject to certain exceptions, it
will offer, sell or deliver the shares of Class A Common Stock, directly or
indirectly, only in the United States of America (including the States and the
District of Columbia), its territories, its possessions and other areas subject
to its jurisdiction (the 'United States') and to U.S. persons, which term shall
mean, for purposes of this paragraph: (a) any individual who is a resident of
the United States or (b) any corporation, partnership or other entity organized
in or under the laws of the United States or any political subdivision thereof
and whose office most directly involved with the purchase is located in the
United States. Each of the International Underwriters has agreed pursuant to the
Agreement Between Syndicates that, as a part of the distribution of the shares
offered as a part of the International
U-1
<PAGE>
Offering, and subject to certain exceptions, it will (i) not, directly or
indirectly, offer, sell or deliver shares of Class A Common Stock (a) in the
United States or to any U.S. persons or (b) to any person who it believes
intends to reoffer, resell or deliver the shares in the United States or to any
U.S. persons and (ii) cause any dealer to whom it may sell such shares at any
concession to agree to observe a similar restriction.
Pursuant to the Agreement Between Syndicates, sales may be made between the
U.S. Underwriters and the International Underwriters of such number of shares of
Class A Common Stock as may be mutually agreed. The price of any shares so sold
shall be the initial public offering price, less an amount not greater than the
selling concession.
The Company has granted the U.S. Underwriters an option exercisable for 30
days after the date of this Prospectus to purchase up to an aggregate of 864,000
additional shares of Class A Common Stock solely to cover over-allotments, if
any. If the U.S. Underwriters exercise their over-allotment option, the U.S.
Underwriters have severally agreed, subject to certain conditions, to purchase
approximately the same percentage thereof that the number of shares to be
purchased by each of them, as shown in the foregoing table, bears to the
5,760,000 shares of Class A Common Stock offered hereby. The Company has granted
the International Underwriters a similar option to purchase up to an aggregate
of 216,000 additional shares of Class A Common Stock.
The Company and certain directors, officers and shareholders have agreed
that during the period beginning from the date of this Prospectus and continuing
to and including the date that is 180 days after the date of this Prospectus,
not to offer, sell, contract to sell or otherwise dispose of, directly or
indirectly, any securities of the Company (other than pursuant to employee stock
option plans existing on, or upon the conversion or exchange of convertible or
exchangeable securities outstanding as of, the date of this Prospectus), which
are substantially similar to the shares of Class A Common Stock or which are
convertible into or exchangeable for securities which are substantially similar
to the shares of Class A Common Stock, without the prior written consent of
Goldman, Sachs & Co., except for the shares of Class A Common Stock offered in
connection with the Offerings.
The representatives of the Underwriters have informed the Company that they
do not expect sales to accounts over which the Underwriters exercise
discretionary authority to exceed five percent of the total number of shares of
Class A Common Stock offered by them.
Prior to the Offerings, there has been no public market for the shares of
Class A Common Stock. The initial public offering price will be negotiated among
the Company and the representatives of the U.S. Underwriters and the
International Underwriters. Among the factors to be considered in determining
the initial public offering price of the Class A Common Stock, in addition to
prevailing market conditions, will be the Company's historical performance,
estimates of the business potential and earnings prospects of the Company, an
assessment of the Company's management and the consideration of the above
factors in relation to market valuation of companies in related businesses.
In connection with the Offerings, the Underwriters may purchase and sell
the Class A Common Stock in the open market. These transactions may include
over-allotment and stabilizing transactions and purchases to cover syndicate
short positions created in connection with the Offerings. Stabilizing
transactions consist of certain bids or purchases for the purpose of preventing
or retarding a decline in the market price of the Class A Common Stock; and
syndicate short positions involve the sale by the Underwriters of a greater
number of shares of Class A Common Stock than they are required to purchase from
the Company in the Offerings. The Underwriters also may impose a penalty bid,
whereby selling concessions allowed to syndicate members or other broker-dealers
in respect of the securities sold in the Offerings for their account may be
reclaimed by the syndicate if such shares of Class A Common Stock are
repurchased by the syndicate in stabilizing or covering transactions. These
activities may stabilize, maintain or otherwise affect the market price of the
Class A Common Stock, which may be higher than the price that might otherwise
prevail in the open market; and these activities, if commenced, may be
discontinued at any time. These transactions may be effected on the Nasdaq
U-2
<PAGE>
National Market, in the over-the-counter market or otherwise, and these
activities, if commenced, may be discontinued at any time.
The Class A Common Stock has been approved for quotation on the Nasdaq
National Market under the symbol 'RSLC.'
Certain of the Underwriters have provided from time to time, and expect to
provide in the future, investment banking services to the Company and its
affiliates, for which such Underwriters have received and will receive customary
fees and commissions.
The Company has agreed to indemnify the several Underwriters against
certain liabilities, including liabilities under the Securities Act.
This Prospectus may be used by underwriters and dealers in connection with
offers and sales of the Class A Common Stock, including shares initially sold in
the International Offering, to persons located in the United States.
U-3
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
No person has been authorized to give any information or to make any
representations other than those contained in this Prospectus, and, if given or
made, such information or representations must not be relied upon as having been
authorized. This Prospectus does not constitute an offer to sell or the
solicitation of an offer to sell or the solicitation of an offer to buy any
securities other than the securities to which it relates or an offer to sell or
the solicitation of an offer to buy such securities in any circumstances in
which such offer or solicitation is unlawful. Neither the delivery of this
Prospectus nor any sale made hereunder shall, under any circumstances, create
any implication that there has been no change in the affairs of the Company
since the date hereof or that the information contained herein is correct as of
any time subsequent to its date.
------------------
TABLE OF CONTENTS
Page
----
Prospectus Summary.............................................. 4
Risk Factors.................................................... 13
Use of Proceeds................................................. 24
Dividend Policy................................................. 24
Dilution........................................................ 25
Capitalization.................................................. 26
Selected Consolidated Financial Data............................ 27
Management's Discussion and Analysis of Financial Condition and
Results of Operations......................................... 29
Business........................................................ 41
Management...................................................... 83
Certain Relationships and Related Transactions.................. 97
Principal Shareholders.......................................... 98
Description of Capital Stock.................................... 100
Description of Certain Indebtedness............................. 103
Shares Eligible for Future Sale................................. 104
Certain United States Federal Income Tax Considerations......... 107
Certain Bermuda Tax Considerations.............................. 112
Legal Matters................................................... 113
Experts......................................................... 113
Service of Process and Enforcement of Liabilities............... 113
Additional Information.......................................... 113
Available Information........................................... 114
Index to Consolidated Financial Statements...................... F-1
Underwriting.................................................... U-1
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
7,200,000 SHARES
RSL COMMUNICATIONS, LTD.
CLASS A COMMON SHARES
(PAR VALUE $.00457 PER SHARE)
------------------
[LOGO]
------------------
GOLDMAN, SACHS & CO.
MERRILL LYNCH & CO.
MORGAN STANLEY DEAN WITTER
SBC WARBURG DILLON READ INC.
Representatives of the Underwriters
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any State in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such State.
SUBJECT TO COMPLETION, DATED SEPTEMBER 26, 1997
[LOGO] 7,200,000 SHARES
RSL COMMUNICATIONS, LTD.
CLASS A COMMON SHARES
(PAR VALUE $.00457 PER SHARE)
----------------------
Of the 7,200,000 Class A common shares, par value $.00457 per share (the
'Class A Common Stock'), offered by RSL Communications, Ltd. (the 'Company'),
1,440,000 shares are being offered hereby in an international offering outside
the United States (the 'International Offering') and 5,760,000 shares are being
offered in a concurrent United States offering (the 'U.S. Offering' and,
together with the International Offering, the 'Offerings'). The initial public
offering price and the aggregate underwriting discount per share will be
identical for both Offerings. See 'Underwriting.'
The shares of Class A Common Stock offered hereby are being sold by the
Company.
Prior to the Offerings, there has been no public market for the Class A
Common Stock of the Company. It is currently anticipated that the initial public
offering price of the Class A Common Stock will be between $19.00 and $22.00 per
share. For factors considered in determining the initial public offering price,
see 'Underwriting.'
As of the date of this Prospectus, the Company has two classes of authorized
common shares, the Class A Common Stock and Class B common shares (the 'Class B
Common Stock', and together with the Class A Common Stock, the 'Common Stock').
The holders of both classes of Common Stock have identical rights, except that
(i) holders of Class A Common Stock are entitled to one vote per share and
holders of Class B Common Stock are entitled to 10 votes per share, (ii) shares
of Class B Common Stock are convertible at any time at the option of the holders
into shares of Class A Common Stock on a share-for-share basis and (iii) shares
of Class B Common Stock may only be transferred to other original holders of
Class B Common Stock and certain related parties. The Company also has
outstanding convertible preferred shares (the 'Preferred Stock') which will be
automatically converted into shares of Class B Common Stock on a share-for-share
basis upon the closing of the Offerings. See 'Description of Capital Stock.'
SEE 'RISK FACTORS' BEGINNING ON PAGE 13 FOR CERTAIN CONSIDERATIONS RELEVANT
TO AN INVESTMENT IN THE CLASS A COMMON STOCK.
The Class A Common Stock has been approved for quotation on the Nasdaq
National Market under the symbol 'RSLC.'
----------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
----------------------
<TABLE>
<CAPTION>
INITIAL PUBLIC UNDERWRITING PROCEEDS TO
OFFERING PRICE DISCOUNT(1) COMPANY(2)
-------------- ------------ ------------
<S> <C> <C> <C>
Per Share...... $ $ $
Total (3)...... $ $ $
</TABLE>
- ------------------
(1) The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933. See
'Underwriting.'
(2) Before deducting estimated expenses of $1,000,000 payable by the Company.
(3) The Company has granted the International Underwriters an option for 30 days
to purchase up to an additional 216,000 shares of Class A Common Stock at
the initial public offering price per share, less the underwriting discount,
solely to cover over-allotments. Additionally, the Company has granted the
U.S. Underwriters a similar option with respect to an additional 864,000
shares of Class A Common Stock as part of the concurrent U.S. Offering. If
such options are exercised in full, the total initial public offering price,
underwriting discount and proceeds to the Company will be ,
and , respectively. See 'Underwriting.'
----------------------
The shares offered hereby are offered severally by the International
Underwriters, as specified herein, subject to receipt and acceptance by them and
subject to their right to reject any order in whole or in part. It is expected
that certificates for the shares will be ready for delivery through the
facilities of The Depository Trust Company on or about September , 1997,
against payment therefor in immediately available funds.
GOLDMAN SACHS INTERNATIONAL
MERRILL LYNCH INTERNATIONAL
MORGAN STANLEY DEAN WITTER
SBC WARBURG DILLON READ
----------------------
The date of this Prospectus is September , 1997.
<PAGE>
[ALTERNATE PAGE FOR INTERNATIONAL PROSPECTUS]
UNDERWRITING
Subject to the terms and conditions of the Underwriting Agreement
(International Version) (the 'International Underwriting Agreement'), the
Company has agreed to sell to each of the International Underwriters named
below, and each of such International Underwriters for whom Goldman Sachs
International, Merrill Lynch International, Morgan Stanley & Co. International
Limited and Swiss Bank Corporation, acting through its Division, SBC Warburg
Dillon Read, are acting as representatives, has severally agreed to purchase
from the Company, the respective number of shares of Class A Common Stock set
forth opposite its name below:
NUMBER OF
SHARES OF
CLASS A
UNDERWRITER COMMON STOCK
- ---------------------------------------------------------------- ------------
Goldman Sachs International.....................................
Merrill Lynch International ....................................
Morgan Stanley & Co. International Limited .....................
Swiss Bank Corporation, acting through its Division,
SBC Warburg Dillon Read ......................................
------------
Total ..................................................... 1,440,000
------------
------------
Under the terms and conditions of the International Underwriting Agreement,
the International Underwriters are committed to take and pay for all of the
shares offered hereby, if any are taken.
The International Underwriters propose to offer the shares of Class A
Common Stock in part directly to the public at the initial public offering price
set forth on the cover page of this Prospectus and in part to certain securities
dealers at such price less a concession of $ per share. The International
Underwriters may allow, and such dealers may reallow, a concession not in excess
of $ per share to certain brokers and dealers. After the shares of Class
A Common Stock are released for sale to the public, the offering price and other
selling terms may from time to time be varied by the representatives.
The Company has entered into an underwriting agreement (the 'U.S.
Underwriting Agreement') with the underwriters of the U.S. Offering (the 'U.S.
Underwriters' and together with the International Underwriters, the
'Underwriters') providing for the concurrent offer and sale of 5,760,000 shares
of Class A Common Stock in the United States. The offering price and aggregate
underwriting discounts and commissions per share for the two Offerings are
identical. The closing of the International Offering is a condition to the
closing of the U.S. Offering, and vice versa. The representatives of the U.S.
Underwriters are Goldman, Sachs & Co., Merrill Lynch, Pierce, Fenner & Smith
Incorporated, Morgan Stanley & Co. Incorporated and SBC Warburg Dillon Read Inc.
Pursuant to an Agreement between the U.S. and International Underwriting
Syndicates (the 'Agreement Between Syndicates') relating to the Offerings, each
of the International Underwriters named herein has agreed that, as a part of the
distribution of the shares offered hereby and subject to certain exceptions, it
(a) will not offer, sell or deliver the shares of Class A Common Stock, directly
or indirectly, (i) in the United States of America (including the States and the
District of Columbia), its territories, its possessions and other areas subject
to its jurisdiction (the 'United States') or to any U.S. persons (as defined
below) or (ii) to any person who it believes intends to reoffer, resell or
deliver the shares in the United States or to any U.S. persons and (b) will
cause any dealer to whom it may sell such shares at any concession to agree to
observe a similar restriction. The term 'U.S. person' shall mean, for purposes
of this paragraph: (a) any individual who is a resident of the United States or
(b) any corporation, partnership or other entity organized in or under the laws
of the United States or any
U-1
<PAGE>
[ALTERNATE PAGE FOR INTERNATIONAL PROSPECTUS]
political subdivision thereof and whose office most directly involved with the
purchase is located in the United States. Each of the U.S. Underwriters has
agreed pursuant to the Agreement Between Syndicates that, as a part of the
distribution of the shares offered as a part of the U.S. Offering, and subject
to certain exceptions, it (i) will offer, sell or deliver shares of Class A
Common Stock, directly or indirectly, (a) only in the United States and to U.S.
persons and (b) only to persons who it believes do not intend to reoffer, resell
or deliver the shares outside of the United States or to non-U.S. persons and
(ii) will cause any dealer to whom it may sell such shares at any concession to
agree to observe a similar restriction.
Pursuant to the Agreement Between Syndicates, sales may be made between the
U.S. Underwriters and the International Underwriters of such number of shares of
Class A Common Stock as may be mutually agreed. The price of any shares so sold
shall be the initial public offering price, less an amount not greater than the
selling concession.
The Company has granted the International Underwriters an option
exercisable for 30 days after the date of this Prospectus to purchase up to an
aggregate of 216,000 additional shares of Class A Common Stock solely to cover
over-allotments, if any, at the initial offering price less the Underwriting
Discount, as set forth on the cover page of this Prospectus. If the
International Underwriters exercise their over-allotment option, the
International Underwriters have severally agreed, subject to certain conditions,
to purchase approximately the same percentage thereof that the number of shares
to be purchased by each of them, as shown in the foregoing table, bears to the
1,440,000 shares of Class A Common Stock offered hereby. The Company has granted
the U.S. Underwriters a similar option to purchase up to an aggregate of 864,000
additional shares of Class A Common Stock.
The Company and certain directors, officers and shareholders have agreed
that during the period beginning from the date of the International Underwriting
Agreement and continuing to and including the date 180 days after the date of
this Prospectus, not to offer, sell, contract to sell or otherwise dispose of,
directly or indirectly, except as provided under the International Underwriting
Agreement and under the U.S. Underwriting Agreement, any securities of the
Company (other than pursuant to employee stock option plans existing on, or upon
the conversion or exchange of convertible or exchangeable securities outstanding
as of, the date of this Prospectus) which are substantially similar to the
shares of Class A Common Stock or which are convertible into or exchangeable for
securities which are substantially similar to the shares of Class A Common
Stock, without the prior written consent of the U.S. representative, Goldman,
Sachs & Co., except for the shares of Class A Common Stock offered in connection
with the Offerings.
Each International Underwriter has also agreed that (a) it has not offered
or sold and will not offer or sell any shares of Class A Common Stock to persons
in the United Kingdom except to persons whose ordinary activities involve them
in acquiring, holding, managing or disposing of investments (as principal or
agent) for the purposes of their business or otherwise in circumstances which
have not resulted and will not result in an offer to the public in the United
Kingdom within the meaning of the Public Offers of Securities Regulations 1995,
(b) it has complied, and will comply with, all applicable provisions of the
Financial Services Act 1986 of Great Britain with respect to anything done by it
in relation to the shares of Class A Common Stock in, from or otherwise
involving the United Kingdom and (c) it has only issued or passed on and will
only issue or pass on in the United Kingdom any document received by it in
connection with the issuance of the shares of Class A Common Stock to a person
who is of a kind described in Article 11(3) of the Financial Services Act 1986
(Investment Advertisements) (Exemptions) Order 1996 of Great Britain or is a
person to whom the document may otherwise lawfully be issued or passed on.
Buyers of shares of Class A Common Stock offered hereby may be required to
pay stamp taxes and other charges in accordance with the laws and practices of
the country of purchase in addition to the initial public offering price.
The representatives of the Underwriters have informed the Company that they
do not expect sales to accounts over which the Underwriters exercise
discretionary authority to exceed five percent of the total number of shares of
Class A Common Stock offered by them.
U-2
<PAGE>
[ALTERNATE PAGE FOR INTERNATIONAL PROSPECTUS]
Prior to the Offerings, there has been no public market for the shares of
Class A Common Stock. The initial public offering price will be negotiated among
the Company and the representatives of the U.S. Underwriters and the
International Underwriters. Among the factors to be considered in determining
the initial public offering price of the Class A Common Stock, in addition to
prevailing market conditions, will be the Company's historical performance,
estimates of the business potential and earnings prospects of the Company, an
assessment of the Company's management and the consideration of the above
factors in relation to market valuation of companies in related businesses.
In connection with the Offerings, the Underwriters may purchase and sell
the Class A Common Stock in the open market. These transactions may include
over-allotment and stabilizing transactions and purchases to cover syndicate
short positions created in connection with the Offerings. Stabilizing
transactions consist of certain bids or purchases for the purpose of preventing
or retarding a decline in the market price of the Class A Common Stock, and
syndicate short positions involve the sale by the Underwriters of a greater
number of shares of Class A Common Stock than they are required to purchase from
the Company in the Offerings. The Underwriters also may impose a penalty bid,
whereby selling concessions allowed to syndicate members or other broker-dealers
in respect of the securities sold in the Offerings for their account may be
reclaimed by the syndicate if such shares of Class A Common Stock are
repurchased by the syndicate in stabilizing or covering transactions. These
activities may stabilize, maintain or otherwise affect the market price of the
Class A Common Stock, which may be higher than the price that might otherwise
prevail in the open market; and these activities, if commenced, may be
discontinued at any time. These transactions may be effected on the Nasdaq
National Market, in the over-the-counter market or otherwise, and these
activities, if commenced, may be discontinued at any time.
The Class A Common Stock has been approved for quotation on the Nasdaq
National Market under the symbol 'RSLC.'
Certain of the Underwriters have provided from time to time, and expect to
provide in the future, investment banking services to the Company and its
affiliates, for which such Underwriters have received and will receive customary
fees and commissions.
The Company has agreed to indemnify the several Underwriters against
certain liabilities, including liabilities under the Securities Act.
This Prospectus may be used by underwriters and dealers in connection with
offers and sales of the Class A Common Stock, including shares initially sold in
the U.S. Offering, to persons located outside the United States.
U-3
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
No person has been authorized to give any information or to make any
representations other than those contained in this Prospectus, and, if given or
made, such information or representations must not be relied upon as having been
authorized. This Prospectus does not constitute an offer to sell or the
solicitation of an offer to sell or the solicitation of an offer to buy any
securities other than the securities to which it relates or an offer to sell or
the solicitation of an offer to buy such securities in any circumstances in
which such offer or solicitation is unlawful. Neither the delivery of this
Prospectus nor any sale made hereunder shall, under any circumstances, create
any implication that there has been no change in the affairs of the Company
since the date hereof or that the information contained herein is correct as of
any time subsequent to its date.
------------------
TABLE OF CONTENTS
Page
----
[S] [C]
Prospectus Summary.............................................. 4
Risk Factors.................................................... 13
Use of Proceeds................................................. 24
Dividend Policy................................................. 24
Dilution........................................................ 25
Capitalization.................................................. 26
Selected Consolidated Financial Data............................ 27
Management's Discussion and Analysis of Financial Condition and
Results of Operations......................................... 29
Business........................................................ 41
Management...................................................... 83
Certain Relationships and Related Transactions.................. 97
Principal Shareholders.......................................... 98
Description of Capital Stock.................................... 100
Description of Certain Indebtedness............................. 103
Shares Eligible for Future Sale................................. 104
Certain United States Federal Income Tax Considerations......... 107
Certain Bermuda Tax Considerations.............................. 112
Legal Matters................................................... 113
Experts......................................................... 113
Service of Process and Enforcement of Liabilities............... 113
Additional Information.......................................... 113
Available Information........................................... 114
Index to Consolidated Financial Statements...................... F-1
Underwriting.................................................... U-1
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
7,200,000 SHARES
RSL COMMUNICATIONS, LTD.
CLASS A COMMON SHARES
(PAR VALUE $.00457 PER SHARE)
------------------
[LOGO]
------------------
GOLDMAN SACHS INTERNATIONAL
MERRILL LYNCH INTERNATIONAL
MORGAN STANLEY DEAN WITTER
SBC WARBURG DILLON READ
Representatives of the Underwriters
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The Registrant's expenses in connection with the issuance of the securities
being registered, other than underwriting discounts and commissions, are
estimated as follows:
<TABLE>
<S> <C>
Securities and Exchange Commission Registration Fee.............. $ 55,200
NASD Filing Fee.................................................. 18,200
Printing and Engraving........................................... 115,000*
Counsel Fees and Expenses........................................ 250,000
Accountants' Fees and Expenses................................... 200,000*
Blue Sky Qualification Fees and Expenses......................... 0
Transfer Agent and Registrar Fees and Expenses................... 10,000
Nasdaq Listing Fee............................................... 50,000
Miscellaneous.................................................... 301,600*
----------
Total....................................................... $1,000,000*
----------
----------
</TABLE>
- ------------------
* Estimated
ITEM 14. RECENT SALES OF UNREGISTERED SECURITIES
The following discussion does not give effect to the recapitalization to be
effected by the
Registrant in connection with the public offering to be conducted pursuant to
this Registration Statement.
In August 1994, RSL Communications, Inc. (a predecessor of the Registrant)
('RSL Delaware') issued one share of common stock, par value $.01 per share (the
'RSL Delaware Common Stock'), to Ronald S. Lauder, Chairman of the Board of
Directors and a co-founder of the Registrant, for aggregate consideration of
$.01. The issuance of such shares of RSL Delaware Common Stock to Mr. Lauder was
exempt from registration under the Securities Act pursuant to Section 4(2)
thereof.
In February 1995, RSL Delaware issued: (i) 3,000 shares of RSL Delaware
Common Stock to Itzhak Fisher, the President and Chief Executive Officer,
co-founder and a Director of the Registrant for aggregate consideration of
$2,000; (ii) 400 shares of preferred stock, par value $1.00 per share (the 'RSL
Delaware Preferred Stock'), to Itzhak Fisher for aggregate consideration of
$400,000; (iii) 5,878,286 shares of RSL Delaware Preferred Stock to R. S. Lauder
Gaspar & Co., L.P. for aggregate consideration of $5,878,286; (iv) 100 shares of
RSL Delaware Preferred Stock to Ronald S. Lauder for aggregate consideration of
$900,000; (v) 300 shares of RSL Delaware Preferred Stock to Jacob Schuster,
Chief Financial Officer, Assistant Secretary and Treasurer and a Director of the
Registrant, for aggregate consideration of $300,000 and (vi) 121,714 shares of
RSL Delaware Preferred Stock to Nesim Bildirici, Vice President of Mergers and
Acquisitions of the Registrant, for aggregate consideration of $121,714. The
issuance of such shares was exempt from registration under the Securities Act
pursuant to Section 4(2) thereof.
In April 1995, RSL Delaware merged into RSL Communications Inc. ('RSL
BVI'). In connection with such merger, each shareholder of RSL Delaware
exchanged their respective shares of RSL Delaware common stock and RSL Delaware
Preferred Stock for an equal number of shares of RSL BVI's common stock, par
value $.01 per share (the 'RSL BVI Common Stock'), and preferred stock, par
value $.01 per share (the 'RSL BVI Preferred Stock'). Simultaneous with the
merger, RSL BVI increased the number of authorized shares of each of the RSL BVI
Common Stock and RSL BVI Preferred Stock from 10,000 to 10,000,000 and declared
a share dividend of 1,000 shares of RSL BVI Common Stock and RSL BVI Preferred
Stock for each share of such stock respectively issued and outstanding.
In April 1995, RSL BVI increased the number of authorized shares of each of
the RSL BVI Common Stock and RSL BVI Preferred Stock from 10,000,000 to
20,000,000 and declared a share dividend of
II-1
<PAGE>
two shares of RSL BVI Common Stock and RSL BVI Preferred Stock for each share of
such stock respectively issued and outstanding. Additionally, in April 1995, RSL
BVI issued: (i) 59,306 shares of RSL BVI Common Stock to Ronald S. Lauder for
aggregate consideration of $207,572; (ii) 197,837 shares of RSL BVI Preferred
Stock to Ronald S. Lauder for aggregate consideration of $692,428; (iii) 13,179
shares of RSL BVI Common Stock to Itzhak Fisher for aggregate consideration of
$46,873; (iv) 43,964 shares of RSL BVI Preferred Stock to Itzhak Fisher for
aggregate consideration of $153,873; (v) 422,130 shares of RSL BVI Common Stock
to R. S. Lauder Gaspar & Co., L.P. for aggregate consideration of $1,477,457;
(vi) 1,292,156 shares of RSL BVI Preferred Stock to R. S. Lauder Gaspar & Co.,
L.P. for aggregate consideration of $4,522,543; (vii) 3,954 shares of RSL BVI
Common Stock to certain members of the family of Jacob Schuster for aggregate
consideration of $13,834.20; (viii) 13,189 shares of RSL BVI Preferred Stock to
certain members of the family of Jacob Schuster for aggregate consideration of
$46,161.80 and (ix) 13,179 shares of RSL BVI Preferred Stock to Nir Tarlovsky
for aggregate consideration of $153,873. The issuance of such shares was exempt
from registration under the Securities Act pursuant to Section 4(2) thereof.
In April 1995, the Board of Directors of the Company authorized, and the
shareholders of the Registrant approved, the 1995 Plan. Under the 1995 Plan, the
Registrant's Compensation Committee is authorized to grant options for up to
1,300,000 shares of the Registrant's Class A Common Stock. As of September 4,
1997, the Registrant had granted options to purchase 1,275,291 shares of the
Registrant's Class A Common Stock under the 1995 Plan. In general, options
granted under the 1995 Plan terminate on the tenth anniversary of the date of
grant. The 1995 Plan was developed to provide incentives to employees of the
Registrant and to attract new employees and non-employee directors. The issuance
of such shares pursuant to the 1995 Plan is exempt from registration under the
Securities Act pursuant to Rule 701 thereof.
In July 1996, RSL BVI was amalgamated into the Registrant. Subsequently,
the Registrant increased the number of authorized shares of each of its common
stock, par value $.01 per share (the 'RSL Common Stock'), and preferred stock,
par value $.01 per share (the 'RSL Preferred Stock'), to 20,000,000. Thereafter,
the Registrant issued: (i) 59,306 shares of RSL Common Stock to Ronald S. Lauder
for aggregate consideration of $593.06; (ii) 1,097,837 shares of RSL Preferred
Stock to Ronald S. Lauder for aggregate consideration of $10,978.37; (iii)
2,013,179 shares of RSL Common Stock to Itzhak Fisher for aggregate
consideration of $12,000; (iv) 243,964 shares of RSL Preferred Stock to Itzhak
Fisher for aggregate consideration of $2,439.64; (v) 422,130 shares of RSL
Common Stock to R. S. Lauder Gaspar & Co., L.P. for aggregate consideration of
$4,221.30; (vi) 7,170,442 shares of RSL Preferred Stock to R. S. Lauder Gaspar &
Co., L.P. for aggregate consideration of $71,704.42; (vii) 419,770 shares of RSL
Common Stock to the Schuster Family Partners I, L.P. for aggregate consideration
of $4,197.70; (viii) 365,945 shares of RSL Preferred Stock to the Schuster
Family Partners I, L.P. for aggregate consideration of $3,659.49; (ix) 13,179
shares of RSL Common Stock to Nir Tarlovsky for aggregate consideration of
$131.79; (x) 243,964 shares of RSL Preferred Stock to Nir Tarlovsky for
aggregate consideration of $2,439.64 and (xi) 121,714 shares of RSL Preferred
Stock to Nesim Bildirici for aggregate consideration of $1,217.14. The issuance
of such shares was exempt from registration under the Securities Act pursuant to
Section 4(2) thereof.
In September 1996, the Registrant's capital stock was reclassified as
follows: (i) the Class A Common Shares and Class B Common Shares were authorized
with the RSL Common Shares being converted into Class A Common Shares; (ii) the
Registrant's authorized Class B Common Shares were reclassified as Class C
Common Shares with no changes to the rights of such shares; (iii) the authorized
Class A Common Shares were reclassified as Class B Common Shares with no changes
in the rights of such stock except that each share of Class B Common Shares are
entitled to 10 votes per share; and (iv) the new Class A Common Shares was
authorized.
In September 1996, the Registrant issued to Ronald S. Lauder a warrant to
purchase 210,000 shares of the Registrant's Class B Common Shares in
consideration of a loan from Mr. Lauder to the Registrant in the aggregate
amount of $35 million. Additionally, the Registrant issued: (i) 940,073 shares
of the Registrant's Class B Common Shares to Lauder Gaspar Ventures LLC for
aggregate consideration of $25 million; (ii) 470,037 shares of the Registrant's
Class B Common Shares to Ronald S. Lauder for aggregate consideration of $12.5
million and (iii) 470,037 shares of the Registrant's
II-2
<PAGE>
Class B Common Shares to Leonard A. Lauder for aggregate consideration of $12.5
million. The issuance of such shares was exempt from registration under the
Securities Act pursuant to Section 4(2) thereof.
In May 1997, the Registrant issued to Mr. Charles M. Piluso 665,340 shares
of the Registrant's Class A Common Shares in connection with the Registrant's
acquisition of 15,619 shares of common stock of ITG held by Mr. Piluso. The
issuance of such shares was exempt from registration under the Securities Act
pursuant to Section 4(2) thereof.
Prior to the effective sale of this Registration Statement, the Registrant
intends to issue shares of its Class A Common Shares to certain employees. The
issuance of such shares will be exempt from registration under the Securities
Act of 1933, as amended pursuant to Section 4(2) hereof.
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits:
<TABLE>
<CAPTION>
EXHIBIT
NUMBER+ DESCRIPTION
- -------- ---------------------------------------------------------------------
<S> <C>
1.1 -- Underwriting Agreement.
*3.1 -- Certificate of Incorporation of RSL Communications, Ltd., issued
by the Bermuda Registrar of Companies on March 14, 1996.
*3.2 -- Memorandum of Association of RSL Communications, Ltd., filed with
the Bermuda Registrar of Companies on March 14, 1996.
+3.3 -- Bye-Laws of RSL Communications, Ltd. (as amended through September
2, 1997).
*4.1 -- Placement Agreement, dated as of September 30, 1996, by and among
RSL Communications PLC, RSL Communications, Ltd. and Morgan
Stanley & Co. Incorporated, Bear Stearns Co. Inc. and Dillon Read
& Co. Inc.
*4.2 -- Indenture, dated October 3, 1996, by and among RSL Communications
PLC, RSL Communications, Ltd. and The Chase Manhattan Bank, as
Trustee, containing, as exhibits, specimens of 12 1/4% Senior
Notes due 2006.
*4.3 -- Notes Registration Rights Agreement, dated October 3, 1996, by and
among RSL Communications PLC, RSL Communications, Ltd. and the
Placement Agents.
*4.4 -- Note Deposit Agreement, dated October 3, 1996, by and among RSL
Communications PLC, RSL Communications, Ltd. and The Chase
Manhattan Bank, as Book Entry Depositary.
*4.5 -- Collateral Pledge and Security Agreement, dated October 3, 1996,
by and among RSL Communications PLC and Trustee.
*4.6 -- Form of Letter of Transmittal.
++4.7 -- Form of 12 1/4% Senior Note due 2006.
4.8 -- Form of Class A Common Share Certificate.
+5.1 -- Opinion of Conyers, Dill and Pearman.
+8.1 -- Opinion of Rosenman & Colin LLP.
+8.2 -- Opinion of Conyers, Dill & Pearman.
*10.1 -- Warrant Agreement, dated October 3, 1996, between RSL
Communications, Ltd., as Issuer, and The Chase Manhattan Bank, as
warrant agent.
*10.2 -- Warrant Registration Rights Agreement, dated October 3, 1996,
between RSL Communications, Ltd., as issuer, and The Chase
Manhattan Bank, as warrant agent.
*10.3 -- Amendment to the Revolving Credit Facility, dated August 20, 1996,
from The Chase Manhattan Bank to RSL Communications, Inc.
*10.4 -- Amendment to the Revolving Credit Facility, dated September 10,
1996, from The Chase Manhattan Bank to RSL Communications, Ltd.
*10.5 -- Subordinated Promissory Note, dated September 10, 1996, from RSL
Communications, Ltd. to Ronald S. Lauder.
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER+ DESCRIPTION
- -------- ---------------------------------------------------------------------
<S> <C>
*10.6 -- Warrant for 210,000 shares of Class B Common Stock of RSL
Communications, Ltd. issued to Ronald S. Lauder on September 10,
1996.
*10.7 -- Standby Facility Agreement, dated October 1, 1996, by and between
RSL Communications, Ltd. and Ronald S. Lauder.
*10.8 -- Consulting Agreement, dated September 15, 1995, between Eugene
Sekulow and RSL Communications, Inc.
*10.9 -- Amendment to Consulting Agreement, dated August 8, 1996, between
Eugene Sekulow and RSL Communications, Ltd.
*10.10 -- RSL Communications, Ltd.'s 1995 Amended and Restated Stock Option
Plan.
*10.11 -- Employment Agreement, dated September 15, 1995, between Itzhak
Fisher and International Telecommunications Group, Ltd.
*10.12 -- Employment Agreement, dated September 15, 1995, between Itzhak
Fisher and RSL Communications Inc.
*10.13 -- Employment Agreement, dated April 1, 1995, between Nir Tarlovsky
and International Telecommunications Group, Ltd.
*10.14 -- Employment Agreement, dated April 1, 1995, between Nir Tarlovsky
and RSL Communications Inc.
*10.15 -- Employment Agreement, dated August 9, 1995, between RSL COM Europe
Limited and Richard Williams.
*10.16 -- Memorandum of Agreement, dated July 30, 1996, between
International Telecommunications Corporation and Codetel.
*10.17 -- General Purchase Agreement, dated September 14, 1995, between
Ericsson Inc. and International Telecommunications Corporation.
*10.18 -- Lease Agreement between AB LM Ericsson Finans and International
Telecommunications Corporation.
*10.19 -- Lease Agreement, dated April 10, 1996, between RSL COM Europe Ltd.
and AB LM Ericsson Finans.
*10.20 -- Lease Agreement, dated December 30, 1996, between RSL COM Europe
Ltd. and AB LM Ericsson Finans.
*10.21 -- Loan and Security Agreement, dated September 8, 1995, between
Cyberlink Inc. and CoastFed Business Credit Corporation.
*10.22 -- Accounts Collateral Security Agreement, dated September 8, 1995,
between Cyberlink Inc. and CoastFed Business Credit Corporation.
*10.23 -- Equipment Collateral Security Agreement, dated September 8, 1995,
between Cyberlink Inc. and CoastFed Business Credit Corporation.
*10.24 -- Security Stock Pledge Agreement, dated September 8, 1995, between
CoastFed Business Credit Corporation and Cyberlink Inc.
*10.25 -- Security Agreement, dated September 8, 1995, between CoastFed
Business Credit Corporation and Cyberlink-California Inc.
*10.26 -- Security Agreement, dated September 8, 1995, between CoastFed
Business Credit Corporation and Cyberlink-Nevada Inc.
*10.27 -- Asset Purchase Agreement, dated as of May 8, 1996, by and between
RSL COM France S.A. and Sprint Telecommunications France Inc.
*10.28 -- Transition Services Agreement, dated May 8, 1996, by and among
Sprint Telecommunications France Inc., Sprint International France
S.A. and RSL COM France S.A.
*10.29 -- Transition Services Agreement, dated May 8, 1996, by and between
Sprint Communications Company L.P. and RSL COM France S.A.
</TABLE>
II-4
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER+ DESCRIPTION
- -------- ---------------------------------------------------------------------
<S> <C>
*10.30 -- Amendment No. 1 to the Transition Services Agreement, effective as
of May 8, 1996, among Sprint Communications Company L.P., Sprint
International France S.A. and RSL COM France S.A.
*10.31 -- Transition Services Agreement, dated May 8, 1996, by and between
Global One Communications World Operations, Limited and RSL COM
France S.A.
*10.32 -- Asset Purchase Agreement, dated as of May 8, 1996, by and among
Siena Vermogensverwaltungs-GmbH, Sprint Telecommunication Services
GmbH and Sprint Fon Inc.
*10.33 -- Transition Services Agreement, dated May 8, 1996, by and among
Sprint Telecommunication Services GmbH, Sprint Fon Inc. and Siena
Vermogensverwaltungs- GmbH.
*10.34 -- Transition Services Agreement, dated May 8, 1996, by and between
Sprint Communications Company L.P. and RSL COM Deutschland GmbH.
*10.35 -- Amendment No. 1 to the Transition Services Agreement, effective as
of May 8, 1996, among Sprint Communications Company L.P., Sprint
Telecommunication Services GmbH and RSL COM Deutschland GmbH.
*10.36 -- Transition Services Agreement, dated May 8, 1996, by and between
Global One Communications World Operations, Limited and Siena
Vermogensverwaltungs-GmbH.
*10.37 -- Asset Purchase Agreement, August 12, 1996, by and between RSL COM
UK Limited and Incom (UK) Ltd.
*10.38 -- Stock Purchase Agreement, dated July 3, 1996, between RSL
Communications Limited, Charles Piluso and International
Telecommunications Group, Ltd.
*10.39 -- Secured Promissory Note, dated September 9, 1996, from RSL
Communications PLC to Charles Piluso.
*10.40 -- Stock Pledge and Security Agreement, dated September 9, 1996
between RSL Communications PLC, Charles Piluso and Fletcher, Heald
& Hildreth, P.L.C.
*10.41 -- New Shareholders Agreement, dated September 9, 1996 among Charles
Piluso, Jacqueline and Victoria Piluso, Richard Rebetti, RSL
Communications PLC, RSL Communications, Ltd and International
Telecommunications Group, Ltd.
*10.42 -- Stock Purchase Agreement, dated September 9, 1996, between RSL
Communications PLC, Richard Rebetti, Jr. and International
Telecommunications Group, Ltd.
*10.43 -- Secured Promissory Note, dated September 9, 1996, from RSL
Communications PLC to Richard Rebetti.
*10.44 -- Stock Pledge and Security Agreement, dated September 9, 1996,
between RSL Communications PLC, Richard Rebetti, Jr. and Fletcher,
Heald & Hildreth, P.L.C.
*10.45 -- Agreement and Plan of Reorganization, dated September 9, 1996,
among RSL Communications PLC, RSL Communications, Ltd. and Charles
Piluso.
*10.46 -- Tax Agreement, dated September 9, 1996, between RSL Communications
PLC, RSL Communications, Ltd. and Charles Piluso.
*10.47 -- Stock Purchase Agreement, dated September 22, 1995, by and between
RSL Communications, Inc. and Charles Piluso.
*10.48 -- Stock Purchase Agreement, dated September 22, 1995, by and between
Richard Rebetti and RSL Communications, Inc.
*10.49 -- Amendment to the Stock Purchase Agreement, dated September 22,
1995, between and among International Telecommunications Group,
Ltd., International Telecommunications Corporation and RSL
Communications, Inc.
</TABLE>
II-5
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER+ DESCRIPTION
- -------- ---------------------------------------------------------------------
<S> <C>
*10.50 -- Stock Purchase Agreement, dated March 10, 1995, between RSL
Communication, Inc., International Telecommunications Group, Ltd.
and International Telecommunications Corporation.
*10.51 -- Amendment to Shareholders' Agreement, dated March 10, 1995,
between and among Charles Piluso, Richard Rebetti, Incom (UK)
Ltd., International Telecommunications Group, Ltd. and RSL
Communications, Inc.
*10.52 -- Indemnity Agreement, dated March 10, 1995, between and among
International Telecommunications Group, Ltd., International
Telecommunications Corporation and RSL Communications, Inc.
*10.53 -- Sublease, dated July 18, 1996, between RSL Communications, Ltd.
and RSL Management Corporation.
*10.54 -- Lease, dated as of January 15, 1997, between Longstreet Associates
L.P. and RSL COM U.S.A., Inc.
*10.55 -- Employment Agreement, dated January 31, 1997, between Roland T.
Mallcott and RSL Communications, Ltd.
*10.56 -- Amendment of Lease, dated as of December 6, 1995, between Hudson
Telegraph Associates and International Telecommunications
Corporation.
10.57 -- Shareholders Agreement of RSL Communications, Latin America, Ltd.,
dated August 4, 1997, between and among RSL Communications, Latin
America, Ltd., RSL Communications, Ltd. and Coral Gates
Investments Ltd.
10.58 -- Stockholders' Agreement, dated July 23, 1997, by and among Delta
Three, Inc., RSL Communications, Ltd., and the other shareholders
of Delta Three, Inc.
**10.59 -- Delta Three, Inc. Services Agreement.
+10.60 -- Employment Agreement, dated July 31, 1997, between Andrew C.
Shields and RSL Communications, Ltd.
10.61 -- Shareholders Agreement, dated October 10, 1996, between RSL COM
Europe, Limited, Gerard van Leest and Belnet Nederland B.V.
+10.62 -- Proposed RSL Communications, Ltd. 1997 Performance Incentive Plan.
+10.63 -- Proposed RSL Communications, Ltd. 1997 Stock Incentive Plan.
+10.64 -- Lease Agreement, dated June 19, 1997 for property at 430 Park
Avenue, New York, New York.
10.65 -- Stock Purchase Agreement of Delta Three, Inc.
10.66 -- Employment Agreement, dated September 2, 1997, between Itzhak
Fisher and RSL Communications, Ltd.
10.67 -- Employment Agreement, dated September 2, 1997, between Itzhak
Fisher and International Telecommunications Group, Ltd.
+10.68 -- Proposed RSL Communications Ltd. 1997 Directors Compensation Plan.
+10.69 Registration Rights Agreement, dated September 2, 1997, among RSL
Communications, Ltd., Ronald S. Lauder, Itzhak Fisher and Coral
Gate Investments Ltd.
+10.70 International Telecommunication Services Agreement, dated July 1,
1995, between International Telecommunications Corporation and
TELECOM Denmark.
+10.71 -- International Telecommunication Operating Agreement, dated July
15, 1995 between Telenor Carrier Services A.S. and International
Telecommunications Corporation.
+10.72 International Telecommunication Services Agreement, dated May 10,
1994, between Mercury Communications Limited and International
Telecommunications Corporation.
+10.73 Agreement Concerning Voice Distribution of International Telephony
Traffic, undated, between Unisource Carrier Services AG and
International Telecommunications Corporation.
</TABLE>
II-6
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER+ DESCRIPTION
- -------- ---------------------------------------------------------------------
<S> <C>
+10.74 International Telecommunications Service Agreement, dated May 31,
1994, between Compania Dominicana De Telefonos, C. Por A. and
International Telecommunications Corporation.
+10.75 Second Supplementary Agreement to the UK-Netherlands 14 Cable
System Construction & Maintenance Agreement, effective February
18, 1997, among the parties on the Annex thereto.
+10.76 Fourth Supplementary Agreement to the ODIN Construction and
Maintenance Agreement, dated October 24, 1996, among the parties
on the Annex thereto.
+10.77 Second Supplementary Agreement to Antillas I Construction &
Maintenance Agreement, dated February 13, 1997, among the parties
on the Annex thereto.
+10.78 Canus I Cable System Indefeasible Right of Use Agreement and
Financing Agreement, dated June 4, 1996, between Optel
Communications, Inc. and International Telecommunications
Corporation.
+10.79 Cantat-3 Cable System Indefeasible Right of Use Agreement and
Financing Agreement, dated March 12, 1996, between Teleglobe
Cantat-3 Inc. and International Telecommunications Corporation.
+10.80 PTAT-1 Submarine System Indefeasible Right of Use Agreement, dated
May 12, 1994, between Private Transatlantic Telecommunications
System, Inc. and International Telecommunications Corporation.
+10.81 Third Supplementary Agreement to the TAT-12/TAT-13 Cable Network
Construction and Maintenance Agreement, dated October 17, 1995,
among the parties on the Annex thereto.
+21.1 -- Subsidiaries of the Company.
+23.1 -- Consent of Deloitte & Touche LLP (included on page II-10).
+23.2 -- Consent of Brown, Leifer, Slatkin + Berns (included on page
II-11).
+23.3 -- Consent of Conyers, Dill & Pearman (included in Exhibits 5.1 and
8.2 hereto).
+23.4 -- Consent of Rosenman & Colin LLP (included in Exhibit 8.1 hereto).
24.1 -- Powers of Attorney (included in the signature pages to the
Registration Statement).
24.2 -- Power of Attorney for Leonard A. Lauder.
24.3 -- Power of Attorney for Gustavo Cisneros.
27.1 -- Financial Data Schedule.
99.1 -- Consent of Fred Langhammer as a nominee for director.
</TABLE>
- ------------------
+ Unless otherwise indicated, the exhibits have been previously filed as part
of this Registration Statement.
* Incorporated by reference to Registrant's Registration Statement on Form S-4
(Registration No. 333-25749).
** Confidential treatment has been requested with respect to certain
information contained in this exhibit.
+ Filed herewith.
++ Incorporated by reference to Registrant's Quarterly Report on Form 10-Q for
the quarter ended March 31, 1997.
(b) Financial Statement Schedules:
For the year ended December 31, 1996 and the six months ended June 30,
1997.
Schedule I--Condensed Financial Information of RSL Communications PLC
(included at page S-1).
Schedule II--Schedule of Valuation Allowances (included at page S-4).
II-7
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of New York, State of New
York on the 26th day of September, 1997.
RSL COMMUNICATIONS, LTD.
By: /s/ ITZHAK FISHER
-------------------------------------
Itzhak Fisher
President and Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, the
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ---------------------------- ---------------------------- ------------------
<S> <C> <C>
/s/ RONALD S. LAUDER* Chairman of the Board and September 26, 1997
- ---------------------------- Director
(Ronald S. Lauder)
/s/ ITZHAK FISHER President, Chief Executive September 26, 1997
- ---------------------------- Officer and Director
(Itzhak Fisher) (Principal Executive
Officer)
/s/ ANDREW GASPAR* Vice Chairman and Director September 26, 1997
- ----------------------------
(Andrew Gaspar)
/s/ JACOB Z. SCHUSTER* Chief Financial Officer, September 26, 1997
- ---------------------------- Executive Vice President,
(Jacob Z. Schuster) Assistant Secretary,
Treasurer and Director
(Principal Financial
Officer)
</TABLE>
II-8
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ---------------------------- ---------------------------- ------------------
<S> <C> <C>
/s/ MARK J. HIRSCHHORN* Vice President-Finance, September 26, 1997
- ---------------------------- Global Controller and
(Mark J. Hirschhorn) Assistant Secretary
(Principal Accounting
Officer)
/s/ GUSTAVO CISNEROS* Director September 26, 1997
- ----------------------------
(Gustavo Cisneros)
/s/ LEONARD A. LAUDER* Director September 26, 1997
- ----------------------------
(Leonard A. Lauder)
/s/ NICOLAS G. TROLLOPE* Director September 26, 1997
- ----------------------------
(Nicolas G. Trollope)
/s/ EUGENE SEKULOW* Director September 26, 1997
- ----------------------------
(Eugene Sekulow)
/s/ FRED H. LANGHAMMER Director September 26, 1997
- ----------------------------
(Fred H. Langhammer)
* By /s/ ITZHAK FISHER
-----------------------
ITZHAK FISHER
AS ATTORNEY-IN-FACT
</TABLE>
II-9
<PAGE>
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Amendment No. 2 to Registration Statement No.
333-34281 of RSL Communications, Ltd. on Form S-1 of our report dated September
19, 1997 relating to the consolidated financial statements of RSL
Communications, Ltd. and subsidiaries and of our reports dated March 14, 1997
relating to the consolidated financial statements of International
Telecommunications Group, Ltd. and subsidiaries, appearing in the Prospectus,
which is part of this Registration Statement, and of our report dated September
19, 1997 relating to the consolidated financial statement schedules of RSL
Communications, Ltd. and subsidiaries appearing elsewhere in this Registration
Statement.
We also consent to the reference to us under the headings 'Selected Financial
Data' and 'Experts' in such Prospectus.
DELOITTE & TOUCHE LLP
New York, New York
September 26, 1997
II-10
<PAGE>
INDEPENDENT AUDITORS CONSENT
We consent to the use in this Amendment No. 2 to the Registration Statement No.
333-34281 of RSL Communications, Ltd. on Form S-1 of our report dated August 30,
1996 on Cyberlink, Inc. and subsidiaries appearing in the Prospectus, which is
part of this Amendment No. 2 to the Registration Statement.
We also consent to the reference to us under the heading 'Experts' in such
Prospectus.
BROWN, LEIFER, SLATKIN + BERNS
Studio City, California
September 26, 1997
II-11
<PAGE>
SCHEDULE I
CONDENSED FINANCIAL INFORMATION OF
RSL COMMUNICATIONS PLC
BALANCE SHEETS
AS OF DECEMBER 31, 1996
AND JUNE 30, 1997
($ IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31, 1996 JUNE 30, 1997
----------------- -------------
<S> <C> <C>
ASSETS
Current Assets.......................... $ 201,734 $ 178,260
Marketable Securities--Held to
maturity.............................. 104,370 84,728
Property and Equipment.................. 31,941 37,641
Other Assets............................ 88,820 119,890
----------------- -------------
Total................................. $ 426,865 $ 420,519
----------------- -------------
----------------- -------------
LIABILITIES AND SHAREHOLDERS' DEFICIENCY
Current Liabilities..................... $ 74,948 $ 91,081
Long Term Debt.......................... 94,556 87,728
Senior Notes, 12 1/4% Due 2006.......... 300,000 300,000
Shareholders' Deficiency................ (42,639) (58,290)
----------------- -------------
Total................................. $ 426,865 $ 420,519
----------------- -------------
----------------- -------------
</TABLE>
S-1
<PAGE>
SCHEDULE I (CONTINUED)
RSL COMMUNICATIONS PLC
CONDENSED STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996
AND FOR THE SIX MONTHS ENDED JUNE 30, 1997
($ IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED ENDED
DECEMBER 31, JUNE 30,
1996 1997
------------ ----------
<S> <C> <C>
Revenues..................................... $113,257 $102,175
Cost of Services............................. 98,461 90,180
------------ ----------
Gross Profit............................ 14,796 11,995
Expenses..................................... 41,619 39,487
------------ ----------
Loss from Operations......................... (26,823) (27,492)
Interest Expense............................. (7,384) (19,542)
Interest Income.............................. -- 7,115
Other (Expense) Income--Net.................. (285) 6,874
Foreign Currency Transaction Gain (Loss)..... 758 (107)
Minority Interest............................ (180) (229)
Income Taxes................................. (395) (357)
------------ ----------
Net Loss................................ $(34,309) $(33,738)
------------ ----------
------------ ----------
</TABLE>
S-2
<PAGE>
SCHEDULE I (CONTINUED)
RSL COMMUNICATIONS PLC
CONDENSED STATEMENTS OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1996
AND FOR THE SIX MONTHS ENDED
JUNE 30, 1997
($ IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED ENDED
DECEMBER 31, JUNE 30,
1996 1997
------------ -----------
<S> <C> <C>
Net Loss..................................... $ (34,309) $ (33,738)
Depreciation and amortization................ 6,618 7,268
Working capital change and other............. 16,911 26,370
------------ -----------
Net cash used in operating activities... (10,780) (100)
------------ -----------
Purchases of Property and Equipment.......... (15,983) (7,206)
Acquisitions of Subsidiaries................. (38,552) (4,017)
Purchase of Marketable Securities............ (82,529) --
Proceeds from Sales of Marketable
Securities................................. 14,701 --
Purchase of Restricted Marketable
Securities................................. (102,808) --
Other........................................ 171 131
------------ -----------
Net cash used in investing activities... (225,000) (11,092)
------------ -----------
Proceeds from notes payable.................. 300,000 --
Advances from Parent......................... 51,362 --
Repayment to Parent.......................... -- (8,235)
Offering Cost and Other...................... (11,969) (2,767)
------------ -----------
Net cash provided by (used in) financing
activities............................. 339,393 (11,002)
------------ -----------
Net increase (decrease) in cash......... 103,613 (22,194)
Effect of Foreign Currency on Cash...... -- (889)
Cash and cash equivalents at beginning
of period.............................. -- 103,613
------------ -----------
Cash and cash equivalents at end of
period................................. $ 103,613 $ 80,530
------------ -----------
------------ -----------
</TABLE>
S-3
<PAGE>
SCHEDULE II
SCHEDULE OF VALUATION ALLOWANCES
<TABLE>
<CAPTION>
BALANCE AT CHARGED TO CHARGED TO BALANCE AT
JANUARY 1, COSTS AND OTHER JUNE 30,
1997 EXPENSES ACCOUNTS DEDUCTIONS 1997
---------- ---------- ---------- ----------- ----------
<S> <C> <C> <C> <C> <C>
Bad debt provision... $3,881,474 $2,468,193 $ -- $(2,399,106) $3,950,561
</TABLE>
<TABLE>
<CAPTION>
BALANCE AT CHARGED TO CHARGED TO BALANCE AT
JANUARY 1, COSTS AND OTHER DECEMBER 31,
1996 EXPENSES ACCOUNTS DEDUCTIONS 1996
---------- ---------- ---------- ---------- ------------
<S> <C> <C> <C> <C> <C>
Bad debt provision... $1,595,766 $2,829,578 -- $ (543,870) $3,881,474
</TABLE>
<TABLE>
<CAPTION>
BALANCE AT CHARGED TO CHARGED TO BALANCE AT
JANUARY 1, COSTS AND OTHER DECEMBER 31,
1995 EXPENSES ACCOUNTS(1) DEDUCTIONS 1995
---------- ---------- ----------- ---------- ------------
<S> <C> <C> <C> <C> <C>
Bad debt provision... -- $ 148,690 $ 1,447,076 -- $1,595,766
</TABLE>
- ------------------
(1) The bad debt provision was previously recorded in the financial statements
of RSL Communications, Ltd.'s (the 'Company') predecessor, International
Telecommunications Group, Ltd. ('ITG'). The Company began consolidating ITG
effective with its acquisition of interests in ITG in September 1996.
S-4
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER+ DESCRIPTION PAGE
- -------- --------------------------------------------------------------- ----
<S> <C>
1.1 -- Underwriting Agreement.
*3.1 -- Certificate of Incorporation of RSL Communications, Ltd.,
issued by the Bermuda Registrar of Companies on March 14,
1996.
*3.2 -- Memorandum of Association of RSL Communications, Ltd., filed
with the Bermuda Registrar of Companies on March 14, 1996.
+3.3 -- Bye-Laws of RSL Communications, Ltd. (as amended through
September 2, 1997).
*4.1 -- Placement Agreement, dated as of September 30, 1996, by and
among RSL Communications PLC, RSL Communications, Ltd. and
Morgan Stanley & Co. Incorporated, Bear Stearns Co. Inc. and
Dillon Read & Co. Inc.
*4.2 -- Indenture, dated October 3, 1996, by and among RSL
Communications PLC, RSL Communications, Ltd. and The Chase
Manhattan Bank, as Trustee, containing, as exhibits,
specimens of 12 1/4% Senior Notes due 2006.
*4.3 -- Notes Registration Rights Agreement, dated October 3, 1996,
by and among RSL Communications PLC, RSL Communications,
Ltd. and the Placement Agents.
*4.4 -- Note Deposit Agreement, dated October 3, 1996, by and among
RSL Communications PLC, RSL Communications, Ltd. and The
Chase Manhattan Bank, as Book Entry Depositary.
*4.5 -- Collateral Pledge and Security Agreement, dated October 3,
1996, by and among RSL Communications PLC and Trustee.
*4.6 -- Form of Letter of Transmittal.
++4.7 -- Form of 12 1/4% Senior Note due 2006.
4.8 -- Form of Class A Common Share Certificate.
+5.1 -- Opinion of Conyers, Dill and Pearman.
+8.1 -- Opinion of Rosenman & Colin LLP.
+8.2 -- Opinion of Conyers, Dill & Pearman.
*10.1 -- Warrant Agreement, dated October 3, 1996, between RSL
Communications, Ltd., as Issuer, and The Chase Manhattan
Bank, as warrant agent.
*10.2 -- Warrant Registration Rights Agreement, dated October 3,
1996, between RSL Communications, Ltd., as issuer, and The
Chase Manhattan Bank, as warrant agent.
*10.3 -- Amendment to the Revolving Credit Facility, dated August 20,
1996, from The Chase Manhattan Bank to RSL Communications,
Inc.
*10.4 -- Amendment to the Revolving Credit Facility, dated September
10, 1996, from The Chase Manhattan Bank to RSL
Communications, Ltd.
*10.5 -- Subordinated Promissory Note, dated September 10, 1996, from
RSL Communications, Ltd. to Ronald S. Lauder.
*10.6 -- Warrant for 210,000 shares of Class B Common Stock of RSL
Communications, Ltd. issued to Ronald S. Lauder on September
10, 1996.
*10.7 -- Standby Facility Agreement, dated October 1, 1996, by and
between RSL Communications, Ltd. and Ronald S. Lauder.
*10.8 -- Consulting Agreement, dated September 15, 1995, between
Eugene Sekulow and RSL Communications, Inc.
*10.9 -- Amendment to Consulting Agreement, dated August 8, 1996,
between Eugene Sekulow and RSL Communications, Ltd.
*10.10 -- RSL Communications, Ltd.'s 1995 Amended and Restated Stock
Option Plan.
*10.11 -- Employment Agreement, dated September 15, 1995, between
Itzhak Fisher and International Telecommunications Group,
Ltd.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER+ DESCRIPTION PAGE
- -------- --------------------------------------------------------------- ----
<S> <C>
*10.12 -- Employment Agreement, dated September 15, 1995, between
Itzhak Fisher and RSL Communications Inc.
*10.13 -- Employment Agreement, dated April 1, 1995, between Nir
Tarlovsky and International Telecommunications Group, Ltd.
*10.14 -- Employment Agreement, dated April 1, 1995, between Nir
Tarlovsky and RSL Communications Inc.
*10.15 -- Employment Agreement, dated August 9, 1995, between RSL COM
Europe Limited and Richard Williams.
*10.16 -- Memorandum of Agreement, dated July 30, 1996, between
International Telecommunications Corporation and Codetel.
*10.17 -- General Purchase Agreement, dated September 14, 1995,
between Ericsson Inc. and International Telecommunications
Corporation.
*10.18 -- Lease Agreement between AB LM Ericsson Finans and
International Telecommunications Corporation.
*10.19 -- Lease Agreement, dated April 10, 1996, between RSL COM
Europe Ltd. and AB LM Ericsson Finans.
*10.20 -- Lease Agreement, dated December 30, 1996, between RSL COM
Europe Ltd. and AB LM Ericsson Finans.
*10.21 -- Loan and Security Agreement, dated September 8, 1995,
between Cyberlink Inc. and CoastFed Business Credit
Corporation.
*10.22 -- Accounts Collateral Security Agreement, dated September 8,
1995, between Cyberlink Inc. and CoastFed Business Credit
Corporation.
*10.23 -- Equipment Collateral Security Agreement, dated September 8,
1995, between Cyberlink Inc. and CoastFed Business Credit
Corporation.
*10.24 -- Security Stock Pledge Agreement, dated September 8, 1995,
between CoastFed Business Credit Corporation and Cyberlink
Inc.
*10.25 -- Security Agreement, dated September 8, 1995, between
CoastFed Business Credit Corporation and
Cyberlink-California Inc.
*10.26 -- Security Agreement, dated September 8, 1995, between
CoastFed Business Credit Corporation and Cyberlink-Nevada
Inc.
*10.27 -- Asset Purchase Agreement, dated as of May 8, 1996, by and
between RSL COM France S.A. and Sprint Telecommunications
France Inc.
*10.28 -- Transition Services Agreement, dated May 8, 1996, by and
among Sprint Telecommunications France Inc., Sprint
International France S.A. and RSL COM France S.A.
*10.29 -- Transition Services Agreement, dated May 8, 1996, by and
between Sprint Communications Company L.P. and RSL COM
France S.A.
*10.30 -- Amendment No. 1 to the Transition Services Agreement,
effective as of May 8, 1996, among Sprint Communications
Company L.P., Sprint International France S.A. and RSL COM
France S.A.
*10.31 -- Transition Services Agreement, dated May 8, 1996, by and
between Global One Communications World Operations, Limited
and RSL COM France S.A.
*10.32 -- Asset Purchase Agreement, dated as of May 8, 1996, by and
among Siena Vermogensverwaltungs-GmbH, Sprint
Telecommunication Services GmbH and Sprint Fon Inc.
*10.33 -- Transition Services Agreement, dated May 8, 1996, by and
among Sprint Telecommunication Services GmbH, Sprint Fon
Inc. and Siena Vermogensverwaltungs- GmbH.
*10.34 -- Transition Services Agreement, dated May 8, 1996, by and
between Sprint Communications Company L.P. and RSL COM
Deutschland GmbH.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER+ DESCRIPTION PAGE
- -------- --------------------------------------------------------------- ----
<S> <C>
*10.35 -- Amendment No. 1 to the Transition Services Agreement,
effective as of May 8, 1996, among Sprint Communications
Company L.P., Sprint Telecommunication Services GmbH and RSL
COM Deutschland GmbH.
*10.36 -- Transition Services Agreement, dated May 8, 1996, by and
between Global One Communications World Operations, Limited
and Siena Vermogensverwaltungs-GmbH.
*10.37 -- Asset Purchase Agreement, August 12, 1996, by and between
RSL COM UK Limited and Incom (UK) Ltd.
*10.38 -- Stock Purchase Agreement, dated July 3, 1996, between RSL
Communications Limited, Charles Piluso and International
Telecommunications Group, Ltd.
*10.39 -- Secured Promissory Note, dated September 9, 1996, from RSL
Communications PLC to Charles Piluso.
*10.40 -- Stock Pledge and Security Agreement, dated September 9, 1996
between RSL Communications PLC, Charles Piluso and Fletcher,
Heald & Hildreth, P.L.C.
*10.41 -- New Shareholders Agreement, dated September 9, 1996 among
Charles Piluso, Jacqueline and Victoria Piluso, Richard
Rebetti, RSL Communications PLC, RSL Communications, Ltd and
International Telecommunications Group, Ltd.
*10.42 -- Stock Purchase Agreement, dated September 9, 1996, between
RSL Communications PLC, Richard Rebetti, Jr. and
International Telecommunications Group, Ltd.
*10.43 -- Secured Promissory Note, dated September 9, 1996, from RSL
Communications PLC to Richard Rebetti.
*10.44 -- Stock Pledge and Security Agreement, dated September 9,
1996, between RSL Communications PLC, Richard Rebetti, Jr.
and Fletcher, Heald & Hildreth, P.L.C.
*10.45 -- Agreement and Plan of Reorganization, dated September 9,
1996, among RSL Communications PLC, RSL Communications, Ltd.
and Charles Piluso.
*10.46 -- Tax Agreement, dated September 9, 1996, between RSL
Communications PLC, RSL Communications, Ltd. and Charles
Piluso.
*10.47 -- Stock Purchase Agreement, dated September 22, 1995, by and
between RSL Communications, Inc. and Charles Piluso.
*10.48 -- Stock Purchase Agreement, dated September 22, 1995, by and
between Richard Rebetti and RSL Communications, Inc.
*10.49 -- Amendment to the Stock Purchase Agreement, dated September
22, 1995, between and among International Telecommunications
Group, Ltd., International Telecommunications Corporation
and RSL Communications, Inc.
*10.50 -- Stock Purchase Agreement, dated March 10, 1995, between RSL
Communication, Inc., International Telecommunications Group,
Ltd. and International Telecommunications Corporation.
*10.51 -- Amendment to Shareholders' Agreement, dated March 10, 1995,
between and among Charles Piluso, Richard Rebetti, Incom
(UK) Ltd., International Telecommunications Group, Ltd. and
RSL Communications, Inc.
*10.52 -- Indemnity Agreement, dated March 10, 1995, between and among
International Telecommunications Group, Ltd., International
Telecommunications Corporation and RSL Communications, Inc.
*10.53 -- Sublease, dated July 18, 1996, between RSL Communications,
Ltd. and RSL Management Corporation.
*10.54 -- Lease, dated as of January 15, 1997, between Longstreet
Associates L.P. and RSL COM U.S.A., Inc.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER+ DESCRIPTION PAGE
- -------- --------------------------------------------------------------- ----
<S> <C>
*10.55 -- Employment Agreement, dated January 31, 1997, between Roland
T. Mallcott and RSL Communications, Ltd.
*10.56 -- Amendment of Lease, dated as of December 6, 1995, between
Hudson Telegraph Associates and International
Telecommunications Corporation.
10.57 -- Shareholders Agreement of RSL Communications, Latin America,
Ltd., dated August 4, 1997, between and among RSL
Communications, Latin America, Ltd., RSL Communications,
Ltd. and Coral Gates Investments Ltd.
10.58 -- Stockholders' Agreement, dated July 23, 1997, by and among
Delta Three, Inc., RSL Communications, Ltd., and the other
shareholders of Delta Three, Inc.
**10.59 -- Delta Three, Inc. Services Agreement.
+10.60 -- Employment Agreement, dated July 31, 1997, between Andrew C.
Shields and RSL Communications, Ltd.
10.61 -- Shareholders Agreement, dated October 10, 1996, between RSL
COM Europe, Limited, Gerard van Leest and Belnet Nederland
B.V.
+10.62 -- Proposed RSL Communications, Ltd. 1997 Performance Incentive
Plan.
+10.63 -- Proposed RSL Communications, Ltd. 1997 Stock Incentive Plan.
+10.64 -- Lease Agreement, dated June 19, 1997 for property at 430
Park Avenue, New York, New York.
10.65 -- Stock Purchase Agreement of Delta Three, Inc.
10.66 -- Employment Agreement, dated September 2, 1997, between
Itzhak Fisher and RSL Communications, Ltd.
10.67 -- Employment Agreement, dated September 2, 1997, between
Itzhak Fisher and International Telecommunications Group,
Ltd.
+10.68 -- Proposed RSL Communications Ltd. 1997 Directors Compensation
Plan.
+10.69 Registration Rights Agreement, dated September 2, 1997,
among RSL Communications, Ltd., Ronald S. Lauder, Itzhak
Fisher and Coral Gate Investments Ltd.
+10.70 International Telecommunication Services Agreement, dated
July 1, 1995, between International Telecommunications
Corporation and TELECOM Denmark.
+10.71 International Telecommunication Operating Agreement, dated
July 15, 1995 between Telenor Carrier Services A.S. and
International Telecommunications Corporation.
+10.72 International Telecommunication Services Agreement, dated
May 10, 1994, between Mercury Communications Limited and
International Telecommunications Corporation.
+10.73 Agreement Concerning Voice Distribution of International
Telephony Traffic, undated, between Unisource Carrier
Services AG and International Telecommunications
Corporation.
+10.74 International Telecommunications Service Agreement, dated
May 31, 1994, between Compania Dominicana De Telefonos, C.
Por A. and International Telecommunications Corporation.
+10.75 Second Supplementary Agreement to the UK-Netherlands 14
Cable System Construction & Maintenance Agreement, effective
February 18, 1997, among the parties on the Annex thereto.
+10.76 Fourth Supplementary Agreement to the ODIN Construction and
Maintenance Agreement, dated October 24, 1996, among the
parties on the Annex thereto.
+10.77 Second Supplementary Agreement to Antillas I Construction &
Maintenance Agreement, dated February 13, 1997, among the
parties on the Annex thereto.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER+ DESCRIPTION PAGE
- -------- --------------------------------------------------------------- ----
<S> <C>
+10.78 Canus I Cable System Indefeasible Right of Use Agreement and
Financing Agreement, dated June 4, 1996, between Optel
Communications, Inc. and International Telecommunications
Corporation.
+10.79 Cantat-3 Cable System Indefeasible Right of Use Agreement
and Financing Agreement, dated March 12, 1996, between
Teleglobe Cantat-3 Inc. and International Telecommunications
Corporation.
+10.80 PTAT-1 Submarine System Indefeasible Right of Use Agreement,
dated May 12, 1994, between Private Transatlantic
Telecommunications System, Inc. and International
Telecommunications Corporation.
+10.81 Third Supplementary Agreement to the TAT-12/TAT-13 Cable
Network Construction and Maintenance Agreement, dated
October 17, 1995, among the parties on the Annex thereto.
+21.1 -- Subsidiaries of the Company.
+23.1 -- Consent of Deloitte & Touche LLP (included on page II-10).
+23.2 -- Consent of Brown, Leifer, Slatkin + Berns (included on page
II-11).
+23.3 -- Consent of Conyers, Dill & Pearman (included in Exhibits 5.1
and 8.2 hereto).
+23.4 -- Consent of Rosenman & Colin LLP (included in Exhibit 8.1
hereto).
24.1 -- Powers of Attorney (included in the signature pages to the
Registration Statement).
24.2 -- Power of Attorney for Leonard A. Lauder.
24.3 -- Power of Attorney for Gustavo Cisneros.
27.1 -- Financial Data Schedule.
99.1 -- Consent of Fred Langhammer as a nominee for director.
</TABLE>
- ------------------
+ Unless otherwise indicated, the exhibits have been previously filed as part
of this Registration Statement.
* Incorporated by reference to Registrant's Registration Statement on Form S-4
(Registration No. 333-25749).
** Confidential treatment has been requested with respect to certain
information contained in this exhibit.
+ Filed herewith.
++ Incorporated by reference to Registrant's Quarterly Report on Form 10-Q for
the quarter ended March 31, 1997.
<PAGE>
EX 3.3
BYE-LAWS
of
RSL Communications, Ltd.
TABLE OF CONTENTS
Bye-Law Page
1 Interpretation 1
2 Board of Directors 3
3 Management of the Company 3
4 Power to appoint managing director or chief executive officer 3
5 Power to appoint manager 4
6 Power to authorize specific actions 4
7 Power to appoint attorney 4
8 Executive Committee and Other Committees 4
9 Power to appoint and dismiss employees 6
10 Power to borrow and charge property 6
11 Exercise of power to purchase shares of or
discontinue the Company 6
12 Election of Directors 7
13 Defects in appointment of Directors 7
14 Alternate Directors 7
15 Removal of Directors 8
16 Vacancies on the Board 8
17 Notice of meetings of the Board 9
18 Quorum at meetings of the Board 10
19 Meetings of the Board 10
20 Unanimous written resolutions 10
21 Contracts and disclosure of Directors' interests 10
22 Remuneration of Directors 11
23 Officers of the Company 11
24 Appointment of Officers 12
25 Remuneration of Officers 12
26 Duties of Officers 12
27 Chairman of meetings 12
28 Register of Directors and Officers 12
29 Obligations of Board to keep minutes 13
30 Idemnification of Directors and Officers of the Company 14
31 Waiver of claim by Member 14
32 Notice of annual general meeting 15
33 Notice of special general meeting 15
34 Accidental omission of notice of general meeting 15
35 Meeting called on requisition of members 16
<PAGE>
(ii)
36 Short notice 16
37 Postponement of meetings 16
38 Quorum for general meeting 16
39 Adjournment of meetings 17
40 Attendance at meetings 17
41 Written resolutions 17
42 Attendance of Directors 18
43 Voting at meetings 19
44 Voting on show of hands 19
45 Decision of chairman 19
46 Demand for a poll 19
47 Seniority of joint holders voting 21
48 Instrument of proxy 21
49 Representation of corporations at meetings 22
50 Rights of shares 22
51 Power to issue shares 25
51A Warrants 27
52 Variation of rights, alteration of share capital and purchase
of shares of the Company 27
53 Registered holder of shares 28
54 Death of a joint holder 28
55 Share certificates 29
56 Calls on shares 29
57 Forfeiture of Shares 30
58 Contents of Register of Members 30
59 Inspection of Register of Members 31
60 Determination of record dates 31
61 Instrument of transfer 31
62 Restriction on Transfer 32
63 Transfers by joint holders 32
64 Representative of deceased Member 32
65 Registration on death or bankruptcy 33
66 Declaration of dividends by Board 33
67 Other distributions 34
68 Reserve fund 34
69 Deduction of amounts due to the Company 34
70 Issue of bonus shares 34
71 Records of account 35
72 Financial year end 35
73 Financial statements 35
<PAGE>
(iii)
74 Appointment of Auditor 36
75 Remuneration of Auditor 36
76 Vacation of office of Auditor 36
77 Access to books of the Company 36
78 Report of the Auditor 36
79 Notices to Members of the Company 37
80 Notices to joint Members 37
81 Service and delivery of notice 37
82 The seal 38
83 Manner in which seal is to be affixed 38
84 Winding-up/distribution by liquidator 38
85 Alteration of Bye-laws 39
<PAGE>
INTERPRETATION
1.Interpretation
(1) In these Bye-laws the following words and expressions shall,
where not inconsistent with the context, have the following meanings
respectively:-
(a) "Act" means the Companies Act 1981 as amended from time to
time;
(b) "Alternate Director" means an alternate Director appointed
in accordance with these Bye-laws;
(c) "Auditor" includes any individual or partnership;
(d) "Board" means the Board of Directors appointed or elected
pursuant to these Bye-laws and acting by resolution in
accordance with the Act and these Bye-laws or the Directors
present at a meeting of Directors at which there is a
quorum;
(e) "Company" means the company for which these Bye-laws are
approved and confirmed;
(f) "Director" means a director of the Company and shall include
an Alternate Director;
(g) "Member" means the person registered in the Register of
Members as the holder of shares in the Company and, when two
or more persons are so registered as joint holders of
shares, means the person whose name stands first in the
Register of Members as one of such joint holders or all of
such persons as the context so requires;
(h) "notice" means written notice as further defined in these
Bye-laws unless otherwise specifically stated;
(i) "Officer" means any person appointed by the Board to hold an
office in the Company;
(j) "Register of Directors and Officers" means the Register of
Directors and Officers referred to in these Bye-laws;
<PAGE>
-2-
(k) "Register of Members" means the Register of Members referred
to in these Bye-laws; and
(l) "Secretary" means the person appointed to perform any or all
the duties of secretary of the Company and includes any
deputy or assistant secretary.
(2) In these Bye-laws, where not inconsistent with the context:-
(a) words denoting the plural number include the singular number
and vice versa;
(b) words denoting the masculine gender include the feminine
gender;
(c) words importing persons include companies, associations or
bodies of persons whether corporate or not;
(d) the word:-
(i) "may" shall be construed as permissive;
(ii) "shall" shall be construed as imperative; and
(e) unless otherwise provided herein words or expressions
defined in the Act shall bear the same meaning in these
Bye-laws.
(3) Expressions referring to writing or written shall, unless the
contrary intention appears, include facsimile, printing, lithography,
photography and other modes of representing words in a visible form.
(4) Headings used in these Bye-laws are for convenience only and are
not to be used or relied upon in the construction hereof.
<PAGE>
-3-
BOARD OF DIRECTORS
2. Board of Directors
The business of the Company shall be managed and conducted by the
Board.
3. Management of the Company
(1) In managing the business of the Company, the Board may exercise
all such powers of the Company as are not, by statute or by these Bye-laws,
required to be exercised by the Company in general meeting subject,
nevertheless, to these Bye-laws, the provisions of any statute and to such
regualations as may be prescribed by the Company in general meeting.
(2) No regulation or alteration to these Bye-laws made by the
Company in general meeting shall invalidate any prior act of the Board which
would have been valid if that regulation or alteration had not been made.
(3) The Board may procure that the Company pays all expenses incurred
in promoting and incorporating the Company.
4. Power to appoint managing director or chief executive officer
The Board may from time to time appoint one or more Directors to the
office of managing director or chief executive officer of the Company who shall,
subject to the control of the Board, supervise and administer all of the general
business and affairs of the Company.
<PAGE>
-4-
5. Power to appoint manager
The Board may appoint a person to act as manager of the Company's day
to day business and may entrust to and confer upon such manager such powers and
duties as it deems appropriate for the transaction or conduct of such business.
6. Power to authorise specific actions
The Board may from time to time and at any time authorise any company,
firm, person or body of persons to act on behalf of the Company for any specific
purpose and in connection therewith to execute any agreement, document or
instrument on behalf of the Company.
7. Power to apopint attorney
The Board may from time to time and at any time by power of attorney
appoint any company, firm, person or body of persons, whether nominated directly
or indirectly by the Board, to be an attorney of the Company for such purposes
and with such powers, authorities and discretions (not exceeding those vested in
or exercisable by the Board) and for such period and subject to such conditions
as it may think fit and any such power of attorney may contain such provisions
for the protection and convenience of persons dealing with any such attorney as
the Board may think fit and may also authorise any such attorney to sub-delegate
all or any of the powers, authorities and discretions so vested in the attorney.
Such attorney may, if so authorised under the seal of the Company, execute any
deed or instrument under such attorney's personal seal with the same effect as
the affixation of the seal of the Company.
8. Executive Committee and Other Committees
(1) The Board may designate one or more Committees, including an
Executive Committee, each such Committee to consist of such number of Directors
as from
<PAGE>
-5-
time to time may be fixed by the Board. Any such Committee may be
abolished or redesignated from time to time by the Board. Each member of any
such Committee shall hold office until his or her successor shall have been
designated or he or she shall cease to be a Director, or until his or her
earlier death, resignation or removal.
(2) During the intervals between the meetings of the Board, the
Executive Committee, except as otherwise provided in this Bye-law, shall have
and may exercise all the powers and authority of the Board in the management of
the business of the Company. Each such other Committee may exercise such powers
of the Board as may be provided by resolution of the Board. Neither the
Executive Committee nor any such other Committee shall have the power or
authority to:
(a) amend the Company's Memorandum of Association or Bye-laws;
(b) adopt an agreement of merger or consolidation or approve the
sale, lease or exchange of all or substantially all of the
Company's property and assets; or
(c) approve or recommend to the Members a dissolution of the
Company.
The members of the Executive Committee shall be unless changed in
accordance with Bye-law 8(1): Itzhak Fisher, Andrew Gaspar, Ronald S Lauder,
Jacob Z Schuster and Eugene Sekulow.
(3) Each such Committee may fix its own rules of procedures and
may meet at such place, and such time, and upon such notice if any, as it shall
determine from time to time. The presence of a majority of the authorised
members of a Committee shall constitute a quorum for the transaction of
business.
<PAGE>
-6-
The act of the majority of the members present at any meeting at which
a quorum is present shall be the act of such Committee. Any action required or
permitted to be taken at any meeting of any such Committee may be taken without
a meeting, if all members of such Committee shall consent to such action in
writing. Members of any Committee may participate in a meeting of such Committee
by means of conference telephone or similar communications equipment by means of
which all persons participating in a meeting can hear each other, and
participating in a meeting pursuant to this provision shall constitute presence
in person at such meeting.
9. Power to appoint and dismiss employees
The Board may appoint, suspend or remove any manager, secretary,
clerk, agent or employee of the Company and may fix their remuneration and
determine their duties.
10. Power to borrow and charge property
The Board may exercise all the powers of the Company to borrow money
and to mortgage or charge its undertaking, property and uncalled capital, or any
part thereof, and may issue debentures, debenture sotck and other securities
whether outright or as security for any debt, liability or obligation of the
Company or any third party.
11. Exercise of power to purchase shares of or discontinue the Company
(1) The Board may exercise all the powers of the Company to
purchase all or any part of its own shares pursuant to Section 42A of the Act.
(2) The Board may exercise all the powers of the Company to
discontinue the Company to a named country or jurisdiction outside Bermuda
pursuant to Section 132G of the Act.
<PAGE>
-7-
12. Election of Directors
The Board shall consist of not less than two Directors or such number
in excess thereof as the Members may from time to time determine who shall be
elected or appointed in the first place at the statutory meeting of the Company
and thereafter, except in the case of casual vacancy, at the annual general
meeting or at any special general meeting called for the purpose and who shall
hold office for such term as the Members may determine or, in the absence of
such determination, until the next annual general meeting or until their
successors are elected or appointed or their office is otherwise vacated, and
any general meeting may authorise the Board to fill any vacancy in their number
left unfilled at a general meeting.
13. Defects in appointment of Directors
All acts done bona fide by any meeting of the Board or by a committee
of the Board or by any person acting as a Director shall, notwithstanding that
it be afterwards discovered that there was some defect in the appointment of any
Director or person acting as aforesaid, or that they or any of them were
disqualified, be as valid as if every such person had been duly appointed and
was qualified to be a Director.
14. Alternate Directors
(1) Any general meeting of the Company may elect a person or
persons to act as a Director in the alternative to any one or more of the
Directors of the Company or may authorise the Board to appoint such Alternate
Directors. Unless the Members otherwise resolve, any Director may appoint a
person or persons to act as a Director in the alternative to himself or herself
by notice in writing deposited with the Secretary. Any person so appointed shall
have all the rights and powers of the Director or Directors for whom such person
is appointed in the alternative provided that such person shall not be counted
more than once in determining whether or not a quorum is present.
<PAGE>
-8-
(2) An Alternate Director shall be entitled to receive notice
of all meetings of the Board and to attend and vote at any such meeting at which
a Director for whom such Alternate Director was appointed in the alternative is
not personally present and generally to perform at such meeting all the
functions of such Director for whom such Alternate Director was appointed.
(3) An Alternate Director shall cease to be such if the Director for
whom such Alternate Director was appointed ceases for any reason to be a
Director but may be re-appointed by the Board as alternate to the person
appointed to fill the vacancy in accordance with these Bye-laws.
15. Removal of Directors
(1) Subject to any provision to the contrary in these Bye-laws, the
Members may, at any special general meeting convened and held in accordance with
these Bye-laws, remove a Director provided that the notice of any such meeting
convened for the purpose of removing a Director shall contain a statement of the
intention so to do and be served on such Director not less than 14 days before
the meeting and at such meeting such Director shall be entitled to be heard on
the motion for such Directors removal.
(2) A vacancy on the Board created by the removal of a Director under
the provisions of subparagraph (1) of this Bye-law may be filled by the Members
at the meeting at which such Director is removed and, in the absence of such
election or appointment, the Board may fill the vacancy.
16. Vacancies on the Board
(1) The Board shall have the power from time to time and at any time to
appoint any person as a Director to fill a vacancy on the Board occurring as the
result of
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the death, disability, disqualification or resignation of any Director and to
appoint an Alternate Director to any Director so appointed.
(2) The Board may act notwithstanding any vacancy in its number but, if
and so long as its number is reduced below the number fixed by these Bye-laws as
the quorum necessary for the transaction of business at meetings of the Board,
the continuing Directors or Director may act for the purpose of (i) summoning a
general meeting of the Company or (ii) preserving the assets of the Company.
(3) The office of Director shall be vacated if the Director:-.
(a) is removed from office pursuant to these Bye-laws or is
prohibited from being a Director by law;
(b) is or becomes bankrupt or makes any arrangement or composition
with his creditors generally;
(c) is or becomes of unsound mind or dies;
(d) resigns his or her office by notice in writing to the Company.
17. Notice of Meetings of the Board
(1) The Chairman. the President and CEO or the Secretary on
the requisition of any two directors may at any time summon a meeting of the
Board on two days' notice
(2) Notice of a meeting of the Board shall be deemed to be duly given
to a Director if it is given to such Director verbally in person or by telephone
or otherwise communicated or sent to such Director by post, cable, telex,
telecopier, facsimile or ether mode of representing words in a legible and
non-transitory form at such Director's last known address or any other address
given by such Director to the Company for this purpose.
<PAGE>
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18.Quorum at meetings of the Board
The quorum necessary for the transaction of business at a meeting of the
Board shall be a majority of the Directors at the time in office.
19.Meetings of the Board
(1) The Board may meet for the transaction of business, adjourn and
otherwise regulate its meetings as it sees fit.
(2) Directors may participate in any meeting of the Board by means of
such telephone, electronic or other communication facilities as permit all
persons participating in the meeting to communicate with each other
simultaneously and instantaneously and participation in such a meeting shall
constitute presence in person at such meeting.
(3) A resolution put to the vote at a meeting of the Board shall be
carried by the affirmative votes of a majority of the votes cast and in the case
of an equality of votes the resolution shall fail.
20.Unanimous written resolutions
A resolution in writing signed by all the Directors which may be in
counterparts, shall be as valid as it had been passed at a meeting of the Board
duly called and constituted, such resolution to be effective on the date on
which the last Director signs the resolution. For the purposes of this Bye-law
only, "Director" shall not include an Alternate Director.
21.Contracts and disclosure of Directors' interests
(1) Any Director, or any Director's firm, partner or any company with
whom any Director is associated, may act in a professional capacity for the
Company and such Director or such Director's firm, partner or such company shall
be entitled to remuneration for professional services as if such Director were
not a Director, provided that nothing
<PAGE>
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herein contained shall authorise a Director or Director's firm, partner or such
company to act as Auditor of the Company.
(2) A Director who is directly or indirectly interested in a contract
or proposed contract or arrangement with the Company shall declare the nature of
such interest as required by the Act.
(3) Following a declaration being made pursuant to this Bye-law, and
unless disqualified by the chairman of the relevant Board meeting, a Director
may vote in respect of any contract or proposed contract or arrangement in which
such Director is interested and may be counted in the quorum at such meeting.
22.Remuneration of Directors
The remuneration, (if any) of the Directors shall be determined by the
Company in general meeting and shall be deemed to accrue from day to day. The
Directors may also be paid all travel, hotel and other expenses properly
incurred by them in attending and returning from meetings of the Board, any
committee appointed by the Board, general meetings of the Company, or in
connection with the business of the Company or their duties as Directors
generally.
OFFICERS
23.Officers of the Company
The Officers of the Company shall consist of a President and a Vice
President or a Chairman and a deputy Chairman, a Treasurer, a Secretary and such
additional Officers as the Board may from time to time determine all of whom
shall be deemed to be Officers for the purposes of these Bye-laws.
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24.Appointment of Officers
(1) The Board shall, as soon as possible after the statutory meeting
of Members and after each annual general meeting appoint a President and Vice
President or a Chairman and Deputy Chairman who shall be Directors.
(2) The Secretary and additional Officers, if any, shall be appointed
by the Board from time to time.
25.Remuneration of Officers
The Officers shall receive such remuneration as the Board may from time
to time determine.
26.Duties of Officers
The Officers shall have such powers and perform such duties in the
management, business and affairs of the Company as may be delegated to them by
the Board from time to time.
27.Chairman of meetings
Unless otherwise agreed by a majority of those attending and entitled to
attend and vote thereat, the Chairman if there be one, and if not the President
shall act as chairman at all meetings of the Members and of the Board at which
such person is present. In their absence the Deputy Chairman or Vice President,
if present, shall act as chairman and in the absence of all of them a chairman
shall be appointed or elected by those present at the meeting and entitled to
vote.
28.Register of Directors and Officers
(1) The Board shall cause to be kept in one or more books at its
registered office a Register of Directors and shall enter therein the following
particulars
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with respect to each Director and the President, each Vice-President, the
Chairman and each Deputy Chairman, provided that each such person is a Director
and the Secretary, that is to say:
(a) first name and surname; and
(b) address.
(2) The Board shall, within the period of fourteen days from the
occurrence of-
(a) any change among its Directors, the President, any
Vice-President, the Chairman, and any Deputy Chairman,
provided that each such person is a Director, and in the
Secretary; or
(b) any change in the particulars contained in the Register of
Directors and Officers,
cause to be entered on the Register of Directors and Officers the particulars of
such change and the date on which such change occurred.
(3) The Register of Directors and Officers shall be open to inspection
at the office of the Company on every business day, subject to such reasonable
restrictions as the Board may impose, so that not less than two hours in each
business day be allowed for inspection.
MINUTES
29.Obligations of Board to keep minutes
The Board shall cause minutes to be duly entered in books provided for
the purpose:-
(a) of all elections and appoointments of Officers;
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(b) of the names of the Directors present at each meeting of the Board
and of any committee appointed by the Board; and
(c) of all resolutions and proceedings of general meetings of the
Members, meetings of the Board, meetings of managers and meetings
of committees appointed by the Board.
INDEMNITY
30.Indemnification of Directors and Officers of the Company
The Directors, Secretary and other Officers for the time being of the
Company and the liquidator or trustees (if any) for the time being acting in
relation to any of the affairs of the Company and every one of them, and their
heirs, executors and administrators, shall be indemnified and secured harmless
out of the assets of the Company from and against all actions, costs, charges,
losses, damages and expenses which they or any of them, their heirs, exeuctors
or administrators, shall or may incur or sustain by or by reason of any act
done, concurred in or omitted in or about the execution of their duty, or
supposed duty, or in their respective offices or trusts, and none of them shall
be answerable for the acts, receipts, neglects or defaults of the others of them
or for joining in any receipts for the sake of conformity, or for any bankers or
other persons with whom any moneys or effects belonging to the Company shall or
may be lodged or deposited for safe custody, or for insufficiency or deficiency
of any security upon which any moneys of or belonging to the Company shall be
placed out on or invested, or for any other loss, misfortune or damage which may
happen in the execution of their respective offices or trusts, or in relation
thereto, PROVIDED THAT this indemnity shall not extend to any matter in respect
of any fraud or dishonesty which may attach to any of said persons.
31.Waiver of claim by Member
Each Member agrees to waive any claim or right of action such Member
might have, whether individually or by or in the right of the Company, against
any Director or Officer on
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account of any action taken by such Director or Officer, or the failure of such
Director or Officer to take any action in the performance of his duties with or
for the Company, PROVIDED THAT such waiver shall not extend to any matter in
respect of any fraud or dishonesty which may attach to such Director or Officer.
MEETINGS
32.Notice of annual general meeting
The annual general meeting of the Company shall be held in each year
other than the year of incorporation at such time and place as the President or
the Chairman or any two Directors or any Director and the Secretary or the Board
shall appoint. At least five days notice of such meeting shall be given to each
Member stating the date, place and time at which the meeting is to be held, that
the election of Directors will take place thereat, and as far as practicable,
the other business to be conducted at the meeting.
33.Notice of special general meeting
The President or the Chairman or any two Directors or any Director and
the Secretary or the Board may convene a special general meeting of the Company
whenever in their judgment such a meeting is necessary, upon not less than five
days' notice which shall state the date, time, p0lace and the general nature of
the business to be considered at the meeting.
34.Accidental omission of notice of general meeting
The accidental omission to give notice of a general meeting to, or the
non-receipt of notice of a general meeting by, any person entitled to receive
notice shall not invalidate the proceedings at that meeting.
<PAGE>
- 16 -
35. Meeting called on requisition of Members
Notwithstanding anything herein, the Board shall, on the requisition of
Members holding at the date of the deposit of the requisition not less than
one-tenth of such of the paid-up share capital Company as at the date of the
deposit carries the right to vote at general meetings of the Company, forthwith
proceed to convene a special general meeting of the Company and the provisions
of section 74 of the Act shall apply.
36. Short notice
A general meeting of the Company shall, notwithstanding that it is
called by shorter notice than that specified in these Bye-laws be deemed to
have been property called if it is so agreed by (i) all the Members entitled
to attend and vote thereat in the case of an annual general meeting; and (ii)
by a majority in number of the Members having the right to attend and vote at
the meeting, being a majority together holding not less than 95% in nominal
value of the shares giving a right to attend and vote thereat in the case of a
special general meeting.
37. Postponement of meetings
The Board may postpone any general meeting called in accordance with the
provisions of these Bye-laws (other than a meeting requisitioned under these
Bye-laws) provided that notice of postponement is given to each Member before
the time for such meeting. Fresh notice of the date, time and place for the
postponed meeting sha1l be given to each Member in accordance with the
provisions of these Bye-laws.
38. Quorum for general meeting
At any general meeting of the Company two persons present in person and
representing in person or by proxy in excess of 50% of the total issued voting
shares in the Company throughout the meeting shall form a quorum for the
transaction of business, PROVIDED that if the Company shall at any time have
only one Member, one Member
<PAGE>
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present in person or by proxy shall form a quorum for the transaction of
business at any general meeting of the Company held during such time. If within
half an hour from the time appointed for the meeting a quorum is not present,
the meeting shall stand adjourned to the same day one week later, at the same
time and place or to such other day, time or place as the Board may determine.
39. Adjournment of meetings
The chairman of a general meeting may, with the consent of the Members
at any general meeting at which a quorum is present (and shall if so directed),
adjourn the meeting. Unless the meeting is adjourned to a specific date and
time, fresh notice of the date, time and place for the resumption of the
adjourned meeting shall be given to each Member in accordance with the
provisions of these Bye-laws.
40. Attendance at meetings
Members may participate in any general meeting by means of such
telephone, electronic or other communication facilities as permit all persons
participating in the meeting to communicate with each other simultaneously and
instantaneously, and participation in such a meeting shall constitute presencce
in person at such meeting.
41. Written resolutions
(1) Subject to subparagraph (6), anything which may be done by
resolution of the Company in general meeting or by resolution of a meeting of
any class of the Members of the Company, may, without a meeting and without any
previous notice being required, be done by resolution in writing signed by, or,
in the case of a Member that is a corporation whether or not a company within
the meaning of the Act, on behalf of, all the members who at the date of the
resolution would be entitled to attend the meeting and vote on the resolution.
<PAGE>
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(2) A resolution in writing may be signed by, or, in the case of a
Member that is a corporation whether or not a company within the meaning of the
Act, on behalf of, all the Members, or any class thereof, in as many
counterparts as may be necessary.
(3) For the purposes of this Bye-law, the date of the resolution is the
date when the resolution is signed by, or, in the case of a Member that is a
corporation whether or not a company within the meaning of the Act, on behalf
of, the last Member to sign and any reference in any Bye-law to the date of
passing of a resolution is, in relation to a resolution made in accordance with
this Bye-law, a reference to such date.
(4) A resolution in writing made in accordance with this Bye-law is as
valid as if it had been passed by the Company in general meeting or by a meeting
of the relevant class of Members, as the case may be, and any reference in any
Bye-law to a meeting at which a resolution is passed or to Members voting in
favour of a resolution shall be construed accordingly.
(5) A resolution in writing made in accordance with this Bye-law shall
constitute minutes for the purposes of sections 81 and 82 of the Act.
(6) This Bye-law shall not apply to:
(a) a resolution passed pursuant to section 89(5) of the Act; or
(b) a resolution passed for the purpose of removing a Director
before the expiration of his term of office under these
Bye-laws.
42. Attendance of Directors
The Directors of the Company shall be entitled to receive notice of and
to attend and be heard at any general meeting.
<PAGE>
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43. Voting at meetings
(1) Subject to the provisions of the Act and these Bye-laws, any
question proposed for the consideration of the Members at any general meeting
shall be decided by the affirmative vote of a majority of the votes cast in
accordance with the provisions of these Bye-laws and in the case of an equality
of votes the resolution shall fail.
(2) No Member shall be entitled to vote at any general meeting unless
such member has paid all the calls on all shares held by such Member.
44. Voting on show of hands
At any general meeting a resolution put to the vote of the meeting
shall, in the first instance, be voted upon by a show of hands and, subject to
any rights or restrictions for the time being lawfully attached to any class of
shares and subject to the provisions of these Bye-laws, every Member present in
person and every person holding a valid proxy at such meeting shall be entitled
to one vote and shall cast such vote by raising his or her hand.
45. Decision of chairman
At any general meeting a declaration by the chairman of the meeting that
a question proposed for consideration has, on a show of hands, been carried, or
carried unanimously, or by a particular majority, or lost, and an entry to that
effect in a book containing the minutes of the proceedings of the Company shall,
subject to the provisions of these Bye-laws, be conclusive evidence of that
fact.
46. Demand for a poll
(1) Notwithstanding the provisions of the immediately preceding two
Bye-laws, at any general meeting of the Company, in respect of any question
proposed for the consideration of the Members (whether before or on the
declaration of the result of a
<PAGE>
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show of hands as provided for in these Bye-laws), a poll may be demanded by any
of the following persons:
(a) the chairman of such meeting; or
(b) at least three Members present in person or represented by
proxy; or
(c) any Member or Members present in person or represented by
proxy and holding between them not less than one-tenth of
the total voting rights of all the Members having the right
to vote at such meeting; or
(d) any Member or Members present in person or represented by
proxy holding shares in the Company conferring the right to
vote at such meeting, being shares on which an aggregate sum
has been paid up equal to not less than one-tenth of the total
sum paid up on all such shares conferring such right.
(2) Where, in accordance with the provisions of subparagraph (1) of
this Bye-law, a poll is demanded, subject to any rights or restrictions for the
time being lawfully attached to any class of shares, every person present at
such meeting shall have one vote for each share of which such person is the
holder or for which such person holds a proxy and such vote shall be counted
in the manner set out in sub-paragraph (4) of this Bye-law or in the case
of a general meeting at which one or more Members are present by telephone
in such manner as the chairman of the meeting may direct and the result of such
poll shall be deemed to be the resolution of the meeting at which the poll was
demanded and shall replace any previous resolution upon the same matter which
has been the subject of a show of hands.
(3) A poll demanded in accordance with the provisions of subparagraph
(1) of this Bye-law, for the purpose of electing a chairman or on a question of
adjournment,
<PAGE>
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shall be taken forthwith and a poll demanded on any other question shall be
taken in such manner and at such time and place as the chairman may direct and
any business other than that upon which a poll has been demanded may be
proceeded with pending the taking of the poll.
(4) Where a vote is taken by poll, each person present and entitled to
vote shall be furnished with a ballot paper on which such person shall
record his or her vote in such manner as shall be determined at the
meeting having regard to the nature of the question on which the vote is
taken, and each ballot paper shall be signed or initialled or otherwise
marked so as to identify the voter and the registered holder in the case
of a proxy. At the conclusion of the poll, the ballot papers shall be
examined and counted by a committee of not less than two Members or
proxy holders appointed by the chairman for the purpose and the result
of the poll shall be declared by the chairman.
47. Seniority of joint holders voting
In the case of joint holders the vote of the senior who tenders a
vote, whether in person or by proxy, shall be accepted to the exclusion
of the votes of the other joint holders, and for this purpose seniority
shall be determined by the order in which the names stand in the
Register of Members.
48. Instrument of proxy
The instrument appointing a proxy shall be in writing in the form,
or as near thereto as circumstances admit, of Form "A" in the Schedule
hereto, under the hand of the appointor or of the appointor's attorney
duly authorised in writing, or if the appointor is a corporation, either
under its seal, or under the hand of a duly authorised officer or
attorney. The decision of the chairman of any general meeting as to the
validity of any instrument of proxy shall be final.
<PAGE>
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49. Representation of corporations at meetings
A corporation which is a Member may, by written instrument,
authorise such person as it thinks fit to act as its representative at any
meeting of the Members and the person so authorised shall be entitled to
exercise the same powers on behalf of the corporation which such person
represents as that corporation could exercise if it were an individual
Member. Notwithstanding the foregoing, the chairman of the meeting may
accept such assurances as he or she thinks fit as to the right of any
person to attend and vote at general meetings on behalf of a corporation
which is a Member.
SHARE CAPITAL AND SHARES
50. Rights of shares
The Company shall be authorized to issue preferred shares (the
"Preferred Shares") and Class A common shares and Class B common shares
(the "Common Shares") which shall have the following powers,
designations, preferences, rights, limitations and qualifications:
(a) Preferred Shares
(i) Dividends. Dividends shall accrue on each Preferred Share on a
cumulative basis at a rate of 18% of the liquidation preference amount
per share per annum and shall be paid when and if declared out of
surplus. Cumulative dividends shall be declared by the Board and payable
(to the extent of surplus) immediately in the event of a liquidation,
dissolution or winding up of the Company, or the sale of the Company to,
or amalgamation of the Company into another entity. Cumulative dividends
shall not be payable and shall be deemed cancelled and waived upon
conversion of the Preferred Shares.
<PAGE>
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(ii) Voting Rights. Each holder of Preferred Shares shall be entitled
to the number of votes per share, and shall vote together with holders
of Class A Common Shares and Class B Common Shares as a single class, on
matters submitted to the vote of shareholders of the Company, equal to
the number of Class B Common Shares into which a Preferred Share is
convertible at the record date.
(iii) Liquidation Preference
(a) In the event of the voluntary or involuntary liquidation,
dissolution or winding up of the Company, and provided there are
sufficient assets after payment of all outstanding debts and other
liabilities, holders of Preferred Shares then outstanding shall be
entitled to receive $0.457 per share (to the extent a share is paid
up) plus an amount per share equal to the accrued and unpaid dividends
thereon.
(b) Neither the sale, lease or exchange (for cash, shares of
stock, securities or other consideration) of all or substantially
all of the property and assets of the Company, nor the amalgamation or
consolidation of the Company into or with any other Company nor the
amalgamation of any other Company into the Company, shall be deemed to
be a dissolution, liquidation or winding up of the Company.
(iv) Conversion
Each Preferred Share shall, at the option of the holder thereof, be
convertible at any time into one Class B Common Share, and all Preferred
Shares shall be automatically converted into Class B Common Shares, on a
one for one basis, in the event of a firmly underwritten public offering
of the Class A Common Shares of the
<PAGE>
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(v) Reservation of Shares
There are hereby reserved for issuance upon conversion of the Preferred
Shares 20,244,066.54 shares of the authorized but unissued Class B Common
Shares of the Company.
(b) Common Shares
The Common Shares of the Company shall be divided into Class A Common
Shares and Class B Common Shares.
(i) Dividends The holders of Common Shares shall be entitled to receive
dividends when, as and if declared by the Directors out of funds legally
available therefor with dividends being paid equally on the Class A Common
Shares and the Class B Common Shares after the payment of any dividends
declared but unpaid on any Preferred Shares.
(ii) Voting Rights The holders of Class A Common Shares shall be entitled to
cast one vote per Class A Common Share on all matters submitted for the
vote of the Members of the Company and as otherwise required by law and
shall vote as a single class with the holders of the Class B Common Shares
and the Preferred Shares on all matters subject to approval of the Members
and any matter requiring class voting under the Act. The holders of
Class B Common Shares shall be entitled to cast ten votes per Class B
Common Share held on all matters submitted for the vote of the Members of
the Company and as otherwise required by law and shall vote as a single
class with the holders of the Class A Common Shares and the Preferred
Shares on all matters subject to approval of the Members and any matter
requiring class voting under the Act.
<PAGE>
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(iii) Liquidation In the event of the voluntary or involuntary liquidation or
winding up of the Company, the holders of Common Shares are entitled to
share ratably in all assets remaining after payment of all debts and other
liabilities and after distribution in full of the preferential amounts to
be distributed to the holders of any Preferred Shares then outstanding.
(iv) Convertibility The holders of Class A Common Shares have no rights to
convert their Class A Common Shares into an other securities. The Class B
Common Shares shall be convertible into Class A Common Shares on a one for
one basis at the option of the holder thereof.
(v) Transfer Class B Common Shares may be transferred only to other original
holders of Class B Common Shares or to a member of the family of the
original holder by gift, devise or otherwise through laws of inheritance,
descent, distribution or to a trust established by the holder for the
holder's family members, to corporations the majority of beneficial owners
of which are or will be owned by the holders of Class B Common Shares, to
their shareholders or partners as the case may be. Any purported transfer
of Class B Common Shares other than in accordance with this sub-clause (v)
shall be void. For the purposes of this sub-clause (v), "member of the
family" means a spouse, a sibling, brother, sister, mother, or father.
51. Power to issue shares
(1) Subject to these Bye-laws and to any resolution of the Members
to the contrary and without prejudice to any special rights previously conferred
on the holders of any existing shares or class of shares, the Board shall have
power to issue any unissued shares of the Company on such terms and conditions
as it may determine and any shares or class of shares may be issued with such
preferred, deferred or other special rights or
<PAGE>
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such restrictions, whether in regard to dividend, voting, return of capital or
otherwise as the Company may from time to time by resolution of the Members
prescribe.
(2) The Board shall, in connection with the issue of any share, have
the power to pay such commission and brokerage as may be permitted by law.
(3) The Company shall not give, whether directly or indirectly, whether
by means of loan, guarantee, provision of security or otherwise, any financial
assistance for the purpose of a purchase or subscription made or to be made by
any person of or for any shares in the Company, but nothing in this Bye-Law
shall prohibit transactions mentioned in Sections 39A, 39B and 39C of the Act.
(4) The Company may from time to time do any one or more of the
following things:
(a) make arrangements on the issue of shares for a difference
between the Members in the amounts and times of payments of
calls on their shares;
(b) accept from any Member the whole or a part of the amount
remaining unpaid on any shares held by him, although no part
of that amount has been called up;
(c) pay dividends in proportion to the amount paid up on each share
where a larger amount is paid up on some shares than on
others; and
(d) issue its shares in fractional denominations and deal with such
fractions to the same extent as its whole shares and shares
in fractional denominations shall have in proportion to the
respective fractions represented thereby all of the rights of
whole shares including (but without limiting the generality of
the foregoing) the right to vote, to receive dividends and
distributions and to participate in a winding up.
<PAGE>
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51A. Warrants
The Board may issue warrants conferring the rights upon the holders
thereof to subscripe for any class of shares or securities in the capital of the
Company on such terms as it may from time to time determine.
52. Variation of rights, alteratioan of share capital and purchase of shares of
the Company
(1) Subject to the provisions of Sections 42 and 43 of the Act any
preference shares may be issued or converted into shares that, at a
determinable date or at the option of the Company, are liable to be redeemed on
such terms and in such manner as the Company before the issue or conversion may
by resolution of the Members determine.
(2) If at any time the share capital is divided into different classes
of shares, the rights attached to any class (unless otherwise provided by the
terms of issue of the shares of that class) may, whether or not the Company is
being wound-up, be varied with the consent in writing of the holders of
three-fourths of the issued shares of that class or with the sanction of a
resolution passed by a majority of the votes cast at a separate general meeting
of the holders of the shares of the class in accordance with Section 47 (7) of
the Act. The rights conferred upon the holders of the shares of any class issued
with preferred or other rights shall not, unless otherwise expressly provided by
the terms of issue of the shares of that class, be deemed to be varied by the
creation or issue of further shares ranking pari passu therewith.
(3) The Company may from time to time by resolution of the Members
change the currency denomination of, increase, alter or reduce its share capital
in accordance with the provisions of Sections 45 and 46 of the Act. Where, on
any alteration of share capital, fractions of shares or some other difficulty
would arise, the Board may deal with or resolve the same in such manner as it
thinks fit including, without limiting the generality of the
<PAGE>
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foregoing, the issue to Members, as appropriate, of fractions of shares and/or
arranging for the sale of transfer of the fractions of shares of Members.
(4) The Company may from time to time purchase its own shares in
accordance with the provisions of Section 42A of the Act.
53. Registered holder of shares
(1) The Company shall be entitled to treat the registered holder of any
share as the absolute owner thereof and accordingly shall not be bound to
recognise any equitable or other claim to, or interest in, such share on the
part of any other person.
(2) Any dividend, interest or other moneys payable in cash in respect
of shares may be paid by cheque or draft sent through the post directed to the
Member at such Member's address in the Register of Members or, in the case of
joint holders, to such address of the holder first named in the Register of
Members, or to such person and to such address as the holder or joint holders
may in writing direct. If two or more persons are registered as joint holders of
any shares any one can give an effectual receipt for any dividend paid in
respect of such shares.
54. Death of a joint holder
Where two or more persons are registered as joint holders of a share or
shares then in the event of the death of any joint holder or holders the
remaining joint holder or holders shall be absolutely entitled to the said share
or shares and the Company shall recognise no claim in respect of the estate of
any joint holder except in the case of the last survivor of such joint holders.
<PAGE>
-29-
55. Share certificates
(1) Every Member shall be entitled to a certificate under the seal of
the Company (or a facsimile thereof) specifying the number and, where
appropriate, the class of shares held by such Member and whether the same are
fully paid up and, if not, how much has been paid thereon. The Board may by
resolution determine, either generally or in a particular case, that any or all
signatures on certificates may be printed thereonor affixed by mechanical means.
(2) The Company shall be under no obligation to complete and deliver a
share certificate unless specifically called upon to do so by the person to whom
such shares have been allotted.
(3) If any such certificate shall be proved to the satisfaction of the
Board to have been worn out, lost, mislaid or destroyed the Board may cause a
new certificate to be issued and request an indemnity for the lost certificate
if it sees fit.
56. Calls on shares
(1) The Board may from time to time make such calls as it thinks fit
upon the Members in respect of any monies upaid on the shares allotted to or
held by such Members and, if a call is not paid on or before the day appointed
for payment thereof, the Member may at the discretion of the Board be liable to
pay the Company interest on the amount of such call at such rate as the Board
may determine, from the date when such call was payable up to the actual date of
payment. The joint holders of a share shall be jointly and severally liable to
pay all calls in respect thereof.
(2) The Board may, on the issue of shares, differentiate between the
holders as to the amount of calls to be paid and the times of payment of such
calls.
<PAGE>
-30-
57. Forfeiture of shares
(1) If any Member fails to pay, on the day appointed for payment
thereof, any call in respect of any share allotted to or held by such Member,
the Board may, at any time thereafter during such time as the call remains
upaid, direct the Secretary to forward to such Member a notice in the form, or
as near thereto as circumstances admit, of Form "B" in the Schedule hereto.
(2) If the requirements of such notice are not complied with, any such
share may at any time thereafter before the payment of such call and the
interest due in respect thereof be forfeited by a resolution of the Board to
that effect, and such share shall thereupon become the property of the Company
and may be disposed of as the Board shall determine.
(3) A Member whose share of shares have been forfeited as aforesaid
shall, notwithstanding such forfeiture, be liable to pay to the Company all
calls owing on such share of shares at the time of the forfeiture and all
interest due thereon.
REGISTER OF MEMBERS
58. Contents of Register of Members
The Board shall cause to be kept in one or more books a Register of
Members and shall enter therein the following particulars:
(a) the name and address of each Member, the number and, where
appropriate, the class of shares held by such Member and the amount
paid or agreed to be considered as paid on such shares;
(b) the date on which each person was entered in the Register of Members;
and
<PAGE>
-31-
(c) the date on which any person ceased to be a Member for one year
after such person so ceased.
59. Inspection of Register of Members
The Register of Members shall be open to inspection at the registered
office of the Company on every business day, subject to such reasonable
restrictions as the Board may impose, so that not less than two hours in each
business day be allowed for inspection. The Register of Members may, after
notice has been given by advertisement in an appointed newspaper to that effect,
be closed for any time or times not exceeding in the whole thirty days in each
year.
60. Determination of record dates
Notwithstanding any other provision of these Bye-laws, the Board may fix
any date as the record date for:-
(a) determining the Members entitled to receive any dividend; and
(b) determining the Members entitled to receive notice of and to vote
at any general meeting of the Company.
TRANSFER OF SHARES
61. (1) An instrument of transfer shall be in the form or as near
thereto as circumstances admit of Form "C" in the Schedule hereto or in such
other common form as the Board may accept. Such instrument of transfer shall be
signed by or on behalf of the transferor and transferee provided that, in the
case of a fully paid share, the Board may accept the instrument signed by or on
behalf of the transferor alone. The transferor shall be deemed to remain the
holder of such share until the same has been transferred to the transferee in
the Register of Members.
<PAGE>
-32-
(2) The Board may refuse to recognise any instrument of transfer
unless it is accompanied by the certificate in respect of the share to which it
relates and by such other evidence as the Board may reasonably require to show
the right of the transferor to make the transfer.
62. Restriction on transfer
(1) The Board shall refuse to register a transfer unless all
applicable consents, authorisations and permissions of any governmental body or
agency in Bermuda have been obtained.
(2) If the Board refuses to register a transfer of any share the
Secretary shall, within three months after the date on which the transfer was
lodged with the Company, send to the transferor and transferee notice of the
refusal.
63. Transfers by joint holders
The joint holders of any share or shares may transfer such share or
shares to one or more of such joint holders, and the surviving holder or holders
of any share or shares previously held by them jointly with a deceased Member
may transfer any such share to the executors or administrators of such deceased
Member.
TRANSMISSION OF SHARES
64. Representative of deceased Member
In the case of the death of a Member, the survivor or survivors where
the deceased Member was a joint holder, and the legal personal representatives
of the deceased Member where the deceased Member was a sole holder, shall be the
only persons recognised by the Company as having any title to the deceased
Member's interest in the shares. Nothing herein contained shall release the
estate of a deceased joint holder from
<PAGE>
-33-
any liability in respect of any share which had been jointly held by such
deceased Member with other persons. Subject to the provisions of Section 52 of
the Act, for the purpose of this Bye-law, legal personal representative means
the executor or administrator of a deceased Member or such other person as the
Board may in its absolute discretion decide as being properly authorised to deal
with the shares of a deceased Member.
65. Registration on death or bankruptcy
Any person becoming entitled to a share in consequence of the death or
bankruptcy of any Member may be registered as a Member upon such evidence as the
Board may deem sufficient or may elect to nominate some person to be registered
as a transferee of such share, and in such case the person becoming entitled
shall execute in favour of such nominee an instrument of transfer in the form,
or as near thereto as circumstances admit, of Form "D" in the Schedule hereto.
On the presentation thereof to the Board, accompanied by such evidence as the
Board may require to prove the title of the transferor, the transferee shall be
registered as a Member but the Board shall, in either case, have the same right
to decline or suspend registration as it would have had in the case of a
transfer of the share by that Member before such Member's death or bankruptcy,
as the case may be.
DIVIDENDS AND OTHER DISTRIBUTIONS
66. Declaration of dividends by the Board
The Board, may, subject to these Bye-laws and in accordance with Section
54 of the Act, declare a dividend to be paid to the Members, in proportion to
the number of shares held by them, and such dividend may be paid in cash or
wholly or partly in specie in which case the Board may fix the value for
distribution in specie of any assets.
<PAGE>
-34-
67. Other distributions
The Board may declare and make such other distributions (in cash or in
specie) to the Members as may be lawfully made out of the assets of the Company.
68. Reserve fund
The Board may from time to time before declaring a dividend set aside, out
of the surplus or profits of the Company, such sum as it thinks proper as a
reserve fund to be used to meet contingencies or for equalising dividends or for
any other special purpose.
69. Deduction of Amounts due to the Company
The Board may deduct from the dividends or distributions payable to any
Member all monies due from such Member to the Company on account of calls or
otherwise.
CAPITALISATION
--------------
70. Issue of bonus shares
(1) The Board may resolve to capitalise any part of the amount for the
time being standing to the credit of any of the Company's share premium or other
reserve accounts or to the credit of the profit and loss account or otherwise
available for distribution by applying such sum in paying up unissued shares to
be allotted as fully paid bonus shares pro rata to the Members.
(2) The Company may capitalise any sum standing to the credit of a
reserve account or sums otherwise available for dividend or distribution by
applying such amounts in paying up in full partly paid shares of those Members
who would have been entitled to such sums if they were distributed by way of
dividend or distribution.
<PAGE>
-35-
ACCOUNTS AND FINANCIAL STATEMENTS
---------------------------------
71. Records of account
The Board shall cause to be kept proper records of account with respect to
all transactions of the Company and in particular with respect to:
(a) all sums of money received and expended by the Company and the
matters in respect of which the receipt and expenditure relates;
(b) all sales and purchases of goods by the Company; and
(c) the assets and liabilities of the Company.
Such record of account shall be kept at the registered office of the Company or,
subject to Section 83 (2) of the Act, at such other place as the Board thinks
fit and shall be available for inspection by the Directors during normal
business hours.
72. Financial year end
The financial year end of the Company may be determined by resolution of
the Board and failing such resolution shall be 31st December in each year.
73. Financial statements
Subject to any rights to waive laying of accounts pursuant to Section 88 of
the Act, financial statements are required by the Act shall be laid before the
Members in general meeting.
<PAGE>
-36-
AUDIT
-----
74. Appointment of Auditor
Subject to Section 88 of the Act, at the annual general meeting or at a
subsequent special general meeting in each year, an independent representative
of the Members shall be appointed by them as Auditor of the accounts of the
Company. Such Auditor may be a Member but no Director, Officer or employee of
the Company shall, during his or her continuance in office, be eligible to act
as an Auditor of the Company.
75. Remuneration of Auditor
The remuneration of the Auditor shall be fixed by the Company in general
meeting or in such manner as the Members may determine.
76. Vacation of office of Auditor
If the office of Auditor becomes vacant by the resignation or death of the
Auditor, or by the Auditor becoming incapable of acting by reason of illness or
other disability at a time when the Auditor's services are required, the Board
shall, as soon as practicable, convene a special general meeting to fill the
vacancy thereby created.
77. Access to books of the Company
The Auditor shall at all reasonable times have access to all books kept by
the Company and to all accounts and vouchers relating thereto, and the Auditor
may call on the Directors or Officers of the Company for any information in
their possession relating to the books or affairs of the Company.
78. Report of the Auditor
(1) Subject to any rights to waive laying of accounts or appointment
of an Auditor pursuant to Section 88 of the Act, the accounts of the Company
shall be audited at least once in every year.
<PAGE>
-37-
(2) The financial statements provided for by these Bye-laws shall be
audited by the Auditor in accordance with generally accepted auditing standards.
The Auditor shall make a written report thereon in accordance with generally
accepted auditing standards and the report of the Auditor shall be submitted to
the Members in general meeting.
(3) The generally accepted auditing standards referred to in
subparagraph (2) of this Bye-law may be those of a country or jurisdiction other
than Bermuda. If so, the financial statements and the report of the Auditor must
disclose this fact and name such country or jurisdiction.
NOTICES
79. Notices to Members of the Company
A notice may be given by the Company to any Member either by
delivering it to such Member in person or by sending it to such Member's address
in the Register of Members or to such other address given for the purpose. For
the purposes of this Bye-law, a notice may be sent by mail, courier service,
cable, telex, telecopier, facsimile or other mode of representing words in a
legible and non-transitory form.
80. Notices to joint Members
Any notice required to be given to a Member shall, with respect to any
shares held jointly by two or more persons, be given to whichever of such
persons is named first in the Register of Members and notice so given shall
be sufficient notice to all the holders of such shares.
81. Service and delivery of notice
Any notice shall be deemed to have been served at the time when the
same would be delivered in the ordinary course of transmission and, in proving
such service, it shall be
<PAGE>
-38-
sufficient to prove that the notice was properly addressed and prepaid, if
posted, and the time when it was posted, delivered to the courier or to the
cable company or transmitted by telex, facsimile or other method as the case may
be.
SEAL OF THE COMPANY
82. The seal
The seal of the Company shall be in such form as the Board may from
time to time determine. The Board may adopt one or more duplicate seals for use
outside Bermuda.
83. Manner in which seal is to be affixed
The seal of the Company shall not be affixed to any instrument except
attested by the signature of a Director and the Secretary or any two Directors,
or some other person appointed by the Board for the purpose, provided that any
Director, or Officer, may affix the seal of the Company attested by such
Director or Officer's signature only to any authenticated copies of these
Bye-laws, the incorporating documents of the Company, the minutes of any
meetings or any other documents required to be authenticated by such Director or
Officer.
WINDING-UP
84. Winding-up/distribution by liquidator
If the Company shall be wound up the liquidator may, with the sanction
of a resolution of the Members, divide amongst the Members in specie or in kind
the whole or any part of the assets of the Company (whether they shall consist
of property of the same kind or not) and may, for such purpose, set such value
as he or she deems fair upon any property to be divided as aforesaid and may
determine how such division shall be carried out as between the Members or
different classes of Members. The liquidator may, with the like
<PAGE>
-39-
sanction, vest the whole or any part of such assets in trustees upon such trusts
for the benefit of the Members as the liquidator shall think fit, but so that no
Member shall be compelled to accept any shares or other securities or assets
whereon there is any liability.
ALTERATION OF BYE-LAWS
85. Alteration of Bye-laws
No Bye-law shall be rescinded, altered or amended and no new Bye-law
shall be made until the same has been approved by a resultion of the Board and
by a resolution of the Members.
*****
***
<PAGE>
-40-
SCHEDULE - FORM A (Bye-law 48)
------------------------------
P R O X Y
---------
I
of
the holder of share in the above-named Company hereby appoint
....................or failing him/her.....................or failing
him/her........................as my proxy to vote on my behalf at the General
Meeting of the Company to be held on the day of , 19 , and at any
adjournment thereof.
Dated this day of , 19
*GIVEN under the seal of the company
*Signed by the above-named
- ---------------------------
- ---------------------------
Witness
*Delete as applicable.
<PAGE>
-41-
SCHEDULE - FORM B (Bye-law 57)
------------------------------
NOTICE OF LIABILITY TO FORFEITURE FOR NONPAYMENT OF CALL
--------------------------------------------------------
You have failed to pay the call of [amount of call] made on the ..... day
of ...., 19... last, in respect of the [number] share(s) [numbers in figures]
standing in your name in the Register of Members of the Company, on the .....
day of ....., 19... last, the day appointed for payment of such call. You are
hereby notified that unless you pay such call together with interest thereon at
the rate of ..... per annum computed from the said..... day of ....., 19...
last, on or before the ..... day of ....., 19... next at the place of business
of the said Company the share(s) will be liable to be forfeited.
Dated this ..... day of ....., 19...
[Signature of Secretary]
By order of the Board
<PAGE>
-42-
SCHEDULE - FORM C (Bye-law 61)
TRANSFER OF A SHARE OR SHARES
-----------------------------
FOR VALUE RECEIVED.....................................................[amount]
...................................................................[transferor]
hereby sell assign and transfer unto ..............................[transferee]
of ...................................................................[address]
.............................................................[number of shares]
shares of ....................................................[name of Company]
Dated.........................
-----------------------------
(Transferor)
In the presence of:
- ------------------------------
(Witness)
-----------------------------
(Transferee)
In the presence of:
- ------------------------------
(Witness)
<PAGE>
-43-
SCHEDULE - FORM D (Bye-law 65)
------------------------------
TRANSFER BY A PERSON BECOMING ENTITLED ON DEATH/BANKRUPTCY
----------------------------------------------------------
OF A MEMBER
-----------
I/We having become entitled in consequence of the [death/bankruptcy] of
[name of the deceased Member] to [number] share(s) numbered [number in figures]
standing in the register of members of [Company] in the name of the said [name
of deceased Member] instead of being registered myself/ourselves elect to have
[name of transferee] (the "Transferee") registered as a transferee of such
share(s) and I/we do hereby according transfer the said share(s) to the
Transferee to hold the same unto the Transferee his or her executors
administrators and assigns subject to the conditions on which the same were held
at the time of the execution thereof, and the Transferee does hereby agree to
take the said share(s) subject to the same conditions.
WITNESS our hands this ...... day of ....., 19...
Signed by the above-named )
[person or persons entitled] )
in the presence of: )
Signed by the above-named )
[transferee] )
in the presence of: )
<PAGE>
26 September 1997
Securities and Exchange Commission
Judiciary Plaza
450 Fifth Street, NW
Washington, DC 20549
USA
Gentlemen
We have been requested by RSL Communications, Ltd. (the "Company"), a Bermuda
company, to furnish our opinion in connection with the registration statement
(the "Registration Statement") on Form S-1 (Registration Number 333-34281), with
respect to the registration of 7,200,000 shares (the "Shares") of the Company's
Class A common shares, par value $.01 per share.
We have made such examination as we have deemed necessary for the purpose of
this opinion. Based upon such examination, it is our opinion that, when the
Registration Statement has become effective under the United States Securities
Act of 1933, when the Shares have been qualified as required under the laws of
those jurisdictions in which they are to be issued and sold and when the Shares
have been sold, issued and paid for in the manner described in the Registration
Statement, the Shares will have been validly issued and will be fully paid.
We hereby consent to the use of this opinion as an exhibit to the Registration
Statement and to the reference to our name under the caption "Legal Matters" in
the prospectus included in the Registration Statement.
Yours faithfully,
/s/ Conyers, Dill & Pearman
<PAGE>
August , 1997
RSL Communications, Ltd.
Clarendon House
Church Street
Hamilton HM CX Bermuda
Gentlemen:
You have requested our opinion regarding the discussion of U.S. federal
income tax consequences under the caption "Certain U.S. Federal Income Tax
Considerations" in the prospectus (the "Prospectus") that is included in
the Registration Statement on Form S-1 (the "Registration Statement") of
RSL Communications, Ltd. (the "Company") filed with the Securities and
Exchange Commission on August , 1997. The Prospectus relates to the
Company's offering and sale of shares of Class A Common Stock.
We have reviewed the Prospectus and such other materials as we have deemed
necessary or appropriate as a basis for our opinion described therein, and
have considered the applicable provisions of the Internal Revenue Code of
1986, as amended, Treasury Regulations, pertinent judicial authorities,
rulings of the Internal Revenue Service, and such other authorities as we
have considered relevant to such opinion.
Based upon the foregoing, it is our opinion that the statements made under
the caption "Certain U.S. Federal Income Tax Considerations" in the
Prospectus set forth the material U.S. federal income tax consequences of
the offering described in the Prospectus as of the date hereof.
We hereby consent to the use of our name under the caption "Certain U.S.
Federal Income Tax Considerations" in the Prospectus and to the filing of
this opinion as an exhibit to the Registration Statement.
Very truly yours,
Rosenman & Colin LLP
By:
--------------------
A Partner
<PAGE>
26 September 1997
RSL Communications, Ltd.
Clarendon House
Church Street
Hamilton HM CX
Bermuda
Gentlemen
RSL Communications, Ltd. (the "Company")
Form S-1 Registration Statement under The United States Securities Act of 1993
Reg. No. 333-34281 ("Form S-1")
You have requested our opinion with respect to the material set forth under the
heading "Certain Bermuda Tax Considerations" in the prospectus (the
"Prospectus") included in the Form S-1 initially filed by the Company on 25th
August, 1997 in connection with the Company's proposed offering and sale of
Class A Common Shares in the Company.
In connection with your request, you have provided us with the Form S-1,
including the Prospectus and such other documents as we have deemed necessary or
appropriate to review in rendering this opinion.
It is our opinion that the tax discussion set forth under the heading "Certain
Tax Bermuda Tax Considerations" in the Prospectus is accurate as of the date
hereof in all material respects.
We hereby consent to the use of our name under the caption "Legal Matters" in
the Prospectus and to the use of this opinion as an exhibit to the Prospectus
which is part of the Form S-1.
Yours faithfully,
/s/ Conyers, Dill & Pearman
<PAGE>
EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT (this "Agreement"), dated July 31, 1997, to be
effective as of August 18, 1997 (the "Effective Date"), by and between RSL
Communications, Ltd. (the "Corporation"), a company organized under the laws of
Bermuda, and Andrew C. Shields (the "Employee"), an individual residing at 6925
Candace Place, Worthington, Ohio 43086.
WITNESETH:
WHEREAS, the Corporation desires to employ the Employee and the Employee is
willing to undertake such employment on the terms and subject to the conditions
hereinafter set forth.
NOW, THEREFORE, the parties hereto hereby agree as follows:
ARTICLE I
TERM OF THE AGREEMENT
Section 1.01 Term of the Agreement.
Upon the terms and subject to the conditions set forth in this Agreement,
the Corporation hereby employs the Employee as Vice President of International
Carrier Relations of the Corporation for the period (the "Employment Period")
commencing on the Effective Date and terminating on the third anniversary of the
Effective Date, subject to earlier termination as provided in Article III hereof
or upon the death of the Employee.
<PAGE>
ARTICLE II
TERMS CONDITIONS OF THE AGREEMENT
Section 2.01 Services to be rendered by the Employee.
The Employee accepts employment as Vice President of International Carrier
Relations, agrees to be in charge of and responsible for all of the duties
normally associated with said position including, without limitation,
responsibility for all commercial relationships with external carriers,
responsibility for establishing and maintaining a database of global carrier
costs, analysis of the economics of carrier routing for least cost routing
purposes, ongoing analysis of intracompany carrier costs, development and
deployment of a global strategy for all operating entities with respect to
carrier relations, and negotiation and purchase of cable lines. Employee agrees
faithfully and to the best of his abilities to perform such services and such
other services consistent with such position as may from time to time be
assigned to him by the Board of Directors of the Corporation and agrees to
devote all of his business time, skill and attention to such services and to the
affairs of the Corporation. The duties of the Employee also include, from time
to time, service as an officer of a subsidiary or other affiliated entity of the
Corporation, as may be directed by the Chief Executive Officer of the
Corporation. The Employee shall do such traveling as may be required in the
performance of his duties hereunder.
Section 2.02 Compensation and Benefits.
(a) The Corporation shall pay to the Employee, and the Employee shall
2
<PAGE>
accept from the Corporation, for the Employee's services during the Employment
Period, (i) a salary (the "Base Salary) during each year of the Employment
Period equal to $175,000, payable in accordance with the Corporation's customary
employee payroll policy as in effect from time to time, but not less frequently
than monthly and (ii) a bonus in amounts and payable as provided in Section
2.02(b) hereof. The Corporation shall deduct from the Employee's total annual
compensation withholding taxes and/or any other taxes as may be required by
United States Federal government or any other governmental authorities.
(b) Within 30 days after the Effective Date and within 30 days prior to the
end of each fiscal year during the Employment Period, the Corporation shall
establish a special bonus incentive program (the "Program") for the Employee
pursuant to which the Corporation shall determine reasonable objectives
agreeable to the Employee, based on the Corporation's annual business plan, and
subject to approval of the Corporation's Board of Directors. If Employee attains
such objectives, the Employee shall receive a targeted bonus of 25% of the Base
Salary (the "Special Bonus") with respect to each fiscal year during the
Employment Period commencing with the fiscal year ending December 31, 1997 (on a
pro-rata basis for such first fiscal year), payable not later than 15 business
days following such fiscal year (whether or not such payment date is during the
Employment Period, but subject to Section 2.02(c) below). In the event that the
Board of Directors of the Corporation approves the payment of employee bonuses
under the Program on a semi-annual basis, then the Special Bonus shall be
payable to the Employee in accordance with such basis.
3
<PAGE>
(c) Unless otherwise provided in Article III the Special Bonus contemplated
by Section 2.02(b) hereof shall not be payable to the Employee if, prior to the
end of the applicable period, the employment of the Employee shall have been
terminated.
(d) During the Employment Period, the Employee shall be entitled to
participate in the Corporation's 1995 Stock Option Plan (the "Plan"), as
amended, pursuant to which participants are awarded options to purchase shares
of the Class A common stock (the "Common Stock") of the Corporation. As of the
Effective Date, the Corporation Shall grant to the Employee stock options (the
"Options"), pursuant to the Plan, to purchase up to an aggregate of 50,000
shares of the Corporation's Common Stock at an exercise price of $0.01 per
share. The Options shall vest over three years in equal portions, such that 1/3
of the Options shall vest at the end of the first year of the Employment Period,
1/3 of the Options, shall vest at the end of the second year of the Employment
Period and 1/3 of the Options shall vest at the end of the third year of the
Employment Period.
(e) The Corporation shall reimburse the Employee, on the Effective Date,
$50,000 for all moving costs, closing costs, traveling and other expenses
incurred by reason of the sale of Employee's principal home in Ohio and purchase
of a home in the tri-state Metropolitan area, including brokerage fees, and all
other fees, costs or expenses incurred by the Employee in connection with the
Employee's relocation from Ohio to the tri-state Metropolitan area; provided,
however, that Employee shall be obligated to return the $50,000 to the
Corporation if, before the first anniversary of the Effective Date, the
Employee's employment is either terminated by the Corporation for "cause"
pursuant to Section 3.03 or by
4
<PAGE>
the Employee for other than 'Good Reason" as defined in Section 3.04.
(f) For a maximum period of three months, following the Effective Date, the
Corporation shall reimburse the Employee for the reasonable cost of the rental
of a suitable apartment in New York City and for airfare and other reasonable
transportation expenses associated with travel from New York to the Employee's
current residence in Ohio, provided, however, that in no event shall the
Corporation be obligated to reimburse the Employee for more than (i) $3,000 per
month for rental of the apartment (plus the cost of any deposit or rental fee)
or (ii) $4,000 per month for such other reasonable transportation expenses
associated with such travel. In addition, the Corporation shall reimburse the
Employee for the reasonable cost of commuting from his new home in the tri-state
Metropolitan area to the Corporation's offices in New York City, provided,
however, that in no event shall the Corporation be obligated to reimburse the
Employee for more than $350 per month for such costs of commuting. All such
reimbursements shall be made by the Corporation upon the presentation of
appropriate documentation therefor.
(g) At any time, at the Employee's request, within 90 days of the Effective
Date (the "Loan Date"), the Corporation shall promptly upon receipt of such
request provide a loan to the Employee in an amount up to $100,000 (the "Loan").
The Loan shall accrue interest at the lowest applicable Federal rate on the Loan
Date. The Loan plus any accrued interest thereon shall be immediately due and
payable on the earliest of (i) the fifth year anniversary of the Effective Date,
(ii) the date of sale of any of the Employee's common stock of the Corporation
received by the Employee from the Corporation as a result of exercising
5
<PAGE>
any of the Options granted to the Employee the Plan and (iii) the seventh
business day following the date of termination of the Employee's employment if
the Employee's employment is either terminated by the Corporation for "cause"
pursuant to Section 3.03 or by the Employee for other than "Good Reason" as
defined in Section 3.04. The Employee shall execute a promissory note, in the
form of Exhibit A attached hereto, evidencing the Loan.
(h) The Employee shall be entitled to participate, on the same basis,
subject to the same qualifications, as other similar executive officers of the
Corporation, in any of the Corporation's pension, profit sharing, 401(k) or
similar plan, savings, bonus, life insurance, health insurance, dental
insurance, disability insurance, hospitalization and other fringe benefit plans
and policies in effect with respect to employees of the Corporation.
(i) The Corporation shall reimburse the Employee for all reasonable
out-of-pocket expenses incurred by Employee in connection with the performance
of his duties hereunder. All such reimbursements shall be made by the
Corporation upon the presentation of appropriate documentation therefor.
(j) During the Employment Period, the Employee shall be entitled to
vacations of 20 business days per annum, and all holidays observed by the
Corporation, during which times the Employee shall be entitled to his full
compensation.
6
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ARTICLE III
TERMINATION
Section 3.01 Disability. If, during the Employment Period, the Employee
shall be unable substantially to perform the duties required of him pursuant to
the provisions of this Agreement due to any physical or mental Disability (as
defined below) for a period of 60 days in any 12 consecutive months, the
Corporation shall have the right to terminate the Employee's employment pursuant
to this Agreement by giving not less than 15 days' written notice to the
Employee, at the end of which time, if such disability has continued, the
Employee's employment shall be terminated. The Employee shall retain his status
and continue to receive his Base Salary as provided in Section 2.02(a)(i) and
benefits hereunder during the period prior to any termination hereunder because
of a disability. As used in this Agreement, the term "Disability" shall mean the
inability of the Employee to perform his duties under this Agreement, as
determined by an independent physician, due to any mental, physical or
psychological injury, illness or disease.
Section 3.02 Death. In the event of the Employee's death during the
Employment Period, this Agreement shall terminate as of the date of such death
and the Corporation shall no longer be under any obligation to the Employee or
his heirs, executors or legal representatives pursuant to this Agreement except
for (i) any salary accrued and unpaid up to the date of the Employee's death and
(ii) any unreimbursed expenses pursuant to Section 2.02(i) to the date of death.
Section 3.03 Termination For Cause. The Corporation shall have the right to
7
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terminate the Employee's employment pursuant to this Agreement for "cause."
"Cause" for termination shall mean (i) the conviction (after trial or upon plea)
of the Employee for a felony under State or federal law of the United States;
(ii) any embezzlement, fraud or dishonesty or commission of an offense involving
money or other property of the Corporation; (iii) the material breach by the
Employee of the provisions of this Agreement, which breach, if capable of being
cured, is not cured within 10 days after written notice by the Corporation
specifying such breach or if not capable of being cured within 10 days, if the
Employee has not commenced good faith efforts to cure such breach within 10 days
and, in any event, such breach is not cured within 30 days after such written
notice; (iv) the Employee's failure after written notice to perform any of his
material duties or to comply with an order of the Board of Directors; or (v)
gross negligence in the performance of the Employee's duties.
In the event the Corporation terminates the Employee for "cause" under this
provision, then this Agreement shall terminate and the Corporation shall have no
further obligation hereunder; provided, however, the Corporation shall pay the
Employee all Base Salary accrued and any unreimbursed expenses owed as of the
date of termination.
Section 3.04 Employee Termination For Good Reason. The Employee shall have
the right, upon 30 days' prior written notice to the Corporation, to terminate
his employment pursuant to this Agreement for "Good Reason." "Good Reason" for
termination hereunder means the material breach by the Corporation of the
provisions of this Agreement, which breach, if capable of being cured, is not
cured within 15 days after written notice by the Employee specifying such breach
or if not capable of being cured within 15 days, if the
8
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Corporation has not commenced good faith efforts to cure such breach within 15
days and, in any event, such breach is not cured within 45 days after such
written notice. In the event of a failure to cure within 45 days of notice of
breach, the notice of breach shall be regarded as notice of termination by the
Employee and the Employer may terminate employment for "Good Reason" at the end
of such 45 day period.
In the event the Employee terminates for "Good Reason" under this
provision, then the Corporation shall pay to the Employee the Base Salary that
would otherwise have been payable to the Employee for the 12 month period
commencing with termination of Employment or for the remaining term of the
Employment Period, whichever is shorter, payable in accordance with the terms of
Section 2.02(a)(i) hereof and the Employee shall continue to be covered by all
health and disability benefits, at the cost of the Corporation, for a period of
90 days from such termination or the remaining term of the Employment Period,
whichever is longer.
Section 3.05 Termination Without Cause. If the Employee's employment
hereunder is terminated by the Corporation, other than for "cause," death or
disability, the Corporation shall pay to the Employee the Base Salary that would
otherwise have been payable to the Employee for the 12 month period commencing
with the termination of Employment or for the remaining term of the Employment
Period, whichever is shorter, payable in accordance with the terms of Section
2.02(a)(i) hereof and the Employee shall continue to be covered by all health
and disability benefits for a period, at the cost of the Corporation, of 90 days
from such termination.
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ARTICLE IV
CONFIDENTIALITY
Section 4.01 Confidential Information.
The Employee shall hold in a fiduciary capacity for the benefit of the
Corporation and each of the Corporation's parent, subsidiaries or affiliates
(the "Affiliated Entities") all information, knowledge, and data relating to or
concerned with its and their operations, business and affairs, including,
without limitation, information disclosed to the Employee or known, learned,
created or observed by him as a consequence of or through this Agreement, not
generally known in the relevant trade or industry or known to the Employee prior
to his employment by the Corporation, about the Corporation's business
activities, services and processes, including, without limitation, information
concerning advertising, sales promotion, publicity, sales data, research,
telecommunications technology, finances, accounting, methods, processes,
business plans (including prospective or pending licensing applications or
investments in license holders or applicants), client or supplier lists and
records, potential client or supplier lists, and client or supplier billing
(collectively, the "Confidential Information"), and, except as otherwise
specifically provided in this Agreement, the Employee shall not, during the
Employment Period or at any time thereafter, use, disclose or divulge any
Confidential Information, knowledge or data, including, without limitation,
trade secrets of the Corporation or an Affiliated Entity, relating to the
Corporation or an Affiliated Entity or any of its or their respective customers
or any producer, manufacturer, licensor, supplier or any other person providing
services or goods to the Corporation or an Affiliated Entity or with whom any of
them does business, to any person, firm or corporation other than to the
10
<PAGE>
Corporation or the Affiliated Entities or their designees or except as may
otherwise be required in connection with the business and affairs of the
Corporation and the Affiliated Entities; provided, however, that such Formation
shall not include (i) information which at the time of disclosure or thereafter
is or becomes part of the public domain, knowledge or literature other than
through the Employee's disclosure; (ii) information required by law to be
disclosed; or (iii) as may be permitted by the terms of this Agreement. It is
the specific intent of the Corporation and the Employee that each and all of the
provisions set forth hereinabove shall be valid and enforceable as specifically
set forth hereinabove; and that the Employee acknowledges that the Corporation's
remedies at law are likely to be inadequate, and the Employee consents to the
application of the equitable remedies of specific performance to enforce the
Corporation's rights hereunder. Further, should any person seek to legally
compel the Employee (by oral questions, interrogatories, requests for
information or documents, subpoena, civil investigative demands or otherwise) to
disclose any Confidential Information, the Employee shall provide the
Corporation with prompt notice followed up in writing so that the Corporation
may seek a protective order or other appropriate remedy, failing which the
Employee shall be entitled to make such disclosure as is legally required. In
any event the Employee shall use his best efforts with the advice of counsel to
furnish only that portion of the Confidential Information which is legally
required and, with the cooperation of the Corporation, will exercise his best
efforts to obtain reliable assurance that confidential treatment will be
accorded information so disclosed. In the event of a breach or a threatened
breach by the Employee of the provisions of this Section 4.01, the Corporation
may, in addition to any other remedies it may have, obtain injunctive relief in
any court of appropriate
11
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jurisdiction to enforce this Section 4.01. The provisions of this Section 4.01
shall survive the expiration or termination, for any reason, of this Agreement
and shall be separately enforceable. The Employee hereby assigns to the
Corporation any and all rights the Employee may have or hereafter acquire in any
Confidential Information.
Section 4.02 Corporate Records. All files, records, compilations, reports,
studies, manuals, memoranda, notebooks, documents, correspondence, products and
strategies, costs, and other confidential, secret or proprietary information or
records and similar items relating to the business of the Corporation and the
Affiliated Entities, its subsidiaries and its affiliates, whether prepared by
the Employee or otherwise coming into his possession, are and shall remain the
exclusive property of the Corporation, its subsidiaries and/or its affiliates,
and, to the extent possible, shall be promptly delivered to the Corporation upon
termination of the Employee's employment.
ARTICLE V
NONCOMPETITION AND NONSOLICITATION
Section 5.01 Noncompetition and Nonsolicitation.
(a) Except if terminated by the Corporation without "cause" or if
terminated by the Employee with "Good Reason," the Employee agrees, to the
extent permitted by law, that neither he nor any entity in which he may be
interested as a partner, trustee, director, officer, employee, shareholder,
option holder, lender of money or guarantor (each, an
12
<PAGE>
"Employee Affiliate"), during the Employee's employment with the Corporation and
during the period terminating on the earlier to occur of the one year
anniversary of the termination of the Employment Period or the one year
anniversary of the termination the Employee's employment with the Corporation,
whether or not subsequent to the termination of the Employment Period, directly
or indirectly, own, manage, operate, join or control, or participate in the
ownership, management, operation or control of, or be a director or employee of,
or a consultant to, any business, firm or corporation which is conducting any
business which competes in any substantial respect with the business of the
Corporation or an Affiliated Entity as conducted at the date of termination,
including, without limitation, the business of international long distance
telecommunication services engaged in by the Corporation or any Affiliated
Entity in any country where the Corporation, or any Affiliated Entity, conducts
such business at any time during the Employment Period; provided, however, that
the provisions of this Article V shall not apply to investments by the Employee
in shares of stock registered under the Securities Exchange Act of 1934 which
shall constitute less than one percent (1%) of the outstanding shares of such
class of stock; and, provided, further, that, subject to the Corporation's
written approval, which approval shall not be unreasonably withheld, the
Employee shall be entitled to be a consultant to a business which may compete in
substantial respect with the business of the Corporation if such competing
business is in a geographic location where the Corporation does not conduct
significant business at such time. It is understood and agreed that any
opportunity directly or indirectly related to any business engaged in by the
Corporation or any Affiliated Entity in any country where the Corporation or any
Affiliated Entity conducts such business at any time during the
13
<PAGE>
Employment Period shall be deemed a corporate opportunity and the Employee shall
promptly make such opportunity available exclusively to the Corporation.
(b) The Employee agrees that he will not, during the Employment Period and
for one year thereafter (i) persuade or attempt to persuade any producer,
manufacturer, licensor, supplier or any other person providing services or goods
to the Corporation or an Affiliated Entity not to do business with the
Corporation or an Affiliated Entity, as the case may be which may reduce the
amount of business it does with the Corporation or an Affiliated Entity, as the
case may be; (ii) persuade or attempt to persuade any customer or potential
customer not to do business with the Corporation or an Affiliated Entity which
may reduce the amount of business it does with the Corporation or an Affiliated
Entity, as the case may be; (iii) solicit for himself or any person other than
the Corporation or an Affiliated Entity the business of any producer,
manufacturer, licensor, supplier or any other person providing services or goods
to the Corporation or an Affiliated Entity or any customer or potential customer
who did business with the Corporation or an Affiliated Entity within one year
prior to the termination of the Employment Period; (iv) persuade or attempt to
persuade any employee of the Corporation or an Affiliated Entity, or any
individual who was an employee of the Corporation or an Affiliated Entity during
the one year prior to termination of the Employment Period, to leave the
Corporation's, or such affiliate's employ or to become employed by any person
other than the Corporation or an Affiliated Entity; or (v) unless the Employee
has received the Corporation's written approval, which approval shall not be
unreasonably withheld, perform any consulting services for any person,
partnership, corporation, or other entity who has engaged in business with the
Corporation or an Affiliated
14
<PAGE>
Entity during the one year immediately preceding termination of the Employment
Period.
Section 5.02 Remedies.
The Employee acknowledges and agrees that, because of the unique and
extraordinary nature of his services, any breach of the provisions of Article IV
or Article V will cause irreparable injury and incalculable harm to the
Corporation or an Affiliated Entity and that the Corporation shall, accordingly,
be entitled to injunctive or other equitable relief.
ARTICLE VI
MISCELLANEOUS
Section 6.01 Notices.
All notices and other communications provided for or permitted hereunder
shall be made by hand delivery, first class mail (registered or certified mail,
return receipt requested), telex, telecopier or commercial courier guaranteeing
next day delivery addressed as follows:
(a) if to the Corporation, at RSL Communications, N. America, Inc. at 767
Fifth Avenue, Suite 4300, New York, New York 10153, attention: Avery S. Fischer,
Esq.,
(b) if to the Employee, at his address set forth above; or at such other
address of which either party shall have given notice to the other in the manner
herein provided.
All such notices and communications shall be deemed to have been duly given at
the time
15
<PAGE>
delivered by hand, if personally delivered; five business days after being
deposited in the mail, postage prepaid, if mailed; when answered back, if
telexed; when receipt acknowledged (verbally or electronically), if telecopied;
and the next business day after timely delivery to the courier, if sent by
commercial courier guaranteeing next day delivery.
Section 6.02 Entire Agreement; Amendment and Waiver.
All prior or contemporaneous agreements, contracts, promises,
representations and statements, if any, among the parties hereto, or their
representatives are merged into this Agreement and this Agreement shall
constitute the entire agreement between them. Any term of this Agreement may be
amended and the observance of any term hereof may be waived (either
prospectively or retroactively and either generally or in a particular instance)
only with the written consent of the party to be charged.
Section 6.03 Severability.
If any provision of this Agreement, or the application thereof in any
circumstances, is held to be invalid, illegal or unenforceable in any respect
for any reason, the validity, legality, enforceability of any such provision in
every other respect and of the remaining provisions hereof shall not be in any
way impaired or affected.
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Section 6.04 Assignments.
This Agreement shall be binding upon and inure to the benefit of the
parties hereto, their respective heirs, administrators, executors, personal
representatives, successors and assigns; provided that this Agreement may not be
assigned by Employee unless agreed to in a writing signed by the parties hereto.
Section 6.05 Governing Law.
This Agreement shall be governed by and construed and enforced in
accordance with the laws of the State of New York, without giving effect to New
York's principles of conflicts of law.
Section 6.06 Withholding.
The Corporation shall be entitled to withhold from amounts payable to the
Employee hereunder such amounts as may be required by applicable law.
Section 6.07 Headings.
The headings in this Agreement are for convenience of reference only and
shall not limit or otherwise affect the meaning hereof.
Section 6.08 Survival of Provisions.
The provisions of Articles IV and V of this Agreement shall survive the
expiration or termination of this Agreement.
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Section 6.09 Competence.
The Employee represents and warrants that he is legally able to enter into
and perform his obligations under this Agreement.
Section 6.10 Arbitration.
Subject to Section 5.02 hereof, the parties hereto agree that any dispute
arising out of or relating to this Agreement shall be resolved exclusively by
arbitration through and under the rules of the American Arbitration Association
in New York before an arbitration panel consisting of one arbitrator in
accordance with the rules of the American Arbitration Association. For purposes
of this provision and any action to compel arbitration or to enforce an
arbitration award, the parties consent and submit to the jurisdiction of the
federal and state courts and any applicable arbitral body located within the
State of New York. The results of the arbitration shall be final and the parties
waive all rights of appeal.
Section 6.11 Counterparts.
This Agreement may be executed in any number to counterparts, each of which
shall be deemed an original, and all of which together shall constitute one and
the same instrument.
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IN WITNESS WHEREOF, the parties have executed this Agreement as of the day and
year first above written.
RSL COMMUNICATIONS, LTD.
By /s/ Itzhak Fisher
--------------------------
Name: Itzhak Fisher
Title: President and CEO
----------------------------
ANDREW C. SHIELDS
19
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the day
and year first above written.
RSL COMMUNICATIONS, LTD.
By
--------------------------
Name: Itzhak Fisher
Title: President and CEO
/s/ Andrew C. Shields
----------------------------
ANDREW C. SHIELDS
19
<PAGE>
Exhibit A
PROMISSORY NOTE
$100,000.00 New York, New York
July _, 1997
FOR VALUED RECEIVED, ANDREW C. SHIELDS ("Maker"), an individual residing at
69-25 Candace Place, Werthington, Ohio 43086, hereby promises to pay to the
order of RSL COMMUNICATIONS, LTD., a Bermuda corporation ("Holder"), the
principal amount of [ONE HUNDRED THOUSAND DOLLARS ($100,000)] in lawful money of
the United States of America, plus any accrued but unpaid interest through the
date of maturity hereof.
1. Payment. The principal amount and interest on this promissory note
"Note") shall be due and payable on the date (the "Maturity Date") which is the
earlier of (i) August 11, 2002, (ii) the date of the sale of any of Maker's
common stock of the Corporation received by Maker from the Corporation as a
result of exercising any of the options granted to Maker, pursuant to the
Employment Agreement (the "Employment Agreement"), dated as of the date hereof,
between Maker and Holder, and (iii) the seventh business day following the date
of termination of Maker's employment in accordance with, and by the reasons set
forth in, Section 2.02(g) of the Employment Agreement.
2. Interest. The Maker shall pay interest on an annual basis from the date
of this Note on the unpaid principal sum at the lowest applicable Federal rate
of interest on the date hereof. In no event shall the interest charged hereunder
exceed the maximum permitted by law. Interest shall not compound, and shall
accrue as of the date payment is due.
3. Place of Payment. Payments of principal, interest and any other amounts
hereunder are to be made to Holder at 767 Fifth Avenue, Suite 4300, New York, NY
10153, or such other place as Holder shall designate to Maker in writing.
4. Prepayment. This Note may be prepaid, in whole or in part, at any time
or from time to time, without premium or penalty.
5. Payment not on a Business Day. If any payment of principal of or
interest on this Note shall become due on a Saturday, Sunday or a public holiday
under the laws of the State of New York or the United States of America, then
such payment shall be made on the next succeeding business day without penalty.
<PAGE>
6. Late Payment Charge. In the event that Maker fails to make any payment
of principal or interest under this Note on or prior to the Maturity Date, then
the principal amount plus accrued interest under this Note shall bear interest
from such date at a rate per annum equal to 10% compounded monthly.
Notwithstanding the foregoing, the obligation of Maker to make payments of
interest shall be subject to the limitation that payments of interest shall not
be required to be made to Holder to the extent that Holder's receipt thereof
would not be permissible under the law or laws applicable to Holder limiting
rates of interest which may be charged or collected by Holder.
7. Expenses. Maker shall pay all reasonable costs and expenses, including
reasonable attorneys' fees and expenses, incurred by Holder in collecting or
enforcing this Note.
8. Successors and Assigns. This Note shall inure to the benefit of and be
enforceable by Holder and its successors and assigns and shall be binding and
enforceable against Maker and his heirs and assigns. Notwithstanding the
foregoing, Maker shall not assign its obligations hereunder without the prior
written consent of Holder.
9. Severability. It is the desire and intent of the parties that the
provisions of this Note be enforced to the fullest extent permissible under the
law and public policies applied in each jurisdiction in which enforcement is
sought. Accordingly, if any provision of this Note would be held to be invalid,
prohibited or unenforceable in any jurisdiction for any reason, such provision,
as to such jurisdiction, shall be ineffective, without invalidating the
remaining provisions of this Note or affecting the validity or enforceability of
such provision in any other jurisdiction. Notwithstanding the foregoing, if such
provision could be more narrowly drawn so as not to be invalid, prohibited or
unenforceable in such jurisdiction, it shall, as to such jurisdiction, be so
narrowly drawn, without invalidating the remaining provisions of this Note or
affecting the validity or enforceability of such provision in any other
jurisdiction.
10. Waivers. (a) Maker hereby waives presentment, demand for payment,
notice of dishonor, notice of protest, and protest in connection with the
delivery, acceptance, performance, default, endorsement or guaranty of this
Note.
(b) No delay by Holder in exercising any power or right hereunder shall
operate as a waiver of any power or right, nor shall any single or partial
exercise of any power or right
-2-
<PAGE>
preclude other or further exercise thereof, or the exercise of any other power
or right hereunder or otherwise. No waiver or modification of the terms hereof
shall be valid unless set forth in writing by Holder.
11. Modification. No modification, alteration or change of any of the
provisions hereof shall be effective unless in writing and signed by Maker and
Holder and only to the extent set forth therein.
12. Governing Law, Jurisdiction, Waiver of Jury Trial. This Note shall be
governed by and construed in accordance with the laws of the State of New York,
without giving effect to conflicts of law principles thereof. For purposes of
this Note, Maker hereby irrevocably submits to the nonexclusive jurisdiction of
the courts of the State of New York, sitting in New York County, and the courts
of the United States for the Southern District of New York. Maker irrevocably
waives, to the fullest extent permitted by law, any objection which it may now
or hereafter have to the laying of the venue of any such suit, action or
proceeding brought in any such court, any claim that any such suit, action or
proceeding brought in such a court has been brought in an inconvenient forum and
the right to object, with respect to any such suit, action or proceeding brought
in any such court, that such court does not have jurisdiction over such party.
In any such suit, action or proceeding, Maker waives, to the fullest extent it
may effectively do so, personal service of any summons, complaint or other
process and agrees that the service thereof may be made by certified or
registered mail. Maker agrees that a final judgment in any such action or
proceeding may be enforced in other jurisdictions by suit on the judgment or in
any other manner provided by law. Maker hereby waives all right to trial by jury
in any action, suit or proceeding brought to enforce or defend any rights or
remedies under this Note.
13. Confessed Judgment. Upon the occurrence of a default hereunder, Maker
hereby authorizes any attorney designated by Holder or any clerk of any court of
record to appear for Maker in any court of record and confess judgment against
Maker, without prior hearing, in favor of Holder for, and in an amount equal to,
the full amount then due and payable by Maker hereunder, all other amounts then
due and payable by Maker to Holder under the provisions of this Note, costs of
suit and attorneys' fees of 15% of the amount of such obligations. In connection
therewith, Maker hereby releases, to the extent permitted by applicable laws,
all errors and all rights of exemption, appeal, stay of execution, inquisition,
and other rights to which Maker may otherwise be entitled under the applicable
laws now in force and
-3-
<PAGE>
which may hereafter be enacted, including, without limitation, those of the
United States of America. The authority and power to appear for and enter
judgment against Maker shall not be exhausted by one or more exercises thereof
or by any imperfect exercise thereof and shall not be extinguished by any
judgment entered pursuant thereto. Such authority may be exercised on one or
more occasions or from time to time in the same or different jurisdictions as
often as Holder shall deem necessary and desirable, for all of which this Note
shall be sufficient warrant.
IN WITNESS WHEREOF, Maker has executed this Note as of the date first above
written.
----------------------------------
ANDREW C. SHIELDS
-4-
<PAGE>
Draft--September 3, 1997
RSL COMMUNICATIONS, LTD.
1997 PERFORMANCE INCENTIVE PLAN
1. Purpose
The purposes of the Plan are to enable the Company and its Subsidiaries to
attract, retain, motivate and reward the best qualified executive officers and
key employees by providing them with the opportunity to earn competitive
compensation directly linked to the Company's performance.
2. Definitions
Unless the context requires otherwise, the following words as used in the
Plan shall have the meanings ascribed to each below, it being understood that
masculine, feminine and neuter pronouns are used interchangeably and that each
comprehends the others.
"Board" means the Board of Directors of the Company.
"Common Stock" shall mean the Class A common shares, par value $____ per
share, of the Company.
"Committee" means the Compensation Committee of the Board (or such other
committee of the Board that the Board shall designate from time to time) or any
subcommittee thereof consisting of two or more directors each of whom is a
Disinterested Director.
"Company" means RSL Communications, Ltd., a Bermuda Corporation.
"Disinterested Director" shall mean a director of the Company who is both a
"Non-Employee Director" within the meaning of Rule 16b-3 under the Exchange Act
and an "outside director" within the meaning of Section 162(m) of the Code.
"Fair Market Value" shall mean, on any date, the average of the closing
price of a Share as reported on the National Association of Securities Dealers
Automated Quotation/National Market System ("NASDAQ/NMS") (or on such other
<PAGE>
recognized market or quotation system on which the trading prices of the Share
are traded or quoted at the relevant time) over the preceding twenty business
days.
"Participant" means (i) each executive officer of the Company and (ii) each
other key employee of the Company or a Subsidiary recommended by the Chief
Executive Officer of the Company and selected by the Committee and approved by
the Board to be a participant under the Plan.
"Performance Period" means each calendar year or multi-year cycle as
determined by the Committee.
"Plan" means the RSL Communications, Ltd. 1997 Performance Incentive Plan,
as set forth herein and as may be amended from time to time.
"Section 162(m)" means section 162(m) of the Internal Revenue Code of 1986,
as amended, and any regulations promulgated thereunder (including any proposed
regulations).
"Subsidiary" means any corporation of which the Company possesses directly
or indirectly fifty percent (50%) or more of the total combined voting power of
all classes of stock of such corporation and any other business organization,
regardless of form, in which the Company possesses directly or indirectly fifty
percent (50%) or more of the total combined equity interests in such
organization.
3. Administration
The Committee shall administer and interpret the Plan. The Committee shall
establish the performance objectives for any calendar year in accordance with
Section 4 and certify whether such performance objectives have been attained.
Any determination made by the Committee under the Plan shall be final and
conclusive. The Committee may employ such legal counsel, consultants and agents
(including counsel or agents who are employees of the Company or a Subsidiary)
as it may deem desirable for the administration of the Plan and may rely upon
any opinion received from any such counsel or consultant or agent and any
computation received from such consultant or agent. All expenses incurred in the
administration of the Plan, including, without limitation, for the engagement of
any counsel, consultant or agent, shall be paid by the Company. No member or
former member of the Board or the Committee shall be liable for any act,
omission, interpretation, construction or determination made in connection with
the Plan other than as a result of such individual's willful misconduct.
2
<PAGE>
4. Bonuses
(a) Performance Criteria. Within 90 days after each Performance Period
begins (or, in the case of the 1997 calendar year, as promptly as practicable
following the adoption of this Plan), the Committee shall establish the
performance objective or objectives that must be satisfied in order for a
Participant to receive a bonus for such Performance Period. Any such performance
objectives will be based upon the achievement of one or more of the following
criteria, which may be absolute, relative or comparative, as determined by the
Committee: (i) consolidated earnings before income taxes, depreciation and
amortization; (ii) revenues; (iii) earnings per share; (iv) net income; (v)
gross profit margin; (vi) maximum capital expenditures; (vii) return on equity;
(viii) return on total capital and/or (ix) completion of an initial public
offering of Common Stock.
(b) Maximum Amount Payable for 1997. With respect to calendar year 1997, a
cash bonus pool of $2,675,000 will be established if the Company achieves the
performance objectives established by the Committee for such calendar year. In
the event that all of such performance targets is achieved, $650,000 will be
awarded to the Company's Chief Executive Officer, and the remainder will be
awarded to Participants based upon the recommendation of the Company's Chief
Executive Officer and approved by the Compensation Committee and the Board of
Directors, with no individual receiving more than $650,000.
(c) Maximum Amount Payable for 1998 and Thereafter. With respect to
calendar years 1998 and thereafter, if the Committee certifies in writing that
the performance objectives established for the relevant Performance Period under
Section 4(a) have been satisfied, each Participant who is employed by the
Company or one of its Subsidiaries on the last day of the Performance Period for
which the bonus is payable shall be eligible to receive a maximum bonus
hereunder determined as follows:
(i) in the case of a Participant other than the Company's Chief
Executive Officer:
Less than 120% or
80% of 80% of 100% of more of
Target Target Target Target
--------- ------ ----------- ------------
0 25% of 100% of 200% of base
base base salary salary
salary
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<PAGE>
(ii) in the case of the chief executive officer of the Company and the
chief executive officer of International Telecommunications Group, Ltd., a
Subsidiary of the Company,
Less than 120% or
80% of 80% of 100% of more of
Target Target Target Target
--------- ------ ----------- ------------
0 25% of 150% of 250% of base
base base salary salary
salary
(iii) in the event of performance between 80% of target and 100% of
target, or between 100% of target and 120% of target, the maximum bonus
shall be pro rated between the applicable bonus percentages set forth in
the preceding clauses (i) and (ii) above.
If a Participant's employment terminates for any reason (including, without
limitation, his death, disability or retirement under the terms of any
retirement plan maintained by the Company or a Subsidiary) prior to the last day
of the Performance Period for which the bonus is payable but after March 31 of
such Performance Period, the Committee shall determine whether a pro rated bonus
shall be paid, provided that the maximum bonus for which such Participant shall
be eligible shall be the amount applicable to such Participant under the
preceding clause (i) or (ii) (as adjusted by clause (iii)) multiplied by a
fraction, the numerator of which is the number of days that have elapsed during
the Performance Period in which the termination occurs prior to and including
the date of the Participant's termination of employment and the denominator of
which is the total number of days in the Performance Period.
(d) Nondiscretionary Bonus. Fifty percent (50%) of the maximum bonus amount
(if any) as determined pursuant to Section 4(c) above shall be payable to the
Participant.
(e) Discretionary Bonus. The Committee shall have the right, in its
absolute discretion, to award a bonus to any Participant equal to fifty percent
(50%), or such lesser percentage as the Committee shall determine, of the
maximum bonus amount as determined pursuant to Section 4(c), based on individual
performance or any other factors that the Committee, in its discretion, shall
deem appropriate.
4
<PAGE>
(f) Affirmative Discretion. Notwithstanding any other provision in the Plan
to the contrary, (i) the Committee shall have the right, in its discretion, to
pay to any Participant a bonus for the year, based on individual performance or
any other criteria that the Committee deems appropriate, regardless of whether
performance objectives are attained and (ii) in connection with the hiring of
any person who is or becomes a Participant, the Committee may provide for a
minimum bonus amount in any Performance Period.
5. Payment
Except as otherwise provided hereunder, payment of any bonus amount
determined under Section 4 shall be made to each Participant as soon as
practicable after the Committee certifies that one or more of the applicable
performance objectives have been attained (or, in the case of any bonus payable
under the provisions of Section 4(e) or 4(f), after the Committee determines the
amount of any such bonus).
6. Form of Payment
The Committee shall determine whether any bonus payable under the Plan is
payable in cash, in shares of Common Stock or in any combination thereof,
provided that not less than 50% of such bonus shall be payable in cash. The
Committee shall have the right to impose whatever conditions it deems
appropriate with respect to the award of shares of Common Stock, including
conditioning the vesting of such shares on the performance of additional
service. In addition, the Committee shall permit a Participant to elect to
receive all or a portion of his of her bonus payable hereunder in shares of
Common Stock (based on the Fair Market Value of such shares at the time of
payment (without regard to any deferral under Section 7)). The maximum number of
shares available for issuance under the Plan shall be 400,000 Shares of Common
Stock; provided that the Committee shall adjust such number of Shares as
appropriate in the event of any Share dividend or Share split, recapitalization
(including, without limitation, the payment of an extraordinary dividend),
merger, consolidation, combination, spin-off, distribution of assets to
shareholders, exchange of shares, or other similar corporate change.
7. Form of Payment
Payment of a bonus hereunder on a deferred basis may be permitted at the
election of the Participant on terms and conditions established by the
Committee, which may include, without limitation, provisions for the payment or
crediting of reasonable interest on installment or deferred payments or the
grant or crediting of
5
<PAGE>
dividend equivalents or other amounts in respect of installment or deferred
payments denominated in Common Stock.
8. General Provisions
(a) Effectiveness of the Plan. The Plan shall be effective with respect to
calendar years 1997 through 2000, unless the term hereof is extended by action
of the Board.
(b) Amendment and Termination. Notwithstanding Section 6(a), the Board or
the Committee may at any time amend, suspend, discontinue or terminate the Plan;
provided, however, that no such action shall be effective without approval by
the shareholders of the Company to the extent necessary to continue to qualify
the amounts payable hereunder to Covered Employees as deductible under Section
162(m).
(c) Designation of Beneficiary. Each Participant may designate a bene-
ficiary or beneficiaries (which beneficiary may be an entity other than a
natural person) to receive any payments which may be made following the
Participant's death. Such designation may be changed or canceled at any time
without the consent of any such beneficiary. Any such designation, change or
cancellation must be made in a form approved by the Committee and shall not be
effective until received by the Committee. If no beneficiary has been named, or
the designated beneficiary or beneficiaries shall have predeceased the
Participant, the beneficiary shall be the Participant's spouse or, if no spouse
survives the Participant, the Participant's estate. If a Participant designates
more than one beneficiary, the rights of such beneficiaries shall be payable in
equal shares, unless the Participant has designated otherwise.
(d) No Right of Continued Employment. Nothing in this Plan shall be
construed as conferring upon any Participant any right to continue in the
employment of the Company or any of its Subsidiaries.
(e) No Limitation on Corporate Actions. Nothing contained in the Plan shall
be construed to prevent the Company or any Subsidiary from taking any corporate
action which is deemed by it to be appropriate or in its best interest, whether
or not such action would have an adverse effect on any awards made under the
Plan. No employee, beneficiary or other person shall have any claim against the
Company or any Subsidiary as a result of any such action.
(f) Nonalienation of Benefits. Except as expressly provided herein, no
Participant or beneficiary shall have the power or right to transfer,
anticipate, or other-
6
<PAGE>
wise encumber the Participant's interest under the Plan. The Company's
obligations under this Plan are not assignable or transferable except to (i) a
corporation which acquires all or substantially all of the Company's assets or
(ii) any corporation into which the Company may be merged or consolidated. The
provisions of the Plan shall inure to the benefit of each Participant and the
Participant's beneficiaries, heirs, executors, administrators or successors in
interest.
(g) Withholding. Any amount payable to a Participant or a beneficiary under
this Plan shall be subject to any applicable Federal, state and local income and
employment taxes and any other amounts that the Company or a Subsidiary is
required at law to deduct and withhold from such payment.
(h) Severability. If any provision of this Plan is held unenforceable, the
remainder of the Plan shall continue in full force and effect without regard to
such unenforceable provision and shall be applied as though the unenforceable
provision were not contained in the Plan.
(i) Governing Law. The Plan shall be construed in accordance with and
governed by the laws of Bermuda.
(j) Headings. Headings are inserted in this Plan for convenience of
reference only and are to be ignored in a construction of the provisions of the
Plan.
7
<PAGE>
Draft--September 3, 1997
RSL COMMUNICATIONS, LTD.
1997 STOCK INCENTIVE PLAN
1. Purpose
The purpose of the Plan is to foster and promote the long-term
financial success of the Company and materially increase shareholder value by
(a) motivating superior performance by means of
performance-related incentives,
(b) encouraging and providing for the acquisition of an ownership
interest in the Company by Eligible Employees and
(c) enabling the Company to attract and retain the services of an
outstanding management team upon whose judgment, interest and
special effort the successful conduct of its operations is
largely dependent.
2. Definitions
"Award" shall mean any grant or award under the Plan, as
evidenced in a written document delivered to a Participant as provided in
Section 11(b).
"Board" shall mean the Board of Directors of the Company.
"Cause" shall mean (i) the willful failure by the Participant
to perform substantially the Participant's duties as an employee of the Company
(other than due to physical or mental illness) after reasonable notice to the
Participant of such failure, (ii) the Participant's engaging in serious
misconduct that is injurious to the Company or any Subsidiary (iii) the
Participant's having been convicted of, or entered a plea of nolo contendere to,
a crime that constitutes a felony, or (iv) the breach by the Participant of any
written covenant or agreement not to compete, in each case with respect to the
Company or any Subsidiary, regarding confidentiality of information of the
Company or any Subsidiary or nonsolicitation or hiring of employees of the
Company or any Subsidiary.
<PAGE>
"Code" shall mean the Internal Revenue Code of 1986, as
amended, and the regulations thereunder.
"Committee" shall mean the Compensation Committee of the
Board, or such other Board committee as may be designated by the Board to
administer the Plan.
"Common Stock" shall mean the Class A common shares, par value
$|X| per share, of the Company.
"Company" shall mean RSL Communications, Ltd., a Bermuda
corporation, and any successor thereto.
"Deferred Annual Amount" shall mean, with respect to any year,
the amount of compensation that a Participant elects to defer in exchange for an
award of Elective Units as determined pursuant to Section 9 hereof.
"Deferred Stock" shall mean a contractual right to receive a
share of Common Stock at the time and subject to the conditions set forth in
Section 9 hereof.
"Disability" shall mean long-term disability as defined under
the terms of the Company's applicable long term disability plans or policies.
"Disinterested Director" shall mean a director of the Company
who is both a "Non-Employee Director" within the meaning of Rule 16b-3 under the
Exchange Act and an "outside director" within the meaning of Section 162(m) of
the Code.
"Early Retirement" shall mean retirement at or after the
earliest age at which the Participant may retire and receive an immediate, but
actuarially reduced, retirement benefit under any defined benefit pension plan
maintained by the Company or any of its Subsidiaries in which such Participant
participates.
"Elective Units" shall mean an award of Deferred Stock made
pursuant to Section 9 in respect of a Participant's Deferred Annual Amount.
"Eligible Employee" shall mean each Executive Officer and each
other key employee of the Company or its Subsidiaries, but shall not include
Directors who are not employees of any such entity.
2
<PAGE>
"Employment" shall mean, for purposes of Sections 5(e), 7(b)
and 8(b), continuous and regular salaried employment with the Company or a
Subsidiary, which shall include (unless the Committee shall otherwise determine)
any period of vacation, any approved leave of absence or any salary continuation
or severance pay period and, at the discretion of the Committee, may include
service with any former Subsidiary of the Company.
"Exchange Act" shall mean the Securities Exchange Act of 1934,
as amended from time to time.
"Executive Officer" shall mean those persons who are officers
of the Company within the meaning of Rule 16a-1(f) of the Exchange Act.
"Fair Market Value" shall mean, on any date, the average of
the closing price of a Share as reported on the National Association of
Securities Dealers Automated Quotation/National Market System ("NASDAQ/NMS") (or
on such other recognized market or quotation system on which the trading prices
of the Share are traded or quoted at the relevant time) over the preceding
twenty business days. Notwithstanding the foregoing, (i) in the case of any
Award made on the date of the initial public offering of the Company's Common
Stock, "Fair Market Value" on such date shall be the price at which the
Company's Common Stock is sold to the public in such initial public offering and
(ii) in the case of an Incentive Stock Option, "Fair Market Value" shall, on any
date, mean the average of the bid and asked price of a Share reported on the
NASDAQ/NMS (or on such other recognized market or quotation system on which the
trading prices of the Share are traded or quoted at the relevant time) on such
date.
"Incentive Stock" shall mean any Award of Common Stock granted
under Section 8 which becomes vested and nonforfeitable upon the attainment, in
whole or in part, of performance objectives determined by the Committee.
"Incentive Stock Option" shall mean an Option which is
intended to meet the requirements of Section 422 of the Code.
"Incentive Unit" shall mean any Award of a contractual right
granted under Section 8 to receive Common Stock (or, at the discretion of the
Committee, cash based on the Fair Market Value of the Common Stock) which
becomes vested and nonforfeitable upon the attainment, in whole or in part, of
performance objectives determined by the Committee.
3
<PAGE>
"Nonstatutory Stock Option" shall mean an Option which is not
intended to be an Incentive Stock Option.
"Normal Retirement" shall mean retirement at or after the
earliest age at which the Participant may retire and receive a retirement
benefit without an actuarial reduction for early commencement of benefits under
any defined benefit pension plan maintained by the Company or any of its
Subsidiaries in which such Participant participates.
"Option" shall mean the right to purchase the number of shares
of Common Stock specified by the Committee, at a price and for the term fixed by
the Committee in accordance with the Plan and subject to any other limitations
and restrictions as this Plan and the Committee shall impose.
"Participant" shall mean an Eligible Employee who is selected
by the Committee to receive an Award under the Plan.
"Plan" shall mean the RSL Communications, Ltd. 1997 Stock
Option Plan, described herein, and as may be amended from time to time.
"Reload Option" shall have the meaning ascribed thereto in
Section 5(f).
"Restricted Period" shall mean the period during which a grant
of Incentive Stock, Restricted Stock, Incentive Units or Restricted Units is
subject to forfeiture.
"Restricted Stock" shall mean any Award of Common Stock
granted under Section 7 which becomes vested and nonforfeitable, in whole or in
part, upon the completion of such period of service as shall be determined by
the Committee.
"Restricted Unit" shall mean any Award of a contractual right
granted under Section 7 to receive Common Stock (or, at the discretion of the
Committee, cash based on the Fair Market Value of the Common Stock) which
becomes vested and nonforfeitable, in whole or in part, upon the completion of
such period of service as shall be determined by the Committee.
"Share" shall mean a share of Common Stock.
"Stock Appreciation Right" shall mean a contractual right
granted under Section 6 to receive cash, Common Stock or a combination thereof.
4
<PAGE>
"Subsidiary" shall mean any corporation of which the Company
possesses directly or indirectly fifty percent (50%) or more of the total
combined voting power of all classes of stock of such corporation and any other
business organization, regardless of form, in which the Company possesses
directly or indirectly fifty percent (50%) or more of the total combined equity
interests in such organization.
"Supplemental Units" shall mean an award of Deferred Stock
made pursuant to Section 9 with respect to a number of shares in excess of the
number of shares corresponding to the Participant's Elective Units.
3. Administration
The Plan shall be administered by the Committee which shall
consist of at least two Directors of the Company chosen by the Board each of
whom is a Disinterested Director. The Committee shall have the responsibility of
construing and interpreting the Plan and of establishing and amending such rules
and regulations as it deems necessary or desirable for the proper administration
of the Plan. Any decision or action taken or to be taken by the Committee,
arising out of or in connection with the construction, administration,
interpretation and effect of the Plan and of its rules and regulations, shall,
to the maximum extent permitted by applicable law, be within its absolute
discretion (except as otherwise specifically provided herein) and shall be
conclusive and binding upon all Participants and any person claiming under or
through any Participant.
4. Maximum Amount of Shares Available for Awards
(a) Maximum Number of Shares. The maximum number of shares of
Stock in respect of which Awards may be made under the Plan shall be a total of
[____________]* shares of Common Stock. Without limiting the generality of the
foregoing, whenever shares are received by the Company in connection with the
exercise of or payment for any Award granted under the Plan only the net number
of shares actually issued shall be counted against the foregoing limit.
(b) Shares Available for Issuance. Shares of Common Stock may
be made available from the authorized but unissued shares of the Company or from
Shares held in the Company's treasury and not reserved for some other purpose.
In addition, if any Award in respect of Shares is canceled or forfeited for any
reason without
- --------
* 7.0% of fully diluted shares, exclusive of employee and director plans.
5
<PAGE>
delivery of shares of Common Stock, the shares subject to such Award shall
thereafter again be available for award pursuant to the Plan.
(c) Adjustments Upon Certain Events. In the event of any Share
dividend or Share split, recapitalization (including, without limitation, the
payment of an extraordinary dividend), merger, consolidation, combination,
spin-off, distribution of assets to shareholders, exchange of shares, or other
similar corporate change, the aggregate number of Shares available for Options
under Section 4(a) or subject to outstanding Options and the respective prices
applicable to outstanding Options shall be appropriately adjusted.
(d) No Adjustment If Value Received. Except as hereinbefore
expressly provided, the issuance by the Company of shares of stock of any class
or securities convertible into shares of stock of any class, for cash, property,
labor or services, upon direct sale, upon the exercise of rights or warrants to
subscribe therefor, or upon conversion of shares or other securities, and in any
case whether or not for fair value, shall not affect, and no adjustment by
reason thereof shall be made with respect to the number of Shares subject to
Options to be awarded to an Eligible Employee pursuant to Section 5.
5. Stock Options
(a) Grant. Subject to the provisions of the Plan, the
Committee shall have the authority to grant Options to an Eligible Employee and
to determine (i) the number of shares to be covered by each Option, (ii) the
exercise price therefor and (iii) the conditions and limitations applicable to
the exercise of the Option. Notwithstanding the foregoing, in no event shall the
Committee grant any Participant Options in any single calendar year for more
than 500,000 shares of Common Stock, as such number may be adjusted pursuant to
Section 4(c). The Committee shall have the authority to grant Incentive Stock
Options or Nonstatutory Stock Options. In the case of Incentive Stock Options,
the terms and conditions of such grants shall be subject to and comply with
Section 422 of the Code and the regulations thereunder.
(b) Option Price. The Committee shall establish the exercise
price at the time each Option is granted, which price shall, unless the
Committee shall determine otherwise, initially equal the Fair Market Value of
the Common Stock at the date of grant and shall be increased on the first day of
each calendar quarter, by an amount, compounded annually, based on the yield to
maturity of United States Treasury Securities having a maturity approximately
equal to the term of such Option on the date that such Option is granted.
Notwithstanding the foregoing, (i) the exercise
6
<PAGE>
price at the time an Option is granted shall not be less than the Fair Market
Value of the Common Stock at the date of grant and (ii) in the case of an
Incentive Stock Option issued to a Participant who owns stock in the Company
possessing more than 10% of the total combined voting power of all classes of
stock of the Company, the exercise price at the time of such Incentive Stock
Option at the time such Incentive Stock Option is granted to such individual
shall equal at least 110% of the Fair Market Value of the Common Stock at the
date of grant.
(c) Option Term. If not previously exercised each Option shall
expire upon the seventh (7th) anniversary of the date of the grant thereof or,
upon the earlier termination of the Participant's Employment (or, if applicable,
on the day following the last day on which such Option is exercisable under
Section 5(e) below), provided that (i) the Committee may establish a shorter
term for an Option at the time of the grant of such Option and (ii) in the case
of an Incentive Stock Option issued to a Participant who owns stock in the
Company possessing more than 10% of the total combined voting power of all
classes of stock of the Company, such Incentive Stock Option shall expire on the
fifth (5th) anniversary of the date of grant.
(d) Exercise. Each Option shall be exercised at such times and
subject to such terms and conditions as the Committee may specify in the
applicable Award or thereafter; provided, however, that if the Committee does
not establish a different exercise schedule at or after the date of grant of an
Option, such Option shall become exercisable on a cumulative basis in three
equal annual installments commencing on the first anniversary of the date the
Option is granted. The Committee may impose such conditions with respect to the
exercise of Options as it shall deem appropriate, including without limitation,
any conditions relating to the application of federal or state securities laws.
No Shares shall be delivered pursuant to any exercise of an Option unless
arrangements satisfactory to the Committee have been made to assure full payment
of the option price therefor and of applicable taxes as provided in Section
11(a) below. Without limiting the generality of the foregoing, payment of the
option price may be made in cash or its equivalent or, if and to the extent
permitted by the Committee, by exchanging shares of Common Stock owned by the
optionee for at least six (6) months (or such longer period as is required by
applicable accounting standards to avoid a charge to earnings) and that are not
the subject of any pledge or other security interest, or by a combination of the
foregoing, provided that the combined value of all cash and cash equivalents and
the Fair Market Value of any such Common Stock so tendered to the Company,
valued as of the date of such tender, is at least equal to such option price.
7
<PAGE>
(e) Termination of Employment. Unless the Committee shall
otherwise determine at or after grant, an Option shall be exercisable following
the termination of a Participant's Employment only to the extent provided in
this Section 5(e). If a Participant's Employment terminates due to the
Participant's (i) death, (ii) Disability, (iii) Early Retirement with the
consent of the Committee or (iv) Normal Retirement, the Participant (or, in the
event of the Participant's death or Disability during Employment or during the
period during which an Option is exercisable under this sentence, the
Participant's beneficiary or legal representative) may exercise any Option held
by the Participant at the time of such termination, regardless of whether then
exercisable, for a period of three years (or such greater or lesser period as
the Committee shall determine at or after grant), but in no event after the date
the Option otherwise expires. If a Participant's Employment is terminated for
Cause (or, if after the Participant's termination of Employment, the Committee
determines that the Participant's Employment could have been terminated for
Cause had the Participant still been employed or has otherwise engaged in
conduct that is detrimental to the interests of the Company, as determined by
the Committee in its sole discretion), all Options held by the Participant shall
immediately terminate, regardless of whether then exercisable. In the event of
a Participant's termination of Employment for any reason not described in the
preceding two sentences, the Participant (or, in the event of the Participant's
death or Disability during the period during which an Option is exercisable
under this sentence, the Participant's beneficiary or legal representative) may
exercise any Option which was exercisable at the time of such termination for 90
days (or such greater or lesser period as the Committee shall specify at or
after the grant of such Option) following the date of such termination, but in
no event after the date the Option otherwise expires.
(f) Reload Options. The Committee may provide that a
Participant (or, if applicable, his permitted transferee) who delivers shares of
Common Stock that have been owned by such Participant (or permitted transferee)
for any minimum period of time specified by the Committee to exercise an Option
(when the fair market value of Common Stock exceeds the exercise price of such
Option) will automatically be granted new Options ("Reload Options") for a
number of shares of Common Stock equal to the number of shares so delivered.
Unless the Committee determines otherwise, such Reload Options will be subject
to the same terms and conditions (including the same expiration date) as the
related Option except (i) that the exercise price shall initially be equal to
the Fair Market Value of a share of Common Stock on the date such Reload Option
is granted and (ii) such Reload Option shall not be exercisable prior to the six
month anniversary of the date of grant and, thereafter, shall be exercisable in
full.
6. Stock Appreciation Rights
8
<PAGE>
(a) Grant of SARs. The Committee shall have the authority to
grant Stock Appreciation Rights in tandem with an Option, in addition to an
Option, or freestanding and unrelated to an Option. Stock Appreciation Rights
granted in tandem or in addition to an Option may be granted either at the same
time as the Option or at a later time. Stock Appreciation Rights shall not be
exercisable after the expiration of ten years from the date of grant and shall
have a base price determined in the same manner as, and subject to the same
conditions as apply with respect to, a Nonstatutory Stock Option under Section
5(b).
(b) Exercise of SARs. A Stock Appreciation Right shall entitle
the Participant to receive from the Company an amount equal to the excess of the
Fair Market Value of a share of Common Stock on the date of exercise of the
Stock Appreciation Right over the base price thereof. The Committee shall
determine the time or times at which or the event or events (including, without
limitation, a Change of Control) upon which a Stock Appreciation Right may be
exercised in whole or in part, the method of exercise and whether such Stock
Appreciation Right shall be settled in cash, shares of Common Stock or a
combination of cash and shares of Common Stock; provided, however, that unless
otherwise specified by the Committee at or after grant, a Stock Appreciation
Right granted in tandem with an Option shall be exercisable only at the same
time or times as the related Option is exercisable.
7. Restricted Stock and Restricted Units
(a) Grant of Restricted Stock or Restricted Units. The
Committee may grant Awards of Restricted Stock or Restricted Units to
Participants at such times and in such amounts, and subject to such other terms
and conditions not inconsistent with the Plan, as it shall determine. Each grant
of Restricted Stock or Restricted Units shall be evidenced by an Award
Agreement. Unless the Committee provides otherwise at or after the date of
grant, stock certificates evidencing any shares of Restricted Stock so granted
shall be held in the custody of the Secretary of the Company until the
Restricted Period lapses, and, as a condition to the grant of any Award of
shares of Restricted Stock, the Participant shall have delivered to the
Secretary of the Company a certificate, endorsed in blank, relating to the
shares of Common Stock covered by such Award.
(b) Termination of Employment. Unless the Committee otherwise
determines at or after grant, the rights of a Participant with respect to an
award of Restricted Stock or Restricted Units outstanding at the time of the
Participant's termination of Employment shall be determined under this Section
7(b). In the event that a Participant's Employment terminates due to the
Participant's (i) death, (ii)
9
<PAGE>
Disability, (iii) Early Retirement with the consent of the Committee or (iv)
Normal Retirement, any award of Restricted Stock or Restricted Units shall
become vested and nonforfeitable as to that number of shares which is equal to
the number of shares of Common Stock subject to such Award times a fraction, the
numerator of which is the number of days actually worked during the Restricted
Period (or, in the case of an Award which has previously vested in part (an
"Installment Award"), the number of days worked since the last vesting date) and
the denominator of which is the total number of days during the Restricted
Period (or, in the case of an Installment Award, the number of days between the
last vesting date and the end of the Restricted Period). Unless the Committee
otherwise determines, any portion of any Restricted Stock or Restricted Unit
Award that has not become nonforfeitable at the date of a Participant's
termination of Employment shall be forfeited as of such date.
(c) Delivery of Shares. Upon the expiration or termination of
the Restricted Period and the satisfaction (as determined by the Committee) of
any other conditions determined by the Committee, the restrictions applicable to
the Restricted Stock or Restricted Units shall lapse and a stock certificate for
the number of shares of Common Stock with respect to which the restrictions have
lapsed shall be delivered, free of all such restrictions, except any that may be
imposed by law, to the Participant or the Participant's beneficiary or estate,
as the case may be. No payment will be required to be made by the Participant
upon the delivery of such shares of Common Stock and/or cash, except as
otherwise provided in Section 11(a) of the Plan. At or after the date of grant,
the Committee may accelerate the vesting of any award of Restricted Stock or
Restricted Units or waive any conditions to the vesting of any such award.
(d) Restricted Period; Restrictions on Transferability during
Restricted Period. Unless otherwise determined by the Committee at or after the
date of grant, the Restricted Period applicable to any award of Restricted Stock
or Restricted Units shall lapse, and the shares related to such award shall
become freely transferable, on the third anniversary of the date of grant.
Restricted Stock or Restricted Units may not be sold, assigned, pledged or
otherwise encumbered, except as herein provided, during the Restricted Period.
Any certificates issued in respect of Restricted Stock shall be registered in
the name of the Participant and deposited by such Participant, together with a
stock power endorsed in blank, with the Company. At the expiration of the
Restricted Period with respect to any award of Restricted Stock, unless
otherwise forfeited, the Company shall deliver such certificates to the
Participant or to the Participant's legal representative. Payment for Restricted
Stock Units shall be made by the Company in shares of Common Stock, cash or in
any combination thereof, as determined by the Committee.
10
<PAGE>
(e) Rights as a Stockholder; Dividend Equivalents. Unless
otherwise determined by the Committee at or after the date of grant,
Participants granted shares of Restricted Stock shall be entitled to receive,
either currently or at a future date, as specified by the Committee, all
dividends and other distributions paid with respect to those shares, provided
that if any such dividends or distributions are paid in shares of Common Stock
or other property (other than cash), such shares and other property shall be
subject to the same forfeiture restrictions and restrictions on transferability
as apply to the shares of Restricted Stock with respect to which they were paid.
The Committee will determine whether and to what extent to credit to the account
of, or to pay currently to, each recipient of Restricted Units, an amount equal
to any dividends paid by the Company during the Restricted Period with respect
to the corresponding number of shares of Common Stock ("Dividend Equivalents").
To the extent provided by the Committee at or after the date of grant, any
Dividend Equivalents with respect to cash dividends on the Common Stock credited
to a Participant's account shall be deemed to have been invested in shares of
Common Stock on the record date established for the related dividend and,
accordingly, a number of additional Restricted Units shall be credited to such
Participant's account equal to the greatest whole number which may be obtained
by dividing (x) the value of such Dividend Equivalent on the record date by (y)
the Fair Market Value of a share of Common Stock on such date.
8. Incentive Awards
(a) Incentive Stock and Incentive Units. Subject to the
provisions of the Plan, the Committee shall have the authority to grant
Incentive Stock or Incentive Units to any Eligible Employee and to determine (i)
the number of shares of Incentive Stock and the number of Incentive Units to be
granted to each Participant and (ii) the other terms and conditions of such
Awards; provided that, to the extent necessary to comply with applicable law,
Incentive Stock shall only be awarded to an Eligible Employee who has been
employed for such minimum period of time as shall be determined by the
Committee. The Restricted Period related to Incentive Stock or Incentive Units
shall lapse upon the determination by the Committee that the performance
objectives established by the Committee have been attained, in whole or in part.
Such performance objectives may be related to the performance of (i) the
Company, (ii) a Subsidiary, (iii) a division or unit of the Company or any
Subsidiary, (v) the Participant or (vi) any combination of the foregoing, over a
measurement period or periods established by the Committee. Unless the Committee
otherwise determines at the time of grant of Incentive Stock or Incentive Units
to an Executive Officer, the performance objectives with respect to such Award
shall be related to at least one of the following criteria, which may be
determined solely by reference to the performance of the Company or a Subsidiary
or based on comparative performance relative to other
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<PAGE>
companies: (i) consolidated earnings before income taxes, depreciation and
amortization; (ii) revenues; (iii) earnings per share; (iv) net income; (v)
gross profit margin; (vi) maximum capital expenditures; (vii) return on equity;
and/or (viii) return on total capital. Except to the extent otherwise expressly
provided herein, the Committee may, at any time and from time to time, change
the performance objectives applicable with respect to any Incentive Stock or
Incentive Units to reflect such factors, including, without limitation, changes
in a Participant's duties or responsibilities or changes in business objectives
(e.g., from corporate to Subsidiary or business unit performance or vice versa),
as the Committee shall deem necessary or appropriate. In making any such
adjustment, the Committee shall adjust the number of Incentive Stock or
Incentive Units or take other appropriate actions to prevent any enlargement or
diminution of the Participant's rights related to service rendered and
performance attained prior to the effective date of such adjustment.
(b) Termination of Employment. Unless the Committee otherwise
determines at or after grant, the rights of a Participant with respect to an
award of Incentive Stock or Incentive Units outstanding at the time of the
Participant's termination of Employment shall be determined under this Section
8(b). In the event that a Participant's Employment terminates due to the
Participant's (i) death, (ii) Disability, (iii) Early Retirement with the
consent of the Committee or (iv) Normal Retirement, any award of Incentive Stock
or Incentive Units shall become vested and nonforfeitable at the end of the
measurement period as to that number of shares which is equal to that
percentage, if any, of such award that would have been earned based on the
attainment or partial attainment of such performance objectives times a
fraction, the numerator of which is the number of days employed during the
Restricted Period (or, in the case of an Award which has previously vested in
part (an "Installment Award"), the number of days employed since the last
vesting date) and the denominator of which is the total number of days during
the Restricted Period (or, in the case of an Installment Award, the number of
days between the last vesting date and the end of the Restricted Period);
provided that, any portion of any Incentive Stock or Incentive Unit award that
does not become vested as of the times set forth in this sentence shall be
forfeited at such times. In all other cases, any portion of any award of
Incentive Stock or Incentive Units that has not become nonforfeitable at the
date of a Participant's termination of Employment shall be forfeited as of such
date.
(c) Awards Nontransferable. Incentive Stock or Incentive Units
may not be sold, assigned, pledged or otherwise encumbered, except as herein
provided, during the Restricted Period. Any certificates issued in respect of
Incentive Stock shall be registered in the name of the Participant and deposited
by such Participant, together with a stock power endorsed in blank, with the
Company. At the expiration of the
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<PAGE>
Restricted Period with respect to any award of Incentive Stock, unless otherwise
forfeited, the Company shall deliver such certificates to the Participant or to
the Participant's legal representative. Payment for Incentive Stock Units shall
be made by the Company in shares of Common Stock, cash or in any combination
thereof, as determined by the Committee.
(d) Rights as a Stockholder; Dividend Equivalents. Unless
otherwise determined by the Committee at or after the date of grant,
Participants granted shares of Incentive Stock shall be entitled to receive,
either currently or at a future date, as specified by the Committee, all
dividends and other distributions paid with respect to those shares, provided
that if any such dividends or distributions are paid in shares of Common Stock
or other property (other than cash), such shares and other property shall be
subject to the same forfeiture restrictions and restrictions on transferability
as apply to the shares of Incentive Stock with respect to which they were paid.
The Committee will determine whether and to what extent to credit to the account
of, or to pay currently to, each recipient of Incentive Units, an amount equal
to any dividends paid by the Company during the period of deferral with respect
to the corresponding number of shares of Common Stock ("Dividend Equivalents").
To the extent provided by the Committee at or after the date of grant, any
Dividend Equivalents with respect to cash dividends on the Common Stock credited
to a Participant's account shall be deemed to have been invested in shares of
Common Stock on the record date established for the related dividend and,
accordingly, a number of additional Incentive Units shall be credited to such
Participant's account equal to the greatest whole number which may be obtained
by dividing (x) the value of such Dividend Equivalent on the record date by (y)
the Fair Market Value of a share of Common Stock on such date.
(e) Interpretation. Notwithstanding anything else contained in
this Section 8 to the contrary, if any award of Incentive Stock or Incentive
Units is intended, at the time of grant, to be other performance based
compensation within the meaning of Section 162(m)(4)(C) of the Code, to the
extent required to so qualify any Award hereunder, the Committee shall not be
entitled to exercise any discretion otherwise authorized under this Section 8
with respect to such award if the ability to exercise such discretion (as
opposed to the exercise of such discretion) would cause such award to fail to
qualify as other performance based compensation.
9. Deferred Stock
(a) Deferred Stock Awards. On such date or dates as shall be
established by the Committee and subject to such terms and conditions as the
Committee shall determine, a Participant may be permitted to elect to defer
receipt of
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<PAGE>
all or a portion of his annual compensation and/or annual incentive bonus
("Deferred Annual Amount") payable by the Company or a Subsidiary and receive in
lieu thereof a number of Elective Units equal to the greatest whole number which
may be obtained by dividing (x) the amount of the Deferred Annual Amount by (y)
the Fair Market Value of a share of Common Stock on the date of grant. No shares
of Common Stock will be issued at the time an award of Deferred Stock is made
and the Company shall not be required to set aside a fund for the payment of any
such award. The Company will establish a separate account for the Participant
and will record in such account the number of Elective Units awarded to the
Participant. To the extent the Committee so determines, a Participant who
receives an award of Elective Units shall receive that number of Supplemental
Units equal to the greatest whole number which may be obtained by dividing (x)
such percentage of the Deferred Annual Amount as is determined by the Committee
at the date of grant by (y) the Fair Market Value of a share of Common Stock on
the date of grant.
(b) Rights as a Stockholder; Dividend Equivalents. A
Participant shall not have any right in respect of Deferred Stock awarded
pursuant to the Plan to vote on any matter submitted to the Company's
stockholders until such time as the shares of Common Stock attributable to such
Deferred Stock have been issued to such Participant or his beneficiary. The
Committee will determine whether and to what extent to credit to the account of,
or to pay currently to, each recipient of a Deferred Stock Unit award, any
Dividend Equivalents. To the extent provided by the Committee at or after the
date of grant, any Dividend Equivalents with respect to cash dividends on the
Common Stock credited to a Participant's account shall be deemed to have been
invested in shares of Common Stock on the record date established for the
related dividend and, accordingly, a number of Deferred Stock shall be credited
to such Participant's account equal to the greatest whole number which may be
obtained by dividing (x) the value of such Dividend Equivalent on the record
date by (y) the Fair Market Value of a share of Common Stock on such date.
(c) Vesting of Deferred Stock Unit Awards. The portion of each
Deferred Stock Unit award that consists of Elective Units, together with any
Dividend Equivalents credited with respect thereto, shall be fully vested at all
times. Unless the Committee provides otherwise at or after the date of grant,
the portion of each Deferred Stock Unit award that consists of Supplemental
Units, together with any Dividend Equivalents credited with respect thereto,
will become vested in full on the third anniversary of the date the
corresponding Deferred Annual Amount would have been paid absent the
Participant's election to defer provided the Participant remains in the
continuous employ of the Company or a Subsidiary through such date.
14
<PAGE>
Notwithstanding the foregoing, the Committee may accelerate the vesting of any
Deferred Stock Unit award at or after the date of grant.
(d) Settlement of Deferred Stock. Unless the Committee
determines otherwise at or after the date of grant, a Participant shall receive
one share of Common Stock for each Elective Unit (and related Dividend
Equivalents) as of the date of such Participant's termination of employment (or
such later date as may be elected by the Participant in accordance with the
rules and procedures of the Committee). Unless the Committee determines
otherwise at or after the date of grant, a Participant shall receive one share
of Common Stock for each Supplemental Unit (and related Dividend Equivalents)
that shall have become vested on or prior to the date of such Participant's
termination of employment with the Company and the Subsidiaries, other than any
such termination for Cause, on the date of such termination of employment (or on
such earlier date as the Committee shall permit or such later date as may be
elected by the Participant in accordance with the rules and procedures of the
Committee). In the event of the termination of a Participant's employment with
the Company and the Subsidiaries for Cause, the Participant shall immediately
forfeit all rights with respect to any Supplemental Units (and related Dividend
Equivalents) credited to his account. The Committee may provide in the Award
Agreement applicable to any Incentive Award of Deferred Stock that, in lieu of
issuing shares of Common Stock in settlement of the vested portion of such
Deferred Stock Unit, the Committee may direct the Company to pay to the
Participant the cash balance of such Deferred Stock.
10. Stock in Lieu of Cash
The Committee may grant Awards or shares of Common Stock in
lieu of all or a portion of an award otherwise payable in cash to an Executive
Officer pursuant to any bonus or incentive compensation plan of the Company
(subject to any applicable limitations in such bonus or incentive compensation
plan). If shares are issued in lieu of cash, the number of shares of Common
Stock to be issued shall be the greatest number of whole shares which has an
aggregate Fair Market Value on the date the cash would otherwise have been
payable pursuant to the terms of such other plan equal to or less than the
amount of such cash.
11. General Provisions
(a) Withholding. The Company shall have the right to deduct
from all amounts paid to a Participant in cash (whether under this Plan or
otherwise) any taxes required by law to be withheld in respect of Awards under
this Plan. In the case of any Award satisfied in the form of Common Stock, no
shares shall be issued unless and
15
<PAGE>
until arrangements satisfactory to the Committee shall have been made to satisfy
any withholding tax obligations applicable with respect to such Award. Without
limiting the generality of the foregoing and subject to such terms and
conditions as the Committee may impose, the Company shall have the right to
retain, or the Committee may, subject to such terms and conditions as it may
establish from time to time, permit Participants to elect to tender, Common
Stock (including Common Stock issuable in respect of an Award) to satisfy, in
whole or in part, the amount required to be withheld.
(b) Awards. Each Award hereunder shall be evidenced in
writing. The written agreement shall be delivered to the Participant and shall
incorporate the terms of the Plan by reference and specify the terms and
conditions thereof and any rules applicable thereto (each, an "Award
Agreement").
(c) Nontransferability. No Award shall be transferable by a
Participant otherwise than by will or under the applicable laws of descent and
distribution, unless such transfer shall be (i) permitted by the Committee (on
such terms as it shall establish) or (ii) if the Option agreement pursuant to
which an Award is made so provides, to (A) the spouse, children or grandchildren
of such Participant (collectively, "Family Members"), (B) a trust or trusts for
the exclusive benefit of such Family Members, or (C) a partnership or limited
liability company in which such Family Members and trusts for the exclusive
benefit of such Family Members are the only partners or members, as the case may
be. In addition, no Award shall be assigned, negotiated, pledged or hypothecated
in any way (whether by operation of law or otherwise) and no Award shall be
subject to execution, attachment or similar process. Upon any attempt to
transfer, assign, negotiate, pledge or hypothecate any Award, or in the event of
any levy upon any Award by reason of any attachment or similar pro cess, in
either case contrary to the provisions hereof, such Award shall immediately
become null and void.
(d) Legend. To the extent any stock certificate is issued to a
Participant in respect of shares of Restricted Stock or Incentive Stock awarded
under the Plan prior to the expiration of the applicable Restricted Period, such
certificate shall be registered in the name of the Participant and shall bear
the following (or similar) legend:
"The shares of stock represented by this certificate are
subject to the terms and conditions contained in the RSL
Communications, Ltd. 1997 Stock Incentive Plan and the Award Agreement,
dated as of _____, between the Company and the Participant, and may not
be sold, pledged, transferred, assigned, hypothecated or otherwise
encumbered in any
16
<PAGE>
manner (except as provided in Section 11(c) of the Plan or in such
Award Agreement) until _______________."
Upon the lapse of the Restricted Period with respect to any such shares of
Restricted Stock or Incentive Stock, the Company shall issue or have issued new
share certificates without the legend described herein in exchange for those
previously issued.
(e) No Right to Employment. No person shall have any claim or
right to be granted an Award, and the grant of an Award shall not be construed
as giving a Participant the right to be retained in the employ of the Company or
any Subsidiary. Further, the Company and each Subsidiary expressly reserves the
right at any time to dismiss a Participant free from any liability, or any claim
under the Plan, except as provided herein or in any agreement entered into with
respect to an Award.
(f) No Rights to Awards, No Shareholder Rights. No Participant
or Eligible Employee shall have any claim to be granted any Award under the
Plan, and there is no obligation of uniformity of treatment of Participants and
Eligible Employees. Subject to the provisions of the Plan and the applicable
Award, no person shall have any rights as a shareholder with respect to any
shares of Common Stock to be issued under the Plan prior to the issuance
thereof.
(g) Effective Date. Subject to the approval of the
shareholders of the Company (which shall be sought by the Company if so
authorized by the Board), the Plan shall be effective on the date the Plan is
approved by shareholders. No Awards may be granted under the Plan after the
expiration of ten years from the date this Plan is adopted.
(h) Amendment of Plan. The Board or the Committee may amend,
suspend or terminate the Plan or any portion thereof at any time, provided that
no amendment shall be made without shareholder approval if such amendment would
(1) increase the number of shares of Common Stock subject to the
Plan, except pursuant to Section 4(c);
(2) change the price at which Options may be granted; or
(3) remove the administration of the Plan from the Committee.
Without the written consent of an affected Participant, no termination,
suspension or modification of the Plan shall adversely affect any right of such
Participant under the
17
<PAGE>
terms of an Award granted before the date of such termination, suspension or
modification.
(i) Application of Proceeds. The proceeds received by the
Company from the sale of its shares under the Plan will be used for general
corporate purposes.
(j) Compliance with Legal and Exchange Requirements. The Plan,
the granting and exercising of Awards thereunder, and the other obligations of
the Company under the Plan, shall be subject to all applicable federal and state
laws, rules, and regulations, and to such approvals by any regulatory or
governmental agency as may be required. The Company, in its discretion, may
postpone the granting and exercising of Awards, the issuance or delivery of
Common Stock under any Award or any other action permitted under the Plan to
permit the Company, with reasonable diligence, to complete such stock exchange
or similar listing or registration or qualification of such Common Stock or
other required action under any federal or state law, rule, or regulation and
may require any Participant to make such representations and furnish such
information as it may consider appropriate in connection with the issuance or
delivery of Common Stock in compliance with applicable laws, rules, and
regulations. The Company shall not be obligated by virtue of any provision of
the Plan to recognize the exercise of any Award or to otherwise sell or issue
Common Stock in violation of any such laws, rules, or regulations; and any
postponement of the exercise or settlement of any Award under this provision
shall not extend the term of such Awards, and neither the Company nor its
directors or officers shall have any obligation or liability to the Participant
with respect to any Award (or Stock issuable thereunder) that shall lapse
because of such postponement.
(k) Gender and Number. Except when otherwise indicated by the
context, words in the masculine gender used in the Plan shall include the
feminine gender, the singular shall include the plural, and the plural shall
include the singular.
(l) Governing Law. This Plan shall be construed and enforced
according to the laws of Bermuda.
18
<PAGE>
================================================================================
STANDARD FORM OF OFFICE LEASE
The Real Estate Board of New York, Inc.
================================================================================
Agreement of Lease, made as of this 19th day of June 1997, between BANK OF
MONTREAL, c/o Edward S. Gordon Incorporated, 200 Park Avenue, New York, New York
10166 party of the first part, hereinafter referred to as OWNER, and RSL
COMMUNICATIONS, Ltd., 767 5th Avenue, New York, New York party of the second
part, hereinafter referred to as TENANT,
Witnesseth: Owner hereby leases to Tenant and Tenant hereby hires from Owner the
fifth (5th) floor as cross-hatched on the diagram annexed hereto in the building
known as 430 Park Avenue in the Borough of Manhattan, City of New York, for the
term of approximately four (4) years (or until such term shall sooner cease and
expire as hereinafter provided) to commence on the 1st day of July nineteen
hundred and ninety-seven, and to end on the 29th day of June two thousand and
one both dates inclusive, at an annual rental rate set forth in Article 37 below
which Tenant agrees to pay in lawful money of the United States which shall be
legal tender in payment of all debts and dues, public and private, at the time
of payment, in equal monthly installments in advance on the first day of each
month during said term, at the office of Owner or such other place as Owner may
designate, without any set off or deduction whatsoever, except that Tenant shall
pay the first ___ monthly installment(s) on the execution hereof (unless this
lease be a renewal).
In the event that, at the commencement of the term of this lease, or
thereafter, Tenant shall be in default in the payment of rent to owner pursuant
to the terms of another lease with Owner or with Owner's predecessor in
interest, Owner may at Owner's option and without notice to Tenant add the
amount of such arrears to any monthly installment of rent payable hereunder and
the same shall be payable to Owner as additional rent.
The parties hereto, for themselves, their heirs, distributees, executors,
administrators, legal representatives, successors and assigns, hereby covenant
as follows:
Rent: 1. Tenant shall pay the rent as above and as hereinafter provided.
Occupancy: 2. Tenant shall use and occupy demised premises for executive and
administrative offices and for no other purpose.
Tenant Alterations:
3. Tenant shall make no changes in or to the demised premises of any nature
without Owner's prior written consent. Subject to the prior written consent of
Owner, and to the provisions of this article, Tenant, at Tenant's expense, may
make alterations, installations, additions or improvements which are
non-structural and which do not affect utility services or plumbing and
electrical lines, in or to the interior of the demised premises by using
contractors or mechanics first approved in each instance by Owner. Tenant shall,
before making any alterations, additions, installations or improvements, at its
expense, obtain all permits, approvals and certificates required by any
governmental or quasi-governmental bodies and (upon completion) certificates of
final approval thereof and shall deliver promptly duplicates of all such
permits, approvals and certificates to Owner and Tenant agrees to carry and will
cause Tenant's contractors and sub-contractors to carry such workman's
compensation, general liability, personal and property damage insurance as Owner
may require. If any mechanic's lien is filed against the demised premises, or
the building of which the same forms a part, for work claimed to have been done
for, or materials furnished to, Tenant, whether or not pursuant to this article,
the same shall be discharged by Tenant within thirty days thereafter, at
Tenant's expense, by payment or filing the bond required by law. All fixtures
and all paneling, partitions, railings and like installations, installed in the
premises at any time, either by Tenant or by Owner on Tenant's behalf, shall,
upon installation, become the property of Owner and shall remain upon and be
surrendered with the demised premises unless Owner, by notice to Tenant no later
than twenty days prior to the date fixed as the termination of this lease,
elects to relinquish Owner's right thereto and to have them removed by Tenant,
in which event the same shall be removed from the premises by Tenant prior to
the expiration of the lease, at Tenant's expense. Nothing in this Article shall
be construed to give Owner title to or to prevent Tenant's removal of trade
fixtures, moveable office furniture and equipment, but upon removal of any such
from the premises or upon removal of other installations as may be required by
Owner, Tenant shall immediately and at its expense, repair and restore the
premises to the condition existing prior to installation and repair any damage
to the demised premises or the building due to such removal. All property
permitted or required to be removed, by Tenant at the end of the term remaining
in the premises after Tenant's removal shall be deemed abandoned and may, at the
election of Owner, either be retained as Owner's property or may be removed from
the premises by Owner, at Tenant's expense.
Maintenance and Repairs:
4. Tenant shall, through the term of this lease, take good care of the demised
premises and the fixtures and appurtenances therein. Tenant shall be responsible
for all damage or injury to the demised premises or any other part of the
building and the systems and equipment thereof, whether requiring structural or
nonstructural repairs caused by or resulting from carelessness, omission,
neglect or improper conduct of Tenant, Tenant's subtenants, agents, employees,
invitees or licensees, or which arise out of any work, labor, service or
equipment done for or supplied to Tenant or any subtenant or arising out of the
installation, use or operation of the property or equipment of Tenant or any
subtenant. Tenant shall also repair all damage to the building and the demised
premises caused by the moving of Tenant's fixtures, furniture and equipment.
Tenant shall promptly make, at Tenant's expense, all repairs in and to the
demised premises for which Tenant is responsible, using only the contractor for
the trade or trades in question, selected from a list of at least two
contractors per trade submitted by owner. Any other repairs in or to the
building or the facilities and systems thereof for which Tenant is responsible
shall be performed by Owner at the Tenant's expense. Owner shall maintain in
good working order and repair the exterior and the structural portions of the
building, including the structural portions of its demised premises, and the
public portions of the building interior and the building plumbing, electrical,
heating and ventilating systems (to the extent such systems presently exist)
serving the demised premises. Tenant agrees to give prompt notice of any
defective condition in the premises for which Owner may be responsible
hereunder. There shall be no allowance to Tenant for diminution of rental value
and no liability on the part of Owner by reason of inconvenience, annoyance or
injury to business arising from Owner or others making repairs, alterations,
additions or improvements in or to any portion of the building or the demised
premises or in and to the fixtures, appurtenances or equipment thereof. It is
specifically agreed that Tenant shall not be entitled to any setoff or reduction
of rent by reason of any failure of Owner to comply with the covenants of this
or any other article of this Lease. Tenant agrees that Tenant's sole remedy at
law in such instance will be by way of an action for damages for breach of
contract. The provisions of this Article 4 shall not apply in the case of fire
or other casualty which are dealt with in Article 9 hereof.
Window Cleaning:
5. Tenant will not clean nor require, permit, suffer or allow any window in the
demised premises to be cleaned from the outside in violation of Section 202 of
the Labor Law or any other applicable law or of the Rules of the Board of
Standards and Appeals, or of any other Board or body having or asserting
jurisdiction.
Requirements of Law, Fire Insurance, Floor Loads:
6. Prior to the commencement of the lease term, if Tenant is then in possession,
and at all times thereafter, Tenant, at Tenant's sole cost and expense, shall
promptly comply with all present and future laws, orders and regulations of all
state, federal, municipal and local governments, departments, commissions and
boards and any direction of any public officer pursuant to law, and all orders,
rules and regulations of the New York Board of Fire Underwriters, Insurance
Services Office, or any similar body which shall impose any violation, order or
duty upon Owner or Tenant with respect to the demised premises, whether or not
arising out of Tenant's use or manner of use thereof, (including Tenant's
permitted use) or, with respect to the building if arising out of Tenant's use
or manner of use of the premises or the building (including the use permitted
under the lease). Nothing herein shall require Tenant to make structural repairs
or alterations unless Tenant has, by its manner of use of the demised premises
or method or operation therein, violated any such laws, ordinances, orders,
rules, regulations or requirements with respect thereto. Tenant may, after
securing Owner to
<PAGE>
Owner's satisfaction against all damages, interest, penalties and expenses,
including, but not limited to, reasonable attorney's fees, by cash deposit or by
surety bond in an amount and in a company satisfactory to Owners, contest and
appeal any such laws, ordinances, orders, rules, regulations or requirements
provided same is done with all reasonable promptness and provided such appeal
shall not subject Owner to prosecution for a criminal offense or constitute a
default under any lease or mortgage under which Owner may be obligated, or cause
the demised premises or any part thereof to be condemned or vacated. Tenant
shall not do or permit any act or thing to be done in or to the demised premises
which is contrary to law, or which will invalidate or be in conflict with public
liability, fire or other policies of insurance at any time carried by or for the
benefit of Owner with respect to the demised premises or the building of which
the demised premises form a part, or which shall or might subject Owner to any
liability or responsibility to any person or for property damage. Tenant shall
not keep anything in the demised premises except as now or hereinafter permitted
by the Fire Department, Board of Fire Underwriters, Fire Insurance Rate
Organization or other authority having jurisdiction, and then only in such
manner and such quantity so as not to increase the rate for fire insurance
applicable to the building, nor use the premises in a manner which will increase
the insurance rate for the building or any property located therein over that in
effect prior to the commencement of Tenant's occupancy. Tenant shall pay all
costs, expenses, fines, penalties, or damages, which may be imposed upon Owner
by reason of Tenant's failure to comply with the provisions of this article and
if by reason of such failure the fire insurance rate shall, at the beginning of
this lease or at any time thereafter, be higher than it otherwise would be, then
Tenant shall reimburse Owner, as additional rent hereunder, for that portion of
all fire insurance premiums thereafter paid by Owner which shall have been
charged because of such failure by Tenant. In any action or proceeding wherein
Owner and Tenant are parties, a schedule or "make-up" of rate for the building
or demised premises issued by the New York Fire Insurance Exchange, or other
body making fire insurance rates applicable to said premises shall be conclusive
evidence of the facts therein stated and of the several items and charges in the
fire insurance rates then applicable to said premises. Tenant shall not place a
load upon any floor of the demised premises exceeding the floor load per square
foot area which it was designed to carry and which is allowed by law. Owner
reserves the right to prescribe the weight and position of all safes, business
machines and mechanical equipment. Such installations shall be placed and
maintained by Tenant, at Tenant's expense, in settings sufficient, in Owner's
judgment, to absorb and prevent vibration, noise and annoyance.
Subordination:
7. This lease is subject and subordinate to all ground or underlying leases and
to all mortgages which may now or hereafter affect such leases or the real
property of which demised premises are a part and to all renewals,
modifications, consolidations, replacements and extensions of any such
underlying leases and mortgages. This clause shall be self-operative and no
further instrument of subordination shall be required by any ground or
underlying lessor or by any mortgagee, affecting any lease or the real property
of which the demised premises are a part. In confirmation of such subordination,
Tenant shall from time to time execute promptly any certificate that Owner may
request.
Property Loss, Damage Reimbursement Indemnity:
8. Owner or its agents shall not be liable for any damage to property of Tenant
or of others entrusted to employees of the building, nor for loss of or damage
to any property of Tenant by theft or otherwise, nor for any injury or damage to
persons or property resulting from any cause of whatsoever nature, unless caused
by or due to the negligence of Owner, its agents, servants or employees. Owner
or its agents will not be liable for any such damage caused by other tenants or
person in, upon or about said building or caused by operations in construction
of any private, public or quasi public work. If at any time any windows of the
demised premises are temporarily closed, darkened or bricked up (or permanently
closed, darkened or bricked up, if required by law) for any reason whatsoever
including, but not limited to Owner's own acts, Owner shall not be liable for
any damage Tenant may sustain thereby and Tenant shall not be entitled to any
compensation therefor nor abatement or diminution of rent nor shall the same
release Tenant from its obligations hereunder nor constitute an eviction. Tenant
shall indemnify and save harmless Owner against and from all liabilities,
obligations, damages, penalties, claims, costs and expenses for which Owner
shall not be reimbursed by insurance, including reasonable attorneys fees, paid,
suffered or incurred as a result of any breach by Tenant, Tenant's agents,
contractors, employees, invitees, or licensees, of any covenant or condition of
this lease, or the carelessness, negligence or improper conduct of the Tenant,
Tenant's agents, contractors, employees, invitees or licensees. Tenant's
liability under this lease extends to the acts and omissions of any sub-tenant,
and any agent, contractor, employee, invitee or licensee of any sub-tenant. In
case any action or proceeding is brought against Owner by reason of any such
claim, Tenant, upon written notice from Owner, will at Tenant's expense, resist
or defend such action or proceeding by counsel approved by Owner in writing,
such approval not to be unreasonably withheld.
Destruction, Fire and Other Casualty:
9. (a) If the demised premises or any part thereof shall be damaged by fire or
other casualty, Tenant shall give immediate notice thereof to Owner and this
lease shall continue in full force and effect except as hereinafter set forth.
(b) If the demised premises are partially damaged or rendered partially unusable
by fire or other casualty, the damages thereto shall be repaired by and at the
expense of Owner and the rent and other items of additional rent, until such
repair shall be substantially completed, shall be apportioned from the day
following the casualty according to the part of the premises which is usable.
(c) If the demised premises are totally damaged or rendered wholly unusable by
fire or other casualty, then the rent and other items of additional rent as
hereinafter expressly provided shall be proportionately paid up to the time of
the casualty and thenceforth shall cease until the date when the premises shall
have been repaired and restored by Owner (or sooner reoccupied in part by Tenant
then rent shall be apportioned as provided in subsection (b) above), subject to
Owner's right to elect not to restore the same as hereinafter provided. (d) If
the demised premises are rendered wholly unusable or (whether or not the demised
premises are damaged in whole or in part) if the building shall be so damaged
that Owner shall decide to demolish it or to rebuild it, then, in any of such
events, Owner may elect to terminate this lease by written notice to Tenant,
given within 90 days after such fire or casualty, or 30 days after adjustment of
the insurance claim for such fire or casualty, whichever is sooner, specifying a
date for the expiration of the lease, which date shall not be more than 60 days
after the giving of such notice, and upon the date specified in such notice the
term of this lease shall expire as fully and completely as if such date were the
date set forth above for the termination of this lease and Tenant shall
forthwith quit, surrender and vacate the premises without prejudice however, to
landlord's rights and remedies against Tenant under the lease provisions in
effect prior to such termination, and any rent owing shall be paid up to such
date and any payments of rent made by Tenant which were on account of any period
subsequent to such date shall be returned to Tenant. Unless Owner shall serve a
termination notice as provided for herein, Owner shall make the repairs and
restorations under the conditions of (b) and (c) hereof, with all reasonable
expedition, subject to delays due to adjustment of Insurance claims, labor
troubles and causes beyond Owner's control. After any such casualty, Tenant
shall cooperate with Owner's restoration by removing from the premises as
promptly as reasonably possible, all of Tenant's salvageable inventory and
moveable equipment, furniture, and other property. Tenant's liability for rent
shall resume five (5) days after written notice from Owner that the premises are
substantially ready for Tenant's occupancy. (e) Nothing contained hereinabove
shall relieve Tenant from liability that may exist as a result of damage from
fire or other casualty. Notwithstanding the foregoing, including Owner's
obligation to restore under subparagraph (b) above, each party shall look first
to any insurance in its favor before making any claim against the other party
for recovery for loss or damage resulting from fire or other casualty, and to
the extent that such insurance is in force and collectible and to the extent
permitted by law, Owner and Tenant each hereby releases and waives all right of
recovery with respect to subparagraphs (b), (d), and (e) above, against the
other or any one claiming through or under each of them by way of subrogation or
otherwise. The release and waiver herein referred to shall be deemed to include
any loss or damage to the demised premises and/or to any personal property,
equipment, trade fixtures, goods and merchandise located therein. The foregoing
release and waiver shall be in force only if both releasors' insurance policies
contain a clause providing that such a release or waiver shall not invalidate
the insurance. If, and to the extent, that such waiver can be obtained only by
the payment of additional premiums, then the party benefiting from the waiver
shall pay such premium within ten days after written demand or shall be deemed
to have agreed that the party obtaining insurance coverage shall be free of any
further obligation under the provisions hereof with respect to waiver of
subrogation. Tenant acknowledges that Owner will not carry insurance on Tenant's
furniture and/or furnishings or any fixtures or equipment, improvements, or
appurtenances removable by Tenant and agrees that Owner will not be obligated to
repair any damage thereto or replace the same. (f) Tenant hereby waives the
provisions of Section 227 of the Real Property Law and agrees that the
provisions of this article shall govern and control in lieu thereof.
Eminent Domain:
10. If the whole or any part of the demised premises shall be acquired or
condemned by Eminent Domain for any public or quasi public use or purpose, then
and in that event, the term of this lease shall cease and terminate from the
date of title vesting in such proceeding and Tenant shall have no claim for the
value of any unexpired term of said lease and assigns to Owner, Tenant's entire
interest in any such award. Tenant shall have the right to make an independent
claim to the condemning authority for the value of Tenant's moving expenses and
personal property, trade fixtures and equipment, provided Tenant is entitled
pursuant to the terms of the lease to remove such property, trade fixture and
equipment at the end of the term and provided further such claim does not reduce
Owner's award.
Assignment, Mortgage, Etc.
11. Tenant, for itself, its heirs, distributees, executors, administrators,
legal representative, successor and assigns, expressly covenants that it shall
not assign, mortgage or encumber this agreement, nor underlet, or suffer or
permit the demised premises or any part thereof to be used by others, without
the prior written consent of Owner in each instance. Transfer of the majority of
the stock of a corporate Tenant or the majority partnership interest of a
partnership Tenant shall be deemed an assignment. If this lease be assigned, or
if the demised premises or any part thereof be underlet or occupied by anybody
other than Tenant, Owner may, after default by Tenant, collect rent from the
assignee, under-tenant or occupant, and apply the net amount collected to the
rent herein reserved, but no such assignment, underletting, occupancy or
collection shall be deemed a waiver of this covenant, or the acceptance of the
assignee, under-tenant or occupant as tenant, or a release of Tenant from the
further performance by Tenant of covenants on the part of Tenant herein
contained. The consent by Owner to an assignment or underletting shall not in
any wise be construed to relieve Tenant from obtaining the express consent in
writing of Owner to any further assignment or underletting.
Electric Current:
12. Rates and conditions in respect to submetering or rent inclusion, as the
case may be, to be added in RIDER attached hereto. Tenant covenants and agrees
that at all times its use of electric current shall not exceed the capacity of
existing feeders to the building or the risers or wiring installation and Tenant
may not use any electrical equipment which, in Owner's opinion, reasonably
exercised, will overload such installations or interfere with the use thereof by
other tenants of the building. The change at any time of the character of
electric service shall in no wise make Owner liable or responsible to Tenant,
for any loss, damages or expenses which Tenant may sustain.
Access to Premises:
13. Owner or Owner's agents shall have the right (but shall not be obligated) to
enter the demised premises in any emergency at any time, and, at other
reasonable times, to examine the same and to make such repairs, replacements and
improvements as Owner may deem necessary and reasonably desirable to the demised
premises or to any other portion of the building or which Owner may elect to
perform. Tenant shall permit Owner to use and maintain and replace pipes and
conduits in and through the demised premises and to erect new pipes and conduits
therein provided they are concealed within the walls, floor, or ceiling. Owner
may, during the progress of any work in the demised premises, take all necessary
materials and equipment into said premises without the same constituting an
eviction nor shall the Tenant be entitled to any abatement of rent while such
work is in progress nor to any damages by reason of loss or interruption of
business or otherwise. Throughout the term hereof Owner shall have the right to
enter the demised premises at reasonable hours for the purpose of showing the
same to prospective purchasers or mortgagees of the building, and during the
last six months of the term for the purpose of showing the
- ----------------------------------------
[graphic] Rider to be added if necessary.
<PAGE>
[illegible] is not present to open and permit an entry into the demised
premises. Owner or Owner's agents may enter the same whenever such entry may be
necessary or permissible by master key or forcibly and provided reasonable care
is exercised to safeguard Tenant's property, such entry shall not render Owner
or its agents liable therefor, nor in any event shall the obligations of Tenant
hereunder be affected. If during the last month of the term Tenant shall have
removed all or substantially all of Tenant's property therefrom Owner may
immediately enter, alter, renovate or redecorate the demised premises without
limitation or abatement of rent, or incurring liability to Tenant for any
compensation and such act shall have no effect on this lease or Tenant's
obligations hereunder.
Vault, Vault Space, Area:
14. No Vaults, vault space or area, whether or not enclosed or covered, not
within the property line of the building is leased hereunder, anything contained
in or indicated on any sketch, blue print or plan, or anything contained
elsewhere in this lease to the contrary notwithstanding, Owner makes no
representation as to the location of the property line of the building. All
vaults and vault space and all such areas not within the property line of the
building, which Tenant may be permitted to use and/or occupy, is to be used
and/or occupied under a revocable license, and if any such license be revoked,
or if the amount of such space or area be diminished or required by any federal,
state or municipal authority or public utility, Owner shall not be subject to
any liability nor shall Tenant be entitled to any compensation or diminution or
abatement of rent, nor shall such revocation, diminution or requisition be
deemed constructive or actual eviction. Any tax, fee or charge of municipal
authorities for such vault or area shall be paid by Tenant.
Occupancy:
15. Tenant will not at any time use or occupy the demised premises in
violation of the certificate of occupancy issued for the building of which the
demised premises are a part. Tenant has inspected the premises and accepts them
as is, subject to the riders annexed hereto with respect to Owner's work, if
any. In any event, Owner makes no representation as to the condition of the
premises and Tenant agrees to accept the same subject to violations, whether or
not of record.
Bankruptcy:
16. (a) Anything elsewhere in this lease to the contrary notwithstanding,
this lease may be cancelled by Owner by the sending of a written notice to
Tenant within a reasonable time after the happening of any one or more of the
following events: (1) the commencement of a case in bankruptcy or under the laws
of any state naming Tenant as the debtor; or (2) the making by Tenant of an
assignment or any other arrangement for the benefit of creditors under any state
statute. Neither Tenant nor any person claiming through or under Tenant, or by
reason of any statute or order of court, shall thereafter be entitled to
possession of the premises demised but shall forthwith quit and surrender the
premises. If this lease shall be assigned in accordance with its terms, the
provisions of this Article 16 shall be applicable only to the party then owning
Tenant's interest in this lease.
(b) it is stipulated and agreed that in the event of the termination of
this lease pursuant to (a) hereof, Owner shall forthwith, notwithstanding any
other provisions of this lease to the contrary, be entitled to recover from
Tenant as and for liquidated damages an amount equal to the difference between
the rent reserved hereunder for the unexpired portion of the term demised and
the fair and reasonable rental value of the demised premises for the same
period. In the computation of such damages the difference between any
installment of rent becoming due hereunder after the date of termination and the
fair and reasonable rental value of the demised premises for the period for
which such installment was payable shall be discounted to the date of
termination at the rate of four percent (4%) per annum. If such premises or any
part thereof be re-let by the Owner for the unexpired term of said lease, or any
part thereof, before presentation of proof of such liquidated damages to any
court, commission or tribunal, the amount of rent reserved upon such re-letting
shall be deemed to be the fair and reasonable rental value for the part or the
whole of the premises so re-let during the term of the re-letting. Nothing
herein contained shall limit or prejudice the right of the Owner to prove for
and obtain as liquidated damages by reason of such termination, an amount equal
to the maximum allowed by any statute or rule of law in effect at the time when,
and governing the proceedings in which, such damages are to be proved, whether
or not such amount be greater, equal to, or less than the amount of the
difference referred to above.
Default:
17. (1) If Tenant defaults in fulfilling any of the covenants of this lease
other than the covenants for the payment of rent or additional rent; or if the
demised premises become vacant or deserted; or if any execution or attachment
shall be issued against Tenant or any of Tenant's property whereupon the demised
premises shall be taken or occupied by someone other than Tenant; or if this
lease be rejected under ss. 235 of Title 11 of the U.S. Code (bankruptcy code);
or if Tenant shall fail to move into or take possession of the premises within
thirty (30) days after the commencement of the term of this lease, then, in any
one or more of such events, upon Owner serving a written fifteen (15) days
notice upon Tenant specifying the nature of said default and upon the expiration
of said fifteen (15) days, if Tenant shall have failed to comply with or remedy
such default, or if the said default or omission complained of shall be of a
nature that the same cannot be completely cured or remedied within said fifteen
(15) day period, and if Tenant shall not have diligently commenced curing such
default within such fifteen (15) day period, and shall not thereafter with
reasonable diligence and in good faith, proceed to remedy or cure such default,
then Owner may serve a written five (5) days' notice of cancellation of this
lease upon Tenant, and upon the expiration of said five (5) days this lease and
the term thereunder shall end and expire as fully and completely as if the
expiration of such five (5) day period were the day herein definitely fixed for
the end and expiration of this lease and the term thereof and Tenant shall then
quit and surrender the demised premises to Owner but Tenant shall remain liable
as hereinafter provided.
(2) If the notice provided for in (1) hereof shall have been given, and the
term shall expire as aforesaid; or if Tenant shall make default in the payment
of the rent reserved herein or any item of additional rent herein mentioned or
any part of either or in making any other payment herein required; then and in
any of such events Owner may without notice, re-enter the demised premises
either by force or otherwise, and dispossess Tenant by summary proceedings or
otherwise, and the legal representative of Tenant or other occupant of demised
premises and remove their effects and hold the premises as if this lease had not
been made, and Tenant hereby waives the service of notice of intention to
re-enter or to institute legal proceedings to that end. If Tenant shall make
default hereunder prior to the date fixed as the commencement of any renewal or
extension of this lease, Owner may cancel and terminate such renewal or
extension agreement by written notice.
Remedies of Owner and Waiver of Redemption:
18. In case of any such default, re-entry, expiration and/or dispossess by
summary proceedings or otherwise, (a) the rent shall become due thereupon and be
paid up to the time of such re-entry, dispossess and/or expiration, (b) Owner
may re-let the premises or any part or parts thereof, either in the name of
Owner or otherwise, for a term or terms, which may at Owner's option be less
than or exceed the period which would otherwise have constituted the balance of
the term of this lease and may grant concessions or free rent or charge a higher
rental than that in this lease, and/or (c) Tenant or the legal representatives
of Tenant shall also pay Owner as liquidated damages for the failure of Tenant
to observe and perform said Tenant's covenants herein contained, any deficiency
between the rent hereby reserved and/or covenanted to be paid and the net
amount, if any, of the rents collected on account of the lease or leases of the
demised premises for each month of the period which would otherwise have
constituted the balance of the term of this lease. The failure of Owner to
re-let the premises or any part or parts thereof shall not release or affect
Tenant's liability for damages. In computing such liquidated damages there shall
be added to the said deficiency such expenses as Owner may incur in connection
with re-letting, such as legal expenses, reasonable attorneys' fees, brokerage,
advertising and for keeping the demised premises in good order or for preparing
the same for re-letting. Any such liquidated damages shall be paid in monthly
installments by Tenant on the rent day specified in this lease and any suit
brought to collect the amount of the deficiency for any month shall not
prejudice in any way the rights of Owner to collect the deficiency for any
subsequent month by a similar proceeding. Owner, in putting the demised premises
in good order or preparing the same for re-rental may, at Owner's option, make
such alterations, repairs, replacements, and/or decorations in the demised
premises as Owner, in Owner's sole judgment, considers advisable and necessary
for the purpose of re-letting the demised premises, and the making of such
alterations, repairs, replacements, and/or decorations shall not operate or be
construed to release Tenant from liability hereunder as aforesaid. Owner shall
in no event be liable in any way whatsoever for failure to re-let the demised
premises, or in the event that the demised premises are re-let, for failure to
collect the rent thereof under such re-letting, and in no event shall Tenant be
entitled to receive any excess, if any, of such net rents collected over the
sums payable by Tenant to Owner hereunder. In the event of a breach or
threatened breach by Tenant of any of the covenants or provisions hereof, Owner
shall have the right of injunction and the right to invoke any remedy allowed at
law or in equity as if re-entry, summary proceedings and other remedies were not
herein provided for. Mention in this lease of any particular remedy, shall not
preclude Owner from any other remedy, in law or in equity. Tenant hereby
expressly waives any and all rights of redemption granted by or under any
present or future laws in the event of Tenant being evicted or dispossessed for
any cause, or in the event of Owner obtaining possession of demised premises, by
reason of the violation by Tenant of any of the covenants and conditions of this
lease, or otherwise.
Fees and Expenses:
19. If Tenant shall default in the observance or performance of any term or
covenant on Tenant's part to be observed or performed under or by virtue of any
of the terms or provisions in any article of this lease, after notice if
required and upon expiration of any applicable grace period if any (except in an
emergency), then, unless otherwise provided elsewhere in this lease, Owner may
immediately or at any time thereafter and without notice perform the obligation
of Tenant thereunder. If Owner, in connection with the foregoing or in
connection with any default by Tenant in the covenant to pay rent hereunder,
makes any expenditures or incurs any obligations for the payment of money,
including but not limited to reasonable attorneys' fees, in instituting,
prosecuting or defending any action or proceeding, and prevails in any such
action or proceeding then Tenant will reimburse Owner for such sums so paid or
obligations incurred with interest and costs. The foregoing expenses incurred by
reason of Tenant's default shall be deemed to be additional rent hereunder and
shall be paid by Tenant to Owner within ten (10) days of rendition of any bill
or statement to Tenant therefor. If Tenant's lease term shall have expired at
the time of making of such expenditures or incurring of such obligations, such
sums shall be recoverable by Owner, as damages.
Building Alterations and Management:
20. Owner shall have the right at any time without the same constituting an
eviction and without incurring liability to Tenant therefor to change the
arrangement and/or location of public entrances, passageways, doors, doorways,
corridors, elevators, stairs, toilets or other public parts of the building and
to change the name, number or designation by which the building may be known.
There shall be no allowance to Tenant for diminution of rental value and no
liability on the part of Owner by reason of inconvenience, annoyance or injury
to business arising from Owner or other Tenants making any repairs in the
building or any such alterations, additions and improvements. Furthermore,
Tenant shall not have any claim against Owner by reason of Owner's imposition of
such controls of the manner of access to the building by Tenant's social or
business visitors as the Owner may deem necessary for the security of the
building and its occupants.
No Representations by Owner:
21. Neither Owner nor Owner's agents have made any representations or
promises with respect to the physical condition of the building, the land upon
which it is erected or the demised premises, the rents, leases, expenses of
operation or any other matter or thing affecting or related to the premises
except as herein expressly set forth and no rights, easements or licenses are
acquired by Tenant by implication or otherwise except as expressly set forth in
the provisions of this lease. Tenant has inspected the building and the demised
premises and is thoroughly acquainted with their condition and agrees to take
the same "as is" and acknowledges that the taking of possession of the demised
premises by Tenant shall be conclusive evidence that the said premises and the
building of which the same form a part were in good and satisfactory condition
at the time such possession was so taken, except as to latent defects. All
understandings and agreements heretofore made between the parties hereto are
merged in this contract, which alone fully and completely expresses the
agreement between Owner and Tenant and any executory agreement
<PAGE>
hereafter made shall be ineffective to change, modify, discharge or effect an
abandonment of it in whole or in part, unless such executory agreement is in
writing and signed by the party against whom enforcement of the change,
modification, discharge or abandonment is sought.
End of Term:
22. upon the expiration or other termination of the term of this lease,
Tenant shall quit and surrender to Owner the demised premises, broom clean, in
good order and condition, ordinary wear and damages which Tenant is not required
to repair as provided elsewhere in this lease excepted, and Tenant shall remove
all its property. Tenant's obligation to observe or perform this covenant shall
survive the expiration or other termination of this lease. If the last day of
the term of this Lease or any renewal thereof, falls on Sunday, this lease shall
expire at noon on the preceding Saturday unless it be a legal holiday in which
case it shall expire at noon on the preceding business day.
Quiet Enjoyment:
23. Owner covenants and agrees with Tenant that upon Tenant paying the rent
and additional rent and observing and performing all the terms, covenants and
conditions, on Tenant's part to be observed and performed, Tenant may peaceably
and quietly enjoy the premises hereby demised, subject, nevertheless, to the
terms and conditions of this lease including, but not limited to, Article 31
hereof and to the ground leases, underlying leases and mortgages hereinbefore
mentioned.
Failure to Give Possession:
24. If Owner is unable to give possession of the demised premises on the
date of the commencement of the term hereof, because of the holding-over or
retention of possession of any tenant, undertenant or occupants or if the
demised premises are located in a building being constructed, because such
building has not been sufficiently completed to make the premises ready for
occupancy or because of the fact that a certificate of occupancy has not been
procured or for any other reason, Owner shall not be subject to any liability
for failure to give possession on said date and the validity of the lease shall
not be impaired under such circumstances, nor shall the same be construed in any
wise to extend the term of this lease, but the rent payable hereunder shall be
abated (provided Tenant is not responsible for Owner's inability to obtain
possession or complete construction) until after Owner shall have given Tenant
written notice that the Owner is able to deliver possession in condition
required by this lease. If permission is given to Tenant to enter into the
possession of the demised premises or to occupy premises other than the demised
premises prior to the date specified as the commencement of the term of this
lease, Tenant covenants and agrees that such possession and/or occupancy shall
be deemed to be under all the terms, covenants, conditions and provisions of
this lease except the obligation to pay the fixed annual rent set forth in the
preamble to this lease. The provisions of this article are intended to
constitute "an express provision to the contrary" within the meaning of Section
233-a of the New York Real Property Law.
No Waiver:
25. The failure of Owner to seek redress for violation of, or to insist
upon the strict performance of any covenant or condition of this lease or of any
of the Rules or Regulations, set forth or hereafter adopted by Owner, shall not
prevent a subsequent act which would have originally constituted a violation
from having all the force and effect of an original violation. The receipt by
Owner of rent and/or additional rent with knowledge of the breach of any
covenant of this lease shall not be deemed a waiver of such breach and no
provision of this lease shall be deemed to have been waived by Owner unless such
waiver be in writing signed by Owner. No payment by Tenant or receipt by Owner
of a lesser amount than the monthly rent herein stipulated shall be deemed to be
other than on account of the earliest stipulated rent, nor shall any endorsement
or statement of any check or any letter accompanying any check or payment as
rent be deemed an accord and satisfaction, and Owner may accept such check or
payment without prejudice to Owner's right to recover the balance of such rent
or pursue any other remedy in this lease provided. No act or thing done by Owner
or Owner's agents during the term hereby demised shall be deemed an acceptance
of a surrender of said premises, and no agreement to accept such surrender shall
be valid unless in writing signed by Owner. No employee of Owner or Owner's
agent shall have any power to accept the keys of said premises prior to the
termination of the lease and the delivery of keys to any such agent or employee
shall not operate as a termination of the lease or a surrender of the premises.
Waiver of Trial by Jury:
26. It is mutually agreed by and between Owner and Tenant that the
respective parties hereto shall and they hereby do waive trial by jury in any
action proceeding or counterclaim brought by either of the parties hereto
against the other (except for personal injury or property damage) on any matters
whatsoever arising out of or in any way connected with this lease, the
relationship of Owner and Tenant, Tenant's use of or occupancy of said premises,
and any emergency statutory or any other statutory remedy. It is further
mutually agreed that in the event Owner commences any proceeding or action for
possession including a summary proceeding for possession of the premises, Tenant
will not interpose any counterclaim of whatever nature or description in any
such proceeding including a counterclaim under Article 4 except for statutory
mandatory counterclaims.
Inability to Perform:
27. This Lease and the obligation of Tenant to pay rent hereunder and
perform all of the other covenants and agreements hereunder on part of Tenant to
be performed shall in no wise be affected, impaired or excused because Owner is
unable to fulfill any of its obligations under this lease or to supply or is
delayed in supplying any service expressly or impliedly to be supplied or is
unable to make, or is delayed in making any repair, additions, alterations or
decorations or is unable to supply or is delayed in supplying any equipment,
fixtures, or other materials, if Owner is prevented or delayed from so doing by
reason of strike or labor troubles or any cause whatsoever including, but not
limited to, government preemption or restrictions or by reason of any rule,
order or regulation of any department or subdivision thereof of any government
agency or by reason of the conditions which have been or are affected, either
directly or indirectly, by war or other emergency.
Bills and Notices:
28. Except as otherwise in this lease provided, a bill, statement, notice
or communication which Owner may desire or be required to give to Tenant, shall
be deemed sufficiently given or rendered if, in writing, delivered to Tenant
personally or sent by registered or certified mail addressed to Tenant at the
building of which the demised premises form a part or at the last known
residence address or business address of Tenant or left at any of the aforesaid
premises addressed to Tenant, and the time of the rendition of such bill or
statement and of the giving of such notice or communication shall be deemed to
be the time when the same is delivered to Tenant, mailed, or left at the
premises as herein provided. Any notice by Tenant to Owner must be served by
registered or certified mail addressed to Owner at the address first hereinabove
given or at such other address as Owner shall designate by written notice.
Services Provided by Owners:
29. As long as Tenant is not in default under any of the covenants of this
lease beyond the applicable grace period provided in this lease for the curing
of such defaults, Owner shall provided: (a) necessary elevator facilities on
business days from 8 a.m. to 6 p.m. and have one elevator subject to call at all
other times; (b) heat to the demised premises when and as required by law, on
business days from 8 a.m. to 6 p.m.; (c) water for ordinary lavatory purposes,
but if Tenant uses or consumes water for any other purposes or in unusual
quantities (of which fact Owner shall be the sole judge), Owner may install a
water meter at Tenant's expense which Tenant shall thereafter maintain at
Tenant's expense in good working order and repair to register such water
consumption and Tenant shall pay for water consumed as shown on said meter as
additional rent as and when bills are rendered; (d) cleaning service for the
demised premises on business days at Owner's expense provided that the same are
kept in order by Tenant. If, however, said premises are to be kept clean by
Tenant, it shall be done at Tenant's sole expense, in a manner reasonably
satisfactory to Owner and no one other than persons approved by Owner shall be
permitted to enter said premises or the building of which they are a part for
such purpose. Tenant shall pay Owner the cost of removal of any of Tenant's
refuse and rubbish from the building; (e) If the demised premises are serviced
by Owner's air conditioning/cooling and ventilating system, air
conditioning/cooling will be furnished to tenant from May 15th through September
30th on business days (Mondays through Fridays, holidays excepted) from 8:00
a.m. to 6:00 p.m., and ventilation will be furnished on business days during the
aforesaid hours except when air conditioning/cooling is being furnished as
aforesaid. If Tenant requires air conditioning/cooling or ventilation for more
extended hours or on Saturday, Sundays or on holidays, as defined under Owner's
contract with Operating Engineer Local 94-94A, Owner will furnish the same at
Tenant's expense. RIDER to be added in respect to rates and conditions for such
additional service; (f) Owner reserves the right to stop services of the
heating, elevators, plumbing, air-conditioning, electric, power systems or
cleaning or other services, if any, when necessary by reason of accident or for
repairs, alterations, replacements or improvements necessary or desirable in the
judgment of Owner for as long as may be reasonably required by reason thereof.
If the building of which the demised premises are a part supplies manually
operated elevator service, Owner at any time may substitute automatic control
elevator service and proceed diligently with alterations necessary therefor
without in any wise affecting this lease or the obligation of Tenant hereunder.
Captions:
30. The Captions are inserted only as a matter of convenience and for
reference and in no way define, limit or describe the scope of this lease nor
the intent of any provisions thereof.
Definitions:
31. The term "office", or "offices", wherever used in this lease, shall not
be construed to mean premises used as a store or stores, for the sale or
display, at any time, of goods, wares or merchandise, of any kind, or as a
restaurant, shop, booth, bootblack or other stand, barber shop, or for other
similar purposes or for manufacturing. The term "Owner" means a landlord or
lessor, and as used in this lease means only the owner, or the mortgagee in
possession, for the time being of the land and building (or the owner of a lease
of the building or of the land and building) of which the demised premises form
a part, so that in the event of any sale or sales of said land and building or
of said lease, or in the event of a lease of said building, or of the land and
building, the said owner shall be and hereby is entirely freed and relieved of
all covenants and obligations of Owner hereunder, and it shall be deemed and
construed without further agreement between the parties or their successors in
interest, or between the parties and the purchaser, at any such sale, or the
said lessee of the building, or of the land and building, that the purchaser or
the lessee of the building has assumed and agreed to carry out any and all
covenants and obligations of Owner, hereunder. The words "re-enter" and
"re-entry" as used in this lease are not restricted to their technical legal
meaning. The term "business days" as used in this lease shall exclude Saturdays,
Sundays and all days as observed by the State or Federal Government as legal
holidays and those designated as holidays by the applicable building service
union employees service contract or by the applicable Operating Engineers
contract with respect to HVAC service. Wherever it is expressly provided in this
lease that consent shall not be unreasonably withheld, such consent shall not be
unreasonably delayed.
Adjacent Excavation-Shoring:
32. If an excavation shall be made upon land adjacent to the demised
premises, or shall be authorized to be made, Tenant shall afford to the person
causing or authorized to cause such excavation, license to enter upon the
demised premises for the purpose of doing such work as said person shall deem
necessary to preserve the wall or the building of which demised premises form a
part from injury or damage and to support the same by proper foundations without
any claim for damages or indemnity against Owner, or diminution or abatement of
rent.
Rules and Regulations:
33. Tenant and Tenant's servants, employees, agents, visitors, and
licensees shall observe faithfully, and comply strictly with, the Rules and
Regulations and such other and further reasonable Rules and Regulations as Owner
or Owner's agents may from time to time adopt. Notice of any additional rules or
regulations shall be given in such manner as Owner may elect. In case Tenant
disputes the reasonableness of any additional Rule or Regulation hereafter made
or adopted by Owner or Owner's agents, the parties hereto agree to submit the
question of the reasonableness of such Rule or Regulation for decision to the
New York office of the American Arbitration Association, whose determination
shall be final and conclusive upon the parties hereto. The right to dispute the
reasonableness of any additional Rule or Regulation upon Tenant's part shall be
deemed waived unless the same shall be asserted by service of a notice, in
writing upon Owner within fifteen (15) days after the giving of notice thereof.
Nothing
<PAGE>
in this lease contained shall be construed to impose upon Owner any duty or
obligation to enforce the Rules and Regulations or terms, covenants or
conditions in any other lease, as against any other tenant and Owner shall not
be liable to Tenant for violation of the same by any other tenant, its servants,
employees, agents, visitors or licensees.
Security:
34. Tenant has deposited with Owner the sum of $ [See Article 65] as
security for the faithful performance and observance by Tenant of the terms,
provisions and conditions of this lease; it is agreed that in the event Tenant
defaults in respect of any of the terms, provisions and conditions of this
lease, including, but not limited to, the payment of rent and additional rent,
Owner may use, apply or retain the whole or any part of the security so
deposited to the extent required for the payment of any rent and additional rent
or any other sum as to which Tenant is in default or for any sum which Owner may
expend or may be required to expend by reason of Tenant's default in respect of
any of the terms, covenants and conditions of this lease, including but not
limited to, any damages or deficiency in the re-letting of the premises, whether
such damages or deficiency accrued before or after summary proceedings or other
re-entry by Owner. In the event that Tenant shall fully and faithfully comply
with all of the terms, provisions, covenants and conditions of this lease, the
security shall be returned to Tenant after the date fixed as the end of the
Lease and after delivery of entire possession of the demised premises to Owner.
In the event of a sale of the land and building or leasing of the building, of
which the demised premises form a part, Owner shall have the right to transfer
the security to the vendee or lessee and Owner shall thereupon be released by
Tenant from all liability for the return of such security; and Tenant agrees to
look to the new Owner solely for the return of said security, and it is agreed
that the provisions hereof shall apply to every transfer or assignment made of
the security to a new Owner. Tenant further covenants that it will not assign or
encumber or attempt to assign or encumber the monies deposited herein as
security and that neither Owner nor its successors or assigns shall be bound by
any such assignment, encumbrance, attempted assignment or attempted encumbrance.
Estoppel Certificate:
35. Tenant, at any time, and from time to time, upon at least 10 days'
prior notice by Owner, shall execute, acknowledge and deliver to Owner, and/or
to any other person, firm or corporation specified by Owner, a statement
certifying that this Lease is unmodified and in full force and effect (or, if
there have been modifications, that the same is in full force and effect as
modified and stating the modifications), stating the dates to which the rent and
additional rent have been paid, and stating whether or not there exists any
default by Owner under this Lease, and, if so, specifying each such default.
Successors and Assigns:
36. The covenants, conditions and agreements contained in this lease shall
bind and inure to the benefit of Owner and Tenant and their respective heirs,
distributees, executors, administrators, successors, and except as otherwise
provided in this lease, their assigns. Tenant shall look only to Owner's estate
and interest in the land and building, for the satisfaction of Tenant's remedies
for the collection of a judgment (or other judicial process) against Owner in
the event of any default by Owner hereunder, and no other property or assets of
such Owner (or any partner, member, officer or director thereof, disclosed or
undisclosed), shall be subject to levy, execution or other enforcement procedure
for the satisfaction of Tenant's remedies under or with respect to this lease,
the relationship of Owner and Tenant hereunder, or Tenant's use and occupancy of
the demised premises.
SEE RIDER ATTACHED HERETO AND MADE A PART HEREOF
In Witness Whereof, Owner and Tenant have respectively signed and sealed this
lease as of the day and year first above written.
BANK OF MONTREAL
Witness for Owner: By: /s/ Bank of Montreal
--------------------------------
Authorized Signatory
- ------------------------------- --------------------------------
RSL COMMUNICATIONS, Ltd.
Witness for Tenant: By: /s/ RSL Communications, Ltd.
--------------------------------
Authorized Signatory
- ------------------------------- --------------------------------
ACKNOWLEDGMENTS
CORPORATE OWNER
STATE OF NEW YORK, ss.:
County of __________
On this __________ day of __________, 19__, before me personally came
__________, to me known, who being by me duly sworn, did depose and say that he
resides in __________; that he is the __________ of __________ the corporation
described in and which executed the foregoing instrument, as OWNER; that he
knows the seal of said corporation; the seal affixed to said instrument is such
corporate seal; that it was so affixed by order of the Board of Directors of
said corporation, and that he signed his name thereto by like order.
CORPORATE TENANT
STATE OF NEW YORK, ss.:
County of __________
On this day __________ of __________, 19__, before me personally came
__________, to me known, who being by me duly sworn, did depose and say that he
resides in __________; that he is the __________ of __________ the corporation
described in and which executed the foregoing instrument, as TENANT; that he
knows the seal of said corporation; the seal affixed to said instrument is such
corporate seal; that it was so affixed by order of the Board of Directors of
said corporation, and that he signed his name thereto by like order.
- --------------------------------------------------------------------------------
INDIVIDUAL OWNER
STATE OF NEW YORK, ss.:
County of __________
On this __________ day of __________, 19__, before me personally came
__________, to be known and known to me to be the individual __________
described in and who, as OWNER, executed the foregoing instrument and
acknowledged to me that __________ he executed same.
INDIVIDUAL TENANT
STATE OF NEW YORK, ss.:
County of __________
On this __________ day of __________, 19__, before me personally came
__________, to be known and known to me to be the individual __________
described in and who, as TENANT, executed the foregoing instrument and
acknowledged to me that __________ he executed same.
- --------------------------------------------------------------------------------
<PAGE>
GUARANTY
FOR VALUE RECEIVED, and in consideration for, and as an inducement to Owner
making the within lease with Tenant, the undersigned guarantees to Owner,
Owner's successors and assigns, the full performance and observance of all the
covenants, conditions and agreements, therein provided to be performed and
observed by Tenant, including the "Rules and Regulations" as therein provided,
without requiring any notice of non-payment, non-performance, or non-observance,
or proof, or notice, or demand, whereby to charge the undersigned therefor, all
of which the undersigned hereby expressly waives and expressly agrees that the
validity of this agreement and the obligations of the guarantor hereunder shall
in no wise be terminated, affected or impaired by reason of the assertion by
Owner against Tenant of any of the rights or remedies reserved to Owner pursuant
to the provisions of the within lease. The undersigned further covenants and
agrees that this guaranty shall remain and continue in full force and effect as
to any renewal, modification or extension of this lease and during any period
when Tenant is occupying the premises as a "statutory tenant." As a further
inducement to Owner to make this lease and in consideration thereof, Owner and
the undersigned covenant and agree that in any action or proceeding brought by
either Owner or the undersigned against the other on any matters whatsoever
arising out of, under, or by virtue of the terms of this lease or of this
guarantee that Owner and the undersigned shall and do hereby waive trial by
jury.
Date: __________________________________________________________ 19_________
________________________________________________________________
Guarantor
________________________________________________________________
Witness
________________________________________________________________
Guarantor's Residence
________________________________________________________________
Business Address
________________________________________________________________
Firm Name
STATE OF NEW YORK ) ss.:
COUNTY OF )
On this __________ day of __________, 19__, before me personally came __________
to me known and known to me to be the individual described in, and who executed
the foregoing Guaranty and acknowledged to me that he executed the same.
______________________________
Notary
IMPORTANT - PLEASE READ
RULES AND REGULATIONS ATTACHED TO AND
MADE A PART OF THIS LEASE
IN ACCORDANCE WITH ARTICLE 33
1. The sidewalks, entrances, driveways, passages, courts, elevators, vestibules,
stairways, corridors or halls shall not be obstructed or encumbered by any
Tenant or used for any purpose other than for ingress or ergress from the
demised premises and for delivery of merchandise and equipment in a prompt and
efficient manner using elevators and passageways designated for such delivery by
Owner. There shall not be used in any space, or in the public hall of the
building, either by any Tenant or by jobbers or others in the delivery or
receipt of merchandise, any hand trucks, except those equipped with rubber tires
and sideguards. If said premises are situated on the ground floor of the
building, Tenant thereof shall further, at Tenant's expense, keep the sidewalk
and curb in front of said premises clean and free from ice, snow, dirt and
rubbish.
2. The water and wash closets and plumbing fixtures shall not be used for any
purposes other than those for which they were designed or constructed and no
sweepings, rubbish, rags, acids or other substances shall be deposited therein,
and the expense of any breakage, stoppage, or damage resulting from the
violation of this rule shall be borne by the Tenant who, or whose clerks,
agents, employees or visitors, shall have caused it.
3. No carpet, rug or other article shall be hung or shaken out of any window of
the building and no Tenant shall sweep or throw or permit to be swept or thrown
from the demised premises any dirt or other substances into any of the corridors
or halls, elevators, or out of the doors or windows or stairways of the building
and Tenant shall not use, keep or permit to be used or kept any foul or noxious
gas or substance in the demised premises, or permit or suffer the demised
premises to be occupied or used in a manner offensive or objectionable to Owner
or other occupants of the building by reason of noise, odors, and/or vibrations,
or interfere in any way with other Tenants or those having business therein, nor
shall any bicycles, vehicles, animals, fish, or birds be kept in or about the
building. Smoking or carrying lighted cigars or cigarettes in the elevators of
the building is prohibited.
4. No awnings or other projections shall be attached to the outside walls of the
building without the prior written consent of Owner.
5. No sign, advertisement, notice or other lettering shall be exhibited,
inscribed, painted or affixed by any Tenant on any part of the outside of the
demised premises or the building or on the inside of the demised premises if the
same is visible from the outside of the premises without the prior written
consent of Owner, except that the name of Tenant may appear on the entrance door
of the premises. In the event of the violation of the foregoing by any Tenant,
Owner may remove same without any liability, and may charge the expense incurred
by such removal to Tenant or Tenants violating this rule. Interior signs on
doors and directory tablet shall be inscribed, painted or affixed for each
Tenant by Owner at the expense of such Tenant, and shall be of a size, color and
style acceptable to Owner.
6. No Tenant shall mark, paint, drill into, or in any way deface any part of the
demised premises or the building of which they form a part. No boring, cutting
or stringing of wires shall be permitted, except with the prior written consent
of Owner, and as Owner may direct. No Tenant shall lay linoleum, or other
similar floor covering, so that the same shall come in direct contact with the
floor of the demised premises, and, if linoleum or other similar floor covering
is desired to be used as interlining of builder's deadening felt shall be first
affixed to the floor, by a paste or other material, soluble in water, the use of
cement or other similar adhesive material being expressly prohibited.
7. No additional locks or bolts of any kind shall be placed upon any of the
doors or windows by any Tenant, nor shall any changes be made in existing locks
or mechanism thereof. Each Tenant must, upon the termination of his tenancy,
restore to Owner all keys of stores, offices and toilet rooms, either furnished
to, or otherwise procured by, such Tenant, and in the event of the loss of any
keys, so furnished, such Tenant shall pay to Owner the cost thereof.
8. Freight, furniture, business equipment, merchandise and bulky matter of any
description shall be delivered to and removed from the premises only on the
freight elevators and through the service entrances and corridors, and only
during hours and in the manner approved by Owner. Owner reserves the right to
inspect all freight to be brought into the building and to exclude from the
building all freight which violates any of these Rules and Regulations of the
lease or which these Rules and Regulations are a part.
9. Canvassing, soliciting and peddling in the building is prohibited and each
Tenant shall cooperate to prevent the same.
10. Owner reserves the right to exclude from the building all persons who do not
present a pass to the building signed by Owner. Owner will furnish passes to
persons for whom any Tenant requests same in writing. Each Tenant shall be
responsible for all persons for whom he requests such pass and shall be liable
to Owner for all acts of such persons. Tenant shall not have a claim against
Owner by reason of Owner excluding from the building any person who does not
present such pass.
11. Owner shall have the right to prohibit any advertising by any Tenant which
in Owner's opinion, tends to impair the reputation of the building or its
desirability as a building for offices, and upon written notice from Owner,
Tenant shall refrain from or discontinue such advertising.
12. Tenant shall not bring or permit to be brought or kept in or on the demised
premises, any inflammable, combustible, explosive, or hazardous fluid, material,
chemical or substance, or cause or permit any odors of cooking or other
processes, or any unusual or other objectionable odors to permeate in or emanate
from the demised premises.
13. If the building contains central air conditioning and ventilation, Tenant
agrees to keep all windows closed at all times and to abide by all rules and
regulations issued by Owner with respect to such services. If Tenant requires
air conditioning or ventilation after the usual hours, Tenant shall give notice
in writing to the building superintendent prior to 3:00 p.m. in the case of
services required on week days, and prior to 3:00 p.m. on the day prior in case
of after hours service required on weekends or on holidays. Tenant shall
cooperate with Owner in obtaining maximum effectiveness of the cooling system by
lowering and closing venetian blinds and/or drapes and curtain when the sun's
rays fall directly on the windows of the demised premises.
14. Tenant shall not move any safe, heavy machinery, heavy equipment, bulky
matter, or fixtures into or out of the building without Owner's prior written
consent. If such safe, machinery, equipment, bulky matter or fixtures requires
special handling, all work in connection therewith shall comply with the
Administrative Code of the City of New York and all other laws and regulations
applicable thereto and shall be done during such hours as Owner may designate.
15. Refuse and Trash. (1) Compliance by Tenant. Tenant covenants and agrees at
its sole cost and expense, to comply with all present and future laws, orders,
and regulations of all state, federal, municipal, and local governments,
departments, commissions and boards regarding the collection, sorting,
separation and recycling of waste products, garbage, refuse and trash. Tenant
shall sort and separate such waste products, garbage, refuse and trash into such
categories as provided by law. Each separately sorted category of waste
products, garbage, refuse and trash shall be placed in separate receptacles
reasonably approved by Owner. Such separate receptacles may, at Owner's option,
be removed from the demised premises in accordance with a collection schedule
prescribed by law. Tenant shall remove, or cause to be removed by a contractor
acceptable to Owner, at Owner's sole discretion, such items as Owner may
expressly designate. (2) Owner's Rights in Event of Noncompliance. Owner has the
option to refuse to collect or accept from Tenant waste produts, garbage, refuse
or trash (a) that is not separated and sorted as required by law or (b) which
consists of such items as Owner may expressly designate for Tenant's removal,
and to require Tenant to arrange for such collection at Tenant's sole cost and
expense, utilizing a contractor satisfactory to Owner. Tenant shall pay all
costs, expenses, fines, penalties, or damages that may be imposed on Owner or
Tenant by reason of Tenant's failure to comply with the provisions of this
Building Rule 15, and, at Tenant's sole cost and expense, shall indemnify,
defend and hold Owner harmless (including reasonable legal fees and expenses)
from and against any actions, claims and suits arising from such noncompliance,
utilizing counsel reasonably satisfactory to owner.
Address 430 Park Avenue
Premises 5th Floor
================================================================================
BANK OF MONTREAL
TO
RSL COMMUNICATIONS, Ltd.
================================================================================
STANDARD FORM OF
[SEAL] OFFICE [SEAL]
LEASE
The Real Estate Board of New York, Inc.
(C) Copyright 1994. All rights Reserved.
Reproduction in whole or in
part prohibited.
================================================================================
Dated June 19, 1997
Rent Per Year SEE RIDER
Rent Per Month
Term
From
To
Drawn by ___________
Checked by ___________
Entered by ___________
Approved by ___________
================================================================================
<PAGE>
RIDER to Agreement of Lease, dated as of
June 19, 1997,
between BANK OF MONTREAL
("Landlord")
and RSL COMMUNICATIONS, LTD,
("Tenant")
If any provision of this Rider conflicts or is inconsistent with any
provision of Articles 1 through 36 of this Lease, the provision of this Rider
shall prevail and govern and such provision of Articles 1 through 36 shall be
deemed amended accordingly.
37. BASIC RENT.
A. Tenant covenants to pay to Landlord fixed rent (the "Fixed Rent" or
"Basic Rent"), commencing July 1, 1997 (the "Commencement Date") through June
29, 2001 (the "Expiration Date") at an annual rate of $374,875.00 ($31,239.58
monthly).
B. The Basic Rent shall be payable in equal monthly installments in advance
on the first day of each calendar month during the term of this Lease, without
notice or demand and without any set-off, abatement or deduction whatsoever.
C. Provided Tenant is not in default under the terms, covenants and
conditions of this Lease beyond any applicable grace periods, Tenant shall have
the right to use and occupy the demised premises free of Fixed Rent (the "Fixed
Rent Allowance") for the first four (4) months of the term of this Lease. Except
for the free Fixed Rent Allowance as herein provided, Tenant shall use and
occupy the demised premises pursuant to all of the other terms, covenants and
conditions of this Lease. It is understood and agreed that the Fixed Rent
Allowance is given by Landlord in consideration of Tenant's paying when due all
rents under this Lease, and otherwise complying with the terms hereof, and that
in the event of any default by Tenant under this Lease which results in the
early termination hereof, the entire Fixed Rent Allowance given pursuant to this
paragraph, and, if the Lease is terminated prior to July 1, 1999 any fee,
commission or other compensation paid by Landlord to any broker or finder, in
connection with this Lease, together with any work allowance or reimbursement
paid to or on behalf of Tenant, shall become immediately due and payable to
Landlord as additional rent under this Lease.
38A. ESCALATION FOR INCREASE IN REAL ESTATE TAXES:
A. As used herein:
1. "Taxes" shall mean all real estate taxes, assessments, governmental
levies, municipal taxes, county taxes or any other governmental or
quasi-governmental (including business investment district) charges,
general or special, ordinary or extraordinary, unforeseen as well as
foreseen, of any kind or nature whatsoever, which are or may be assessed,
levied or imposed upon all or any part of the land and building known as
430 Park Avenue, New York, New York (the "Property"), and the sidewalks,
plazas or streets in front of or adjacent thereto, including any tax,
excise or fee measured by or payable with respect to any rent, and levied
against Landlord and/or the land and building, under the
<PAGE>
laws of the United States, the State of New York, or any political
subdivision thereof, or by the City of New York, or any political
subdivision thereof. If, due to a future change in the method of taxation
or in the taxing authority, a new or additional real estate tax, or a
franchise, income, transit, profit or other tax or governmental imposition,
however designated, shall be levied against Landlord, and/or the land and
building, or in substitution in whole or in part for any tax which would
constitute "Taxes", or in lieu of additional Taxes, such tax or imposition
shall be deemed for the purposes hereof to be included within the term
"Taxes".
2. "Tax Year" shall mean each period of twelve (12) months, commencing
on the first day of July of each such period, in which occurs any part of
the term of this lease or such other period of twelve (12) months occurring
during the term of this lease as hereafter may be duly adopted as the
fiscal year for real estate tax purposes of the City of New York.
3. "Base Tax" shall mean the Taxes for the twelve month period ending
June 30, 1998 (the "Base Tax Year").
4. "Tenant's Proportionate Share" shall mean 6.12%.
B. If the Taxes for any Tax Year shall be greater than the Base Tax, Tenant
shall pay as additional rent, subject to the terms of Paragraph 55 below, for
such Tax Year a sum equal to Tenant's Proportionate Share of the amount by which
the Taxes for such Tax Year are greater than the Base Tax (which amount is
hereinafter called the "Tax Payment"). Should this lease commence or terminate
prior to the expiration of a Tax Year, such Tax Payment shall be prorated to,
and shall be payable on, or as and when ascertained after, the Commencement Date
or the Expiration Date as the case may be. Tenant's obligation to pay such
additional rent pursuant to Paragraph C below, shall survive the termination of
this lease.
C. Only Landlord shall be eligible to institute proceedings to contest the
Taxes or reduce the assessed valuation of the land and building. Landlord shall
be under no obligation to contest the Taxes or the assessed valuation of the
land and the building for any Tax Year or to refrain from contesting the same,
and may settle any such contest on such terms as Landlord in its sole judgment
considers proper. If the assessment for the Base Tax Year shall be reduced from
the amount originally imposed after Landlord shall have rendered a comparative
statement (as provided in Paragraph D below) to Tenant with respect to a Tax
Year, the amount of the Tax Payment shall be adjusted in accordance with such
change and Tenant, on Landlord's demand, shall pay any increase in additional
rent resulting from such adjustment.
D. Tenant's Tax Payment for each Tax Year shall be due and payable, if
Landlord so elects, in two equal semi-annual installments, in advance on the
first day of each June and December
during each Tax Year, based upon the written comparative statement furnished by
Landlord prior to the commencement of such Tax Year, until such time as a new
written statement for a subsequent Tax Year shall become effective. If any such
statement is furnished to Tenant after the commencement of a Tax Year in respect
of which such statement is rendered, Tenant shall, within 15 days thereafter,
pay to Landlord an amount equal to the amount of any underpayment of Tenant's
Tax Payment with respect to such Tax Year and, in the event of an overpayment,
Landlord will credit Tenant the amount of Tenant's overpayment against
subsequent payments under this Article; provided, however, that if any such
overpayment is made in the last year of the term hereof, Landlord will refund
the amount of such overpayment to Tenant. If there shall be any increase in
Taxes for any Tax Year, whether during or after such
-2-
<PAGE>
Tax Year, Landlord shall furnish a revised statement for such Tax Year, and
Tenant's Tax Payment for such Tax Year shall be adjusted and paid substantially
in the same manner as provided in the preceding sentence. If during the term of
this lease, Taxes are required to be paid (either to the appropriate taxing
authorities or as tax escrow payments to a superior mortgagee) in full or in
monthly, quarterly, or other installments, on any other date or dates than as
presently required, then at Landlord's option, Tenant's Tax Payments shall be
correspondingly accelerated or revised so that said Tenant's Tax Payment are due
at least 30 days prior to the date payments are due to the taxing authorities or
the superior mortgagee. The benefit of any discount for any early payment or
prepayment of Taxes shall accrue solely to the benefit of Landlord and such
discount shall not be subtracted from Taxes. Whenever so requested, but not more
often than once a year, Landlord will furnish Tenant with a reproduced copy of
the bill (or receipted bill) for Taxes for the current or next preceding Tax
Year.
E. Landlord's failure during the lease term to prepare and deliver any tax
statements or bills, or Landlord's failure to make a demand under this Article
or under any other provision of this lease shall not in any way be deemed to be
a waiver of, or cause Landlord to forfeit or surrender, its rights to collect
any items of additional rent which may have become due pursuant to this Article
during the term of this lease. Tenant's liability for the additional rent due
under this Article shall survive the expiration or sooner termination of this
lease.
F. In no event shall any adjustment of Tax Payments hereunder result in a
decrease in the fixed rent or additional rent payable pursuant to any other
provision of this lease, it being agreed that the payment of additional rent
under this Article 38A is an obligation supplemental to Tenant's obligation to
pay fixed rent.
38B. ESCALATION FOR OPERATING EXPENSES:
A. For the purposes of this lease:
1. The term "Escalation Year" shall mean each calendar year occurring
after the Base Year and which shall include any part of the term of this
lease.
2. The term "Tenant's Proportionate Share" shall be deemed to mean
6.12%.
3. The term "Base Year' shall mean the average of the Operating
Expenses for the twelve month period ending December 31, 1997 and the
twelve month period ending December 31, 1998; provided, however, that
payments hereunder shall commence July 1, 1998.
4. The term "Operating Expenses" shall mean all costs and expenses (and
taxes thereon, if any) paid or incurred by Landlord or on behalf of Landlord
with respect to the operation, cleaning, repair, safety, management, security
and maintenance of the land and the building, sewer and water rents, building
equipment, sidewalks, curbs, plazas, parking areas and other areas adjacent to
the building, and with respect to the services provided tenants, including: (i)
salaries, wages and bonuses paid to, and the cost of any hospitalization,
medical, surgical, union and general welfare benefits (including group life
insurance), any pension, retirement or life insurance plan and other benefit or
similar expense (collectively 'Wages') relating to employees of Landlord or
employees whose wages are chargeable to Landlord engaged in the operation,
cleaning, repair, safety, management, security or
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maintenance of the building and the building equipment or in providing building
maintenance services to tenants; (ii) social security, unemployment and other
payroll taxes, the cost of providing disability and worker's compensation
coverage imposed by any legal requirements, union contract or otherwise with
respect to said employees; (iii) the cost of electricity, gas, steam, water, air
conditioning and other fuel and utilities; (iv) the cost of casualty, rent,
liability, fidelity, plate glass and any other insurance; (v) expenditures for
capital improvements which under generally applied real estate practice are
expenses or regarded as deferred expenses and other than capital expenditures
made by reason of legal requirements or insurance requirements or for the
purpose of reducing energy consumption, in any of which cases the cost thereof
shall be included in Operating Expenses for the Escalation Year in which the
costs are incurred and subsequent Escalation Years, on a straight-line basis, to
the extent that such items are amortized over an appropriate period, but not
more than ten (10) years, with an interest factor equal to two (2) percentage
points above the prime commercial lending rate of Citibank, N.A., charged to its
customers of highest credit standing for ninety (90) day unsecured loans
("Expense Interest Rate"), at the time of Landlord's having made said
expenditure; (vi) the cost of repairs, maintenance and painting; (vii) the cost
or rental of all building and cleaning supplies, tools, materials and equipment;
(viii) the cost of uniforms, work clothes and dry cleaning; (ix) window
cleaning, concierge, guard, watchman or other security personnel, service or
system, if any; (x) management fees paid to managing agents and fees and
expense, including executives' salaries incurred by Landlord or any other entity
for the management of the building, which in the aggregate shall not be in
excess of then prevailing rates for management fees payable in the Borough of
Manhattan, City of New York for first-class office buildings; (xi) charges of
independent contractors performing work included within this definition of
Operating Expenses; (xii) telephone and stationery; (xiii) legal, accounting and
other professional fees and disbursements incurred in connection with the
operation and management of the building; (xiv) decorations; (xv) depreciation
of hand tools and other movable equipment used in the operating, cleaning,
repair, safety, management, security or maintenance of the building; (xvi)
association fees and dues; (xvii) exterior and interior landscaping; and (xviii)
water and sewer rents and charges. If Landlord shall purchase any item of
capital equipment or make any capital expenditure which has the effect of
reducing the expenses which would otherwise be included in Operating Expenses,
then the costs of such capital equipment or capital expenditure are to be
included in Operating Expenses for the Escalation Year in which the costs are
incurred and subsequent Escalation Years, on a straight-line basis, to the
extent that such items are amortized over such period of time as Landlord
reasonably estimates such savings or reductions in Operating Expenses are
expected to equal Landlord's costs for such capital equipment or capital
expenditure, with an interest factor equal to the Expense Interest Rate at the
time of Landlord's having made said expenditure. If Landlord shall lease any
items of capital equipment designed to result in savings or reductions in
expenses which would otherwise be included in Operating Expenses, then the
rentals and other costs paid pursuant to such leasing shall be including in
Operating Expenses for the Escalation Year in which they were incurred.
Notwithstanding the foregoing the following costs and expenses shall be
excluded or deducted, as the case may be, from Operating Expenses:
(a) executives' salaries above the grade of building manager;
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(b) expenditures for capital improvements, except as expressly included in
Operating Expenses pursuant to Paragraph A.4(v) above;
(c) amounts received by Landlord through proceeds of insurance to the
extent they are compensation for sums previously included in Operating
Expenses hereunder;
(d) costs of repairs or replacements incurred by reason of fire or other
casualty or condemnation to the extent Landlord is compensated
therefor;
(e) depreciation or amortization, except as provided above;
(f) refinancing costs and mortgage interest and amortization payments;
(g) leasehold improvements (including painting) made for tenants of the
building or made in order to prepare space for occupancy by a new
tenant;
(h) real estate, franchise and income taxes of Landlord; and
(i) legal and auditing fees, other than legal and auditing fees incurred
in connection with the preparation of a statement required pursuant to
the additional rent or lease escalation provisions.
If during all or part of the Base Year or any Escalation Year, Landlord
shall not furnish any particular item(s) of work or service (which would
otherwise constitute an Operating Expense hereunder) to portions of the building
due to the fact that (i) such portions are not occupied or leased, (ii) such
item of work or service is not required or desired by the tenant of such
portion, (iii) such tenant is itself obtaining and providing such item of work
or service or (iv) for other reasons, then, for the purposes of computing
Operating Expenses, the amount for such item and for such period shall be deemed
to be increased by an amount equal to the additional costs and expenses which
would reasonably have been incurred during such period by Landlord if it had at
its own expense furnished such item of work or services to such portion of the
building or to such tenant.
B. 1. For each Escalation Year commencing during the term of this lease,
Tenant shall pay ("Tenant's Operating Payment") to Landlord, as additional rent,
subject to the terms of Paragraph 55 below, a sum equal to Tenant's
Proportionate Share of the amount by which Operating Expenses for such
Escalation Year exceeds the Operating Expenses for the Base Year.
2. Landlord may furnish to Tenant, prior to the commencement of each
Escalation Year, a written statement setting forth Landlord's estimate of
Tenant's Operating Payment for such Escalation Year, and the method of
calculation of Tenant's Operating Payment for such Escalation Year. Tenant shall
then pay to Landlord on the first day of each month during such Escalation Year
an amount equal to one-twelfth (1/12th) of Landlord's estimate of Tenant's
Operating Payment for such Escalation Year. If, however, Landlord shall furnish
any such estimate for an Escalation Year subsequent to the commencement thereof,
then (a) until the first day of the month following the month in which such
estimate is furnished to Tenant, Tenant shall pay to Landlord on the first day
of each month an amount equal to the monthly sum payable by Tenant to Landlord
under this Paragraph B in respect of the last month of
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the preceding Escalation Year; (b) promptly after such estimate is furnished to
Tenant or together therewith, Landlord shall give notice to Tenant stating
whether the installments of Tenant's Operating Payment previously made for such
Escalation Year were greater or less than the installments of the Tenant Is
Operating Payment to be made for such Escalation Year in accordance with such
estimate, and (i) if there shall be a deficiency, Tenant shall pay the amount
thereof within ten (10) days after demand therefor, or (ii) if there shall have
been an overpayment, Landlord shall either refund to Tenant the amount thereof
or credit the amount thereof against subsequent payments under this Paragraph;
and (c) on the first day of the month following the month in which such estimate
is furnished to Tenant, and monthly thereafter throughout the remainder of such
Escalation Year, Tenant shall pay to Landlord an amount equal to one-twelfth
(1/12th) of Tenant's Operating Payment shown on such estimate. Landlord may at
any time or from time to time(s) furnish to Tenant a revised statement of
Landlord's estimate of Tenant's Operating Payment for such Escalation Year, and
in such case, Tenant's Operating Payment for such Escalation Year shall be
adjusted and paid or refunded, as the case may be, substantially in the same
manner as provided in the preceding sentence.
3. After the end of each Escalation Year Landlord shall furnish to Tenant a
Landlord's Statement for such Escalation Year. Each such year-end Landlord's
Statement shall be accompanied by a computation of Operating Expenses for the
building from which Landlord shall make the computation of Operating Expenses
hereunder. If the Landlord's Statement shall show that the sums paid by Tenant
under this Paragraph exceeded Tenant's Operating Payment payable by Tenant for
such Escalation Year, Landlord shall either refund to Tenant the amount of such
excess or credit the amount of such excess against subsequent payments under
this Paragraph within ten (10) days after such finding; and if the Landlord's
Statement for such Escalation Year shall show that the sums so paid by Tenant
were less than Tenant's Operating Payment payable by Tenant for such Escalation
Year, Tenant shall pay the amount of such deficiency within ten (10) days after
demand therefor.
4. If the Commencement Date or the Expiration Date shall occur on a date
other than January l or December 31, respectively, any additional rent under
this Article for the Escalation Year in which such Commencement Date or
Expiration Date shall occur shall be apportioned in that percentage which the
number of days in the period from the Commencement Date to December 31 or from
January 1 to the Expiration Date, as the case may be, both inclusive, shall bear
to the total number of days in such Escalation Year. In the event of a
termination of this lease, any additional rent under this Article shall be paid
or adjusted within thirty (30) days after submission of a Landlord's Statement.
In no event shall fixed rent ever be reduced by operation of this Article and
the rights and obligations of Landlord and Tenant under the provisions of this
Article with respect to any additional rent shall survive the termination of
this lease.
C. Landlord's failure to render Landlord's Statements with respect to any
Escalation Year shall not prejudice Landlord's right to thereafter render a
Landlord's Statement with respect thereto or with respect to any subsequent
Escalation Year. Nothing herein contained shall restrict Landlord from issuing
Landlord's Statements at any time there is an increase in Operating Expenses
during any Escalation Year or any time thereafter.
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39. LIMITATIONS ON LANDLORD'S LIABILITY:
A. Tenant shall look solely to Landlord's estate in the Property for the
enforcement, collection or satisfaction of any judgment or other judicial
process against Landlord, and no other property or assets of Landlord or of any
of its partners or agents or of any other person shall be subject to levy,
execution or other enforcement procedure for the enforcement, collection or
satisfaction of any such judgment or other process or any other matter arising
under or out of this lease or the relationship of Landlord and Tenant hereunder.
B. If, with respect to any matter for which Landlord's consent or approval
is required under this Lease, Landlord has agreed in this lease not to
unreasonably withhold or delay its consent or approval or, as a matter of law,
Landlord may not unreasonably withhold or delay its consent or approval, Tenant
shall not be entitled to any damages for any withholding or delaying by Landlord
of its consent or approval, and Tenant's sole right and remedy in such event
shall be an action for a declaratory judgment, injunction or specific
performance.
40. REPAIRS: Notwithstanding anything contained in Articles 3, 4, 6 or
elsewhere in this lease, all repairs and other work which Tenant is required to
perform under any provision of this Lease may be performed by Landlord at
Tenant's cost; provided, however, that in the case of non-emergency repairs,
Landlord shall provide fifteen (15) days prior written notice to Tenant of its
intention to make such repair during which time Tenant may diligently perform
such repair. Tenant shall pay the reasonable cost of such repairs and other
work, as additional rent, within five days after rendition of a statement
therefor by Landlord.
41. ASSIGNMENT AND SUBLETTING: Notwithstanding the provisions of Article
11, and in modification and amplification thereof:
A. If Tenant's interest in this lease is assigned, whether or not in
violation of the provisions of this lease, Landlord may collect rent from
the assignee; if the demised premises or any part thereof are sublet to, or
occupied by, or used by, any person other than Tenant, whether or not in
violation of this lease, Landlord, after default by Tenant under this lease
and expiration of Tenant's time, if any, to cure such default, may collect
rent from the subtenant, user or occupant. In either case, Landlord shall
apply the net amount collected to the rents reserved in this lease, but
neither any such assignment, subletting, occupancy, nor use, nor any such
collection or application shall be deemed a waiver of any terms, covenant
or condition of this lease or the acceptance by Landlord of such assignee,
subtenant, occupant or user as a tenant. The consent by Landlord to any
assignment, subletting, occupancy or use shall not relieve Tenant from its
obligation to obtain the express prior written consent of Landlord to any
further assignment, subletting, occupancy or use. The listing of any name
other than Tenant's on any door of the demised premises, or on any
directory, or on any elevator in the building, or otherwise, shall not
operate to vest in the party so named, any right or interest in this lease
or in the demised premises, or be deemed to constitute, or serve as a
substitute for, any prior written consent of Landlord required under this
Article, and it is understood that any such listing shall constitute a
privilege extended by Landlord which shall be revocable at Landlord's will
by notice to Tenant. Tenant agrees to pay to Landlord any reasonable
counsel fees incurred by Landlord in connection with any proposed
assignment of Tenant's interest in this lease or any proposed subletting of
the demised premises or any part thereof. Neither
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any assignment of Tenant's interest in this lease nor any subletting,
occupancy or use of the demised premises or any part thereof by any person
other than Tenant, nor any collection of rent by Landlord from any person
other than Tenant as provided in this Paragraph A, nor any application of
any such rent as aforementioned as provided in this Paragraph A, shall in
any circumstances relieve Tenant of Tenant's obligations fully to observe
and perform the terms, covenants and conditions of this lease on Tenant's
part to be observed and performed.
B. If Tenant shall desire to assign this lease or to sublet the
demised premises, Tenant shall submit to Landlord a written request for
Landlord's consent to such assignment or subletting, (which shall not be
unreasonably withheld or delayed) which request shall be accompanied by the
following information: (i) the name and address of the proposed assignee or
subtenant; (ii) a duplicate original or photocopy of the executed
assignment agreement or sublease; (iii) the nature and character of the
business of the proposed assignee or subtenant and its proposed use of the
demised premises; and (iv) banking, financial and other credit information
with respect to the proposed assignee or subtenant reasonably sufficient to
enable Landlord to determine the financial responsibility of the proposed
assignee or subtenant. Landlord shall then have the following options, to
be exercised by notice ("Exercise Notice") given to Tenant within sixty
(60) days after receipt of Tenant's request for consent:
1. Landlord may require Tenant to surrender the demised premises
to Landlord and to accept a termination of this lease as of a date
(the "Termination Date") to be designated by Landlord in the Exercise
Notice, which date shall not be less than sixty (60) days nor more
than one hundred twenty (120) days following the date of Landlord's
Exercise Notice; or
2. Landlord may require Tenant to assign this lease to Landlord
without merger of Landlord's estates effective as of the day preceding
the proposed assignment or sublease.
If Landlord shall elect to require Tenant to surrender the
demised premises and accept a termination of this lease, then this
lease shall expire on the Termination Date as if that date had been
originally fixed as the Expiration Date. Regardless of which option
Landlord exercises under this Paragraph B, whether to terminate this
lease or to take an assignment thereof, Landlord shall be free to, and
shall have no liability to Tenant if Landlord shall, lease the demised
premises to Tenant's prospective assignee or subtenant.
C. If Landlord shall not exercise either of its options under Paragraph B
above within the time period therein provided, then Landlord shall not
unreasonably withhold consent to the proposed assignment or subletting of the
entire demised premises, provided that Tenant is not then in default under this
lease and further provided that the following further conditions shall be
fulfilled:
1. The proposed subtenant or assignee shall not be a school of
any kind, or an employment or placement agency or governmental or
quasi governmental agency, or a real estate brokerage office or
medical office or executive recruitment office;
2. The subletting or assignment shall be to a tenant whose
occupancy will be in keeping with the dignity and character of the
then use and occupancy of the building and whose occupancy will not be
more objectionable or more hazardous than that of Tenant herein or
impose any additional cost or burden whatsoever upon Landlord in the
operation of the building;
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3. No space shall be advertised or openly promoted to the general
public and the proposed sublease or assignment shall not be at a lower
rental rate than that being charged by Landlord at the time for
similar space in the building.
4. The proposed sublessee or assignee shall not be an occupant of
any premises in the building (it being further agreed that, in the
case of a proposed extension of an existing sublease, the sublessee
shall not then be an occupant of any other premises in the building);
or a party who dealt with Landlord or Landlord's agent (directly or
through a broker) with respect to space in the building during the six
(6) months immediately preceding Tenant's request for Landlord's
consent;
5. Tenant shall reimburse Landlord on demand for any costs that
may be incurred in connection with any assignment or sublease,
including, without limitation, the reasonable costs of making
investigations as to the acceptability of the proposed assignee or
subtenant, and legal costs incurred in connection with the granting of
any requested consent not to exceed $2,000.00; and
6. In case of a subletting, it shall be expressly subject to all
of the obligations of Tenant under this lease and the further
condition and restriction that the sublease shall not be assigned,
encumbered or otherwise transferred or the subleased premises further
sublet by the sublessee in whole or in part, or any part thereof
suffered or permitted by the sublessee to be used or occupied by
others, without the prior written consent of Landlord in each
instance.
D. No permitted or consented to assignment or subletting shall be effective
or valid for any purpose whatsoever unless and until a counterpart of the
assignment or a counterpart or reproduced copy of the sublease shall have been
first delivered to the Landlord, and, in the event of an assignment, the Tenant
shall deliver to Landlord a written agreement executed and acknowledged by the
Tenant and such assignee in recordable form wherein such assignee shall assume
jointly and severally with Tenant the due performance of this lease on Tenant's
part to be performed to the full end of the term of this lease notwithstanding
any other or further assignment.
E. Any transfer by operation of law or otherwise, of Tenant's interest in
this lease or of a fifty (50%) percent or greater interest in Tenant (whether
stock, partnership interest or otherwise) shall be deemed an assignment of this
lease for purposes of this Article except that the transfer of the outstanding
capital stock of any corporate tenant shall be deemed not to include the sale of
such stock by persons or parties through the "over-the-counter-market" or
through any recognized stock exchange, other than those deemed "insiders" within
the meaning of the Securities Exchange Act of 1934, as amended.
F. Neither any assignment of Tenant's interest in this lease nor any
subletting, occupancy or use of the demised premises or any part thereof by any
person other than Tenant, nor any collection of rent by Landlord from any person
other than Tenant as provided in Article 11 hereof, nor any application of any
such rent as provided in said Article 11 shall, in any circumstances, relieve
Tenant of its obligations fully to observe and perform the terms, covenants and
conditions of this lease on Tenant's part to be observed and performed.
G. Notwithstanding anything to the contrary contained herein, if Landlord
shall consent to any assignment or subletting and Tenant shall either (i)
receive any consideration from its assignee (other than a successor corporation)
in connection with
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the assignment of this lease, Tenant shall pay over to Landlord so much, if any,
of such consideration (including, without limitation, sums designated by the
assignee as paid for the purchase of Tenant's property in the demised premises,
less the then net unamortized or undepreciated cost thereof determined on the
basis of Tenant's federal income tax returns, or if Tenant does not file such
returns, on the same basis as carried on Tenant's books) as shall exceed the
brokerage commissions and attorneys' fees and disbursements reasonably incurred
by Tenant for such assignment or (ii) sublet the demised premises or any portion
thereof to anyone for rents, additional charges or other consideration
(including, without limitation, sums designated by the subtenant as paid for the
purchase of Tenant's property in the demised premises, less the then net
unamortized or undepreciated cost thereof determined on the basis of Tenant's
federal income tax returns or, if Tenant does not file such returns, on the same
basis as carried on Tenant's books) which for any period shall exceed the rents
payable for the subleased space under this lease for the same period, Tenant
shall pay Landlord, as additional rent, such excess less brokerage commissions
and attorneys' fees and disbursements reasonably incurred by Tenant for such
subletting. All sums payable to Landlord pursuant to subdivision (i) of this
Paragraph G shall be paid on the effective date of such assignment and all sums
payable to Landlord pursuant to subdivision (ii) of this Paragraph G shall be
paid on the date or dates such sums are payable to Tenant by the subtenant.
H. Notwithstanding anything herein to the contrary, Tenant's "affiliates"
shall be entitled to utilize and occupy the Demised Premises with Tenant. As
used herein, the term "affiliates" shall have the meaning set forth in the
Securities Exchange Act of 1934, as amended.
42. ELECTRICITY:
A. Landlord hereby agrees to allow Tenant to utilize the current electric
submeter servicing the Demised Premises (and equipment ancillary thereto) to
measure Tenant's electrical usage at a location or locations designated by
Landlord. Tenant covenants and agrees to purchase electricity from Landlord or
Landlord's designated agent upon terms and rates set, from time to time, during
the term of this lease by Landlord, which shall not be more than the highest
rate in effect at which Landlord purchases electric current from the public
utility serving the building, in addition to a fee equal to five (5%) percent of
such public utility charge, representing the agreed-upon administrative and
overhead costs to Landlord of said submeter. Bills therefore shall be rendered
at such times as Landlord may elect and shall be paid as additional rent. In the
event that such bills are not paid within fifteen (15) days after the same are
rendered, Landlord may, without further notice, discontinue the service of
electric current to the demised premises without releasing Tenant from any
liability under this Lease and without Landlord or Landlord's agent incurring
any liability for any damage or loss sustained by Tenant by such discontinuance
of service. If any tax or other charge is imposed upon Landlord's receipt from
the sale or resale of electric energy to Tenant by any federal, state or
municipal authority, Tenant covenants and agrees that, where permitted by law,
Tenant's share of such taxes shall be passed on to, and included in the bill of,
and paid by, Tenant to Landlord. Tenant shall be responsible for the legal
operation and maintenance of the submeter, and hereby specifically indemnifies
and holds Landlord harmless from any and all losses, costs or expenses
(including attorney's fees) incurred by Landlord in connection with Tenant's
usage of said submeter. Tenant agrees that Landlord shall not in any wise be
liable or responsible to Tenant for any loss, damage, or expense that Tenant may
sustain or incur if either the quantity or character of
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electrical service is changed, is no longer available, or is unsuitable for
Tenant's requirements. Landlord reserves the right to stop service of
electricity, when necessary, by reason of accident or emergency, or for repairs,
alterations, replacements, or improvements which, in the sole discretion of
Landlord, are desirable or necessary to be made, until said repairs,
alterations, replacements, or improvements shall have been completed. Landlord
shall have no responsibility or any liability for any interruption, curtailment,
or failure to supply electricity when prevented from doing so by exercising its
right to stop service or by strikes, labor troubles or accidents or by any cause
whatsoever reasonably beyond Landlord's control, or by failure of independent
contractors to perform, or by laws, orders, rules, or regulations of any
federal, state, county, or municipal authority, or by failure of suitable
electricity supply, or inability after exercise of reasonable diligence to
obtain suitable electricity, or by reason of governmental preemption in
connection with a national emergency, or by reason of the condition of supply
and demand which have been or are affected by war or other emergency. The
exercise of such right or such failure by Landlord shall not constitute an
actual or constructive eviction, in whole or in part, or entitle Tenant to any
compensation or to any abatement or diminution of rent, or relieve Tenant from
any of its obligations under this Lease, or impose any liability upon Landlord
or its agents by reason of inconvenience or annoyance to Tenant, or injury to or
interruption of Tenant's business, or otherwise.
B. Tenant covenants and agrees that, at all times, its use of electric
current shall never exceed the capacity of the feeders to the building or the
risers or wiring installation thereof. In connection therewith, Tenant expressly
agrees that all installations, alterations and additions of and to the
electrical fixtures, appliances, or equipment within the Demised Premises shall
be subject to Landlord's prior written approval (not to be unreasonably withheld
or delayed). If, in connection with any request for such approval, Landlord,
shall, in its reasonable judgment, determine that the risers of the building
servicing the Demised Premises shall be insufficient to supply Tenant's
electrical requirements with respect thereto, Landlord shall, at the sole cost
and expense of Tenant, install any additional feeder(s) that Landlord shall deem
necessary with respect thereto, provided, however, that, if Landlord shall
determine, in its sole judgment, that the same will cause permanent damage or
injury to the building or to the Demised Premises, cause or create a dangerous
or hazardous condition, entail excessive or unreasonable alterations, repairs,
or expense, or interfere with, or disturb, the other tenants or occupants of the
building of which the Demised Premises forms a part, then Landlord shall not be
obligated to make such installation, and Tenant shall not make the installation,
alteration, or addition with respect to which Tenant requested Landlord's
consent. In addition to the installation of such riser or risers, Landlord will
also, at the sole cost and expense of Tenant, install all other equipment
necessary and proper in connection therewith, subject to the aforesaid terms and
conditions. All of the aforesaid costs and expenses are chargeable and
collectible as additional rent, and shall be paid by Tenant to Landlord within
ten (10) days after rendition of any bill or statement to Tenant therefor.
C. Provided that it is physically possible for Tenant to receive electric
current in the Demised Premises directly from the public utility company serving
the area in which the building is located, Landlord may discontinue the
aforesaid service and without in any way affecting this Lease or the liability
of Tenant hereunder, and the same shall not be deemed to be a lessening or
diminution of services within the meaning of any law, rule, or regulation now or
hereafter enacted, promulgated, or issued. In
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the event that Landlord gives notice of discontinuance, Landlord shall permit
Tenant to receive such service directly from such public utility company and
shall permit Landlords wires and conduits, to the extent available, suitable and
safely capable, to be used for such purpose. Any additional wires, conduits, or
other equipment necessary and proper in connection therewith shall be installed
by Landlord, at Tenant's cost, in accordance with the terms of, and subject to
the conditions contained in, Paragraph B of this Article 42. In the event that
Landlord exercises its rights under this Paragraph C, then Tenant shall contract
for such electrical service directly with the said public utility for all of
Tenant's electric current requirements, and as of the date upon which Landlord
discontinues furnishing electric current, Tenant shall make no further payments
to Landlord for electrical charges.
43. WORK AND ALTERATIONS:
[ADDENDA TO ARTICLES 3 AND 4]
A. Tenant has inspected the Demised Premises and agrees to accept same "as
is" and to be responsible, at Tenant's sole expense for all improvements,
additions, changes, repairs, alterations and other work desired by Tenant or
required by law within the Demised Premises, except those necessitated by
Landlord's negligence or willful acts.
B. Tenant shall not make improvements, changes, additions or alterations of any
kind without first obtaining Landlord's written consent thereto in each
instance. Tenant shall not construct or expand any mezzanines. No consent or
approval by Landlord shall be binding or effective unless in writing. Any
alteration or repair which Tenant is either required or permitted to make under
this Lease shall only be performed by contractors approved in writing by
Landlord, which approval, in the case of non-structural changes, shall not be
unreasonably withheld or delayed.
C. All work to be performed at or with respect to the Demised Premises and
all other work necessary for the operation of Tenant's business at the Demised
Premises shall be performed by Tenant and shall constitute Tenant's Work
hereunder. Such work shall be performed by Tenant at Tenant's sole cost and
expense using first quality materials approved by Landlord and in accordance
with the plans and specifications prepared by Tenant's registered architect and
duly licensed engineer in conformity with the provisions hereof. Tenant shall
prepare and submit to Landlord two (2) complete sets of plans and specifications
covering Tenant' 8 Work prepared in conformity with the applicable provisions
hereof which shall include complete, detailed architectural and engineering
drawings and specifications, including construction demolition, structural,
mechanical, electrical, reflected ceiling, partition layout and all other
applicable drawings and plans for any such improvements, changes, additions or
alterations to be performed by Tenant (the "Plans and Specifications"). The
Plans and Specifications shall contain sufficient information to convey Tenant's
proposed design to Landlord. If Landlord shall notify Tenant of any objections
to such Plans and Specifications, Tenant shall make necessary revisions and
resubmit the same for Landlord's approval. Landlord's approval will be evidenced
by written endorsement by an authorized representative of Landlord to that
effect on two sets of the Plans and Specifications, one set to be retained by
Landlord, and the return of one such signed set to Tenant (the "Final Plans and
Specifications"). Tenant, upon demand, shall pay as additional rent, the fees
and expenses and Landlord, Landlord's architect, engineers and other consultants
and agents for their study, review and approval of Tenant's Plans and
Specifications and the revisions and resubmissions thereof.
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D. Tenant, at Tenant's sole cost and expense, shall complete Tenant's Work
in accordance with the provisions of this Article 43 and the Lease. Tenant's
Work shall be deemed completed at such time as (a) all certifications,
approvals, licenses and permits with respect to Tenant's Work and the permitted
use that may be required from any governmental authority having jurisdiction,
and, from the New York Board of Fire Underwriters or any similar body for the
use and occupancy of the Demised Premises have been obtained in accordance with
the provisions of this Lease and delivered to Landlord; and (b) Tenant, at its
sole cost and expense, shall: (i) furnish evidence satisfactory to Landlord that
all of Tenant's Work has been completed and paid for in full (and such work has
been accepted by Landlord) and that any and all liens therefor that have been or
might be filed have been discharged of record (by payment, bond, order of a
court of competent jurisdiction or otherwise) or waived and that no security
interests relating thereto are outstanding; (2) pay Landlord for the cost of any
Tenant's Work done for Tenant by Landlord and all other charges due hereunder,
(3) furnish Landlord with one set of sepia mylar transparent reproducible "as
built" drawings of the Demised Premises together with four (4) sets of prints of
same; (4) to the extent not previously provided, furnish to Landlord the
insurance and certificates required by this Lease; and (5) furnish an affidavit
in the form recommended by the American Institute of Architects from Tenant's
registered architect certifying that all work performed in the Demised Premises
is in accordance with the Final Plans and Specifications.
E. All Tenant's Work shall comply with: (a) all codes, laws, ordinances,
orders and regulations of all governmental authorities having jurisdiction,
including, without limitation, the Building and Fire Codes of the City of New
York; (b) all applicable standards of the New York Board of Fire Underwriters,
The National Electrical Code, The Occupational Safety and Health Administration,
The American Society of Heating, Refrigeration and Air Conditioning Engineers,
I.S.O., and any similar or successor bodies thereto; and (c) the requirements of
Landlord's insurance carriers.
F. In connection with Tenant's Work, Tenant shall cause to be prepared all
drawings, plans and specifications, and all other reports, applications and
materials, required by the Building Department of the City of New York, the
Department of Labor and any other governmental authorities having jurisdiction
with respect to Tenant's Work and any permits and special licenses which may be
required for or in connection with Tenant's Work or the permitted use. Any and
all filings of such drawings, plans, specifications, reports, applications and
other materials with the Building Department of the City of New York, the
Department of Labor and any other governmental authorities having jurisdiction
shall be made solely by Tenant at Tenant's sole cost and expense. Nothing herein
shall be deemed to, or operate to create any liability or other obligation on
the part of Landlord in the event that any such filings shall not be approved by
the Building Department of the City of New York or any other governmental
authority having jurisdiction. After such filings have been so approved, unless
Landlord shall otherwise direct, Tenant, at its own cost and expense, shall
cause the contractor and/or Tenant's registered architect to: (a) prior to the
commencement of Tenant's Work, obtain all necessary permits and licenses
required for Tenant's Work from the Building Department of the City of New York
and any other governmental authorities having jurisdiction; and (b) upon
completion of Tenant's Work, obtain all necessary certificates of acceptance or
completion which may be required from the Building Department of the City of New
York and any other governmental authorities having jurisdiction.
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G. Tenant's contractors and subcontractors shall be required to provide, in
addition to the insurance required of Tenant pursuant to the Lease, the
following types of insurance, which policies shall contain endorsements naming
Landlord, mortgagee and any superior landlord and superior mortgagee as
additional insureds under such policies:
1. Builders Risk Insurance: At all times during the period of
construction of Tenant's Work, Tenant shall maintain, or cause to be
maintained, casualty insurance in Builder's Risk Form, covering Landlord,
Landlord's agents, Landlord's architects, the holders of any Superior
Mortgage or Superior Lease, Tenant and Tenant's architect, engineer and
contractors, as their interest may appear, against loss or damage by fire,
vandalism, and malicious mischief and other such risks as are customarily
covered by the so-called "broad form extended coverage endorsement" upon
all Tenant's Work in place and all materials stored at the site of Tenant's
Work and all materials, equipment, supplies and temporary structures of all
kinds incident to Tenant's Work and builder's machinery, tools and
equipment, all while forming a part of, or contained in, such improvements
or temporary structures while in the Demised Premises, or when adjacent
thereto, while on common areas, drives, sidewalks, streets or alleys, all
on a completed value basis for the full insurable value at all times. Said
Builder's Risk Insurance shall contain an express waiver of any right of
subrogation by the insurer against Landlord, its agents, employees and
contractors.
2. Worker's Compensation: At all times during the period of
construction of Tenant's Work, Tenant's contractors or subcontractors shall
maintain in effect statutory Worker's Compensation as required by the State
of New York.
3. Public Liability and Other Insurance: At all times during the
period between the date of the commencement of construction of Tenant's
Work and the date of the opening for business in the Demised Premises,
Tenant shall secure and cause to be maintained in effect, at Tenant's cost
and expense, the insurance required by this Lease.
4. Cancellation: The policies of insurance referred to in this Article
43 shall contain the following endorsement: "It is understood and agreed
that the coverage of this policy shall not be cancelled or modified by the
company until the company has mailed written notice, by registered or
certified mail, return receipt requested, to Landlord stating when, but in
no event less than thirty (30) days thereafter, such cancellation or
modification in coverage shall be effective."
5. Certificates: Prior to the commencement of Tenant's Work, Tenant
and Tenant's contractors and subcontractors shall provide Landlord with
copies of certificates or memoranda of insurance showing coverage as
required under this Article 63, which certificate shall name Landlord, and
any superior landlord and superior mortgagee as additional insureds.
6. Ratings: Any insurance which Tenant, Tenant's contractors or
Tenant's subcontractors are obligated to carry hereunder shall be issued by
reputable and solvent insurance companies authorized to do business in the
State of New York and reasonably satisfactory to Landlord.
H. No item shall be mounted on or hung outside of the demised premises by
Tenant without Landlord's prior written approval which may be arbitrarily
withheld. If Tenant desires to mount or hang anything, Tenant shall notify
Landlord of the loads involved and shall pay all costs involved.
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I. Any approval or consent by Landlord shall in no way obligate Landlord in
any manner whatsoever in respect to the finished product designed and/or
constructed by Tenant, nor be deemed a representation of warranty of Landlord as
to the adequacy or sufficiency of any matter approved or consented to for
Tenant's purposes or otherwise. Any deficiency in design or construction,
although approved by Landlord, shall be solely the responsibility of Tenant. All
materials and equipment furnished by Tenant shall be new and all work shall be
done in a first-class workmanlike manner.
J. Landlord shall have the right to inspect Tenant's Work at any time to
verify compliance by Tenant with the provisions of this Article 43.
K. All improvements, additions or alterations to the Demised Premises,
including, without limitation, light fixtures, HVAC equipment, plumbing and
connected equipment such as sinks and toilets, all bathroom fixtures, kitchen
equipment, floor covering, wall covering, millwork, electronic security system,
but excluding Tenant's moveable trade fixtures, shall, in accordance with the
provisions of Article 3, become the property of Landlord and shall remain in the
Demised Premises on the expiration date or sooner termination of this Lease
unless Landlord requires removal of any such property in accordance with the
provisions of Article 3.
L. All improvements, additions or alterations shall be promptly commenced
and completed and shall be performed in such manner so as not to interfere with
the occupancy of any other Tenant nor delay or impose any additional expense
upon Landlord in the maintenance, cleaning, repair, safety, management and
security of the Building or the Building's equipment or in the performance of
any improvements in the Building.
M. Tenant agrees that it will not at any time prior to or during the term
of this Lease, either directly or indirectly, employ or permit the employment of
any contractor, mechanic or laborer, or permit any materials in the Demised
Premises, if the use of such contractor, mechanic or laborer or such materials
would, in Landlord's sole and exclusive opinion, create any difficulty, work
slowdown, sabotage, wild-cat strike, strike or jurisdictional dispute with other
contractors, mechanics and/or laborers engaged by Tenant or Landlord or others,
or would in any way disturb the peaceful and harmonious construction,
maintenance, cleaning, repair, management, security or operation of the Building
or any part thereof or in any other building owned by Landlord (or an affiliate
of Landlord or co-venturer of Landlord). In the event of any interference or
conflict, or perceived interference or conflict, Tenant, upon demand of
Landlord, shall cause all contractors, mechanics or laborers, or all materials
causing, in Landlord's sole and exclusive opinion, such interference, difficulty
or conflict, to leave or be removed from the Building immediately and Tenant
does hereby agrees to defend, save and hold Landlord harmless from any and all
loss arising thereby, including, without limitation, any attorneys fees and any
claims made by contractors, mechanics and/or laborers so precluded from having
access to the Building.
N. Tenant shall do all things necessary to prevent the filing of any
mechanics or other lien against the Demised Premises or any other portion of the
Building or the interest of Landlord or any mortgagee by reason of any work,
labor, services or materials performed or supplied or claimed to have been
performed for or supplied to Tenant, or anyone holding the Demised Premises, or
any part thereof, through or under Tenant. If any such lien due to Tenant shall
at any time be filed, Tenant shall either cause the same to be vacated and
cancelled of record within thirty (30) days
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after the date of the filing thereof or, if Tenant in good faith determines
that such lien should be contested, Tenant shall furnish such security, by
surety bond or otherwise, as may be necessary or be prescribed by law to release
the same as a lien against the Demised Premises and the Building and to prevent
any foreclosure of such lien during the pendency of such contest. If Tenant
shall fail to vacate or release such lien in the manner and within the time
period aforesaid, then, in addition to any other right or remedy of Landlord
resulting from Tenant's said default, Landlord may, but shall not be obligated
to, vacate or release the same either by paying the amount claimed to be due or
by procuring the release of such lien by giving security or in such other manner
as may be prescribed by law. Tenant shall repay to Landlord, on demand, all sums
disbursed or deposited by Landlord pursuant to the foregoing provisions of this
Paragraph, including Landlord's cost and expenses and reasonable attorneys' fees
incurred in connection therewith. Nothing in this Lease contained shall be
deemed or construed in any way as constituting the consent or request of
Landlord, express or implied by inference or otherwise, to any contractor,
subcontractor, laborer or materialman for the performance of any labor or the
furnishing of any materials for any specific improvement, alteration to or
repairs of the Demised Premises, the Building or any part thereof, nor as giving
Tenant a right, power or authority to contract for or permit the rendering of
any services or the furnishing of any materials that would give rise to the
filing of any mechanics or other liens against Landlord's interest in the
Demised Premises or the Building. Notice is hereby given that neither Landlord,
Landlord's agents, nor any mortgagee shall be liable for any labor or materials
furnished or to be furnished to Tenant upon credit, and that no mechanic's or
other lien for such labor or materials shall attach to or affect any estate or
interest of Landlord, or any mortgagee in and to the Demised Premises or the
Building.
O. Before commencing any work or alteration that will cost more than
$25,000 (exclusive of the cost of decorating work), as estimated by an architect
or contractor designated by Landlord, Tenant shall furnish to Landlord either
(i) a performance bond and a labor and materials payment bond (issued by a
corporate surety licensed to do business in New York and approved by Landlord),
each in an amount equal to 125% of such es9timated cost and in form satisfactory
to Landlord, or (ii) such other security as shall be satisfactory to Landlord in
its sole judgment.
44. CONDUCT OF BUSINESS; SIGNS; PROTRUSIONS:
A. Tenant's business and activities at the demised premises shall at all
times be consistent and compatible with the character and dignity of the
building, as determined by Landlord in its sole discretion. Tenant shall not
install any signs on the doors of the demised premises or in the halls or
corridors or windows without the prior written approval of Landlord. Landlord
reserves the right to prescribe the nature, size and character of all such signs
and to remove, at Tenant's expense, all signs which have not been approved by
Landlord.
B. Notwithstanding anything provided to the contrary in this Lease, Tenant
shall not cause any machinery, equipment, sign, banner, or any other thing to
protrude from the Demised Premises to the exterior of the Building beyond the
horizontal plane of the exterior windows of the Demised Premises or beyond the
Demised Premises within the interior of the Building.
45. NOTICES: For the purpose of Article 28, any notice given by certified
mail shall be deemed to have been given on the
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earlier of (a) the date of delivery of such notice; or (b) the second business
day after the date of mailing of such notice. Receipted hand delivery shall be
deemed to be adequate substitute notice. Unless written notice is received to
the contrary, all notices hereunder to Tenant shall be addressed to the address
set forth on page 1 of this Lease prior to Tenant's entry into the demised
premises and thereafter to Tenant at the demised premises.
46. INDEMNIFICATION AND INSURANCE:
A. Tenant shall indemnify and save harmless Landlord and its agents against
and from (i) any and all claims (a) arising from (x) the conduct or management
of the demised premises or of any business therein, or (y) any work or thing
whatsoever done, or any condition created in or about the demised premises
during the term hereof or during the period of time, if any, prior to the
Commencement Date that Tenant may have been given access to the demised
premises, or (b) arising from any negligent or otherwise wrongful act or
omission of Tenant or any of its subtenants or licensees or its or their
employees, agents visitors, invitees or contractors or subcontractors of any
tier, and (ii) all costs, expenses and liabilities incurred in or in connection
with each such claim or action or proceeding brought thereon. In case any action
or proceeding be brought against Landlord by reason of any such claim, Tenant,
upon notice from Landlord, shall resist and defend such action or proceeding at
Tenant's expense by counsel satisfactory to Landlord, without any disclaimer of
liability in connection with such claim.
B. Tenant shall secure and keep in full force and effect throughout the
term hereof, at Tenant's sole cost and expense (a) Comprehensive General
Liability Insurance, written on an occurrence basis, to afford protection in
such amount as Landlord may determine and in no event less than $3,000,000
combined single limit for personal and bodily injury and death arising therefrom
and Broad Form property damage (including a "personal injury" endorsement
covering claims arising out of false arrest, false imprisonment, defamation,
libel and slander, wrongful eviction, discrimination and invasion of privacy
without exclusion of coverage for claims of personal injury brought by
employees, agents or contractors of an insured) arising out of any one
occurrence in, upon, adjacent to or in connection with the demised premises or
any part thereof, which insurance shall include coverage for contractual
liability (including the matters set forth in Paragraph A above), owner's
protective liability, independent contractor's liability and completed
operations liability; (b) insurance upon Tenant's personal property, fixtures,
furnishings and equipment, including Tenant's Changes, located in the demised
premises, in an amount equal to the full replacement value thereof (including an
"agreed amount" endorsement), including any increase in value resulting from
increased costs, with coverage against such perils and casualties as are
commonly included in "all risk" insurance policies (including breakage of glass
within the demised premises, sprinkler leakage and collapse); and (c) such other
insurance in such amounts as Landlord may require from time to time. All such
insurance shall contain only such 'deductibles" as Landlord shall reasonably
approve. The minimum amounts of insurance required under this Paragraph shall
not be construed to limit the extent of Tenant's liability under this lease. In
addition, prior to any entry upon the demised premises by Tenant or any of
Tenant's employees, agents or contractors, Tenant shall deliver or cause to be
delivered to Landlord certificates evidencing that all insurance required
hereunder is in full force and effect. Tenant shall have the right to insure and
maintain the insurance coverages set forth in this Paragraph under blanket
insurance policies covering other premises occupied by Tenant so long as such
blanket policies comply as to terms and amounts with
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the insurance provisions set forth in this lease; provided that upon request,
Tenant shall deliver to Landlord a certificate of Tenant's insurer evidencing
the portion of such blanket insurance allocated to the demised premises.
C. All such insurance shall be written in form and substance reasonably
satisfactory to Landlord by an insurance company in a financial size category of
not less than XII and with general policy holders' ratings of not less than A,
as rated in the most current available "Best's" insurance reports, or the then
equivalent thereof, and licensed to do business in New York State and authorized
to issue such policies. All policies of insurance procured by Tenant shall
contain endorsements providing that (a) such policies may not be reduced or
cancelled (including for non-payment of premium) or allowed to lapse with
respect to Landlord or materially changed or amended except after 45 days' prior
notice from the insurance company to Landlord, sent by certified mail, return
receipt requested; and (b) Tenant shall be solely responsible for the payment of
premiums therefor notwithstanding that Landlord or any other party is or may be
named as an insured. Duly executed certificates of insurance or, if required by
Landlord, certified copies or duplicate originals of the original policies,
together with reasonably satisfactory evidence of payment of the premiums
therefor, shall be delivered to Landlord, on or before the Commencement Date.
Each renewal or replacement of a policy shall be so deposited at least 30 days
prior to the expiration of such policy. Tenant shall not carry any separate or
additional insurance concurrent in form or contributing in the event of any loss
or damage with any insurance required to be maintained by Tenant under this
lease, and all policies of insurance procured by Tenant shall be written as
primary policies not contributing with or in excess of coverage that Landlord
may carry.
D. To the extent obtainable, Tenant shall secure an appropriate clause in,
or an endorsement upon, each insurance policy obtained by it and covering or
applicable to the Demised Premises or the personal property, fixtures and
equipment located therein, pursuant to which the insurance company waives
subrogation or permits the insured, prior to any loss, to agree with a third
party to waive any claim it might have against said third party without
invalidating the coverage under the insurance policy. The waiver of subrogation
or permission for waiver of any claim shall extend to Landlord and its agents
and employees. Tenant hereby releases Landlord and its agents and employees in
respect of any claim (including a claim for negligence) which it might otherwise
have against Landlord or its employees for loss, damage or destruction with
respect to Tenant's property by fire or other casualty (including rental value
or business interest, as the case may be) occurring during the term of this
Lease and normally covered under a fire insurance policy with extended coverage
endorsement in the form normally used in respect of similar property in New York
County.
E. All insurance procured by Tenant under this Article shall be issued in
the names and for the benefit of Landlord (and each member thereof in the event
Landlord is a partnership or joint venture) and Tenant, as their respective
interests may appear, and shall contain an endorsement that Landlord, although
named as an insured, nevertheless shall be entitled to recover under said
policies for any loss or damages occasioned to it, its agents, employees,
contractors, directors, shareholders, partners and principals (disclosed or
undisclosed) by reason of the negligence or tortious acts of Tenant, its
servants, agents, employees and contractors.
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47. INSOLVENCY:
A. If Tenant assumes this lease and proposes to assign the same pursuant to
the provisions of the Bankruptcy Code, 11 U.S.C. ss. 101 et seq. (the
"Bankruptcy Code") to any person or entity who shall have made a bona fide offer
to accept an assignment of this lease on terms acceptable to Tenant, then notice
of such proposed assignment, setting forth (i) the name and address of such
person, (ii) all of the terms and conditions of such offer, and (iii) the
adequate assurance to be provided Landlord to assure such person's future
performance under the lease, including, without limitation, the assurance
referred to in section 3(b)(3) of the Bankruptcy Code, shall be given to
Landlord by Tenant not later than twenty (20) days after receipt by Tenant but
in no event later than ten (10) days prior to the date that Tenant shall make
application to a court of competent jurisdiction for authority and approval to
enter into such assignment and assumption, and Landlord shall thereupon have the
prior right and option, to be exercised by notice to Tenant given at any time
prior to the effective date of such proposed assignment, to accept an assignment
of this lease upon the same terms and conditions and for the same consideration,
if any, as the bona fide offer made by such person, less any brokerage
commissions which may be payable out of the consideration to be paid by such
person for the assignment of this lease.
B. If this lease is assigned to any person or entity pursuant to the
provisions of the Bankruptcy Code, any and all monies or other considerations
payable or otherwise delivered in connection with such assignment shall be paid
or delivered to Landlord, shall be and remain the exclusive property of Landlord
and shall not constitute property of Tenant or of the estate of Tenant within
the meaning of the Bankruptcy Code. Any and all monies or other considerations
constituting Landlord's Property under the preceding sentence not paid or
delivered to Landlord shall be held in trust for the benefit of Landlord and
shall be promptly paid to Landlord.
C. Any person or entity to which this lease is assigned pursuant to the
provisions of the Bankruptcy Code, shall be deemed without further act or deed
to have assumed all of the obligations arising under this lease on and after the
date of such assignment. Any such assignee shall upon demand execute and deliver
to Landlord an instrument confirming such assumption.
D. Nothing contained in this Article shall, in any way, constitute a waiver
of the provisions of this lease relating to assignment. Tenant shall not, by
virtue of this Article, have any further rights relating to assignment other
than those granted in the Bankruptcy Code.
E. Notwithstanding anything in this lease to the contrary, all amounts
payable by Tenant to or on behalf of Landlord under this lease, whether or not
expressly denominated as rent, shall constitute rent for the purposes of Section
502(b)(7) of the Bankruptcy Code.
F. The term "Tenant" as used in this Article includes any trustee, debtor
in possession, receiver, custodian or other similar officer.
48. AS IS; REPAIRS; MAINTENANCE
A. Except as otherwise set forth in Paragraph B to the contrary, neither
Landlord nor Landlord's agents have made any representations, warranties, or
promises, either express or implied, with respect to the physical condition of
the Building or
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the demised premises, the use or uses to which the demised premises or any part
thereof may be put, the operation of any of the mechanical, plumbing,
electrical, flue, ventilation or exhaust systems servicing the demised premises,
the expenses or operation, or any other matter or thing affecting or related to
the demised premises except as herein expressly set forth in this Lease; and no
rights, easements, or licenses are acquired by Tenant by implication or
otherwise except as expressly set forth herein. Except as otherwise set forth in
Paragraph B to the contrary, Tenant acknowledges that it has inspected the
Building and the demised premises and is thoroughly acquainted with their
condition, and agrees to take the same "as is." Tenant further acknowledges that
taking possession of the demised premises shall be conclusive evidence that the
demised premises and the Building were in good and satisfactory condition. It is
expressly understood that Landlord shall not in any way be liable for any latent
or patent defects in the demised premises. Except as expressly provided in
Article 9, Landlord shall be under no obligation to make any improvements in or
to the demised premises throughout the term hereof. To Landlord's knowledge
without having made special inquiry or investigation, the Building systems are
in good working order.
B. Tenant, at its sole cost and expense, shall take good care of the
demised premises and all improvements and personal property located therein,
including, without limitation, all furniture, fixtures, machinery, equipment and
all other personal property and stock purchased by Tenant and used in connection
with the operation of its business at the demised premises, and Tenant shall
make all necessary repairs to the demised premises in accordance with the
provisions contained herein, whether ordinary, extraordinary, foreseen, or
unforeseen; provided, however, that Tenant shall not be obligated to make any
repairs to the extent that the same is necessitated by the negligent acts or
omissions of Landlord, its agents, employees or contractors. Nevertheless, any
damage to the Building (including, without limitation, the demised premises and
the roof), interior and exterior, arising from or caused by the negligence or
omissions of Tenant (or its agents, servants, employees, invitees or
contractors) shall be the liability of Tenant.
C. When used in this Article, the term "repairs" shall include replacements
and substitutions of all property when necessary, of a quality, class and value
at least equal to the property replaced or substituted.
49. INTENTIONALLY OMITTED.
50. LATE FEES; POLICY AS TO LATE PAYMENTS
A. If Tenant shall fail to pay all or any part of any installment of Basic
Rent or Additional Rent for more than ten (10) days after the same shall have
become due and payable, Tenant shall pay to Landlord as additional rent
hereunder, a late charge of five (5) cents for each dollar of the amount of such
installment of Basic Rent or Additional Rent due which shall not have been paid
to Landlord within ten (10) days after becoming due and payable.
B. In addition to any other rights and remedies that Landlord may have
under this lease or by law, if any Basic Rent, Tax Adjustment or any other
amounts payable hereunder by Tenant are not paid when due (without regard to any
grace or notice period), the same shall bear interest at the rate of two (2%)
percent per month or the maximum rate permitted by law, whichever is less, from
the due date thereof until paid, and the amount of such interest shall be
additional rent hereunder.
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C. The late charge payable pursuant to Paragraph A above and interest
payable pursuant to Paragraph B above shall be (i) payable on demand; and (ii)
without prejudice to any of Landlords rights and remedies hereunder, at law or
in equity for nonpayment or late payment of rent or other sum. The waiver by
Landlord of the payment of late charges and interest as provided in this Article
shall not constitute a waiver by Landlord of its right to enforce the provisions
of this Article in any instance thereafter occurring. The provisions of this
Article shall not be construed in any way to extend the grace periods or notice
periods provided for in Article 17 of this Lease.
D. All rent and other payments required to be paid by Tenant hereunder, if
more than ten (10) days late, shall be paid by certified or bank check only.
Furthermore, in addition to all of the rights and remedies available to
Landlord, in the event Tenant makes any payments owed to Landlord more than ten
(10) days late ("Late Payment") twice during any consecutive twelve (12) month
period, the Tenant shall make all further payments pursuant to this Lease,
whether timely or late, by certified or bank check, until such time as the
Landlord determines that a regular check will be acceptable.
51 . CLEANING : Only Landlord or one or more persons approved by Landlord
shall be permitted to act as maintenance contractor for all waxing, polishing,
cleaning and maintenance work in the demised premises. Nothing herein contained
shall prohibit Tenant from performing such work for itself by use of its own
regular employees. Landlord may fix the hours during which and regulations under
which such services are to be furnished. Landlord expressly reserves the right
to act as or to designate, at any time and from time to time, an exclusive
contractor for all or any one or more of said services, provided that the
quality thereof and the charges therefor are reasonably comparable to that of
other contractors; and Landlord furthermore expressly reserves the right to
exclude from the building any person attempting to furnish any of said services
but not so designated by Landlord.
52. HOLDING OVER: If Tenant holds over in possession after the expiration
or sooner termination of the original term or of any extended term of this
Lease, such holding over shall not be deemed to extend the term or renew this
Lease, but such holding over thereafter shall continue upon the covenants and
conditions herein set forth except that the charge for use and occupancy of such
holding over for each calendar month or part thereof (even if such part shall be
a small fraction of a calendar month) shall be the sum of:
(a) 1/12 of the highest annual rent rate set forth on page one of this
rider, times 2.0;
(b) 1/12 of the net increase, if any, in annual Fixed Rent due solely
to increases in the cost of the value of electric service furnished to the
premises in effect on the last day of the term of the lease;
(c) 1/12 of all other items of annual additional rental, which annual
additional rental would have been payable pursuant to this Lease had this
Lease not expired; and
(d) The damages incurred by Landlord as a result of Tenant's failure
to deliver the Demised Premises in accordance with the terms of the
sublease (as defined in Article 64 hereof);
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(e) those other items of additional rent (which are not annual
additional rent) which would have been payable monthly pursuant to this
Lease, had this Lease not expired, which total sum Tenant agrees to pay to
Landlord promptly upon demand, in full, without set-off or deduction.
Neither the billing nor the collection of use and occupancy in the above
amount shall be deemed a waiver of any right of Landlord to collect damages
for Tenant's failure to vacate the Demised Premises after the expiration or
sooner termination of this Lease. The provisions of this Article shall
survive the expiration or sooner termination of this Lease.
53. GOVERNMENTAL REGULATIONS: If at any time during the term of this Lease,
Landlord expends any sums for alterations or improvements to the Building which
are required to be made pursuant to any law, ordinance or governmental
regulation, or any portion of such law, ordinance or governmental regulation,
which becomes effective after the date hereof, Tenant shall pay to Landlord, as
additional rent, the same percentage of such cost as is set forth in the
provision of this Lease which requires Tenant to pay increases in Real Estate
Taxes, within ten (10) days after demand therefor. If, however, the cost of such
alteration or improvements is one which is required to be amortized over a
period of time pursuant to applicable governmental regulations, Tenant shall pay
to Landlord, as additional rent, during each year in which occurs any part of
the Lease term, the above-stated percentage of the reasonable annual
amortization of the cost of the alteration or improvement made. For the purposes
of this Article, the cost of any alteration or improvement made shall be deemed
to include the cost of preparing any necessary plans and the fees for filing
such plans.
54. BUILDING DIRECTORY: At the written request of Tenant, Landlord shall
list on the Building's directory the name of Tenant, any trade name under which
Tenant has the right to operate, any other entity permitted to occupy any
portion of the demised premises under the terms of this Lease, and the executive
officers of each of the foregoing entities, provided the number of names so
listed does not exceed seven (7) listings. If requested by Tenant, Landlord may
(but shall not be required to) list the name of Tenant's subsidiaries and
affiliates; however, the listing of any name other than that of Tenant shall
neither grant such party or entity any right or interest in this Lease or in the
demised premises nor constitute Landlord's consent to any assignment or sublease
to, or occupancy of the demised premises by, such party or entity. Except for
the name of Tenant, any such listing may be terminated by Landlord, at any time,
without notice.
55. ADDITIONAL PAYMENTS:
A. All payments other than the annual Fixed Rent to be made by Tenant
pursuant to this Lease, including, without limitation, real estate tax or other
escalations and electricity charges, shall be deemed additional payments due to
Landlord and, in the event of any nonpayment thereof, Landlord shall have all
rights and remedies provided for herein or by law for nonpayment of rent. Tenant
shall have forty-five (45) days from its receipt of any additional rent
statement to notify Landlord, by certified mail, return receipt requested, that
it disputes the correctness of such statement. After the expiration of such
forty-five (45) day period, such statement shall be binding and conclusive upon
Tenant. If Tenant disputes the correctness of any such statement, Tenant shall,
as a condition precedent to its right to contest such correctness, make payment
of the additional rent billed, without prejudice to its position. If such
dispute is finally determined in Tenant's favor, Landlord shall refund to Tenant
the amount overpaid.
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B. Any Landlord's statement or notice delivered in connection with
additional rent payments, rent adjustments or electricity charges made pursuant
to this Lease shall be conclusive and binding upon Tenant unless, within thirty
(30) days after receipt of such Landlord's statement or notice, Tenant shall
notify Landlord that it disputes the correctness of Landlord's statement or
notice, specifying the particular respects in which Landlord's statement or
notice is claimed to be incorrect. If Tenant shall timely dispute Landlord's
statement or notice within the aforesaid time period, then Tenant shall have the
right by itself or by an independent nationally recognized certified public
accounting firm only (not being compensated on a contingency fee or similar
basis), for a period of sixty (60) days following Tenant's receipt of Landlord's
statement or notice, to inspect Landlords books and records solely to the extent
necessary to verify Landlord's computation of those items which are disputed by
Tenant. Tenant's inspection of Landlord's books and records shall be made during
business hours, upon reasonable prior written notice to Landlord, and at such
location within the City of New York as Landlord may designate. In lieu of
Landlord permitting Tenant to inspect Landlord's books and records, Landlord may
deliver to Tenant photocopies of those portions of Landlord's books and records
as are necessary to verify such disputed items. If the parties shall not be able
to resolve such dispute within one hundred twenty (120) days after Tenant's
receipt of such Landlord statement or notice, then either party may refer the
matter or matters in dispute to an independent nationally recognized certified
public accounting firm agreed to by Landlord and Tenant, and the decision of
such accounting firm shall be conclusive and binding upon the parties. Pending
settlement of such dispute, Tenant shall make all payments as determined by
Landlord and, in the event such dispute is resolved in favor of Tenant, Landlord
shall promptly reimburse Tenant for any overpayment(s). The fees and expenses of
said accounting firm in determining such matter or matters shall be borne by the
unsuccessful party (and if both parties are partially unsuccessful, the
accounting firm shall apportion the fees and disbursements between the parties
based upon the degree of success of each party).
56. LEGAL PROCEEDINGS: This Lease shall be deemed to have been made in New
York County, New York, and shall be construed in accordance with the laws of the
State of New York. All actions or proceedings relating, directly or indirectly,
to this Lease shall be litigated only in courts located within the County of New
York. Tenant, any guarantor of the performance of its obligations hereunder
("Guarantor", and their successors and assigns, hereby subject themselves to the
jurisdiction of any state or federal court located within such county, waive
personal service of any process upon them in any action or proceeding therein
and consent that such process be served by certified or registered mail, return
receipt requested, directed to the Tenant and any successor at Tenant's address
hereinabove set forth, or to Guarantor and any successor at the address set
forth in the instrument of guaranty and to any assignee at the address set forth
in the instrument of assignment. Such service shall be deemed made three days
after such process is so mailed. If (i) Landlord commences any action or
proceeding against Tenant, or (ii) Landlord is required to defend any action or
proceeding commenced by Tenant in connection with this Lease, and such action or
proceeding is disposed of, by settlement, judgment or otherwise, favorably to
Landlord, Landlord shall be entitled to recover from Tenant in such action or
proceeding, or a subsequently commenced action or proceeding, Landlord's
reasonable attorneys' fees and disbursements incurred in connection with such
action or proceeding and all prior and subsequent discussions, negotiations and
correspondence relating thereto.
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57. CONDITIONAL LIMITATION:
A. If Tenant shall default in the payment of the rent reserved herein, or
any item of additional rent herein mentioned, or any part of either, during any
two (2) months, whether or not consecutive, in any twelve (12) month period, and
(i) such default continued for more than five (5) days after written notice of
such default by Landlord to Tenant, and (ii) Landlord, after the expiration of
such five (5) day grace period, served upon Tenant petitions and notices of
petition to dispossess Tenant by summary proceedings in each such instance,
then, notwithstanding that such defaults may have been cured prior to the entry
of a judgment against Tenant, any further default in the payment of any money
due Landlord hereunder which shall continue for more than five (5) days after
Landlord shall give a written notice of such default shall be deemed to be
deliberate and Landlord may thereafter serve a written three (3) days' notice of
cancellation of this Lease and the term hereunder shall end and expire as fully
and completely as if the expiration of such three (3) day period were the day
herein definitely fixed for the end and expiration of this Lease and the term
thereof, and Tenant shall then quit and surrender the demised premises to
Landlord, but Tenant shall remain liable as elsewhere provided in this Lease.
B. If Tenant shall have defaulted in the performance of any covenant
hereunder, other than a covenant for the payment of rent or additional rent,
twice during any consecutive twelve (12) month period and Landlord, in each
case, shall have given a default notice in respect of such default, then
regardless of whether Tenant shall have cured such defaults within any
applicable grace period, if Tenant shall again default in respect of the same or
a substantially similar covenant hereunder within a twelve (12) month period
after Landlord gave the second such default notice, Landlord, at its option, and
without further notice to Tenant or opportunity for Tenant to cure such default,
may elect to cancel this Lease by serving a written three (3) days' notice of
cancellation of this Lease and the term hereunder shall end and expire as fully
and completely as if the expiration of such three (3) day period were the day
herein definitely fixed for the end and expiration of this Lease and the term
hereof, and Tenant shall then quit and surrender the demised premises to
Landlord, but Tenant shall remain liable as elsewhere provided in this Lease.
C. The Tenant acknowledges and agrees that the Landlord, as a matter of
Building policy, will actively pursue its legal rights under this Article,
irrespective of ongoing discussions or negotiations with Tenant as to Tenant's
defaults.
58. ELEVATOR SERVICE: At any time or times, all or any of the elevators in
the building may, at Landlord's option, be automatic elevators, and Landlord
shall not be required to furnish any operator service for automatic elevators.
If Landlord shall, at any time, elect to furnish operator service for any
automatic elevators, Landlord shall have the right to discontinue furnishing
such service with the same effect as if Landlord had never elected to furnish
such service. In the event Tenant shall require the use of the Building's
service elevators, Landlord shall make good faith attempts to provide a service
elevator or passenger elevator, as the case may be, for the use of Tenant,
provided Tenant gives Landlord reasonable notice of the time and use of such
elevators to be made by Tenant and Tenant pays Landlord's usual and reasonable
charge in effect at the time for the use therefore prior to Landlord having any
obligation to supply such additional elevator services. Landlord, as a matter of
Building policy will require a three (3) days advance request for the use of any
Building freight elevator, together with appropriate evidence that an original
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certificate of insurance has been issued in connection with such use, and a
certified check in the total amount of Landlords freight elevator charge for
such use.
59. WATER USAGE: If Tenant requires, uses or consumes water for any purpose
in addition to ordinary kitchenette and lavatory purposes of which fact Tenant
constitutes Landlord to be the sole judge, Landlord may install a water meter to
measure Tenant's water consumption. Tenant shall pay Landlord for the cost of
the meter and its installation, and throughout the duration of Tenant's
occupancy Tenant shall keep said meter and equipment in good working order and
repair at Tenant's own cost and expense. Any default hereunder will permit
Landlord to replace or repair the meter and collect the cost thereof from
Tenant. Tenant agrees to pay for water consumed, as shown on the meter as and
when bills are rendered, and upon default in making such payment Landlord may
pay such charges and collect the same from Tenant. Tenant covenants and agrees
to pay the sewer rent, charge or any other tax, rent, levy or charge which now
or hereafter is assessed, imposed or is a lien upon the demised premises or the
realty of which they are part pursuant to law, order or regulation made or
issued in connection with its use, consumption, maintenance or supply of water,
water system or sewage connection or system. The bill rendered by Landlord shall
be payable by Tenant as additional rent.
60. TENANT'S ACTS: Tenant shall not suffer or permit the demised premises
or any part thereof to be used in any manner, or anything to be done therein, or
suffer or permit anything to be brought into or kept therein, which would: (1)
violate any of the provisions of any grant, Lease or mortgage to which this
Lease is subordinate, (2) violate any laws or requirements of public
authorities; (3) make void or voidable any fire or liability insurance policy
then in force with respect to the Building; (4) make unobtainable from reputable
insurance companies authorized to do business in New York State any fire
insurance with extended coverage, or liability, elevator, boiler or other
insurance required to be furnished by Landlord under the terms of any lease or
mortgage to which this Lease is subordinate at standard rates; (5) cause, or in
Landlord's reasonable opinion be likely to cause, physical damage to the
Building or any part thereof; (6) constitute a public or private nuisance; (7)
impair, in the sole opinion of Landlord, the appearance, character or reputation
of the Building; (8) discharge objectionable fumes, vapors or odors into the
Building air-conditioning system or into the Building flues or vents or vents
not designed to receive them or otherwise in such manner as may unreasonably
offend other occupants; (9) impair or interfere with any of the Building
services or the proper and economic heating, cleaning, air conditioning or other
servicing of the Building or the demised premises or impair or interfere with or
tend to impair or interfere with the use of any of the other areas of the
Building by, or occasion discomfort, annoyance or inconvenience to, Landlord or
any of the other tenants or occupants of the Building, any such impairment or
interference to be in the sole judgment of Landlord; or (10) increase the
pedestrian traffic in and out of the demised premises or the Building above an
ordinary level.
61. LIMITATION ON RENT: If at the commencement of, or at any time or times
during the term of this Lease, the rents reserved in this Lease shall not be
fully collectible by reason of any Federal, State, County or City Law,
proclamation, order or regulation, or direction of a public officer or body
pursuant to law, Tenant shall enter into such agreements and take such other
steps, without additional expense to Tenant, as Landlord may request and as may
be legally permissible
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(and not in excess of the amounts reserved therefor under this Lease). Upon the
termination of such legal rent restrictions prior to the expiration of the term
of this Lease, (a) the rents shall become and thereafter be payable hereunder in
accordance with the amounts reserved in this Lease for the periods following
such termination; and (b) Tenant shall pay to Landlord, if legally permissible,
an amount equal to (1) the rents which would have been paid pursuant to this
Lease but for such legal rent restriction, less (2) the rents paid by Tenant to
Landlord during the period or periods such legal rent restriction was in effect.
62. TENANT INTEREST: This lease does not include, and Tenant shall have no
leasehold or other interest in, the land on which the Building is located.
Landlord, without the consent of Tenant, may sell, convey, lease or otherwise
dispose of any air rights, development rights and similar rights appurtenant to
the land and/or the Building.
63. BROKERAGE: Tenant represents and warrants to Landlord that Tenant has
not dealt with any broker or finder in connection with this Lease except for
Cushman & Wakefield, Inc. and Edward S. Gordon Company, Incorporated. Tenant
agrees to indemnify and hold Landlord harmless from and against any claims,
costs, expenses (including court costs and reasonable legal fees) and other
liabilities incurred by Landlord by reason of any claim or action for a
commission or other compensation by any other broker or finder with respect to
this Lease. Landlord shall have no liability for any brokerage commissions
arising out of a sublease or assignment by Tenant. The provisions of this
Article 63 shall survive the expiration or sooner termination of this Lease.
64. SUBORDINATION AND ATTORNMENT: This lease is subject to and subordinate
in all respects to that certain lease dated December 5, 1951 among City Bank
Farmers Trust Company, as trustee under two deeds of trust dated August 15,
1919, William Waldorf Astor, as landlord, and 424 Park Avenue Corp, as tenant,
covering the premises 420-430 Park Avenue, New York, New York, which lease was
recorded on December 7, 1951, in the Office of the Register of the City of New
York, New York County (the "Register's Office"), in Liber 4757, cp 503, and to
any and all modifications and renewals, if any, of such lease and deeds of
trust, and any amendments and supplements thereto, heretofore or hereafter made.
This lease is also, and shall be, subject and subordinate in all respects
to that certain sublease dated as of July 1, 1969, between 430 Park Avenue
Company and Colt Industries Inc., as subtenant, recorded on July 30, 1969 in the
Register's Office, in Reel 147, at page 1029 (the "Sublease"), as assigned by
Colt Industries Inc. to Colt Industries Operating Corp. (by an assignment and
assumption agreement dated as of February 3, 1981) and by Colt Industries
Operating Corp to Bank of Montreal (by an assignment of the Sublease with
assumption dated as of February 5, 1981, which was recorded on March 5, 1981, in
the Register's Office, in Reel 557, at page 906), and to any and all
modifications and renewals thereof and amendments and supplements thereto,
heretofore or hereafter made.
The following provision is included in this lease in compliance with
Article THIRTY-SEVENTH of the Sublease, the references to the parties and
instruments therein having been modified, where indicated by brackets, to
conform to the references in this lease.
"The [Tenant] has been informed and understands that the [Landlord] is the
Sub-Tenant in that certain Agreement of Sublease dated as of the 1st day of
July, 1969, between 430 PARK AVENUE COMPANY as Sub-Landlord and COLT
INDUSTRIES INC.,
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as Sub-Tenant (hereinafter referred to as the 'Sublease'). In the event
that the Sublease shall be terminated for any reason whatsoever, this
sub-sub-tenancy shall, at the option of the Sub-Landlord (as that term is
defined in the Sub-Lease) under the Sublease, not terminate and in such
event the [Tenant] shall attorn to the Sub-Landlord and such Sub-Landlord
shall thereafter be deemed [Tenant's] landlord pursuant to the terms and
conditions of this [lease]."
This lease is also subject and subordinate to all mortgages which are now
or may hereafter be placed on or affect either the lease dated December 5, 1951,
referred to above, or the Sublease, and any and all modifications and renewals
of, and amendments and supplements to, such lease and the Sublease heretofore or
hereafter made, and to all renewals, modifications, consolidations, replacements
and extensions of such mortgages. In confirmation of such subordination, Tenant
shall execute promptly any certificate that Landlord may reasonably request.
It is understood that this lease is further subject to any and all
easements possessed, owned or to be owned by New York Central Railroad Company,
or any successor thereto.
65. SECURITY DEPOSIT - - LETTER OF CREDIT:
A. Simultaneously with the execution and delivery of this Lease by Landlord
and Tenant, Tenant, as applicant, has delivered to Landlord a letter of credit
(the "L/C") in favor of Landlord in the amount of One Hundred Eighty Seven
Thousand Four Hundred Thirty Seven and 00/100 ($187,437.00) Dollars, as security
for the faithful performance and observance by Tenant of the terms, provisions
and conditions of this Lease, including but not limited to the payment of rent
and additional rent. Landlord may use, apply or retain the whole or any part of
the L/C to the extent required for the payment of any rent and additional rent
or any other sum as to which Tenant is in default or for any sum which Landlord
may expend or may be required to expend by reason of Tenant's default in respect
of any of the terms, covenants and conditions of the Lease, including but not
limited to, any damages or deficiency in the reletting of the Demised Premises,
whether such damages or deficiency accrued before or after summary proceedings
or other re-entry by Landlord.
B. The L/C shall be in the form annexed hereto as Exhibit B.
C. It is the intention of the parties that the L/C, or any renewal,
extension or replacement thereof, shall continue in full force and effect
throughout the Lease term, plus sixty (60) days. If Tenant does not deliver
timely a renewal Letter of Credit, an extension of the Letter of Credit or a
replacement of the Letter of Credit within five (5) business days after receipt
of notification from Landlord that such renewal, extension or replacement is
required, Landlord shall be entitled to draw upon the entire Letter of Credit.
If any portion of the L/C is applied by Landlord to any default by Tenant under
this Lease, Tenant shall restore the sum so applied within five (5) days after
written notice from Landlord demanding such restoration and the amount to be
restored shall be deemed additional rent.
66. NO RECORDING: Neither this Lease nor a memorandum of any of its
contents shall be recorded by Tenant without Landlord's prior written consent,
which consent may be withheld in Landlord's sole discretion. If Tenant records
this Lease or a memorandum of its contents without Landlord's prior written
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consent, such act of recording shall be deemed a substantial default under this
Lease and Landlord may, upon written notice to Tenant, terminate this Lease as
of the date of such notice, and Tenant shall remain liable as provided in
Article 18 herein.
67. TENANT TO DEAL DIRECTLY WITH LANDLORD: Tenant covenants and agrees that
it shall not enter into any agreements for any space in the Building with any
tenants or subtenants in the Building and shall only obtain space in the
Building directly from Landlord through a Lease Agreement directly with
Landlord.
68. ADDENDUM TO RULES AND REGULATIONS: The following additional Rules and
Regulations are hereby incorporated into and made a part of the Rules and
Regulations set forth at the end of the printed form of lease:
"15. No tenant shall invite to the tenant's premises, or permit the
visit of, persons in such numbers or under such conditions as to interfere
with the use and enjoyment of any of the entrances, corridors, elevators
and other facilities of the building by other tenants. Fire exits and
stairways are for emergency use only, and they shall not be used for any
other purpose by the tenants, their employees, licensees or invitees. The
Landlord reserves the right to control and operate the public portions of
the building and the public facilities, as well as facilities furnished for
the common use of the tenants, in such manner as it deems best for the
benefit of the tenants generally.
16. The Landlord may refuse admission to the building to any person
not known to the watchman in charge or not having a pass issued by the
Landlord or the tenant whose premises are to be entered or not otherwise
properly identified, and may require all persons admitted to or leaving the
building to register. Any person whose presence in the building at any time
shall, in the judgment of the Landlord, be prejudicial to the safety,
character, reputation and interests of the building or of its tenants may
be denied access to the building or may be ejected therefrom. In case of
invasion, riot, public excitement or other commotion, the Landlord may
prevent all access to the building during the continuance of the same, by
closing the doors or otherwise, for the safety of the tenants and
protection of property in the building. The Landlord may require any person
leaving the building with any package or other object to exhibit a pass
from the tenant from whose premises the package or object is being removed,
but the establishment and enforcement of such requirement shall not impose
any responsibility on the Landlord for the protection of any tenant against
the removal of property from the premises of the tenant. The Landlord
shall, in no way, be liable to any tenant for damages or loss arising from
the admission, exclusion or ejection of any person to or from the tenant's
premises or the building under the provisions of this rule.
17. No machines or mechanical equipment of any kind, other than
typewriters and other ordinary portable business machines, may be installed
or operated in any tenant's premises without Landlord's prior written
consent, and in no case (even where the same are of a type so excepted or
as so consented to by the Landlord) shall any machines or mechanical
equipment be so placed or operated as to disturb other tenants but,
machines and mechanical equipment which may be permitted to be installed
and used in a tenant's premises shall be so equipped, installed and
maintained by such tenant as to prevent any disturbing noise, vibration or
electrical or other interference from being transmitted from such premises
to any other area of the building."
69. LANDLORD'S WORK CONTRIBUTION: Notwithstanding anything herein to the
contrary, Landlord agrees to provide a limited contribution ("Contribution")
towards the actual cost of
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Tenant alterations or improvements made with Landlords prior approval (not to be
unreasonably withheld or delayed) in connection with Tenant's initial
preparation of the Demised Premises for its use and pursuant to Article 43
hereof; provided, however, that the Contribution shall in no event exceed One
Hundred Forty-Nine Thousand, Nine Hundred Fifty & 00/100 ($149,950.00) Dollars
("Landlord's Maximum Contribution"). Landlord shall only make any Contribution
payable hereunder if it receives from Tenant and approves (in its reasonable
discretion), invoices marked "Paid in Full", cancelled checks or such other
documentation as it deems necessary to verify the alterations and/or
improvements to the Demised Premises. Tenant acknowledges and agrees that in no
event shall Landlord's Contribution hereunder exceed $24,400.00 towards Tenant's
"soft" costs, which "soft" costs shall include Tenant's telephone and computer
installation, architectural, engineering, and consulting fees and the cost of
filing fees and permits. Landlord shall reimburse Tenant in the amount of
approved invoices submitted up to the amount of the Landlord's Maximum
Contribution within thirty (30) days of submission thereof.
70. ADDITIONAL AGREEMENTS:
A. Submission by Landlord of this Lease for execution by Tenant shall
confer no rights upon Tenant, nor impose any obligations upon Landlord, unless
and until both Landlord and Tenant shall have executed this Lease, duplicate
originals thereof shall have been delivered to the respective parties, and
Tenant shall have paid and Landlord shall have cashed the first installment of
rent and the security deposit as provided herein. Submission by Tenant of an
executed counterpart of this Lease shall be deemed to constitute an irrevocable
offer by Tenant for a period of thirty (30) days from the date of tender
thereof.
B. Without incurring any liability to Tenant, Landlord may permit access to
the demised premises and open the same, whether or not Tenant shall be present,
upon demand of any receiver, trustee, assignee for the benefit of creditors,
sheriff, marshal or court officer entitled to, or reasonably purporting to be
entitled to, such access for the purpose of taking possession of, or removing,
Tenant's property or for any other lawful purpose (but this provision and any
action by Landlord hereunder shall not be deemed a recognition by Landlord that
the person or official making such demand has any right or interest in or to
this Lease, or in or to the demised premises), or upon demand of any
representative of the fire, police, building, sanitation or other department of
the city, state or federal governments.
C. The terms "person" and "persons" as used in this Lease, shall be deemed
to include natural persons, firms, corporations, associations and any other
private or public entities.
D. No receipt of monies by Landlord from Tenant, after any re-entry or
after the cancellation or termination of this Lease in any lawful manner, shall
reinstate this Lease; and after the service of notice to terminate this Lease,
or after the commencement, of any action, proceeding or other remedy, Landlord
may demand, receive and collect any monies due, and apply them on account of
Tenant's obligations under this Lease but without in any respect affecting such
notice, action, proceeding or remedy, except that if a money judgment is being
sought in any such action or proceeding, the amount of such judgment shall be
reduced by such payment.
E. If Tenant is in arrears in the payment of Fixed Rent or additional rent,
Tenant waives its right, if any, to designate the items in arrears against which
any payments made by Tenant are to be credited and Landlord may apply any of
such payments to any such items in arrears as Landlord, in its sole discretion,
shall
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determine, irrespective of any designation or request by Tenant as to the items
against which any such payments shall be credited.
F. No payment by Tenant nor receipt by Landlord of a lesser amount than may
be required to be paid hereunder shall be deemed to be other than on account of
any such payment, nor shall any endorsement or statement on any check or any
letter accompanying any check tendered as payment be deemed an accord and
satisfaction and Landlord may accept such check or payment without prejudice to
Landlord's right to recover the balance of such payment due or pursue any other
remedy in this Lease provided.
G. The terms "Owner" and "Landlord" as used in this Lease are
interchangeable. The terms "Article" and "Paragraph" as used in this Lease are
interchangeable.
H. The person executing this Lease on behalf of Tenant hereby covenants,
represents and warrants that Tenant is duly incorporated and is authorized to do
business in New York State and that the person executing this Lease on behalf of
Tenant is an officer of such Tenant, and that he as such officer is duly
authorized to execute, acknowledge and deliver this Lease to Landlord.
I. If in this lease it is provided that Landlord's consent or approval as
to any matter will not be unreasonably withheld, and it is established by a
court or body having final jurisdiction thereover that Landlord has been
unreasonable, the only effect of such finding shall be that Landlord shall be
deemed to have given its consent or approval; but Landlord shall not be liable
to Tenant in any respect for money damages by reason of withholding its consent.
J. If, at any time, and from time to time, Tenant's office use or hours
shall occur at any time other than between the hours of 8 A.M. to 6 P.M. on
business days (hereinafter called "after hours"), Landlord and Tenant agree that
Landlord shall have the right, in addition to all other rights granted Landlord
under this lease, (a) to separately value the after hours services requested and
received by Tenant under this lease (including, without limitation, Landlord's
services under Article 29) or required to be furnished by Landlord due to
Tenant's after hours use of the demised premises, and (b) to charge Tenant
separately for all of such after hours services, such charges to be deemed
additional rent and payable within five (5) days of Landlord's billing therefor.
Nothing contained in this Paragraph shall be deemed to obligate or require
Landlord to supply any services to the demised premises.
K. Tenant expressly acknowledges that neither Landlord nor Landlord's
agents has made or is making., and Tenant, in executing and delivering this
lease, is not relying upon, any warranties, representations, promises or
statements, except to the extent that the same are expressly set forth in this
lease, and no rights, easements or licenses are or shall be acquired by Tenant
by implication or otherwise unless expressly set forth in this lease.
L. Any apportionments or prorations of rent to be made under this lease
shall be computed on the basis of a 360 day year, with 12 months of 30 days
each.
M. Tenant shall fully and immediately comply with all recycling rules,
regulations and standards established by Landlord.
N. Tenant shall not cause or permit any Hazardous Materials (hereinafter
defined) to be used, stored, transported, released, handled, produced or
installed in, on or from the demised
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premises or the building. "Hazardous Materials", as used herein, shall mean any
flammable, explosives, radioactive materials, hazardous wastes, hazardous and
toxic substances or related materials, asbestos or any material containing
asbestos, or any other substance or material included in the definition of
"hazardous substances", "hazardous wastes", "hazard materials", "toxic
substances", "contaminants" or any other pollutant, or otherwise regulated by
any Federal, state or local environmental law, ordinance, rule or regulation
including, without limitation, the Comprehensive Environmental Response
Compensation and Liability Act of 1980, as amended, the Hazardous Materials
Transportation Act, as amended, the Resource Conservation and Recovery Act, as
amended, and in the regulations adopted and publications promulgated pursuant to
each of the foregoing. In the event of a violation of any of the foregoing
provisions of this Paragraph, Landlord may, without notice and without regard to
any grace period contained herein, take all remedial action deemed necessary by
Landlord to correct such condition and Tenant shall reimburse Landlord for the
cost thereof, within five (5) days after demand, as additional rent.
O. Landlord reserves the right to exclude from all portions of the building
at any time or times during the term hereof, all messengers, couriers and
delivery people other than those who are employees of Tenant. In such event
Landlord shall accept on behalf of Tenant all deliveries of mail, air courier
packages, express packages and other packages sent by similar means (including
any hand deliveries of such mail and packages), shall permit messengers and
couriers to pick up mail or packages left by Tenant and shall provide an area to
be used for such purposes to which Tenant's employees shall deliver mail and
packages to be picked up by others and from which such employees shall pick up
and distribute mail and packages to be delivered to Tenant; provided, however,
that Landlord may elect to provide such distribution to Tenant at Tenant's
expense. Tenant shall comply with Landlord's rules relating to such area and
services. Neither Landlord nor Landlord's agents or security personnel shall be
liable to Tenant or Tenant's agents, employees, contractors, customers, clients,
invitees or licensees or to any other person for, and Tenant hereby indemnifies
Landlord and Landlord's agents and security personnel, against liability in
connection with or arising out of damage to mail or packages, or the performance
or non-performance by Landlord or any person acting by, through or under the
direction of Landlord of the services set forth in this Paragraph (including any
liability in respect of the property of such persons), unless due to the willful
misconduct of Landlord, or Landlord's agents or security personnel. No
representation, guaranty or warranty is made or assurance given that the
communications or security systems, devices or procedures of the building will
be effective to prevent injury to Tenant or any other person or damage to, or
loss (by theft or otherwise) of, any property of Tenant or of any other person,
and Landlord reserves the right to discontinue or modify at any time such
communications or security systems or procedures without liability to Tenant.
P. Tenant shall use and occupy the demised premises solely for (a)
executive and administrative offices in connection with the Tenant's business
and consistent with a first-class office building (the "'Primary Use") and (b)
uses incidental to the Primary Use, which are customary in Tenant's business as
of the date hereof (the "Incidental Uses") provided that the Incidental Uses (i)
do not violate any term, covenant or restriction contained in this lease or the
lease of any other tenant in the building, (ii) do not create or constitute a
nuisance in or about the building; (iii) do not increase the rate for fire
insurance applicable to the building, and (iv) are in keeping with the then
character and dignity of the building. If any Incidental Use shall cause an
-31-
<PAGE>
order, notice, violation or other directive to be issued with respect to
Landlord and/or the land or building requiring that such Incidental Use be
discontinued, Tenant shall immediately (notwithstanding any grace period
contained in this lease) discontinue such Incidental Use upon notice thereof,
whether such notice is received from Landlord, its managing agent or the
authority or body issuing such order, notice, violation or directive. Tenant's
failure to immediately discontinue such Incidental Use shall constitute a
material default by Tenant under this lease entitling Landlord to serve a
written notice of termination of this lease pursuant to Article 17(1) hereof.
71. NO ENCUMBRANCE: Tenant for itself and for its successors and assigns
expressly covenants and agrees that it shall not mortgage or otherwise in any
manner encumber the demised premises or any part thereof without the express
prior written consent of Landlord which may be withheld in its sole discretion.
72. FINAL AGREEMENT: This Lease constitutes the entire agreement between
the parties hereto and no earlier statements or prior written matter shall have
any force or effect. No apparent waiver by any party of any of its rights
hereunder shall be effective without the express prior written consent of the
other party hereto. Tenant agrees that it is not relying on any representations
or agreements other than those expressly contained in this Lease. This Lease
shall not be modified except by written instrument subscribed by both parties.
END OF RIDER
<PAGE>
EXHIBIT A
All Dimensions Are Approximate
Diagram Not Drawn to Scale
[FLOOR PLAN}
ENTIRE 5TH FLOOR
430 PARK AVENUE
<PAGE>
EXHIBIT B -- LETTER OF CREDIT
[Insert name and address of issuing bank]
[Insert date]
IRREVOCABLE LETTER OF CREDIT NO. [Insert number]
[Insert name and address of owner]
Dear Sir:
At the request and for the account of [insert name of tenant] located at [insert
address of tenant] (hereinafter called "Applicant"), we hereby establish our
Irrevocable Letter of Credit No. [insert number] in your favor and authorize you
to draw on us up to the aggregate amount of US$ [insert amount of letter of
credit] available by your draft(s) at sight drawn on us and accompanied by the
following:
A written statement by you that:
(i) "Applicant is in default under that certain lease, dated as of [insert
date of lease] between you, as landlord, and Applicant, as tenant (the
'Lease');" or
(ii) "Applicant has failed to deliver timely a renewal Letter of Credit, an
extension of the Letter of Credit, or a replacement of the Letter of Credit as
provided in the Lease."
This Irrevocable Letter of Credit will be duly honored by us at sight upon
delivery of the statement set forth above without inquiry as to the accuracy of
such statement and regardless of whether Applicant disputes the content of such
statement. We will not notify Tenant or any other third party with respect to
communications, or inquiries of Landlord, including the presentation of the
Letter of Credit for payment or any attempt to draw against the Letter of
Credit, until after the Letter of Credit has been paid in accordance with the
terms hereof.
We hereby engage with you that all drafts drawn under and in compliance with the
terms of this Irrevocable Letter of Credit will be duly honored by us if
presented at [insert address of issuing bank] no later than [insert expiration
date of Letter of Credit], it being a condition of this Irrevocable Letter of
Credit that it shall be automatically extended for periods of at least one year
from the present and each future expiration date and for a period to end on no
earlier than sixty (60) days after the last day of the term of the Lease.
This Irrevocable Letter of Credit is transferable at no charge to any transferee
of landlord upon notice to the undersigned from you and such transferee.
This Irrevocable Letter of Credit is subject to the Uniform Customs and
Practices for Documentary Credits (1983-Rev) International Chamber of Commerce
Publication #400.
Sincerely yours,
[Insert authorized signature]
<PAGE>
Draft--September 3, 1997
RSL COMMUNICATIONS, LTD.
1997 DIRECTORS COMPENSATION PLAN
1. Purposes
The purposes of this RSL Communications, Ltd. 1997 Directors
Compensation Plan (the "Plan") are to enable the Company to attract, retain and
motivate the best qualified directors and to enhance a long-term mutuality of
interest between the directors and shareholders of the Company by granting them
options to purchase the Company's shares.
2. Definitions
Unless the context requires otherwise, the following words as
used in the Plan shall have the meanings ascribed to each below, it being
understood that masculine, feminine and neuter pronouns are used
interchangeably, and that each comprehends the others.
"Award" shall mean any Option or Share awarded under the Plan.
"Board" shall mean the Board of Directors of the Company.
"Class A Common Stock" shall mean the Class A common shares of
the Company, par value $.|X|.
"Code" shall mean the Internal Revenue Code of 1986, as
amended.
"Company" shall mean RSL Communications, Ltd., a Bermuda
corporation, and any successor thereto.
"Eligible Director" shall mean the Chairman of the Board and
the Vice Chairman of the Board (so long as such person receives no compensation
for his services to the Company other than as a non-executive Chairman or Vice
Chairman) and any director of the Company who is not an officer or employee of
the Company or any of its subsidiaries.
<PAGE>
"Fair Market Value" shall mean, on any date, the average of
the closing price of a Share of Class A Common Stock as reported on the National
Association of Securities Dealers Automated Quotation/National Market System
("NASDAQ/NMS") (or on such other recognized market or quotation system on which
the trading prices of the Share are traded or quoted at the relevant time) over
the preceding twenty business days. Notwithstanding the foregoing, "Fair Market
Value" on the date of the IPO shall be the price at which the Class A Common
Stock is sold to the public in the IPO.
"Initial Option Award" shall mean an Option to purchase that
number of Shares (rounded to the nearest whole number) equal to (a) in the case
of (i) the Chairman of the Board, $150,000, (ii) the Vice Chairman of the Board,
$75,000 and (iii) each other Eligible Director, $50,000, divided by (b) the Fair
Market Value of a Share as of the date of the IPO, in each case with an initial
exercise price per Share equal to the Fair Market Value of a Share on the date
of such IPO, subject to adjustment as provided in Section 6(e).
"IPO" shall mean the initial pubic offering of the Company's
Class A Common Stock.
"Option" shall mean the right to purchase Shares at a stated
price for a specified period of time. For purposes of the Plan, the Options are
nonstatutory stock options and are not intended to qualify under Section 422 of
the Code.
"Share" shall mean a share of Class A Common Stock.
"Share Value" shall mean the amount equal to the product of
(i) the Fair Market Value on the date that the corresponding Share grant would
be made under Section 7 and (ii) the number of Shares to be awarded to the
Eligible Director who is electing to defer receipt of the Share grant.
"Stock Account" shall mean a memorandum account established to
record the deferral of certain compensation otherwise payable to an Eligible
Director which shall be deemed invested in notional Shares.
"Term Option Award" shall mean an Option to purchase that
number of Shares (rounded to the nearest whole number) equal to (a) in the case
of (i) the Chairman of the Board, $150,000, (ii) the Vice Chairman of the Board,
$75,000 and (iii) each other Eligible Director, $50,000, divided by (b) the Fair
Market Value of a Share as of the date of grant, in each case with an initial
exercise price per Share equal
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<PAGE>
to the Fair Market Value of a Share on such date, subject to adjustment as
provided in Section 6(e).
"Term Share Award" shall mean that number of Shares (rounded
to the nearest whole number) equal to $30,000, divided by the Fair Market Value
of a Share as of the date of grant, provided that an Eligible Director who
served as a director for only a portion of the time since the last annual
meeting of shareholders shall receive an award for that number of Shares
(rounded to the nearest whole number) equal to the product of such number of
Shares times a fraction, the numerator of which is the number of regular
meetings of the Board occurring since the last annual meeting of shareholders
and while the Eligible Director was a member of the Board and the denominator of
which is the total number of regular meetings of the Board occurring from the
date of such last annual meeting of shareholders to the date of the annual
meeting on which the award of Shares occurs.
"Units" shall have the meaning ascribed thereto in Section
8(c).
3. Effective Date
The effective date of the Plan shall be the date of the
closing of the initial public offering of the Company's Class A Common Stock.
4. Administration
(a) Powers of the Board. This Plan shall be administered by
the Board. The Board may delegate its powers and functions hereunder to a duly
appointed committee of the Board. The Board shall have full authority to
interpret this Plan; to establish, amend and rescind rules for carrying out this
Plan; to administer this Plan; to incorporate in any option agreement such terms
and conditions, not inconsistent with this Plan, as it deems appropriate; to
construe the respective option agreements and this Plan; and to make all other
determinations and to take such steps in connection with this Plan as the Board,
in its discretion, deems necessary or desirable for administering this Plan. All
expenses incurred in the administration of the Plan, including, but not limited
to, for the engagement of any counsel, consultant or agent, shall be paid by the
Company.
(b) Disinterested Status. Notwithstanding the foregoing,
neither the Board, any committee thereof nor any person designated pursuant to
(c) below may take any action which would cause any Eligible Director to cease
to be a "Non-Employee Director" for purposes of Rule 16b-3 promulgated under
the Securities
3
<PAGE>
Exchange Act of 1934, as amended, as then in effect or any successor provisions
("Rule 16b-3"), with regard to this Plan or any other stock option or other
equity plan of the Company. In particular, neither the Board nor any committee
thereof shall have any discretion as to
(i) the selection of Eligible Directors as eligible to receive
awards pursuant to the Plan;
(ii) the number of Shares subject to Options awarded pursuant
to Section 6; or
(iii) the number of Shares that may be awarded pursuant to
Section 7.
(c) Delegation. The Board may designate the Secretary of the
Company, other officers or employees of the Company or competent professional
advisors to assist the Board in the administration of this Plan, and may grant
authority to such persons to execute agreements or other documents on its
behalf.
(d) Agents and Indemnification. The Board may employ such
legal counsel, consultants and agents as it may deem desirable for the
administration of this Plan, and may rely upon any opinion received from any
such counsel or consultant and any computation received from any such consultant
or agent. No member or former member of the Board or any committee thereof or
any person designated pursuant to paragraph (c) above shall be liable for any
action or determination made in good faith with respect to this Plan. To the
maximum extent permitted by applicable law and the Company's Memorandum of
Association and Bye-Laws, each member or former member of the Board or any
committee thereof or any person designated pursuant to (c) above shall be
indemnified and held harmless by the Company against any cost or expense
(including counsel fees) or liability (including any sum paid in settlement of a
claim with the approval of the Company) arising out of any act or omission to
act in connection with this Plan, unless arising out of such person's own fraud
or bad faith. Such indemnification shall be in addition to any rights of
indemnification the person may have as a director, officer or employee or under
the Memorandum of Association of the Company or the Bye-Laws of the Company.
5. Shares; Adjustment Upon Certain Events
(a) Shares Available. Shares to be issued under this Plan
shall be made available, at the discretion of the Board, either from authorized
but unissued Shares or from issued Shares reacquired by the Company. The
aggregate number of
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<PAGE>
Shares that may be issued under this Plan shall not exceed 250,000 Shares,
except as provided in this Section. Shares subject to any Option granted
hereunder which expires or is terminated or canceled prior to exercise will be
available for future grants under the Plan.
(b) No Limit on Corporate Action. The existence of this Plan
and Shares granted hereunder shall not affect in any way the right or power of
the Board or the shareholders of the Company to make or authorize any
adjustment, recapitalization, reorganization or other change in the Company's
capital structure or its business, any merger or consolidation of the Company,
any issue of bonds, debentures, preferred or prior preference shares ahead of or
affecting common shares, the dissolution or liquidation of the Company or any
sale or transfer of all or part of its assets or business, or any other
corporate act or proceeding.
(c) Adjustments Upon Certain Events. In the event of any Share
dividend or Share split, recapitalization (including, without limitation, the
payment of an extraordinary dividend), merger, consolidation, combination,
spin-off, distribution of assets to shareholders, exchange of shares, or other
similar corporate change, the aggregate number of Shares available for Options
under Section 5(a) or subject to outstanding Options and the respective prices
applicable to outstanding Options shall be appropriately adjusted.
(d) No Adjustment If Value Received. Except as hereinbefore
expressly provided, the issuance by the Company of shares of stock of any class
or securities convertible into shares of stock of any class, for cash, property,
labor or services, upon direct sale, upon the exercise of rights or warrants to
subscribe therefor, or upon conversion of shares or other securities, and in any
case whether or not for fair value, shall not affect, and no adjustment by
reason thereof shall be made with respect to the number of Shares subject to
Options to be awarded to an Eligible Director pursuant to Section 6.
6. Option Awards
(a) Initial Option Awards. Upon the date of the closing of the
IPO, each Eligible Director shall automatically be granted an Initial Option
Award.
(b) Term Option Awards. On the first business day after each
annual meeting of shareholders of the Company occurring during the term of the
Plan, each Eligible Director shall automatically be granted a Term Option Award.
5
<PAGE>
(c) Option Agreement. Options shall be evidenced by a written
option agreement embodying the terms of this Section 6.
(d) Option Term. If not previously exercised, each Option
shall expire upon the tenth (10th) anniversary of the date of the grant thereof
or, upon the earlier termination of the Eligible Director's status as a director
of the Company (or, if applicable, on the day following the last day on which
such Option is exercisable under Section 7 below).
(e) Adjustment to Exercise Price. The exercise price of any
Option granted hereunder shall be increased on the first day of each calendar
quarter, by an amount, compounded annually, based on the yield to maturity of
United States Treasury Securities with a maturity closest to ten years following
the date that such Option is granted.
(f) Exercisability. Each Term Award granted under this Plan
shall be become exercisable on a cumulative basis in five equal installments
commencing on the first anniversary of the date of grant, subject to the
acceleration provisions of Section 7 hereof.
(g) Procedure for Exercise. An Eligible Director electing to
exercise one or more Options shall give written notice to the Secretary of the
Company of such election and of the number of Shares he has elected to purchase.
Shares purchased pursuant to the exercise of Options shall he paid for at the
time of exercise in cash or by delivery to the Company of unencumbered Shares
owned by the Eligible Director for at least six (6) months (or such longer
period as is required by applicable accounting standards to avoid a charge to
earnings) or a combination thereof. Upon receipt of payment the Company shall
deliver to the Eligible Director as soon as practicable a certificate or
certificates for the Shares then purchased.
(h) Termination of Director Status
(i) Termination due to Death or Disability. In the
event an Eligible Director ceases to serve as a member of the Board due
to death or disability, any Option granted to such Eligible Director
which is then outstanding (whether or not exercisable prior to the date
of termination) may be exercised by the Eligible Director or his
designated beneficiary, and if none is named, in accordance with
Section 13(c) hereof, within one (1) year following the Eligible
Director's termination
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<PAGE>
of service or prior to the expiration date of the term of the Option,
whichever period is shorter.
(ii) Termination for Any Other Reason. If an Eligible
Director ceases to serve as a member of the Board for any other reason,
(resignation, failure to stand for reelection or failure to be
reelected), any Option granted to such Eligible Director may be
exercised, to the extent it was exercisable at such date of
termination, within ninety (90) days following the Eligible Director's
termination of service or prior to the expiration date of the term of
the Option, whichever period is shorter.
7. Share Awards
Except to the extent that an Eligible Director shall have
elected pursuant to Section 8(a) to defer receipt of the Share Value instead of
receiving a grant under this Section 7, on the date of the annual meeting of
shareholders of the Company occurring in each of 1998 through 2007, each
Eligible Director who has performed service as a director for at least the six
months preceding such date shall receive a Term Share Award.
8. Deferred Compensation Program
(a) Deferral Election. On or before December 31 of any
calendar year ending on or before December 31, 2006, an Eligible Director may
elect to defer receipt of all or any part of the Share Value payable in respect
of the calendar year following the year in which such election is made, and to
have such amounts credited, in whole or in part, to a Stock Account.
(b) Form and Duration of Deferral Election. A deferral
election shall be made by written notice filed with the Secretary of the
Company. Such election shall continue in effect (including with respect to the
Share Value payable for subsequent calendar years) unless and until the Eligible
Director revokes or modifies such election by written notice filed with the
Secretary of the Company. Any such revocation or modification of a deferral
election shall become effective as of the end of the calendar year in which such
notice is given and only with respect to any Share Value related to Share grants
to be made in subsequent calendar years; provided that if the effect of such
revocation or modification of a deferral election is to change the amount of
deferred compensation that would otherwise have been credited to the Stock
Account it shall in no event become effective earlier than six months after it
is received
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<PAGE>
by the Secretary. Amounts credited to the Eligible Director's Account prior to
the effective date of any such revocation or modification of a deferral election
shall not be affected by such revocation or modification and shall be
distributed only in accordance with the otherwise applicable terms of the Plan.
An Eligible Director who has revoked an election to participate in the Plan may
file a new election to defer the Share Value with respect to Shares to be
granted no sooner than in the calendar year following the year in which such
election is filed.
(c) Stock Account. Any Share Value deferred shall be deemed to
be invested in a number of notional Shares of the Company (the "Units") equal to
the quotient of (i) such Share Value divided by (ii) the Fair Market Value on
the date the Shares would have been granted. Whenever a dividend other than a
dividend payable in the form of Shares is declared with respect to the Shares,
the number of Units in the Eligible Director's Stock Account shall be increased
by the number of Units determined by dividing (i) the product of (A) the number
of Units in the Eligible Director's Stock Account on the related dividend record
date and (B) the amount of any cash dividend declared by the Company on a Share
(or, in the case of any dividend distributable in property other than Shares,
the per share value of such dividend, as determined by the Company for purposes
of income tax reporting) by (ii) the Fair Market Value on the related dividend
payment date. In the case of any dividend declared on Shares which is payable in
Shares, the Eligible Director's Stock Account shall be increased by the number
of Units equal to the product of (i) the number of Units credited to the
Eligible Director's Stock Account on the related dividend record date and (ii)
the number of Shares (including any fraction thereof) distributable as a
dividend on a Share. In the event of any change in the number or kind of
outstanding Shares by reason of any recapitalization, reorganization, merger,
consolidation, stock split or any similar change affecting the Shares, other
than a stock dividend as provided above, the Board shall make an appropriate
adjustment in the number of Units credited to the Eligible Director's Stock
Account. Fractional Units shall be credited, but shall be rounded to the nearest
hundredth percentile, with amounts equal to or greater than .005 rounded up and
amounts less than .005 rounded down.
(d) Distribution from Accounts Upon Termination of Service as
a Director. At the time an Eligible Director makes a deferral election pursuant
to Section 8(a), the Eligible Director shall also file with the Secretary of the
Company a written election (a "Distribution Election") with respect to whether
(i) the value of any Units to be credited to the Stock Account shall be
distributed wholly in cash, in the greatest number of whole Shares (with any
fractional interest payable in cash) or a combination of cash and whole Shares,
(ii) such distribution shall commence immediately following the date the
Eligible Director ceases to be a director or on the first business day of any
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<PAGE>
calendar year following the calendar year in which the Eligible Director ceases
to be a director and (iii) such distribution shall be in one lump-sum payment or
in such number of annual installments (not to exceed ten) as the Eligible
Director may designate. An Eligible Director may at any time, and from time to
time, change any Distribution Election applicable to his or her Stock Account,
provided that no election to change the timing of any terminal distribution
shall be effective unless it is made in writing and received by the Secretary of
the Company at least one full calendar year prior to the time at which the
Eligible Director ceases to be a director.
(e) Distribution from Stock Account Prior to Termination of
Service as a Director. Any Eligible Director may, by filing a written election
with the Secretary of the Company, elect to receive a distribution of all or any
portion of the amounts credited to the Eligible Director's Stock Account as of a
date which is at least one full year after the date as of which such election is
so filed with the Secretary; provided that, any Eligible Director who elects to
receive a distribution pursuant to this first sentence of this Section 8(e)
shall cease to be eligible to make any additional deferrals under this Section 8
with respect to compensation payable in the two calendar years immediately
following the year in which such election is filed with the Secretary.
(f) Payment of Plan Distributions. Any distribution to be made
hereunder, whether in the form of a lump-sum payment or installments, following
the termination of an Eligible Director's service as a director shall commence
in accordance with the Distribution Election made by the Eligible Director in
accordance with Section 8(d). If an Eligible Director fails to specify a form of
payment or a commencement date for a distribution in accordance with Section
8(d), such distribution shall be made in cash and commence on the first business
day of the calendar year immediately following the year in which the Eligible
Director ceases to be a director. If an Eligible Director fails to specify in
accordance with Section 8(d) that a distribution shall be made in a lump-sum
payment or a number of installments, such distribution shall be made in a
lump-sum payment. In the case of any distribution being made in annual
installments, each installment after the first installment shall be paid on the
first business day of each subsequent calendar year until the entire amount
subject to such installment Distribution Election shall have been paid.
9. Transferability of Awards
No Award shall be transferable by the Eligible Director
otherwise than by will or under the applicable laws of descent and distribution,
unless such transfer shall be (a) acceptable under Rule 16b-3 and is approved by
the Board or its authorized delegate or (b) in the case of an Option, if the
Option agreement pursuant to which an
9
<PAGE>
Award is made so provides, to (i) the spouse, children or grandchildren of such
Eligible Director (collectively, "Family Members"), (ii) a trust or trusts for
the exclusive benefit of such Family Members, or (iii) a partnership or limited
liability company in which such Family Members and trusts for the exclusive
benefit of such Family Members are the only partners or members, as the case may
be. In addition, no Award shall be assigned, negotiated, pledged or hypothecated
in any way (whether by operation of law or otherwise) and no Award shall be
subject to execution, attachment or similar process. Upon any attempt to
transfer, assign, negotiate, pledge or hypothecate any Award, or in the event of
any levy upon any Award by reason of any attachment or similar process, in
either case contrary to the provisions hereof, such Award shall immediately
become null and void.
10. Rights as a Shareholder
An Eligible Director (or a permitted transferee of an Option)
shall have no rights as a shareholder with respect to any Shares covered by his
Option until he shall have become the holder of record of such Share(s), and no
adjustments shall be made for dividends in cash or other property or
distribution or other rights in respect to any such Shares, except as otherwise
specifically provided for in this Plan.
11. Determinations
Each determination, interpretation or other action made or
taken pursuant to the provisions of this Plan by the Board shall be final and
binding for all purposes and upon all persons, including, without limitation,
the Company, the directors, officers and other employees of the Company, the
Eligible Director and their respective heirs, executors, administrators,
personal representatives and other successors in interest.
12. Termination, Amendment and Modification
(a) Termination and Amendment. This Plan shall terminate at
the close of business on December 31, 2007, unless sooner terminated by action
of the shareholders of the Company, and no Awards shall be granted under this
Plan thereafter. The Board at any time or from time to time may amend this Plan
to effect (i) amendments necessary or desirable in order that this Plan and the
Awards shall conform to all applicable laws and regulations and (ii) any other
amendments deemed appropriate. Notwithstanding the foregoing, (i) the provisions
of the Plan relating to (A) the number of Shares to be granted under the Plan or
subject to any Option granted to any Participant, (B) the material terms of any
such grant of Shares or Options
10
<PAGE>
(including, without limitation, the time of any such grant) or (C) the manner in
which the Stock Account operates, may not be amended without the approval of the
Company's shareholders and (ii) the Board may not effect any amendment that
would require the approval of the shareholders of the Company under any
applicable laws or the listing requirements of NASDAQ/NMS (if applicable to the
Company at the time such amendment is adopted or will be effective) unless such
approval is obtained.
(b) No Effect on Existing Rights. Except as otherwise required
by law, no termination, amendment or modification of this Plan may, without the
consent of an Eligible Director or the permitted transferee of an Award, alter
or impair the rights and obligations arising under any then outstanding Award
held by such Eligible Director or the permitted transferee.
13. Non-Exclusivity
Neither the adoption of this Plan by the Board nor the
submission of this Plan to the shareholders of the Company for approval shall be
construed as creating any limitations on the power of the Board to adopt such
other compensatory arrangements as it may deem desirable, including, without
limitation, payments of cash amounts related to the tax liabilities arising
directly or indirectly from the issuance of Shares in respect of an Eligible
Director hereunder.
14. General Provisions
(a) No Right to Serve as a Director. This Plan shall not
impose any obligations on the Company to retain any Eligible Director as a
director nor shall it impose any obligation on the part of any Eligible Director
to remain as a director of the Company, provided that each Eligible Director by
accepting each Award shall represent to the Company that it is his good faith
intention to continue to serve as a director of the Company until the next
annual meeting of shareholders and that he agrees to do so unless a change in
circumstances arises.
(b) No Right to Particular Assets. Nothing contained in this
Plan and no action taken pursuant to this Plan shall create or be construed to
create a trust of any kind or any fiduciary relationship between the Company and
any Eligible Director, the executor, administrator or other personal
representative or designated beneficiary of such Eligible Director, or any other
persons. Any reserves that may be established by the Company in connection with
this Plan shall continue to be part of the general funds of the Company, and no
individual or entity other than the Company shall have any interest in such
funds until paid to an Eligible Director. To the extent that any Eligible
11
<PAGE>
Director or his executor, administrator, or other personal representative, as
the case may be, acquires a right to receive any payment from the Company
pursuant to this Plan, such right shall be no greater than the right of an
unsecured general creditor of the Company.
(c) Beneficiary Designation. Each Eligible Director under the
Plan may from time to time name any beneficiary or beneficiaries (who may be
named contingently or successively) to whom any benefit under the Plan is to be
paid or by whom any right under the Plan is to be exercised in case of his
death. Each designation will revoke all prior designations by the same Eligible
Director, shall be in a form prescribed by the Company, and will be effective
only when filed by the Eligible Director in writing with the Company during his
lifetime. In the absence of any such designation, benefits remaining unpaid at
the Eligible Director's death shall be paid to or exercised by the Eligible
Director's surviving spouse, if any, or otherwise to or by his estate.
(d) Listing of Shares and Related Matters. The Plan, the
granting and exercising of Awards thereunder, and the other obligations of the
Company under the Plan, shall be subject to all applicable federal and state
laws, rules, and regulations, and to such approvals by any regulatory or
governmental agency as may be required. If at any time the Board shall determine
in its discretion that the listing, registration or qualification of the Shares
covered by this Plan upon any national securities exchange or under any United
States or non-United States federal, state or other law, or the consent or
approval of any governmental regulatory body, is necessary or desirable as a
condition of, or in connection with, the delivery of Shares under this Plan, no
Shares will be delivered unless and until such listing, registration,
qualification, consent or approval shall have been effected or obtained, or
otherwise provided for, free of any conditions not acceptable to the Board. The
Company, in its discretion, may require an Eligible Director to make such
representations and furnish such information as it may consider appropriate in
connection with the issuance or delivery of Common Stock in compliance with
applicable laws, rules, and regulations. The Company shall not be obligated by
virtue of any provision of the Plan to recognize the exercise of any Award or to
otherwise sell or issue Common Stock in violation of any such laws, rules, or
regulations; and any postponement of the exercise or settlement of any Award
under this provision shall not extend the term of such Awards, and neither the
Company nor its directors or officers shall have any obligation or liability to
any person with respect to any Award (or Shares issuable thereunder) that shall
lapse because of such postponement.
12
<PAGE>
(e) Issuance of Stock Certificates; Legends. Upon any exercise
of an Option and payment of the exercise price thereof and upon the issuance of
Shares pursuant to this Plan, a certificate or certificates for the Shares shall
be issued by the Company in the name of the person or persons exercising such
Option or receiving such Shares and shall be delivered to or upon the order of
such person or persons. Certificates for Shares issued upon exercise of an
Option or otherwise hereunder shall bear such legend or legends as the Board, in
its discretion, determines to be necessary or appropriate to prevent a violation
of, or to perfect an exemption from, the registration requirements of the
Securities Act of 1933, as amended, or to implement the provisions of any
agreements between the Company and the Eligible Director with respect to such
Shares.
(f) Withholding Taxes. The Company shall have the right to
make such provisions as it deems necessary or appropriate to satisfy any
obligations it may have to withhold federal, state or local income or other
taxes incurred by reason of the issuance of Shares under the Plan, including
requiring an Eligible Director to reimburse the Company for any taxes required
to be withheld or otherwise deducted and paid by the Company in respect of the
issuance of Shares.
(g) Notices. Each Eligible Director shall be responsible for
furnishing the Board with the current and proper address for the mailing of
notices and delivery of agreements and Shares. Any notices required or permitted
to be given shall be deemed given if directed to the person to whom addressed at
such address and mailed by regular United States mail, first-class and prepaid.
If any item mailed to such address is returned as undeliverable to the
addressee, mailing will be suspended until the Eligible Director furnishes the
proper address.
(h) Severability of Provisions. If any provision of this Plan
shall be held invalid or unenforceable, such invalidity or unenforceability
shall not affect any other provisions hereof, and this Plan shall be construed
and enforced as if such provision had not been included.
(i) Incapacity. Any benefit payable to or for the benefit of a
minor, an incompetent person or other person incapable of receipting therefor
shall be deemed paid when paid to such person's guardian or to the party
providing or reasonably appearing to provide for the care of such person, and
such payment shall fully discharge the Board, the Company and other parties with
respect thereto.
13
<PAGE>
(j) Headings and Captions. The headings and captions herein
are provided for reference and convenience only, shall not be considered part of
this Plan, and shall not be employed in the construction of this Plan.
(k) Governing Law. This Plan shall be construed and enforced
according to the laws of Bermuda.
14
<PAGE>
FINAL
Exhibit C
================================================================================
RSL COMMUNICATIONS, LTD.
RONALD S. LAUDER
ITZHAK FISHER
CORAL GATE INVESTMENTS LTD.
AND
CERTAIN OTHER PARTIES
REGISTRATION RIGHTS AGREEMENT
Dated as of September 2, 1997
================================================================================
<PAGE>
TABLE OF CONTENTS
Page
1. Definitions................................................................1
2. Demand Registrations.......................................................6
2.1. Lauder Demand Rights .................................................6
2.2. Fisher Demand Rights .................................................7
2.3. Provisions Applicable to all Demand Registrations ....................7
3. Piggyback Registrations ...................................................9
3.1. Participation in Other Registrations .................................9
3.2. Withdrawal of Piggyback Registrations ...............................10
3.3. Underwritten Registrations ..........................................11
3.4. Participation by Demand Holders .....................................11
4. Registration Procedures ..................................................11
5. Underwritten Registrations ...............................................16
5.1. Selection of Underwriters ...........................................16
5.2. Priority in Underwritten Registrations ..............................16
5.3. Underwriting Agreement ..............................................18
5.4. Holdback Agreements .................................................19
6. Indemnification ..........................................................19
6.1. Indemnification by the Company ......................................19
6.2. Indemnification by the Holders ......................................20
6.3. Notice of Claims, etc. ..............................................21
6.4. Other Indemnifications ..............................................21
6.5. Payment .............................................................22
6.6. Other Remedies ......................................................22
7. Expenses..................................................................22
8. Rules 144 and 144A .......................................................22
<PAGE>
9. Amendments and Waivers. .................................................23
10. Nominees for Beneficial Owners...........................................23
11. Notices. ................................................................23
12. Remedies.................................................................25
13. No Other Demand Rights; No Inconsistent Agreements. .....................25
14. Assignment ..............................................................25
14.1. Generally .........................................................25
14.2. Assignment to Pledgees ............................................26
15. Arbitration .............................................................26
16. Miscellaneous............................................................28
ii
<PAGE>
REGISTRATION RIGHTS AGREEMENT, dated as of September 2, 1997, among RSL
COMMUNICATIONS, LTD., a Bermuda company (the "Company"), RONALD S. LAUDER
("Lauder"), ITZHAK FISHER ("Fisher"), CORAL GATE INVESTMENTS LTD. ("Coral
Gate"), an international business company organized under the laws of British
Virgin Islands and owned beneficially by Gustavo A. Cisneros and Ricardo
Cisneros, and the holders of Class B Shares identified on the signature pages
hereof.
W I T N E S S E T H:
WHEREAS, the Company and the other parties hereto wish to agree upon the
manner in which the Company shall provide registration rights to such other
parties for their Registrable Shares (as defined below) after consummation of an
initial public offering (the "IPO") of shares of the Company's Class A Common
Shares par value $.01 per share (the "Class A Common Stock"), as the same may
from time to time be constituted.
NOW, THEREFORE, the parties agree as follows:
1. Definitions. As used in this Agreement, the following terms have the
following meanings:
Business Day: each day other than a Saturday, a Sunday or any other
day on which commercial banks in New York City are authorized or required
by law or executive order to close.
Class A Common Stock: as defined in the first WHEREAS clause of this
Agreement.
Class B Common Stock: the Company's Class B Common Shares, par value
$.01 per share, as the same may from time to time be constituted.
Class B Shares: (a) shares of Class B Common Stock, including, but not
limited to, shares of Class B Common Stock issued or issuable
<PAGE>
upon conversion of shares of Preferred Stock, and (b) any securities issued
or issuable with respect to any shares of Class B Common Stock referred to
in the clause (a) upon any conversion or exchange thereof, by way of stock
dividend or stock split, in connection with the combination of shares,
recapitalization, reclassification, merger, consolidation or other
reorganization or otherwise.
Commission: the Securities and Exchange Commission and any successor
federal agency having similar powers.
Company: as defined in the introductory paragraph of this Agreement.
Coral Gate: as defined in the introductory paragraph of this
Agreement.
Deferral Period: as defined in Section 2.3(a).
Delay Notice: as defined in Section 2.3(a).
Demand Holder: each of Lauder and Fisher and each of their respective
successors and permitted assigns pursuant to Section 14.
Demand Notice: as defined in Section 2.1.
Demand Registration: each Lauder Demand Registration and Fisher Demand
Registration.
Family Members: with respect to any Person, (a) such Person's (i)
spouse, (ii) direct descendants, (iii) parents, (iv) brothers and sisters
and (v) brothers' and sisters' direct descendants, (b) the respective
estates, guardians, conservators or committees of such Person and each
other Person described in the preceding clause (a) (collectively,
"Specified Family Members"), (c) trusts the primary beneficiaries of which
are any Specified Family Members or their spouses, (d) any not-for-profit
corporation if at least 80% of its board of directors is composed of such
Person and/or Specified Family Members, (e) any other corporation if at
least 80% of the value of its outstanding equity is owned by such Person
2
<PAGE>
and/or Specified Family Members, (f) partnership if at least 80% of the value of
its partnership interests are owned by such Person and/or Specified Family
Members and (g) any limited liability or similar company if at least 80% of the
value of the company is owned by such Person and/or Specified Family Members.
Fisher: as defined in the introductory paragraph of this Agreement.
Fisher Demand Registration: as defined in Section 2.2.
Fisher Employment Agreement: the Employment Agreement dated September
2, 1997 by and between the Company and Fisher.
Holder: each Demand Holder and Piggyback Holder.
IPO: as defined in the first WHEREAS clause of this Agreement.
Lauder: as defined in the introductory paragraph of this Agreement.
Lauder Demand Registration: as defined in Section 2.1.
NASD: National Association of Securities Dealers, Inc.
NASDAO: the NASDAQ Stock Market, Inc.
Non-Oualified Severance Event: termination of Fisher's employment with
the Company pursuant to the Fisher Employment Agreement other than a
Qualified Severance Event.
Person: an individual, partnership, joint venture, corporation, trust,
unincorporated organization or government or any department or agency
thereof.
Piggyback Holder: each of (i) holders of Class B Shares (including,
without limitation, such holders identified on the signature pages hereof),
(ii) Coral Gate and/or Gustavo A. Cisneros and Ricardo
3
<PAGE>
Cisneros, its beneficial owners, as holders of Class A Common Stock' (iii)
such holders of shares of Class A Common Stock as Lauder and Fisher shall
designate jointly to the Company in writing, and (iv) each of their
respective successors and permitted assigns pursuant to Section 14.
Piggyback Notice: as defined in Section 3. 1.
Piggyback Registration: a registration of Registrable Shares effected
pursuant to Section 3.1.
Pledgee Holder: as defined in Section 14.2.
Pledaing Holder: as defined in Section 14.2.
Preferred Stock: the Company's preferred shares.
Prospectus: the prospectus included in any Registration Statement,
including all amendments (including, but not limited to, post-effective
amendments) and supplements to such prospectus and all material
incorporated by reference in such prospectus.
Qualified Severance Event: termination of Fisher's employment with the
Company pursuant to the Fisher Employment Agreement upon (a) a Termination
for Good Reason (as defined in the Fisher Employment Agreement), (b) a
Termination Without Cause (as defined in the Fisher Employment Agreement),
(c) the death of Fisher, (d) a Termination due to Disability (as defined in
the Fisher Employment Agreement), (e) Termination due to Retirement (as
defined in the Fisher Employment Agreement) or (f) the expiration (without
early termination) of the term of the Fisher Employment Agreement, as such
term may be extended pursuant to the terms of the Fisher Employment
Agreement.
4
<PAGE>
Registrable Shares: (a) shares of Class A Common Stock held by a
Holder and/or such Holder's Family Members, including, but not limited to,
shares of Class A Common Stock issued or issuable upon (i) conversion of
Class B Shares and (~i) exercise of options granted pursuant to any
employment agreement or compensation or incentive plan, and (b) any
securities issued or issuable with respect to any shares of Class A Common
Stock referred to in the preceding clause (a) upon any conversion or
exchange thereof, by way of stock dividend or stock split, in connection
with a combination of shares, recapitalization, reclassification, merger,
consolidation or other reorganization or otherwise. Any particular
Registrable Shares shall cease to be Registrable Shares when (x) a
registration statement with respect to the sale of such Registrable Shares
shall have become effective under the Securities Act and such Registrable
Shares shall have been disposed of in accordance with such registration
statement, (y) such Registrable Shares shall have been distributed to the
public pursuant to Rule 144 (or any successor provision) under the
Securities Act or (z) such Registrable Shares shall have ceased to be
outstanding.
Registration Expenses: All expenses incident to the Company's
performance of or compliance with Section 2, including, but not limited to,
all (a) registration and filing fees, including NASD fees and fees and
expenses associated with filings required to be made with any national
securities exchange or national computerized market system (including, if
required, the fees and expenses of any "qualified independent underwriter"
and its counsel), (b) fees and expenses of complying with securities or
blue sky laws, including reasonable fees and disbursements of counsel
effecting blue sky qualifications, (c) word processing, duplicating and
printing expenses, messenger and delivery expenses, and (d) fees and
disbursements of counsel for the Company, of the Company's independent
public accountants (including the expenses of any special audits or
"comfort" letters required by or incident to such performance and
compliance), of underwriters and of any Person, including special experts,
retained by the Company in connection with such performance and compliance;
but not including any underwriting discounts or commissions attributable to
the sale of Registrable Shares.
Registration Notice: as defined in Section 3.1.
5
<PAGE>
Registration Statement: a registration statement of the Company
covering Registrable Shares pursuant to this Agreement, including the
Prospectus, all amendments (including, but not limited to, post-effective
amendments) and supplements to such registration statement, all exhibits to
such registration statement and all material incorporated by reference in
such registration statement.
Requesting Holder: with respect to (a) any Demand Registration, the
Holder requesting such registration pursuant to Section 2.1 or Section 2.2,
as the case may be, and (b) any Piggyback Registration, the Holder
requesting to participate in such registration pursuant to Section 3.1.
Securities Act: The Securities Act of 1933, as amended or any similar
replacement federal statute, as at the time in effect, and any reference to
a particular Section of such Act shall include a reference to the
comparable Section, if any, of any such similar replacement federal
statute.
Selling Holder: means a Holder whose Registrable Shares are being
registered pursuant to Section 2.1, Section 2.2 or Section 3.1.
Specified Family Members: as defined in the definition of Family
Members in this Section 1.
Underwritten Offering: an offering of securities of the Company, in
which offering securities are sold to an underwriter for reoffering to the
public.
Underwritten Registration: a registration of securities of the Company
in connection with an Underwritten Offering.
Withdrawal Notice: as defined in Section 2.3(c).
2. Demand Registrations.
2.1. Lauder Demand Rights. At any time after 180 days after the
consummation of the IPO, Lauder may request that the Company effect the
registration under the Securities Act of all or a part of the Registrable Shares
of
6
<PAGE>
Lauder and Lauder's Family Members by delivering to the Company a written notice
requesting such registration and specifying the number of Registrable Shares to
be included in such registration and the intended method of disposition thereof
(a "Demand Notice"). Subject to Section 2.3, Lauder shall be entitled to have
three separate registrations of such Registrable Shares effected pursuant to
this Section 2.1 (each such registration, a "Lauder Demand Registration").
2.2. Fisher Demand Rights. At anytime after the occurrence of a Qualified
Severance Event, Fisher may request that the Company effect the registration
under the Securities Act of all or a part of the Registrable Shares of Fisher
and Fisher's Family Members by delivering to the Company a Demand Notice, which
shall also include Fisher's certification that a Qualified Severance Event has
occurred. Fisher shall be entitled to have two separate registrations of such
Registrable Shares effected pursuant to this Section 2.2 (each such
registration, a "Fisher Demand Registration").
2.3. Provisions Applicable to all Demand Registrations.
(a) Preparation of Registration. Within ten Business Days after receipt of
a Demand Notice, the Company shall commence in accordance with Section 4 the
registration of the Registrable Shares specified in such Demand Notice, provided
that the Company may delay filing the related Registration Statement for a
reasonable period of time, not to exceed 90 days from the date of receipt of
such Demand Notice (the "Deferral Period"), if the Company (i) would be required
to disclose in such Registration Statement the existence of any fact relating to
a proposed acquisition, financing or other material corporate development, which
disclosure (x) would not otherwise be required to be made and (y) would be, in
the good faith determination of the Board of Directors of the Company,
materially adverse to the Company, (ii) gives written notice to the Requesting
Holder within such ten-Business Day period setting forth, in reasonable detail,
the reasons for such delay and certifying as to the determination of the Board
of Directors of the Company referred to in the preceding clause (i) (a "Delay
Notice"), and (iii) has not given a Delay Notice within the 180-day period
ending on the date of receipt of such Demand Notice.
(b) Limitation on Demand Rights. Notwithstanding anything to the contrary
in this Section 2, the Company shall not be required to effect a Demand
Registration:
7
<PAGE>
(i) until a period of 180 days shall have elapsed from the effective date
of the Registration Statement in connection with the most recent
Demand Registration previously effected,
(ii) if the aggregate value (as determined in good faith by the Company's
Board of Directors) of the Registrable Shares to be included in such
Demand Registration is less than $50 million, or
(iii) if the Company has previously effected (x) in case of a Demand
Registration requested by Lauder, three Lauder Demand Registrations,
and (y)in the case of a Demand Registration requested by Fisher, two
Fisher Demand Registrations.
(c) Withdrawal of Demand Notice. A Requesting Holder may withdraw a Demand
Notice in the following circumstances by giving the Company written notice of
such withdrawal (a "Withdrawal Notice") within the time provided and prior to
the effectiveness of the related Registration Statement: (i) the Company has
given a Delay Notice and the Withdrawal Notice is given within 30 days after
receipt of such Delay Notice; (ii) a Registration Statement has not become
effective within 120 days after the date of termination of a Deferral Period
with respect to which the Requesting Holder elected not to give a Withdrawal
Notice and the Withdrawal Notice pursuant to this clause (ii) is given within 3
Business Days after the end of such 120-day period; and (iii) a Registration
Statement with respect to which there has been no Deferral Period has not become
effective within 120 days after the date of receipt of the related Demand Notice
and the Withdrawal Notice is given within 3 Business Days after the end of such
120-day period.
(d) Effectinga Demand Registration. For the purposes of Section 2.3(b)(iii)
and the last sentence of Section 2.1 and Section 2.2, a Demand Registration
shall not be deemed to have been effected (i) if (x) a Withdrawal Notice has
been given with respect thereto pursuant to Section 2.3(c) and the Requesting
Holder does not proceed with such registration, (y) the conditions to closing
specified in any purchase agreement or underwriting agreement entered into in
connection with such registration are not satisfied because of an act or
omission
8
<PAGE>
of the Company and the Requesting Holder does not proceed with such
registration, or (z) if more than one-half of the Registrable Shares requested
to be included in such registration are not included in such registration
pursuant to Section 5, and (ii) in all other cases, unless a Registration
Statement covering the Registrable Shares requested to be registered in such
registration, subject to reduction in number pursuant to Section 5, has become
effective and remained effective for a period of at least 180 days (as such
period may be extended pursuant to the last sentence of Section 4) or, if
earlier, until all the Registrable Shares covered thereby have been sold.
(e) Registration Rights Exclusive. The Company will not register in any
Demand Registration securities for sale for the account of any Person other than
the Requesting Holder, except, subject to Section 5.2(a), (i) equity securities
of the Company to be sold for the account of the Company, (ii) Registrable
Shares of other Holders registered pursuant to Section 3.1 to be sold for the
account of such Holders, (iii) with the prior written consent of the Requesting
Holder in such Demand Registration, securities of the Company to be sold for the
account of any other Person, and (iv) any other Person who holds registration
rights with respect to Class A Common Stock pursuant to an agreement entered
into prior to the date hereof.
(f) Underwritten Registrations. If requested by the Requesting Holder, the
offering of the Registrable Shares to be registered in a Demand Registration
shall be in the form of an Underwritten Offering and provisions of Section 5
will apply thereto.
3. Pigavback Registrations.
3.1. Participation in Other Registrations. After the consummation of the
IPO, any time the Company determines to register any of its equity securities
under the Securities Act (other than on Form S-8, Form S-4 or any successor
forms thereto), it will give prompt written notice to all Holders of its
intention to do so (a "Registration Notice"). Upon receipt of a Registration
Notice, each Holder may request that the Company include in the related
registration all or part of the Registrable Shares of such Holder and such
Holder's Family Members by delivering to the Company within 15 Business Days
after receipt of such Registration Notice a written notice specifying the number
of Registrable Shares requested to be included in such registration and
9
<PAGE>
the intended method of disposition thereof (a "Piggyback Notice"). The Company
will effect in accordance with Section 4 the registration of all Registrable
Shares with respect to which the Company has received a Piggyback Notice
pursuant to this Section 3.1 so as to permit the disposition in accordance with
the reasonable methods specified in such Piggyback Notice. Notwithstanding
anything to the contrary in this Agreement, except with the written permission
of the chairman of the Company, Fisher shall not request registration pursuant
to this Section 3.1, and the Company shall not effect registration pursuant to
this Section 3.1 of any Registrable Shares of Fisher and Fisher's Family Members
(a) prior to the occurrence of a Qualified Severance Event, if, after giving
effect to the sale of such Registrable Shares, Fisher and Fisher's Family
Members would collectively own less than 70% of the shares of Class A Common
Stock owned by Fisher and Fisher's Family Members on the date of the
consummation of the IPO, including, in both cases, shares of Class A Common
Stock issuable, but not yet issued, upon conversion of Class B Shares, but
excluding, in both cases, shares of Class A Common Stock issuable upon
unexercised warrants and options, or (b) if a Non-Qualified Severance Event has
occurred.
3.2. Withdrawal of Piggvback Registrations.
(a) Bv the Company. At any time after giving a Registration Notice and
prior to the effective date of the related Registration Statement, if the
Company elects not to proceed with such registration, the Company may give
written notice of such election to each Holder and shall have no obligation to
register any Registrable Shares in connection with such registration, provided
that, (a) if such Registration Notice was given in connection with a Demand
Registration, the Company may not elect to not proceed with such registration
without the prior written consent of the Requesting Holder in such Demand
Registration, and (b) in all other cases, such election to not proceed with such
registration shall be without prejudice to the rights of any Demand Holder to
request that such registration be effected as a Demand Registration.
(b) Bv a Requesting Holder. A Requesting Holder that has given a Piggyback
Notice may withdraw its Registrable Shares from the related Piggyback
Registration by giving written notice of such withdrawal to the Company and the
managing underwriter or underwriters, if any, on or before the 30th day prior to
the planned effective date of the related Registration Statement.
10
<PAGE>
3.3. Underwritten Registrations. If a Registration Notice is given in
connection with an Underwritten Registration, the provisions of Section 5 shall
apply to any Piggyback Registration in connection with such registration.
3.4. Participation by Demand Holders. The registration of a Demand Holder's
Registrable Shares pursuant to Section 3.1 shall not constitute a Demand
Registration for the purposes of Section 2.3(b)(iii) and the last sentence of
Section 2.1 and 2.2.
4. Registration Procedures. If and whenever the Company is required to
effect the registration of any Registrable Shares under the Securities Act
pursuant to Section 2 or Section 3, the Company will promptly:
(a) prepare and file with the Commission as soon as practicable a
Registration Statement with respect to such Registrable Shares and use its
best efforts to cause such Registration Statement to become effective;
(b) prepare and file with the Commission such amendments and
supplements to such Registration Statement and the Prospectus used in
connection therewith as may be necessary to keep such Registration
Statement effective and to comply with the Securities Act and the rules and
regulations thereunder with respect to the disposition of all Registrable
Shares and other securities covered by such Registration Statement until
the earlier of (i) such time as all of such Registrable Shares have been
disposed of by the Selling Holder in accordance with the intended method of
disposition set forth in such Registration Statement and (ii) the
expiration of 180 days after such Registration Statement becomes effective;
and will furnish to each Selling Holder prior to the filing thereof a copy
of any amendment or supplement to such Registration Statement or Prospectus
and shall not file any such amendment or supplement to which any Selling
Holder shall have reasonably objected on the grounds that such amendment or
supplement does not comply in all material respects with the requirements
of the Securities Act or of the rules or regulations thereunder;
(c) furnish to each Selling Holder such number of conformed copies of
such Registration Statement and of each such amendment and supplement
thereto (in each case including all exhibits), such number of
11
<PAGE>
copies of the Prospectus included in such Registration Statement (including
each preliminary prospectus and any summary prospectus) in conformity with
the requirements of the Securities Act, such documents, if any,
incorporated by reference in such Registration Statement or Prospectus, and
such other documents, as such Holder may reasonably request;
(d) promptly prior to the filing of any document which is to be
incorporated by reference into the Registration Statement or the Prospectus
(after initial filing of the Registration Statement), provide copies of
such document to counsel to each Selling Holder, make the Company's
representatives available for discussion of such document and make such
changes in such document prior to the filing thereof as counsel for such
Holder may reasonably request within 5 days of receipt thereof;
(e) use its best efforts to register or qualify all Registrable Shares
and other securities covered by such Registration Statement under such
other securities or blue sky laws of such jurisdictions as each Selling
Holder shall reasonably request, to keep such registration or qualification
in effect for so long as such Registration Statement remains in effect, and
do any and all other acts and things which may be reasonably necessary to
enable such Holder to consummate the disposition in such jurisdictions of
its Registrable Shares covered by such Registration Statement, except that
the Company shall not for any such purpose be required to qualify generally
to do business as a foreign corporation in any jurisdiction wherein it
would not but for the requirements of this Section 4(e) be obligated to be
so qualified, or to subject itself to taxation in any such jurisdiction, or
to consent to general service of process in any such jurisdiction;
(f) cooperate with the Selling Holders to facilitate the timely
preparation and delivery of certificates representing Registrable Shares to
be sold, which certificates shall not bear any restrictive legends and
shall be in a form eligible for deposit with The Depository Trust Company
or similar depository institution, and enable such Registrable Shares to be
registered in such names as such Holders may request at least two Business
Days prior to any sale of Registrable Shares;
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(g) use its best efforts to cause such Registrable Shares to be
registered with or approved by such other governmental agencies or
authorities as may be necessary to enable each Selling Holder to consummate
the disposition of such Registrable Shares;
(h) furnish to each Selling Holder a signed counterpart, addressed to
such Holder, of (i) an opinion of counsel for the Company, dated the
effective date of such Registration Statement (and, if such registration
includes an underwritten offering, dated the date of the closing under the
underwriting agreement) and (ii) a "comfort" letter, dated the effective
date of such Registration Statement (and, if such registration includes an
underwritten offering, dated the date of the closing under the underwriting
agreement), signed by the independent public accountants who have certified
the Company's financial statements included in such Registration Statement,
covering substantially the same matters with respect to such Registration
Statement (and the Prospectus included therein) and, in the case of such
accountants' letter, with respect to events subsequent to the date of such
financial statements, as are customarily covered in opinions of issuer's
counsel and in accountants' letters delivered to underwriters in
underwritten offerings of securities;
(i) immediately notify each Selling Holder and (if requested by any
such Holder) confirm such advice in writing, (i) when or if the Prospectus
or any prospectus supplement or post-effective amendment has been filed,
and, with respect to the Registration Statement or any posteffective
amendment, when the same has become effective, (ii) of any request by the
Commission for amendments or supplements to the Registration Statement or
the Prospectus or for additional information, (iii) of the issuance by the
Commission of any stop order suspending the effectiveness of the
Registration Statement or the initiation of any proceedings for that
purpose, (iv) of the receipt by the Company of any notification with
respect to the suspension of the qualification of the Registrable Shares
for sale in any jurisdiction or the initiation or threatening of any
proceeding for such purpose and (v) of the existence of any fact which
makes any statement made in the Registration Statement, the Prospectus or
any document incorporated therein by reference untrue or which requires the
making of any changes in the Registration Statement,
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the Prospectus or any document incorporated therein by reference in order
to make the statements therein not misleading;
(j) if any fact contemplated by clause (v) of Section 4(i) shall
exist, prepare a supplement or post-effective amendment to the Registration
Statement or the related Prospectus or any document incorporated therein by
reference or file any other required document so that, as thereafter
delivered to the purchaser of the Registrable Shares the Prospectus will
not contain an untrue statement of a material fact or omit to state any
material fact necessary to make the statements therein not misleading;
(k) use reasonable efforts to obtain the withdrawal of any order
suspending the effectiveness of the Registration Statement at the earliest
possible moment;
(1) otherwise use its best efforts to comply with all applicable rules
and regulations of the Commission, and make available to its shareholders,
as soon as reasonably practicable, an earnings statement covering the
period of at least twelve months, but not more than eighteen months,
beginning with the first month of the first fiscal quarter after the
effective date of such Registration Statement, which earnings statement
shall satisfy the provisions of Section 1l(a) of the Securities Act and
Rule 158 under the Securities Act;
(m) provide and cause to be maintained transfer agents and registrars
for all Registrable Shares covered by such Registration Statement from and
after a date not later than the effective date of such Registration
Statement and obtain a CUSIP number for such Registrable Shares;
(n) cause all Registrable Shares covered by such Registration
Statement to be listed on each securities exchange on which similar
securities issued by the Company are then listed or, if no such securities
are then listed, on a national exchange selected by the Company, if such
listing is then permitted under the rules of such exchange, or, if such
listing is not practicable, to cause all such Registrable Shares to be
designated as "national market system securities" within the meaning of
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Rule 11(A)(a)2-1 under the Exchange Act or, failing that, to secure NASDAQ
authorization for such Registrable Shares and, without limiting the
foregoing, to arrange for at least two market makers to register as such
with respect to such securities within the NASD; and
(o) give each Selling Holder and its underwriters, if any, and their
respective counsel and accountants, the opportunity to participate in the
preparation of such Registration Statement, each Prospectus included
therein or filed with the Commission, and each amendment thereof or
supplement thereto, and, upon reasonable notice and at reasonable times,
each of them such access to its books and records and such opportunities to
discuss the business of the Company with its officers and the independent
public accountants who have certified its financial statements as shall be
necessary, in the opinion of such Holders and such underwriters or their
respective counsel, to conduct a reasonable investigation within the
meaning of the Securities Act.
Each Selling Holder agrees to furnish the Company such information
regarding such Holder and the distribution of its Registrable Shares being
registered as the Company may from time to time reasonably request in writing,
and to notify the Company of any material change therein, and the Company may
exclude from registration the Registrable Shares of any such Holder that fails
to furnish such information within a reasonable time after receiving such
request.
Each Selling Holder agrees that, upon receipt of any notice from the
Company of the existence of any fact of the kind described in clause (v) of
Section 4(i), such Holder will forthwith discontinue disposition of Registrable
Shares pursuant to the Registration Statement covering such Registrable Shares
until such Holder's receipt of the copies of the supplemented or amended
Prospectus contemplated by Section 4(j), or until it is advised in writing (the
"Advice") by the Company that the use of the Prospectus may be resumed, and has
received copies of any additional or supplemental filings which are incorporated
by reference in the Prospectus, and, if so directed by the Company, such Holder
will deliver to the Company (at the Company's expense) all copies, other than
permanent file copies then in such Holder's possession, of the Prospectus
covering such Registrable Shares current at the time of receipt of such notice.
In the event the Company shall give any such notice, the time
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<PAGE>
periods regarding the effectiveness of Registration Statements set forth in
Section 4(b) shall be extended by the number of days during the period from and
including the date of the giving of such notice pursuant to clause (v) of
Section 4(i) to and including the date when each Selling Holder of Registrable
Shares covered by such Registration Statement shall have received the copies of
the supplemented or amended Prospectus contemplated by Section 4(j) or the
Advice.
5. Underwritten Registrations.
5.1. Selection of Underwriters. In the case of a Demand Registration in
connection with an Underwritten Offering pursuant to Section 2.3(f), the
managing underwriter or underwriters that will administer such Underwritten
Offering will be selected by the Requesting Holder in such Demand Registration,
subject to the approval of the Company, such approval not to be unreasonably
withheld. In the case of a Piggyback Registration in connection with an
Underwritten Registration, (a) if such Piggyback Registration is in connection
with a Demand Registration, the preceding sentence shall apply, and (b) in all
other cases, the managing underwriter or underwriters that will administer the
related Underwritten Offering will be selected by the Company.
5.2. Priority in Underwritten Registrations
(a) Demand Registrations. In the case of a Demand Registration in
connection with an Underwritten Offering, if the managing underwriter or
underwriters in such Underwritten Offering determines in good faith that the
total number of securities proposed to be included in such Underwritten Offering
exceeds the number which can be sold without adversely affecting the offering
price, the Company will include in such Demand Registration to the extent of the
number of securities which the Company is so advised can be sold in such
Underwritten Offering without such adverse effect:
first, the Registrable Shares proposed to be sold by the Requesting
Holder in such Demand Registration, until all such Registrable Shares are
included;
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second, in the case of a Lauder Demand Registration prior to the
occurrence of a Qualified Severance Event and so long as a Non-Qualified
Severance Event has not occurred, any Registrable Shares with respect to
which the Company has received from Fisher a Piggyback Notice pursuant to
Section 3.1, until all such Registrable Shares are included;
third, any securities proposed to be sold by the Company for its own
account, until all such securities are included;
fourth, any Registrable Shares with respect to which the Company has
received from any Requesting Holder a Piggyback Notice pursuant to Section
3.1 (and not included under priority "second" above), pro rata among such
Requesting Holders as have given such Piggyback Notices, on the basis of
the number of Registrable Shares such Requesting Holders have requested to
be included in such registrations pursuant to such Piggyback Notices, until
all such Registrable Shares are included; and
fifth, any securities proposed to be sold for the account of any
Person, the inclusion of which securities in the Demand Registration has
been consented to by the Requesting Holder pursuant to Section 2.3(e)
(iii).
provided that the foregoing shall be subject to, and superseded by, the
registration rights of Persons who hold stock or securities convertible into
stock of the Company, as such rights are set forth in agreements of the Company
entered into prior to the date hereof.
(b) Piggyback Registrations. In the case of a Piggyback Registration in
connection with an Underwritten Registration, (a) if such Piggyback Registration
is in connection with a Demand Registration, Section 5.2(a) shall apply, and (b)
in all other cases, if the managing underwriter or underwriters determine in
good faith that the total number of securities proposed to be included in such
Underwritten Offering exceeds the number which can be sold without adversely
affecting the offering price, the Company will include in such registration to
the extent of the number of securities which the Company is
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so advised can be sold in such Underwritten Offering without such adverse
affect:
first, any securities proposed to be sold by the Company for its own
account, until all such securities are included;
second, prior to the occurrence of a Qualified Severance Event and so
long as a Non-Qualified Severance Event has not occurred, any Registrable
Shares with respect to which the Company has received from Fisher a
Piggyback Notice pursuant to Section 3.1, until all such Registrable Shares
have been included;
third, any Registrable Shares with respect to which the Company has
received from any Requesting Holder a Piggyback Notice pursuant to Section
3.1 (and not included under priority "second" above), pro rata among such
Requesting Holders as have given such Piggyback Notices, on the basis of
the number of Registrable Shares such Requesting Holders have requested to
be included in such registration pursuant to such Piggyback Notices, until
all such Registrable Shares are included; and
fourth, any securities of the Company proposed to be sold for the
account other of any other Person pursuant to an agreement entered into by
the Company subsequent to the date hereof.
provided that the foregoing shall be subject to, and superseded by, the
registration rights of Persons who hold stock or securities convertible into
stock of the Company, as such rights are set forth in agreements of the Company
entered into prior to the date hereof.
5.3. Underwriting Agreement. If requested by the underwriters for any
Underwritten Offering of Registrable Shares in connection with a Demand
Registration or a Piggyback Registration, the Company will enter into an
underwriting agreement with such underwriters for such offering, such agreement
to contain such representations and warranties by the Company and such other
terms and provisions as are customarily contained in underwriting agreements
with respect to secondary distributions, including, but not limited to,
indemnities to the effect and to the extent provided in Section 6, provisions
for
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<PAGE>
the delivery of officers' certificates, opinions of counsel and accountants'
"comfort" letters and hold-back arrangements. The Holders on whose behalf
Registrable Shares are to be distributed by such underwriters shall be parties
to any such underwriting agreement and the representations and warranties by,
and the other agreements on the part of, the Company to and for the benefit of
such underwriters, shall also be made to and for the benefit of such Holders and
any or all of the conditions precedent to the obligations of such underwriters
under such underwriting agreement shall also be conditions precedent to the
obligations of such Holders. Such Holders of Registrable Shares shall not be
required by the Company to make any representations or warranties to or
agreements with the Company or the underwriters other than reasonable
representations, warranties or agreements regarding such Holder, such Holder's
Registrable Shares and such Holder's intended method or methods of disposition
and any other representation required by law.
5.4. Holdback Agreements.
(a) By Holders. In the case of any Demand Registration or Piggyback
Registration in connection with an Underwritten Offering, each Holder agrees, if
so required by the managing underwriter or underwriters in such Underwritten
Offering, not to effect any public sale or distribution of Registrable Shares
(other than as part of such Underwritten Offering) or other equity securities of
the Company during the seven days prior to the effective date of the related
Registration Statement or 180 days after the effective date of such Registration
Statement.
(b) By the Company. In the case of any Demand Registration or Piggyback
Registration in connection with an Underwritten Offering, the Company agrees not
to effect any public sale or distribution of its equity securities during the
seven days prior to the effective date of the related Registration Statement or
180 days after the effective date of such Registration Statement, except
pursuant to registrations on Form S-8, Form S-4 or any successor forms thereto.
6. Indemnification.
6.1. Indemnification by the Company. In the event of any registration of
any Registrable Shares under the Securities Act pursuant to
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Section 2 or 3, the Company shall indemnify and hold harmless the Holder of such
Registrable Shares, its officers, directors and employees and each Person, if
any, who controls such Holder within the meaning of Section 15 of the Securities
Act, against all losses, claims, damages, liabilities (or proceedings in respect
thereof) and expenses (under the Securities Act or common law or otherwise),
joint or several, arising out of or based upon any untrue statement or alleged
untrue statement of a fact contained in any Registration Statement or Prospectus
(and as amended or supplemented if the Company shall have furnished any
amendments or supplements thereto) or any preliminary Prospectus or caused by
any omission or alleged omission to state therein a fact required to be stated
therein or necessary to make the statements therein not misleading, except
insofar as such losses, claims, darnages,liabilities (or proceedings in respect
thereof) or expenses are caused by any untrue statement or alleged untrue
statement contained in or by any omission or alleged omission from information
furnished in writing to the Company by such Holder expressly for use therein. If
the offering pursuant to any Registration Statement provided for herein is made
through underwriters, no action or failure to act on the part of such
underwriters (whether or not such underwriter is an affiliate of any Holder of
Registrable Shares) shall affect the obligations of the Company to indemnify any
Holder of Registrable Shares or any other Person pursuant to the preceding
sentence. If the offering pursuant to any Registration Statement provided for
under this Agreement is made through underwriters, the Company agrees to enter
into an underwriting agreement in customary form with such underwriters and the
Company agrees to indemnify such underwriters, their officers, directors and
employees and each Person, if any, who controls such underwriters within the
meaning of Section 15 of the Securities Act to the same extent as hereinbefore
provided with respect to indemnification of the Holders of Registrable Shares.
6.2. Indemnification by the Holders. In connection with any Registration
Statement in which a Holder of Registrable Shares is participating, each such
Holder agrees to indemnify and hold harmless the Company, its officers and
directors and each Person, if any, who controls the Company within the meaning
of Section 15 of the Securities Act, against any losses, claims, damages,
liabilities, (or proceedings in respect thereof and expenses (under the
Securities Act or common law or otherwise), joint or several, arising out of or
based upon any untrue statement or alleged untrue statement of a fact contained
in any Registration Statement or Prospectus (and as amended or supplemented if
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<PAGE>
the Company shall have furnished any amendments or supplements thereto) or any
preliminary Prospectus or caused by any omission or alleged omission to state
therein a fact required to be stated therein or necessary to make the statements
therein not misleading, but only to the extent that such untrue statement is
contained in or such omission is from information so furnished in writing by
such Holder expressly for use therein.
6.3. Notice of Claims. etc. Any Person entitled to indemnification under
the provisions of this Section 6 shall (a) give prompt notice to the
indemnifying party of any claim with respect to which it seeks indemnification
and (b) unless in such indemnified party's reasonable judgment a conflict of
interest between such indemnified and indemnifying parties may exist in respect
of such claim, permit such indemnifying party to assume the defense of such
claim, with counsel reasonably satisfactory to the indemnified party; and if
such defense is so assumed, such indemnifying party shall not enter into any
settlement without the consent of the indemnified party if such settlement
attributes liability to the indemnified party and such indemnifying party shall
not be subject to any liability for any settlement made without its consent
(which shall not be unreasonably withheld); and any underwriting agreement
entered into with respect to any Registration Statement provided for under this
Agreement shall so provide. In the event an indemnifying party shall not be
entitled, or elects not, to assume the defense of a claim, such indemnifying
party shall not be obligated to pay the fees and expenses of more than one
counsel or firm of counsel for all parties indemnified by such indemnifying
party in respect of such claim, unless in the reasonable judgment of any such
indemnified party a conflict of interest may exist between such indemnified
party and any other of such indemnified parties in respect of such claim. Such
indemnity shall remain in full force and effect regardless of any investigation
made by or on behalf of a participating Holder of Registrable Shares its
officers, directors or any Person, if any, who controls such Holder as
aforesaid, and shall survive the transfer of such Shares by such Holder.
6.4. Other Indemnifications. Indemnification similar to that specified in
the preceding subdivisions of this Section 6 (with appropriate modifications)
shall be given by the Company to each Holder of Registrable Shares, on the one
hand, and by each Holder of Registrable Shares to the Company, on the other
hand, with respect to any required registration or other
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qualification of such Registrable Shares under any federal or state law or
regulation of any governmental authority other than the Securities Act.
6.5. Payment. indemnification required by this Section 6 shall be made by
periodic payments of the amount thereof during the course of the investigation
or defense, as and when bills are received or expense, loss, damage or liability
is incurred. Any indemnified party receiving indemnification payments will repay
the same to the Company in the event it is ultimately determined that such
indemnification payments were not permitted by applicable law.
6.6. Other Remedies. If for any reason the foregoing indemnity is
unavailable, or is insufficient to hold harmless an indemnified party, other
than by reason of the exceptions provided therein, then the indemnifying party
shall contribute to the amount paid or payable by the indemnified party as a
result of such losses, claims, damages, liabilities or expenses (a) in such
proportion as is appropriate to reflect the relative benefits received by the
indemnifying party on the one hand and the indemnified party on the other from
the offering of Registrable Shares (taking into account the portion of the
proceeds of the offering realized by each such party) or (b) if the allocation
provided by clause (a) above is not permitted by applicable law, or provides a
lesser sum to the indemnified party than the amount hereinafter calculated, in
such proportion as is appropriate to reflect not only the relative benefits
received by the indemnifying party on the one hand and the indemnified party on
the other but also the relative fault of the indemnifying party and the
indemnified party as well as any other relevant equitable considerations.
7. Expenses. The Company will pay all Registration Expenses in connection
with registrations of Registrable Shares pursuant to Section 2 and Section 3
whether or not such registration becomes effective.
8. Rules 144 and 144A. The Company will file the reports required to be
filed by it under the Securities Act and the rules and regulations adopted by
the Commission thereunder (or, if the Company is not required to file such
reports, will? upon the request of any Holder of Registrable Shares, make
publicly available other information), and will take such further action as any
Holder of Registrable Shares may reasonably request, all to the extent required
from time to time to enable such Holder to sell Registrable Shares
22
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without registration under the Securities Act within the limitation of the
exemptions provided by (a) Rule 144 under the Securities Act, as such Rule may
be amended from time to time, (it) Rule 144A under the Securities Act, as such
Rule may be amended from time to time, or (c) any similar rule or regulation
hereafter adopted by the Commission. Upon the request of any Holder of
Registrable Shares, the Company will deliver to such Holder a written statement
as to whether it has complied with such requirements.
9. Amendments and Waivers. This Agreement may be amended and the Company
may take any action herein prohibited, or omit to perform any act herein
required to be performed by it, only if the Company shall have obtained the
written consent to such amendment, action or omission to act of the parties
hereto. Each Holder of any Registrable Shares at the time shall be bound by any
amendment, consent or waiver authorized by this Section 9, whether or not such
Registrable Shares shall have been marked to indicate such amendment, consent or
waiver.
10. Nominees for Beneficial Owners. In the event that any Registrable
Shares are held by a nominee for the beneficial owner thereof, the beneficial
owner thereof may, at its election, be treated as the Holder of such Registrable
Shares for purposes of any request or other action by any Holder or Holders of
Registrable Shares pursuant to this Agreement or any determination of any number
or percentage of Registrable Shares held by any Holder or Holders of Registrable
Shares contemplated by this Agreement. If the beneficial owner of any
Registrable Shares so elects, the Company may require assurances reasonably
satisfactory to it of such owner's beneficial ownership of such Registrable
Shares.
11. Notices. All notices and other communications given pursuant to this
Agreement shall be in writing and shall be deemed to have been duly given (a) on
receipt, if delivered personally, (b) three Business Days after it has been
mailed by first-class, registered or certified mail, return receipt requested,
postage prepaid, (c) the next Business Day after it has been sent by nationally
recognized overnight courier (appropriately marked for overnight delivery); or
(d) upon transmission, if it is sent by telecopy (with request for immediate
confirmation of receipt in a manner customary for communications of such type):
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(i) if to the Company, to:
RSL Communications, Ltd.
Clarendon House
Church Street
Hamilton, Bermuda
Attention: President and CEO
with a copy to:
Rosenman & Colin LLP
575 Madison Avenue
New York, New York 10022
Fax: (212) 940-8776
Attention: Robert L. Kohl
(ii) if to Lauder, to:
767 Fifth Avenue
Suite 4200
New York, New York 10153
Fax: (212) 5724046
with a copy to:
Debevoise & Plimpton
875 Third Avenue
New York, New York 10022
Fax: (212) 909-6836
Attention: Louis Begley
(iii) if to Fisher, to:
155 West 70th Street
Apt 14 A
New York, New York 10023
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Fax: (212) 317-0600
(iv) if to any other Holder of Registrable Shares, to such address as
shall have been provided in accordance with this Section 11,
or, in each case, at such other address as may be specified in writing (in
accordance with the terms of this Section 11).
12. Remedies. Each Holder of Registrable Shares in addition to being
entitled to exercise all rights provided herein and granted by law, including
recovery of damages, will be entitled to specific performance of its rights
under this Agreement. The Company agrees that monetary damages would not be
adequate compensation for any loss incurred by reason of a breach by it of the
provisions of this Agreement and hereby agrees to waive the defense in any
action for specific performance that a remedy at law would be adequate.
13. No Other Demand Rights; No Inconsistent Agreements. The Company will
not, on or after the date of this Agreement enter into any agreement with
respect to its securities that is inconsistent with the rights granted to the
Holders of Registrable Shares in this Agreement or otherwise conflicts with the
provisions hereof. As of the date hereof, (i) no Person has any right to require
the Company to register under the Securities Act securities of the Company
except pursuant to this Agreement and certain agreements entered into prior lo
the date hereof, and (ii) except as indicated in Sections 5.2(a) and 5.2(b), the
rights granted to the Holders of Registered Shares hereunder do not in any way
conflict with and are not inconsistent with the rights granted to the Holders of
the Company's securities under any other agreements.
14. Assignment.
14.1. Generally. Neither this Agreement nor any other rights, interests or
obligations hereunder may be assigned by any of the parties hereto, except as
provided in Section 14.2 and (a) in the case of the Company, by operation of
law, and (b) in the case of each Holder, to the Family Members of such Holder.
Each permitted assignee pursuant to this Section 14 shall be deemed to have
agreed to be bound by the terms of this Agreement.
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14.2. Assigurnent to Pledgees. Each Demand Holder may assign its rights
hereunder to a pledgee in connection with a pledge of Registrable Shares by such
Demand Holder (a "Pledging Holder") to secure obligations of such Demand Holder
to such pledgee (a "Pledgee Holder"). Notwithstanding anything to the contrary
in this Agreement, the following shall apply to any exercise by a Pledgee Holder
of the rights assigned to it pursuant to this Section 14.2:
(a) A Pledgee Holder may give, but may only give, a Demand Notice pursuant
to Section 2.1 or 2.2, as the case may be, or a Piggyback Notice pursuant to
Section 3.1, after a default by the Pledging Holder in respect of its
obligations to such Pledgee Holder secured by Registrable Shares of such
Pledging Holder;
(b) Subject to the preceding clause (a), a Pledgee Holder may give a Demand
Notice pursuant to Section 2.1 or Section 2.2, as the case may be, or a
Piggyback Notice pursuant to Section 3.1 with respect to, but only with respect
to, all or part of the Registrable Shares of the Pledging Holder then pledged
to, or owned as a result of foreclosure thereon by, such Pledgee Holder;
(c) If any Registrable Shares have been registered on behalf of any Pledgee
Holder pursuant to this Section 14.2 at a time when such Registrable Shares were
pledged to such Pledgee Holder, and not owned by such Pledgee Holder as a result
of foreclosure thereon, for the purposes of the obligations of a Holder of
registrable Shares pursuant to Section 6.2, Section 6.4 and Section 6.6, the
Holder of such Registrable Shares shall be deemed to be the Pledging Holder and
not such Pledgee Holder; and
(d) Each Pledgee Holder shall be entitled to receive a copy of all notices
to the Pledging Holder, provided an address of such Pledgee Holder for such
notices has been given pursuant to Section 11.
15. Arbitration. (a) All disputes and controversies related to this
Agreement shall be fully and finally resolved by binding and non-appealable
arbitration, before a single arbitrator selected by the procedure set forth
below, held in New York City.
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(b) The single arbitrator (the "Arbitrator") shall be selected from among
the New York City members of the New York Regional Panel of Distinguished
Neutrals (the "Panel") of the Center for Public Resources ("CPR") by mutual
agreement of the disputing parties, or if the disputing parties are unable to
agree, by the following means:
(i) The disputing parties shall simultaneously exchange lists each
containing the names of five members of their choice of the Panel who have
indicated a willingness to serve.
(ii) If a single name appears on all lists, that individual shall be
appointed.
(iii) If more than one name appears on all lists, the Arbitrator shall
be selected from the common names by mutual agreement of the disputing
parties or by lot.
(iv) If the lists contain no names in common, four names shall be
stricken from each disputing party's list by the other disputing parties
and the Arbitrator shall be selected from the remaining names by mutual
agreement of the disputing parties or by lot.
(v) If the CPR ceases to have a Panel or it is otherwise impossible to
select the Arbitrator from the Panel as contemplated by this Agreement, the
Arbitrator shall be selected by the President of the CPR in the manner that
the President deems closest to satisfying the purposes of this Section, or,
if such person is unable to do so, by the President of the Association of
the Bar of the City of New York.
(c) The Arbitrator, after appropriate consultation with the disputing
parties, shall (i) determine, in his or her sole discretion, the rules governing
the arbitration proceeding, including whether and to what extent the parties
shall have any right to pre-hearing discovery or other forms of disclosure, the
manner of presentation of arguments and/or evidence before or at any hearing,
whether and to what extent formal rules of evidence shall govern the proceeding
and the parties' rights following the proceeding, and (ii) be
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governed in exercising such discretion by the goal of reaching a fair and
reasonable decision in an expeditious and efficient manner while endeavoring to
streamline the process and avoid undue litigation costs.
(d) The Arbitrator shall assess the costs of the proceeding (including the
prevailing disputing party's reasonable attorney's fees) on any unsuccessful
disputing party to the extent the Arbitrator concludes that such disputing party
is unsuccessful, unless he or she concludes that matters of equity or important
considerations of fairness dictate otherwise.
(e) The Arbitrator shall be required to state his or her decision in
writing and may, but shall not be required to, elaborate on the reasons for such
decision.
(f) All proceedings in connection with any arbitration, including its
existence, the content of the proceedings and any decision, shall be kept
confidential to the maximum extent possible consistent with the law.
16. Miscellaneous. This Agreement shall be binding upon and inure to the
benefit of and be enforceable by the respective successors and permitted assigns
pursuant to Section 14 of the Company and each Holder. This Agreement embodies
the entire agreement and understanding between the Company and the other parties
hereto and supersedes all prior agreements and understandings relating to the
subject matter hereof. THIS AGREEMENT SHALL BE CONSTRUED AND ENFORCED IN
ACCORDANCE WITH AND GOVERNED BY THE LAW OF THE STATE OF NEW YORK. In the event
that any one or more of the provisions contained herein, or the application
thereof in any circumstance, is held invalid, illegal or unenforceable, the
validity, legality and enforceability of any such provision in every other
respect and of the remaining provisions contained herein shall not be affected
or impaired thereby. The headings in this Agreement are for purposes of
reference only and shall not limit or otherwise affect the meaning hereof. This
Agreement may be executed in any number of counterparts, each of which shall be
an original, but all of which together shall constitute one instrument.
28
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed
and delivered by their respective officers "hereunto duly authorized as of the
date first above written.
RSL COMMUNICATIONS, LTD.
By: /s/ Itzhak Fisher
-------------------------------
Name:
Title:
/s/ Ronald S. Lauder
----------------------------------
RONALD S. LAUDER
----------------------------------
LEONARD A. LAUDER
R.S. LAUDER, GASPAR & CO., L.P.
By: Bukfenc Inc., General Partner
By: /s/ Andrew Gaspar
-------------------------------
Name: ANDREW GASPAR
Title:
FISHER INVESTMENT PARTNERS, L.P.
By: /s/ Itzhak Fisher
-------------------------------
Name:
Title: President
29
<PAGE>
LAUDER GASPAR VENTURES LLC
By: Bukfenc LLC, General Partner
By: /s/ Andrew Gaspar
-------------------------------
Name: Andrew Gaspar
Title:
SCHUSTER FAMILY PARTNERS I, L.P.
By: /s/ illegible
------------------------------
Name:
Title: General Partner
TARLOVSKY INVESTMENT PARTNERS,L.P.
By: /s/ Nir Tarlovsky
-----------------------------
Name: Nir Tarlovsky
Title: General Partner
/s/ N. Bildirici
----------------------------------
NESIM N. BILDIRICI
CORAL GATE INVESTMENTS LTD.
By:
-------------------------------
Name:
Title:
30
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed
and delivered by their respective officers thereunto duly authorized as of the
date first above written.
RSL COMMUNICATIONS, LTD.
By:
-------------------------------
Name:
Title:
----------------------------------
RONALD S. LAUDER
/s/ Leonard A. Lauder
----------------------------------
LEONARD A. LAUDER
R.S. LAUDER, GASPAR & CO., L.P.
By: Bukfenc Inc., General Partner
By:
-------------------------------
Name:
Title:
FISHER INVESTMENT PARTNERS, L.P.
By:
-------------------------------
Name:
Title: President
29
<PAGE>
/s/ Itzhak Fisher
-----------------------------------
ITZHAK FISHER
31
<PAGE>
INTERNATIONAL TELECOMMUNICATIONS SERVICES AGREEMENT
AN AGREEMENT made the July 1, 1995 between International Telecommunications
Corporation (ITC), whose registered office is at 60 Hudson Street, Newyork 100,
of the one part and TELECOM Denmark, a company in the Tele Danmark Group, a
corporation organised and existing under the laws of Denmark and whose principal
place of business is at Telegade 2, DK-2630 Taastrup, Denmark of the other part.
WHEREAS the parties jointly desire to furnish telecommunication services between
USA (as hereinafter defined) and Denmark (as hereinafter defined).
NOW THEREFORE IT IS HEREBY AGREED as follows:
1. Definitions
(a) In this Agreement, unless the context otherwise requires, the
following terms shall have the following meaning:
(i) "ITU-T" means the Telecommunications Standardization Sector of
the International Telecommunications Union, (ITU-T was previously
designated "C.C.I.T.T" (The International Telegraph and Telephone
Consultative Committee of the International Telecommunication
Union);
(ii) "Operating Territory" in relation to ITC means USA, and in
relation to TELECOM Denmark means Denmark including Greenland and
The Faroe Islands;
2. Scope
Subject to the terms and conditions contained herein each of the parties
undertake to establish and provide such telecommunications services between
USA and Denmark as specified in the Annexes to this Agreement and will
establish such telecommuni-
Page 1
<PAGE>
cation services on and with effect from July 1, 1995.
3. Language
This Agreement is drawn up in the English language and the documents,
notices and extension shall be in English language.
4. Duration
(a) This Agreement shall come into force on July 1, 1995 and shall
continue thereafter unless and until terminated by not less than 12
months' prior written notice given by either party to the other.
(b) The Annexes to this Agreement may be negotiated and altered
independently of the main Agreement as specified in the Annexes.
(c) Any amendment to the Agreement or changes in the Annexes shall be
confirmed in writing by the parties to the Agreement.
5. Telecommunications Services
The telecommunications services to be established and provided hereunder
shall be agreed between the parties from time to time and the details
thereof shall be set out in Annexes which shall be attached to this
Agreement.
6. Routing of Telecommunication Services and Provision of Facilities
(a) The routes to be used by each party to provide the telecommunication
services hereunder shall be such direct circuits as may be agreed
between the parties from time to time and/or such switched circuits
via countries other than USA and Denmark or a combination hereof as
the parties may from time to time
Page 2
<PAGE>
deem expedient to maintain the provision of the telecommunication
services in question.
(b) Each party will be responsible for the provision and maintenance of,
and payment for, the necessary interconnecting facilities in respect
of its portion of the telecommunication services hereunder located
within its operating territory.
(c) Unless otherwise agreed, each party shall be responsible for the
establishment of and the payment for one half of that portion of the
telecommunication facilities necessary to provide the said circuits
located outside the respective operating territories of the parties
used in the provision of the telecommunication services hereunder.
Exceptions from this general clause will be described in the Annexes
regarding each particular service.
(d) Each party shall notify the other without undue delay of any facility
failure arising or likely to arise from a cause within its operating
territory which is likely to result in a protracted interruption to
the provision of any or all of the telecommunication services
hereunder.
7. Technical Standards and Methods of Operation
(a) The technical standards and methods of operation to be used by the
parties in the provision of telecommunication services hereunder shall
be agreed by the parties in writing. In the event of a failure to
agree upon the technical standards to be applied, the parties shall
apply standards of the ITU-T in force as of the date hereof until such
time as/of agreement is reached by the parties.
(b) The parties will adopt from time to time (as appropriate) written
procedures and working standards to be implemented by them in respect
of order handling, maintenance and other operational matters in
respect of each of the telecommunication services hereunder.
(c) In so far as is commercial feasible, the telecommunication services to
be provided hereunder will be carried on digital channels, which will
conform to
Page 3
<PAGE>
European standards, between USA and Denmark.
8. Charges to the Public
Collection rates for the service covered by this Agreement shall be a
national matter to be determined by each party, subject to appropriate
governmental approvals as necessary.
9. Accounting Rates and Division of Revenues
The accounting rates and division of revenue derived from the services
between ITC and Denmark provided by the parties shall be those set out in
the relevant Annexes attached to this Agreement or as the parties may
otherwise agree from time to time and incorporate in this Agreement.
10. Accounting and Method of Settlement
(a) The monthly account shall be send as promptly as possible and, except
in cases of force majeure, before the end of the third month following
that to which they relate.
ITC / TELECOM Denmark can consider the account as accepted if no query
is raised within two calendar months after the receipt of the account
(ITU Melbourne 1988).
(b) The quarterly statement showing the balances of the monthly accounts
for the period to which it relates shall be prepared as soon as
possible by the creditor operator and shall be send in duplicate to
the debtor operator, which, after verification, shall return one of
the copies with its acceptance.
Payment of balances of account shall be effected as promptly as
possible, but in no case later than two calendar months after the day
on which the statement
Page 4
<PAGE>
was dispatched by the creditor operator. Beyond this period, the
creditor operator may, subject to prior notification in the form of a
final demand for payment and unless otherwise agreed, charge interest
at a rate of up to 6% per annum reckoned from the day following the
date of expiry of the said period (ITU Melbourne 1988).
The balance shall be expressed in SDR.
The conversion of balance of accounts from SDR to the payment currency
shall be made by the debtor operator using the latest conversion rate
published by the IMF.
(c) Settlement will be made in a currency to be chosen bit the creditor.
The currency of settlement chosen is:
if ITC is creditor SDR
if TELECOM Denmark is creditor SDR
(d) Mailing Address for Monthly Accounts and Statements of Accounts
TELECOM Denmark
International Services
International Accounting
Telegade 2
DK-2630 Taastrup
(e) Bank Instruction
See Annex 1 to this Agreement
(f) No credit allowance shall be made in the Monthly notice for
uncollected amounts. Each party shall be responsible for its own
uncollectables. The accounting procedures for adjustments and refunds
shall be in line with ITU-T Rec. D.171.
Page 5
<PAGE>
11. Exchange of Information
To ensure effective implementation and operation of the service the parties
may wish to exchange:
(a) appropriate sales and service implementation plans on an ongoing
basis,
(b) information on their respective collection rates and costumer pricing
as appropriate,
(c) details of the numbering schemes employed to access customers in their
public switched networks in the operating territory and
(d) details of the service position/facilities and how they may be
accessed by the other party's service position.
Regarding c) and d), confer for example ITU-T Rec. E.141 and E.149.
12. Liability
Neither party shall be liable to the other for any loss or damage whether
direct or indirect sustained by reason of any failure in or breakdown of
the communication facilities associated with the circuits used in providing
the telecommunication services, whatsoever shall be the cause of such
failure, breakdown or interruption and however long it shall last.
13. Authorizations
All undertakings and obligations assumed hereunder by either party are
subject to the issuance and continuance of all necessary governmental
licences, waivers, consents, registrations, permissions and approvals.
Page 6
<PAGE>
14. Force Majeure
No failure or omission by either party to carry out or observe any of the
terms and conditions of this Agreement shall give rise to any claim
against the party in question or be deemed a breach of this Agreement if
such failure or omission arises from any cause reasonably beyond the
control of that party. When such conditions apply, the party in question
shall notify the other part hereof in writing as soon as possible.
15. Termination
Notwithstanding anything to the contrary expressed or implied elsewhere
herein either party (without prejudice to its other rights) may terminate
this Agreement forthwith on notifying the other party to that effect by
Notice in writing, in the event that the other party fails to make any
payment due under this Agreement punctually by the due date, and fails to
make such payment within 30 days of being advised, by the party giving
notice of termination that such payment is due and has not been made.
The parties shall further be entitled to terminate the Agreement in case of
gross breach of the conditions set out in the Agreement.
16. Assignment
Neither party shall transfer or assign its rights or obligations under this
Agreement without the prior written consent of the other party; provided
however that either party may assign its rights and obligations under this
Agreement to its fully owned subsidiaries, to its parent Company or fully
owned subsidiaries of the parent with prior notification to the other
party. No such assignment shall relieve the assignment party of its
obligations hereunder.
17. Notices
Page 17
<PAGE>
(a) Any communications by either party to other shall, unless otherwise
provided herein, be sufficiently made if sent by post (by air mail
where possible), postage paid, or by telegraph, telex or telefax
transmission to the address hereinafter specified and shall, unless
otherwise provided herein, be deemed to have been made to the other
party on the day on which such communications ought to have been
delivered in due course of postal, telegraphic, telex or telefax
transmission.
(b) Unless otherwise specified by not less than 15 days' notice in writing
by the party in question, the address to which communications shall be
sent shall be:
To ITC:
By mail: ITC
899 W. Cypress
Creek Rd Suite 900
Ft Lauderdale Fl 33309
By telefax: Telefax No +1 305 489 7788
In all cases marked: "For the attention of
Vice President International
To TELECOM Denmark:
By mail: TELECOM Denmark
Telegade 2
DK-2630 Taastrup
Denmark
By telefax: Telefax No +45 42 93 31
In all cases marked: "For the attention of Director of
International Services"
Page 8
<PAGE>
18. No Waiver
No waiver by either party of any provision of this Agreement shall be
binding unless made expressly and expressly confirmed in writing. Further,
any such waiver shall relate only to such particular matter non-compliance
or breach as it expressly relates to and shall not apply to any subsequent
or other matter, non-compliance or breach.
19. Arbitration
Any dispute which might occur in connection with this Agreement shall be
settled finally by arbitration according to International Arbitration Law.
20. Confidentiality
Any of this information, which is not in the public domain, will be
strictly confidential and shall not be disclosed to third parties,
particularly those offering competitive service in either USA or Denmark
unless otherwise agreed in writing. Provided that either party may comply
with such filing or disclosure requirements of any regulatory authority or
government agency with jurisdiction hereof. This confidentiality is to be
maintained for a period of 5 years after this agreement or any part of it
is terminated.
IN WITNESS WHEREOF THIS AGREEMENT has been entered into the day and year first
above written.
Signed for and on behalf of Signed for and on behalf of
TELECOM Denmark
/s/ Laurence Vierra /s/ TELECOM Denmark
- ----------------------------- -------------------------------
7/10/95 4-7-95
- ----------------------------- -------------------------------
Date: Date:
Page 9
<PAGE>
ANNEX 1
TELECOMMUNICATION SERVICE
BANK INSTRUCTIONS, TELECOMMUNICATIONS ACCOUNTS.
This Annex is attached to and incorporated into the International
Telecommunication Service Agreement made between ITC and TELECOM Denmark.
Payment of balances in favour of TELECOM Denmark should be effected as follows:
a) Primary Method
By bank transfer to our primary bank connection.
Bank: UNIBANK
Merchant Bank Division
Torvegade 2
DK - 1786 Copenhagen V
Account holder: TELECOM Denmark
Financial Division
Telegade 2
DK - 2630 Taastrup
_____ Account Number: _________________________
SWIFT CODE: UNIB DK KK
Telex number: 27543 unib dk
Payment though UNIBANK should preferably be effected in SDR and directed to
our ____ account number.
b) Alternative I
By bank transfer or postal cheque transfer to our secondary bank
connection.
Bank: GIROBANK
Girostroeget 1
Page 10
<PAGE>
DK - 0800 Hoeje Taastrup
Account Holder: TELECOM Denmark
Financial Division
Telegade 2
DK - 2630 Taastrup
Account number: 1199-7 00 00 06
SWIFT CODE: GICO DK KK
Payments through GIROBANK may be effected in USD, DKK or other major
currency.
c) Alternative II
Payment in favour of TELECOM Denmark may also be effected by mailing bank
cheques in USD directly to our address:
TELECOM Denmark
Financial Division
Telegade 2
DK - 2630 Taastrup
---------------------------------------
================================================================================
I M P O R T A N T
Any payment should include sufficient reference to our invoices for proper
identification of the payment
================================================================================
Page 11
<PAGE>
ANNEX 2
TELECOMMUNICATION SERVICE
INTERNATIONAL PUBLIC SWITCHED TELEPHONE SERVICE
between ITC and TELECOM Denmark
MULTI CARRIER RELATION
This Annex is attached to and incorporated into the International
Telecommunication Services Agreement made between ITC and TELECOM Denmark.
1. Type of Service
a) The following International Public Switched Telephone Services may be
established under this Agreement from points in or reached via USA and
from points in or reached via Denmark:
Costumer Dialled Station Calls
International Freephone
International Calling Card Services
Home Country Direct Calls
b) Not all classes of traffic may be operational at the time of initial
implementation of the service.
2. Periods of Service
This service will be a 24 hour per day continuous facility.
3. Quality of Service
Under preparation.
Page 12
<PAGE>
4. Accounting Rate and Division
a) The Unit of Account will be the SDR (Special Drawing Right).
b) The Accounting Rate per minute, will be FIF share 0,5 SDR and TELECOM
Denmark share 0,25 SDR.
TELECOM Denmark's share includes traffic between USA and the Faroe
Islands and Greenland.
5. Return of Traffic
See Addendum 1 to this Annex
6. Duration
Alterations or improvements of this Annex and its Addendum 1 may be subject
to negotiations at any time and enter into force as agreed between the
Parties independently of the main Agreement.
Signed for and on behalf of Signed for and on behalf of
LTC TELECOM Denmark
- -----------------------------
/s/ Laurence Vierra /s/ TELECOM Denmark
- ----------------------------- -------------------------------
Date: 7/10/95 Date: 4.7.95
Page 13
<PAGE>
ANNEX 3
TELECOMMUNICATION SERVICE
INTERNATIONAL LEASED VOICE AND DATE SERVICE
incorporating Private Networks between ITC and TELECOM Denmark.
This Annex is attached to and incorporated into the International
Telecommunication Services Agreement made between ITC and TELECOM Denmark.
1. Type of Service
The service offered will be interconnection of Private Networks, Software
Defined Networks or a combination of both, for the international access of
switched Voice and/or Data.
2. Periods of Service
The service will be a 24 hour per day continuous facility.
3. Charges to the Public
Collection rates for the service covered by this Agreement shall be a
national matter to be determined by each party, subject to appropriate
governmental approvals as necessary.
4. Interruption Allowances
As an objective, the parties will adopt the appropriate interruption
allowance recommendations including those contained in the ITU-T Rec. D.1.
Paragraph 5 (and any ITU-T amendment thereto or replacement of re-issue
thereof).
5. Duration
Page 14
<PAGE>
Alterations or improvements of this Annex may be subject to negotiations at
any time and enter into force as agreed between the Parties independently
of the main Agreement.
Signed for and on behalf of Signed for and on behalf of
ITC TELECOM Denmark
- -----------------------------
/s/ Laurence Vieria /s/ TELECOM Denmark
- ----------------------------- -------------------------------
Date: 7/10/95 Date: 4.7.95
Page 15
<PAGE>
ADDENDUM 1 TO ANNEX 2
TELECOMMUNICATION SERVICE
INTERNATIONAL PUBLIC SWITCHED TELEPHONE SERVICE
between ITC and TELECOM Denmark
MULTI CARRIER RELATION
5.1 The traffic streams to each USA Operator should normally be regarded as
entirely separate.
5.2 The calculation of the USA market share should be based on all terminal
traffic from USA to TELECOM Denmark.
5.3 Traffic transiting USA's or TELECOM Denmark's network should be excluded
from proportionate return calculations.
5.4 Terminal traffic routed over direct and alternative routings would be
included for proportionate return purposes.
5.5 Where a failure occurs in the network of a USA Operator which prevents
TELECOM Denmark from sending traffic to that Operator, the other USA
Operators will handle such traffic, assuming sufficient network capacity
exists. In such circumstances the traffic diverted should be
accounted/settled for with the carrier who handled it and deducted from the
total return traffic due in normal circumstances to the USA Operator which
suffered failure in its network. However, if one USA carrier is
disadvantaged by a network failure outside its control, there may be a need
for a compensating adjustment to the return traffic arrangements.
5.6 The proportion of outgoing bids offered by TELECOM Denmark to each USA
Operator should be in the same ratio as paid minute terminal traffic sent
by each USA Operator to Denmark.
Page 16
<PAGE>
5.7 The proportion of traffic that is returned to each USA operator should be
reviewed, and altered as necessary, on a mutually agreed frequency.
5.8 TELECOM Denmark and ITC agree to implement return of TELECOM Denmark's
total allocable International Message Telephone Service (IMTS) settlement
minutes: (Sent Paid - Subscriber Dialed and Sent Paid - Operator Handled)
to USA equal to "proportionate return percentage" is defined as sum of USA
IMTS settlement minutes for all Sent Paid (Subscriber Dialed and Operator
Handled) and all Received Collect (Operator Handled, Calling Card, and
Country, Direct, i.e.
Home Direct/World Connect) divided by the total IMTS settlements minutes
reported by all USA carriers to TELECOM Denmark.
5.9 Transit traffic wherein either the USA or Denmark is the transit center
shall not be included in the proportionate return calculations.
5.10 This agreement is effective as of July, 1, 1995 and shall continue until
terminated by either party by at least six (6) month's prior written notice
to the other party.
5.11 This agreement is subject to review as necessary, to adjust for the
inclusion of services or for changing circumstances. If ITC should enter
into an operating agreement with another licensed carrier in Denmark, the
terms and conditions of this agreement shall be applied to USA billed and
settled traffic with Telecom Denmark.
5.12 Reasonable efforts shall be made to ensure that ITC receives a
representative share of each calling period and geographic area of
origination in Denmark and termination in the U.S.
5.13 USA "proportionate return percentage" shall be calculated quarterly, using
three (3) months of Settlement Statements of Account between ITC and
TELECOM Denmark, starting with the three (3) months period that began
Page 17
<PAGE>
July 1, 19XX.
The "proportionate return percentages" shall then be used during successive
three (3) months "designated return periods", starting with three (3) month
period that begins July 1, 1995.
There shall be three (3) months between the Settlement Statements of
Account used for the "proportionate return percentage" and the "designated
return period".
Prior to each new "designated return period", TELECOM Denmark shall inform
ITC of its "proportionate return percentage" to be used for allocation of
TELECOM Denmark's allocable traffic, the amount of proportionate return
traffic actually sent expressed in minutes and the amount of minutes that
should have been sent.
5.14 Corrections to proportionate return shall not be made to compensate for the
failure of a receiving carrier to successfully accept offered traffic (e.g.
overflow traffic to USA shall not count towards ITC proportionate return
share or TELECOM Denmark's allocable traffic) unless otherwise agreed by
the parties.
5.15 A reasonable effort shall be made to correct all other deviations equal to,
or greater than, one percent of the total IMTS settlement minutes for a
given "designated return period". The parties agree to review cumulative
deviations greater than 1 %, and if agreed by the parties, adjustments
shall be made semi-annually.
Reasonable efforts shall be made by TELECOM Denmark to correct deviations
in the following "designated retune period".
Page 18
<PAGE>
TD-IO/P-TP
22.06.1995/AR
DRAFT
ANNEX D
to
International Telecommunications Services Agreement
Between and T-D
PROPORTIONATE RETURN
between
xxxxxxxx
and
DENMARK
TD and xxx agree to implement return of T-D's total allocable International
Message Telephone Service (IMTS) settlement minutes: (Sent Paid - Subscriber
Dialed and Sent Paid - Operator Handled) to xxx equal to xxxxx "proportionate
return percentage" is defined as sum of xxxxx IMTS settlement minutes for all
Sent Paid (Subscriber Dialed and Operator Handled) and all Received Collect
(Operator Handled, Calling Card, and Country Direct, i.e.) divided by the total
IMTS settlements minutes reported by all xxxx carriers to T-D.
Transit traffic wherein either xxxxxxx or Denmark is the transit center shall
not be included in the proportionate return calculations.
This agreement is effective as of xx.xx, l99x and shall continue untill
terminated by either party by giving at least six (6) month's prior written
notice to the other party.
This agreement is subject to review as necessary, to adjust for the inclusion of
services or for changing circumstances. If xxxx should enter into an operating
agreement with another licensed carrier in Denmark, the terms and conditions of
this agreement shall be applied to xxxx-billed and settled traffic with T-D.
Reasonable efforts shall be made to ensure that xxxx receives a representative
share of each calling period and geographic area of origination in Denmark and
termination in the xxx.
xxxxxx "proportionate return percentage" shall be calculated quarterly using
three (3) months of Settlement Statements of Account between xxxx and T-D,
starting with the three (3) months period that began xx.xx, l99x.
The "proportionate return percentages" shall then be used during successive
three (3) months "designated return periods", starting with three (3) month
period that begins xx.xx, l99x.
There shall be three (3) months between the Settlement Statements of Account
used for the "proportionate return percentage" and the "designated return
period".
Prior to each new "designated return period", T-D shall inform xxxx of its
"proportionate return percentage" to be used for allocation of T-D's allocable
traffic, the amount of
<PAGE>
proportionate return traffic actually sent expressed in minutes and the amount
of minutes that should have been sent.
Corrections to proportionate return shall not be made to compensate for the
failure of a receiving carrier to successfully accept offered traffic (e.g.
overflow traffic to xxxx shall not count towards xxxxxx proportionate return
share or T-D's allocable traffic) unless otherwise agreed by the parties.
A reasonable effort shall be made to correct all other deviations equal to, or
greater than, one percent of the total IMTS settlement minutes for a given
"designated return period". The parties agree to review cumulative deviations
greater than 1 %, and if agreed by the parties, adjustments shall be made
semi-annually.
Reasonable efforts shall be made by T-D to correct deviations in the following
"designated return period".
<PAGE>
Addendum 1 to Annex 2
between
Tele Danmark
and
International Telecommunications Corporation (ITC)
This Memorandum dated 26 March, 1996 represents an Agreement between Tele
Danmark and International Telecommunications Corporation (ITC) to apply the
following accounting rates for service between Denmark and International
Telecommunications Corporation in the United States Mainland.
Current Effective Effective
January 1, 1996 to October 1, 1996
September 30, 1996
ILD/OPH/1 800/USA Direct/ 0.5 SDR/MIN 0.40 SDR/MIN 0.25 SDR/MIN
Country Direct/
Network Remote Access (NRA)/
SDI/ISDN
The accounting rate shall be applied to each conversation minute of use and
shall be divided equally. The per call accounting rates are payable in full by
the billing carrier to the originating carrier. Minutes of traffic upon which
settlements are paid will be measured using accumulated seconds.
The current surcharge of 2.0 SDR/per call on operator handled calls remains in
effect.
The existing accounting rate of 0.50 SDR per minute for Greenland and Faroe
Islands will be retained through June 30, 1996.
For: Tele Danmark
Date:
- ---------------------------------- -------------------------
Title:
---------------------------
- ----------------------------------
For International Telecommunications Corporation
/s/ Laurence Vierra Date: 3/28/96
- ---------------------------------- --------------------------
Title: Exec. V.P.
----------------------------
- ----------------------------------
<PAGE>
- --------------------------------------------------------------------------------
INTERNATIONAL
TELECOMMUNICATIONS
CORPORATION
INTERNATIONAL
OPERATING
AGREEMENT
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
INTERNATIONAL TELECOMMUNICATION
SERVICE AGREEMENT
AN AGREEMENT made the 15th day of July, 1995, between Telenor Carrier Services
A.S. whose registered office is at P.O. Box 6701 St. Olavs Plass, N-0130 Oslo,
Norway, of the one part and International Telecommunications Corporation, a
corporation organized and existing under the laws of the United States, whose
office is at 60 Hudson Street, Suite 307, New York, New York 10013, United
States ("ITC") of the other part.
WHEREAS the parties jointly desire to furnish telecommunication services between
the Country of Norway and the United States (as hereinafter defined).
NOW THEREFORE IT IS HEREBY AGREED as follows:
1. Definitions
(a) In this Agreement, unless the context otherwise requires, the
following terms shall have the following meanings:
(i) "CCITT" means the International Telegraph and Telephone
Consultative Committee of the International Telecommunications
Union;
(ii) "Operating Territory" in relation to Telenor Carrier Services
A.S. means Norway, and in relation to ITC means the United
States;
(iii) "Agreement" means this agreement and the annexures and addenda
(if any) pertaining thereto.
(b) The expression "Telenor" and "ITC" shall include their respective
successors and permitted assigns and their respective employees and
agents.
(c) The section headings in this agreement are for ease of reference only
and shall not be taken into account in the construction or
interpretation of any provision to which they refer.
2. Scope
Subject to the terms and conditions contained herein each of the parties
undertakes to establish and provide such telecommunication services between
Norway and the United States as are hereinafter specified and to use its
reasonable endeavors to establish such telecommunication services on and
with effect from September 1, 1995, or such other date as may be agreed by
the parties.
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
3. Duration
This agreement shall come into force on August 1st, 1995, and shall
continue thereafter unless and until terminated by not less than twelve
(12) months' prior written notice given by either party to the other.
4. Telecommunication Services
The telecommunication services to be established and provided hereunder
shall be agreed between the parties from time to time and the details
thereof shall be set out in annexures which shall be attached to this
agreement.
5. Routing of Telecommunication Services and Provision of Facilities
(a) The routes to be used by each party to provide the telecommunication
services hereunder shall be such direct circuits as may be agreed
between the parties from time to time and/or such switched circuits
via countries other than Norway and the United States or a combination
thereof as the parties may from time to time deem expedient to
maintain the provision of the telecommunication service in question.
(b) Each party will be responsible for the provision and maintenance of,
and payment for, the necessary interconnecting facilities located
within its Operating Territory in respect of its portion of the
telecommunications services to be provided hereunder.
(c) Each party shall be responsible for the establishment of and the
payment for one-half of that portion of the telecommunication
facilities necessary to provide the said circuits located outside the
Operating Territories of the parties used in the provision of the
telecommunication services hereunder.
6. Language
English shall be the language used by the technical and operating personnel
for the establishment end provision of telecommunication services
hereunder.
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
7. Technical Standards and Methods of Operation
(a) The technical standards and methods of operation to be applied and
used by the parties in the provision of the telecommunication services
hereunder shall be agreed by the parties from time to time. In the
event of a failure to agree upon the technical standards to be
applied, the parties shall apply standards not inferior to the
relevant recommendations of the CCITT in force as of the date hereof
until such time as agreement is reached by the force as of the date
hereof until such time as agreement is reached by the parties in
respect of the technical standards.
(b) In so far as is commercially feasible, the telecommunication services
to be provided hereunder will be carried on digital channels, which
will conform to the current standards between Norway and the Untied
States.
8. Liability
Neither party shall be liable to the other for any loss or damage whether
direct or indirect, sustained by reason of any failure in or breakdown of
the communication facilities associated with the circuits used in providing
the telecommunication services under this Agreement or for any interruption
of service, whatsoever shall be the cause of such failure, breakdown or
interruption and however long such failure shall last.
9. Authorizations
All undertakings and obligations assumed hereunder by either party are
subject to the issuance and continuance of all necessary governmental
licenses, waivers, consents, registrations, permissions and approvals.
10. Force Majeure
No failure or omission by either party to carry out or observe any of the
terms and conditions of this Agreement shall give rise to any claim against
the party in question or be deemed a breach of this Agreement if such
failure or omission arises from any cause reasonably beyond the control of
the party seeking to rely upon such failure or omission.
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
11. Termination
Notwithstanding anything to the contrary express or implied elsewhere
herein either party (without prejudice to its other rights) may terminate
this Agreement forthwith on notifying the other party to that effect either
orally (confirming such notification in writing) or by notice in writing,
in the event that the other party fails to make any payment due under this
Agreement punctually by the due date, and fails to make such payment within
30 days of being advised, by the party giving notice of termination that
such payment is due and has not been made.
12. Assignment
Neither party shall transfer or assign its rights or obligations under this
Agreement without the prior written consent of the other party, provided
however that either party may assign its rights and obligations under this
Agreement to its parent company or subsidiaries of the parent after prior
notification to the other party. No such assignment shall relieve the
assigning party of its obligations hereunder.
13. Notices
Unless otherwise specified by not less than 15 days' notice in writing, any
communication by either party to the other shall be sufficiently made if
sent by post (by air mail where possible), postage paid, or by telegraph or
telex or facsimile transmission to the address hereinafter specified.
To: Telenor Carrier Services A.S.
By mail: P.O. Box 6701 St. Olavs Plass
N-0130 Oslo, Norway
By fax: 47 22 41 93 59
To: International Telecommunications Corp.
By mail: 899 W. Cypress Creek Rd.
Suite 900
Ft. Lauderdale, FL 33309
By fax: (305) 489-7788
14. Entire Agreement
This Agreement represents the entire understanding between the parties in
relation to the subject matter hereof and supersedes all other agreements
and representations made by either party, whether oral or written, and this
Agreement may only be modified if such modification is in writing and
signed by a due authorized representative of each party hereto.
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
15. Governing Law
This Agreement shall be governed by applicable laws in Norway.
16. Arbitration
All disputes arising in connection with the present contract shall be
finally settled by arbitration in accordance with the Rules of the
Arbitration Institute of the Oslo Chamber of Commerce. The number of
arbitrators shall be three. The place of arbitration shall be Oslo, and the
language of arbitration shall be English.
IN WITNESS WHEREOF THIS AGREEMENT has been entered into the day and year first
above written.
Signed for and on behalf of Signed for and on behalf of
INTERNATIONAL
Telenor Carrier Services A.S. TELECOMMUNICATIONS
CORPORATION
/s/ Mac Sliper /s/ Laurence Vieria
- ------------------------------ -----------------------------
Date: 09-08-95 Date: 7/15/95
------------------------- ------------------------
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
ANNEXURE I
TELECOMMUNICATION SERVICE INTERNATIONAL PUBLIC
SWITCHED TELEPHONE SERVICE
between Norway and the United States.
This Annexure is attached to and incorporated into the International
Telecommunication Services Agreement made between Telenor Carrier Services A.S.
and International Telecommunications Corporation dated the 15th of July, 1995.
1. Type of Service
(a) The following International Public Switch Telephone Service may be
established under this Agreement from points in or reached via Norway
and from points in or reached via the United States:
Customer Dialed Station calls
Operator Assisted Station calls (via robotics operators)
(b) Not all classes of traffic may be operational at the time of initial
implementation of the service,
(c) Other classes of service may be added to the agreement between the
parties from time to time.
2. Period of Service
This service will be a 24 hours per day continuous facility.
3. Accounting Rates and Division of Revenues
The accounting rates and division of revenue derived from the service
between Norway and the United States provided by the parties shall be those
set out in the Addendum attached to this Agreement or as the parties may
otherwise agree from time to time and incorporate in this agreement.
A separate Addendum may cover transit traffic.
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
4. Accounting and Method of Settlement
(a) Monthly traffic accounts will be provided to the other party as soon
as practicable after the calendar month to which the account relates
but in no event later than the end of the third calendar month
following the month to which the traffic account relates to.
(b) A monthly settlement statement showing the balances from the monthly
accounts to which it relates shall be prepared as quickly as possible
by the creditor party and sent in duplicate to the debtor party which,
after verification, shall return one of the copies endorsed with its
acceptance. Payment shall be effected as soon as possible but in no
case later than six weeks after the monthly statement is received by
the debtor party.
(c) Payment will be made in a currency to be chosen by the creditor. In
the event the U.S. dollar is not agreed as currency and either Gold
Francs or SDR is applicable, the conversion of Special Drawing Rights
balance into currencies of payment shall be in line with the
International Telecommunications Regulations of Geneva.
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
ANNEXURE 2
TELECOMMUNICATION SERVICE INTERNATIONAL LEASED VOICE
AND DATA SERVICE, incorporating
Private Networks between Norway and the
United States.
This Annex is attached to and incorporated into the International
Telecommunication Services I Agreement made between Telenor Carrier Services
A.S. and International Telecommunications Corporation dated the 15th of July,
1995.
1. Type of Service
The service offered will be the interconnection of Private Networks for the
international access of voice and/or data.
2. Periods of Service
This service will be a 24 hour per day continuous facility.
- --------------------------------------------------------------------------------
<PAGE>
INTERNATIONAL TELECOMMUNICATION SERVICES AGREEMENT
AN AGREEMENT made this 10th day of May, 1994 between MERCURY COMMUNICATIONS
LIMITED whose registered office is at New Mercury House, 26 Red Lion Square,
London, WC1R 4HQ, England ("Mercury") of the one part and International
Telecommunications Corporation, a corporation organised and existing under the
laws of the United States whose registered office is at 60 Hudson Street, Suite
307, New York, New York 10013, United States ("ITC") of the other part.
WHEREAS the parties jointly desire to furnish telecommunication services between
the United Kingdom (as hereinafter defined) and the United States (as
hereinafter deemed).
NOW THEREFORE IT IS HEREBY AGREED as follows:
1. Definitions
(a) In this Agreement, unless the context otherwise requires, the
following terms shall have the following meanings:
(i) "C.C.I.T.T." means the International Telegraph and Telephone
Consultative Committee of the International Telecommunications
Union;
(ii) "Operating Territory" in relation to Mercury means the United
Kingdom, and in relation to ITC means the United States;
(iii) "United Kingdom" means Great Britain (namely England, Scotland
and Wales) and Northern Ireland;
(iv) "the United States" means the United States as well as its
territories and possessions;
(v) "Agreement" means this agreement and the annexures and addenda
(if any) pertaining thereto.
(b) The expressions "Mercury" and "ITC" shall include their respective
successors and permitted assigns and their respective employees and
agents.
(c) The section headings in this Agreement are for ease of reference only
and shall not be taken into account in the construction or
interpretation of any provision to which they refer.
2. Scope
Subject to the terms and conditions contained herein each of the parties
undertakes to establish and provide such telecommunication services between
the United Kingdom and the United States as are hereinafter specified and
to use its reasonable endeavours to establish such telecommunication
services on and with effect from 1st August, 1994 or such other date as may
be agreed by the parties.
<PAGE>
3. Duration
(a) This Agreement shall come into force on 1st August, 1994 and shall
continue thereafter unless and until terminated by not less than 12
months' prior written notice given by either party to the other.
(b) In respect of each of the telecommunication services hereinafter
specified this Agreement shall continue after the date of entry into
force of the Agreement unless and until terminated by not less than 3
months' prior written notice given by either party to the other.
(c) Notwithstanding clause 3(a) and 3(b), this Agreement shall however be
subject to the provisions for earlier termination as may be set out
herein.
4. Telecommunication Services
The telecommunication services to be established and provided hereunder
shall be agreed between the parties from time to time and the details
thereof shall be set out in annexures which shall be attached to this
Agreement.
5. Routine of Telecommunication Services and Provision of Facilities
(a) The routes to be used by each party to provide the telecommunication
services hereunder shall be such direct circuits as may be agreed
between the parties from time to time and/or such switched circuits
via countries other than the United Kingdom and the United States or a
combination thereof as the parties may from time to time deem
expedient to maintain the provision of the telecommunication service
in question.
(b) Each party will be responsible for the provision and maintenance of,
and payment for, the necessary interconnecting facilities located
within its Operating Territory in respect of its portion of the
telecommunication services to be provided hereunder.
(c) Each party shall be responsible for the establishment of and the
payment for one half of that portion of the telecommunication
facilities necessary to provide the said Circuits located outside the
Operating Territories of the parties used in the provision of the
telecommunication services hereunder.
(d) Each party shall notify the other as soon as practicable of any
facility failure arising or likely to arise from a cause within its
Operating Territory which is likely to result in a protracted
interruption to the provision of any or all of the telecommunication
services hereunder.
6. Language
English shall be the language used by technical and operating personnel for
the establishment and provision of telecommunication services hereunder.
<PAGE>
7. Technical Standards and Methods of Operation
(a) The technical standards and methods of operation to be applied and
used by the parties in the provision of telecommunication services
hereunder shall be agreed by the parties from time to time. In the
event of a failure to agree upon the technical standards to be
applied, the parties shall apply standards not inferior to the
relevant recommendations of the C.C.I.T.T. in force as of the date
hereof until such time as agreement is reached by the parties in
respect of the technical standards.
(b) The parties will adopt from time to time (as appropriate) written
procedures and working standards to be implemented by them in respect
of order handling, maintenance and other operational matters in
respect of each of the telecommunication services hereunder.
(c) In so far as is commercially feasible, the telecommunication services
to be provided hereunder will be carried on digital channels, which
will conform to European standards, between the United Kingdom and the
United States.
8. Sales Effort
Each party undertakes with the other party to promote on a non-exclusive
basis the sale of each of the telecommunication services hereunder to the
reasonable satisfaction of the other party.
9. Liability
Neither party shall be liable to the other for any loss or damage whether
direct or indirect, sustained by reason of any failure in or breakdown of
the communication facilities associated with the circuits used in providing
the telecommunication services under this Agreement or for any interruption
of service, whatsoever shall be the cause of such failure, breakdown or
interruption and however long such failure shall last.
10. Authorisations
All undertakings and obligations assumed hereunder by either party are
subject to the issuance and continuance of all necessary governmental
licences, waivers, consents, registrations, permissions and approvals.
11. Force Majeure
No failure or omission by either party to carry out or observe any of the
terms and conditions of this Agreement shall give rise to any claim against
the party in question or be deemed a breach of this Agreement if such
failure or omission arises from any cause reasonably beyond the control of
the party seeking to rely upon such failure or omission.
12. Termination
Notwithstanding anything to the contrary express or implied elsewhere
herein either party (without prejudice to its other rights) may terminate
this Agreement forthwith on notifying the other party to that effect either
orally (confirming such notification in writing) or by notice in writing.
In the event that the other party fails to make any payment due under this
Agreement punctually by the due date, and fails to make such payment within
30 days of being advised, by the party giving notice of termination that
such payment is due and has not been made.
<PAGE>
13. Assignment
Neither party shall transfer or assign its rights or obligations under this
Agreement without the prior written consent of the other party, provided
however that either party may assign its rights and obligations under this
Agreement to its parent company or subsidiaries of the parent after prior
notification to the other party. No such assignment shall relieve the
assigning party of its obligations hereunder.
14. Notices
(a) Any communications by either party to the other shall, unless
otherwise provided herein, be sufficiently made if sent by post (by
air mail where possible), postage paid, or by telegraph or telex
transmission to the address hereinafter specified and shall, unless
otherwise provided herein, be deemed to have been made to the other
party on the day on which such communications ought to have been
delivered in due course of postal, telegraphic or telex transmission.
(b) Unless otherwise specified by not less than 15 days' notice in writing
by the party in question, the address to which communications shall be
sent is:
To Mercury:
By mail: New Mercury House
26 Red Lion Square
London WC1R 4HQ
( England
By telex: Telex No. 910091 MCLIBG G
In all cases marked: "For the attention of
the Company Secretary"
To ITC:
By mail: International Telecommunications
Corporation
60 Hudson Street
Suite 307
New York
New York 10013
United States
By telex: Telex No. --
--------------
In all cases marked: "For the attention of
E. Fishman "
-----------------------
15. Entire Agreement
This Agreement represents the entire understanding between the parties in
relation to the subject matter hereof and supersedes all other agreements
and representations made by either party, whether oral or written, and this
Agreement may only be modified if such modification is in writing and
signed by a duly authorised representative of each party hereto.
<PAGE>
16. No Waiver
No waiver by either party of any provision of this Agreement shall be
binding unless made expressly and confirmed in writing. Further, any such
waiver shall relate only to such particular matter, non-compliance or
breach as it expressly relates to and shall not apply to any subsequent or
other matter, non-compliance or breach.
17. Governing Law
All disputes arising in connection with the present contract shall be
finally settled under the Rules of Conciliation and Arbitration of the
International Chamber of Commerce by one or more arbitrators appointed in
accordance with the said rules.
IN WITNESS WHEREOF THIS AGREEMENT has been entered into the day and year first
above written.
Signed for and on behalf of Signed for and on behalf of
MERCURY COMMUNICATIONS LIMITED INTERNATIONAL
TELECOMMUNICATIONS
CORPORATION
[SIGNATURE ILLEGIBLE] [SIGNATURE ILLEGIBLE]
- ---------------------------------- -------------------------------
Date: 10th May 1994 Date: 10th May 1994
----------------------------- --------------------------
<PAGE>
ANNEXURE 1
TELECOMMUNICATION SERVICE INTERNATIONAL PUBLIC
SWITCHED TELEPHONE SERVICE
between the United Kingdom and the
United States.
This Annexure is attached to and incorporated into the International
Telecommunication Services Agreement made between Mercury and International
Telecommunications Corporation dated the 10th day of May, 1994.
1. Type of Service
a) The following International Public Switched Telephone Services may be
established under this Agreement from points in or reached via the
United Kingdom and from points in or reached via the United States:
Customer Dialled Station calls
Operator Assisted Station calls
Operator Assisted Person calls.
b) Not all classes of traffic may be operational at the time of initial
implementation of the service.
c) Other classes of service may be added to the agreement between the
parties from time to time.
2. Periods of Service
This service will be a 24 hour per day continuous facility.
3. Charges to the Public
Collection charges for the service covered by this Agreement shall be a
national matter to be determined by each party, subject to appropriate
governmental approvals as may be necessary.
4. Accounting Rates and Division of Revenues
a) The accounting rates and division of revenue derived from the service
between the United Kingdom and the United States provided by the
parties shall be those set out in the Addendum attached to this
Agreement or as the parties may otherwise agree from time to time and
incorporate in this Agreement.
b) A separate Addendum will cover transit working.
5. Accounting and Method of Settlement
a) Monthly traffic accounts will be provided to the other party as soon
as practicable after the calendar month to which the account relates
but in no event later than the end of the third calendar month
following the month to which the
<PAGE>
b) A monthly settlement statement showing the balances from the monthly
accounts to which it relates shall be prepared as quickly as possible
by the creditor party and sent in duplicate to the debtor party which,
after verification, shall return one of the copies endorsed with its
acceptance. Payment shall be effected as soon as possible but in no
case later than six weeks after the monthly statement is received by
the debtor party.
c) Payment will be made in a currency to be chosen by the creditor. The
conversion of Special Drawing Rights (SDRs) balance into currencies of
payment shall be in line with the International Telecommunications
Regulations, Geneva, 1989.
d) No credit allowance shall be made in the monthly account for
uncollectible amounts. Each party shall be responsible for its its own
uncollectables. The accounting procedures for adjustments and refunds
shall be in line with C.C.I.T.T. Blue Book recommendation D.17l
e) The parties will adopt from time to time (if appropriate) additional
traffic accounting standards to be implemented by them in respect of
the submission and settlements of accounts.
6. Exchange of Information
To ensure effective implementation and operation of the telecommunication
services the parties may wish to exchange:
a) appropriate sales and service implementation plans on an ongoing
basis,
b) information on their respective collection rates as appropriate,
c) details of the numbering scheme employed to access their public
switched voice customers in the Operating Territory, and
d) details of the service positions/facilities and how they may be
accessed by the other party's service positions.
7. Confidentiality
Any of this information, which is not in the public domain, is strictly
confidential and shall not be disclosed to any third party, particularly
any third party offering competitive service in either the United Kingdom
or the United States.
Signed for and on behalf of Signed for and on behalf of
MERCURY COMMUNICATIONS LIMITED INTERNATIONAL
TELECOMMUNICATIONS
CORPORATION
[SIGNATURE ILLEGIBLE] [SIGNATURE ILLEGIBLE]
- ---------------------------------- -------------------------------
Date: 10th May 1994 Date: 10th May 1994
----------------------------- --------------------------
<PAGE>
ADDENDUM TO ANNEXURE l
regarding the INTERNATIONAL
PUBLIC SWITCHED TELEPHONE
SERVICE between the United Kingdom
and the United States.
This Addendum is attached to and incorporated into Annexure l of the
International Telecommunication Services Agreement made between Mercury and ITC
dated the 10th day of May, 1994.
1. Accounting Rate
a) The unit of account will be the Special Drawing Right ("SDR").
b) The Accounting Rates will be 0.30 SDR per minute divided as Mercury
share 0.l5 SDR per minutes and ITC share 0.l5 SDR per minute.
2. Currency of Settlement
The currency of settlement chosen by the creditor is:
if Mercury is creditor - US Dollars
if lTC is creditor - US Dollars
3. Return of Traffic
Mercury will return traffic to lTC when a minimum of 500,000 minutes a
month of UK terminating traffic has been received and accounted for to
Mercury over a period of three consecutive months. The return traffic will
be increased by steps of 1% until the appropriate level of return traffic
is achieved in line with a mutually agreed proportionate return policy.
4. Overdue Settlements
Interest will be charged at the annual rate of LIBOR (London Inter-Bank
Offer Rate) plus 4%, calculated on a daily basis, on accounts still
outstanding after the agreed settlement date. In respect of overdue
settlements, interest will be charged from the date of receipt by the
debtor of the quarterly settlement statement until actual payment is
received by the creditor.
Signed for and on behalf of Signed for and on behalf of
MERCURY COMMUNICATIONS LIMITED INTERNATIONAL
TELECOMMUNICATIONS
CORPORATION
[SIGNATURE ILLEGIBLE] [SIGNATURE ILLEGIBLE]
- ---------------------------------- -------------------------------
Date: 10th May 1994 Date: 10th May 1994
----------------------------- --------------------------
<PAGE>
ANNEXURE 2.
TELECOMMUNICATION SERVICE INTERNATIONAL LEASED VOICE
AND DATA SERVICE, incorporating
Private Networks between the United
Kingdom and the United States.
This Annex is attached to and incorporated into the International
Telecommunication Services Agreement made between Mercury and International
Telecommunications Corporation dated the 10th day of May, 1994.
1. Type of Service
The service offered will be the interconnection of Private Networks for the
international access of voice and/or data.
2. Periods of Service
This service will be a 24 hour per day continuous facility.
3. Charges to the Public
Collection rates for the service covered by this Agreement shall be a
national matter to be determined by each party, subject to appropriate
governmental approvals as may be necessary.
4. Interruption Allowances
As an objective, the parties will adopt the appropriate interruption
allowance recommendations including those contained in the C.C.I.T.T. Blue
Book, Volume II, Fascicle II.1, Recommendation D.1. Paragraph 5 (and any
C.C.I.T.T. amendment thereto or replacement or re-issue thereof).
5. Exchange of Information
To ensure effective implementation and operation of the service the parties
may wish to exchange:
a) appropriate sales and service implementation plans on an ongoing
basis;
b) prospective customer information and their detailed requirements;
c) information on their respective tariffs as appropriate, and;
d) billing information as required.
<PAGE>
6. Confidentiality
Any of this information, which is not in the public domain, is strictly
confidential and shall not be disclosed to any third party, particularly
any third party offering competitive service in either the United Kingdom
or the United States.
Signed for and on behalf of Signed for and on behalf of
MERCURY COMMUNICATIONS LIMITED INTERNATIONAL
TELECOMMUNICATIONS
CORPORATION
[SIGNATURE ILLEGIBLE] [SIGNATURE ILLEGIBLE]
- ---------------------------------- -------------------------------
Date: 10th May 1994 Date: 10th May 1994
----------------------------- --------------------------
<PAGE>
CONFIDENTIAL
AGREEMENT CONCERNING VOICE DISTRIBUTION OF INTERNATIONAL
TELEPHONY TRAFFIC
THIS AGREEMENT has been made and entered into between:
UNISOURCE CARRIER SERVICES AG, a company with limited liability, incorporated
under the laws of Switzerland, whose registered office is at Industriestrasse
21, Wallisellen, Switzerland, hereinafter referred to as "UCS";
and
INTERNATIONAL TELECOMMUNICATIONS CORPORATION (ITC), a company duly incorporated
and organized in the State of Delaware and under the laws of the United States
of America and having its principal office at, 169 EAB Plaza West Tower, 8th
Floor, Uniondale, NY 11556-0169, USA, hereinafter referred to as "ITC";
hereinafter individually referred to as the "Party" and jointly as the
"Parties";
WITNESSETH:
WHEREAS, UNISOURCE NV is a company established by PTT TELECOM BV of the
Netherlands, SWISS TELECOM PTT of Switzerland, TELEFONICA DE ESPANA S.A of Spain
and TELIA AB of Sweden (the "Unisource Shareholders") for certain of their
international telecommunications activities and with its registered office at
Siriusdreef 1-15, P.O. Box 2045, Hoofddorp, The Netherlands;
WHEREAS, UNISOURCE N.V. has established UCS as a fully owned subsidiary
responsible for the management of the international networks of the Unisource
Shareholders;
WHEREAS, UCS has the authority to negotiate and enter into this agreement in the
name and on behalf of the Unisource Shareholders;
WHEREAS, ITC is licensed to act as a telecommunications operator under the laws
of the United States of America;
<PAGE>
CONFIDENTIAL
WHEREAS, UCS wishes to route international telephony traffic via ITC to certain
destinations.
WHEREAS, ITC wishes to route international telephony traffic via UCS to certain
destinations;
NOW, THEREFORE, the Parties agree as follows:
1. Scope of the Agreement
TTC hereby agrees to route international telephony traffic via UCS to certain
destinations as specified in Appendix I hereto, hereinafter referred to as the
"Destinations".
UCS hereby agrees to route international telephony traffic via ITC to certain
destinations as specified in Appendix 2 hereto, hereinafter referred to as the
"Destinations".
UCS and ITC agree to provide international transmission capacity to each other
at their own expense on their respective half part of the circuits, including
the provision of capacity in TAT 12 as agreed in Appendix 3.
2. Applicable rates
2.1 ITC shall pay a rate per minute for all international telephony traffic
routed via UCS as set out in Appendix I and UCS shall pay a rate per minute
for all international telephony traffic routed via ITC as set out in
Appendix 2.
2.2 The rates referred to in sub-section 2.1 are exclusive of value added tax
and any other similar sales taxes, duties or levies imposed by any
authority, government or governmental agency. In case such a tax, duty or
levy will be due, the respective amount will be added to the invoice to be
paid by ITC and UCS.
<PAGE>
CONFIDENTIAL
3. Invoicing and terms of payment
3.1 The Parties will keep record of all international telephony traffic routed
hereunder. Based upon these records and the rates set out in Appendix 1 and
2, the Parties will invoice each other on a monthly basis, detailing the
registered traffic (minutes per Destination) and the amounts due.
3.2 All rates are quoted and invoiced in US Dollars.
3.3 The terms of payment shall be forty five (45) days from date of receipt of
the invoice and payment shall be made in accordance with the instructions
stated on the invoice.
3.4 Without prejudice to any of their other rights, the Parties may charge each
other the reasonable costs incurred in collecting amounts overdue for
payment. In addition hereto the Parties may charge a penalty interest which
is equal to 1.5% per month of the amount due. Payment will not be
considered to have been made until each Party receives full payment of the
full amount due.
4. Addition and deletion of Destinations
The Parties may from time to time agree to add or delete destinations to/from
the Destinations.
5. Limitation of liability
Neither party shall be liable to the other party and/or its customers for any
direct or indirect loss or damage due to any failure, degradation or
interruption of service in its network or any other network or connection
involved in the provision of the services under this agreement.
<PAGE>
CONFIDENTIAL
6. Conformity with laws and regulations
Each party (the "Indemnifying Party") shall indemnify, defend and hold harmless
each of the other parties and their respective related entities, as defined
below (individually or collectively, an "Indemnitee"), against all claims, suits
(threatened or actual), liabilities and expenses (including reasonable
attorneys' fees and expenses) arising out of or derived in any way from (i) a
breach by the Indemnifying Party of any laws, regulations or conventions
applicable to the Indemnifying Party, including but not limited to those related
to data privacy, international communications or exportation of technical data;
or (ii) a breach by the Indemnifying Party of any of its representations,
warranties or convenants under this Agreement. The Indemnitee shall give the
Indemnifying Party prompt written notice of any such claim or suit, and the
Indemnifying Party shall have the right to control the defense thereof;
provided, however, that without the Indemnitee's consent, the Lndemnifying Party
shall not agree to a settlement of such claim or suit which would have more than
a de minimis adverse effect on the Indemnitee's business. For purposes of this
paragraph, "Related Entities" shall be defined as a party's parent,
subsidiaries, affiliates and other entities under (common) control or ownership
of such party.
7. Force majeure
7.1 Except for the obligations to make payments hereunder for minutes sent and
possible additional charges according to section 3, neither party will be
responsible for failure to fulfill its obligations under the Agreement due
to events of force majeure or due to events beyond its control or due to
causes beyond its sub-contractors' control.
7.2 The events referred to in sub-section 7.1 include, but are in no way
limited to: partial or total strikes (either internal or external),
lock-out, inclemency, epidemic, blockage of means of transport or of
supplies for whatever reason, earthquake, fire, storm, flood or water
damage.
<PAGE>
CONFIDENTIAL
8. Term of the Agreement
8.1 This Agreement shall come into force when duly signed by all parties and
expires as provided in sub-section 8.2 below, unless terminated by any
party according to the provisions in sub-section 8.3 below or as may
otherwise be agreed.
8.2 Each party shall have the right to cause this Agreement to be terminated
when it has remained in force for a period of two (2) years after the first
measuring period has started, by giving the other parties written notice
not less than three (3) months prior to the end of the initial term. If not
terminated as aforesaid, the Agreement shall after the initial term remain
in force for an indefinite period and either party may terminate the
Agreement by giving the other parties written notice three (3) months prior
to terminating the Agreement.
8.3 Notwithstanding the provision of sub-section 8.2 above, this Agreement may
be terminated:
(i) by either party immediately upon written notice if any of the other
parties should become insolvent or starts negotiations about
composition with its creditors or a petition in bankruptcy should be
filed by or against it or it makes an assignment for the benefit of
its creditors; or
(ii) by either party immediately upon written notice if any of the other
parties should fail to fulfill any of its obligations under this
Agreement and (in case of a failure capable of being remedied) such
failure is not remedied within thirty (30) days from having received a
request for such remedial action from the first party; or
(iii) by either party immediately upon written notice if any of the other
parties or the party itself should fail to fulfill any of its
obligations under this Agreement when the activities under this
agreements are illegal due to national and/or international laws and
international and/or national regulations or official or reasonable
interpretations of the before mentioned laws and regulations,
notwithstanding the other rights of the parties in such a case.
<PAGE>
CONFIDENTIAL
9. Confidentiality
All details contained within and connected to this Agreement should be treated
as strictly confidential. They are exchanged in good faith and should, under no
circumstance, be given to any third party without prior written consent from the
disclosing party.
10. Waiver
The failure of either party hereto to insist upon the strict adherence to any
term of this Agreement on any occasion shall not be considered as a waiver of
any right thereunder nor shall it deprive that party of the right to insist upon
the strict adherence to that term or any other term of this Agreement at some
other time.
11. Amendments
No amendments, changes, revisions or discharges of this Agreement, in whole or
in part, shall have any force or effect, unless set forth in writing and signed
by the parties hereto.
12. Assignment
Neither party may wholly or partly assign or pledge its rights and/or
obligations hereunder to any third party, except with the prior written consent
of the other party. Such consent will not unreasonably be withheld.
Notwithstanding the foregoing PTT TELECOM, TELEFONICA, SWISS PTT and TELIA may
assign all their rights and obligations hereunder to UCS. By countersigning this
Agreement, UCS also agrees to accept an assignment of this Agreement as set out
in the previous sentence of this article.
13. Agreement
This Agreement supersedes any and all other agreements, oral or written, between
the parties with respect to this matter within this contract.
<PAGE>
CONFIDENTIAL
14. Governing Law and forum
14.1 This Agreement shall be governed by and construed and enforced in the
accordance with the laws of the United Kingdom.
14.2 Any dispute which may arise out of or in connection with this Agreement
shall be settled amicably by the parties, but failing results from such
efforts, shall finally be settled by INTERNATIONAL arbitration in
accordance with the INTERNATIONAL Arbitration Rules. The place of
proceedings shall be London and the proceedings shall be conducted in the
English language. The award shall be final and binding upon the parties.
15. Notices
All notices required by this Agreement to be given by either party to the other
parties shall be in English, unless otherwise is specifically agreed upon, and
shall be forwarded by hand delivery or sent by registered mail or telex and
shall be addressed to the last known address of the party and shall be confirmed
by letter if so required.
16. Governmental approvals
The performance of this agreement shall be contingent upon the obtaining of such
regulatory or/and governmental approvals, as may be required for each party. The
parties hereto shall make their best efforts to obtain and retain such
approvals.
<PAGE>
CONFIDENTIAL
IN WITNESS WHEREOF, the parties have executed this Agreement on the date
hereunder written in twofold by their duly authorized representatives:
/s/ Stig Johansson /s/ Biagio A. Civale
- ------------------------------- ----------------------------------
Mr. Stig Johansson Mr. Biagio A. Civale
Managing Director Vice President
UCS International Business Development
ITC
Date: Date:
<PAGE>
CONFIDENTIAL
Appendix 1
Destinations, Rates and Volumes
- --------------------------------------------------------------------------------
Destinations: USD/minute:
- --------------------------------------------------------------------------------
ALGERIA 0.430
ANDORRA 0.190
AUSTRIA 0.250
BELARUS 0.470
BELGIUM 0.220
BOSNIA 0.450
BULGARIA 0.360
CROATIA 0.390
CYPRUS 0.400
CZECH REPUBLIK 0.140
DENMARK 0.140
ESTONIA 0.290
FINLAND 0.180
FRANCE 0.160
GEORGIA 0.550
GERMANY 0.150
GIBRALTAR 0.400
GREECE 0.340
HUNGARY 0.230
IRELAND 0.210
ITALY 0.280
LATVIA 0.300
LIBYA 0.470
LITHUANIA 0.340
LUXEMBOURG 0.200
MALTA 0.320
MOLDOVA 0.650
MONACO 0.170
MOROCCO 0.360
NETHERLANDS 0.180
NORWAY 0.165
POLAND 0.310
ROMANIA 0.460
- --------------------------------------------------------------------------------
<PAGE>
CONFIDENTIAL
Appendix 1 (cont.)
Destinations, Rates and Volumes
- --------------------------------------------------------------------------------
Destinations: USD/minute:
- --------------------------------------------------------------------------------
RUSSIA 0.490
SAN MARINO 0.260
SLOVAKIA 0.280
SLOVENIA 0.390
SWEDEN 0.100
SWITZERLAND 0.150
TUNISIA 0.440
TURKEY 0.390
UK 0.110
UKRAINE 0.390
YUGOSLAVIA 0.400
- --------------------------------------------------------------------------------
<PAGE>
CONFIDENTIAL
Appendix 2
Destinations, Rates and Volumes
<PAGE>
GLOBAL LINK PRICES
ON-NET COUNTRIES
(US $)
(F.O.B. New York)
Country Code Price
------- ---- -----
Algeria 21 0.5826
Austria 43 0.2614
Belarus 375 0.7131
Belgium 32 0.2714
Bulgaria 359 0.4892
Cyprus 357 0 4814
Czech Republic 42 0.3714
Denmark 45 0.2235
Dominican Rep 1 0.2303
Estonia 372 0.4564
Finland 358 0.2481
France 33 0.2251
Germany 49 0.2037
Greece 30 0.3864
Hungary 36 0.3292
Iceland 353 0 2914
Italy 39 0.2925
Latavia 371 0.3603
Liechtenstein 41 0.2873
Lithuania 370 0.3726
Luxembourg 352 0.2861
Macedonia 389 0.5592
Madeira (Portugal) 351 0.3772
Monaco 377 0.2753
Morocco 21 0.4798
Netherlands 31 0.2370
Norway 47 0.2381
Poland 48 0.2664
Portugal 351 0.3581
Romania 40 0.5581
Russian Federation 7 0.4878
Slovakia 42 0.3559
Slovenia 386 0.5514
Somali Dem Rep 252 1.0880
Spain 34 0.3534
Sweden 46 0.1481
Switzerland 46 0.2312
Tunisia 21 0.5367
Turkey 90 0.4981
08/28/96 1 Global
<PAGE>
GLOBAL LINK PRICES
ON-NET COUNTRIES
(US $)
(F.O.B. New York)
Country Code Price
------- ---- -----
Ukraine 380 0.4114
United Kingdom 44 0.1341
Vatican City 379 0.3610
Yugoslavia (Serbia) 381 0.4770
08/28/96 2 Global
<PAGE>
GLOBAL LINK PRICES
OFF-NET COUNTRIES
(US $)
(F.O.B.New York)
Country Code Price
------- ---- -----
Afghanistan 93 1.2367
Albania 355 0.6837
American Samoa 684 0.5724
Andorra 376 0.2879
Angola 244 1.0503
Anguilla 1 0.4582
Antarctica C&S 672 0.8548
Antigua & Barbuda 1 0.4748
Argentina 54 0.5592
Armenia 374 0.5340
Aruba 297 0.4456
Ascension Is 247 1.1392
Australia 61 0.1906
Azerbaijani Rep 994 0.8592
Bahamas 1 0.2712
Bahrain 973 0.7825
Bangladesh 880 0.9256
Barbados 1 0.4582
Belize 501 0.7740
Benin 229 0.5638
Bermuda 1 0.3202
Bhutan 975 0.9870
Bolivia 591 0.7314
Bosnia 387 0.6159
Botswana 267 0.8140
Brazil 55 0.4986
British Virgin Is 1 0.4748
Brunei 673 0.5026
Burkina Coast 226 0.6368
Burundi 257 0.9617
Cambodia 855 1.3837
Cameroon 237 0.8846
Cape Verde Is 238 0.4729
Cayman Islands 1 0.4582
Central Afr Rep 236 1.0826
Chad 235 1.0066
Chile 56 0.4325
China 86 0.7688
Christmas Isl 672 0.5192
08/28/96 1 Global
<PAGE>
GLOBAL LINK PRICES
OFF-NET COUNTRIES
(US $)
(F.O.B. New York)
Country Code Price
------- ---- -----
Cocos Isl 672 0.5192
Colombia 57 0.5199
Comoros 269 0.7299
Congo 242 0.9150
Cook Islands 682 1.1270
Costa Rica 506 0.5587
Croatia 385 0.4926
Cuba 53 0.5998
Diego Garcia 246 1.0948
Djibouti 253 0.8216
Dominica 1 0.4582
Ecuador 593 0.6001
Egypt 20 0.6987
El Salvedor 503 0.6481
Equiatorial Guinea 240 l.2548
Eritrea 291 1.3659
Ethiopia 251 0.9514
Faeroe Islands 298 0.4259
Falkland Islands 500 0.9998
Fiji Islands 679 0.9703
French Autilles 596 0.6920
French Guiana 594 0.6339
French Polynesia 689 0.5794
Gabon 241 0.8137
Gambia 220 0.6614
Georgia 995 0.8714
Ghana 233 0.6614
Gibraltar 350 0.5548
Greenland 299 0.5714
Grenada 1 0.4572
Guadeloupe 590 0.5181
Guam 671 0.3620
Guatemala 502 0.5870
Guinea 224 0.7226
Guinea-Bissau 245 1.1427
Guyana 592 0.8103
Haiti 509 0.5849
Honduras 504 0.5489
Hong Kong 852 0.3370
08/28/96 2 Global
<PAGE>
GLOBAL LINK PRICES
OFF-NET COUNTRIES
(US $)
(F.O.B New York)
Country Code Price
------- ---- -----
Iceland 354 0.3947
India 91 0.6851
Indonesia 62 0.7170
Inmarsat E Atl 871 6.6081
Inmarsat W Atl 874 6.6081
Inmarsat IND 872 6.1081
Inmarsat PAC 873 5.8481
Iran 98 0.8966
Iraq 964 1.2370
Israel 972 0.5777
Ivory Coast 225 0.7853
Jamaica 1 0.5270
Japan 81 0.259O
Jordan 962 0.7733
Kazakahstan 7 0.8548
Kenya 254 0.6147
Kiribati 686 0.8924
Korea, North 850 0.8081
Korea, South 82 0.5087
Kyrgyzstan 7 0.8255
Kuwait 965 0.7422
Laos 856 1.1037
Lebanon 961 0.8392
Lesotho 266 0.9331
Liberia 231 0.5816
Libya 21 0.6714
Macau 853 0.6905
Madagascar 261 1.4481
Malawi 265 0.4889
Malaysia 60 0.4609
Maldives 960 0.9748
Mali Rep 223 1.0603
Malta 356 0.4670
Mariana Island 670 0.6637
Marshall Islands 692 1.0159
Martinique 596 0.6381
Mauritania 222 1.1981
Mauritius 230 0.8142
Mayotte Island 269 1.0492
08/28/96 3 Global
<PAGE>
GLOBAL LINK
OFF-NET COUNTRIES
(US $)
(F.O.B New York)
Country Code Price
------- ---- -----
Mexico - 1 (off) 52 0.1417
Mexico - 1 (Peak) 52 0.1767
Mexico - 2 (Off) 52 0.1675
Mexico - 2 (Peak) 52 0.2170
Mexico - 3 (Off) 52 0.2346
Mexico - 3 (Peak) 52 0.3255
Mexico - 4 (Off) 52 0.2624
Mexico - 4 (Peak) 52 0.3593
Mexico - 5 (Off) 52 0.2997
Mexico - 5 (Peak) 52 0.3995
Mexico - 6 (Off) 52 0.3702
Mexico - 6 (Peak) 52 0.4734
Mexico - 7 (Off) 52 0.3753
Mexico - 7 (Peak) 52 0.4792
Mexico - 8 (Off) 52 0.3792
Mexico - 8 (Peak) 52 0.4776
Micronesia 691 1.0131
Moldova 373 0.8178
Mongolia 976 1.3626
Montserrat 1 0.4582
Mozambique 258 0.7494
Myanmar 95 2.8137
Namibia 264 0.8651
Nauru 674 1.0629
Nepal 977 1.0492
Neth Antilles 599 0.3718
Nevis 1 0.5470
New Caledonia 687 0.9480
New Zealand 64 0.2750
Nicaragua 505 0.5171
Niger 277 0.8670
Nigeria 234 0.6376
Niue Island 683 1.1592
Norfolk 672 0.4766
Oman 968 0.8476
Pakistan 92 0.9294
Palau 680 1.2381
Panama 507 0.6107
Papua New Guinea 675 0.6992
08/28/96 4 Global
<PAGE>
GLOBAL LINK PRICES
OFF-NET COUNTRIES
(US $)
(F.O.B. New York)
Country Code Price
------- ---- -----
Paraguay 595 0.7170
Peru 51 0.6246
Philippines 63 0.6403
Qatar 974 0.7803
Reunion Island 262 1.0581
Rwanda 250 0.8805
Saipan 670 0.5570
San Marino 378 0.5064
Sao Tome 239 1.2470
Saudi Arabia 966 0.6821
Senegel Rep 221 0.8827
Seychelles Island 248 1.2926
Sierra Leone 232 0.8053
Singapore 65 0.2526
Sri Lanka 94 0.8926
Solomon Island 677 0.8803
South Africa 27 0.51l9
St. Helen 290 0.8759
St. Kitts 1 0.4582
St. Lucia 1 0.4582
St. Pierre/Miq 508 0.3351
St. Vent/Gren 1 0.4582
Sudan 249 0.5614
Suriname 597 0.8586
Swaziland 268 0.5618
Syria 963 1.0703
Taiwan Self-Assgnd 886 0.4480
Tajikistan 1 0.8270
Tanzania 255 0.7876
Thailand 66 0.7289
Togo 228 0.8648
Tonga 676 0.7626
Trinida/Tob 296 0.5709
Turkmenistan 7 0.8903
Turks/Caicos 1 0.3578
Tuvalu 688 0.8322
Uganda 256 0.7703
United Ar Emirates 971 0.5053
Uruguay 598 0.7064
08/28/96 5 Global
<PAGE>
GLOBAL LINK PRICES
OFF-NET COUNTRIES
(US $)
(F.O.B. New York)
Country Code Price
------- ---- -----
Uzbekistan 7 0.7970
Vanuatu 678 0.8659
Venezuela 58 0.3381
Vietnam 84 0.9561
Wallis & Futuna 681 0.4892
Western Samoa 685 0.8272
Yemen Rep of 967 0.7876
Zaire 243 0.72O7
Zambia 260 0.7814
Zimbabwe 263 0.5762
US 1 0.0866
Hawaii 1 0.1314
Alaska 1 0.1314
Canada 1 0.1142
Puerto Rico 0.0929
USVI 0.1156
08/28/96 6 Global
<PAGE>
CONFIDENTIAL
Appendix 3
1. UCS, on behalf of PTT Telecom NL, will lease the western half 2Mbit/s in
TAT 12 to ITC on a monthly basis.
2. In consideration thereof, ITC will pay UCS a fee of USD 8'000.- per month,
starting with the first month of operation and interconnection.
3. UCS will provide the eastern half 2Mbit/s on TAT 12 at its own expense.
4. This agreement can be terminated by either party by written notice, 30 days
prior to the termination.
<PAGE>
INTERNATIONAL TELECOMMUNICATIONS SERVICE AGREEMENT
BETWEEN
COMPANIA DOMINICANA DE TELEFONOS, C. POR A.
AND
INTERNATIONAL TELECOMMUNICATIONS CORPORATION
<PAGE>
INTERNATIONAL TELECOMMUNICATIONS SERVICE AGREEMENT
THIS AGREEMENT is entered into this 31st day of May 1994 by and between COMPANIA
DOMINICANA DE TELEFONOS, C. por A., a company organized and existing under the
laws of the Dominican Republic and having its principal office at 1101 Abraham
Lincoln Ave., Santo Domingo, Dominican Republic hereinafter called "CODETEL",
which expression shall include its successors and permitted assigns, and
INTERNATIONAL TELECOMMUNICATIONS CORPORATION, a corporation organized and
existing under the laws of United States of America and having its principal
office at 60 Hudson Street, Suite 307 New York, New York 10013 hereinafter
called "ITC", which expression shall include its successors and permitted
assigns. CODETEL and ITC shall be referred to collectively herein as the
"Parties" as individually as the "Party".
WHEREAS, ITC operates telecommunications facilities within United Stated of
America which constitute a telecommunications system within United Stated of
America,
WHEREAS, CODETEL operates telecommunications facilities within Dominican
Republic which constitute a telecommunications system within Dominican Republic,
and
WHEREAS, CODETEL and ITC desire to jointly furnish direct telecommunications
services between Dominican Republic and United Stated of America,
NOW, THEREFORE, the Parties hereto, in consideration of the mutual covenants
herein expressed, agree with each other as follows:
1. Establishment of Service.
1.1 Effective with the establishment of direct circuits between CODETEL and ITC
the Parties hereto agree to provide and maintain direct telecommunications
services between Dominican Republic and United Stated of America.
2. Services to be Provided.
2.1 The telecommunications services to be provided shall be as the Parties have
agreed as set forth in Annex A (International Telephone Service) and Annex B
(International Transit Service) attached hereto and made a part hereof by this
reference. These telecommunications services may be changed and expanded from
time to time by the prior written agreement of the Parties.
1
<PAGE>
3. Collection Charges.
3.1 The charges to CODETEL and ITC's customers respectively the users of the
telecommunications services provided hereunder (hereinafter called the
"collection charges") may be expressed in different currencies. Each Party shall
determine its own collection charges (subject to appropriate Governmental
approvals if required) applicable to such telecommunications services.
4. Accounting Rate.
4.1 The accounting rate applicable to the International Telephone Service to be
provided hereunder shall be that set forth in Annex A hereto, unless the Parties
shall otherwise agree in writing.
4.2 Service messages between the Parties will be exchanged free of charge.
5. Preparation and Submission of Monthly Notices
5.1 In respect of the International Telephone provided hereunder each Party
shall prepare a monthly notice including, but not limited to, the number of
calls and the number of conversation minutes originated by that Party with
respect to each agreed service, and the share of accounting rate per
conversation minute credited to the other Party in the agreed upon currency or
medium of exchange per minute for such International Telecommunications Service,
together with the total amount to be credited to that other Party.
5.2 Each Party shall forward such monthly notices to the other Party as soon as
practicable after the calendar month to which the notice relates but in no event
later than the end of the calendar month following the month to which the notice
relates.
5.3 No deduction shall be made in the monthly notice for uncollectible amounts.
Each Party shall be responsible for its own uncollectibles. Each Party may,
however, deduct customer credits resulting from defective service from the
monthly notices submitted to the other Party, provided that such deduction is
made before the monthly notice involved is forwarded to the other Party.
5.4 A monthly notice shall be deemed to have been accepted by the Party to which
it is rendered if that Party does not object in writing within the ninety (90)
days following the date in which the notice is sent.
2
<PAGE>
5.5 Notwithstanding any provision to the contrary contained in this Clause 5,
any adjustments as agreed upon in writing by both Parties shall be included in a
subsequent monthly statement.
6. Settlement of Accounts.
6.1 The sums due each month from one Party to the other, as set out in the
monthly notices referred to in Clause 5 above, shall be reduced to a monthly net
balance by each Party. No amounts shall be due and owing from either Party to
the other until the amounts credited to each Party in the monthly notices
rendered by both parties are netted against each other to determine a single
monthly imbalance due from one Party to the other. It is the intention of the
Parties that no indebtedness shall mature until the single monthly amount is
calculated. Net monthly balances due from one Party to the other shall be paid
by the debtor Party to the creditor Party as soon as practicable, and in any
event no later than one month after the monthly notices in respect of any given
month have been received.
6.2 Monthly notices rendered and payments made under this Agreement from one
Party to the other shall be in dollars of United States of America (US$).
7. Failure to Pay.
7.1 Notwithstanding any other provision of this Agreement, upon failure of a
Party to pay a net balance due in accordance with Clause 6.1, above the creditor
Party may, after providing (30) days written notice to the debtor Party,
restrict or suspend in whole or in part its participation in the
telecommunications services provided hereunder. Thereupon, the creditor Party
shall be released from its obligations under this Agreement with respect to the
telecommunications services so restricted or suspended for so long as any
balance due shall remain unpaid.
7.2 In particular, and notwithstanding the provisions of Clause 6 above, the
creditor Party may limit its provision of the International Telephone Services
to those calls that are billable to its own customers, retaining all sums
derived therefrom, and continue such practice until payment of any outstanding
balance due has been made.
7.3 Payment of a net balance shall not be withheld pending a specific claim made
under such net balance, as said in the International Telecommunications
Regulations (Melborne, 1988). Adjustments that have been agreed upon by both
parties shall be included in a subsequent monthly notice.
3
<PAGE>
7.4 The creditor Party may demand the debtor Party the payment of interest on
overdue balances at a rate of six percent (6%) yearly, according to subparagraph
3.3.1 of the International Telecommunications Regulations (Melborne, 1988)
8. Routing-of Service and Provision of Facilities.
8.1 The telecommunications services covered by this Agreement shall be provided
by means of cable, satellite or microwave. Circuits requirements, signaling,
configuration and access mode shall be mutually agreed between the Parties and
reviewed from time to time.
8.2 The telecommunications services provided under this Agreement shall be
provided by direct circuits between CODETEL in Dominican Republic and ITC in
United States of America.
8.3 Each Party shall be responsible for the provision, at its own expense, of
the telecommunications facilities located within its own operating area of
Dominican Republic and United States of America respectively necessary to
provide its telecommunications services hereunder.
8.4 Each Party shall be responsible for the provision, at its own expense, of
one-half of the international telecommunications facilities between Dominican
Republic and United States of America necessary to provide the
telecommunications services hereunder.
8.5 Each Party shall be responsible for the provision, at its own expense, of
appropriate interconnecting facilities between the telecommunications facilities
located in its own operating area of Dominican Republic and United States of
America respectively, with the international telecommunications facilities
between Dominican Republic and United States of America.
8.6 Each Party shall advise the other party as soon as possible of any facility
failure or likely facility failure in its area of operation that is expected to
cause protracted interruption of telecommunications services between Dominican
Republic and United States of America, and will endeavor to ensure that such
failure is avoided or remedied as soon as it is practical.
8.7 To ensure effective implementation and operation of the services provided
hereunder, the Parties agree to exchange on a timely basis, information
regarding quality of the services, dialing access codes, collection charges to
its customers and marketing and sales programs of the services.
4
<PAGE>
9. Records.
9.1 The Parties shall maintain complete and accurate records of all
telecommunications services provided pursuant to this Agreement for a period of
not less than one year.
10. Technical Standards and Methods of Operation.
10.1 Except as may be otherwise agreed in writing by the Parties hereto, the
technical standards and methods of operation applied by the Parties shall
conform to the current relevant recommendations of the Telecommunication
Standardization Bureau (TSB) of The International Telecommunications Union (ITU)
and to any future revisions of the same.
10.2 For operational purposes, traffic and maintenance personnel will use
English as the working language)
11. Force Majeure.
11.1 Neither Party shall be held liable for any delay or failure in performance
of any part of this Agreement from any cause beyond its control and without its
fault or negligence, such as acts of God, acts of civil or military authority,
Government regulations, embargoes, epidemics, war, terrorist acts, riots,
insurrections, fires, explosions, earthquakes, hurricanes, nuclear accidents,
floods, strikes, power blackouts, volcanic action, other major environmental
disturbances or unusually severe weather conditions.
12. Liability.
12.1 Neither Party shall be liable to the other for any loss or damage sustained
by reason of any failure in, or breakdown of the telecommunications facilities
or for any interruption of telecommunications service provided pursuant to this
Agreement, no matter what the cause of such breakdown or interruption, or
however long it shall last.
13. Governmental Approvals.
13.1 All agreements, covenants, undertakings, and obligations herein made or
assumed by the Parties hereto are subject to the obtaining and continuance of
all necessary governmental licenses, consents, permits, authorizations, and
approvals. Each Party shall use all
5
<PAGE>
reasonable efforts to obtain and to have continued in effect such licenses,
consents, permits, authorizations, and approvals.
14. Notices.
14.1 Any communication by either Party to the other shall be sufficiently made
if in writing and delivered by messenger or if sent by registered or certified
post, or by facsimile transmission to the addresses hereinafter specified and
shall be deemed to have been made to the other Party on the day on which such
communications were delivered or first received in the case of a facsimile
transmission.
14.2 For the purposes of this Agreement, the postal and facsimile address of the
Parties shall be as follows:
International Services Director General Council
CODETEL ITC
Abraham Lincoln 1101 R. Fishman
Apartado Postal 1377 60 Hudson Street
Santo Domingo, NY., NY. 10013
Dominican Republic 212/513-1007
Fax: (809) 544-3536 212/513-8311
The above addresses may be changed at any time by giving the other Party thirty
(30) days written notice.
15. Effective Date and Termination
15.1 This Agreement shall be deemed to have come into force upon the full
execution thereof by the Parties hereto and shall continue in force until
terminated by either Party giving not less than three months prior written
notice to the other Party.
15.2 Notwithstanding the provisions of Clause 15.1 above, this Agreement shall
terminate upon either Party placing the other upon notice in writing that such
other Party is in breach of this Agreement, and that breach is not cured within
30 days of such notice being received.
15.3 Any monies due to either Party as calculated pursuant to clauses 4, 5, 6
and 7 above shall not be affected by any such termination.
16. Modifications and Additions.
16.1 This Agreement and any of the provisions or Annexes hereof may be altered
or added to only by an agreement in
6
<PAGE>
writing signed by a duly authorized person on behalf of each Party.
17. Affiliation.
17.1 The relationship between CODETEL and ITC under this Agreement shall be that
of correspondents in the
joint provision of telecommunications services referred to herein. Nothing
herein contained shall be deemed to constitute a partnership or joint venture
between them, and the common enterprise of the parties shall be limited to the
express provisions of the service under this Agreement.
18. Waiver.
18.1 No course of dealing or failure of either party to enforce any provision of
this Agreement shall be construed as a waiver of such provisions or any other
rights under this Agreement. If any of the provisions of this shall be invalid
or unenforceable the entire Agreement be construed as if not containing that
particular invalid or unenforceable provision or provisions and the rights and
obligations of the Parties shall be construed and enforced accordingly.
19. Assignment.
19.1 This Agreement shall not be assigned or transferred by either Party without
the prior written consent of the other Party to this Agreement. Such consent
shall not be unreasonably delayed or withheld.
20. Confidentiality of Information.
20.1 Any of the information which the Parties may exchange hereunder to ensure
the effective and efficient implementation and operation of the
telecommunications services which is identified as such by the originating Party
and which is not in the public domain shall be considered and shall be treated
as strictly confidential and shall not be disclosed to third parties unless
otherwise specifically in writing agreed.
21. Proportional Return
21.1 Each Part agrees to implement proportional return of International Long
Distance traffic between United States of America and Dominican Republic in
accordance with the Annex
7
<PAGE>
21. Proportiona1 Return
21.1 Each Part agrees to implement proportional return of International Long
Distance traffic between United States of America and Dominican Republic in
accordance with the Annex E of this Agreement.
22. Counterparts.
22.1 This Agreement is be executed in two counterparts in English language, each
of which shall be considered an original with identical legal effect.
23. Governing Law.
23.1 This Agreement shall be governed by and construed in accordance with the
Laws of the Dominican Republic and United States of America.
IN WITNESS WHEREOF, the parties hereto have severally subscribed these presents,
or caused them to be subscribed in their name and behalf by their respective
officers thereunto duly authorized.
By CODETEL, By ITC,
/s/ Lawrence Vierra /s/ Chuck Piluso
- -------------------------------- ------------------------------
Lawrence Vierra Chuck Piluso
Vice President President
International Toll Marketing
Date 31 May 94 Date 31 May 94
----------------- --------------
8
<PAGE>
ANNEX A
TO
INTERNATIONAL TELECOMMUNICATIONS SERVICES AGREEMENT
BETWEEN CODETEL AND
INTERNATIONAL TELECOMMUNICATIONS CORPORATION
INTERNATIONAL TELEPHONE SERVICES
The International Telephone services to be offered shall be:
1. Services
1.1 Automatic:
International Direct Dialing
2. Period of service
2.1 These services will be offered twenty four (24) hours a day, seven days a
week, uninterrupted.
3. Accounting Rate
3.1 The Accounting Rate for traffic between Dominican Republic and United States
of America shall be:
FULL REDUCED
(US$/Min) (US$/Min)
U. S. A. 0.65 0.30
DOMINICAN REPUBLIC 0.65 0.30
---- ----
TOTAL 1.30 0.60
The following volume based accounting rate schedule shall be apply for inbound
traffic during 1994:
Inbound Minutes/Month Accounting Rate
- --------------------- ---------------
FULL REDUCED
(US$/Min) (US$/Min)
0 - 300,000 1.30 0.60
Over 300,000 0.60
9
<PAGE>
Page A2
3.2 The above accounting rates apply to the International Direct Dialling
traffic. Minutes of traffic upon which settlements are paid will be measured
using accumulated seconds.
3.3 The reduced rate period shall be in effect from 12:00 midnight to 7:00 a.m.,
seven days a week. The Full rate period shall be in effect from 7:00 a.m. to
12:00 midnight.
By CODETEL, By ITC,
/s/ Lawrence Vierra /s/ Chuck Piluso
- ----------------------------- -------------------------
Lawrence Vierra Chuck Piluso
Vice President President
International Toll Marketing
Date 31 May 94 Date 31 May 94
------------------- ----------------
10
<PAGE>
ANNEX B
TO
INTERNATIONAL TELECOMMUNICATIONS SERVICE AGREEMENT
BETWEEN CODETEL AND
INTERNATIONAL TELECOMMUNICATIONS CORPORATION
INTERNATIONAL TRANSIT SERVICE
1. CIasses of Service
1.1 Services between Dominican Republic or United States of America and another
country or geographic area may transit Dominican Republic or United States of
America as the Parties hereto may from time to time agree.
2. Charges
2.1 The transited party will establish its own charges for this transit service.
3. Accounting and Revenue Settlement
3.1 Transit charges will be remitted to the party providing the transit service
in accordance with clause 5 of this Agreement.
Transit traffic and charges will be identified in the monthly notices separately
from other accounted items and shall further be identified by terminating
country.
By CODETEL, By ITC,
/s/ Lawrence Vierra /s/ Chuck Piluso
- ----------------------------- -------------------------
Lawrence Vierra Chuck Piluso
Vice President President
International Toll Marketing
Date 31 May 94 Date 31 May 94
------------------- ----------------
11
<PAGE>
ANNEX C
TO
INTERNATIONAL TELECOMMUNICATIONS SERVICE AGREEMENT
BETWEEN CODETEL and INTERNATIONAL TELECOMMUNICATIONS
CORPORATION
PROPORTIONAL RETURN OF TRAFFIC
1. Each party shall return the same proportion of total settlement minutes of
terminal traffic to the other party that is proportionate to the total
settlement minutes of terminal traffic received from the other party, such that
ITC's monthly settlement statements to CODETEL shall reflect the same percentage
of all United States-billed minutes as the percentage of all Dominican
Republic-billed minutes that are reflected in CODETEL's monthly settlement
statements to ITC, and vice-versa. Fractional percents will be rounded to the
nearest whole percent. Reasonable efforts shall be made by each party to ensure
that each party receives a representative share of the total return traffic.
2. For purposes of the proportional return calculation and implementation,
International Long Distance (ILD) settlement minutes shall include all sent paid
(both subscriber dialed and operator handled), and all received collect terminal
telephone traffic, including calling card, country direct, and international 800
services. Unless otherwise agreed hereafter, no other classes of services
offered by CODETEL or ITC shall be considered ILD for purposes of proportional
return. For new classes of service that may be introduced from time to time by
either of the Parties, the Parties shall consider, at the time of introduction,
modification of the proportional return calculation as they agree may be
appropriate.
3. Transit traffic terminating in a country other than the Dominican Republic or
United States of America, and transit traffic originating in a country other
than the Dominican Republic or United States of America shall not be included in
the proportional return calculation of traffic due to either party.
4. The obligation to implement proportionate return of ILD settlement minutes
shall apply notwithstanding an agreement by either party with any other carrier
to return one or more of the ILD classes of service to that specific carrier.
12
<PAGE>
Page C2
5. The monthly settlement statements of account interchanged between Dominican
Republic and United States of America international carriers shall be the only
basis to calculate the proportional return percentage under this Agreement.
6. On a quarterly basis, each Party agrees to inform the other its share of the
ILD settlement minutes reported as a percentage of the total ILD settlement
minutes reported by all carriers in each country.
7. Each party shall inform the other of any deviations in the actual traffic
returns vis-a-vis the proportionate return owed and the reasons therefore. Each
party shall make a reasonable effort to correct deviations resulting from a
party's failure to offer proportionate ILD traffic to the other, except that
deviations of less than one percent of the total ILD traffic for a given
quarterly period will not be corrected. Unless otherwise agreed by the parties,
to implement corrections, the sending party will adjust the return traffic
percentages in the following quarterly period to compensate the other party for
the deviation in the actual traffic returned vis-a-vis the proportional return
owed during the prior quarterly period.
8. In no event will either party be obligated to settle with the other for
minutes a Party was not able to terminate.
By CODETEL, By ITC,
/s/ Lawrence Vierra /s/ Chuck Piluso
- ----------------------------- -------------------------
Lawrence Vierra Chuck Piluso
Vice President President
International Toll Marketing
Date 31 May 94 Date 31 May 94
------------------- ----------------
13
<PAGE>
SECOND SUPPLEMENTARY AGREEMENT
TO THE
UK-NETHERLANDS 14 CABLE SYSTEM
CONSTRUCTION & MAINTENANCE AGREEMENT
EFFECTIVE: 18 FEBRUARY 1997
<PAGE>
UK-NETHERLANDS 14 SECOND SUPPLEMENTARY AGREEMENT
THIS SECOND SUPPLEMENTARY AGREEMENT to the UK-Netherlands 14 Construction and
Maintenance Agreement made and entered into this _________________, between and
among the Parties identified in Annex 1 to this Second Supplementary Agreement
(hereinafter called the "Parties").
WHEREAS, the UK-Netherlands 14 Parties signed an Agreement on the 21st
November, 1995, (hereinafter called the "UK-Netherlands 14 C&MA") and an
Agreement on the 19th February 1996, (hereinafter called the "UK-Netherlands
First Supplementary Agreement"), to provide an optical fibre cable system
linking the United Kingdom and the Netherlands, which will be used to provide
telecommunication services between points in or reached via United Kingdom and
the Netherlands, and
WHEREAS, Paragraph 5 of the UK-Netherlands 14 C&MA provides for the allocation
and reallocation of capacity, and
WHEREAS, Paragraph 27 of the UK-Netherlands 14 C&MA provides for the admission
of Additional Parties, and
WHEREAS, the parties identified in Paragraph 1 of Annex 1, (hereinafter called
the "Additional Parties" each wish to become a Party to the UK-Netherlands 14
C&MA, and
WHEREAS, pursuant to Paragraph 30.2 of the UK-Netherlands 14 C&MA, this Second
Supplementary Agreement of the UK-Netherlands 14 C&MA will be signed by the
Parties affected and the Initial Parties, on behalf of the Parties, and
NOW THEREFORE, the Parties in consideration of the mutual covenants herein
expressed, covenant and agree with each other as follows:
1. The provisions of this agreement shall apply with effect from 18 February
1997.
2. Each of the Additional Parties hereby: (a) agrees to accept and abide by
the terms and conditions of the UK-Netherlands 14 C&MA, as amended, which
is incorporated herein by reference and made part thereof; (b) agrees to
assume responsibility to pay its proportionate share of all costs already
incurred under the UK-Netherlands 14 C&MA, and (c) agrees to abide by any
decisions already taken by the Parties of the UK-Netherlands 14 C&MA in
relation to the UK-Netherlands 14 Cable System.
<PAGE>
3. The attached Schedule A, effective 18 Februarv 1997, which incorporates the
Additional Parties, shall be deemed to replace Schedule A of the
UK-Netherlands 14 First Supplementary Agreement.
4. The Parties hereby agree to increase the Notional Capacity and to certain
reassignments of capacity among themselves, pursuant to Paragraph 5 of the
UK-Netherlands 14 C&MA, and furthermore agree to acquire the investment
share in the UK-Netherlands 14 Cable System, as shown in the attached
Schedules B and C which shall be deemed to replace the corresponding
Schedules in the UK-Netherlands 14 First Supplementary Agreement.
5. The Parties acquiring capacity pursuant to this Second Supplementary
Agreement shall be billed in accordance with financial procedures,
previously established in the UK-Netherlands 14 C&MA, as appropriate. Such
bills shall contain all costs incurred prior to this document's Effective
Date in relation to the UK-Netherlands 14 Cable System. Subsequent bills
shall be rendered and paid in accordance with the terms and conditions set
out in the UK-Netherlands 14 C&MA.
6. This Second Supplementary Agreement shall be executed in English. Mercury
shall be responsible for the prompt distribution of certified photocopies
to all Parties and shall retain the signed original of this Second
Supplementary Agreement.
7. Except as provided in this Second Supplementary Agreement, all other terms
and conditions of the UK-Netherlands 14 C&MA remain unchanged and in full
force and effect.
IN WITNESS WHEREOF, the Parties hereto have severally subscribed these presents
or caused them to be subscribed in their names and behalf by their respective
officers thereunto duly authorised.
Signed on behalf of British Telecommunications plc by
/s/ David A. Robinson
- ----------------------------
a person authorised by British Telecommunications plc to act in that behalf.
<PAGE>
Signed on behalf of Deutsche Telekom AG by
[SIGNATURE ILLEGIBLE]
- ----------------------------
a person authorised by Deutsche Telekom AG to act in that behalf.
Signed on behalf of Mercury Communications Limited by
/s/ Peter Evans
- ----------------------------
a person authorised by Mercury Communications Limited to act in that behalf.
Signed on behalf of PTT Telecom BV by
[SIGNATURE ILLEGIBLE]
- ----------------------------
a person authorised by PTT Telecom BV to act in that behalf.
Signed on behalf of Swiss Telecom PTT by
/s/ Peter Evans
- ----------------------------
a person authorised by Swiss Telecom PTT to act in that behalf.
<PAGE>
Signed on behalf of Telia AB by
[SIGNATURE ILLEGIBLE]
- ----------------------------
a person authorised by Telia AB to act in that behalf.
Signed on behalf of SPT Telecom a.s. by
[SIGNATURE ILLEGIBLE]
- ----------------------------
a person authorised by SPT Telecom a.s. to act in that behalf.
Signed on behalf of Oy Finnet International AB by
[SIGNATURE ILLEGIBLE]
- ----------------------------
a person authorised by Oy Finnet International AB to act in that behalf.
Signed on behalf of Telenor Carrier Services AS by
[SIGNATURE ILLEGIBLE]
- ----------------------------
a person authorised by Telenor Carrier Services AS to act in that behalf.
Signed on behalf of MFS by
/s/ Sharon Bywater
- ----------------------------
a person authorised by MFS to act in that behalf.
<PAGE>
Signed on behalf of Energis Communications Limited by
[SIGNATURE ILLEGIBLE]
- ----------------------------
a person authorised by Energis Communications Limited to act in that behalf.
Signed on behalf of Esprit Telecom UK Limited by
[SIGNATURE ILLEGIBLE]
- ----------------------------
a person authorised by Esprit Telecom UK Limited to act in that behalf.
Signed on behalf of Global One Services AB by
[SIGNATURE ILLEGIBLE]
- ----------------------------
a person authorised by Global One Services AB to act in that behalf.
Signed on behalf of RSL Communications Limited by
[SIGNATURE ILLEGIBLE]
- ----------------------------
a person authorised by RSL Communications Limited to act in that behalf.
Signed on behalf of Star Europe Limited by
/s/ Peter Evans
- ----------------------------
a person authorised by Star Europe Limited to act in that behalf.
<PAGE>
Signed on behalf of Unisource Holding (UK) Limited by
[SIGNATURE ILLEGIBLE]
- ----------------------------
a person authorised by Unisource Holding (UK) Limited to act in that behalf.
Signed on behalf of Vebacom Netz GmbH by
[SIGNATURE ILLEGIBLE]
- ----------------------------
a person authorised by Vebacom Netz GmbH to act in that behalf.
Signed on behalf of Entreprise des Postes et Telecommunications du Luxembourg by
/s/ Peter Evans
- ----------------------------
a person authorised by Entreprise des Postes et Telecommunications du Luxembourg
to act in that behalf.
Signed on behalf of Telfort N.V. by
[SIGNATURE ILLEGIBLE]
- ----------------------------
A person authorised by Telfort N.V. to act in that behalf.
Signed on behalf of Telekom Slovenije by
- ----------------------------
a person authorised by Telekom Slovenije to act in that behalf.
<PAGE>
Signed on behalf of Tele 2 AB by
[SIGNATURE ILLEGIBLE]
- ----------------------------
a person authorised by Tele 2 AB to act in that behalf.
Signed on behalf of Nordiska Tele 8 AB by
/s/ Peter Evans
- ----------------------------
a person authorised by Nordiska Tele 8 AB to act in that behalf.
<PAGE>
Annex 1
1. ADDITIONAL PARTIES
Energis Communications Limited
Esprit Telecom UK Limited
Global One Services AB
Entreprise des Postes et Telecommunications du Luxembourg
Telfort N.V.
Telekom Slovenije
Tele-2 AB
Tele-8 AB
RSL Communications Limited
Star Europe Limited
Vebacom Netz GmbH
Unisource
2. EXISTING PARTIES
British Telecommunications plc
Deutsche Telekom AG
Mercury Communications Limited
Metropolitan Fiber Systems International Inc
Oy Finnet International Ab
PTT Telecom BV
SPT TELECOM a.s.
Swiss Telecom PTT
Telenor Carrier Services AS,
Telia AB
<PAGE>
SCHEDULE A
COUNTRY PARTY
Czech Republic SPT TELECOM a.s., a joint stock company
existing under the laws of the Czech Republic, having
its principal office at Olsanska 5, 130 00 Praha 3,
Czech Republic (herein called "SPT" which expression
shall include its successors)
Finland Oy Finnet International Ab, a corporation organised and
existing under the laws of Finland, having its main
office at Runeberginkatu 5, 9th Floor 00100 Helsinki,
Finland (herein called "FINNET" which expression shall
include its successors)
Germany Deutsche Telekom AG, a company existing under the laws
of the Federal Republic of Germany, having its
registered office at Friedrich-Ebert-Allee 140, 53113
Bonn (herein called "DTAG" which expression shall
include its successors).
Vebacom Netz GmbH, a company existing under the laws of
Germany having its main office at Deutz-Mulheimer-Strabe
111, 51063 Koln, ( herein called "Vebacom" which
expression shall include its successors).
Luxembourg Entreprise des Postes et Telecommunications, a company
existing under the laws of Luxembourg, having its main
office at 8A, avenue Monterey, L-2020 Luxembourg (herein
called "LPT" which expression shall include its
successors)
Netherlands PTT Telecom BV, a company registered under the laws of
Netherlands having its registered office at PTT
Headquarters, Prinses Beatrixlaan 23, 2595 AK, The Hague
(herein called "NLPTT" which expression shall include
its successors).
Telfort N.V., a company registered under the laws of the
Netherlands and having its registered office at
Jaarbeursplein 17, 3521 AN Utrecht (herein called
"Telfort" which expression shall include its
successors).
<PAGE>
Norway Telenor Carrier Services AS, a wholly owned subsidiary
of Telenor AS, a company organised as a state owned
limited company existing under the laws of Norway,
having its principal office at Universitetsgata 2, N -
0130 Oslo, Norway (herein called "TELENOR" which
expression shall include its successors).
Slovenije Telekom Slovenije p.o., a company existing under the
laws of Slovenije, having its principal office at 15
Cigaletova, 61000 Ljubljana, Slovenije (herein called
"Telekom Slovenije" which expression shall include its
successors).
Sweden Telia AB, a corporation organised and existing under the
laws of Sweden, having its main office at S-12386
Farsta, Sweden (herein called "TELIA" which expression
shall include its successors).
Tele 2 AB, a company organised and existing under the
laws of Sweden, having its main office at
Borgarfjordsgatan 16, PO Box 62, S-164 94 Kista, Sweden
(herein called "TELE 2" which expression shall include
its successors).
NordiskaTele 8 AB, a corporation organised and existing
under the laws of Sweden having its main office at Hans
Michelsensgatan 6, S-211 21 Malmo (herein called "TELE8"
which expression shall include its successors).
Global One Services AB, a company organised and existing
under the laws of Sweden having its main office at
Albygatan 109, PO Box 1, 171 18 Solna, Sweden (herein
called "G1SE" which expression shall include its
successors).
Switzerland Swiss Telecom PTT, having its office at General
Directorate, Viktoriastrasse 21, 3030 Berne, Switzerland
(herein called "SWISST" which shall include its
successors).
<PAGE>
United Kingdom British Telecommunications plc, a public limited
company, registered in England (No. 1800000) whose
registered office is at 81 Newgate Street, London EC1A
7AJ, England (herein called "BT" which expression shall
include its successors).
Mercury Communications Limited, a limited company
registered in England (No. 1541957) whose registered
office is at New Mercury House, 26 Red Lion Square,
London WC1R 4HQ (herein called "MCL" or "Mercury" which
expression shall include its successors).
Energis Communications Limited, a limited company
registered in England and Wales (No. 2630471) whose
registered office is Carmelite, 50 Victoria Embankment
London EC4Y ODE (herein after called "Energis" which
expression shall include its successors).
Esprit Telecom UK Limited, a limited company registered
in England (No. 2671859) whose registered office is at
69 Wilson Street, London, EC2A 2BB (herein called
"Esprit" which expression shall include its successors)
RSL Communications Limited, a company organised to
operate globally with offices in New York, USA and in
the UK, at Victoria House, London Square, Cross Lanes,
Guildford, Surrey, GU1 1UN, England (and herein called
"RSL", which expression shall include its successors).
STAR Europe Limited, (STAR Telecommunications, Inc), a
company incorporated and existing under the laws of
England and Wales and having its registered address at
27 Chancery Lane, London, WC2A 1NF (herein called "STAR"
which expression shall include its successors).
Unisource Holding (UK) Limited, a limited company
registered in England (No. 02548305) whose registered
office is at 114A Cromwell Road, London SW7 4ES and
which company is licensed as an international facility
based operator in the UK (herein called "Unisource"
which expression shall include its successors).
<PAGE>
USA Metropolitan Fiber Systems International Inc., a company
organised and existing under the laws of the State of
Delaware and having its principle office at 8100 Boone
Boulevard, Vienna, Virginia, 22182, United States of
America (herein called "MFS" which expression shall
include its successors).
<PAGE>
UK - NETHERLANDS 14 CABLE SYSTEM
ALLOCATION OF CAPITAL COSTS AND
OPERATION & MAINTENANCE COSTS
IN SEGMENT 1
Schedule B1
================================================================================
COUNTRY PARTY PERCENT
- --------------------------------------------------------------------------------
GERMANY DTAG 4.1005%
NETHERLANDS NLPTT 10.3175%
NORWAY TELENOR 0.3968%
SWEDEN TELIA 8.3333%
SWEDEN GLOBAL ONE 0.1323%
USA MFS 13.8889%
UK BT 25.0000%
UK MCL 27.6455%
UK ENERGIS 0.9259%
UK ESPRIT 0.5291%
UK RSL 0.2646%
UK STAR 0.1323%
UK UNISOURCE 8.3333%
- --------------------------------------------------------------------------------
TOTAL 100.0000%
================================================================================
EFFECTIVE: 18 FEBRUARY 1997 Printed: 18/2/97
<PAGE>
UK - NETHERLANDS 14 CABLE SYSTEM
ALLOCATION OF CAPITAL COSTS AND
OPERATION & MAINTENANCE COSTS
IN SEGMENT 2
Schedule B2
================================================================================
COUNTRY PARTY PERCENT
- --------------------------------------------------------------------------------
GERMANY DTAG 0.00%
NETHERLANDS NLPTT 0.00%
NORWAY TELENOR 0.00%
SWEDEN TELIA 0.00%
SWEDEN GLOBAL ONE 0.00%
USA MFS 0.00%
UK BT 0.00%
UK MCL 0.00%
UK ENERGIS 0.00%
UK ESPRIT 0.00%
UK RSL 0.00%
UK STAR 0.00%
UK UNISOURCE 0.00%
- --------------------------------------------------------------------------------
TOTAL 0.00%
================================================================================
EFFECTIVE: 18 FEBRUARY 1997 Printed: 18/2/97
<PAGE>
UK - NETHERLANDS 14 CABLE SYSTEM
ALLOCATION OF CAPITAL COSTS AND
OPERATION & MAINTENANCE COSTS
IN SEGMENT 3
Schedule B3
================================================================================
COUNTRY PARTY PERCENT
- --------------------------------------------------------------------------------
GERMANY DTAG 4.1005%
NETHERLANDS NLPTT 10.3175%
NORWAY TELENOR 0.3968%
SWEDEN TELIA 8.3333%
SWEDEN GLOBAL ONE 0.1323%
USA MFS 13.8889%
UK BT 25.0000%
UK MCL 27.6455%
UK ENERGIS 0.9259%
UK ESPRIT 0.5291%
UK RSL 0.2646%
UK STAR 0.1323%
UK UNISOURCE 8.3333%
- --------------------------------------------------------------------------------
TOTAL 100.0%
================================================================================
EFFECTIVE: 18 FEBRUARY 1997 Printed: 18/2/97
<PAGE>
UK - NETHERLANDS 14 CABLE SYSTEM
ALLOCATION OF CAPITAL COSTS AND
OPERATION & MAINTENANCE COSTS
IN SEGMENT 4
Schedule B4
================================================================================
COUNTRY PARTY PERCENT
- --------------------------------------------------------------------------------
CZECH REP. SPT 0.1984%
FINLAND FINNET 0.0661%
GERMANY DTAG 9.3254%
GERMANY VEBACOM 0.0661%
LUXEMBOURG LPT 0.1984%
NETHERLANDS NLPTT 21.0979%
NETHERLANDS TELFORT 4.1667%
NORWAY TELENOR 1.2566%
SLOVENIA T SLOVENIJE 0.0661%
SWEDEN GLOBAL ONE 0.1323%
USA MFS 11.3095%
SWEDEN TELIA 9.3915%
SWEDEN TELE-2 0.3307%
SWEDEN TELE-8 0.0661%
SWITZERLAND SWISST 6.3492%
UK BT 12.5000%
UK ENERGIS 0.4630%
UK ESPRIT 0.5291%
UK MCL 13.8228%
UK RSL 0.2646%
UK STAR 0.0661%
UK UNISOURCE 8.3333%
- --------------------------------------------------------------------------------
TOTAL 100.0000%
================================================================================
EFFECTIVE: 18 FEBRUARY 1997 Printed: 18/2/97
<PAGE>
UK - NETHERLANDS 14 CABLE SYSTEM
ALLOCATION OF CAPITAL COSTS AND
OPERATION & MAINTENANCE COSTS
IN SEGMENT 5
Schedule B5
================================================================================
COUNTRY PARTY PERCENT
- --------------------------------------------------------------------------------
CZECH REP. SPT 0.3968%
FINLAND FINNET 0.1323%
GERMANY DTAG 14.5503%
GERMANY VEBACOM 0.1323%
LUXEMBOURG LPT 0.3968%
NETHERLANDS NLPTT 31.8783%
NETHERLANDS TELFORT 8.3333%
NORWAY TELENOR 2.1164%
SLOVENIA T SLOVENIJE 0.1323%
SWEDEN GLOBAL ONE 0.1323%
USA MFS 8.7302%
SWEDEN TELIA 10.4497%
SWEDEN TELE-2 0.6614%
SWEDEN TELE-8 0.1323%
SWITZERLAND SWISST 12.6984%
UK ESPRIT 0.5291%
UK RSL 0.2646%
UK UNISOURCE 8.3333%
- --------------------------------------------------------------------------------
TOTAL 100.0000%
================================================================================
EFFECTIVE: 18 FEBRUARY 1997 Printed: 18/2/97
<PAGE>
Schedule C1
UK - NETHERLANDS 14 CABLE SYSTEM
ALLOCATION OF MIUs
TOTAL NOTIONAL CAPACITY
INTEREST IN MIUs
<TABLE>
<CAPTION>
EASTERN ACCESS
==========================================================================================================================
COUNTRY CZECH REP FINLAND GERMANY GERMANY LUXEMBOURG NETHERLANDS NETHERLANDS NORWAY SLOVENIA SWEDEN
PARTIES SPT FINNET DTAG VEBACOM LPT NEPTT TELFORT TELENOR T SLOVENIJE GLOBAL ONE
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
DTAG 0 0 31 0 0 0 0 0 0 0
NEPTT 0 0 0 0 0 78 0 0 0 0
TELIA 0 0 0 0 0 0 0 0 0 0
BT 0 0 0 0 0 63 63 0 0 0
MCL 3 1 79 1 3 63 0 12 1 0
ENERGIS 0 0 0 0 0 7 0 0 0 0
ESPRIT 0 0 0 0 0 0 0 0 0 0
GLOBAL ONE 0 0 0 0 0 0 0 0 0 1
MFS 0 0 0 0 0 30 0 0 0 0
RSL 0 0 0 0 0 0 0 0 0 0
TELENOR 0 0 0 0 0 0 0 3 0 0
STAR 0 0 0 0 0 0 0 1 0 0
UNISOURCE 0 0 0 0 0 0 0 0 0 0
- --------------------------------------------------------------------------------------------------------------------------
TOTAL 3 1 110 1 3 241 63 16 1 1
==========================================================================================================================
<CAPTION>
EASTERN ACCESS
========================================================================================
COUNTRY USA SWEDEN SWEDEN SWEDEN SWITZERLAND UK UK UK
PARTIES MFS TELIA TELE-2 TELE-8 SWISST UNISOURCE RSL ESPRIT TOTALS
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
DTAG 0 0 0 0 0 0 0 0 31
NEPTT 0 0 0 0 0 0 0 0 78
TELIA 0 63 0 0 0 0 0 0 63
BT 0 0 0 0 63 0 0 0 189
MCL 3 16 5 1 21 0 0 0 209
ENERGIS 0 0 0 0 0 0 0 0 7
ESPRIT 0 0 0 0 0 0 0 4 4
GLOBAL ONE 0 0 0 0 0 0 0 0 1
MFS 63 0 0 0 12 0 0 0 105
RSL 0 0 0 0 0 0 2 0 2
TELENOR 0 0 0 0 0 0 0 0 3
STAR 0 0 0 0 0 0 0 0 1
UNISOURCE 0 0 0 0 0 63 0 0 63
- ----------------------------------------------------------------------------------------
TOTAL 66 79 5 1 96 63 2 4 756
========================================================================================
</TABLE>
EFFECTIVE: 18 FEBRUARY 1997 Printed: /97
<PAGE>
[LOGO] telia Fax Page No. (total)
1 + 1 + 41
Date Reference S-class
Telia Network Services 1996-10-14
Name, telephone Your date Your reference
- --------------------------------------------------------------------------------
Stanley Neijd, +46 8 452 55 92
cc To: name, address
Charlotte Akerlund, Telia ODIN General Committee
phone +46 8 452 5506, fax +452 5503 (see attached distribution list)
fax
- --------------------------------------------------------------------------------
Message
Dear ODIN friends,
SUBJECT: PROPOSED 4TH SUPPLEMENTARY AGREEMENT TO THE ODIN C&MA - TO BE
SIGNED AT GC MEETING ON 24 OCTOBER, 1996
As announced in previous messages, please find enclosed proposed text
for the 4th Supplementary Agreement to the ODIN C&MA. This agreement
is planned to be signed by the Initial Parties (Telia, PPT Telecom,
Tele Danmark, Telenor, Telecom Finland and Belgacom) together with all
other Affected Parties (Sprint, Finnett, Worldcom, Tele2, MFSI, MCII,
MCL, PTA, Lattelkorn, TPSA).
If any of these Parties will not be attending the ODIN GC meeting on
24 October, please send a Power of Attorney to any attending Party
with a copy to me.
The proposed Supplementary Agreement contains revised schedules for
the capacity allocation as well as the names/addresses of the Parties.
It would be appreciated if all Parties could check this data and
inform about any corrections or any other comment to the proposal
before 17 October, 1996.
Best Regards
/s/ Stanley Neijd
Stanley Neijd
ODIN General Committee Coordinator
Registered office: Stockholm Reg. No. 556103-4249
- --------------------------------------------------------------------------------
Telia AB (publ) Postal address Telephone Fax
- --------------------------------------------------------------------------------
+46 6 452 55 92 +46 8 452 55 03
<PAGE>
14 oktober 1996
GENERAL COMMITTEE FOR THE ODIN SEA CABLE PROJECT
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------
COUNTRY ORGANISATION NAME FAX
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
AUSTRALIA TELSTRA Mr J MCKENDRY +61 2 9287 5617
- -----------------------------------------------------------------------------------------------------
AUSTRIA PTT Austria Mr H FRITSCHER +43 1 535 5757
- -----------------------------------------------------------------------------------------------------
BELGIUM BELGACOM Mr R. THOEN +32 2 202 7553
- -----------------------------------------------------------------------------------------------------
BRAZIL EMBRATEL Mr R P. BARBOSA +55 21 233 7349
- -----------------------------------------------------------------------------------------------------
BULGARIA BTC Mr B SHALVARDJIEV +359 2 80 56 40
- -----------------------------------------------------------------------------------------------------
CANADA Teleglobe Mr M H. WILLIAMS +1 514 868 8580
- -----------------------------------------------------------------------------------------------------
CYPRUS CYTA Mr. CHRISTODOULIDES +357 2 494155
- -----------------------------------------------------------------------------------------------------
DENMARK Telecom Denmark Mr S JORGENSEN +45 42 52 9331
- -----------------------------------------------------------------------------------------------------
FINLAND Finnett Mr I HEINO +358 0 4002340
- -----------------------------------------------------------------------------------------------------
FINLAND Telecom Finland Mr T HARTTKAINEN +358 2040 2811
- -----------------------------------------------------------------------------------------------------
FRANCE France Telecom Mr M COLAS +33 1 4342 6052
- -----------------------------------------------------------------------------------------------------
GERMANY Deutsche Telekom Mr G PAULY +49 228 181 8978
- -----------------------------------------------------------------------------------------------------
HONGKONG HKTI Mr D WONG +852 2824 0705
- -----------------------------------------------------------------------------------------------------
ICELAND IPT Mr T JONSSON +354 550 60 09
- -----------------------------------------------------------------------------------------------------
INDIA VSNL Mr K P. TIWARI +91 22 262 3616
- -----------------------------------------------------------------------------------------------------
IRELAND Telecom Ireland Mr J HALL +353 1 475 2535
- -----------------------------------------------------------------------------------------------------
ITALY Telecom Italia Mr C.BADINI +39 6 5734 4331
- -----------------------------------------------------------------------------------------------------
JAPAN IDC Mr TAKUJI TSUBA +81 3 5820 5365
- -----------------------------------------------------------------------------------------------------
JAPAN ITJ Mr S. NOZAKI +81 3 5565 5330
- -----------------------------------------------------------------------------------------------------
JAPAN KDD Dr A YAMAMOTO +81 3 3347 5160
- -----------------------------------------------------------------------------------------------------
LATVIA Lattelekom Mr S RAY +371 705 5245
- -----------------------------------------------------------------------------------------------------
LUXEMBOURG P&T Luxembourg Mr C DONDELINGER +352 47 5110
- -----------------------------------------------------------------------------------------------------
MEXICO Telefonos de Mexico Mr D ASIAIN +52 5 592 3964
- -----------------------------------------------------------------------------------------------------
NETHERLANDS PTT Telecom Mr H Kassens +31 70 343 8319
- -----------------------------------------------------------------------------------------------------
NORWAY Telenor Mr J GOVERUD +47 22 419359
- -----------------------------------------------------------------------------------------------------
POLAND T.P.S.A. Mr R. GEBKA +48 22 265 746
- -----------------------------------------------------------------------------------------------------
PORTUGAL MARCONI Ms A I CLUNY +351 1 7207174
- -----------------------------------------------------------------------------------------------------
PORTUGAL Telecom Portugal Mr J P Neves +351 1 500 4283
- -----------------------------------------------------------------------------------------------------
RUSSIA Rostelecom Mr M LASKTY +7095 924 7062
- -----------------------------------------------------------------------------------------------------
SINGAPORE Singapore Telecom Mr R HEW +65 734 6896
- -----------------------------------------------------------------------------------------------------
SPAIN Telefonica Mr P. VALERO +34 1 516 3850
- -----------------------------------------------------------------------------------------------------
SWEDEN Telia Mr S NEUD +46 8 452 55 03
- -----------------------------------------------------------------------------------------------------
SWEDEN Tele2 Mr A DANIELSSON +46 8 5626 4200
- -----------------------------------------------------------------------------------------------------
TURKEY Turk Telekomunikasyon Mr A ORAL +90 312 313 2940
- -----------------------------------------------------------------------------------------------------
UKRAINE UKRTEC Mr A VOLYNETS +380 44 245 4310
- -----------------------------------------------------------------------------------------------------
UNITED KINGDOM BT Mr D ROBINSON +44 171 492 2804
- -----------------------------------------------------------------------------------------------------
UNITED KINGDOM Mercury Mr D SHIRT +44 1344 713086
- -----------------------------------------------------------------------------------------------------
UNITED STATES AT&T Mr P HAGGERTY +1 201 326 3766
- -----------------------------------------------------------------------------------------------------
UNITED STATES Worldcom Mr E BOCCHINO +1 212 478 6201
- -----------------------------------------------------------------------------------------------------
UNITED STATES MCI Mr C REEVE +1 914 934 6134
- -----------------------------------------------------------------------------------------------------
UNITED STATES SPRINT Mr R.S. MORTON +1 703 689 5939
- -----------------------------------------------------------------------------------------------------
UNITED STATES MFSI Ms S BYWATER +1 703 847 9426
- -----------------------------------------------------------------------------------------------------
UNITED STATES ITC Mr G CIVALE +1 516 794 9400
- -----------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
THIS FOURTH SUPPLEMENTARY AGREEMENT to the ODIN Construction and Maintenance
Agreement made and signed into this 24th day of October 1996, between and among
the Parties identified in Annex 1 of this Fourth Supplementary Agreement
(hereinafter called the "Parties").
WHEREAS, the ODIN Parties signed an Agreement on the 1st day of July 1994, as
amended by the First Supplementary Agreement on the 29th day of September 1994,
and by the Second Supplementary Agreement on the 16th day of October 1995, and
by the third Supplementary Agreement on the 19th day of February 1996,
(hereinafter collectively called the "ODIN C&MA") to provide an optical fibre
cable system linking The Netherlands, Denmark, Norway and Sweden, which will be
used to provide telecommunication services between points in or reached via The
Netherlands, Denmark, Norway and Sweden, and
WHEREAS, Paragraph 5 of the ODIN C&MA provides for the assignment, increase and
reallocation of the national Capacity, and
WHEREAS, pursuant to Paragraph 30.3 of the ODIN C&MA, this Fourth Supplementary
Agreement of the ODIN C&MA will be signed by the Parties affected and the
Initial Parties, on behalf of the Parties, and
WHEREAS, certain Parties have undergone organisational changes which have
resulted in new addresses, new descriptions, or in certain cases different
entities becoming assignees of, or successors in interest to, such Parties, and
the Parties now desire to reflect such changes in the revised Schedule A as
attached.
NOW THEREFORE, the Parties in consideration of the mutual covenants herein
expressed, covenant and agree with each other as follows:
1. The attached Schedule A effective from 24th of October 1996 shall be deemed
to replace Schedule A of the ODIN C&MA.
2. The Parties hereby agree to certain reassignments of capacity among
themselves, pursuant to Paragraph 5 of the ODIN C&MA, and furthermore agree
to acquire the investment share in the ODIN Cable System, as shown in the
attached Schedules B, C, D and E, which shall be deemed to replace the
corresponding Schedules in the ODIN C&MA.
3. The Parties acquiring capacity pursuant to this Fourth Supplementary
Agreement shall be billed either by the Parties reassigning capacity, or in
accordance with financial procedures previously established in the ODIN
C&MA, as appropriate. Such bills shall contain all costs incurred prior to
this document's Effective Date in relation to the ODIN Cable System.
Subsequent bills shall be rendered and paid in accordance with the terms
and conditions set out in the ODIN C&MA.
<PAGE>
4. Bundesministerium fur Offentliche Wirstschraft und Verkehr,
Generaldirektion fur die Post- und Telegraphenverwaltung (previously called
"APTT") is hereby succeeded by Post und Telekom Austria Aktiengesellschaft
(now herein called "PTA").
5. IDB WORLDCOM Services Inc. (previously called "IDB" or "IDB WORLDCOM") is
hereby succeeded by WorldCom Inc. (now herein called "WorldCom" or "WCOM").
6. This Fourth Supplementary Agreement shall be executed in English. Telia
shall be responsible for the prompt distribution of certified photocopies
to all other Parties and shall retain the signed original of this Fourth
Supplementary Agreement.
7. Except as provided in this Fourth Supplementary Agreement, all other terms
and conditions of the ODIN C&MA remain unchanged and in full force and
effect.
IN WITNESS WHEREOF, the Parties hereto have severally subscribed these presents
or caused them to be subscribed in their names and behalf by their respective
officers thereunto duly authorised.
Signed on behalf of PTA, by
................................
a person authorised by PTA to act in that behalf.
Signed on behalf of Belgacom S.A., by
- --------------------------------------------------
a person authorised by S.A. to act in that behalf.
Signed on behal of Tele Danmark, by
- --------------------------------------------------
a person authorised by Tele Danmark to act in that behalf.
<PAGE>
Signed on behalf of FINNET, by
- --------------------------------------------------
a person authorised by FINNET to act in that behalf.
Signed on behalf of Telecom Finland, by
- --------------------------------------------------
a person authorised by Telecom Finland to act in that behalf.
Signed on behalf of Lattelekom, by
- --------------------------------------------------
a person authorised by Lattelekom to act in that behalf.
Signed on behalf of PTT Telecom BV, by
- --------------------------------------------------
a person authorised by PPT Telecom BV to act in that behalf.
Signed on behalf of Telenor, by
- --------------------------------------------------
a person authorised by Telenor to act in that behalf.
<PAGE>
Signed on behalf of TPSA, by
- --------------------------------------------------
a person authorised by TPSA to act in that behalf.
Signed on behalf of Telia, by
- --------------------------------------------------
a person authorised by Telia to act in that behalf.
Signed on behalf of TELE2, by
- --------------------------------------------------
a person authorised by TELE2 to act in that behalf.
Signed on behalf of MCL, by
- --------------------------------------------------
a person authorised by MCL to act in that behalf.
Signed on behalf of MCII, by
- --------------------------------------------------
a person authorised by MCII to act in that behalf.
<PAGE>
Signed on behalf of MFSI, by
- --------------------------------------------------
a person authorised by MFSI to act in that behalf.
Signed on behalf of SPRINT, by
- --------------------------------------------------
a person authorised by SPRINT to act in that behalf.
Signed on behalf of WorldCom Inc., by
- --------------------------------------------------
a person authorised by WorldCom Inc. to act in that behalf.
= end =
<PAGE>
ANNEX 1
Effective : 24Oct. 1996
Existing Parties
Telstra Corporation Limited
Post und Telekom Austria Aktiengesellschaft
Belgacom S.A.
Empresa Brasileira de Telecomunicacoes S.A.
Bulgarian Telecommunications Company (BTC), Bulgaria
Teleglobe
Telecommunication Authority of Cyprus
Tele Danmark
Telecom Finland
Finnet
France Telecom
Deutsche Telekom AG
HKTI, Hongkong
The General Directorate of Post and Telecommunications Iceland
Videsh Sanchar Nigam Limited
Bord Telecom Eireann
Telecom Italia
Kokusai Denshin Denwa Co., Ltd
International Digital Communications Inc.
International Telecom Japan Inc.
Lattelekom
Enterprise des Postes et Telecommunications de Luxembourg
Telmex
PTT Telecom BV
Telenor
Telekomunikacja Polska, S.A.,
Portugal Telecom
Marconi, Portugal
Rostelcom
Singapore Telecommunications Limited
Telefonica de Espana S.A.
Telia
Tele2
<PAGE>
Turk Telekomunikasyon A.S.
British Telecommunictions Plc
Mercury Communications Limited
UKRTEC, Ukraine
AT&T Corp.
International Telecommunications Corporation (ITC), USA
Transoceanic Communications, Incorporated
MCI International
MFSI, USA
Sprint Communications Company L.P.
Worldcom Inc.
<PAGE>
4th Supplementary Agreement to the ODIN C&MA
Schedule A
Effective : 24 Oct. 1996
ODIN Cable System
COUNTRY PARTY
Australia: Telstra Corporation Limited ACN 051 775 556, a company
incorporated under the laws of Australia and having an
office at 231 Elizabeth Street, Sydney, New South Wales,
Australia (herein called "TCL" or "Telstra" which expression
shall include its successors).
Austria: Post und Telekom Austria Akteingesellschaft, a company
existing under the laws of Austria which has an office at
Postgasse 8, A-1011 Wien, Austria (herein called "PTA" which
expression shall include its successors).
Belgium: Belgacom S.A. of public law, a company existing under the
laws of Belgium whose registered office is at Em.
Jacqmainlaan 177, B-1030 Brussels, Belgium (herein called
"Belgacom S.A." or "Belg" which expression shall include its
successors).
Brazil: Empresa Brasileira de Telecommunicacoes S.A., a corporation
organized and existing under the laws of Brazil having its
principal office at Avenida Presidente Vargas - 1012, Rio de
Janeiro, Brazil (herein called "EMBRATEL or EMRA" which
expression shall include its successors).
Bulgaria: Bulgarian Telecommunications Company Ltd., a joint-stock
company organised and existing under the laws of the
Republic of Bulgaria and having its principal office at 8
Totleben Blvd., 1066 Sofia, Bulgaria (herein called "BTC"
which expression shall include its successors).
Canada: Teleglobe Canada Inc., a Canada business corporation, having
its registered office at 1000 de la Gauchetiere Street
West (H3B 4X5) in the City of Montreal, Province of Quebec,
Canada (herein called "Teleglobe" or TLGB").
Cyprus: Cyprus Telecommunication Authority, a corporation organized
and existing under the laws of Cyprus, having its main
office at Telecommunications Street Nicosia 142, Cyprus
(herein called "CYTA" which expression shall include its
successors).
<PAGE>
4th Supplementary Agreement to the ODIN C&MA
COUNTRY PARTY
Denmark: Tele Danmark A/S, a limited company registered in Denmark,
whose registered office is at Kannikegade 16, DK-8000 Aarhus
C, Denmark (herein called "TD" which expression includes its
successors).
Finland: Telecom Finland, a corporation organized and existing under
the laws of Finland, having its main office at Sturenkatu
16, Helsinki, Finland (herein called "TFIN" which expression
shall include its successors).
Oy Finnett International Ab, a corporation organized and
existing under the laws of Finland, having its main office
at Runeberginkatu 5, 9th floor 00100 Helsinki, Finland
(herein called "FINNET" which expression shall include its
successors).
France France Telecom, a public operator of telecommunications
existing under the laws of France, having its main office in
Paris, 6 Place D'Alleray, 75015 Paris, France (herein called
"FRANCE TELECOM" or "FT" which expression includes its
successors).
Germany Deutsche Telekom AG a company existing under the laws of the
Federal Republic of Germany, having its principal office at
Friedrich-Ebert-Allee 140, 53113 Bonn, Germany (herein
called "DTAG" or which expression includes its successors).
Hong Kong: Hong Kong Telecom International Limited, having its prinipal
office at 39th Floor, Hongkong Telecom Tower, Taikoo Place,
979 King's Road, Quarry Bay, Hong Kong (herein called
"HKTI")
Iceland General Directorate of Post and Telecommunications, a
corporation organized and existing under the laws of
Iceland, having its principal office in IS-150 Reykjavik,
Iceland, (herein called "IPT", which expression shall
include its successors).
Ireland: Bord Telecom Eireann, a corporation organized and existing
under the laws of Ireland, having its registered address at
114 St. Stephens Green West, Dublin 2, (herein called "BTE"
which expression shall include its successors).
India: Videsh Sanchar Nigam Limited, a corporation organized and
existing under the laws of India, having its registered
office at Videsh Sanchar Bhavan, Mahatma Gandhi Road,
Bombay, India (herein called "VSNL" which expression shall
include its successors).
<PAGE>
4th Supplementary Agreement to the ODIN C&MA
COUNTRY PARTY
Italy: Telecom Italia, a corporation organized and existing under
the laws of Italy, having its registered address at Viale
Europa 190 00144, Roma, Italy (herein called "Tel. Italia",
which expression shall include its successors).
Japan: Kokusai Denshin Denwa Co., Ltd, a corporation organized and
existing under the laws of Japan, having its principal
office at No. 3-2, Nishi-Shinjuku 2-Chome, Shinjuku-ku,
Tokyo, Japan (herein called "KDD" which expression shall
include its successors).
International Digital Communications Inc., a corporation
organized and existing under the laws of Japan, having its
principal office at 20-8, Asakusabashi 5-Chome, Taito-ku,
Tokyo, Japan (herein called "IDC", which expression shall
include its successors).
International Telecom Japan Inc., a corporation organized
and existing under the laws of Japan, having its principal
office at Tsukiji KY Bldg., 7-5, Tsukiji 4-Chome, Chuo-ku,
Tokyo, 104 Japan (herein called "ITJ", which expression
shall include its successors).
Latvia: Lattelekom SIA, a corporation organized and existing under
the laws of Latvia, having its principal office at Valnu
iela 30, Riga LV-1050, Latvia (herein called "Lattelekom" or
"LAT", which expression shall include its successors).
Luxembourg: Enterprise des Postes et Telecommunications du
Luxembourg, a corporation organized and existing under the
laws of Luxembourg, having its principal office at 8A,
Avenue Monterey, L-2020 Luxembourg (herein called "LPTT",
which expression shall include its successors).
Mexico TELEFONOS DE MEXICO, S.A. DE C.V., a corporation organized
and existing under the laws of Mexico, having an office at
Parque Via 198, Mexico, Mexico. (herein called "TELMEX"
which expression shall include its successors).
Netherlands: PTT Telecom BV, a company registered under the laws of the
Netherlands whose registered office is at PTT Headquarters,
Prinses Beatrixlaan 23, 2595 AK, The Hague, The netherlands
(herein alled "NLPTT" which expression shall include its
successors).
<PAGE>
4th Supplementary Agreement to the ODIN C&MA
COUNTRY PARTY
Turkey: Turk Telekomunikasyon A.S., a corporation
organized and existing under the laws of Turkey, having its
main office at Turgut Ozal Bulvan, 06103
Aydinlikevler-Ankara, Turkey (herein called "Turk
Telekom" which expression shall include its successors).
Ukraine: Ukrainian Enterprise of International and Long distance
Telecommunications & TV, a company organised under the laws
of Ukraine and having its principal office at 3
Solomenskaya, 252110 Kiev, Ukraine (herein called "UKRTEC"
which expression shall include its successors).
United Kingdom British Telecommunications plc, a public limited
company, registered in England (No. 1800000) whose
registered office is at 81 Newgate Street, London EC1A 7AJ,
England (herein called "BT", which expression shall include
its successors).
Mercury Communications Limited, a limited company registered
in England (No. 1541957) whose registered office is at New
Mercury House, 26 Red Lion Square, London WC1R 4HQ, England
(herein called "MCL" or "Mercury", which expression shall
include it successors).
USA: AT&T Corp., a corporation organized and existing under the
laws of the State of New York and having an office at 340
Mt. Kemble Avenue, Morristown, New Jersey, United States of
America (herein called "AT&T", which expression shall
include its successors).
Transoceanic Communications, Incorporation, a wholly owned
subsidiary of AT&T, a corporation organized and existing
under the laws of the State of Delaware and having an office
at 340 Mt. Kemble Avenue, Morristown, New Jersey, United
States of America (herein called "TOCI", which expression
shall include its successors).
MCI International, Inc., a corporation organized and
existing under the laws of the State of Delaware and having
its principal office at 2 International Drive, Rye Brook,
New York, United States of America (herein called "MCII",
which expression shall include its successors) for the use
of its wholly owned or otherwise affiliated authorised
international carriers.
Sprint Communications Company L.P., a limited partnership
organized and existing under the laws of the State of
Delaware and having its principal office at 8140 Ward
Parkway, Kansas City, Missouri 64114, United States of
America (herein called "SPRINT", which expression shall
include the successors).
<PAGE>
4th Supplementary Agreement to the ODIN C&MA
COUNTRY PARTY
USA: Worldcom Inc., a corporation organized and existing under
the laws of the State of Georgia and having an office at 380
Madison Avenue, New York, New York 10017, United States of
America (herein called "WorldCom" or WCOM", which expression
shall include its successors).
International Telecommunications Corporation, a corporation
organised and existing under the laws of the State of
Delaware and having its principal offices at 100 Wall
Street, Suite 905, new York, NY 10005 and at 899 W. Cypress
Creek Road, Suite 900, Fort Lauderdale, Florida 33309
(herein called "ITC", which expression shall include its
successors).
Metropolitan Fiber System International Inc., a company
organised and existing under the laws of the State of
Delaware and having its principal office at 8100 Boone
Boulevard, Suite 400, Vienna, Virginia 22182, United States
of America (herein called "MFSI" which expression shall
include its successors).
<PAGE>
CODETEL [LOGO] Apartado 1377
Santo Domingo,
Republica Dominicana
July 29th, 1997
To: ANTILLAS I C&MA Parties
Subject: ANTILLAS I Second Supplementary Agreement
- ------------------------------------------------------------
Dear sirs,
I Miguel Fadul, Manager of International Facilities of CODETEL, hereby certify
that the enclosed document is an exact copy of the original document of the
Second Supplementary Agreement of the Construction & Maintenance Agreement
(C&MA) for the ANTILLAS I Cable System, signed on February 13th, 1997.
Signed,
/s/ Miguel Fadul
Miguel Fadul
Date: 7/29/97
<PAGE>
SECOND SUPPLEMENTARY AGREEMENT
TO
ANTILLAS I CONSTRUCTION & MAINTENANCE AGREEMENT
This Second Supplementary Agreement is made and entered into this 13th. day of
February, 1997 between the Signatories hereto.
WHEREAS the ANTILLAS I Construction & Maintenance Agreement ("C&MA") was
executed on January 10th, 1996, and
WHEREAS, five (5) additional carriers desire to become Parties to the C&MA and
the existing Parties to the C&MA agree to the admission of such carriers as
Parties,
WHEREAS, Paragraph 25 of the C&MA stipulates that AT&T, CODETEL and TLDI are
authorized to act as representatives of all the Parties to execute Supplementary
Agreements subject to Paragraph 23 (Admission of Additional Parties) and such
Supplementary Agreements shall be signed only by AT&T, CODETEL, TLDI, the newly
admitted Party and any Party to have Capacity with the newly admitted Party.
NOW THEREFORE, the undersigned Parties, in consideration of the mutual
convenants herein expressed, convent and agree with each other as follows:
1. The existing Attachment 1 and Schedules A, B, C-1, C-2, D-1, D-2 and D-3
(each said Schedules being dated August, 1st, 1996) are deleted and Attachment
1, Schedules A, B, C-1, C-2, D-1, D-2 and D-3 each dated February 1 3th, 1997
attached hereto are substituted therefore.
1
<PAGE>
2. SPRINT COMMUNICATIONS COMPANY L.P., IDB Wordlcom Services Inc., ANTELECOM
N.V., Servicio di Telecomunicacion di Aruba, and Cable & Wireless Public Limited
Company are each admitted as Additional Parties to the C&MA. Pursuant to
Paragraph 23.1 of the C&MA, SPRINT COMMUNICATIONS COMPANY L.P., IDB Wordlcom
Services Inc., ANTELECOM N.V., Servicio di Telecomunicacion di Aruba, and Cable
& Wireless Public Limited Company each agree to acquire an investment share
corresponding to the quantity of MIU's to meet each of their respective needs
for the ANTILLAS I Cable System at least through the year 2006. SPRINT
COMMUNICATIONS COMPANY L.P., IDB Wordlcom Services Inc., ANTELECOM N.V.,
Servicio di Telecomunicacion di Anuba, and Cable & Wireless Public Limited
Company each agree to make payments required by Paragraph 23.1 (iii) of the C&MA
and each agrees to accept the terms and conditions of the C&MA and the prior
decisions taken by the Parties in relation to the ANTILLAS I Cable System as
provided in Paragraph 23.1 (iv) of the C&MA.
3. Except as expressly provided herein, the C&MA shall continue in full force
and effect.
IN WITNESS HEREOF, the Parties have executed this Supplementary Agreement on the
date first above noted by their respective duly authorized officers.
All America Cables & Radio Inc.- Dominican Republic
By: /s/ Raul de Silva Costa
ANTELECOM N.V.:
By: /s/ ILLEGIBLE
AT&T Corp.
By: /s/ Paul Haggerty
Cable & Wireless, Public Limited Company
By: /s/ ILLEGIBLE
2
<PAGE>
Compania Dominicana de Telefonos, C. por A.
By: /s/ Ramon Soto
IDB Wordlcom Services Inc.
By: /s/ ILLEGIBLE
Servicio di Telecomunicacion di Aruba (SETAR)
By: /s/ Miguel Fadul
Sprint Communications Company L.P.
By: /s/ ILLEGILE
Telefonica Larga Distancia de Puerto, Inc.
By: /s/ ILLEGIBLE
Telepuerto San Isidro, S.A.
By: /s/ ILLEGIBLE
3
<PAGE>
Schedule A
ANTILLAS I CABLE SYSTEM
SCHEDULE A
PARTIES TO THE AGREEMENT
All America Cables & Radio, Inc.- Dominican Republic, an entity organized and
existing under the laws of the British Virgin Islands and having its principal
office at Josefa Perdomo No. 52, Gazcue, Santo Domingo, Dominican Republic
(herein called "AAC&R" which expression shall include its successors).
ANTELECOM N.V., Limited liability company established within the laws of the
Netherlands Antilles with its headquarters located at Schouwburgweg 22, Curacao,
Netherlands Antilles (herein after called "Antelecom" which expression shall
include its successors).
AT&T Corp., a corporation organized and existing under the laws of the State of
New York and having its principal office at 412 Mount Kemble Avenue, Morristown,
New Jersey, United States of America (herein called "AT&T" which expression
shall include its successors).
AT&T of Puerto Rico, Inc., a corporation organized and existing under the laws
of the State of New York, and having an office at 901 Ponce de Leon Avenue, San
Juan Puerto Rico, United States of America (herein called "AT&T-PR" which
expression shall include its successors).
Cable & Wireless, Public Limited Company, a company incorporated and existing
under the laws of England, and having its registered office at 124 Theobalds
Road, London, WC1X 8RX (herein called "C&W PLC" which expression shall include
its successors).
Cleartel Communications, Inc., a company organized under the laws of the
District of Columbia, and having its physical address at 1232 22nd. Street N.W.
Washington, D.C. 20037 (herein called "CLEARTEL" which expression shall include
its successors).
Compania Anonima Nacional Telefonos de Venezuela a corporation organized and
existing under the laws of Venezuela and having its principal office at Avenida
Libertador, Edificio Administrativo, Caracas, Venezuela (herein called "CANTV"
which expression shall include its successors).
Compania Dominicana de Telefonos, C. por A., an entity organized and existing
under the laws of the Dominican Republic and having its principal office at Ave.
Abraham Lincoln No. 1101, Santo Domingo, Dominican Republic (herein called
"CODETEL" which expression shall include its successors)
4
<PAGE>
DOMTEL Communications, Inc., a corporation organized and existing under the laws
of the State of Delaware, United States, and having its principal office at Ave.
Lope de Vega No. 95, Santo Domingo, Dominican Republic (herein called "DOMTEL"
which expression shall include its successors)
GTE Hawaiian Telephone Company Incorporated, a corporation organized under the
laws of the Kingdom of Hawaii and existing under the laws of the State of Hawaii
and having its principal office at 1177 Bishop Street, Honolulu, Hawaii, United
States of America (herein called "HTC" which expression shall include its
successors)
IDB Worldcom Services Inc., a corporation organized and existing under the laws
of the State of Delaware and having an office at 380 Madison Avenue, New York
10017, United States of America (herein called Wordlcom or WCOM which expression
shall include its successors).
International Telecommunication Corporation (ITC), a corporation organized and
existing under the laws of the State of Delaware and having its principal
offices at 100 Wall Street, Suite 905, New York, NY 10005 and at 899 W. Cypress
Creek Road, Suite 900, Fort Lauderdale, Fl 33309, United States of America
(herein called "ITC" which expression shall include its successors)
MCI International, Inc., a corporation organized and existing under the laws of
the State of Delaware and having its principal office at 2 International Drive,
Rye Brook, New York, United States of America (herein called "MCII" which
expression shall include its successors) for the use of its wholly owned or
otherwise affiliated authorized international carriers.
Pacific Gateway Exchange, a Delaware corporation, having its office at 533
Airport Boulevard, Suite 505, Burlingame, California 94010, United States of
America (herein called "PGE" which expression shall include its successors).
Servicio di Telecomunicacion di Aruba, a legal entity sui generis, established
under the laws of Aruba, and having its office at the Administration Building in
Seroe Blanco (herein called "SETAR" which expression shall include its
successors).
Sprint Communications Company L.P., a company having its office at 9221 Ward
Parkway, Kansas City, Missouri, 64114 United States (hereinafter called "SPRINT"
which expression shall include its successors)
Telecom Italia S.p.A., a corporation organized and existing under the laws of
Italy, and having its principal office at Via S. Dalmazzo, 15 Torino, Italy
(herein called "Telecom Italia" or "TI" which expression shall include its
successors)
Telecomunicaciones Ultramarinas de Puerto Rico, an entity organized and existing
under the laws of the Commonwealth of Puerto Rico and having its principal
office at 818 Ponce De Leon Avenue, 4th. Floor, San Juan, Puerto Rico 00907
(herein called "TUPR" which expression shall include its successors).
5
<PAGE>
Telecommunications D'Haiti S.A.M. a company organized and existing under the
laws of Haiti, and having its principal office at Angle Rue Fernand Et Rue
Martin Luther King BP814, Port au Prince, Haiti (herein called "TELECO" which
expression shall include its successors).
Telefonica de Espana, S.A. a corporation organized and existing under the law of
Spain and having its principal office at Gran Via 28, Madrid, Spain (herein
called "TLFN" which expression shall include its successors).
Telefonica Larga Distancia de Puerto Rico Inc. an entity organized and existing
under the law of the Commonwealth of Puerto Rico and having its principal office
at Metro Office Park, Building No. 8, Second Floor, Guaynabo, Puerto Rico 00968
(herein called "TLDI" which expression shall include its successors).
Teleglobe Canada Inc. a Canada business corporation, having registered office at
1000 de La Gauchetiere Street West, in the City of Montreal, Quebec, Canada H3B
4x5 (herein called "TLGB" which expression shall include its successors).
Telepuerto San Isidro S.A. an entity organized and existing under the laws of
the Dominican Republic and having its principal office at Lope de Vega No. 95,
Santo Domingo, Dominican Republic (herein called "TRICOM" which expression shall
include its successors).
The St. Thomas and San Juan Telephone Company Inc., an entity organized and
existing under the laws of the U.S. Virgin Islands and having its principal
office at 179 Altona - Welgunst 2nd Floor, Charlotte Amalie, V.l. 00803-1915,
St. Thomas, U.S. Virgin Islands (herein called "STSJ/TRESCOM") which expression
shall include its successors).
Transoceanic Communications, Incorporated, a corporation organized existing
under the laws of the State of Delaware and having an office at 340 Mount Kemble
Avenue, Morristown, New Jersey 07960 U.S.A (herein called "TRANSOCEANIC" which
expression shall include its successors).
6
<PAGE>
ANTILLAS I CABLE SYSTEM
SCHEDULE D-1
CAPACITY ASSIGMENTS IN MIUs
IN SEGMENT D-1
(One fiber pair between BU and Subsegment C-1)
<TABLE>
<CAPTION>
MIUs
Jointly Wholly Half
AAC&R CODETEL TRICOM TELECO TOTAL Assigned Assigned Interests
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
AAC&R 0 0 0 0 0 AAC&R 4 1 6
AT&T 2 17 5 3 27 AT&T 27 8 43
CODETEL 0 0 0 0 0 CODETEL 50 9 68
DOMTEL 0 0 1 0 1 DOMTEL 1 0 1
MCII 0 16 0 2 18 MCII 18 0 18
TELECO 0 0 0 0 0 TELECO 5 1 7
TRESCOM 0 1 1 0 2 TRESCOM 2 0 2
TI 1 1 0 0 2 TI 2 0 2
TLFN 0 2 0 0 2 TLFN 2 0 2
TRICOM 0 0 0 0 0 TRICOM 15 7 29
TUPR 0 0 0 0 0 TUPR 0 0 0
ITC 0 3 0 0 3 ITC 3 0 3
SPRINT 1 6 5 0 12 SPRINT 12 0 12
WCOM 0 4 3 0 7 WCOM 7 0 7
C&W 0 0 0 0 0 C&W 0 1 2
TOTAL 4 50 15 5 74 TOTAL 148 27 202
MIUs Wholly Assigned
AT&T 8 Total MIUs
CODETEL 9 101
TRICOM 7
AAC&R 1
TELECO 1
C&W 1
TOTAL 27 February 13th, 1997
</TABLE>
<PAGE>
ANTILLAS I CABLE SYSTEM
SCHEDULE D-1
CAPACITY ASSIGMENTS IN MIUs
IN SEGMENT D-1
(One fiber pair between BU and Subsegment C-2)
<TABLE>
<CAPTION>
MIUs
Jointly Wholly Half
AAC&R CODETEL TRICOM TELECO TOTAL Assigned Assigned Interests
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
CANTV 0 2 0 0 2 CANTV 2 0 2
CLEARTEL 0 1 0 0 1 CLEARTEL 1 0 1
CODETEL 0 0 0 0 0 CODETEL 45 9 63
DOMTEL 0 0 1 0 1 DOMTEL 1 0 1
MCII 0 0 2 0 2 MCII 2 0 2
PGE 0 5 0 0 5 PGE 5 0 5
TLGB 0 1 0 0 1 TLGB 1 0 1
TLDI 0 21 5 0 26 TLDI 26 0 26
TRICOM 0 0 0 0 0 TRICOM 15 l3 41
TUPR 0 2 2 0 4 TUPR 4 1 6
ITC 0 4 0 0 4 ITC 4 1 6
HTC 0 1 0 0 1 HTC 1 0 1
SPRINt 0 6 5 0 11 SPRINT 11 0 11
ANTELECOM 0 1 0 0 1 ANTELECOM 1 0 1
SETAR 0 1 0 0 1 SETAR 1 0 1
C&W 0 0 0 0 0 C&W 0 1 2
TOTAL 0 45 15 0 60 TOTAL 120 25 170
MIUs Wholly Assigned
ITC 1 Total MIUs
CODETEL 9 85
TRICOM 13
TUPR 1
C&W 1
TOTAL 25 February 13th, 1997
</TABLE>
<PAGE>
SCHEDULE D-1
CAPACITY ASSIGMENTS IN MlUs
IN SEGMENT D-1
(Total of two fiber pairs between BU and Segment C)
<TABLE>
<CAPTION>
MIUs
Jointly Wholly Half
AAC&R CODETEL TRICOM TELECO TOTAL Assigned Assigned Interests
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
AAC&R 0 0 0 0 0 AAC&R 4 1 6
AT&T 2 17 5 3 27 AT&T 27 8 43
CANTV 0 2 0 0 2 CANTV 2 2
CLEARTEL 0 1 0 0 1 CLEARTEL 1 1
CODETEL 0 0 0 0 0 CODETEL 95 18 131
DOMTEL 0 0 2 0 2 DOMTEL 2 2
MCII 0 16 2 2 20 MCII 20 20
PGE 0 5 0 0 5 PGE 5 5
TELECO 0 0 0 0 0 TELECO 5 1 7
TRESCOM 0 1 1 0 2 TRESCOM 2 2
TI 1 1 0 0 2 TI 2 2
TLFN 0 2 0 0 2 TLFN 2 2
TLGB 0 1 0 0 1 TLGB 1 1
TLDI 0 21 5 0 26 TLDI 26 26
TRICOM 0 0 0 0 0 TRICOM 30 20 70
TUPR 0 2 2 0 4 TUPR 4 1 6
ITC 0 7 0 0 7 ITC 7 1 9
HTC 1 7 5 0 13 HTC 1 1
SPRINT 0 10 8 0 18 SPRINT 23 23
WCOM 0 0 0 0 0 WCOM 7 7
ANTELECOM 0 1 0 0 1 ANTELECOM 1 1
SETAR 0 1 0 0 1 SETAR 1 1
C&W 0 0 0 0 0 C&W 0 2 4
TOTAL 4 95 30 5 134 TOTAL 268 52 372
MIUs Wholly Assigned
AT&T 8 Total MIUs
CODETEL 18 186
TRICOM 20
TUPR 1
ITC 1
AAC&R 1
TELECO 1
C&W 2
TOTAL 52 February 13th, 1997
</TABLE>
<PAGE>
ANTILLAS I CABLE SYSTEM
SCHEDULE D-2
CAPACITY ASSIGMENTS IN MIUs
IN SEGMENT D-2
(between BU and Miramar)
<TABLE>
<CAPTION>
MIUs
Jointly Wholly Half
AAC&R CODETEL TRICOM TELECO TOTAL Assigned Assigned Interests
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
AAC&R 0 0 0 0 0 AAC&R 4 1 6
AT&T 2 17 5 3 27 AT&T 27 8 43
CODETEL 0 0 0 0 0 CODETEL 50 9 68
DOMTEL 0 0 1 0 1 DOMTEL 1 0 1
MCII 0 16 0 2 18 MCII 18 0 18
TELECO 0 0 0 0 0 TELECO 5 1 7
TRESCOM 0 1 1 0 2 TRESCOM 2 0 2
TI 1 1 0 0 2 TI 2 0 2
TLFN 0 2 0 0 2 TLFN 2 0 2
TRICOM 0 0 0 0 0 TRICOM 15 7 29
ITC 0 3 0 0 3 ITC 3 0 3
SPRINT 1 6 5 0 12 SPRINT 12 0 12
WCOM 0 4 3 0 7 WCOM 7 0 7
C&W 0 0 0 0 0 C&W 0 1 2
TOTAL 4 50 15 5 74 TOTAL 148 27 202
MIUs Wholly Assigned
AT&T 8 Total MIUs
CODETEL 9 101
TRICOM 7
AAC&R 1
TELECO 1
C&W 1
TOTAL 27 February 13th, 1997
</TABLE>
<PAGE>
ANTILLAS I CABLE SYSTEM
SCHEDULE D-3
CAPACITY ASSIGMENTS IN MIUs
IN SEGMENT D-3
(between BU and Isla Verde)
<TABLE>
<CAPTION>
MIUs
Jointly Wholly Half
AAC&R CODETEL TRICOM TELECO TOTAL Assigned Assigned Interests
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
CANTV 0 2 0 0 2 CANTV 2 0 2
CLEARTEL 0 1 0 0 1 CLEARTEL 1 0 1
CODETEL 0 0 0 0 0 CODETEL 45 9 63
DOMTEL 0 0 1 0 1 DOMTEL 1 0 1
MCII 0 0 2 0 2 MCII 2 0 2
PGE 0 5 0 0 5 PGE 5 0 5
TLGB 0 1 0 0 1 TLGB 1 0 1
TLDI 0 21 5 0 26 TLDI 26 0 26
TRICOM 0 0 0 0 0 TRICOM 15 13 41
TUPR 0 2 2 0 4 TUPR 4 1 6
ITC 0 4 0 0 4 ITC 4 1 6
HTC 0 1 0 0 1 HTC 1 0 1
SPRINT 0 6 5 0 11 SPRINT 11 0 11
ANTELECOM 0 1 0 0 1 ANTELECOM 1 0 1
SETAR 0 1 0 0 1 SETAR 1 0 1
C&W 0 0 0 0 0 C&W 0 1 2
TOTAL 0 45 15 0 60 TOTAL 120 25 170
MIUs Wholly Assigned
ITC 1 Total MIUs
CODETEL 9 85
TRICOM 13
TUPR 1
C&W 1
TOTAL 25 February 13th, 1997
</TABLE>
<PAGE>
CANUS 1 CABLE SYSTEM
INDEFEASIBLE RIGHT OF USE AGREEMENT
AND
FINANCING AGREEMENT
BETWEEN
OPTEL COMMUNICATIONS, INC.
AND
INTERNATIONAL TELECOMMUNICATIONS CORPORATION
<PAGE>
THIS AGREEMENT, made and entered into this ___ day of _____________, 1996
BY AND BETWEEN: OPTEL COMMUNICATIONS, INC., a corporation organized and
existing under the laws of the state of Delaware and having
its principal office at 8100 Boone Blvd., Suite 310, Vienna,
VA 22182, USA herein after referred to as "OPTEL";
AND: INTERNATIONAL TELECOMMUNICATIONS CORPORATION, a corporation
incorporated under the laws of the state of Delaware and
having its principal office at EAB Plaza-West Tower, 8th
Floor, Uniondale, New York, USA 11556-0169 hereinafter
referred to as the "Grantee".
WHEREAS, OPTEL is an owner of the CANUS 1 System, owns capacity in Segment D and
has acquired capacity in Segment B for the purpose of terminating its Segment D
capacity; and
WHEREAS, OPTEL is entitled to transfer such capacity on an indefeasible right of
use ("IRU") basis; and
WHEREAS, the Grantee desires to acquire an IRU interest from OPTEL in both
Segment D and Segment B of the CANUS 1 System.
NOW, THEREFORE, the Parties agree as follows:
1. INTERPRETATION
1.1 Definitions. For the purposes hereof, the following words and phrases
shall have the following meanings, respectively, unless the context
otherwise requires.
(a) "Agreement" shall mean this Agreement and the schedules attached
hereto, as amended from time to time;
(b) "Assignable Capacity" shall mean the capacity for sale, assignment
or disposition on the CANUS 1 System. The "Initial Assignable
Capacity" of the CANUS 1 System is equal to 1,260 MIU half interests;
(c) "Business Day" shall mean any day except Saturday, Sunday or other
day on which commercial banks in the state of Virginia are authorized
by law to close;
Page 1
<PAGE>
(d) "Branching Unit" shall mean a junction point for the Cable System,
and includes a housing and any associated plant and equipment
(including any spare plant and equipment);
(e) "CANUS 1 System" shall mean the Canada-U.S.CANUS 1 fiber optic
submarine telecommunications cable system providing an optical fiber
submarine cable system linking Canada and the United States of
America;
(f) "Capacity" shall have the meaning ascribed thereto at Section 2.1;
(g) "dollar" and "dollars" and the symbol "$" shall mean lawful money
of the United States of America;
(h) "DDP" shall have the meaning ascribed thereto at Section 2.1;
(i) "Granting Price" shall have the meaning ascribed thereto at
Section 3.1;
(j) "Losses" shall have the meaning ascribed thereto at Section 14.1;
(k) "MIU" shall mean a unit designated as the minimum unit of
investment between System Interfaces of the CANUS 1 System and shall
consist of a Virtual Container 12 (VC-12), allowing the use of
2,048,000 bit/s (nominal 2 Mbit/s) digital stream. MIU may be
expressed in terms of MIU half interests or MIU whole interests;
(1) "Parties" shall mean all of the parties hereto collectively; and
"Party" shall mean any one of them;
(m) "Person" shall mean an individual, corporation, company,
cooperative, partnership, trust or unincorporated association and
pronouns have a similarly extended meaning;
(n) "Representatives" shall have the meaning ascribed thereto at
Section 16.5;
(o) "Proprietary Information" shall have the meaning ascribed thereto
at Section 16.5;
(p) "Ready for Commercial Service or RFCS Date" shall mean the date on
which the CANUS 1 System is available for commercial service. The RFCS
Date occurred October 15, 1995;
q) "Segment A" shall mean the cable station at Pennant Point, Nova
Scotia, Canada;
(r) "Segment B" shall mean the cable station at Manasquan, N.J. USA;
Page 2
<PAGE>
(s) "Segment D" shall mean the whole of the submarine cable of the
CANUS 1 System, including the System Interfaces of STM-1 and/or
139,264,000 bit/s capacity at the cable terminal stations, between
Pennant Point, Nova Scotia, Canada and Manasquan, New Jersey, USA
consisting of Subsegment D1 which is the part of Segment D including
the System Interface at the cable station at Pennant Point, Nova
Scotia, Canada, and the Branching Unit and of Subsegment D2 which is
that part of Segment D including the System Interface at the cable
station at Manasquan, New Jersey, USA, and the Branching Unit; and
(t) "System Interface" shall be the input/output ports on a
distribution frame (excluding the distribution frame itself) which
shall terminate either electrical or optical connections from the
CANUS 1 System. These terminations shall be in accordance with ITU-T
recommendations G.703, G.708, G.709 and G.957 and shall be of STM-1
and/or 139,264,000 bit/s capacity. The distribution frame shall be
regarded as an interface location where the CANUS 1 System connects
with other transmission facilities or equipment.
1.2 Gender. Any reference in this Agreement to any gender shall include all
genders and words used herein importing the singular number only shall
include the plural and vice versa.
1.3 Headings. The division of this Agreement into Articles, Sections,
Subsections and other Subdivisions and the insertion of headings are for
convenience of reference only and shall not affect or be utilized in the
construction or interpretation hereof.
1.4 Severability. Any Article, Section, Subsection or other Subdivision of
this Agreement or any other provision of this Agreement which is, or
becomes, illegal, invalid or unenforceable shall be severed herefrom and
shall be ineffective to the extent of such illegality, invalidity or
unenforceability and shall not affect or impair the remaining provisions
hereof, which provisions shall be severed from any illegal, invalid or
unenforceable Article, Section, Subsection or other subdivision of this
Agreement or any other provision of this Agreement and otherwise remain in
full force and effect.
1.5 Entire Agreement. This Agreement together with any documents to be
delivered pursuant hereto constitute the entire agreement by and between
the Parties pertaining to the subject matter hereof and supersede all prior
agreements, understandings, negotiations and discussions, whether oral or
written, of the Parties.
1.6 Governing Law. This Agreement shall be interpreted and construed in
accordance with the Laws of the state of Delaware in the United States of
America.
Page 3
<PAGE>
1.7 Ownership. Nothing in this Agreement shall vary rights of ownership in
those segments of the CANUS 1 System in which IRUs have been granted to the
Grantee. Ownership of all segments of the CANUS 1 System shall remain with
OPTEL and the other owners of the CANUS 1 System.
2. GRANT OF IRU
2.1 Granting. Effective on March 12, 1996, OPTEL grants to the Grantee, on
an IRU basis, a half interest in one (1) MIU in Segment D of the CANUS 1
System (the "Capacity"), and the IRU in Segment B for the use of the
Grantees Capacity in Segment D covered by this Agreement, and said Capacity
shall be used in conjunction with corresponding MIU half interests for the
provision of telecommunications services between points in or reached via
Canada on one hand and points in or reached via the United States on the
other hand. The Grantee shall be solely responsible for any
interconnections between the CANUS 1 System and any other cable systems or
other rearward facility connections by way of lease, Droits de Passage
("DDP"), or any other arrangements
3. GRANTING PRICE AND SEGEMNT B PRICE
3.1 Granting Price for the Capacity. The aggregate granting price for the
Capacity, exclusive of the right granted in Segment B, shall be fifty
thousand dollars ($50,000) (the "Granting Price").
3.2 Price for Segment B. For the right to use that portion of Segment B of
the CANUS-1 System granted to the Grantee, the Grantee shall pay a lump sum
to OPTEL of three thousand nine hundred dollars ($3,900) (the "Segment B
Price").
3.3 Payment of the Granting and Segment B Prices. The Granting Price and
the Segment B Price shall be payable as follows:
(a) the Granting Price shall bear interest at an annual rate of six
percent (6%), compounded monthly, and shall be payable to
Teleglobe Canada Inc. ("Teleglobe Canada"), acting in the name
and on behalf of OPTEL, over the next two (2) years, through
minimum traffic volume commitments over Teleglobe Canada's
facilities as provided for in the agreement for transit services
entered into between the Grantee and Teleglobe Canada as
Page 4
<PAGE>
of the effective date (hereinafter called the "Transit
Agreement"); more particularly, the Grantee shall be required to
pay to Teleglobe Canada, on a monthly basis as provided in the
Transit Agreement, and as payment on the Granting Price and
interest charges thereon, the higher of (i) one thousand two
hundred thirty five dollars ($1,235), or (ii) the amount
represented by the surcharge on a per minute basis stipulated in
the Transit Agreement applicable to the Capacity multiplied by
the total minutes of traffic routed through Teleglobe Canada's
facilities during the month covered by the appropriate invoice
submitted under the Transit Agreement.
Notwithstanding the foregoing, the Grantee shall be required to
pay to Teleglobe Canada and Teleglobe Canada shall be required to
pay to OPTEL the Granting Price and all interest charges thereon
to the extent of twenty seven thousand one hundred sixty dollars
($27,160) for each of the next two (2) years following the
Effective Date of this Agreement. Where the aggregate of all
monthly payments made by the Grantee to Teleglobe Canada in
conformity with the preceding paragraph is less than twenty seven
thousand one hundred sixty dollars ($27,160), the Grantee
covenants to pay to Teleglobe Canada the difference between such
amounts no later than thirty (30) days after the date of such
invoice to that effect.
In the event that the Transit Agreement is terminated, for any
reason whatsoever, prior to the full payment of the Granting
Price and any interest charges thereon, the Grantee shall
forthwith pay within thirty (30) days of the termination date,
the outstanding balance of the Granting Price, as well as all
interest charges thereon due up to but excluding the date payment
is made to Teleglobe Canada.
(b) the Segment B Price shall be paid to OPTEL concurrently to the
execution by the Grantee of this Agreement.
3.4 Authorization. OPTEL hereby authorizes Teleglobe Canada to receive and
acknowledge receipt, on its behalf, of the Granting Price from the Grantee,
as well as all interest charges thereon, as provided under this Agreement.
Teleglobe Canada agrees to cause to remit within five (5) business days of
receipt from the Grantee and via bank wire transfer all sums received from
the Grantee as payment on the Granting Price, together with all interest
charges thereon. Teleglobe Canada shall not incur any liability whatsoever
towards the Grantee as a result of, or in connection with, its intervention
to this Agreement.
Page 5
<PAGE>
Nothing in this Section 3.4 shall preclude OPTEL from exercising any and
all rights and recourses against the Grantee in case of default by the
Grantee of payment of the Granting Price to Teleglobe Canada, acting on
behalf and in the name of OPTEL.
3.5 Late Payment All overdue principal or interest amounts pertaining to
this Section 3 shall accrue extended payment interest in accordance with
Section 4.5 of this Agreement.
3.6 No Set Off Notwithstanding any provision to the contrary stipulated
herein or in the Transit Agreement, the Grantee shall not have the right to
set off any claim from OPTEL or Teleglobe Canada or withhold any amount
owed to OPTEL or Teleglobe Canada against any claim against OPTEL or
Teleglobe Canada or against any amount owed by OPTEL or Teleglobe Canada,
save with OPTEL's consent or in compliance with an arbitration award.
4. PAYMENT OF COSTS AND EXPENSES
4.1 O&M Costs. The Grantee shall pay to OPTEL a charge for operating and
maintaining the Grantees Capacity in Segment B and Segment D. The operating
and maintenance charge shall consist of the standby charges and the running
charges:
(a) The standby charges for Segment D including but not limited to the
cost of attendance, testing, adjustment and replacement, the
maintenance of the procurement of cable ship services covering inter
alia depreciation, ship retrofit, crew, insurance (other than at-sea
insurance), in-port expenses, the storage of submersible plant,
remotely operated vehicles and other devices, custom duties and other
taxes relating thereto, shall be recovered by OPTEL, or its designee,
through an annual fixed charge of two thousand six hundred dollars
($2,600) payable quarterly in advance by the Grantee which amount
shall also include the operating and maintenance costs of Segment B.
Such annual fixed charge shall be adjusted annually using the Consumer
Price Index in the United States as published by the United States
Department of Labor.
(b) The running charges, which shall be limited to recovery of the
direct cost incurred in connection with a repair involving Segment D,
including but not limited to, the cost of repair including repair at
sea, of fuel, at-sea insurance, additional crew at-sea, crew overtime,
victualling, telecommunications, mobilization and de-mobilization
expenses, consumables, replenished equipment, custom duties and other
taxes relating thereto, shall be apportioned among the Grantees of IRU
rights on Segment D in accordance with the following formula:
Page 6
<PAGE>
A = B X D
---
C
where:
A = portion of the running charge to be borne by the Grantee
B = Grantees Capacity (expressed in terms of MIU half
interests) acquired pursuant to this Agreement
C = total Assignable Capacity of the CANUS 1 System at the
date of the instant repair (expressed in terms of MIU half
interests)
D = total running charges incurred
4.2 Restoration Costs. A restoration charge, including but not limited to
the costs of restoration of the Capacity via other cable systems or
satellite space segment, shall not exceed six thousand dollars ($6,000.00)
per year, for the first two years after RFCS, per MIU half interest
conveyed to the Grantee by this Agreement and shall be based on (i) actual
cost incurred by the owners of the CANUS 1 System and (ii) the Grantees
Capacity in service. From two years after the RFCS Date and beyond the
restoration charge shall be allocable based on cost and be on a case by
case basis.
4.3 Adjustment. In the case of invoices containing any costs billed on a
preliminary billing basis, appropriate adjustments will be made in
subsequent invoices promptly after actual costs involved are determined to
insure that the Grantee bears a proper share of the costs as provided under
this Agreement.
4.4 Invoicing. As soon as practicable after the effective date as shown in
Section 2.1 of this Agreement, OPTEL shall submit, or cause to be
submitted, to the Grantee, on a quarterly basis in advance an invoice for
costs provided herein above. Invoices rendered shall contain a reasonable
level of detail to substantiate the amounts contained therein and shall
identify costs related to Segments B and D, all operating, maintenance and
restoration costs allocable to the Capacity and payable by the Grantee. All
invoices payable under this Agreement shall be paid in the currency in
which the invoice is rendered shall be paid by certified check or wire
transfer and shall be due no later than 35 days after the date of the
postmark on said invoices.
4.5 Late Payment. All invoices due under this Agreement that are not paid
when due shall accrue extended payment interest, to the extent permitted by
applicable laws, at a rate equal to either (i) a fixed annual rate of
fifteen percent (15%) or (ii) one hundred twenty-five percent (125%) of the
publicly announced prime rate published in the Wall Street Journal in
effect on the day following the day payment of the bill was
Page 7
<PAGE>
due, whichever is higher. Such extended payment interest shall accrue from
the day following the day on which payment is due, to and including the day
such payment is received by OPTEL, and such amount will be included in a
subsequent invoice issued to the Grantee. Invoices for extended payment
interest shall not be rendered if the amount is less than twenty five
dollars ($25.00)
4.6 Costs of Additional Protective Apparatus. The Grantee shall bear the
total cost of any additional protective apparatus reasonably deemed
necessary by OPTEL to be installed on the CANUS 1 System resulting from the
use of the CANUS 1 System by the Grantee or any subgrantee, lessee or
assignee of the Grantee or any customer of either the Grantee or any
grantee, lessee or assignee of the Grantee.
5. REPRESENTATIONS AND WARRANTIES OF THE GRANTEE
5.1 Representations and Warranties. The Grantee represents and warrants to
OPTEL that:
(a) the Grantee is a corporation duly incorporated under the laws of
the state of Delaware in the United States of America;
(b) the Grantee has all necessary corporate power, authority and
capacity to enter into this Agreement and to perform its obligations
under this Agreement;
(c) the execution and delivery of this Agreement and any and all
documents required by this Agreement by the Grantee and the
consummation of the transactions contemplated under it have been duly
authorized by all necessary corporate action on the part of the
Grantee;
(d) this Agreement constitutes a valid and binding obligation of the
Grantee enforceable against it in accordance with its terms, subject,
however, to limitations with respect to enforcement imposed by law in
connection with bankruptcy, insolvency or similar proceedings relating
to creditor's rights generally and to the extent that equitable
remedies such as specific performance and injunction are in the
discretion of a court of competent jurisdiction;
(e) the Grantee is not a party to, bound or affected by or subject to
any indenture, mortgage, lease, agreement, instrument, charter or
by-law provision, statute, rule, regulation, judgment, order, writ,
decree or law which, with or without the giving of notice or the lapse
of time, or both, would be violated, contravened, breached by, or
under which default would occur as a result of the execution, delivery
and performance of this Agreement or the consummation of any of the
transactions provided for in it; and
Page 8
<PAGE>
(f) The Grantee has obtained all government approvals, consents
authorizations, licenses and permits for its acquisition of the CANUS
1 system capacity covered under this Agreement and shall use all
reasonable efforts to have continued in effect such approvals,
consents, authorizations, licenses and permits.
6. REPRESENTATIONS AND WARRANTIES OF OPTEL
6.1 Representations and Warranties. OPTEL represents and warrants to the
Grantee that:
(a) OPTEL is a corporation duly incorporated under the laws of the
state of Delaware in the United States of America;
(b) the execution and delivery of this Agreement and the consummation
of the transaction contemplated under it have been duly authorized by
all necessary corporate action on the part of OPTEL;
(c) OPTEL has good and valid title to the Capacity and has acquired
IRU in Segment B with the ability to reassign a portion or portions of
such IRU to the Grantee; and
(d) OPTEL has obtained all governmental approvals, consents,
authorizations, licenses and permits for the construction and
operation of the CANUS 1 System and shall use all reasonable efforts
to have continued in effect such approvals, consents, authorizations
and permits.
6.2 No representation on the Capacity. The Grantee acknowledges and agrees
that the Capacity is being assigned on an "as is, where is" basis. OPTEL
has not made or shall not be deemed to have made any representations or
warranties whatsoever with respect to the Capacity. OPTEL expressly
disclaims with respect to the Grantee and the Grantee hereby expressly
waives, releases and renounces, all other warranties, obligations and
liabilities of OPTEL and all rights, claims and remedies against, express
or implied, arising by law or otherwise, with respect to any failure, delay
in installation, cancellation of, non-conformance or defect in the CANUS 1
System or the Capacity, as the case may be.
7. COVENANTS OF TO GRANTEE
7.1 Covenants of the Grantee. During the term of this Agreement, the
Grantee shall:
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<PAGE>
(a) pay all amounts to OPTEL under this Agreement, and otherwise
comply with all other provisions of this Agreement;
(b) keep the Capacity free of liens, charges and other encumbrances
and shall reimburse OPTEL immediately on demand for all payment in
respect of such liens, charges and other encumbrances;
(c) not assign or otherwise dispose of any interest in the Capacity
granted to the Grantee under this Agreement without the prior written
consent of OPTEL which consent shall not be unreasonably withheld;
(d) not use the Capacity for any illegal, unlawful, fraudulent or
unauthorized purposes and, without limiting the generality of the
foregoing, use the Capacity, at all times in a manner consistent with
the applicable authorization, licenses and permits for the landing,
construction and operation of the CANUS 1 System;
(e) use the Capacity in such a way as to avoid degrading the overall
performance of the CANUS 1 System or causing interruptions of or
interference, impairment or degradation of the use of any other
capacity in the CANUS 1 System; and
(f) upon at least a 24 hour prior notice, or at any time if the
situation or circumstance so justify, make available to OPTEL the
Capacity for such testing and adjustment as may be necessary for the
Capacity to be maintained in efficient working order.
8. COVENANTS OF OPTEL
8.1 Books and Records. OPTEL shall keep and maintain such books, records,
vouchers and accounts of all costs with respect to the repair and
restoration of the CANUS 1 System as may be appropriate to support the
billing of any running charges or restoration costs by OPTEL and such books
that relate to the running charges and restoration costs shall at all
reasonable times be made available for inspection by the Grantee for a
period of two (2) years from the date of billing.
8.2 Sharing of Liquidation Proceeds and Costs. In the event of liquidation
of Segment D or any part thereof by sale or other disposition, OPTEL shall
share with the Grantee any proceeds or costs of such liquidation, sale or
disposition of Segment D incurred by OPTEL including, without limitation,
any costs related to the removal of such Segment D. In the event of
liquidation of Segment B upon the termination of the CANUS-1 System, OPTEL
shall share with the Grantee any proceeds or costs of such liquidation,
including, without limitation, any costs related to the removal of Segment
B. The Grantee's share of such proceeds or costs shall be determined in
accordance with the following formula:
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<PAGE>
A = B X D
---
C
where:
A = portion of the net of proceeds and costs to be paid to, or
payable by, the Grantee
B = Grantee's Capacity (expressed in terms of MIU half
interests) acquired pursuant to this Agreement
C = total Assignable Capacity of the CANUS 1 System on the
date of liquidation (expressed in terms of MIU half
interests)
D = total net of proceeds and cost of liquidation
8.3 Maintenance of the Capacity. OPTEL shall maintain the Capacity, or
cause the Capacity to be maintained in efficient working order.
8.4 Provision of Transit Facilites. OPTEL shall use all reasonable efforts
to provide suitable digital transit facilites as and when required for use
in connection with circuits in the CANUS-1 System so as to provide through
circuits between points reached via Segment B.
9. EVENT OF DEFAULT
9.1 Event of Default. The occurrence of any one or more of the following
events shall constitute an Event of Default under this Agreement:
(a) If the Grantee fails to make payment of any amount due OPTEL under
provisions of this Agreement, when the same becomes due and payable as
herein provided, and such default has not been cured within thirty
(30) days after receipt by the Grantee of a notice from OPTEL;
(b) If the Grantee fails to duly observe, perform and discharge the
covenants, conditions and obligations on its part to be observed,
performed or discharged hereunder (other than the default of payment
of amounts under any provisions of this Agreement which is subject to
Subsection 9.1(a)) and such default has not
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<PAGE>
been cured within thirty (30) days after receipt by the Grantee of a
notice from OPTEL;
(c) If any representation or warranty made herein shall prove at any
time to be materially incorrect, as of the date made; and
(d) If the Grantee becomes insolvent or bankrupt or ceases paying its
debts generally as they mature.
(e) If OPTEL fails to duly observe, perform and discharge the
covenants, conditions and obligations on its part to be observed,
performed or discharged herein and such default has not been cared
within thirty (30) days after receipt by grantor of a notice form the
grantee.
10. INTELLECTUAL PROPERTY RIGHTS
10.1 No License. No license under patents is granted by OPTEL or shall be
implied or arise by estoppel in favor of the Grantee with respect to any
apparatus, system or method used by the Grantee in connection with the use
of the MIU half interests conveyed to the Grantee under this Agreement.
10.2 Indemnification. With respect to claims of patent infringement made by
third persons, the Grantee will save OPTEL harmless against claims arising
out of, combining with or using in connection with the Capacity, any
apparatus, system or method provided by the Grantee, any subgrantee or
lessee of the Grantee or any customer or customers of the Grantee or of any
such subgrantee or lessee.
11. RECONFIGURATION OF CAPACITY
11.1 Reduction in the Capacity. In the event that the total number of MIU
half interests in Segment D is reduced below the Initial Assignable
Capacity, as a result of physical deterioration, or for any other reason
beyond the control of the CANUS 1 owners, during the term of this
Agreement, OPTEL shall give the Grantee written notice of said decrease and
the MIU half interests in which the Grantee has been granted an IRU
hereunder shall be reduced in the same proportion as the total number of
MIU half interests assigned to OPTEL in Segment D is reduced, except that
such reductions shall not extend to fractions of MIU half interests.
11.2 Adjustment in O&M and Other Costs. If the number of MIU half interests
in Segment D is decreased as provided in Section 11.1, the Grantee's
payments, with respect to the additional capital costs and operating and
maintenance costs for the IRU interest granted under this Agreement shall
be adjusted proportionally to such reduction.
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<PAGE>
11.3 Increase in Communication Capability.
(a) The communication capability of the Capacity used by the Grantee
in Segment D may be increased by the use of equipment which will make
more efficient use of such MIU half interests provided that such use
of the Capacity does not cause an interruption of or interference in
the CANUS 1 System or other systems interconnecting with the CANUS 1
System.
(b) The Grantee shall not be entitled to share in any increase in
capacity or be entitled to credits or reductions in the sums paid for
the Capacity in the event that the Initial Assignable Capacity is
increased beyond 1,260 MIU half interests.
12. TERM
12.1 Term. This Agreement shall continue in effect for the initial term up
to the end of the expected useful life of the CANUS 1 System at 23:59
Universal Coordinated Time, 15 September, 2020 unless the CANUS 1 System
owners decide to terminate it earlier, in which case this Agreement will
terminate on the same date as that of the CANUS 1 System. OPTEL shall give
the Grantee prompt notice in writing of the termination of the CANUS 1
System. To the extent that the CANUS 1 System is extended beyond its
initial term as stated above, and unless this Agreement is terminated or
requested to be modified by either Party giving the other not less than one
(1) year notice in writing, during such extension this Agreement will
continue in effect tacitly under the same terms and conditions year after
year.
13. TERMINATION
13.1 Right to Terminate. Upon the occurrence of an Event of Default by the
Grantee, OPTEL shall have the right to terminate this Agreement immediately
without further notice. In addition to its rights hereunder, in the Event
of Default by the Grantee, OPTEL may temporarily discontinue use of the
Capacity without incurring any liability from the Grantee, its
sub-grantees, lessees or its customers.
13.2 Other Remedies. Termination of this Agreement by the Party not in
default in accordance with the terms hereof shall be without prejudice to
any other rights or remedies such Party shall have by law.
13.3 Relationship Between the Parties. Under no circumstances shall this
transaction be interpreted as a sale of the Capacity and title to the
Capacity shall remain with OPTEL
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<PAGE>
for the entire term of this Agreement and in the event of default by the
Grantee, OPTEL, in addition to any other remedies available at law or in
equity, shall be entitled to possession of the Capacity without any other
action, with or without legal process and shall be entitled to enforce its
rights under this Agreement.
14. INDEMNIFICATION
14.1 Indemnification. The Grantee shall indemnify and save OPTEL harmless
from and against any direct or consequential claims, demands, actions,
causes of action, damages, losses (which shall include any reduction in
value), liabilities, costs or expenses (including, without limitation,
interest, penalties and reasonable attorneys' fees and disbursements)
(collectively, the "Losses") which may be made against OPTEL or which OPTEL
may suffer or incur as a result of, arising out of or relating to:
(a) any non-performance of or non-compliance with any covenant,
agreement or obligation of the Grantee under or pursuant to this
Agreement;
(b) any incorrectness in, or breach of, any representation or warranty
made by the Grantee; and
(c) any action, suit, claim, trial, demand, investigation, arbitration
or other proceeding by any Person containing allegations which, if
true, would constitute an event described in Subsection 14.1(a) or
14.1(b) above.
15. DISPUTE RESOLUTION
15.1 Arbitration. Any difference, controversy or claim arising out of or
relating to this Agreement, its interpretation or performance, shall be
considered a Dispute. Any Dispute shall be subject to binding arbitration
as provided hereafter.
(a) The Dispute shall diligently be notified by the aggrieved Party to
the other Party. The notification shall be deemed diligently made if
communicated to the other Party within five (5) Business Days of the
knowledge of the occurrence.
(b) Within ten (10) Business Days following such notification, each
Party shall prepare and disclose to the other Party a brief on its
position and within fifteen (15) Business Days thereafter the parties
shall prepare a common brief which shall
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<PAGE>
contain all points of Agreement and all points of disagreement in
relation to the Dispute.
(c) Notwithstanding Subsection 15.1(b) above, if no resolution of the
Dispute has occurred thirty (30) calendar days after the date on which
a Party has submitted the Dispute to his Chief Executive Office, then
the Dispute shall be submitted for resolution by binding arbitration
under the Rules of Conciliation and Arbitration of the International
Chamber of Commerce in effect on the date the arbitration is submitted
to the tribunal of arbitration. In such event:
(i) a sole arbitrator shall be appointed, unless the Parties
agree in a particular case within thirty (30) calendar days of
the submission of the Dispute to arbitration that the tribunal
should consist of more than one arbitrator. Such arbitrator(s)
shall be knowledgeable in the field of law involved;
(ii) the place of arbitration shall be the United States and the
arbitration shall be conducted in English;
(iii) responsibility for paying the costs of the arbitration,
including the costs incurred by the Parties themselves in
preparing and presenting their cases, shall be apportioned by the
tribunal of arbitration
(iv) the award shall be rendered in the English language and
shall state the reasons upon which it is based;
(v) the award of the tribunal of arbitration may be entered and
enforced as a judgment against a Party in any court of competent
jurisdiction or application may be made to such court for a
judicial acceptance of the award and an order of enforcement, as
the case may be.
(d) Nothing in the foregoing shall prevent a Party from initiating
such conservatory measure proceedings as are necessary to protect any
arm's length third party rights.
(e) The fact that a dispute is brought to arbitration does not relieve
either Party from its obligation to fulfill its commitments as
provided by this Agreement.
16. MISCELLANEOUS
16.1 Assignment. Neither this Agreement nor any rights, remedies,
liabilities or obligations arising under it or by reason of it shall be
assignable by the Grantee without the prior written consent of OPTEL.
Subject thereto, this Agreement shall ensure to the
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<PAGE>
benefit of and be binding on the Parties and their respective successors
and permitted assigns.
16.2 Further Assurances. The Parties shall with reasonable diligence do all
things and provide all reasonable assurances as may be required to
consummate the transactions contemplated by this Agreement, and each Party
shall provide further documents or instruments required by any other party
as may be reasonably necessary or desirable to effect the purpose of this
Agreement.
16.3 Notices. Any notice, consent, request, authorization, permission,
direction or other communication required or permitted to be given
hereunder shall be in writing and shall be delivered either by personal
delivery or by telecopier or similar telecommunications device, return
receipt requested, and addressed as follows:
(a) in the case of OPTEL.:
OPTEL COMMUNICATIONS, INC.
8100 Boone Blvd., Suite 310
Vienna, Virginia 22182
USA
Attention: Executive Vice President
Facsimile: (703) 760-4549
(b) in the case of the Grantee:
INTERNATIONAL TELECOMMUNICATIONS CORPORATION
EAB Plaza-West Tower, 8th Floor
Uniondale, New York 11556-0169
USA
Attention: Mr. Biago Civale
Facsimile: (516) 794-9400
Any notice, consent, request, authorization, permission, direction or other
communication delivered as aforesaid shall be deemed to have been effectively
delivered and received, if sent by telex, telecopier or similar
telecommunication device on the business day next following receipt of such
transmission or, if delivered, to have been delivered and received on the date
of such delivery provided, however, that if such date is not a business day then
it shall be deemed to have been delivered and received on the business day next
following such delivery. An address may be modified by written notice delivered
as aforesaid.
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<PAGE>
16.4 No Partnership. The relationship between OPTEL and the Grantee under
this Agreement shall not be that of partners and nothing herein contained
shall be deemed to constitute a partnership between them and the common
enterprise of the Parties shall be limited to the express provisions of
this Agreement.
16.5 Confidentiality and Public Announcement. It is expected that the
Parties may disclose to each other proprietary or confidential technical,
financial and business information ("Proprietary Information"). Except as
necessary to perform its obligations under this Agreement, the receiving
Party shall not make any use of Proprietary Information for its own benefit
or for the benefit of any other individual, corporation or entity, and
except with the prior written consent of the disclosing Party or as
otherwise specifically provided herein, the receiving Party will not,
during and for a period of three (3) years after the termination of this
Agreement, duplicate, use or disclose any Proprietary Information to any
individual, corporation or entity.
The receiving Party shall not disclose all or any part of the disclosing
Party's Proprietary Information to any affiliates, agents, officers, directors,
employees or representatives (collectively, "Representatives") of the receiving
Party except on a need to know basis. Such Representatives shall be informed of
the confidential and proprietary nature of the Proprietary Information. Each
Party shall maintain the other Party's Proprietary Information with at least the
same degree of care each Party uses to maintain its own proprietary information.
The receiving Party shall immediately advise the disclosing Party in writing of
any misappropriation or misuse by any Person of the disclosing Party's
Proprietary Information of which the receiving Party is aware.
All Proprietary Information in whatever form shall be promptly returned by
the receiving Party to the disclosing Party upon written request by the
disclosing Party for any reason.
Each receiving Party acknowledges that the Proprietary Information of the
disclosing Party is central to the disclosing Party's business and was developed
by or for the disclosing Party at a significant cost. Each receiving Party
further acknowledges that damages would not be an adequate remedy for any breach
of this Agreement by the receiving Party or its Representatives and that the
disclosing Party may obtain injunctive or other equitable relief to remedy or
prevent any breach or threatened breach of this Agreement by the receiving Party
or any of its Representatives. Such remedy shall not be deemed to be the
exclusive remedy for any such breach of this Section 16.5, but shall be in
addition to all other remedies available at law or in equity to the disclosing
Party.
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<PAGE>
None of the Parties shall disclose or make any public announcement of the
existence of this Agreement, the transaction contemplated hereby or the contents
hereof without in each case the prior written consent of the other, unless such
disclosure is required by law and then only after prior notice to the other
Parties.
IN WITNESS WHEREOF the parites have signed this Agreement as of the date first
above written.
OPTEL COMMUNICATIONS, INC. INTERNATIONAL TELE-
COMMUNICATIONS CORPORATION
By: /s/ Richard A. Manfredo By /s/ Biagio Civale
------------------------------ -------------------------
Name: Richard A. Manfredo Name: Biagio (Gino) Civale
------------------------
(print)
Title: Director of Operations & Engineering Title: V.P., International
-----------------------
Place: Vienna, Virginia, USA Place: Uniondale, NY, USA
Date: 5/14/96 Date: 6/4/96
------------------------------- -------------------------
INTERVENTION
Teleglobe Canada Inc. hereby declares to have taken cognizance of this
Agreement and to be satisfied therewith, and it agrees to comply with the
provisions of this Agreement which apply to it.
TELEGLOBE CANADA INC.
By: /s/ Gilles Leduc
-------------------------
Name: Gilles Leduc
-------------------------
(print)
Title: VP Carrier Relations
-----------------------
Place: Montreal, Canada
Date: July 23 / 96
-------------------------
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<PAGE>
CANTAT-3 CABLE SYSTEM
INDEFEASIBLE RIGHT OF USE AGREEMENT
AND FINANCING AGREEMENT
BETWEEN
TELEGLOBE CANTAT-3 INC.
AND
INTERNATIONAL TELECOMMUNICATIONS COLORATION
<PAGE>
THIS AGREEMENT, made and entered into as of March 12, 1996 (the "Effective
date").
BY AND BETWEEN: TELEGLOBE CANTAT-3 INC., a corporation
incorporated under the laws of Barbados,
having its principal office at 1st
Floor, Building 2, Chelston Park, (P.O.
Box 1210, Bridgetown), Collymore Rock,
St. Michael, BARBADOS, hereinafter
referred to as "TC-3";
AND: INTERNATIONAL TELECOMMUNICATIONS
CORPORATION, a corporation incorporated
under the laws of Delaware, having its
principal office at EAB Plaza West
Tower, 8th Floor, Uniondale, New York,
UNITED STATES OF AMERICA 11556-0169,
hereinafter referred to as the "Grantee".
WHEREAS TC-3 owns capacity on the CANTAT-3 cable system (the "CANTAT-3 System");
WHERE AS TC-3 is entitled to transfer capacity on the CANTAT-3 System on an
indefeasible right of use ("IRU") basis;
WHEREAS the Grantee desires to acquire from TC-3, on an IRU basis, capacity on
the CANTAT-3 System;
NOW, THEREFORE, the Parties agree as follows:
ARTICLE 1
INTERPRETATION
1.1 Definitions. This Section l.l lists all defined terms used in this
Agreement. Capitalized terms used in any provision of this Agreement and not
otherwise defined therein shall have the following meanings, respectively,
unless the context otherwise requires.
(a) "Agreement" shall mean this Agreement and the schedules attached
hereto, as amended from time to time;
(b) "Banking Day" shall mean a day on which banks are open for business in
Montreal, Canada;
(c) "Branching Unit" or "BU" shall mean a junction and switching point for
the CANTAT-3 System, and includes a housing and any associated plant
and equipment (including any spare plant and equipment);
<PAGE>
- 2 -
(d) "Business Day" shall mean any day except a Saturday, Sunday or other
day on which commercial banks in Bridgetown (Barbados) and Uniondale,
NY (USA) are authorized by Law to close;
(e) "CANTAT-3 C&MA" shall mean that certain construction and maintenance
agreement dated October 8, 1992, the purpose of which was to define
the terms and conditions upon which the CANTAT-3 System will be
provided, constructed, and thereafter maintained and operated, as the
same may be amended from time to time; TC-3 shall at any time submit
to the Grantee, upon request, a list of all parties to the CANTAT-3
C&MA;
(f) "Dollar" and "dollars" and the symbol "$" shall mean lawful money of
the United States of America;
(g) "Effective Date" shall mean March 12, 1996. This Agreement shall be
deemed to have taken effect as of the Effective Date, notwithstanding
the formal date of its execution by the Parties;
(h) "Grantee's Share" shall mean the ratio of the Grantee's Capacity to
TC-3's capacity in the CANTAT-3 System;
(i) "Interest Rate" shall mean the prime rate in effect at National Bank
of Canada, in Montreal Canada, as announced from time to time;
(j) "Maintenance Authority" shall mean the terminal parties who are
responsible for the operation and maintenance of Segment F of the
CANTAT-3 System;
(k) "MIU" shall mean a unit designated as the minimum unit of investment
between System Interfaces of the CANTAT-3 System and shall consist of
a Virtual Container 12 (VC-12), allowing the use of 2,048,000 bits per
second (nominal 2 Mbit/s) digital stream. MIU may be expressed in
terms of whole or half-MIUs.
(1) "Notional Capacity" shall mean the total assigned Capacity in the
CANTAT-3 System which is equivalent to 9,016 half-MIUs;
(m) "Operating and Maintenance Charges" or "O&M Charges" shall mean the
costs reasonably incurred in operating and maintaining Segment F,
including, but not limited to, the cost of attendance, testing,
adjustments, storage of plant and equipment, repairs (including
repairs at sea), cable ships, maintenance and repair devices that are
or may hereafter become available, including standby costs, reburial
and the replacement of plant, tools and test equipment, customs
duties, taxes (except income tax imposed upon the net income) paid in
respect of such facilities, appropriate financial charges attributable
to other parties' share of costs incurred by the Maintenance Authority
at the rate at which the appropriate Maintenance Authority generally
incurred such financial charges, supervision, overheads as well as
costs and expenses reasonably incurred on
<PAGE>
- 3 -
account of claims made by or against other persons in respect of such
facilities or any part thereof and damages or compensation payable by
the parties to the CANTAT-3 C&MA on account of such claims shall be
shared by them in the same proportions as they share the costs of
operating and Remaining Segment F, and including but not limited to
the costs, or an appropriate share thereof, for the purchase, storage
and maintenance of special tools and test equipment for use on board
cable ships and which are required for maintenance and repair of the
CANTAT-3 System;
(n) "Parties" shall mean all of the parties hereto collectively; and
"Party" shall mean any one of them;
(o) "Person" shall mean an individual corporation, company, cooperative,
partnership, trust or unincorporated association and pronouns have a
similarly extended meaning;
(p) "Station Costs" shall mean the costs charged by the terminal parties
for the construction, provision, operation and maintenance of Segment
A and paid by TC-3;
(q) "System Interface" shall be the input/output ports on a distribution
frame (excluding the distribution frame itself) which shall terminate
either electrical or optical connections from the CANTAT-3 System
These terminations shall be in accordance with ITU-T recommendations
G.703, G.708, G.709 and G.957 and shall be of STM-1 and or 139,264,000
bit/s capacity. The distribution frame shall be regarded as a system
interface location where the CANTAT-3 System corrects with other
transmission facilities or equipment.
The following terms are defined in the Sections Indicated below:
TERM SECTION
"CANTAT-3 System" Preamble
"Capacity" 2.1
"Dispute" 15.1
"Grantee" Preamble
"Granting Price" 3.1
"IRU" Preamble
"Losses" 14.1
"Proprietary Information" 17.5
"Representatives" 17.5
"Segment A" Schedule A
"Segment A Price" 3.2
"Segment F" Schedule A
"TC-3" Preamble
<PAGE>
- 4 -
"Teleglobe Canada" 3 3
"Transit Agreement" 3.3
1.2 Gender. Any reference in this Agreement to any gender shall include all
genders and words used herein importing the singular number only shall include
the plural and vice versa.
1.3 Headings. The division of this Agreement into Articles, Sections,
Subsections and other Subdivisions and the insertion of headings are for
convenience of reference only and shall not affect or be utilized in the
construction or interpretation hereof.
1.4 Severability. Any Article, Section, Subsection or other Subdivision of this
Agreement or any other provision of this Agreement which is proven to be
illegal, invalid or unenforceable shall be severed herefrom and shall be
ineffective to the extent of such illegality, invalidity or unenforceability and
stall not affect or impair the remaking provisions hereof, which provisions
shall be severed from any illegal invalid or unenforceable Article, Section,
Subsection or other subdivision of this Agreement or any other provision of this
Agreement and shall otherwise remain in full force and effect.
1.5 Entire Agreement. This Agreement constitutes the entire agreement by and
between the Parties pertaining to the subject matter hereof and supersedes all
prior agreements, understandings, negotiations and discussions, whether oral or
written, of the Parties. Except as provided for herein, this Agreement may be
amended only by an instrument in writing signed by both Parties.
1.6 Governing Law. This Agent shall be interpreted and construed in accordance
with the laws of Barbados, without giving effect to the laws of such state
governing conflicts of laws.
1.7 Ownership. Nothing in this Agreement shall vary rights of ownership in those
segments of the CANTAT-3 System in which IRUs have been granted to the Grantee.
Ownership of all segments of the CANTAT-3 System shall remain with TC-3 and the
other signatories to the CANTAT-3 C&MA.
ARTICLE 2
GRANTING OF IRU
2.1 Granting. As and from the Effective Date, TC-3 grants to the Grantee, on an
IRU basis, an interest in one half (1/2) MIU in Segment F of the CANTAT-3 System
as well as an IRU in Segment A of the CANTAT-3 System to the extent required for
the use of its capacity in the CANTAT-3 System (the "Capacity") (exclusive of
any interconnection between cable systems, leases, Droits-de-Passage or other
rearward facilities arrangement for which the Grantee shall be solely
responsible), for providing telecommunications services between points reached
via Denmark on the one hand, and points reached via Canada on the other hand.
The Capacity shall be used in conjunction with the matching half-interest in the
MIUs hereby granted.
<PAGE>
- 5 -
To the extent permitted by law, the IRU granted herein does not include the
right to use the Capacity for traffic terminating in Canada.
ARTICLE 3
GRANTING PRICE AND PRICE FOR SEGMENT A
3.1 Granting Price for the Capacity. The aggregate granting price for the
Capacity and the option referred to in Section 10.3(b), exclusive of the right
granted in Segment A, shall be two hundred and twenty thousand dollars
($220,000) (the "Granting Price"), namely two hundred thousand dollars
($200,000) per half-MIU of Capacity and twenty thousand dollars ($20,000) per
half-MIU for the option.
3.2 Price for Segment A. For the right to use that portion of Segment A of the
CANTAT-3 System granted to the Grantee, the Grantee shall pay to TC-3 a lump sum
of two thousand one hundred and thirty-three dollars ($2,133) (the "Segment A
Price").
3.3 Payment of the Granting and Segment A Prices. The Granting Price and the
Segment A Price shall be payable as follows:
(a) the Granting Price shall bear interest at annual rate of six percent
(6%), compounded monthly, and shall be payable to Teleglobe Canada
Inc. ("Teleglobe Canada"), acting in the name and on behalf of TC-3,
over the next two (2) years, through minimum traffic volume
commitments over Teleglobe Canada's facilities as provided for in the
Agreement for transit services entered into between the Grantee and
Teleglobe Canada as of the Effective Date (the "Transit Agreement");
more particularly, the Grantee shall be required to pay to Teleglobe
Canada, on a monthly basis as provided in the Transit Agreement as
payment on the Granting Price and interest charges thereon, the higher
of (i) five thousand four hundred and thirty-two dollars ($5,432), and
(ii) the amount represented by the surcharge on a per minute basis
stipulated in the Transit Agreement with respect to the Capacity
multiplied by the total minutes of traffic routed through Teleglobe
Canada's facilities during the month covered by the appropriate
invoice submitted under the Transit Agreement;
notwithstanding the foregoing, the Grantee shall be required to pay
the Granting Price, and all interest charges thereon, to the extent of
one hundred nineteen thousand five hundred and six dollars ($119,506)
for each of the next two (2) years following the Effective Date; where
the aggregate of all monthly payments made by the Grantee to Teleglobe
Canada in conformity with the preceding paragraph is less than one
hundred nineteen thousand five hundred and six dollars ($119,506), the
Grantee covenants to pay to Teleglobe Canada the difference between
such amounts no later than thirty (30) days of the date of invoice to
that effect;
in the event that the Transit Agreement is terminated, for any reason
whatsoever, prior to the full payment of the Granting Price and any
interest charges thereon, the Grantee
<PAGE>
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shall forth pay within thirty (30) days of the termination date the
outstanding balance of the Granting Price, in principal, at the date
of termination, as well as all interests thereon until, but excluding,
the payment date;
(b) the Segment A Price shall be paid to TC-3 concurrently to the
execution by the Grantee of this Agreement.
3.4 Authorization. TC-3 hereby authorizes Teleglobe Canada to receive and
acknowledge receipt, on its behalf, of the Granting Price from the Grantee, as
well as all interest charges thereon, as provided under this Agreement.
Teleglobe Canada agrees to promptly remit to TC-3, upon receipt thereof, of all
sums received from the Grantee as payment on the Granting Price, together with
all interest charges thereon. Teleglobe Canada shall not incur any liability
whatsoever towards the Grantee as a result of or in connection with its
intervention to this Agreement.
Nothing in this Section 3.4 shall preclude TC-3 from exercising any and all
rights and recourses against the Grantee in case of default by the Grantee of
payment of the Granting Price to Teleglobe Canada, acting on behalf and in the
name of TC-3.
3.5 No Set Off. Notwithstanding any provision to the contrary stipulated herein
or in the Transit Agreement, the Grantee shall not have the right to set off any
claim from TC-3 or Teleglobe Canada or withhold any amount owed to TC-3 or
Teleglobe Canada against any claim against TC-3 or Teleglobe Canada or against
any amount owed by TC-3 or Teleglobe Canada, save with TC-3's consent or in
compliance with an arbitration award.
ARTICLE 4
PAYMENT OF CHARGES AND EXPENSES
4.1 O&M Charges. The Grantee shall pay the Grantee's Share of O&M Charges,
Station Costs and restoration cost in the manner provided hereafter.
4.2 Restoration Costs. Charges for restoration of the Capacity via other cable
systems or satellite space segments shall be based on cost and be allocatable on
a case by case basis.
4.3 Invoicing and Payments. From and after the Effective date, TC-3 shall
submit, or cause to be submitted, to the Grantee an invoice for costs provided
hereinabove. Invoices for costs referred to in Section 4.1 shall be submitted on
a quarterly basis in advance. All payments shall be made no later than the last
day of the month immediately following the date of the invoice in order that the
funds are available for use by TC-3 by the end of said month. Invoices rendered
shall contain details to support the amounts contained therein and shall
identify O&M Charges, Station Costs as well as restoration costs allocatable to
the Capacity and payable by the Grantee. Invoices shall be paid in the currency
in which the invoice is rendered.
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All payments made by the Grantee under this Agreement shall be made by certified
cheque, bank draft or wire transfer and be free and clear of all bank charges,
commissions or other charges.
In the event of non-payment of any sum under this Agreement by the due date, an
interest charge shall be paid on overdue amounts calculated on the day-to-day
balance from such date but excluding the actual payment thereof. The rate of
interest shall be the higher of (i) sixteen percent (16%) and (ii) eight (8)
percentage points above the Interest Rate as announced on the date the bill is
due to be paid or, if such is not a Banking Day, the next Banking Day. The
interest charge shall be calculated daily and compounded monthly in arrears on
the first day of each month.
TC-3 may designate, at its sole discretion, any Person for the purpose of
invoicing or receiving payment of all costs charged to the Grantee hereunder
(including the Granting Price and the Segment A Price). TC-3 shall notify in
writing the Grantee of the identity of such Person. Notwithstanding such
designation, TC-3 only shall be liable towards the Grantee for any and all
obligations of TC-3 as provided hereunder.
4.4 Disputes. Should any bill or part thereof submitted pursuant to this Article
4 be under dispute as to its correctness, then interest shall not accrue on the
amount of such bill provided always that:
(a) before the payment date, TC-3 (or its designee, as the case may be) is
advised by letter or fax by the Grantee of the amount in dispute and
the nature of that dispute; and
(b) TC-3 (or its designee, as the case may be) shall if requested by the
Grantee within thirty (30) days of receipt of the bill in dispute,
submit a replacement bill omitting the amount in dispute, and such
replacement bill shall become due for payment on the date the disputed
bill was due. The amount in dispute shall be investigated by the
Parties in good faith within a thirty (30)-day period and if the
amount in dispute or part of it is found to be correct, any necessary
bill with respect to such amount or part of it shall be raised and
paid. Notwithstanding the foregoing, if on investigation of the amount
in dispute or part thereof such amount is found to be correct, then
the Grantee shall pay interest at the rate determined hereabove on the
unpaid amount or part of it which is found to be correct from the day
after the due date for payment of the original bill in dispute up to
and including the date the outstanding payment is received by TC-3 (or
its designee, as the case may be).
4.5 Adjustment. In the case of invoices containing any costs billed on
preliminary billing basis, appropriate adjustments will be made in subsequent
invoices promptly after actual costs involved are determined to insure that the
Grantee bears a proper share of the costs as provided under this Agreement.
4.6 Interference and Protective Measures. The Grantee shall ensure that all the
Capacity shall be utilized in such a way as to avoid degrading the overall
performance of the CANTAT-3 System or causing interruption of, interference
with, impairment or degradation of the use of any other capacity in the CANTAT-3
System. The responsibility to ensure that the Capacity does not cause
interruption of, interference with, impairment or degradation of the use of any
other capacity in the
<PAGE>
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CANTAT-3 System remains with the Grantee. If, after notification by TC-3, the
Grantee does not take immediate and effective action to comply with its
obligations, TC-3 may take reasonable action required to protect the other
capacity in the CANTAT-3 System up to and including the interruption of the
Capacity responsible for the interruption, interference, impairment or
degradation. The Grantee shall bear the total cost of any protective measures
reasonably required by TC-3 to be installed on the CANTAT-3 System resulting
from the use of the CANTAT-3 System by the Grantee or any subgrantee, lessee or
assignee of the Grantee or any customer of either the Grantee or any subgrantee,
lessee or assignee of the Grantee.
ARTICLE 5
REPRESENTATIONS AND WARRANTIES OF THE GRANTEE
5.1 Representations and Warranties. The Grantee represents and warrants to TC-3
that:
(a) the Grantee is a corporation duly incorporated under the laws of
Delaware;
(b) the Grantee has all necessary corporate power and capacity to enter
into this Agreement and to perform its obligations under this
Agreement;
(c) the execution and delivery of this Agreement and any and all documents
required by this Agreement by the Grantee and the consummation of the
transactions contemplated under it have been duly authorized by all
necessary corporate action on the part of the Grantee;
(d) this Agreement constitutes a valid and binding obligation of the
Grantee enforceable against it in accordance with its terms, subject,
however, to limitations with respect to enforcement imposed by law in
connection with bankruptcy, insolvency or similar proceedings relating
to creditors' rights generally and to the extent that equitable
remedies such as specific performance and injunctive relief are at the
discretion of a court of competent jurisdiction;
(e) the Grantee is not a party to, bound or affected by or subject to any
indenture, mortgage, lease, agreement, instrument, charter or by-law
provision, statute, rule, regulation, judgment, order, writ, decree or
law which, with or without the giving of notice or the lapse of time,
or both, would be violated, contravened, breached or under which
default would occur as a result of the execution, delivery and
performance of this Agreement or the consummation of any of the
transactions provided for in it;
(f) the Grantee has obtained all government exemptions, approvals,
consents, authorizations, licenses and permits as well as any
necessary exemptions, approvals, consents, authorizations, licenses
and permits from any Person for the acquisition of the Capacity, the
execution and delivery of and the performance of its obligations under
this Agreement and shall use all reasonable efforts to have continued
in effect such
<PAGE>
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exemptions, approvals, consents, authorizations, licenses and permits
as long as it shall have obligations under this Agreement.
ARTICLE 6
REPRESENTATIONS AND WARRANTIES OF TC-3
6.1 Representations and Warranties. TC-3 represents and warrants to the Grantee
that:
(a) it is a corporation duly incorporated under the laws of Barbados;
(b) it has all necessary corporate power and capacity to enter into this
Agreement and to perform its obligations under the Agreement;
(c) the execution and delivery of this Agreement and the consummation of
the transaction contemplated under it have been duly authorized by all
necessary corporate action on its part;
(d) it has good and valid title to the Capacity on Segment A and Segment
F.
6.21 No representation on the Capacity. TC-3 has not made or shall not be deemed
to have made any representations or warranties whatsoever with respect to the
Capacity. Except as specifically provided herein, TC-3 expressly disclaims with
respect to the Grantee and the Grantee hereby expressly waives, releases and
renounces, all warranties, obligations and liabilities of TC-3 and all rights,
claims and remedies against TC-3, express or implied, arising by law or
otherwise, with respect to any failure, delay in installation, cancellation of,
non-conformance, temporary or permanent failure of or defect in the CANTAT-3
System or the Capacity, as the case may be, whatsoever shall have been the cause
and however long it shall have lasted (whether or not TC-3 has been advised of
the possibility of such loss or damage arising). Without limiting the generality
of the foregoing, the Grantee acknowledges and agrees that the Capacity is being
assigned on an "as is, where is" basis.
ARTICLE 7
COVENANTS OF THE GRANTEE
7.1 Covenants of the Grantee. During the term of this Agreement, the Grantee
shall:
(a) pay to TC-3 (or its designee, as the case may be) when they become due
all amounts payable under this Agreement and otherwise comply with all
other provisions of this Agreement;
(b) maintain, at its own expense, all appropriate insurance policy against
all risks associated with the Capacity as reasonably deemed necessary
by the Grantee;
<PAGE>
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(c) keep the Capacity free of liens, charges and other encumbrances and
shall reimburse TC-3 (or its designee, as the case may be) immediately
for all payment in respect of such liens, charges and other
encumbrances;
(d) not use the Capacity for any illegal, unlawful, fraudulent or
unauthorized purposes and, without limiting the generality of the
foregoing, use the Capacity, at all time, in a manner consistent with
the applicable authorization, licences and permits for the landing,
construction and operation of the CANTAT-3 System;
(e) use the Capacity in such a way as to avoid degrading the overall
performance of the CANTAT-3 System or causing interruptions of, or
interference with, impairment or degradation of the use of any other
capacity in the CANTAT-3 System;
(f) upon at least a 24-hour prior notice or, at any time, if the situation
or circumstance so justify, make available to TC-3 the Capacity for
such test and adjustment as may be necessary for the Capacity to be
maintained in efficient working order.
ARTICLE 8
COVENANTS OF TC-3
8.1 Books and Records. TC-3 shall keep and maintain such books, records,
vouchers and accounts of all costs with respect to the maintenance, operation
and restoration of the CANTAT-3 System as may be appropriate to support the
billing of any O&M Charges, Station Costs or restoration costs by TC-3 and such
books that relates to the running charges and restoration costs shall at all
reasonable times be made available for inspection by the Grantee for a period of
two (2) years from the date of billing.
8.2 Sharing of Liquidation Proceeds and Costs. In the event of liquidation of
Segment A or any part thereof and/or Segment F or any part thereof by sale or
other disposition, TC-3 shall share with the Grantee any proceeds or costs of
such liquidation, sale or disposition of Segment A and/or Segment F received or
incurred by TC-3 including, without limitation, any costs related to the removal
of such Segment A and/or Segment F. Such proceeds or costs shall benefit or be
incurred by the Grantee in accordance with the Grantee's Share of such proceeds
or costs.
8.3 Maintenance of the Capacity. TC-3 shall use all reasonable efforts to cause
the CANTAT-3 System to be maintained in efficient working order.
8.4 Provision of Transit Facilities. TC-3 shall use all reasonable efforts to
provide suitable digital transit facilities as and when required for use in
connection with circuits in the CANTAT-3 System so as to provide through
circuits between points reached via Segment A.
<PAGE>
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ARTICLE 9
INTELLECTUAL PROPERTY RIGHTS
9.1 No License. No license under patents is granted by TC-3 or shall be implied
or arise by estoppel in favour of the Grantee with respect to any apparatus,
system or method used by the Grantee in connection with the use of the MIUs
granted to the Grantee under this Agreement.
9.2 Specific Indemnification. With respect to claims of patent infringement made
by third Persons, the Grantee will save TC-3 and the other signatories to the
CANTAT-3 C&MA harmless against claims arising out of or based on the use by the
Grantee, in combination or in connection with the Capacity, any apparatus,
system or method provided by the Grantee, any subgrantee or lessee of the
Grantee or any customer or customers of the Grantee, of such subgrantee or of
such lessee.
ARTICLE 10
RECONFIGURATION OF CAPACITY
10.1 Reduction in the Capacity. In the event that the total number of MIUs on
Segment F is reduced below the Notional Capacity, as a result of physical
deterioration, or for any other reason, during the term of this Agreement, TC-3
shall give the Grantee written notice of said decrease and the MIUs in which the
Grantee has been granted an IRU hereunder shall be reduced in the same
proportion as the total number of MIUs assigned to TC-3 in Segment F is reduced,
except that such reductions shall not extend to fractions of half-MIUs.
10.2 Adjustment in O&M and Other Charges. If the number of MIUs on Segment F is
decreased as provided in Section 10.1 and that operating and maintenance charges
related thereto are reduced proportionally, the Grantee's payments with respect
to operating and maintenance charges for the IRU granted under this Agreement
shall be adjusted proportionally to such reduction.
10.3 Increase in Communication Capability.
(a) The communication capability of the Capacity used by the Grantee in
Segment F may be increased subject to prior notice to TC-3, by the use
of equipment which will make more efficient use of such MIUs, provided
that such use of the Capacity does not cause an interruption of or
interference in the CANTAT-3 System or other systems interconnecting
with the CANTAT-3 System.
(b) Subject to Article 16, the Grantee shall not be entitled to share in
any increase in capacity or be entitled to credits or reduction in the
sums paid for the Capacity in the event that the Notional Capacity is
increased beyond 2,016 half-MIUs. The Parties acknowledge that an
option to acquire, on an IRU basis, an additional interest in one half
(1/2) MIU in Segment F, as well as an IRU in Segment A to the extent
required for the use of such additional capacity, in the event of
increase in the Notional Capacity, is granted to the Grantee for the
sum referred to in Section 3.1.
<PAGE>
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ARTICLE 11
TERM
11.1 Term. This Agreement shall continue in effect for the initial term up to
the end of the expected useful life of the CANTAT-3 System at 23:59 Universal
Time Coordinated, on October 8th, 2019 unless the CANTAT-3 System is taken out
of service earlier, in which case this Agreement will terminate on the same date
as that of the CANTAT-3 System. TC-3 shall give the Grantee prompt notice of the
taking out of service of the CANTAT-3 System. In the event that the CANTAT-3
System is extended tacitly beyond its initial term as stated above, this
Agreement will continue in effect tacitly during such extension under the same
terms and conditions.
Notwithstanding the termination of this Agreement, all payment obligations of
the Grantee for amounts still due or payable under this Agreement for the period
ending at the date of termination shall survive until payment and the Grantee
shall be liable for any costs and shall benefit from any proceeds under Section
8.2 hereof incurred or received, as the case may be, in the case of liquidation,
sale or disposition occurring within two (2) years after the termination date.
ARTICLE 12
EVENT OF DEFAULT
12.1 Event of Default. The occurrence of any one or more of the following events
shall constitute an Event of Default under this Agreement:
(a) If the Grantee fails to make the payment of any amount due to TC-3
under the provisions of this Agreement, when the same becomes due and
payable as herein provided and such default has not been cured within
ten (10) days after receipt by the Grantee of a notice to that
effect;
(b) If the Grantee fails to duly observe, perform and discharge the
covenants, conditions and obligations on its part to be observed,
performed or discharged hereunder (other than the default of payment
of amounts under any provisions of this Agreement which is subject to
Subsection 12.l(a)) and such default has not been cured within twenty
(20) days after receipt by the Grantee of a notice from TC-3;
(c) If any representation or warranty made herein shall prove at any time
to be materially incorrect; and
(d) If the Grantee becomes insolvent or bankrupt or ceases paying its
debts generally as they mature or has a receiver, administrative
receiver or manager appointed over the whole or any part of its assets
or goes into liquidation (whether compulsorily or voluntarily),
otherwise than for the purpose of an amalgamation or reconstruction,
or makes any arrangements with its creditors or has any form of
execution or distress levied upon its assets or ceases to carry on its
business.
<PAGE>
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ARTICLE 13
TERMINATION
13.1 Termination Upon Default. Upon the occurrence of an Event of Default, TC-3
shall have the right to terminate this Agreement immediately and, in addition to
any other remedies available hereunder, at law or in equity, shall be entitled
to possession of the Capacity without any other action, with or without legal
process. Without limiting the generality of the foregoing, in the Event of
Default by the Grantee, TC-3 may temporarily discontinue use of the Capacity
without incurring any liability to the Grantee, its subgrantees, lessees or its
customers.
13.2 Termination After Initial Term. In the event that this Agreement is
continued beyond the expected useful life of the CANTAT-3 System in conformity
with Section 11.1, any Party may thereafter terminate this Agreement by giving
the other Party not less than one (1) year notice.
13.3 Other Remedies. Termination of this Agreement by the Party not in default
in accordance with the terms hereof shall be without prejudice to any other
rights or remedies such Party shall have hereunder, by law or in equity.
ARTICLE 14
GENERAL INDEMNIFICATION
14.1 General Indemnification. The Grantee shall indemnify and save TC-3 and
Teleglobe Canada harmless from and against any direct or consequential claims,
demands, actions, causes of action, damages, losses (which shall include any
reduction in value), liabilities, costs or expenses (including, without
limitation, interest, penalties and reasonable attorneys' fees and
disbursements) (collectively, the "Losses") which may be made against TC-3 or
Teleglobe Canada or which TC-3 or Teleglobe Canada may suffer or incur as a
result of, arising out of or relating to:
(a) any non-performance of or non-compliance with any covenant, agreement
or obligation of the Grantee under or pursuant to this Agreement;
(b) any incorrectness in, or breach of, any representation or warranty
made by the Grantee; and
(c) any action, suit, claim, trial, demand, investigation, arbitration or
other proceeding by any Person containing allegations which, if true,
would constitute an event described in Subsection 14.1(a) or 14.1(b).
<PAGE>
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ARTICLE 15
DISPUTE RESOLUTION
15.1 Arbitration. Any difference, controversy or claim arising out of or
relating to this Agreement, its interpretation or performance, shall be
considered a "Dispute". Any Dispute shall be subject to binding arbitration as
provided hereafter.
(a) The aggrieved Party shall diligently notify the other Party of the
occurrence of a Dispute. The notification shall be deemed diligently
made if communicated to the other Party within five (5) Business Days
of the knowledge of the occurrence of the Dispute.
(b) Within ten (10) Business Days following such notification, each Party
shall prepare and disclose to the other Party a brief on its position
and within fifteen (15) days thereafter the parties shall prepare a
common brief which shall contain all points of Agreement and all
points of disagreement in relation to the Dispute.
(c) Notwithstanding Subsection 15.1(b) above, if no resolution of the
Dispute has occurred thirty (30) days after the date on which a Party
has submitted the Dispute to its Chief Executive Officer or a Person
appointed by him, then the Dispute shall be submitted for resolution
by binding arbitration under the Rules of Conciliation and Arbitration
of the International Chamber of Commerce in effect on the date the
arbitration is submitted to the tribunal of arbitration. In such
event:
(i) a sole arbitrator shall be appointed, unless the parties agree
in a particular case within thirty (30) days of the submission
of the Dispute to arbitration that the tribunal should consist
of more than one arbitrator. Such arbitrator(s) shall be
knowledgeable in the field of law involved;
(ii) the place of arbitration shall be set in the United States, at
such location agreed to by the Parties, and the arbitration
shall be conducted in English;
(iii) responsibility for paying the costs of the arbitration,
including the costs incurred by the parties themselves in
preparing and presenting their cases, shall be apportioned by
the tribunal of arbitration;
(iv) the award shall be rendered in the English language and shall
state the reasons upon which it is based;
(v) the award of the tribunal of arbitration may be entered and
enforced as a judgment against a Party in any court of
competent jurisdiction or application may be made to such
court for a judicial acceptance of the award and an order of
enforcement, as the case may be.
(d) Nothing in the foregoing shall prevent a Party from initiating such
protective measure proceedings as are necessary to protect any arm's
length third Party rights.
<PAGE>
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(e) The fact that a dispute is brought to arbitration does not relieve
either Party from its obligation to fulfil its other covenants or
agreements as provided by this Agreement which are not affected by the
Dispute.
ARTICLE 16
OPTION TO INCREASE THE CAPACITY
16.1 Option. TC-3 hereby grants to the Grantee an option to acquire, on an IRU
basis, an additional interest in one half (1/2) MIU in Segment F, as well as an
MU in Segment A to the extent required for the use of such additional capacity,
in the event that the Notional Capacity in the CANTAT-3 System is increased
beyond 2,016 half-MIUs.
16.2 Procedure. TC-3 shall notify the Grantee of any increase in the Notional
Capacity. The Grantee shall then be able to exercise its option by sending a
written notice to TC-3 notifying the latter of its intention to increase the
Capacity. Such notice shall be submitted to TC-3 within thirty (30) days from
receipt of the notice from TC-3. The option shall be deemed to have been
exercised on the date of receipt by TC-3 of the notice from the Grantee. The
notice shall contain the number of MIUs for which the option is exercised and be
accompanied with a certified cheque representing the aggregate option price as
stipulated in Section 16.3.
16.3 Option Price. The exercise price of the option hereby granted shall be
$75,000 per half-MIU.
ARTICLE 17
MISCELLANEOUS
17.1 Assignment. Neither this Agreement nor any rights, remedies, liabilities or
obligations arising under it or by reason of it shall be assignable by the
Grantee without the prior written consent of TC-3, which consent shall not be
unreasonably withheld. Subject thereto, this Agreement shall inure to the
benefit of and be binding on the Parties and their respective successors and
permitted assigns.
17.2 Further Assurances. The Parties shall, with reasonable diligence, do all
things and provide all reasonable assurances as may be required to consummate
the transactions contemplated by this Agreement, and each Party shall provide
further documents or instruments required by any other Party as may be
reasonably necessary or desirable to effect the purpose of this Agreement.
17.3 Notices. Any notice, consent, request, authorization, permission, direction
or other communication required or permitted to be given hereunder shall be in
writing and shall be delivered either by personal delivery or by telecopier or
similar telecommunications device, return receipt requested, and addressed as
follows:
(a) in the case of TC-3:
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TELEGLOBE CANTAT-3 INC.
1st Floor, Building 2, Chelston Park
(P.O. Box 1210, Bridgetown)
Collymore Rock, St. Michael, BARBADOS
Attention: Mr. V. Owen Springer, Vice President and General Manager
Telephone: (809) 437-8736
Telecopier: (809) 435-3107
(b) in the case of the Grantee:
INTERNATIONAL TELECOMMUNICATIONS CORPORATION
EAB Plaza-West Tower, 8th Floor
Uniondale, New York 11556-0169
UNITED STATES OF AMERICA
Attention: Mr. Biago Civale
Telephone: (516) 542-0200
Telecopier: (516) 794-9400
Any notice, consent, request, authorization, permission, direction or other
communication delivered as aforesaid shall be deemed to have been effectively
received, if sent by telex, telecopier or similar telecommunication device, on
the Business Day next following transmission thereof, or, if personally
delivered, to have been received on the date of such delivery, provided,
however, that if such date is not a Business Day then it shall be deemed to have
been received on the Business Day next following such delivery. An address may
be modified by written notice delivered as aforesaid.
17.4 No Partnership. The relationship between TC-3 and the Grantee under this
Agreement shall not be that of partners or joint venturers and nothing herein
contained shall be deemed to constitute a partnership or joint venture between
them and the rights and obligations of the Parties shall be limited to the
express provisions of this Agreement.
17.5 Confidentiality and Public Announcement. It is expected that the Parties
may disclose to each other proprietary or confidential technical financial and
business information ("Proprietary Information"). Except as necessary to perform
its obligations under this Agreement, the receiving Party shall not make any use
of Proprietary Information for its own benefit or for the benefit of any other
Person, and, except with the prior written consent of the disclosing Party or as
otherwise specifically provided herein, the receiving Party will not, during and
for a period of three (3) years after the termination of this Agreement,
duplicate, use or disclose any Proprietary Information to any Person.
The receiving Party shall not disclose all or any part of the disclosing Party's
Proprietary Information to any affiliates, agents, officers, directors,
employees or representatives (collectively, "Representatives") of the receiving
Party, except on a need to know basis. Such Representatives shall be informed of
the confidential and proprietary nature of the Proprietary Information. Each
Party shall maintain the other Party's Proprietary Information with at least the
same degree of care each Party uses to maintain its own proprietary information.
The receiving Party shall immediately
<PAGE>
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advise the disclosing Party in writing of any misappropriation or misuse by any
Person of the disclosing Parties Proprietary Information of which the receiving
Party is aware.
All Proprietary Information in whatever form shall be promptly returned by the
receiving Party to the disclosing Party upon written request by the disclosing
Party for any reason or upon termination of this Agreement.
Each receiving Party acknowledges that the Proprietary Information of the
disclosing Party is central to the disclosing Party's business and was developed
by or for the disclosing Party at a significant cost. Each receiving Party
further acknowledges that damages would not be an adequate remedy for any breach
of this Agreement by the receiving Party or its Representatives and that the
disclosing Party may obtain injunctive or other equitable relief to remedy or
prevent any breach or threatened breach of this Agreement by the receiving Party
or any of its Representatives. Such remedy shall not be deemed to be the
exclusive remedy for any such breach of this Section 17.5, but shall be in
addition to all other remedies available at law or in equity to the disclosing
Party.
None of the Parties shall disclose or make any public announcement of the
existence of this Agreement, the transaction contemplated hereby or the contents
hereof without in each case the prior written consent of the other, unless such
disclosure is required by law and then only after prior notice to the other
Parties.
17.6 Waiver. No waiver of any right under this Agreement shall be deemed
effective unless contained in writing signed by the Party charged with such
waiver, and no waiver of any right arising from any breach or failure to perform
shall be deemed to be a waiver of any future such right or any other right
arising under this Agreement.
17.7 Force Majeure. Neither Party shall be responsible for failures to perform
or delays in performing its obligations due to causes beyond its reasonable
control and without its fault or negligence.
IN WITNESS WHEREOF the parties have signed this Agreement as of the date first
above written.
TELEGLOBE CANTAT-3 INC. INTERNATIONAL TELE-
COMMUNICATIONS CORPORATION
Per: /s/ [Illegible] Per: /s/ Biagio A. Civale
-------------------------------------- ---------------------------------
Name: V. O. Springer Name: Biagio A. Civale
----------------------------------- --------------------------------
Title: Vice President and General Manager Title: Director, Business Development
---------------------------------- -------------------------------
Place: St. Michael, Barbados Place: Uniondale, NY, USA
---------------------------------- ------------------------------
<PAGE>
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INTERVENTION
Teleglobe Canada Inc. hereby declares to have taken cognizance of this
Agreement and to be satisfied therewith; it agrees to comply with the provisions
of this Agreement which apply to it.
TELEGLOBE CANADA INC.
Per: [ILLEGIBLE]
-----------------------------------
Name: GILLES LEDUC
----------------------------------
Title: U.S. CARRIER RELATIONS
---------------------------------
Place: Montreal, Canada
Date: April 3, 1996
----------------------------------
<PAGE>
SCHEDULE A
DESCRIPTION OF THE CANTAT-3 SYSTEM
Segment F: shall mean the whole of the submarine cable provided between
and among, and including the System Interface at the following
cable stations:
Segment A: A cable station at Pennant Point, Nova Scotia,
Canada;
Segment B: A cable station at Vestmannaeyjar, Iceland;
Segment B1: A cable station at Tjornuvik, Faroe Island;
Segment C: A cable station at Redcar, United Kingdom;
Segment D: A cable station at Blaabjerg, Denmark
Segment E: A cable station at Sylt, Germany;
Segments A, B, B1, C, D and E shall each consist of an
appropriate share of land, civil work, equipment and buildings
at the specified locations for the cable landing and for the
cable right-of-way and ducts between a cable station and its
respective landing point, and an appropriate share of common
services and equipment other than services and equipment
associated solely with the CANTAT-3 System, at each of those
locations together with equipment in each of those cable
stations solely associated with the CANTAT-3 System, but which
is not a part of Segment F, consisting of Subsegments F1, F2,
F3A, F3B, F3C, F4, F5, F6 and F7.
Subsegment F1: That part of Segment F between and including the System
Interface at the cable station in Canada, Segment A, and BU1,
including a three-eight (3/8) portion of BU1;
Subsegment F2: That part of Segment F between BU1 and the System Interface
at the cable station in Iceland, Segment B, including a
one-quarter (1/4) portion of BU1;
Subsegment F3A: That part of Segment F between BU1 and BU1A including a
three-eight (3/8) portion of BU1;
Subsegment F3B: That part of Segment F between BU1A and System Interface at
the cable station in the Faroe Islands B1, including the
whole of BU1A.
Subsegment F3C: That part of Segment F between BU1A and BU2 including a
three-tenths (3/10) portion of BU2.
<PAGE>
- 2 -
Subsegment F4: That part of Segment F between BU2 and the System Interface
of the cable station in the United Kingdom, Segment C,
including a three-tenths (3/10) portion of BU2;
Subsegment F5: That part of Segment F between BU2 and BU3 including a
two-fifths (2/5) portion of BU2 and a two-fifths (2/5)
portion of BU3;
Subsegment F6: That part of Segment F between BU3 and the System Interface
of the cable station in Denmark, Segment D, including a
three-tenths (3/10) portion of BU3;
Subsegment F7: That part of Segment F between BU3 and the System Interface
of the cable station in Germany, Segment E, including a
three-tenths (3/10) portion of BU3.
Segment F shall also include:
- all transmission equipment, power feeding equipment and
special test equipment directly associated with the
submersible plant;
- the transmission cable equipped with appropriate repeaters
and joint housings between the cable stations and the
Branching Units and between the Branching Units themselves;
and
- the sea earth cable and electrode system and/or the land
earth system, or an appropriate share thereof, associated
with the CANTAT-3 System power feeding equipment.
<PAGE>
EXH 10.80
================================================================================
PTAT-1 SUBMARINE SYSTEM
INDEFEASIBLE RIGHT OF USE
AGREEMENT
BETWEEN
PRIVATE TRANSATLANTIC
TELECOMMUNICATIONS SYSTEM, INC.
AND
INTERNATIONAL TELECOMMUNICATIONS
CORPORATION
================================================================================
<PAGE>
FIRST AMENDMENT TO
PTAT-1 SUBMARINE SYSTEM
INDEFEASIBLE RIGHT OF USE AGREEMENT
THIS AMENDMENT, dated as of the 12th day of May, 1994, is made by and between
PRIVATE TRANSATLANTIC TELECOMMUNICATIONS SYSTEM INC., a corporation
incorporated in the state of Delaware and having its principal office at 12490
Sunrise Valley Drive, Reston, Virginia 22096, U.S.A. (hereinafter referred to as
"PSI"), and INTERNATIONAL TELECOMMUNICATIONS CORPORATION, a corporation
incorporated in Delaware and having its principal office at 60 Hudson Street,
Suite 300, New York, New York 10013 (hereinafter referred to as "Purchaser").
WITNESSETH:
WHEREAS, the parties have entered into a PTAT-1 Submarine System
Indefeasible Right of Use Agreement dated May 12, 1994 (the "Agreement")
pursuant to which PSI granted to Purchaser, on an IRU basis, an interest in
certain capacity in the PTAT-1 Submarine System;
WHEREAS, PSI is jointly responsible with Cable and Wireless Network
Services Limited ("CWNS") for the maintenance of Segment E of the PTAT-1
Submarine System and CWNS and PSI together with the other parties to the CMA
have agreed that the PTAT-1 Submarine System shall be maintained under the
Atlantic Cable Maintenance and Repair Agreement ("ACMA") as amended from time to
time and under associated agreements;
WHEREAS, the parties hereto desire to modify the arrangements for sharing
PTAT-1 Submarine System operations, maintenance and repair costs in order to be
consistent with standard ACMA cost sharing arrangements;
NOW, THEREFORE, in consideration of the premises and the mutual agreements
set forth herein, the parties hereto hereby agree as follows:
1. The purchase price for the IRUs referred to in Section 5(a)(i) of the
Agreement shall be payable in quarterly installments as shown in Schedule 1
hereto, for a total payment, including interest, equal to US$669,144. An
initial payment of US$55,762 shall be due and payable within thirty (30)
days of the Effective Date; thereafter quarterly installment payments in
the amounts shown on Schedule 1 shall be due and payable within thirty (30)
days following the date of Sprint's invoice for each installment.
Page 1
<PAGE>
2. Exhibits B. C, D and E of the Agreement are hereby deleted in their
entirety, and Exhibit B is replaced with the revised Exhibit B as set forth
in Annex 1 hereto, which is hereby incorporated herein.
3. Section 5(a) of the Agreement is hereby amended by deleting clauses (ii),
(iii), (iv) and (v) thereof and replacing them with the following:
"(ii) Purchaser's pro rata share of the annual recurring costs of
operating and maintaining the PTAT-1 Submarine System, pursuant to the
provisions of Exhibit B which is attached hereto and incorporated
herein, payable by Purchaser in quarterly installments of the
estimated annual cost for each Budget Year as defined in Exhibit B,
which shall be due on the last day of the first month of each
quarterly period during each Budget Year, subject to reconciliation
following the end of each Budget Year to reGect the actual operating
and maintenance costs incurred by PSI during such Budget Year; and
(iii) Purchaser's pro rata share of the costs for repair replacements
and additions to the PTAT-1 Submarine System, as determined pursuant
to Exhibit B hereto, which shall be billed to and payable by Purchaser
as soon as practicable after such costs have been incurred or charged
to the account of PSI;
provided, however, Purchaser shall have the right at its own
reasonable expense to request that PSI's auditors issue their own
determination as to the accuracy of any of the foregoing charges
specified in clause (ii) or (iii) above, provided to Purchaser by
PSI."
4. As of May 12, 1994, (i) each reference in the Agreement to "this
Agreement", "hereunder", "hereof", "herein", or words of like import shall
mean and be a reference to the Agreement as amended hereby, and (ii) each
term used as a defined term herein shall have the meaning assigned to that
term in the Agreement as amended hereby.
5. Except as specifically amended or varied in the preceding paragraphs
hereof, the Agreement shall remain in full force and effect and is hereby
ratified and confirmed.
Page 2
<PAGE>
IN WITNESS WHEREOF, each of the parties hereto has caused this Amendment
Agreement to be executed and delivered on its behalf by its duly authorized
representative as of the date first above written.
INTERNATIONAL PRIVATE TRANSATLANTIC
TELECOMMUNICATIONS TELECOMMUNICATIONS SYSTEM,
CORPORATION INC.
/s/ C.M. Piluso /s/ William F. Daleus
- ----------------------------- ---------------------------
Signature Signature
C. M. Piluso William F. Daleus
- ----------------------------- ---------------------------
Printed Name Printed Name
President Deputy General Manager
- ----------------------------- ---------------------------
Title Title
Page 3
<PAGE>
ANNEX 1
REVISED EXHIBIT B
to the PTAT-1 Submarine System
Indefeasible Right of Use Agreement
1. Description of Repair and Maintenance
PSI and CWNS have entered into arrangements for the PTAT-1 Submarine Cable to
receive, commencing April 1, 1994, repair and maintenance services under the
Atlantic Cable Maintenance and Repair Agreement dated April 1, 1989, or as
amended from time to time ("ACMA"). PSI and CWNS will act as the Maintenance
Authorities for the PTAT-1 Submarine Cable. In connection with ACMA, PSI and
CWNS have entered into a number of associated agreements to provide necessary
related services. These agreements include, but are not limited to: SCARAB,
Bermuda Depot, UK Depot, Universal Jointing, Protective Grounding Units,
Technical and Managerial Support.
PSI and CWNS will each bear 50 percent of all repair and maintenance costs
incurred for the PTAT-1 Submarine Cable. PSI will then charge the Purchaser for
its appropriate share of these costs are detailed below.
With regard to ACMA, maintenance responsibilities have been divided between PSI
and CWNS, with PSI responsible for ACMA Western Zone, with the exception of the
Bermuda Spur while CWNS is responsible for ACMA Eastern Zone and the Bermuda
Spur.
With regard to this Agreement, repair and maintenance costs are divided into two
distinct categories: Operations and Maintenance Costs; and Repair, Replacement
and Addition Costs. These two categories of costs are defined below.
While all reasonably foreseeable repair and maintenance requirements for the
PTAT-1 Submarine Cable will be provided under ACMA, circumstances may arise from
time to time requiring the use of additional or different equipment, facilities,
or services in connection with repair or maintenance operations, and in such
circumstances, PSI and CWNS will endeavor to arrange provision of additional
equipment, facilities, or services as they deem necessary to carry out such
particular repair or maintenance operation. Additional costs related to the
provision of such equipment, facilities or services shall be included as PSI's
Repair, Replacement, and Addition Costs.
For the duration of this Agreement, additional equipment and facilities (in
terms of cable ships, depots, and other equipment and facilities) may be added
at any time only if necessary to maintain compliance with regulatory
requirements or to fulfill the obligations of PSI and CWNS to provide efficient
and cost-effective repair and maintenance of the PTAT-1 Cable. In addition, PSI
and CWNS reserve the right to enter into other maintenance and repair
arrangements for the PTAT-1 Submarine System in addition to or
Page 4
<PAGE>
in lieu of the ACMA arrangements described above. Capital and other charges
related to the provision of such additional equipment and facilities or the
procurement of other maintenance and repair services shall be included as PSI's
Repair, Replacement, and Addition Costs.
2. Definition of Operation and Maintenance Costs
For purpose hereof, "Operations and Maintenance Costs" ("O&M") shall mean with
respect to the PTAT-1 Submarine System, the costs reasonably incurred in
operating and maintaining the facilities involoved, including but not limited
to:
a) Standby and operating charges in respect to cable ships under ACMA (or
otherwise) with regard to the PTAT-1 Submarine Cable;
b) Storage charges of plant and equipment in respect to the PTAT-1 Submarine
System;
c) Standby charges in respect to submersible devices deemed necessary to be
available for the retrieval or burial of the PTAT-1 Submarine Cable;
d) Recurring labor, facilities and equipment cost related to the operation and
maintenance of Subsegment A1;
e) All other costs incurred by PSI from any operation or maintenance providers
for or in respect of the operation and maintenance of PTAT-1 Submarine
System;
f) PTAT-1 System technical advisors' charges for continuing technical support;
g) Costs incurred by PSI as a result of foreign currency fluctuation affecting
payments made by PSI of any invoices rendered to PSI in any currency other
than US dollars in respect of the operation and maintenance of the PTAT-1
Submarine System;
h) Costs and expenses reasonably incurred on account of claims made by or
against third parties in the operation and maintenance of the PTAT-1
Submarine System and damages or compensation payable by PSI on account of
such claims;
i) All governmental, regulatory and statutory charges, customs duties,
royalties and taxes (other than taxes imposed on net income of PSI)
incurred by PSI in the operation and maintenance of the PTAT-1 Submarine
System;
j) Administration and accounting charges of procuring, recording, collecting
and allocating the operation and maintenance costs and repair, replacement
and addition costs of PTAT-1 Submarine System.
3. Definition of Repair, Replacement and Addition Costs
For purpose hereof, "Repair, Replacement and Addition Costs" shall mean, with
respect to the PTAT-1 Submarine System, any additional costs incurred outside
the recurring O&M charges stated above, in connection with the PTAT-1 Submarine
System, including but not limited to:
a) The mobilization/demobilization of the necessary equipment, facilities and
services to effect a repair, replacement or addition;
b) The daily operating charges of the necessary equipment, facilities and
services required for the repair, replacement or addition;
c) The costs of any additional equipment, facilities and services necessary to
effect a repair, replacement or addition;
Page 5
<PAGE>
d) The costs of any consumable items used to effect the repair, replacement or
addition;
e) The costs of replacing spares used to effect the repair, replacement or
addition;
f) Cable relocation costs;
g) Any other costs associated with modifications or enhancements to the PTAT-1
Submarine System that are deemed necessary to ensure maintaining the
required level of system performance.
4. Recurring O&M Costs for the PTAT-1 Submarine System
Prior to the beginning of each Budget Year, PSI will prepare a budget of the
recurring O&M costs for the PTAT-1 Submarine System which PSI expects to incur
during the Budget Year. For purposes hereof, a "Budget Year" shall mean the
annual period commencing on January 1st of each year, except that the Budget
Year occuring in 1994 shall commence on April 1, 1994 and end on December 31,
1994.
Purchaser's pro rata share of PSI's O&M Budget for each Budget Year
("Purchaser's Estimated O&M Charges") will be allocated to Purchaser on the
basis of Purchaser's pro rata share of the Notional Capacity in each Route of
the PTAT-1 Submarine Cable, using the following formula:
PSE\RX = [(LR\RX = NC\RX / (SUM)\R1-R6 (LR = NC)] = BA = PC
--------------------------------------------------
NC\RX
Where:
PSE = Purchaser's pro rata share, in dollars, of PSI's O&M Budget
for each separate Route, as defined below, for the relevant
Budget Year, or Purchaser's Actual O&M Charges, whichever is
applicable.
RX = R1, R2, R3, R4, R5 or R6, as defined below.
BA = The amount of PSI's O&M Budget for the relent Budget Year,
or PSI's actual O&M costs for the relevant Budget Year,
whichever is applicable.
LR = Deemed length (in kilometers) of each Route, R1 through R6,
in the PTAT-1 Submarine Cable.
PC = Purchaser's Capacity pursuant to this Agreement in the
relevant Route expressed in DS-0s.
NC = "Notional Capacity" of each Route R1 through R6, expressed
in DS-0s. Notional Capacity means the average of the total
capacity of the relevant Route which has been assigned for use
at the beginning of the relevant Budget Year and the total
capacity of the relevant Route which is expected to be
assigned for use by the end of the relevant Budget Year.
Page 6
<PAGE>
For purposes hereof, the "Routes" in the PTAT-1 Submarine Cable consist of the
following six circuit routings within Segment E:
R1 - USA-UK
R2 - USA-Bermuda
R3 - USA-Ireland
R4 - Bermuda-Ireland
R5 - Bermuda-UK
R6 - Ireland-UK
PSI will invoice Purchaser for Purchaser's Estimated O&M Charges in quarterly
installments, other than the quarter in which this Agreement is executed, one
(1) month in advance of the commencement of each quarterly period of the
relevant Budget Year.
Following the end of each Budget Year when adequate information is available,
PSI will calculate the actual annual O&M cost for the PTAT-1 Submarine System
for such Budget Year. PSI will then calculate Purchaser's pro rata share of the
actual O&M charges ("Purchaser's Actual O&M Charges") on the basis of the same
formula set forth above used in allocating the Purchaser's Estimated O&M
Charges, except that the "NC" factor shall reflect the actual amounts of
capacity which have been assigned for use during such Budget Year.
If for any Budget Year the sum = of Purchaser's quarterly payments with respect
to Purchaser's Estimated O&M Charges exceeds Purchaser's Actual O&M Charges, the
amount of such overpayment shall be credited to Purchaser's payment obligation
for Purchaser's Estimated O&M Charges in the subsequent Budget Year, provided
that if the Budget Year for which such overpayment was made was the final Budget
Year of the Agreement, the amount of such overpayment shall be reimbursed to
Purchaser with 180 days following the termination of this Agreement.
If for any Budget Year the sum of Purchaser's quarterly payments with respect to
Purchaser's Estimated O&M Charges is less than Purchaser's Actual O&M Charges,
the amount of such deficiency shall be added to the next installment of
Purchaser's Estimated O&M Charges, provided that if Purchaser is no longer
obligated to make such quarterly payments, the Purchaser shall remit the amount
of such deficiency within 30 days follows receipt of PSI's invoice therefor.
If additional information becomes available at a later date that materially
affects Purchaser's Actual O&M Charges for a particular Budget Year, an
additional adjustment to such charges to Purchaser for that particular Budget
Year will be made in the manner described above.
5. Repair, Replacement and Addition Costs of the PTAT-1 Submarine System
The Purchaser shall be liable to PSI for its pro rata share of PSI's Repair,
Replacement and Addition Costs incurred with respect to:
Page 7
<PAGE>
a) Any repair to, or replacement of, any part of the PTAT-1 Submarine System
resulting from an actual fault;
b) Repairs, replacements and additions to the PTAT-1 Submarine Cable System to
prevent the recurrence of an actual fault or occurence of new faults;
e) Any system enhancement or addition deemed necessary to maintain or improve
the required level of system performance;
d) Additional equipment requirements as a result of altering maintenance
arrangements.
Purchaser's pro rata share of PSI's Repair, Replacement and Addition Costs shall
be allocated to Purchaser using the same formula set forth in Section 4 above
for allocating PSI O&M charges to Purchaser, except that in applying such
formula the "BA" factor shall reflect the amount of PSI's Repair Replacement and
Addition Costs and the "NC" factor shall reflect the total Notional Capacity
actually assigned for use at the time such Repair Replacement and Addition Costs
are incurred. Purchaser's pro rata share of such costs shall be billed to
Purchaser as soon as practicable after such costs are incurred by or charged to
the account of PSI.
Page 8
<PAGE>
THREE YEAR FINANCING TERM SCHEDULE 1
FINANCING SCHEDULE: PTAT US/UK Half DS-2
Effective Date 12 May '94
<TABLE>
<CAPTION>
IRU Price $540,000 INTEREST 14.50%
Upfront Payment (1) $55,762 QUARTERLY
MONTHLY BALANCE INVOICED
PERIOD (2) PRINCIPAL INTEREST PAYMENT REMAINING AMOUNT
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
0 $12,062 $6,525 $18,587 $527,938
0 $12,208 $6,379 $18,587 $515,730
0 $12,356 $6,232 $18,587 $503,374
Q1, M1 $12,505 $6,082 $18,587 $490,869
Q1, M2 $12,656 $5,931 $18,587 $478,213 $86,341
Q1, M3 $12,809 $5,778 $18,587 $465,404
Q2, M4 $12,964 $5,624 $18,587 $452,440
Q2, M5 $13,120 $5,467 $18,587 $439,320 $55,762
Q2, M6 $13,279 $5,308 $18,587 $426,041
Q3, M7 $13,439 $5,148 $18,587 $412,602
Q3, M8 $13,602 $4,986 $18,587 $399,000 $55,762
Q3, M9 $13,766 $4,821 $18,587 $385,234
Q4, M10 $13,932 $4,655 $18,587 $371,302
Q4, M11 $14,101 $4,487 $18,587 $357,201 $55,762
Q4, M12 $14,271 $4,316 $18,587 $342,930
Q5, M13 $14,444 $4,144 $18,587 $328,486
Q5, M14 $14,618 $3,969 $18,587 $313,868 $55,762
Q5, M15 $14,795 $3,793 $18,587 $299,073
Q6, M16 $14,974 $3,614 $18,587 $284,100
Q6, M17 $15,154 $3,433 $18,587 $268,945 $55,762
O6, M18 $15,338 $3,250 $18,587 $253,608
Q7, M19 $15,523 $3,064 $18,587 $238,085
Q7, M20 $15,710 $2,877 $18,587 $222,374 $55,762
Q7, M21 $15,900 $2,687 $18,587 $206,474
Q8, M22 $16,092 $2,495 $18,587 $190,382
Q8, M23 $16,287 $2,300 $18,587 $174,095 $55,762
Q8, M24 $16,484 $2,104 $18,587 $157,611
Q9, M25 $16,683 $1,904 $18,587 $140,928
Q9, M26 $16,884 $1,703 $18,587 $124,044 $55,762
Q9, M27 $17,088 $1,499 $18,587 $106,955
Q10, M28 $17,295 $1,292 $18,587 $89,660
Q10, M29 $17,504 $1,083 $18,587 $72,156 $55,762
Q10, M30 $17,715 $872 $18,587 $54,441
Q11, M31 $17,929 $658 $18,587 $36,512
Q11, M32 $18,146 $441 $18,587 $18,365 $55,762
Q11, M33 $18,365 $222 $18,587 $0 $25,183
-------- -------- -------- --------
Total: $540,000 $129,144 $669,144 $669,144
</TABLE>
Notes:
(1) Will be included in the first quarterly invoice.
(2) Q signifies quarter, M signifies month.
<PAGE>
PTAT-1 SUBMARINE SYSTEM
INDEFEASIBLE RIGHT OF USE AGREEMENT
THIS AGRBEMENT, made and entered into as of the 12th day of May, 1994 by and
between PRIVATE TRANSATLANTIC TELECOMMUNICATIONS SYSTEM, INC., its successors
and permitted assigns, a corporation organized and existing under the laws of
the State of Delaware and an indirectly wholly-owned subsidiary of Sprint
Corporation, having its principal office at 12490 Sunrise Valley Drive,
VARESF0217, Reston, Virginia 22096 (hereinafter referred to as "PSI"), and
INTERNATIONAL TELECOMMUNICATIONS CORPORATION, its successors and permitted
assigns, a corporation organized and existing under the laws of Delaware, having
its principal office at 60 Hudson Street, Suite 300, New York, New York 10013
(hereinafter referred to as "Purchaser"); and,
WHEREAS, pursuant to the Ownership, Construction, Operation and Maintenance
Agreement, dated August 24, 1984, and as amended December 22, 1986, and as
further restated and amended as of August 15, 1989 (the "CMA"), PSI and other
telecommunications entities have agreed to provide, construct, operate, and
maintain the PTAT-1 System (as hereinafter defined), as a submarine cable system
between the United States of America (hereinafter referred to as "U.S.A."), on
the west, and the United Kingdom of Great Britain and Northern Ireland
(hereinafter referred to as "U.K."), on the east, with cable system spurs to the
Island of Bermuda (hereinafter referred to as "Bermuda") and the Republic of
Ireland (hereinafter referred to as "Ireland"); and,
WHEREAS, the PTAT-1 Submarine System consists, for the purposes of this
Agreement, of a transmission portion having two (2) fiber pairs extending
between the PTAT-1 Submarine System Interface Points (as hereinafter defined) in
the U.S.A. and the U.K. with each such fiber pair operating at 420 megabits per
second ("Mbit/s") and having a capacity equivalent to 9 DS-3s (as hereinafter
defined), and one (1) fiber pair extending between the PTAT-1 Submarine System
Interface Points in the U.S.A., U.K., Bermuda and Ireland, with such fiber pair
operating at 420 Mbit/s and having a capacity equivalent to 9 DS-3s; and,
WHEREAS, pursuant to the CMA, PSI has been assigned all those western Half Basic
Units (as hereinafter defined) in the PTAT-1 Submarine System, which consists of
the PTAT-1 Submarine Cable and Subsegments Al, B1, C1, and D1 (as these terms
are hereinafter defined); and,
- --------------------------------------------------------------------------------
Page 1
<PAGE>
WHEREAS, Purchaser desires to acquire from PSI, and PSI is willing to grant to
Purchaser, on an Indefeasible Right of Use (hereinafter referred to as "IRU")
basis, an interest in certain of the aforementioned Half Basic Units; and,
WHEREAS, PSI and Purchaser (hereinafter referred to as the "Parties") desire to
define the terms and conditions under which the IRU interest in the
aforementioned Half Basic Units will be granted to Purchaser;
WHEREAS, Purchaser desires to acquire from PSI, and PSI is willing to grant to
Purchaser, on an Indefeasible Right of Use (hereinafter referred to as "IRU")
basis, an interest in certain of the aforementioned Half Basic Units; and,
WHEREAS, PSI and Purchaser (hereinafter referred to as the "Parties") desire to
define the terms and conditions under which the IRU interest in the
aforementioned Half Basic Units will be granted to Purchaser;
NOW, THEREFORE, the Parties hereto, in consideration of the mutual covenants
herein expressed, covenant, and agree with each other an follows:
1. The following definitions shall apply to terms used in this Agreement and the
Annex and Exhibits attached hereto:
(i) "Constructing Parties" are PSI and Cable and Wireless Network Services
Limited (hereinafter referred to as "CWNS", a corporation incorporated in
Bermuda and having its Registered Office at 20 Church Street, Hamilton 5-24,
Bermuda);
(ii) "Beach Joint" is the physical connection between the submarine portion
of the PTAT-1 System and the land-based portion of the PTAT-1 System. In the
specific case of the U.K. where no such physical connection exists, the Beach
Joint shall be deemed to be at the transition joint in the outer cable chamber
at the building housing the U.K. PTAT-1 Submarine System Interface Point (as
hereinafter defined);
(iii) "PTAT-1 Submarine Cable" comprises all submersible plant and
equipment between and including the Beach Joints;
(iv) "PTAT-1 Interface Point" is the point where the Backhaul (as
hereinafter defined) connects with other transmission facilities or equipment
for onward transmission and shall be located on the nominal 44.736 Mbit/s
distribution frame in the city terminal connected to the Backhaul;
(v) "PTAT-1 System" comprises all plant, equipment, and facilities between
and including the PTAT-1 Interface Points in the
- --------------------------------------------------------------------------------
Page 2
<PAGE>
U.S.A., U.K., Bermuda, and Ireland. It consists of the PTAT-1 Submarine System
and the Backhauls in the U.S.A., U.K., Bermuda, and Ireland;
(vi) "PTAT-1 Submarine System Interface Point" is located on the nominal
140 Mbit/s digital input/output ports on the digital distribution frame
associated with the PTAT-1 submarine terminal equipment which shall be regarded
as the interface location where a Basic System Module (as hereinafter defined)
connects with Backhaul transmission facilities or equipment for onward
connection to a PTAT-1 Interface Point;
(vii) "PTAT-1 Submarine System" comprises all plant and equipment between
and including the PTAT-1 Submarine System Interface Points. It consists of a
transatlantic fiber optic system linking the U.S.A. and U.K. PTAT-1 Submarine
System Interface Points containing four (4) fiber optic pairs operating in a
three-plus-one configuration and associated regenerators and supervisory
circuits, and spurs to Bermuda and to Ireland each containing two (2) fiber
optic pairs;
(viii) "Basic System Module" is a 139,264,000 bits per second digital line
section with interface in accordance with CCITT Recommendation G.703 (Red Book
Volume III - FASCICLE 111.3 October 1984) (as hereinafter defined). Each fiber
pair in the PTAT-1 Submarine System shall be capable of carrying three (3) Basic
System Modules;
(ix) "Backhaul" comprises all that plant, equipment, and all those
facilities required to connect a PTAT-1 Interface Point (including such PTAT-1
Interface Point) to its respective PTAT-1 Submarine System Interface Point;
(x) "U.S.A. Backhaul" provides connectivity at multiples of the 44.736
Mbit/s transmission rate and comprises all plant, equipment, and facilities
necessary to provide redundant, protected, two-way digital communications
between and from the U.S.A. PTAT-1 Submarine System Interface Point at
Manasquan, New Jersey to and including the PTAT-1 Interface Points in New York
City, New York and Pennsauken, New Jersey. It includes, but is not limited to,
all necessary land and buildings, power supply, terrestrial cable, repeaters,
cross connect equipment, multiplex equipment, and any other terminating
equipment, test equipment, and all rights of way;
(xi) "U.K. Backhaul", comprises all plant, equipment, and facilities
necessary to provide redundant, protected, two-way digital communications
between and from the U.K. PTAT-1 Submarine System Interface Point at Brean, U.K.
to and including the PTAT-1 Interface Point in Bracknell, U.K. It includes, but
is not limited to, all necessary land and buildings, power supply, terrestrial
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cable, repeaters, cross connect equipment, multiplex and any other terminating
equipment, test equipment, and all rights of way;
(xii) "Bermuda Backhaul" comprises all plant, equipment, and facilities
necessary to provide redundant, protected, two-way digital communications
between and from the Bermuda PTAT-1 Submarine System Interface Point at
Devonshire, Bermuda to and including the PTAT-1 Interface Point in Devonshire,
Bermuda. It includes, but is not limited to, all necessary land and buildings,
power supply, terrestrial cable, cross connect equipment, multiplex and any
other terminating equipment, test equipment, and all rights of way;
(xiii) "Irish Backhaul" comprises all plant, equipment, and facilities
necessary to provide redundant, protected, two-way digital communications
between and from the Irish PTAT-1 Submarine System Interface Point at
Ballinspittle, Ireland to and including the PTAT-1 Interface Point in Dublin,
Ireland. It includes, but is not limited to, all necessary land and buildings,
power supply, terrestrial cable, repeaters, microwave links, cross connect
equipment, multiplex and any other terminating equipment, test equipment, and
all rights of way;
(xiv) "Bermuda Spur" comprises all PTAT-1 Submarine System plant and
equipment between and including both Branching Unit 1 (as hereinafter defined)
and the PTAT-1 Submarine System Interface Point in Bermuda;
(xv) "Ireland Spur" comprises all PTAT-1 Submarine System plant and
equipment between and including both Branching Unit 2 (as hereinafter defined)
and the PTAT-1 Submarine System Interface Point in Ireland;
(xvi) "Branching Units" are the two undersea joints which provide
transmission and power feed connectivity between the four (4) fiber optic pair
cable connecting the U.S.A. and the U.K. PTAT-1 Submarine Interface Points (the
"Transatlantic Cable") and the Ireland and Bermuda Spurs. Branching Unit 1
connects the Bermuda Spur and the Transatlantic Cable, and Branching Unit 2
connects the Ireland Spur and the Transatlantic Cable;
(xvii) "Basic Unit" (also known as a "DS-0") is a 64,000 bits per second
both-way digital line link with interface in accordance with CCITT
Recommendation G.703 (Red Book Volume III-FASCICLE 111.3 October 1984). Each
Basic Unit shall consist of two half circuits (hereinafter referred to as "Half
Basic Units"), a western Half Basic Unit as assigned to PSI and a corresponding
eastern Half Basic Unit as assigned to CWNS;
(xviii) "DS-3" is a 44,736,000 bits per second both-way digital line link
with interface in accordance with CCITT Recommendation G.703 (Red Book Volume
III - FASCICLE 111.3 October
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1984). For the purposes of defining Purchaser's pro rata share of capacity in
the PTAT-1 Submarine Cable and Subsegment A1, a DS-3 shall be deemed to be the
equivalent of six hundred and thirty (630) Basic Units;
(xix) "DS-2" is a 6,312,000 bits per second both-way digital line link with
interface in accordance with CCITT Recommendation G.703 (Red Book Volume III -
FASCICLE 111.3 October 1984). For the purposes of defining Purchaser's pro rata
share of capacity in the PTAT-1 Submarine Cable and Subsegment A1, a DS-2 shall
be deemed to be the equivalent of ninety (90) Basic Units;
(xx) "E-1" is a 2,048,000 bits per second both-way digital line link with
interface in accordance with CCITT Recommendation G.703 (Red Book Volume III -
FASCICLE 111.3 October 1984). For the purposes of defining Purchaser's pro rata
share of capacity in the PTAT-1 Submarine Cable and Subsegment A1, an E-1 shall
be deemed to be the equivalent of thirty (30) Basic Units;
(xxi) "DS-1" or "T-1" is a 1,544,000 bits per second both-way digital line
link with interface in accordance with CCITT Recommendation G.703 (Red Book
Volume III - FASCICLE 111.3 October 1984). For the purposes of defining
Purchaser's pro rata share of capacity in the PTAT-1 Submarine Cable and
Subsegment A1, a DS-1 or T-1 shall be deemed to be the equivalent of twenty-four
(24) Basic Units:
(xxii) "CCITT" means the International Consultative Committee on Telegraph
and Telephone, an Organization of the International Telecommunications Union;
and
(xxiii) "CCITT Recommendation" means a CCITT recommendation contained in
the Red Book published in codification of the CCITT's VIII Plenary Assembly
Malaga Torremolinos 8-12 October 1984 published by the International
Telecommunications Union, Geneva 1985.
2. For the purposes of this Agreement, the PTAT-1 System consists of five (5)
segments, as illustrated in Exhibit A which is attached hereto and incorporated
herein, and more fully described as follows:
(i) "Segment A" comprises all plant, equipment, and facilities between and
from the U.S.A. Beach Joint to and including the U.S.A. PTAT-1 Submarine System
Interface Point and to and including the U.S.A. PTAT-1 Interface Points in New
York City, New York and Pennsauken, New Jersey. It consists of three (3)
subsegments, defined as follows:
"Subsegment A1" comprises all plant, equipment, and facilities (excluding
such common facilities included in Subsegment
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A3) between and from the U.S.A. Beach Joint to and including the U.S.A. PTAT-1
Submarine System Interface Point which are necessary for, and only to the extent
used for, the operation of the PTAT-1 Submarine System. It includes, but is not
limited to, all necessary cable, civil works, cable terminating equipment,
supervisory equipment, power feed equipment, repeater monitoring equipment,
engineering service equipment, and test equipment specific to the PTAT-1
Submarine System;
"Subsegment A2" comprises all plant, equipment, and facilities (excluding
such common facilities included in Subsegment A3) which are necessary for, and
only to the extent used for, providing redundant, protected, two-way digital
communications between and from the U.S.A. PTAT-1 Submarine System Interface
Point to and including the PTAT-1 Interface Points in New York City, New York
and Pennsauken, New Jersey. It includes, but is not limited to, all necessary
land and buildings, power supply, terrestrial cable, repeaters, cross connect
equipment, multiplex and any other terminating equipment, test equipment
(specific to the U.S.A. Backhaul), and all rights of way; and
"Subsegment A3" comprises those common facilities at Manasquan, New Jersey
necessary to the operation of Subsegments A1 and A2, including, but not limited
to, such land, buildings, civil works, rights of way, power supply, and other
utilities and facilities.
(ii) "Segment B" comprises all plant, equipment, and facilities between and
from the U.K. Beach Joint to and including the U.K. PTAT-1 Submarine System
Interface Point and to and including the U.K. PTAT-1 Interface Point in
Bracknell, U.K. It consists of three (3) subsegments, defined as follows:
"Subsegment B1" comprises all plant, equipment, and facilities (excluding
such common facilities included in Subsegment B3) between and from the U.K.
Beach Joint to and including the U.K. PTAT-1 Submarine System Interface Point
which are necessary for, and only to the extent used for, the operation of the
PTAT-1 Submarine System. It includes, but is not limited to, all necessary
cable, civil works, cable terminating equipment, supervisory equipment, power
feed equipment, repeater monitoring equipment, engineering service equipment,
and test equipment specific to the PTAT-1 Submarine System;
"Subsegment B2" comprises all plant, equipment, and facilities (excluding
such common facilities included in Subsegment B3) which are necessary for, and
only to the extent used for, providing redundant, protected, two-way digital
communications between and from the U.K. PTAT-1 Submarine System Interface Point
to and including the PTAT-1 Interface Point in Bracknell, U.K. It includes, but
in not limited to, all necessary land and buildings,
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power supply, terrestrial cable, repeaters, cross connect equipment, multiplex
and any other terminating equipment, test equipment (specific to the U.K.
Backhaul), and all rights of way; and
"Subsegment B3" comprises those common facilities at Brean, U.K. necessary
to the operation of Subsegments B1 and B2, including, but not limited to, such
land, buildings, civil works, rights of way, power supply, and other utilities
and facilities.
"Segment C" comprises all plant, equipment, and facilities between and from
the Bermuda Beach Joint to and including the Bermuda PTAT-1 Submarine System
Interface Point and to and including the Bermuda PTAT-1 Interface Point in
Devonshire, Bermuda. It consists of three (3) subsegments, defined as follows:
"Subsegment C1" comprises all plant, equipment, and facilities (excluding
such common facilities included in Subsegment C3) between and from the Bermuda
Beach Joint to and including the Bermuda PTAT-1 Submarine System Interface Point
which are necessary for, and only to the extent used for, the operation of the
PTAT-1 Submarine System. It includes, but is not limited to, all necessary
cable, civil works, cable terminating equipment, supervisory equipment, power
feed equipment, repeater monitoring equipment, engineering service equipment,
and test equipment specific to the PTAT-1 Submarine System;
"Subsegment C2" comprises all plant, equipment, and facilities (excluding
such common facilities included in Subsegment C3) which are necessary for, and
only to the extent used for, providing redundant, protected, two-way digital
communications between and from the Bermuda PTAT-1 Submarine System Interface
Point to and including the PTAT-1 Interface Point in Devonshire, Bermuda. It
includes, but is not limited to, all necessary land and buildings, power supply,
terrestrial cable, cross connect equipment, multiplex and any other terminating
equipment, test equipment (specific to the Bermuda Backhaul), and all rights of
way; and
"Subsegment C3" comprises those common facilities at the submarine
interface point at Devonshire, Bermuda necessary to the operation of Subsegments
C1 and C2, including, but not limited to, such land, buildings, civil works,
rights of way, power supply, and other utilities and facilities.
(iv) "Segment D" comprises all plant, equipment, and facilities between and
from the Ireland Beach Joint to and including the Ireland PTAT-1 Submarine
System Interface Point and to and including the Ireland PTAT-1 Interface Point
in Dublin, Ireland. It consists of three (3) subsegments, defined as follows:
"Subsegment D1" comprises all plant, equipment, and facilities (excluding
such common facilities included in Subsegment
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D3) between and from the Ireland Beach Joint to and including the Ireland PTAT-1
Submarine System Interface Point which are necessary for, and only to the extent
used for, the operation of the PTAT-1 Submarine System. It includes, but is not
limited to, all necessary cable, civil works, cable terminating equipment,
supervisory equipment, power feed equipment, repeater monitoring equipment,
engineering service equipment, and test equipment specific to the PTAT-1
Submarine System;
"Subsegment D2" comprises all plant, equipment, and facilities (excluding
such common facilities included in Subsegment D3) which are necessary for, and
only to the extent used for, providing redundant, protected, two-way digital
communications between and from the Ireland PTAT-1 Submarine System Interface
Point to and including the PTAT-1 Interface Point in Dublin, Ireland. It
includes, but is not limited to, all necessary land and buildings, power supply,
terrestrial cable, repeaters, microwave links, cross connect equipment,
multiplex and any other terminating equipment, test equipment (specific to the
Ireland Backhaul), and all rights of way; and
"Subsegment D3" comprises those common facilities at Ballinspittle, Ireland
necessary to the operation of Subsegments D1 and D2, including, but not limited
to, such land, buildings, civil works, rights of way, power supply, and other
utilities and facilities.
(v) "Segment E" comprises all submersible cable, plant, equipment, and
facilities between and including the Beach Joints in the U.S.A., U.K., Bermuda
and Ireland. Segment E shall consist of the following subsegments:
"Subsegment E1" comprises all submersible cable, plant, equipment, and
facilities between and including the U.S.A. Beach Joint to Branching Unit 1;
"Subsegment E2" comprises all submersible cable, plant, equipment, and
facilities between and including both the Bermuda Beach Joint and Branching Unit
1;
"Subsegment E2a" comprises the fiber optic pair and all other elements of
and one-half (1/2) of the Bermuda Beach Joint) necessary to provide a direct
transmission path westbound from Ireland to the U.K.; and
"Subsegment E2b" comprises the fiber optic pair and all other elements of
Subsegment E2 (including one-half (1/2) of Branching Unit 1 and one-half (1/2)
of the Bermuda Beach Joint) necessary to provide a direct transmission path
eastbound from Bermuda to Ireland and the U.K.
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"Subsegment E3" comprises all submersible cable, plant, equipment, and
facilities between and including both Branching Unit 2;
"Subsegment E4" comprises all submersible cable, plant, equipment, and
facilities between and including both Branching Unit 2 and the Irish Beach
Joint;
"Subsegment E4a" comprises the fiber optic pair and all other elements of
Subsegment E4 (including one-half (1/2) of Branching Unit 2 and one-half (1/2)
of the Irish Beach Joint) necessary to provide a direct transmission path
westbound from Ireland to Bermuda and the U.S.A.;
"Subsegment E4b" comprises the fiber optic pair and all other elements of
Subsegment E4 (including one-half (1/2) of Branching Unit 2 and one-half (1/2)
of the Irish Beach Joint) necessary to provide a direct transmission path
eastbound from Ireland to the U.K.; and
"Subsegment E5" comprises all submersible cable, plant, equipment, and
facilities between and including the U.K. Beach Joint to Branching Unit 2.
3. Effective as of May 12, 1994 (the "Effective Date"), PSI hereby grants to
Purchaser, for the term of this Agreement, an IRU in one (1) western half DS-2
of capacity in Subsegments Al, E1, E2a, E2b, E3, E4a, E4b, E5 and B1
(hereinafter collectively referred to as the "IRUs").
4. The IRUs granted hereunder will be maintained in good working order, or
caused to be maintained in good working order, as follows:
(i) Segment A: By Private Trans-Atlantic Telecommunications System (N.J.)
Inc. (hereinafter referred to as "PSI(NJ)", a corporation incorporated in the
State of New Jersey and a wholly owned subsidiary of PSI and an indirect wholly
owned subsidiary of US Sprint Communications Company Limited Partnership, and
having its principal office at 12490 Sunrise Valley Drive VARESB324C, Reston,
Virginia 22096);
(ii) Segment B: By Mercury Communications Limited;
(iii) Segment C: By Cable & Wireless plc (Bermuda Branch);
(iv) Segment D: By Board Telecom Eireann; and
(v) Segment E: Jointly by PSI and CWNS.
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in excess of Purchaser's quarterly payments during Such Budget Year with respect
to estimated annual recurring costs of operating and maintaining the PTAT-1
Submarine Cable shall be paid by Purchaser to PSI within ninety (90) days of
termination of this Agreement; (ii) estimated annual recurring costs of
operating and maintaining Subsegment A1 and estimated annual administrative and
other costs incurred by PSI or PSI(NJ) in respect of the provision or
procurement by PSI or PSI(NJ) of operation, maintenance, repair, replacement,
and addition services with respect to the PTAT-1 Submarine Cable and Subsegment
A1 for the entire quarter during which this Agreement is terminated, provided,
however, that (A) Purchaser's quarterly payments during the final Budget Year of
this Agreement, regardless of whether the Termination Date shall be any date
other than the last day of the Budget Year, with respect to the estimated annual
recurring costs of operating and maintaining Subsegment A1 and the estimated
annual administrative and other costs in excess of Purchaser's pro rata share of
actual annual recurring costs of operating and maintaining Subsegment A1 and
actual administrative and other costs incurred during such Budget Year shall be
reimbursed to Purchaser within one hundred eighty (180) days of termination of
this Agreement, and (B) Purchaser's pro rata share of actual annual recurring
costs of operating and maintaining Subsegment A1 and actual administrative and
other costs incurred during the final Budget Year of this Agreement, regardless
of whether the Termination Date shall be any date other than the last day of
such Budget Year, in excess of Purchaser's quarterly payments during such Budget
Year in respect of estimated annual recurring costs of operating and maintaining
Subsegment A1 and estimated annual administrative and other costs shall be paid
by Purchaser to PSI within ninety (90) days of termination of this Agreement;
and (iii) costs for repair and replacement of an actual fault in the PTAT-1
Submarine Cable or Subsegment A1, costs for repairs, replacements, and additions
to the PTAT-1 Submarine Cable or Subsegment A1 to prevent a recurrence of an
actual fault, costs for repairs, replacements, and additions to the PTAT-1
Submarine Cable or Subsegment A1 to prevent the occurrence of new faults, and
costs of cable working exercises for the cable ships, which are incurred during
the term of this Agreement.
6.(a) Except for payment of the consideration Set forth in subparagraph 5(a)(i)
or disputes pursuant to subparagraph 7(b), all bills rendered for the annual
recurring costs of operating and maintaining the PTAT-1 Submarine Cable (as set
forth in Exhibit B), for the annual recurring costs of operating and maintaining
Subsegment A1 and for administrative and other costs (as set forth in Exhibit
B), for repair, replacement, and addition costs (as set forth in Exhibit B),and
for all other liabilities or costs pursuant to this Agreement shall be payable
by Purchaser by the end of the calendar month following the month in which the
bills are rendered.
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6.(b) PSI shall render bills under this Agreement in U.S.A. dollars, and such
amounts shall be payable in U.S.A. dollars to the designated office of PSI.
7.(a) All amounts due hereunder that are not paid when due shall accrue extended
payment interest, to the extent permitted by applicable laws, at a fixed rate
equal to one hundred twenty-five percent (125%) of the publicly announced prime
rate for 90-day commercial loans in New York City of Citibank N.A. in effect on
the day following the date payment of the bill was due. Such extended payment
interest shall accrue from the day following the day on which payment is due to
and including the day such payment is received by PSI, and such amount will be
included in a subsequent bill issued to Purchaser.
7.(b) Should any bill or part thereof be under dispute as to its correctness,
then interest shall not accrue on the amount of such bill pursuant to
Subparagraph 7(a) provided always that:
(i) Before the due date for payment, PSI shall be advised by telex,
facsimile, or like means of communication of the amount in dispute and the
nature of that dispute; and,
(ii) In this respect, PSI shall, if requested by Purchaser within thirty
(30) days of receipt of the bill in dispute, issue a replacement bill omitting
the amount in dispute, and such replacement bill shall become due for payment on
the date the disputed bill was due in accordance with subparagraph 6(a). The
amount in dispute shall be investigated by PSI to Purchaser's reasonable
satisfaction and, if any necessary bill with respect to such amount in dispute
shall be issued, and it shall be paid in accordance with subparagraph 6(a).
Notwithstanding the foregoing, in the event that on investigation the bill in
dispute or part thereof is found to be correct, then Purchaser shall pay
interest on the unpaid part which is found to be correct from and including the
day after the due date for payment of the original bill in dispute to and
including the date such payment is received by PSI in accordance with
subparagraph 7(a).
7.(c) A request by Purchaser for an audit of any charges hereunder pursuant to
subparagraph 5(a) of this Agreement shall not constitute a dispute with respect
to such charges for purposes of subparagraph 7(b) or affect the obligation of
Purchaser to pay such charges in full as they become due hereunder.
8.(a) In the event that the total number of Basic Units which the PTAT-1
Submarine System is capable of providing is reduced as a result of physical
deterioration, or for other reasons beyond the control of PSI during the term of
this Agreement, the number of IRU interests in Half Basic Units in the PTAT-1
Submarine- System granted to Purchaser pursuant to this Agreement shall be
reduced
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upon written notice to Purchaser in the same proportion as the number of Basic
Units is reduced, except that such reduction shall not extend to fractions of
interests in Half Basic Units. If the above exception with respect to fractions
of interests in Half Basic Units should become applicable, an appropriate
adjustment pursuant to Exhibit B hereof will be made in Purchaser's payments
with respect to: (i) the operations and maintenance costs of the PTAT-1
Submarine Cable, (ii) the operations and maintenance costs of Subsegment A1 and
the administrative and other costs incurred by PSI or PSI (NJ) in respect of the
provision or procurement by PSI or PSI(NJ) of operation, maintenance, repair,
replacement, and addition services with respect to the PTAT-1 Submarine Cable
and Subsegment A1, and (iii) the repair, replacement, and addition costs of the
PTAT-1 Submarine Cable and Subsegment A1.
8.(b) In the event that the total number of Basic Units which the PTAT-1
Submarine System is capable of providing is increased during the term of this
Agreement, Purchaser shall have the option of increasing the number of IRU
interests in Half Basic Units in this PTAT-1 Submarine System granted to
Purchaser pursuant to this Agreement in the same proportion as the number of
Basic Units is increased, except that such increase shall not extend to
fractions of interests in Half Basic Units. PSI shall give to Purchaser as much
advance notice in writing as is practicable of: (i) the technology employed to
increase the total number of Basic Units, (ii) the number of increased Basic
Units, (iii) the proportionate number of increased Half Basic Units to which
Purchaser is entitled hereunder, (iv) the total cost, if any, of such increase,
and (v) the proportionate amount of any such total cost which would be
applicable to the increased Half Basic Units to which Purchaser is entitled
hereunder. In the event that Purchaser elects to exercise its option hereunder,
it shall notify PSI in writing within sixty days after receipt of the
aforementioned advance notice by PSI of Purchaser's election to exercise its
option and shall specify the number of Half Basic Units it elects to acquire,
and promptly thereafter, but in any event no later than the date the increased
Half Basic Units are declared activated by PSI, the parties shall amend this
Agreement to reflect the increase in the Half Basic Units acquired by Purchaser
and Purchaser's payment obligations, if any, in accordance with the immediately
preceding sentence. In the event the entire PTAT-1 Submarine Cable is replaced,
Purchaser shall have the option to participate or not to participate in such
replacement costs.
8.(c) In any event, whether or not Purchaser elects to acquire any increased
Half Basic Units or the exception set forth above with respect to fractions of
interests in Half Basic Units should become applicable, (i) the operations and
maintenance costs of the PTAT-1 Submarine Cable, (ii) the operations and
maintenance costs of Subsegment A1 and the administrative and other costs
incurred by PSI or PSI (NJ) in respect of the provision or procurement by PSI or
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PSI(NJ) of operation, maintenance, repair, replacement, and addition services
with respect to the PTAT-1 Submarine Cable and Subsegment A1, and (iii) the
repair, replacement, and addition costs of the PTAT-1 Submarine Cable and
Subsegment A1, as of the date when the total number of Basic Units in the PTAT-1
Submarine System shall have been so reduced or increased pursuant to this
paragraph 8, shall be adjusted pursuant to Exhibit B hereof so that Purchaser
shall bear its appropriate proportionate share of such applicable costs.
9. PSI shall keep and maintain for a period of not less than five (5) years such
books, records, vouchers, and accounts as may be necessary to support its
billings under this Agreement; and except as specifically provided herein, it
shall at all reasonable times make such books, records, vouchers, and accounts
available at the office of PSI where such books, records, vouchers, and accounts
are located for the inspection of PSI's auditors.
10. The Purchaser shall not be liable to PSI nor any other party to the CMA, and
neither PSI nor any other party to the CMA shall be liable to Purchaser, for any
loss or damage (direct or consequential) sustained by reason of any failure in
or breakdown of the PTAT-1 System, or of the associated facilities, or for any
interruption or degradation of service, whatsoever shall be the cause of such
failure, breakdown, interruption, or degradation, and however long it shall
last.
11.(a) No use by Purchaser of the IRUs granted to it hereunder and any equipment
associated therewith shall be such as to interrupt, interfere with, or impair
service over any of the facilities comprising the PTAT-1 Submarine System, any
Half Basic Units or other circuits of PSI, or any Half Basic Units or other
circuits of PSI's associated, affiliated, or connected entities or of any owner
of the PTAT-1 Submarine System, or IRU grantor or IRU grantee, impair privacy of
any communications over such facilities, cause damage to plant, or create
hazards to the employees or agents of any of the aforementioned entities or of
any owner of the aforementioned facilities or to the public. Purchaser shall
bear the cost of any additional protective apparatus reasonably required by PSI
to be installed resulting from the use of such facilities by Purchaser, any
permitted grantee, lessee, or assignee of Purchaser, or any customer or
customers of Purchaser or of any such grantee, lessee, or assignee.
ll.(b) PSI will use its best efforts to cause all other grantees of IRUs in
facilities in the PTAT-1 Submarine System to undertake obligations comparable to
those of Purchaser set forth in the foregoing subparagraph ll(a), and Purchaser
shall cause all permitted grantees, lessees, or assignees, and all customers of
Purchaser or of any such grantee, lessee, or assignee to undertake comparable
obligations.
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12. The IRUs granted to Purchaser hereunder shall be made available to PSI, at
such times agreeable to PSI and Purchaser, to permit PSI or any duly authorized
agent to make such tests and adjustments as may be necessary for such circuits
to be maintained in efficient working order.
13. The performance of this Agreement by the Parties is contingent upon the
provision and continued operation of the PTAT-1 System, and upon the obtaining
and continuance of such approvals, consents, governmental authorizations,
licenses, and permits as may be required or deemed necessary by PSI and as may
be satisfactory to it. The Parties shall use all reasonable efforts to obtain
and continue, and to have continued, such approvals, consents, licenses, and
permits.
14. No license under patents is granted by PSI, nor shall any be implied or
arise by estoppel, or otherwise, in Purchaser's favor with respect to any
apparatus, system or method used by Purchaser in connection with the use of the
IRUs granted to it hereunder.
15. No assignment, grant, lease, or transfer of this Agreement, or of any rights
thereunder, or of any IRU in the Half Basic Units granted to Purchaser pursuant
to this Agreement, shall be valid without the prior written consent of the other
Party, which consent shall not be unreasonably withheld or delayed, and the
prior written consent of the IRU grantees of the corresponding eastern Half
Basic Units, provided that PSI shall have the right to assign or otherwise
delegate all or any of its rights and obligations hereunder to any legal entity
which is a subsidiary or affiliate of Sprint Corporation upon giving notice in
writing to Purchaser.
16. This Agreement shall not create any relationship between and among the
Parties hereto of partners, joint ventures, or other legal entity, expressed,
implied, or otherwise, and nothing herein contained shall be deemed to
constitute a joint venture, partnership, or other legal relationship except as
expressly specified herein between or among them.
17. This Agreement and any of the provisions hereof may be altered or added to
only by an agreement in writing signed by a duly authorized person on behalf of
each Party, except as contemplated by a decrease or increase of Basic Units in
the PTAT-1 Submarine System pursuant to paragraph 8.
18.(a) This Agreement shall become effective as of the Effective Date, and
unless earlier terminated pursuant to paragraph 19, shall continue in effect for
the duration of the CMA. PSI shall give Purchaser prompt notice in writing which
in no circumstances shall be less than one (1) year of the retirement date of
the PTAT-1 Submarine System and of the corresponding Termination Date of this
Agreement. Termination of this Agreement shall not relieve Purchaser
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of Half Basic Units owned by Purchaser and the total number of Half Basic Units
in the PTAT-1 Submarine System in which PSI is entitled to grant an IRU.
18.(d) Liquidation of the PTAT-1 Submarine System or any part thereof or the
retirement of the PTAT-1 Submarine System during the term of this Agreement as
set forth in subparagraph 18(a) shall not relieve Purchaser from any liability
arising on account of claims made by third parties in respect of the PTAT-1
Submarine System or any part thereof and damages or compensation payable on
account of such claims, or obligations which may arise in relation to the PTAT-1
Submarine System or any part thereof due to any law, order, or regulation made
by any government or supranational legal authority pursuant to any international
convention, treaty, or agreement. Any such liabilities or costs incurred shall
be payable by Purchaser in proportion to the number of Half Basic Units owned by
Purchaser and the total number of Half Basic Units in the PTAT-1 Submarine
System in which PSI is entitled to grant an IRU.
19. If Purchaser fails to make any payment required by this Agreement on the day
it is due, or otherwise is in breach of this Agreement, and such default
continues for a period of at least thirty (30) calendar days, PSI may notify
Purchaser in writing via Certified Letter of its intent to reclaim the IRUs
assigned hereunder if full payment is not received or if such breach is not
remedied within thirty (30) calendar days of such notification. If at the end of
such 30-day notification period, Purchaser has not paid in full the amounts due
hereunder or remedied such breach, PSI may proceed to terminate this Agreement
by giving Purchaser written notice via Certified Letter thereof and reclaim the
IRUs assigned to Purchaser pursuant to this Agreement, effective upon the date
of mailing or such alternate date as may be specified in the notice. PSI shall
be relieved of any liability to Purchaser arising out of such reclamation and
termination. The rights and obligations of Purchaser under this Agreement shall
terminate as of the date of reclamation, except the reclamation shall not
relieve Purchaser of its obligation to make full payment of all amounts or
liabilities incurred under this Agreement up to and including the date of
termination or the obligation of the Parties with regard to adjustments of
liabilities incurred under this Agreement up to and including the date of
termination.
20. If any of the provisions of this Agreement shall be invalid or
unenforceable, such invalidity or unenforceability shall not invalidate or
render unenforceable the entire Agreement, but rather the entire Agreement shall
be construed as if not containing the particular invalid or unenforceable
provision or provisions, and the rights and obligations of the Parties shall be
construed and enforced accordingly, provided that the material intent of the
Parties remains unchanged.
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21. This Agreement shall be deemed to be made in, and in all respects shall be
interpreted, construed, and governed by and in accordance with the laws of the
Commonwealth of Virginia (except for the conflicts laws of such jurisdiction).
22. The Parties irrevocably agree that any suit, action or proceeding with
respect hereto (a "Suit") may be brought in the courts of the Commonwealth of
Virginia or of the United States of America for the Eastern District of
Virginia, or in such other courts of competent jurisdiction agreed and
stipulated to by the Parties. By the execution and delivery hereof, each Party
irrevocably waives, to the fullest extent permitted by law, any objection it may
now have or hereafter acquire relating to venue or inconvenient forum with
respect any such jurisdiction. Each Party hereby irrevocably accepts and submits
itself to the jurisdiction of the courts referred to in this paragraph 22 in any
such Suit and agrees that final judgment in any such Suit brought in any such
court shall be conclusive and binding upon it and may be enforced in any
competent court located in the U.S.A. by a Suit upon judgment or other means of
collection, provided that service of process is effected in one of the manners
permissible under applicable law.
23. This Agreement shall be executed in any number of counterparts by an
authorized representative of each Party, each such counterpart shall together,
as well as separately, constitute one and the same instrument.
IN WITNESS WHEREOF the Parties hereto have severally subscribed these
presents or caused them to be subscribed in their name and behalf by their
respective officers thereunto duly authorized.
PRIVATE TRANSALANTIC
TELECOMMUNICATION SYSTEM, INC.
By: /s/ William F. Daleus
-------------------------------------
Name: William F. Daleus
Title: Deputy General Manager
INTERNATIONAL COMMUNICATIONS CORPORATION
By: /s/ C.M. Piluso
-------------------------------------
Name: C.M. Piluso
Title: President
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<PAGE>
================================================================================
EXHIBITS
================================================================================
<PAGE>
EXHIBIT A
================================================================================
SEGMENTATION OF THE PTAT-1 SYSTEM
FOR OPERATIONS & MAINTENANCE COST ALLOCATION
[Schematic]
================================================================================
<PAGE>
EXHIBIT B
OPERATIONS AND MAINTENANCE, AND REPAIR,
REPLACEMENT, AND ADDITION SERVICES
1. Provisions for Operations and Maintenance
Operations and maintenance costs shall be defined as all costs reasonably
incurred in operating and maintaining the PTAT-1 Submarine Cable and Subsegment
A1, including, but not limited to, the cost of attendance, testing, adjustments,
rights of way, and the cost of providing cable ships (including standby costs),
remotely controlled submersible vehicles, cable depots, and maintenance and
repair devices which are or may hereafter become available (including the
standby costs of such facilities).
The Constructing Parties have made provision for the PTAT-1 Submarine Cable
to receive from Cable and Wireless (Marine) Ltd. (hereinafter referred to as
"CAM") the repair and maintenance services as set forth below from the first
(1st) day of August, 1989, to the Termination Date.
The repair and maintenance of the PTAT-1 Submarine Cable is currently being
carried out on a non-exclusive basis by two (2) comprehensively equipped cable
ships, each normally equipped with a remotely controlled submersible vehicle
(hereinafter individually referred to as the "RCSV" and collectively referred to
as the "RCSVs"), or other vessels as deemed appropriate by the Constructing
Parties. One such RCSV is currently the CIRRUS System, a remotely controlled
submersible vehicle system currently owned by CWM (hereinafter referred to as
the "CIRRUS Systems").
While on standby for repair and maintenance work, one of the two cable
ships is currently based on the eastern side of the Atlantic Ocean, and the
other is currently based on the western side of the Atlantic Ocean. In the event
of a PTAT-1 Submarine Cable fault, the required cable ship will normally put to
sea within twenty-four (24) hours for the purposes of repair.
The two cable ships will be kept in good repair and operating efficiency.
The duration of any cable ship unavailability due to necessary shipyard activity
will be kept to a minimum and consistent with reasonable industry standards.
Planned work on each cable ship will be performed at different times to ensure
maximum continuity of service availability.
The two cable ships and other repair equipment and facilities which the
Constructing Parties have made provision to receive from CWM are intended to
handle the reasonably foreseeable repair and maintenance of the PTAT-1 Submarine
Cable. Circumstances may arise
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from time to time requiring the use of additional or different equipment,
facilities, or services in connection with a particular repair or maintenance
operation, and in such circumstances, the Constructing Parties will endeavor to
arrange provision of additional equipment, facilities, or services as they deem
necessary to carry out such particular repair or maintenance operation.
Additional costs related to the provision of such equipment, facilities, or
services shall be included as PSI's Repair, Replacement, and Addition Costs (as
defined herein) as described below.
For the duration of this Agreement, additional equipment and facilities (in
terms of cable ships, RCSVS, depots, and other equipment and facilities) may be
added at any time only if necessary to maintain compliance with regulatory
requirements or to fulfill the obligations of the Constructing Parties to
provide efficient and cost-effective repair and maintenance of the PTAT-1 Cable.
Capital charges related to the provision of such additional equipment and
facilities will be added to the PTAT-1 O&M Charges (as defined herein) as
described below.
2. Recurring Operations and Maintenance Charges for the PTAT-1 Submarine Cable
The period from the first (1st) day of April, 1993 to the thirty-first
(31st) day of March, 1994 is referred to herein as the "First Budget Year", and
the First Budget Year and each period from the first (1st) day of April to the
following thirty-first (31st) day of March in each subsequent year is
individually referred to herein as a "Budget Year".
PSI will receive from CWM for each Budget Year a budget in U.S.A. dollars
and pounds sterling of fifty percent (50%) of the annual recurring costs of
operating and maintaining the PTAT-1 Submarine Cable ("PSI's PTAT-1 O&M
Budget"). PSI's PTAT-1 O&M Budget shall include, but shall not necessarily be
limited to:
(i) Annual capital charges in respect of provision of the cable ships,
the depot facilities, and the other repair equipment and facilities;
(ii) Annual capital additions to the two cable ships, and replacement
vessels as deemed necessary by the Constructing Parties over the course of
this Agreement, the depot facilities, and the other repair equipment and
facilities necessary to maintain compliance with regulatory requirements or
to maintain the capability to maintain and repair the PTAT-1 Submarine
Cable;
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<PAGE>
(iii) Annual operating charges in respect of provision of the cable
ships, the depot facilities, and the other repair equipment and facilities,
including the costs of manning, provisioning, and operating the two cable
ships, the depot facilities, and the other equipment and facilities, fully
crewed and ready to be mobilized on twenty-four (24) hour notice;
(iv) Annual maintenance charges in respect of the cable ships, the
depot facilities, and the other repair equipment and facilities;
(v) Annual charges in respect of the RCSVS, including the CIRRUS
System;
(vi) Costs incurred by PSI or PSI (NJ) as a result of foreign currency
fluctuations affecting payments by PSI or PSI(NJ) of any invoices rendered
to PSI or PSI(NJ) in any currency other than U.S.A. dollars; PSI shall
provide Purchaser with adequate documentation of such currency
fluctuations: and
(vii) All other costs incurred by PSI from any operation and
maintenance providers or in the operation and maintenance of the PTAT-1
Submarine Cable.
PSI's PTAT-1 O&M Budget for the First Budget Year is $1,975,395 and
(pound)6,857,221. PSI's PTAT-1 O&M Budget for each subsequent Budget Year will
be determined by CWM prior to such Budget Year by increasing each of the U.S.A.
dollar and pounds sterling elements of PSI's PTAT-1 O&M Budget (excluding the
annual capital charges in respect of provision of the cable ships and the depot
facilities) for the previous Budget Year (as adjusted as provided below to
account for capital additions and other annual recurring costs pursuant to
subparagraphs (ii) and (v) above) by the Actual Percentage Increase (as defined
herein) applicable to such Budget Year. The annual capital charges elements of
PSI's PTAT-1 O&M Budget in respect of provision of the cable ships and depot
facilities for the First Budget Year are equal to the sum of (i)
(pound)1,836,819 (the "First Capital Charge") and (ii) (pound)334,552 (the
"Second Capital Charge"). The annual capital charges elements of PSI's PTAT-1
O&M Budget in respect of provision of the cable ships and depot facilities for
each subsequent Budget Year will be determined by CAM prior to such Budget Year
by increasing the First Capital Charge for the previous Budget Year by five
percent (5%), and by increasing the Second Capital Charge for the previous
Budget Year by six percent (6%). The "Actual Percentage Increase" in the U.K.
RPI for the Second Budget Year and for each subsequent Budget Year shall be the
average of each month-to-month percentage change in the U.K. RPI expressed as an
annualized percentage change (i.e., raised to the twelfth power) for the twelve
consecutive month period ending with October 31 in the prior Budget Year. The
index used in
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this calculation will be the "All Items" RPI as defined by the U.K. Department
of Trade and Industry. The Actual Percentage Increase from the previous to the
current Budget Year is 3.701. For the avoidance of doubt, the calculation of the
Actual Percentage Increase for the Current Budget Year is illustrated on Exhibit
E.
In the event of a capital addition that results in additional capital
charges pursuant to subparagraph (ii) above or other annual recurring costs are
incurred by PSI pursuant to subparagraph (vii) above, PSI's PTAT-1 O&M Budget
for the Budget Year during which such capital addition is made or such costs are
incurred shall be adjusted accordingly effective as of the date of such capital
addition or costs, and PSI's PTAT-1 O&M Budget as no adjusted shall be the
PTAT-1 O&M Budget for purposes of determining the PTAT-1 O&M Charges (as defined
herein) for the remainder of such Budget Year and the PTAT-1 O&M Budget for each
subsequent Budget Year.
Purchaser's pro rata share of PSI's PTAT-1 O&M Budget for the First Budget
Year (hereinafter referred to as "Purchaser's PTAT-1 O&M Charges for the First
Budget Year") will be allocated to Purchaser on the basis of Purchaser's pro
rata share of the Available Capacity (as defined herein) of the PTAT-1 Submarine
Cable as specified in this Agreement, using the following formula:
PSFBY = (FAp/365) x [sum] ((Ls/Lt) x (PC/NCs) x UFs}
s = E1 to E5
Where:
PSFBY = Purchaser's pro rata share of PSI's PTAT-1 O&M
Budget for the First Budget Year.
FAp = "First Budget Year Activation Period" in days.
First
Budget
Year
Activation
Period = The total number of days from and including the
Effective Date to and including the thirty-first
(31st) day of March, 1992.
Ls = Length (in kilometers) of each of Subsegments E1
through E5 in the PTAT-1 Submarine Cable.
Lt = Length of the PTAT-1 Submarine Cable in kilometers.
PC = Purchaser's Capacity" pursuant to this Agreement
expressed in DS-Os.
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<PAGE>
NCs = "Nominal Capacity" of each of Subsegments E1 through
E5, expressed in DS-OS.
UFs = Use Factor" for each of Subsegments E1 through E5.
Nominal
Capacity = Owing to imbalances in projected telecommunications
between the U.S.A., the U.K., Bermuda, and Ireland,
the Constructing Parties have declared a Nominal
Capacity for each of Subsegments E2b, E3, E4a, E4b,
and E5 which is lower than the Total Capacity of
these subsegments. The Nominal Capacity values for
Subsegments E2b, E3, E4a, E4b, and E5 are thus
determined according to the following formula:
NCs = TCs - UCs
Where:
TCs = "Total Capacity" of each subsegment (17,010 DS-Os for each of
Subsegments E3 and E5, and 5,670 DS-Os for each of Subsegments E2b, E4a,
and E4b).
UCs = "Unused Capacity" of each subsegment, which the Constructing Parties
have initially determined to be 1,260 DS-Os.
The current values of NCS for Segment E are illustrated in Exhibit D, which
is attached hereto and incorporated herein.
Use
Factor = All U.S.A.-U.K. IRUs on the PTAT-1 Submarine Cable will be billed
equally for Purchaser's PTAT-1 O&M Charges (as hereinafter
defined), whether the route purchased is in the two (2) fiber
pairs extending between the PTAT-1 Submarine Interface Points in
the U.S.A. and the U.K., or in the single fiber pair extending
between the PTAT-1 Submarine Interface Points in the U.S.A.,
Bermuda, Ireland, and the U.K. The Use Factor for each of
Subsegments E1, E3, and E5 in all U.S.A. U.K. IRUs will have a
value equal to one (1). The Use Factor for each of Subsegments
E2a, E2b, E4a, and E4b in all U.S.A.-U.K. IRUs will be determined
according to the following formula:
UFs = ACs/(TCd + ACs)
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Where:
ACs = "Available Capacity" of the subsegment which is available for
sale as of August 1, 1989, which is equal to TCS minus 3,150
DS-Os allocated by the Constructing Parties before August, 1989.
TCd = Total Capacity of the two (2) direct fiber pairs extending
between the PTAT-1 Submarine System Interface Points in the
U.S.A. and the U.K. (11,340 DS-Os).
The current values of UFs for Segment E are illustrated in Exhibit D, which is
attached hereto and incorporated herein.
Purchaser's pro rata share of PSI's PTAT-1 O&M Budget for each subsequent Budget
Year (hereinafter referred to as "Purchaser's PTAT-1 O&M Charges") will be
allocated to Purchaser on the basis of Purchaser's pro rata share of the
Available Capacity of the PTAT-1 Submarine Cable as specified in this Agreement,
using the following formula:
PSE = [sum] {((Ls/Lt) x (PC/NCs) x UFs}
s = E1 to E5
Where:
PSE = Purchaser's pro rata share of PSI's PTAT-1 O&M Budget for each
subsequent Budget Year.
For the purposes of the allocation outlined above, Subsegments E2a and E2b will
be considered to have a length equal to fifty per cent (50%) of the total length
of Subsegment E2 (the Bermuda Spur). Similarly, Subsegments E4a and E4b will be
considered to have a length equal to fifty per cent (50%) of the total length of
Subsegment E4 (the Ireland Spur).
If the Nominal Capacity of any subsegment in Segment E is changed due to a
change in the Total Capacity of the subsegment pursuant to paragraph 8, the
value of the associated NCB factor used in the determination of Purchaser's
PTAT-1 O&M Charges for the First Budget Year and Purchaser's PTAT-1 O&M Charges
for any subsequent Budget Year will be changed by a like amount as of the date
on which such change in the Total Capacity of the subsegment occurs. If the
Nominal Capacity of any Subsegment in Segment E is increased due to a reduction
in Unused Capacity of the subsegment, the value of the associated NCS factor
used in the determination of Purchaser's PTAT-1 O&M Charges for the First Budget
Year and Purchaser's PTAT-1 O&M Charges for any subsequent Budget Year will be
changed by a like amount as of the date on which such reduction in the Unused
Capacity occurs.
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<PAGE>
If Purchaser's Capacity of any subsegment is changed pursuant to paragraph 8,
the value of the associated PC factor used in the determination of Purchaser's
PTAT-1 O&M Charges for the First Budget Year and Purchaser's PTAT-1 O&M Charges
for any subsequent Budget Year will be changed by a like amount as of the date
on which such change in Purchaser's Capacity occurs.
If the Total Capacity of the subsegments in the single fiber pair extending
between the PTAT-1 Submarine System Interface Points in the U.S.A., Bermuda,
Ireland, and the U.K. is changed pursuant to paragraph 8, the ACs factor used in
the determination of the Use Factor (UFs) for each of Subsegments E2a, E2b, E4a,
and E4b on the U.S.A. U.K. routes will be changed by a like amount as of the
date on which such change in the Total Capacity of the subsegments occurs.
If the Total Capacity of the two (2) direct fiber pairs extending between the
PTAT-1 Submarine System Interface Points in the U.S.A. and U.K. is changed
pursuant to paragraph 8, the TCd factor used in the determination of the Use
Factor (UFs) for each of Subsegments E2a, E2b, E4a, and E4b on the U.S.A. U.K.
routes will be changed by a like amount as of the date on which such change in
the Total Capacity of the subsegments occurs.
In the event the total number of Basic Units in the PTAT-1 Submarine System is
changed pursuant to paragraph 8, the invoice for the next quarterly installment
shall reflect the appropriate adjustment to Purchaser's PTAT-1 O&M Charges as of
the date on which such change occurred.
Purchaser's PTAT-1 O&M Charges for the First Budget Year will be issued to
Purchaser upon execution by Purchaser of this Agreement, and Purchaser's PTAT-1
O&M Charges for each subsequent Budget Year will be issued to Purchaser no later
than the first (1st) day of March prior to the commencement of such Budget Year.
Purchaser's PTAT-1 O&M Charges for the First Budget Year will be payable by
Purchaser in quarterly installments commencing with the quarter during which
this Agreement is executed. The first payment, for the period from and including
the Effective Date through the quarter in which this Agreement is executed, will
be due on the date of execution of this Agreement, and all subsequent payments
will be due on the last day of each April, July, October, or January in such
Budget Year. Purchaser's PTAT-1 O&M Charges for each subsequent Budget Year will
be payable by Purchaser and will be due on the last day of each April, July,
October, or January in such Budget Year.
PSI will invoice Purchaser for each of these quarterly installments, other than
the quarter in which this Agreement is executed, one (1) month in advance of the
month in which the scheduled payment is due. Where the Termination Date shall be
any date other than the last day
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of a quarter, Purchaser shall be liable to pay to PSI Purchaser's PTAT-1 O&M
Charges for the entire quarter during which this Agreement is terminated.
PSI will be responsible for collecting the published RPI data in each Budget
Year, verifying CWM's computation of the Actual Percentage Increase, and
computing Purchaser's PTAT-1 O&M Charges. The monthly RPI data used in CWM's
calculation will be provided to Purchaser as soon as practicable after such data
have been published.
Exhibit C. which is attached hereto and incorporated herein, illustrates the
sequence of invoices and payments for a typical Budget Year.
3. Recurring Operations and Maintenance Charges for Subsegment A1 and
Administrative and Other Charges
For the First Budget Year and for all Subsequent Budget Years, PSI will prepare
a budget of: (i) estimated annual recurring costs of operating and maintaining
Subsegment A1 for such Budget Year, and (ii) estimated annual administrative and
other costs incurred by PSI or PSI(NJ) in respect of the provision or
procurement by PSI or PSI(NJ) of operation, maintenance, repair, replacement,
and addition services with respect to the PTAT-1 Submarine Cable and Subsegment
A1 for such Budget Year (hereinafter collectively referred to as the "Estimated
Subsegment A1 O&M and Administrative and Other Costs Budget"). The Estimated
Subsegment A1 O&M and Administrative and Other Costs Budget for each Budget Year
shall include, but shall not necessarily be limited to, the following annual
recurring costs of operating and maintaining Subsegment A1 for such Budget Year
and the following annual administrative and other costs incurred by PSI or
PSI(NJ) during such Budget Year in respect of the provision or procurement by
PSI or PSI(NJ) of operation, maintenance, repair, replacement, and addition
services with respect to the PTAT-1 Submarine Cable and Subsegment A1:
(i) Recurring annual labor, facilities, and use of equipment costs
related to the operation and maintenance of Subsegment A1;
(ii) All other costs incurred by PSI or PSI(NJ) from any operation and
maintenance providers or in the operation and maintenance of Subsegment A1;
(iii) Administration and accounting charges of recording, collecting,
and allocating operations and maintenance charges with respect to the
PTAT-1 Submarine Cable and Subsegment A1, and of allocating the appropriate
pro rata share of these charges to Purchaser;
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(iv) Administration and accounting charges of recording, collecting
and allocating repair, replacement, and addition charges with respect to
the PTAT-1 Submarine Cable and Subsegment A1, and of allocating the
appropriate pro rata share of these charges to Purchaser;
(v) All governmental, regulatory, or statutory charges, custom duties,
royalties, and taxes (other than taxes imposed on the net income of PSI and
PSI (NJ)) incurred by PSI or PSI(NJ) in the operation and maintenance of
the PTAT-1 Submarine Cable and Subsegment A1;
(vi) Costs and expenses reasonably incurred on account of claims made
by or against other persons in the operation and maintenance of the PTAT-1
Submarine Cable and Subsegment A1 and damages or compensation payable by
PSI or PSI(NJ) on account of such claims;
(vii) Costs incurred by PSI or PSI(NJ) as a result of foreign currency
fluctuations affecting payments by PSI or PSI(NJ) of any invoices rendered
to PSI or PSI(NJ) in any currency other than U.S.A. dollars; PSI shall
provide Purchaser with adequate documentation of such currency
fluctuations; and
(viii) All other administrative or accounting costs incurred by PSI or
PSI(NJ) with respect to this Agreement.
Purchaser's pro rata share of the Estimated Subsegment A1 O&M and Administrative
and Other Costs Budget for the First Budget Year (hereinafter referred to as
"Purchaser's Estimated Subsegment A1 O&M and Administrative and other Charges
for the First Budget Year") will be allocated to Purchaser on the basis of
Purchaser's pro rata share of the Total Capacity (as defined herein) of
Subsegment A1 as specified in this Agreement, using the following formula:
PS\A1\FBY = (FAp/365) x PC/TC\A1\
Where:
PS\A1\FBY = Purchaser's pro rata share of the Estimated Subsegment A1 O&M and
Administrative and Other Costs Budget for the First Budget Year.
PC = "Purchaser's Capacity" pursuant to this Agreement expressed in
DS-OS.
TC\A1\ = "Total Capacity" of Subsegment A1 (17,010 DS-Os).
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Purchaser's pro rata share of the Estimated Subsegment A1 O&M and Administrative
and Other Costs Budget for the Second Budget Year and each subsequent Budget
Year (hereinafter referred to as "Purchaser's Estimated Subsegment A1 O&M and
Administrative and Other Charges") will be allocated to Purchaser on the basis
of Purchaser's pro rata share of the Total Capacity of Subsegment A1 as
specified in this Agreement, using the following formula:
PS\A1\ = PC/TC\A1\
Where:
PS\A1\ = Purchaser's pro rata share of the Estimated Subsegment A1 O&M and
Administrative and Other Costs Budget for each subsequent Budget
Year.
If the Total Capacity of Subsegment A1 is changed pursuant to paragraph 8, the
value of the associated TCA1 factor used in the determination of Purchaser's
Estimated Subsegment A1 O&M and Administrative and Other Charges for the First
Budget Year and Purchaser's Estimated Subsegment A1 O&M and Administrative and
Other Charges for any subsequent Budget Year will be changed by a like amount as
of the date on which such change in the Total Capacity of Subsegment A1 occurs.
If Purchaser's Capacity is changed pursuant to paragraph 8, the value of the
associated PC factor used in the determination of Purchaser's Estimated
Subsegment A1 O&M and Administrative and Other Charges for the First Budget Year
and Purchaser's Estimated Subsegment A1 O&M and Administrative and Other Charges
for any subsequent Budget Year will be changed by a like amount as of the date
on which such change in Purchaser's Capacity occurs.
In the event the total number of Basic Units in the PTAT-1 Submarine System is
changed pursuant to paragraph 8, the invoice for the next quarterly installment
shall reflect the appropriate adjustment to Purchaser's Estimated Subsegment A1
O&M and Administrative and Other Charges as of the date on which such change
occurred.
Purchaser's Estimated Subsegment A1 O&M and Administrative and Other Charges for
the First Budget Year will be issued to Purchaser upon execution by Purchaser of
this Agreement, and Purchaser's Estimated Subsegment A1 O&M and Administrative
and Other Charges for each subsequent Budget Year will be issued to Purchaser no
later than the first (1st) day of March prior to the commencement of such Budget
Year.
Purchaser's Estimated Subsegment A1 O&M and Administrative and Other Charges for
the First Budget Year will be payable by Purchaser in quarterly installments
commencing with the quarter during which this Agreement is executed. The first
payment, for the period from and
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including the Effective Date through the quarter in which this Agreement is
executed, will be due on the date of execution of this Agreement, and all
subsequent payments will be due on the last day of each April, July, October, or
January in such Budget Year.
Purchaser's Estimated Subsegment A1 O&M and Administrative and Other Charges for
each subsequent Budget Year will be due on the last day of each April, July,
October, or January in such Budget Year.
PSI will invoice Purchaser for each of these quarterly installments, other than
the quarter in which this Agreement is executed, one (1) month in advance of the
month in which the scheduled payment is due. Where the Termination Date shall be
any date other than the last day of a quarter, Purchaser shall be liable to pay
to PSI Purchaser's charges for the entire quarter during which this Agreement is
terminated.
Following the end of the First Budget Year and each subsequent Budget Year, PSI
will calculate: (i) the actual annual recurring costs incurred by PSI for
operating and maintaining Subsegment A1 for such Budget Year, and (ii) the
actual administrative and other costs incurred by PSI or PSI(NJ) in respect of
the provision Or procurement by PSI or PSI(NJ) of operation, maintenance,
repair, replacement, and addition services with respect to the PTAT-1 Submarine
Cable and Subsegment A1 for such Budget Year (hereinafter collectively referred
to as the "Actual Subsegment A1 O&M and Administrative and Other Charges").
Purchaser's pro rata share of the Actual Subsegment A1 O&M and Administrative
and Other Charges for the First Budget Year and each subsequent Budget Year
(hereinafter referred to as "Purchaser's Actual Subsegment A1 O&M and
Administrative and Other Charges") will be allocated to Purchaser on the basis
of Purchaser's pro rata share of the Total Capacity of Subsegment A1 as
specified in this Agreement, using the same formulas used in the determination
of Purchaser's Estimated Subsegment A1 O&M and Administrative and Other Charges
for the First Budget Year and Purchaser's Estimated Subsegment A1 O&M and
Administrative and Other Charges for the Second Budget Year and each subsequent
Budget Year, respectively.
On the first (1st) day of July following each Budget Year, PSI will advise
Purchaser of Purchaser's Actual Subsegment A1 O&M and Administrative and Other
Charges for such Budget Year.
Purchaser's quarterly payments during the First Budget Year and the Second
Budget Year with respect to Purchaser's Estimated Subsegment A] O&M and
Administrative and Other Charges in excess of Purchaser's Actual Subsegment A1
O&M and Administrative and Other Charges incurred during the First Budget Year
and Second Budget Year respectively will be credited to Purchaser's October,
1991 installment of Purchaser's Estimated Subsegment A1 O&M and
- --------------------------------------------------------------------------------
Page 11
<PAGE>
Administrative and Other Charges. Purchaser's quarterly payments
during each subsequent Budget Year with respect to Purchaser's
Estimated Subsegment A1 O&M and Administrative and Other Charges for
such Budget Year in excess of Purchaser's Actual Subsegment A1 O&M and
Administrative and Other Charges incurred during such Budget Year will
be credited to Purchaser's next October installment of Purchaser's
Estimated Subsegment A1 O&M and Administrative and Other Charges;
provided, however, that Purchaser's quarterly payments during the
final Budget Year of this Agreement, regardless of whether the
Termination Date shall be a date other than the last day of the Budget
Year, with respect to Purchaser's Estimated Subsegment A1 O&M and
Administrative and Other Charges in excess of Purchaser's Actual
Subsegment A1 O&M and Administrative and other Charges incurred during
such Budget Year shall be reimbursed to Purchaser within one hundred
eighty (180) days of termination of this Agreement.
Purchaser's Actual Subsegment A1 O&M and Administrative and Other
Charges incurred during the First Budget Year and the Second Budget
Year in excess of Purchaser's quarterly payments with respect to
Purchaser's Estimated Subsegment A1 O&M and Administrative and Other
Charges during the First Budget Year and Second Budget Year
respectively will be added to Purchaser's October, 1991 installment of
Purchaser's Estimated Subsegment A1 O&M and Administrative and Other
Charges. Purchaser's Actual Subsegment A1 O&M and Administrative and
Other Charges incurred during each subsequent Budget Year in excess of
Purchaser's quarterly payments with respect to Purchaser's Estimated
Subsegment A1 O&M and Administrative and Other Charges during such
Budget Year will be added to Purchaser's next October installment of
Purchaser's Estimated Subsegment A1 O&M and Administrative and Other
Charges; provided, however, that Purchaser's Actual Subsegment A1 O&M
and Administrative and Other Charges incurred during the final Budget
Year of this Agreement! regardless of whether the Termination Date
shall be a date other than the last day of the Budget Year, in excess
of Purchaser's quarterly payments during such Budget Year with respect
to Purchaser's Estimated Subsegment A1 O&M and Administrative and
Other Charges shall be remitted to PSI within ninety (90) days of
termination of this Agreement.
Exhibit C. which is attached hereto and incorporated herein,
illustrates the sequence of invoices and payments for a typical Budget
Year.
- --------------------------------------------------------------------------------
Page 12
<PAGE>
4. Repair, Replacement, and Addition Charges
PSI will receive from CWM invoices in respect of PSI's fifty percent (50%) share
of: (A) costs for repair and replacement of an actual fault in the PTAT-1
Submarine Cable or Subsegment A1; (B) costs for repairs, replacements, and
additions to the PTAT-1 Submarine Cable or Subsegment A1 to prevent a recurrence
of an actual fault; (C) costs for repairs, replacements, and additions to the
PTAT-1 Submarine Cable or Subsegment A1 to prevent the occurrence of new faults;
and (D) costs of cable working exercises for the cable ships (collectively,
"PSI's Repair, Replacement, and Addition Costs"), which are incurred during the
term of this Agreement, as promptly as practicable after such costs become
known. Purchaser's pro rata share in respect of PSI's Repair, Replacement, and
Addition Costs shall be payable in addition to Purchaser's PTAT-1 O&M Charges
and Purchaser's Estimated Subsegment A1 - O&M and Administrative and other
Charges. PSI'S Repair, Replacement, and Addition Costs shall include, but shall
not necessarily be limited to:
(i) The mobilization/demobilization charges for the cable ships, RCSVs,
depot, and other repair equipment and facilities used to effect a repair,
replacement, or addition;
(ii) The fixed daily operating charges for each day or part of a day that the
cable ship or RCSV is engaged in a repair, replacement, or addition;
(iii) The costs in respect of the cable ship working exercises which shall be
carried out in order to maintain the level of skill of the crew and to
assess the fitness of the facilities to maintain and repair the PTAT-1
Submarine Cable;
(iv) The costs of any additional equipment, facilities, and services necessary
to effect a repair, replacement, or addition;
(v) The costs of any consumable items used to effect a repair, replacement,
or addition;
(vi) The cost of replacing spares used to effect a repair, replacement, or
addition;
(vii) Cable relocation costs;
(viii) Costs incurred by PSI or PSI(NJ) as- a result of foreign currency
fluctuations affecting payments by PSI or PSI(NJ) of any invoices
rendered to PSI or PSI(NJ) in any currency other than U.S.A. dollars, PSI
shall provide Purchaser with adequate documentation of such currency
fluctuations; and
- --------------------------------------------------------------------------------
Page 13
<PAGE>
(ix) All other costs incurred by PSI or PSI(NJ) from any operation or
maintenance providers or in the repair or replacement of or additions to,
the PTAT-1 Submarine Cable and Subsegment A1.
Purchaser's pro rata share of PSI's Repair, Replacement, and Addition Costs
(hereinafter referred to as "Purchaser's Repair, Replacement, and Addition
Charges") with respect to the PTAT-1 Submarine Cable shall be allocated to
Purchaser on the basis of Purchaser's pro rata share of the Nominal Capacity of
the subsegment in which the IRUs are granted and to which the repair,
replacement, or addition has been effected, using the following formula:
PSR\e\ = PC/NC\s\
S = subsegment to which repair, replacement, or addition
has been effected (subsegment E1 through E5)
Where:
PSR\e\ = Purchaser's pro rata share of PSI's Repair, Replacement, and
Addition Costs for the PTAT-1 Submarine Cable.
If a repair or replacement of, or addition to, the PTAT-1 Submarine Cable has
been effected to more than one (1) subsegment of the PTAT-1 Submarine Cable,
Purchaser shall be liable to pay to PSI the sum of Purchaser's pro rata share of
the PSI's Repair, Replacement, and Addition Costs for all subsegments to which
such repair, replacement, or addition has been effected.
PSI's Repair, Replacement, and Addition Costs related to Branching Unit 1 shall
be billed to Purchaser on the basis of Purchaser's pro rata share of the Nominal
Capacity of Subsegment E2 based on the Nominal Capacity of Subsegment E2. PSI'S
Repair, Replacement, and Addition Costs related to Branching Unit 2 shall be
billed to Purchaser on the basis of Purchaser's pro rata share of the Nominal
Capacity of Subsegment E4 based on the Nominal Capacity of Subsegment E4.
If the Nominal Capacity of any subsegment in Segment E is changed due to a
change in Total Capacity of the subsegment pursuant to paragraph 8, the value of
the associated NCS factor used in the determination of Purchaser's Repair,
Replacement, and Addition Charges with respect to the PTAT-1 Submarine Cable
will be changed by a like amount as of the date on which such change in the
Total Capacity occurs. ~
If Purchaser's Capacity of any subsegment is changed pursuant to paragraph 8,
the value of the associated PC factor used in the determination of Purchaser's
Repair, Replacement, and Addition
- --------------------------------------------------------------------------------
Page 14
<PAGE>
Charges with respect to the PTAT-1 Submarine Cable will be changed by a like
amount as of the date on which such change in Purchaser's Capacity occurs.
Purchaser's Repair, Replacement, and Addition Charges with respect to Subsegment
A1 shall be allocated to Purchaser on the basis of Purchaser's pro rata share of
the Total Capacity of Subsegment A1, using the following formula:
PSRA1 = PC/TCA1
Where:
PSRA1 Purchaser's pro rata share of PSI'S Repair, Replacement, and
Addition Costs for Subsegment A1.
If the Total Capacity of Subsegment A1 is changed pursuant to paragraph 8, the
value of the TCA1 factor used in the determination of Purchaser's Repair,
Replacement, and Addition Charges with respect to Subsegment A1 will be changed
by a like amount as of the date on which such change occurs. If Purchaser's
Capacity of Subsegment A1 is changed pursuant to paragraph 8, the value of the
PC factor used in the determination of Purchaser's Repair, Replacement, and
Addition Charges with respect to Subsegment A1 will be changed by a like amount
in the quarter of the Budget Year in which such change occurs.
Purchaser's Repair, Replacement, and Addition Charges shall be billed to
Purchaser as soon as practicable after such costs are incurred by or charged to
the accounts of PSI or PSI(NJ).
Exhibit C. which is attached hereto and incorporated herein; illustrates the
sequence of invoices and payments for a typical Budget Year.
- --------------------------------------------------------------------------------
Page 15
<PAGE>
EXHIBIT C
Page 1 of 2
PTAT-1 SUBMARINE CABLE OPERATIONS AND MAINTENANCE BUDGET
SCHEDULE
(Sample Timetable Or April 1, 19X1 to March 31, 19X2 Budget Year)
<TABLE>
<CAPTION>
=====================================================================================================
Billing Amount Payable Date Received Date Payable
Item by Purchaser by Purchaser by Purchaser
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Annual Budget Not Applicable March 1, 19X1 Not Applicable
or l9X1/19X2
First Purchaser's share of March 1, 19X1 April 30, 19X1
Quarterly 1/4 th Annual Budget
Payment for 19X1/19X2
Second Purchaser's share of June 1, 19X1 July 31, 19X1
Quarterly 1/4 th Annual Budget
Payment for 19X1/19X2
Third Purchaser's share of September 1, 19X1 October 31, 19X1
Quarterly 1/4 th Annual Budget
Payment for 19X1/19X2
Fourth Purchaser's share of December 1, 19X1 January 31, 19X1
Quarterly 1/4 th Annual Budget
Payment for 19X1/19X2
Repair & Purchaser's share As soon as End of the calendar
Replacement of cable segments practible following month after
Charges repaired receipt of invoices bill received
by PSI
=====================================================================================================
</TABLE>
<PAGE>
EXHIBIT C
Page 2 of 2
SUBSEGMENT A1 OPERATIONS AND MAINTENANCE BUDGET
SCHEDULE
(Sample Timetable for April 1, l9X1 to March 31, l9X2 Budget Year)
<TABLE>
<CAPTION>
=====================================================================================================
Billing Amount Payable Date Received Date Payable
Item by Purchaser by Purchaser by Purchaser
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Annual Budget Not Applicable March 1, 19X1 Not Applicable
for l9X1/19X2
First Purchaser's share of March 1, 19X1 April 30, 19X1
Quarterly 1/4 th Annual Budget
Payment for 19X1/19X2
Second Purchaser's share of June 1, 19X1 July 31, 19X1
Quarterly 1/4 th Annual Budget
Payment for 19X1/19X2
Third Purchaser's share of September 1, 19X1 October 31, 19X1
Quarterly 1/4 th Annual Budget
Payment for 19X1/19X2
Fourth Purchaser's share of December 1, 19X1 January 31, 19X1
Quarterly 1/4 th Annual Budget
Payment for 19X1/19X2
Determination of Not Applicable July 1, 19X2 Not Applicable
Actual O&M Costs
Incurred during
19X1/19X2
Reconciliation of Purchaser's share of September 1, 19X2 October 31, 19X2
Actual vs Budgeted overage/underage
O&M Charges
for 19X1/19X2
Repair & Purchaser's share As soon as End of the calendar
Replacement of cable segments practicable following month after
Charges repaired receipt of invoices bill received
by PSI
=====================================================================================================
</TABLE>
<PAGE>
EXHIBIT D
USE FACTORS FOR DETERMINATION OF PRO RATA SHARES OF
RECURRING PTAT-1 OPERATIONS AND MAINTENANCE CHARGES
<TABLE>
<CAPTION>
==========================================================================================
Segment Length Nominal Use Factor per Route
(km) Capacity ------------------------------------------------------
(64 Kbit/s) US-Bda US-Ire US-UK Bda-Ire Bda-UK Ire-UK
==========================================================================================
<S> <C> <C> <C> <C> <C> <C> <C> <C>
E1 212.0 17,010 1 1 1
E2a 590.5 5,670 1 1 0.1818
E2b 590.5 4,410 1 0.1818 1 1
E3 5,660.5 15,750 1 1 1 1
E4a 49.75 4,410 1 0.1818 1 1
E4b 49.75 4,410 0.1818 1 1
E5 356.5 15,750 1 1 1
Total 7,509.5
==========================================================================================
</TABLE>
<PAGE>
EXHIBIT E
ILLUSTRATION OF "ACTUAL PERCENTAGE INCREASE" CALCULATION
By way of illustration of the annual calculation of the Actual Percentage
Increase by CWM for each Budget Year, the precise calculation of the Actual
Percentage Increase as applicable for the current Budget Year is set out as
follows:
Simple 1 Annualized 2
UK RPI* Month-to-Month Month-to-Month
Month (al1 items index) Percentage Change Percentage Change
- ----- ----------------- ----------------- -----------------
OCT 1991 135.1
NOV 1991 135.6 0.370 4.531
DEC 1991 135.7 0.074 0.892
JAN 1992 135.6 -0.074 -0.884
FEB 1992 136.3 0.516 6.371
MAR 1992 136.7 0.293 3.573
APR 1992 138.8 1.536 20.072
MAY 1992 139.3 0.360 4.407
JUN 1992 139.3 0.000 0.000
JUL 1992 138.8 -0.359 -4.224
AUG 1992 138.9 0.072 0.867
SEP 1992 139.4 0.360 4.407
OCT 1992 139.9 -0.359 4.394
Actual Percentage Increase (= 12 Month Average) = 3.701%
- ----------
* Source: Her Majesty's Stationery Office - Central Statistical Office
Monthly Digest of Statistics, December 1992, Table 18.1
1. Simple Month-to-Month Percentage Change (RPIm/RPIm-1 x 100)
2. Annualized Month-to-Month Percentage Change (RPIm/RPIm-1)12-1 x 100
- --------------------------------------------------------------------------------
<PAGE>
THIRD SUPPLEMENTARY AGREEMENT
TO THE TAT-12/TAT-13 CABLE NETWORK
CONSTRUCTION AND MAINTENANCE AGREEMENT
THIS THIRD SUPPLEMENTARY AGREEMENT to the TAT-12/TAT-13 Construction and
Maintenance Agreement, made and entered into this 17th day of October, 1995
(hereinafter called the "Effective Date"), between and among the Parties
identified in Annex A (hereinafter called the "Parties").
WHEREAS, the TAT-12/TAT-13 Parties identified in Paragraph 2 of Annex A
signed an Agreement on the 16th of December, 1992, as amended by the First
Supplementary Agreement on the 28th of September, 1993, the Second Supplementary
Agreement on the 27th of September, 1994 and the Addendum No. 1 on the 17th day
of October, 1995 (hereinafter collectively called the "TAT-12/TAT-13 C&MA") to
provide an optical fiber cable network linking North America and Europe called
the TAT-12/TAT-13 Cable Network (hereinafter called the "Cable Network") which
will be used to provide telecommunication services between points in or reached
via the United States of America on the west and points in or reached via the
United Kingdom and France on the east, and
WHEREAS, Paragraph 30 of the TAT-12/TAT-13 C&MA provides for the Admission
of Additional Parties by Supplementary Agreement, and
WHEREAS, the parties identified in Paragraph I of Annex A, (hereinafter
called the "Additional Parties") each wish to become a Party to the TAT-12/AT-13
C&MA, and
<PAGE>
2
WHEREAS, the TAT-12/TAT-13 Parties further agree to make certain other
reassignments of capacity among the TAT-12/TAT-13 Parties, and
WHEREAS, certain Parties have undergone organizational changes which have
resulted in new addresses, new descriptions, or in certain cases different
entities becoming assignees of, or successors in interest to, such Parties, and
the Parties now desire to reflect such changes in the revised Schedule A as
attached.
NOW THEREFORE, the Parties in consideration of the mutual covenants herein
expressed, covenant and agree with each other as follows:
1. Each of the Additional Parties hereby: (a) agrees to accept and abide by
the teens and conditions of the TAT-12/TAT-13 C&MA, as amended, which are
incorporated herein by reference and made a part hereof; (b) warrants that the
investment share it hereby acquires corresponds to the quantity of Is required
to meet its TAT-12/TAT-13 needs through at least the year 2006; (c) agrees to
assume responsibility to pay its proportionate share of costs already incurred
under the TAT-12/TAT-13 C&MA up to the Effective Date of this Third
Supplementary Agreement, and (d) agrees to abide by any decisions already taken
by the Parties to the TAT-12/TAT-13 C&MA in relation to the Cable Network.
2. The attached Revised Schedule A, which incorporates the Additional
Parties, shall be deemed to replace Schedule A of the TAT-12/TAT-13 C&MA
3. The Parties hereby agree, from the Effective Date of this Third
Supplementary Agreement, to certain reassignments of capacity among themselves,
pursuant to Paragraph 11 of the TAT-12/TAT-13 C&MA, and furthermore agree to
acquire the investment share in the Cable Network, as shown in the attached
Schedules B,
<PAGE>
3
C-1, C-2, C-3, C-4 and C-5, which shall be deemed to replace the corresponding
Schedules in the TAT-12/TAT-13 C&MA.
4. Each Party acquiring capacity pursuant to this Third Supplementary
Agreement shall be billed as appropriate. Such bills shall contain all costs
incurred up to the Effective Date of this Third Supplementary Agreement.
Subsequent bills shall be rendered and paid in accordance with the terms and
conditions set out in the TAT-12/TAT-13 C&MA
5. Except as provided in this Third Supplementary Agreement, all other
terms and conditions of the TAT-12/TAT-13 C&MA remain unchanged and in full
force and effect.
6. This Third Supplementary Agreement shall be executed in two identical
counterparts in the English and French languages. AT&T shall be the custodian of
such English and French counterparts and shall accord access to such Agreement
to a Party upon reasonable notice. If any differences in interpretation should
arise between the English and French counterparts, the English version shall be
decisive. The Parties to this Agreement, and all Signatories to the
TAT-12/TAT-13 C&MA, shall be provided with an official photocopy of this Third
Supplementary Agreement. A notarized copy of this Agreement shall be provided to
a Party, or a Signatory to the TAT-12/TAT-13 C&MA, upon request, and at the
requesting Party's expense.
<PAGE>
4
IN WITNESS WHEREOF, the Parties hereto have severally subscribed these
presents or caused them to be subscribed in their names and behalf by their
respective officers thereunto duly authorized.
OPTUS NETWORKS PTY. LTD (ACN 008 570 330)
By /s/ Illegible
----------------------------------
TELSTRA CORPORATION LIMITED ACN 051 715 556
By /s/ Illegible
----------------------------------
BUNDESMINISTERIUM FUER OFFENTLICHE WIRTSCHAFT UND VERKEHR,
GENERALDIREKTION FUER DIE POST-UND TELEGRAPHENVERWALTUNG
By /s/ Illegible
----------------------------------
EMPRESA BRASILEIRA DE TELECOMUNICACOES S.A.
By /s/ Illegible
----------------------------------
CHINA TELECOM
By /s/ Illegible
----------------------------------
<PAGE>
5
BELGACOM S.A
By /s/ Illegible
----------------------------------
SLOVENSKE TELEKOMUNIKACIE S.P.
By /s/ Illegible
----------------------------------
TELEGLOBE CANADA INC.
By /s/ Illegible
----------------------------------
CYPRUS TELECOMMUNICATIONS AUTHORITY
By /s/ Illegible
----------------------------------
TELECOM DENMARK A/S
By /s/ Illegible
----------------------------------
OY FINNET INTERNATIONAL AB
By /s/ Illegible
----------------------------------
<PAGE>
6
TELECOM FINLAND LIMITED
By /s/ Illegible
----------------------------------
FRANCE TELECOM
By /s/ Illegible
----------------------------------
DEUTSCHE TELEKOM AG
By /s/ Illegible
----------------------------------
HELLENIC TELECOMMUNICATIONS ORGANIZATION, S.A.
By /s/ Illegible
----------------------------------
HONG KONG TELECOM INTERNATIONAL LIMITED
By /s/ Illegible
----------------------------------
HUNGARIAN TELECOMMUNICATIONS COMPANY LIMITED
By /s/ Illegible
----------------------------------
<PAGE>
7
VIDESH SANCHAR NIGAM LIMITED
By /s/ Illegible
----------------------------------
BORD TELECOM EIREANN
By /s/ Illegible
----------------------------------
TELECOM ITALIA S.p.A.
By /s/ Illegible
----------------------------------
INTERNATIONAL DIGITAL COMMUNICATIONS INC.
By /s/ Illegible
----------------------------------
INTERNATIONAL TELECOM JAPAN INC.
By /s/ Illegible
----------------------------------
KOKUSAI DENSHIN DENWA CO., LTD.
By /s/ Illegible
----------------------------------
<PAGE>
8
DACOM CORPORATION
By /s/ Illegible
----------------------------------
KOREA TELECOM
By /s/ Illegible
----------------------------------
LATTELEKOM SIA
By /s/ Illegible
----------------------------------
LPT ENTREPRISE DES POSTES ET
TELECOMMUNICATIONS DU LUXEMBOURG
By /s/ Illegible
----------------------------------
TELEKOM MALAYSIA BERHAD
By /s/ Illegible
----------------------------------
TELEFONOS DE MEXICO S.A. de C.V.
By /s/ Illegible
----------------------------------
<PAGE>
9
PTT TELECOM BV
By /s/ Illegible
----------------------------------
TELENOR CARRIER SERVICES AS
By /s/ Illegible
----------------------------------
PHILIPPINE LONG DISTANCE TELEPHONE COMPANY
By /s/ Illegible
----------------------------------
TELEKOMUNIKACJA POLSKA, S.A.
By /s/ Illegible
----------------------------------
COMPANHIA PORTUGUESA RADIO MARCONI S.A.
By /s/ Illegible
----------------------------------
SPT TELECOM
By /s/ Illegible
----------------------------------
<PAGE>
10
SINGAPORE TELECOMMUNICATIONS LIMITED
By /s/ Illegible
----------------------------------
TELEFONICA DE ESPANA S.A.
By /s/ Illegible
----------------------------------
SRI LANKA TELECOM
By /s/ Illegible
----------------------------------
TELE 2 AB
By /s/ Illegible
----------------------------------
TELIA AB
By /s/ Illegible
----------------------------------
SWISS TELECOM PTT
By /s/ Illegible
----------------------------------
<PAGE>
11
INTERNATIONAL TELECOMMUNICATION DEVELOPOPMENT CORP.
By /s/ Illegible
----------------------------------
THE COMMUNICATIONS AUTHORITY OF THAILAND
By /s/ Illegible
----------------------------------
SOCIETE TUNISIENNE DE TELECOMMUNICATIONS PAR CABLES
By /s/ Illegible
----------------------------------
TURK TELEKOMUNIKASYON A.S.
By /s/ Illegible
----------------------------------
BRITISH TELECOMMUNICATIONS PLC.
By /s/ Illegible
----------------------------------
MERCURY COMMUNICATIONS LIMITED
By /s/ Illegible
----------------------------------
<PAGE>
12
AT&T CORP.
By /s/ Illegible
----------------------------------
GTE HAWAIIAN TELEPHONE COMPANY INCORPORATED
By /s/ Illegible
----------------------------------
IDB WORLDCOM SERVICES INC.
By /s/ Illegible
----------------------------------
INTERNATIONAL TELECOMMUNICATIONS CORPORATION
By /s/ Illegible
----------------------------------
MCI INTERNATIONAL, INC.
By /s/ Illegible
----------------------------------
MFS INTERNATIONAL, INC.
By /s/ Illegible
----------------------------------
<PAGE>
13
PACIFIC GATEWAY EXCHANGE
By /s/ Illegible
----------------------------------
SPRINT COMMUNICATIONS COMPANY L.P.
By /s/ Illegible
----------------------------------
TRANSOCEANIC COMMUNICATIONS INCORPORATED
By /s/ Illegible
----------------------------------
WORLD COMMUNICATIONS, INC.
By /s/ Illegible
----------------------------------
WORLDCOM FEDERAL SYSTEMS INC.
By /s/ Illegible
----------------------------------
COMPANIA ANONIMA NACIONAL TELEFONOS DE VENEZUELA
By /s/ Illegible
----------------------------------
<PAGE>
Annex A
Page 1 of 4
Effective October 17, 1995
1. ADDITIONAL PARTIES
Empresa Brasileira de Telecomunicacoes S.A. (herein called "EMBRATEL").
Oy Finnet International Ab (herein called "FINNET").
Lattelekom SIA (herein called "LAT").
Societe Tunisienne de Telecommunications par Cables (herein called "TUNITEL").
International Telecommunications Corporation (herein called "ITC").
MFS International, Inc. (herein called "MFSI").
Pacific Gateway Exchange (herein called "PGE").
Compania Anonima Nacional Telefonos de Venezuela (herein called "CANTV").
2. EXISTING PARTIES
EASTERN PARTIES
Bundesministerium fuer Oeffentliche Wirtschaft und Verkehr, Generaldirektion
fuer die Post-und Telegraphenverwaltung (herein called "Austria PTT" or "APTT").
Belgacom S.A. (herein called "BELGACOM").
Slovenske Telekomunikacie s.e. (herein called "STSE").
Cyprus Telecommunications Authority (herein called "CYTA").
Telecom Denmark A/S (herein called "TD").
Telecom Finland Limited (herein called "Telecom Finland" or "TFIN").
France Telecom (herein called "France Telecom" or "FT").
Deutsche Telekom AG (herein called "DTAG").
Hellenic Telecommunications Organization, S.A. (herein called "OTE").
SUBSIDIARIES OF THE REGISTRANT
RSL United States Subsidiaries
- ------------------------------
Name State of Incorporation
International Telecommunication Group, Ltd. Delaware
RSL COM U.S.A., Inc. Delaware
RSL COM PrimeCall, Inc. Delaware
Delta Three, Inc. Delaware
Cyberlink, Inc. California
RSL Foreign Subsidiaries
- ------------------------
Name Country of Organization
RSL Communications PLC United Kingdom
RSL Communications Latin America, Ltd. Bermuda
RSL COM Europe Ltd. United Kingdom
RSL COM Sweden AB Sweden
RSL COM Finland OY Finland
RSL COM France S.A. France
RSL COM Deutschland GmbH Germany
Belnet Nederland B.V. Netherlands
RSL COM Australia Pty. Ltd. Australia
