RSL COMMUNICATIONS LTD, S-1, 1997-08-25

RSL COMMUNICATIONS LTD
S-1, 1997-08-25
TELEPHONE COMMUNICATIONS (NO RADIOTELEPHONE)

Previous: CONTIMORTGAGE HOME EQUITY LOAN TRUST 1997-2, 8-K, 1997-08-25

Next: WNC HOUSING TAX CREDIT FUND VI LP SERIES 5, 10-Q, 1997-08-25

<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 25, 1997.

REGISTRATION NO. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
----------------------
RSL COMMUNICATIONS, LTD.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

<TABLE>
<S> <C> <C>
BERMUDA 4813 N/A
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S.EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
</TABLE>
----------------------
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

PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED OFFERING PRICE(1) REGISTRATION FEE(1)

Class A Common Shares................... $150,000,000 $45,455

(1) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(a) under the Securities Act of 1933.

----------------------

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)

<TABLE>
<CAPTION>
ITEM NUMBER AND CAPTION CAPTION OR LOCATION IN PROSPECTUS
------------------------------------------------------ ------------------------------------------------------

<S> <C>
1. Forepart of Registration Statement and Outside Front Forepart of the Registration Statement and Outside
Cover Page of Prospectus............................ Front Cover Page

2. Inside Front and Outside Back Cover Pages of Inside Front and Outside Back Cover Pages; Available
Prospectus.......................................... Information; Incorporation by Reference

3. Summary Information, Risk Factors and Ratio of Prospectus Summary; Risk Factors; Selected
Earnings to Fixed Charges........................... 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 Condensed Financial Statements

12. Disclosure of Commission Position on Indemnification (1)
for Securities Act Liabilities
</TABLE>

- ------------------------

(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 AUGUST 25, 1997
[LOGO]
SHARES
RSL COMMUNICATIONS, LTD.
CLASS A COMMON SHARES
(PAR VALUE $ PER SHARE)

----------------------

Of the Class A common shares, par value $ per share (the 'Class
A Common Stock'), offered by RSL Communications, Ltd. (the 'Company'),
shares are being offered hereby in the United States (the 'U.S. Offering') and
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'). Of the shares being offered in the
Offerings, up to shares are being reserved for sale to eligible employees
of the Company and persons having business relationships with the Company. 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 $ and $ 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'). The holders of both classes of common shares 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
and (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. 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' COMMENCING ON PAGE 13 FOR CERTAIN CONSIDERATIONS RELEVANT
TO AN INVESTMENT IN THE CLASS A COMMON STOCK.

The Company intends to file an application for quotation of the Class A
Common Stock 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 $ payable by the Company.

(3) The Company has granted the Underwriters an option for 30 days to purchase
up to an additional shares of Class A Common Stock at the initial
public offering price per share, less the underwriting discount, solely to
cover over-allotments. If such option is 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 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) and the existing and
planned circuit links between such switches, and photos of eight RSL phone cards
from around the world. On the inside of the gatefold is a map showing the sites
of the Company's switches and the existing and planned cable and satellite links
between such switches.]

2
<PAGE>

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 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. 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 AUGUST 14, 1997
- ------------------------------------- ----------------- ----------------- ------------- ---------------
<S> <C> <C> <C> <C>
Australian Dollar.................... (1) 1.26 1.33 1.35
British Pound........................ .65 .58 .60 .63

Dutch Guilders....................... (1) 1.74 1.96 2.07
Finnish Markka....................... 4.37 4.60 5.19 5.52
French Franc......................... 4.95 5.19 5.87 6.20
German Mark.......................... 1.44 1.54 1.74 1.84
Swedish Krona........................ 6.64 6.89 7.73 8.04
Danish Krone......................... (1) (1) 6.63 7.01
</TABLE>

- ------------------
(1) The Company had no business activity in these countries during the periods
indicated.

<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 strategic European countries in
anticipation of continued telecommunication deregulation in the European Union
(the 'EU'). 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, in order to pursue opportunities in
Latin America. 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 providing 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 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,
and provides the Company with an advantage in applying least cost routing for
calls which are originated and terminated within RSL-NET. 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 which 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 an
international gateway or domestic switch located in New York, Los Angeles,
London, Paris, Frankfurt, Rotterdam, Amsterdam, Stockholm, Helsinki, Lisbon,
Sydney, Melbourne, Brisbane and Caracas. RSL-NET generally utilizes a single
technology switch platform comprised primarily of state-of-the-art Ericsson
AXE-10 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 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 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 the 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 the 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. These are forward looking
statements and there can be no assurances in this regard.

5
<PAGE>
COMPANY OPERATIONS

Each of the Company's operations are in different stages 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...................... 92%(3)(4) March 1995 May 1990
United Kingdom RSL COM Europe Limited................... 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 Danmark A/S...................... 75%(4) December 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%(4) August 1997 March 1995
Venezuela RSL Communications Latin America, Ltd.... 51%(4)(7) August 1997 January 1998(5)
Austria Newtelco Telekom AG(8)................... 90%(4) 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 will
begin generating revenues from the sale of the facilities-based
international telecommunications services, although certain of the operating
entities may have been generating revenues from other sales prior to the
date of the Company's investment therein.

(3) The Company acquired its 92% interest in International Telecommunications
Group, Ltd. ('ITG') over a 26 month period commencing March 1995. ITG owns
100% of RSL COM U.S.A., Inc. (formerly known as International
Telecommunications Corporation) ('RSL USA'), a Delaware corporation, which
in turn owns 100% of Cyberlink, Inc. ('Cyberlink'), a California corporation
acquired in a series of transactions from September 1995 through March 1997.
In September 1996, the Company gained majority control of ITG and began
consolidating its U.S. operations into RSL USA.

(4) The minority shareholders of these entities have the right, but not the
obligation, to exchange their ownership interests in each respective
subsidiary entity for the shares of the Company's Class A Common Stock or
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%.

(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 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.

(8) The Company intends to change the name of Newtelco Telekom AG to RSL COM
Austria AG ('RSL Austria').

<PAGE>
COMPANY STRATEGY

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 benefitting 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.

TARGET SMALL AND MEDIUM-SIZED BUSINESSES

The Company focuses on offering high quality 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
employs multiple marketing and distribution channels, including direct sales
forces, telemarketing campaigns, 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 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 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 allowing the Company to avoid the high costs
associated with transporting 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

7
<PAGE>
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 INVESTMENT

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 offers these calls at a significant discount to standard
international calls. 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 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--Other 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
'Private Offering') of 300,000 units, each unit consisting of one 12 1/4% Senior
Note due 2006 (the 'Notes') of the Note Issuer guaranteed by the Company and one
warrant to purchase 1.815 shares of Class A Common Stock at $0.01 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 Private Offering were exchanged for
substantially identical notes registered under the Securities Act of 1933, as
amended (the 'Securities Act'). The notes issued in the Private 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
and recently executed a non-binding letter of intent to make a significant
investment to acquire a controlling interest in a facilities-based long distance
carrier in the United States. There can be no assurance, however, that the
Company will successfully complete any of these transactions.

THE RECAPITALIZATION

In connection with the Offerings, the Company will revise its capital
structure (the 'Recapitalization'), in part to (i) effect a -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 of 200,000,000 shares and (iii)
eliminate the Company's Class C common shares.

CERTAIN MINORITY HOLDER RIGHTS

Pursuant to certain prior acquisition and joint venture agreements, 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 Europe and certain members of senior management holding minority
interests in subsidiaries of the Company (the 'Minority Interestholders')
certain options which allow the Minority Interestholders to exchange their
shares or interests in their respective Company's subsidiary for shares of the
Company's Class A Common Stock upon the occurrence of the Offerings (the
'Roll-Up Rights'). Also, in connection with the Offerings, the Company may, in
its discretion, offer Roll-Up Rights to other minority shareholders of its
subsidiaries.

Additionally, the Company has granted to a number of Minority
Interestholders certain registration rights with respect to the Company's Class
A Common Stock acquired pursuant to an exercise of their Roll-Up Rights. The
holders of Warrants also have registration rights. The Company is not required
to effect any registration earlier than 180 days after the Offerings.

See 'Shares Eligible for Future Sale.'

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).

<PAGE>
THE OFFERINGS

<TABLE>
<S> <C>
Class A Common Stock offered by the
Company:
U.S. Offering........................... shares
International Offering.................. shares
Total.............................. shares
Common Stock to be Outstanding after the
Offerings:
Class A Common Stock(1)................. shares
Class B Common Stock(2)(3).............. shares
Total(1)(2)........................ 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) purchasing
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(4).......................... 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
</TABLE>

- ------------------
(1) Does not include (i) shares of Class A Common Stock issuable upon
exercise of outstanding stock options, (ii) shares of Class A
Common Stock reserved for issuance pursuant to future option grants under
the Company's stock option plan, (iii) shares of Class A Common
Stock issuable upon the conversion of the Class B Common Stock (including
shares of Class B Common Stock issuable upon the conversion of
the Preferred Stock), (iv) shares of Class A Common Stock issuable
on exercise of warrants or (v) any shares of Class A Common Stock which may
be issued to the Minority Interestholders upon the exercise of Roll-Up
Rights. See 'Certain Relationships and Related Transactions' and 'Shares
Eligible for Future Sale.'

(2) 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. Shares of the
Preferred Stock will be automatically converted into shares of the Class B
Common Stock on a share-for-share basis upon the closing of the Offerings.

(3) Includes shares issuable upon conversion of the Preferred Stock. The
Preferred Stock will be automatically converted into shares of Class B
Common Stock upon the closing of the Offerings.

(4) 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. However, the 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.

<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 unaudited six month periods ended June 30, 1996 and 1997, which
have been derived from the Company's Consolidated Financial Statements and notes
thereto. The Company's 1996 and 1995 and the Company's predecessor's 1994
Historical Financial Statements have been audited by Deloitte & Touche LLP. The
Company's financial statements are prepared in accordance with U.S. GAAP.

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 information for subsequent dates and years was derived from the
Company's Consolidated Financial Statements. 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 includes the historical results of operations for the Company
and are prepared as though the acquisitions of RSL Netherlands and the
businesses of Sprint 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 of the Company
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(2) 1996 1997
----------- ---------- ---------- --------- -------- --------
($ IN THOUSANDS, EXCEPT LOSS PER SHARE) (UNAUDITED)
<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) (96,631)
----------- ---------- ---------- --------- -------- --------
Gross profit (loss)........................... (221) 1,107 14,796 18,079 4,107 12,730
Selling, general and administrative
expense..................................... (2,395) (9,639) (38,893) (41,700) (13,656) (35,271)
Depreciation and amortization................. (240) (849) (6,655) (9,228)(3) (2,175) (8,947)
----------- ---------- ---------- --------- -------- --------
Loss from operations.......................... (2,856) (9,381) (30,752) (32,849) (11,724) (31,488)

Interest income............................... -- 173 3,976 3,976 80 7,224
Interest expense.............................. (225) (194) (11,359) (11,359) (635) (18,860)
Other income (expense)........................ -- -- (288) (288) -- 6,883(4)
Foreign currency transaction gain (loss)...... -- -- 758 758 -- (268)
Minority interest............................. -- -- (180) (389) -- (229)
Income taxes.................................. -- -- (395) (395) -- (439)
----------- ---------- ---------- --------- -------- --------
Net loss...................................... $(3,081) $ (9,402) $ (38,240) $ (40,546) $(12,279) $(37,177)
----------- ---------- ---------- --------- -------- --------
----------- ---------- ---------- --------- -------- --------
Loss per common share(5)...................... $(15.41) $ (3.65) $ (11.24) $ (11.92) $ (4.19) $ (7.43)
Weighted average number of shares of Common
Stock outstanding........................... 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) $(16,155)
Capital expenditures(7)....................... 1,126 6,074 23,880 26,162 4,887 13,609
Cash (used in) provided by operating
activities.................................. (1,987) 3,554 (10,475) -- (8,177) (46,463)
Cash (used in) provided by investing
activities.................................. (478) (16,537) (225,000) -- (15,409) 27,096
Cash (used in) provided by financing
activities.................................. 2,888 18,143 335,031 -- 24,308 (2,620)
</TABLE>

11
<PAGE>

<TABLE>
<CAPTION>
JUNE 30, 1997
-----------------------
ACTUAL AS ADJUSTED
-------- -----------
(UNAUDITED)
($ IN THOUSANDS)
<S> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents............................................... $ 81,301
Marketable securities................................................... 50,797
Restricted marketable securities........................................ 84,728
Total assets............................................................ 438,759
Short-term debt and current portion of capital lease debt............... 8,310
Long-term debt and capital lease obligations............................ 325,030
Shareholders' equity.................................................... 18,650
</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) Reference is made to the Consolidated Financial Statements and the related

notes included elsewhere in this Prospectus.

(3) 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.

(4) Other income results from 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.

(5) Loss per common share is calculated by dividing the loss attributable to
common shares by the weighted average number of shares outstanding.
Outstanding stock options, exchange rights and Warrants are not included in
the loss per share calculation as their effect is anti-dilutive.

(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.

<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

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 specific
businesses. The businesses which now constitute the Company's principal
operations commenced operations at various dates ranging from 1990 through 1997,
and, therefore, have limited operating histories. In addition, the Company plans
to acquire or start-up operations in markets where it currently does not have
operations. The Company has recently made investments in Venezuela, Austria and
Japan. 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'), 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.

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 Private 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 Private Offering, together with the proceeds of the
Revolving Credit Facility and such vendor financing 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.

13
<PAGE>
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 $312.2 million and shareholders'
equity of $18.7 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 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 Private 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, $33.7 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 and could cause defaults
under other indebtedness of the Company. 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 its 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.'

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 and
joint ventures and through the establishment of new operations. The Company
constantly evaluates acquisition opportunities. The

14
<PAGE>
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 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'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 began to
utilize RSL-NET in the second quarter of 1997. Furthermore, employees and
customers of acquired businesses generally experience turnover at higher rates
during and after the acquisition. 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 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.

15
<PAGE>
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 may have a material adverse effect on the Company's
prospects 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
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 Mercury Communications PLC ('Mercury'). The
Company's lines are leased on a per-minute basis (some with minimum volume
commitments) and, where the Company anticipates higher volumes of traffic, it
leases 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

16
<PAGE>
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 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 high levels of
customer attrition in certain acquired businesses in the United States, France
and Germany and expects to continue to experience high levels of customer
attrition 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 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

17
<PAGE>
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 are 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 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 their control over the intra-national
transmission lines and connection to it, 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. 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 delays.
Accordingly, there can

18
<PAGE>
be no assurance that the EU will proceed with the expected deregulation in
accordance with its current schedule, 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 32 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 most 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.

RISK OF LOSS, OR DIMINUTION OF VALUE, OF OPERATING AGREEMENTS

Although the Company's U.S. operation has operating and other
interconnection agreements with 16 foreign carriers, the Company presently only
utilizes five operating agreements. These operating agreements are with carriers

in the Dominican Republic, the United Kingdom, Denmark, Switzerland, 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 a country 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
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.

19
<PAGE>
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 63% of the Company's actual U.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.
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 total 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 and other restrictions,
are dependent upon the earnings of such subsidiaries and are subject to various
business considerations. As of June 30, 1997, the total outstanding indebtedness
of the Company's subsidiaries not eliminated in the Company's consolidated
financial statements was approximately $312.2 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.'

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 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 materially 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 also maintains a $5.0 million key man
life insurance policy on the life of Mr. Fisher, as well as a key man policy on
one other member of the Company's senior management team. See 'Management--Key
Man Life Insurance.'

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.

20
<PAGE>
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 and members of their immediate families will control,
in the aggregate, approximately % of the voting power and approximately
% of the outstanding capital stock of the Company, respectively, and
approximately % and %, 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 % of
the voting power and approximately % of the outstanding capital stock of the
Company, respectively, and approximately % and %, 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. In addition, pursuant to the
Company's bye-laws and resolutions of the Company's Board of Directors, Mr.
Lauder, Andrew Gaspar and Itzhak Fisher, as the members of the Executive
Committee of the Company's Board, control the decision regarding the undertaking
of major corporate actions. The exercise of these powers may present conflicts
of interest between these indivduals and the other owners of the Company's
capital shares. See 'Principal Shareholders.'

The concentration of ownership in the Company and Mr. Lauder's intention to
maintain a controlling interest in the Company, as well as the ability of the
Company's Executive Committee to control major corporate actions, 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.'

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--Differences in Corporate 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

21
<PAGE>
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. Shares sold
in the Offerings will be freely tradable in the public market. Shares of Class B
Common Stock are convertible at any time into shares of Class A Common Stock on
a one-for-one basis and generally convert automatically into Class A Common
Stock upon a transfer. All outstanding shares of the Company's Preferred Stock
will convert automatically into Class B Common Stock upon closing of the
Offerings. In addition to the shares ( shares if the
Underwriters' over-allotment options are exercised in full) of Class A Common
Stock offered by the Company in the Offerings, 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, 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 shares of Class B
Common Stock issuable upon conversion of the Preferred Stock)) will be eligible
for sale in the public market. In addition, up to an aggregate of
shares issuable upon exercise of outstanding stock options
('Option Shares'), exchange rights ('Roll-Up Shares') and Warrants ('Warrant
Shares') and any shares issued upon the exercise of Roll-Up Rights, may become
eligible for resale in the public market at various times after the closing of
the Offering, depending upon when such shares are actually issued, and whether
such shares are registered for resale under the Securities Act or are subject to
Rule 144 or Rule 701 under the Securities Act. See 'Description of Capital
Stock' and 'Shares Eligible for Future Sale.'

The Company intends to register all or a portion of the Option Shares for
resale in the public market. A portion of the Option Shares and Roll-Up Shares
may be subject to the lock-up agreements with the Underwriters. Options with
respect to of the Option Shares are currently exercisable. In addition,
additional shares of Class A Common Stock are reserved for issuance
pursuant to future option grants under the Company's stock option plan. In
addition, the Company is required to register the Warrant Shares for resale in
the pubic market no later than 180 days after the effective date of the
Offerings. Approximately Roll-Up Shares are issuable upon exercise
of exchange rights. See 'Management--Executive Compensation,' 'Principal
Shareholders' and 'Shares Eligible for Future Sale.'

DILUTION

Purchasers of the Class A Common Stock offered hereby will suffer immediate
dilution of $ per share (assuming a public offering price of $ 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 its common shares
(collectively, 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 its Common Stock. See 'Description of
Indebtedness' and 'Dividend Policy.'

22
<PAGE>
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 U.S. Federal Income Tax Considerations.'

<PAGE>
USE OF PROCEEDS

The proceeds to be received by the Company from the sale of the shares
of Class A Common Stock in the Offerings (net of underwriting discounts and
estimated offering expenses) are estimated to be approximately $ million
($ million if the Underwriters' over-allotment options are exercised in
full) assuming a public offering price of $ 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) purchasing 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 its Common Stock in the foreseeable future. Certain of the Company's
credit facilities and the Indenture contain certain restrictions on the
Company's ability to declare and pay dividends on its 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.

DILUTION

As of June 30, 1997, the net tangible book value of the Common Stock was
$ million, or $ per share. 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 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 $ per share.

<TABLE>
<S> <C> <C>
Initial public offering price per share........................... $
Net tangible book value per share before the Offerings(1)....... $
Increase per share attributable to the Offerings................
---------

Net tangible book value per share after the Offerings(1)..........
---------
Dilution of net tangible book value per share to new investors.... $
---------
---------
</TABLE>

- ------------------
(1) Does not include (i) shares of Class A Common Stock issuable upon
exercise of outstanding stock options, (ii) shares of Class A
Common Stock reserved for issuance pursuant to future option grants under
the Company's stock option plan, (iii) shares of Class A Common
Stock issuable upon the conversion of the Class B Common Stock (including
shares of Class B Common Stock issuable upon the conversion of
the Preferred Stock), (iv) shares of Class A Common Stock issuable
upon exercise of the Warrants or (v) any shares of Class A Common Stock
which may be issued to the Minority Interestholders upon the exercise of
Roll-up Rights. See 'Certain Transactions' and 'Shares Eligible for Future
Sale.'

24
<PAGE>
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 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 $ 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............... % $ % $
New investors.......................
--------- -- --------- --

Total...............................
--------- -- --------- --
--------- -- --------- --
</TABLE>

shares of Class B Common Stock issuable upon the conversion of
the Preferred Stock), (iv) shares of Class A Common Stock issuable
on exercise of warrants or (v) any shares of Class A Common Stock which may
be issued to the Minority Interestholders upon the exercise of Roll-Up
Rights. See 'Certain Relationship and Related Transactions' and 'Shares
Eligible for Future Sale.'

25
<PAGE>
CAPITALIZATION

The following table sets forth the consolidated cash and cash equivalents,
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
shares of Class A Common Stock offered by the Company at an assumed public
offering price of $ per share. 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'.

AS OF JUNE 30, 1997
-----------------------------
ACTUAL AS ADJUSTED
-------------- -----------
(UNAUDITED)
(IN THOUSANDS)
--------------
<S> <C> <C>
Cash and cash equivalents.......................................... $ 81,301 $
-------------- -----------
-------------- -----------
Restricted marketable securities(1)................................ $ 84,728 $
-------------- -----------
-------------- -----------
Short-term debt and current portion of long-term debt and current
portion of capital lease obligations............................. $ 8,310 $
Long-term debt and capital lease obligations:
Capital leases................................................... 21,788
12 1/4% Senior Notes due 2006 (net of unamortized discount of
$3.7 million)................................................. 296,300
Other long-term debt............................................. 6,942
-------------- -----------

Total long-term debt and capital lease obligations(2)......... $333,340 $
-------------- -----------
-------------- -----------
Shareholders' equity:
Common shares, $ par value;
shares authorized;

shares of Class A Shares outstanding........... 7
shares Class B Shares outstanding(1).......... 48
Preferred stock, $ par value; shares
authorized; shares outstanding(1)............. 93
Warrants--Common Stock........................................... 5,544
Additional paid-in capital....................................... 97,639
Accumulated deficit.............................................. (84,917)
Foreign currency translation adjustment.......................... 622
Deferred financing costs......................................... (386)
-------------- -----------

Total shareholders' equity.................................... 18,650
-------------- -----------
-------------- -----------

Total capitalization.......................................... $351,990 $
-------------- -----------
-------------- -----------
</TABLE>

- ------------------
(1) 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.'

(2) As of June 30, 1997, the Company had $73.3 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.

<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 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 have been derived
from the Consolidated Financial Statements appearing elsewhere in this
Prospectus which have been audited by Deloitte & Touche LLP, independent
auditors, as stated in their reports appearing herein. The selected consolidated
financial data with respect to the six months ended June 30, 1996 and 1997 were
derived from the Company's consolidated financial statements appearing in this
prospectus. 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
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>
YEAR ENDED DECEMBER 31, SIX MONTHS
----------------------------------- ENDED JUNE 30,
PREDECESSOR ---------------------
1994 1995 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) (96,631)
----------- -------- -------- --------- --------
Gross profit (loss)................. (221) 1,107 14,796 4,107 12,730
Selling, general and administrative
expenses.......................... (2,395) (9,639) (38,893) (13,656) (35,271)
Depreciation and amortization....... (240) (849) (6,655) (2,175) (8,947)
----------- -------- -------- --------- --------
Loss from operations................ (2,856) (9,381) (30,752) (11,724) (31,488)
Interest income..................... -- 173 3,976 80 7,224
Interest expense.................... (225) (194) (11,359) (635) (18,860)
Other income (expense).............. -- -- (288) -- 6,883(1)
Foreign currency transaction gain
(loss)............................ -- -- 758 -- (268)

Minority interest................... -- -- (180) -- (229)
Income taxes........................ -- -- (395) -- (439)
----------- -------- -------- --------- --------
Net loss............................ $(3,081) $ (9,402) $(38,240) $ (12,279) $(37,177)
----------- -------- -------- --------- --------
----------- -------- -------- --------- --------

Loss per common share(2)............ $(15.41) $ (3.65) $ (11.24) $ (4.19) $ (7.43)
Weighted average number of shares of
Common Stock outstanding.......... 200 2,576 3,401 2,928 5,003
</TABLE>

27
<PAGE>

<TABLE>
<CAPTION>
AS OF DECEMBER 31, SIX MONTHS
----------------------------------- ENDED JUNE 30,
PREDECESSOR ---------------------
1994 1995 1996 1996 1997
----------- -------- -------- --------- --------
(UNAUDITED)
(IN THOUSANDS, EXCEPT LOSS PER SHARE)
<S> <C> <C> <C> <C> <C>
OTHER FINANCIAL DATA:
EBITDA(3)........................... $(2,616) $ (8,532) $(23,807) $ (9,549) $(16,155)
Capital expenditures(4)............. 1,126 6,074 23,880 4,887 13,609
Cash (used in) provided by operating
activities........................ (1,987) 3,554 (10,475) (8,177) (46,463)
Cash (used in) provided by investing
activities........................ (478) (16,537) (225,000) (15,408) 27,096
Cash (used in) provided by financing
activities........................ 2,888 18,143 335,031 24,308 (2,620)
</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 $ 81,301
Restricted marketable securities.... -- -- 104,370 -- 84,728
Total assets........................ 3,682 53,072 427,969 77,711 438,759
Short-term debt and current portion
of capital lease obligations...... 2,645 5,506 6,974 30,871 8,310
Long-term debt and capital lease
obligations....................... 1,404 6,648 314,425 5,687 318,088
Shareholders' equity................ (3,651) 5,705 20,843 (6,574) 18,650

</TABLE>

- ------------------
(1) Other income results from 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.

(2) Loss per common share is calculated by dividing the loss attributable to
Common Stock by the weighted average number of shares outstanding.
Outstanding stock options, exchange rights and Warrants are not included in
the loss per common share calculation as their effect is anti-dilutive.

(3) 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.

(4) Capital expenditures include assets acquired through capital lease financing
and other debt.

<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, included
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 the
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 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 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 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, including adding key members to its management and purchasing and
developing additional management tools which provide current traffic
provisioning and an enhanced ability to predict future traffic volume. The
Company has successfully negotiated and continues to negotiate rate reductions
and more appropriate capacity arrangements based on the Company's current and
anticipated capacity requirements. The Company's U.S. operations began to
utilize RSL-NET in the second quarter of 1997. The Company anticipates that
future utilization of RSL-NET by the Company's operations as it continues to
expand will result in more cost-efficient methods of transport for its U.S.
business. The Company improved vendor relations by paying bills on a more timely
basis and has implemented stricter financial controls, including

29
<PAGE>
ongoing customer credit reviews and managerial procedures to reduce credit
exposure. The Company has also 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 its 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--Inability to Predict Traffic Volume' and '--Risks Associated with
Rapidly Changing Industry.'

The Company has recorded approximately $91.0 million of goodwill in
connection with its U.S. acquisitions (including ITG and Cyberlink). Goodwill
consists of cash paid in connection with each respective acquisition, assumed
net liabilities recorded as accrued expenses and other liabilities--non current
and an increase to shareholders' equity in the Company's 1996 and 1997
consolidated balance sheets. 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..................... 91.0

LIABILITIES ASSUMED:
Accounts payable and other long term
liabilities.................................. 76.5
Long term debt.................................. 4.7
Increase to shareholders' equity................ 32.6
</TABLE>

Europe

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, Ltd. ('Cyberlink Europe') which, through its wholly-owned subsidiaries,
RSL Finland and RSL Sweden, commenced operations in May 1996. 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 international reseller which had been
operating in the Netherlands since October 1995. RSL Denmark, a start-up wholly
owned subsidiary of RSL Netherlands, commenced operations in Denmark in May
1997.

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.

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 EU countries beginning in 1998 but prior to
interconnection, the Company can provide dial-in access, coupled, when

30
<PAGE>
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's first European acquisition occurred in November 1995. The
Company has recorded an aggregate of approximately $23.5 million of goodwill in
connection with its European acquisitions. Goodwill consists of cash paid in
connection with each respective acquisition and assumed net liabilities recorded
as accrued expenses and other liabilities--non current in the Company's 1996 and

1997 consolidated balance sheets. 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.................... 3.4
Deposits and others............................. 0.3
Intangible assets--goodwill..................... 23.5
LIABILITIES ASSUMED:
Accounts payable and other long term
liabilities.................................. 5.9
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 it 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.'

U.S. OPERATIONS

<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS ENDED
DECEMBER 31, JUNE 30,
------------------------------ ------------------
1994 1995 1996 1996 1997
------- ------- -------- ------- -------
(UNAUDITED)
(IN THOUSANDS EXCEPT PERCENTAGE OF CONSOLIDATED
REVENUES)
<S> <C> <C> <C> <C> <C>
Revenues........................................... $ 4,702 $18,461 $ 85,843 $35,411 $69,888
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 63,762

------- ------- -------- ------- -------
Gross profit (loss)................................ (221) 1,094 8,951 3,369 6,126
Selling, general and administrative expenses....... 2,395 7,444 17,606 7,893 10,146
Depreciation and amortization...................... 240 619 3,047 1,248 2,565
------- ------- -------- ------- -------
Loss from operations............................... $(2,856) $(6,969) $(11,702) $(5,772) $(6,585)
------- ------- -------- ------- -------
------- ------- -------- ------- -------
</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, commercial customers and distributors of prepaid

31
<PAGE>
calling cards. The Company has, and expects to experience further significant
month to month changes in revenues generated by its carrier customers. The
Company believes such carrier customers will, on occasion, 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 derives increasing revenues
from its small and medium-sized business channels, as it reduces 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
------- -------- ------- --------
(UNAUDITED)
(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) (20,067)
Depreciation and amortization.................................... (12) (1,906) (380) (2,405)
------- -------- ------- --------
Loss from operations............................................. $ (538) $(12,680) $(4,032) $(16,438)
------- -------- ------- --------
------- -------- ------- --------
</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 operations in Italy, Austria and through its 30% investment in a
company 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, achieving a higher gross profit than
wholesale sales to carriers. Sales are targeted at small and medium-sized
corporate customers in addition to niche consumer markets including selected
ethnic communities and certain other individuals. To reduce its credit risk, the
Company primarily offers prepaid products to its targeted consumer markets.

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. 'Risk
Factors--Risks Associated with Rapidly Changing Industry,' '--Government
Regulatory Restrictions,' and 'Business--European Operations--Regulatory
Environment.'

32
<PAGE>
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 countries in which the Company operates have experienced different
levels of deregulation and, 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 almost no
marginal cost to the Company with respect to the international portion of a call
other than the fixed lease payment on the up front cost of acquiring 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--Inability to Predict Traffic Volume' and
'--Dependence on Other Carriers' 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.

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--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. This
results in higher costs to the Company for carrying international traffic
originating within a country and terminating in another country. In addition,
local

33
<PAGE>
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.

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

34
<PAGE>
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 '--Currency.'

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 $96.6 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 88.4% 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. European operations generated higher gross
margins (18.7% for the six months ended June 30, 1997) as compared to the
Company's U.S. operations (8.8% 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 11.6%
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 8.8% from 9.5% for the
six months ended June 30, 1997 as compared to 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
$21.6 million, or 158%, to $35.3 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

35
<PAGE>
revenue. As a percent of U.S. revenues, the Company's U.S. selling, general and
administrative expense decreased to 14.5% for six months ended June 30, 1997
from 22.3% in the comparable period last year. The Company's European operations
generated $20.1 million or 56.9% 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 311% to $8.9 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 $7.2 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
Private Offering.

Interest Expense: Interest expense increased to $18.9 million for the six
months ended June 30, 1997 from $635,000 for the six months ended June 30, 1996,
an increase of approximately $18.2 million, as a result of interest related to
the Notes.

Net Loss: Net loss increased to $37.2 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.

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 $35.9 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.

Year 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 generating revenues in May 1996 and contributed approximately
$7.8 million to 1996 revenues. The Company purchased Sprint France and Sprint
Germany in May 1996. These operations contributed approximately $13.1 million to
1996 revenues. The Company's European operations did not generate any 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

36
<PAGE>
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 89.6% 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 9.6% and 1% 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 $500,000, respectively.
Depreciation and 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 Private
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.

37
<PAGE>
Net Loss: Net loss increased to $38.2 million for the year ended December
31, 1996 from $9.4 million for the year ended December 31, 1995 due to increased
costs and expenses, as described above.

Periods Prior to January 1, 1995

The Company had no operations in 1994 other than insignificant salary
expense. The Company's predecessor, ITG, had less than $2.8 million and $4.7
million of revenue and a net loss of $250,000 and $3.1 million for the years
ended December 31, 1993 and 1994, respectively. In 1995, the Company had
virtually no operations other than its initial investments in its U.S.
operations and an investment in Cyberlink Communications Europe Limited
('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 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 Private Offering.

Cash used in operating activities for the six months ended June 30, 1997
totaled $46.5 million compared with $8.2 million for the same period in 1996.
Capital expenditures for the six months ended June 30, 1997 were $7.3 million
compared with $4.8 million for the comparable period in 1996. Funds expended for
acquisitions were $5.4 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 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 1995 and the year ended December 31, 1996 were $6.1 million and
$23.9 million, respectively. Funds expended for acquisitions during 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 Private 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 Private Offering. At June 30, 1997, the
Company had $95.8 million of working capital as compared to a $46.1 million of
working capital deficiency at June 30, 1996.

Capital expenditures for 1996 and the six month period ended June 30, 1997
were $24.1 million and $13.6 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.

The Company had 'other income' in the amount of approximately $7.0 million
as a result of the Company's successful amendments to certain transmission
capacity agreements.

The Company's indebtedness was approximately $312.2 million at June 30,
1997, of which $305.9 million represents long-term debt and $6.3 million
represents short-term debt.

On October 3, 1996, in the Private Offering, the Company and the Note
Issuer issued 300,000 units, each unit consisting of one Note and one Warrant.

The Notes, which are guaranteed by the Company, are redeemable, at the
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

<PAGE>
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.

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 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.

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 $84.7 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. There were no amounts
outstanding under these facilities at June 30, 1997 and, 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
has provided a guarantee in connection with the Company's borrowings under the
Revolving Credit Facility. In September 1996, the Company borrowed the $35.0
million Subordinated Shareholder Loan from Mr. Lauder. In connection with the
subsequent prepayment of the Subordinated Shareholder Loan, Mr. Lauder has
agreed to provide (or arrange for a bank to provide) the Shareholder Standby
Facility with up to $35.0 million of subordinated debt. 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 in vendor
financing 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.'

In connection with the September 1996 purchase of additional shares of
ITG's common stock, the Company issued secured notes totaling approximately $9.3
million. Such notes and interest are secured by the common stock acquired, are
payable in three semiannual installments, and bear interest at the rate of 6%.

The Company believes that the net proceeds of the Offerings and the
remaining net proceeds of the Private 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; 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 Private Offering and the
proceeds from the Revolving Credit Facility and the

39
<PAGE>
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.'

'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.

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

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.

CURRENCY

The revenues and expenses of the Company's foreign operations are
denominated in numerous foreign currencies. Therefore, results of operations as
stated in local currencies, and the Company's business practices and plans with
respect to a particular country are not significantly affected by exchange rate
fluctuations. However, such results of operations 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 in relation to the U.S.
dollars. Amounts shown herein are denominated in U.S. dollars. 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. 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.

<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, as
well as 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 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, key 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 the deregulated markets of the United Kingdom,
Sweden and Finland, as well as to other strategic European countries, in
anticipation of continued telecommunication deregulation in the EU. The Company
recently formed a joint venture with entities controlled by the Cisneros Group
to pursue opportunities in Latin America. 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 92% of ITG and also may acquire, upon the exercise of certain
rights at the election of the Minority Interestholders, an additional 8%
interest in ITG. RSL USA in turn owns 100% of Cyberlink. See 'Certain

Relationships and Relations Transactions.'

Europe. RSL COM Europe, Ltd. ('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 (i) RSL COM Sweden AB, a Swedish corporation ('RSL Sweden'); and
(ii) RSL COM Finland OY, a Finnish corporation ('RSL Finland').

In May 1996, the Company acquired the international long distance voice
businesses of Sprint in France and Germany through its indirect 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
Belnet Nederland B.V. ('RSL Netherlands'), an international reseller which had
been operating in the Netherlands since

41
<PAGE>
October 1995. RSL Netherlands in turn owns 100% of RSL COM Danmark A/S ('RSL
Denmark'), which 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. RSL Europe and the other two major 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 90% of RSL Austria, an Austrian
international telecommunications reseller, which has just begun operations.

Other Regions

The Company carries on its operations in Latin America through RSL Latin
America and its operations in Asia through its wholly-owned subsidiary RSL COM
Asia, Ltd. ('RSL Asia'). 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.

In October 1996, the Company also established RSL COM Australia Pty Ltd.
('RSL Australia') to carry on its Australian operations. In March 1997, the
Company incorporated RSL COM Japan K.K. ('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 Latin America or Japan. The Company expects to
commence operations in Latin America and Japan in early 1998.

INDUSTRY OVERVIEW

International telecommunications involves the transmission of voice and
data information 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 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 43% and 26%, respectively, of the industry's 1995
total worldwide minutes of use.

International telecommunications is one of the fastest growing and most
profitable segments of the long distance 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 deregulation, 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 approximately 17%, respectively, through the year 2000.

42
<PAGE>
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
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 (i.e., 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, although the quality of the call is not yet comparable to the
quality of calls made over traditional cable lines. This service is offered by
companies with the use of special access servers. 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.,

43
<PAGE>
calling cards)) and (ii) lower end-user prices. These factors have contributed
to an increase in the 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.

[Chart]

PROJECTED GROWTH OF INTERNATIONAL LONG DISTANCE VOICE TRAFFIC
-------------------------------------------------------------

Billions of Outgoing Minutes

Europe USA & Canada Asia/Pacific Rim Other Total
------ ------------ ---------------- ----- -----

1995 26.2 20.2 10.1 13.4 69.9
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 below.

U.S. International Long Distance Market

The U.S. international long distance 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

44
<PAGE>
service. More recently, in addition to further U.S. deregulation, the growth of
the U.S.-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 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 8.1% 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 43% 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 '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 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 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,

45
<PAGE>
certain EU member states are late in enacting the relevant legislation
implementing the Directive, which has created further regulatory uncertainty.
Under a 1996 EC directive (the 'Full Competitive 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,
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 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, New Zealand and Japan 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.

46
<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]

Satellite Connection

[GRAPHIC]
/\
Originating Country / \ Terminating Country
/ \
Private Line / \ Private Line
|--------------------| / \ |--------------------|
| | / \ | |
- ------------ ----------------- / \ ----------------- ------------
| Calling | | International |/ Half Circuit \| International | | Calling |
| Customer | | Switch |----------------| Switch | | Customer |
- ------------ ----------------- ----------------- ------------
| | | |
| ( ) | Cable Connection | ( ) |
|------( PSTN )------| |------( PSTN )------|
( ) . Resale / Lease ( )
. 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

47
<PAGE>
provide international long distance service. Although the Company is licensed or
otherwise permitted (or not prohibited) to operate as an international long
distance carrier in all 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
operates 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 three to five 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 other 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 France, Germany, Denmark, Italy or Austria. Prefix dialing is
expected to be provided in the remainder of the EU after January 1998, when
deregulation is scheduled to begin. 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 transparent to the

48
<PAGE>
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
permitted to do otherwise 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.

49
<PAGE>
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 enacted. 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.

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 Factors--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.

50
<PAGE>
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 providing 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 SERVICE

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 11% 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 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 1994, 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 leased
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 key 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 '--Headquarter
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

51
<PAGE>
minutes in 1995. By expanding its operations into additional key markets, in
which significant volumes of international traffic are originated and terminate
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 ten 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 further 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 full 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.

TARGET SMALL AND MEDIUM-SIZED BUSINESSES

The Company intends to focus 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 traditionally has 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 believes that in most markets
small and medium-sized businesses account for a significant percentage of
international calling traffic. The Company believes that this market segment
will continue to provide significant opportunity for the Company to compete
profitably in the future.

52
<PAGE>
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, these businesses are
estimated to produce total telecommunications revenue of about $30 billion per
year. 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 and 18% were derived from calling card customers.

DEVELOP A COST COMPETITIVE GLOBAL NETWORK BASED ON PROVEN TECHNOLOGY

Most of the Local Operators maintain network switching facilities to
establish POPs to provide international voice and other telecom 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 network, thereby bypassing the high costs
associated with traditional international settlement policies. This is expected
to enable the Company to significantly reduce its operating costs for calls

originating and terminating in markets in which the Company has Local Operators.
See '--Network' and '--Network Strategy.'

The Company uses proven, state-of-the-art technology in its switching
facilities. The Ericsson switches used by the Company allow the Company to
interconnect its network to existing PTT and carrier networks around the world
and to develop new services and upgrade network software and on an efficient
basis.

PURSUE STRATEGIC ACQUISITIONS AND ALLIANCES

The Company intends to enter additional markets and expand its operations
through acquisitions, 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 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.

LEVERAGE EXPERTISE OF MANAGEMENT TEAM

53
<PAGE>
MANAGE NETWORK INVESTMENTS

overall transmission costs.

NETWORK

RSL-NET utilizes a single technology switch platform comprised primarily of
proven, state-of-the-art Ericsson AXE-10 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
Delta Three' and 'Business--Internet Telephony Operation.'

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 domestic
switches in Rotterdam, Amsterdam, New York, London, Melbourne, Brisbane, Lisbon
and Caracas. 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 equipment purchases have been financed by one
of its vendors and the Company believes it has developed a favorable working
relationship with this vendor which will enable the Company to benefit from
financing for future 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 plans 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 and the Company's United Kingdom operations owns PTAT-1
undersea fiber optic cable systems and plans to purchase MIUs on the FLAG and
GEMINI 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 16 operating and interconnection agreements, which provide potential direct

access to Australia, Azerbaijan, Bolivia, Chile, Denmark, the Dominican
Republic, Finland, Japan, Jordan, New Zealand, Norway, Russia, Sweden,
Switzerland, Suriname and the United Kingdom. The Company currently transmits
and terminates traffic pursuant to operating agreements in

54
<PAGE>
the Dominican Republic, the United Kingdom, Denmark, Switzerland, Finland and
Norway. 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.'

<PAGE>
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 Operation--Effect of
Deregulation on 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 able to implement a least cost
routing system which utilizes the lowest cost available to the Company as a
whole. See '--International Long Distance Mechanics,' 'Risk Factors--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 switches or nodes and lease transmission
capacity (on a point-to-point fixed cost basis) to connect the new switch or
node 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 allowed to do so 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 32 states and the District of Columbia and
can terminate calls throughout the United States.

56
<PAGE>
Private Line Service

The Company provides dedicated point-to-point connections to businesses
requiring dedicated private telephone lines for high volumes of voice and data
between the customer's offices.

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 certain 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 targets small to medium-sized businesses with significant
international telephone usage. The Company markets its products and services
utilizing its direct sales forces, networks of independent agents, networks of
distributors and direct and independent telemarketing forces. The Company's
services are currently marketed independently by the Local Operators without
significant coordination. The Company is in the process of developing a
universal brand name for each product and service which it offers (i.e.
Primecall Europe) 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. in excess of $500 in international phone calls per month). The Company has
focused on industries which traditionally have significant

57
<PAGE>
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 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 vast 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 account 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 to $4 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.

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 '--European Operations--French Operations.'

Sales Channels

The Company markets its services through a variety of channels, including
direct sales by the Company's own direct sales force, indirect sales through
independent agents, sales through distributors and telemarketing sales by
Company personnel and outside agents, depending 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. Each Local Operator maintains its 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.

58
<PAGE>
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 maintain
telemarketing sales forces 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.

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 managing
the growth of current operations, expansion of operations into new markets,
forming potential joint ventures and strategic alliances and executing
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 overseeing 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, 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 managing 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 assume global responsibility for all of the
subsidiaries of the Company. All of the Company's switching facilities will be
linked 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 lowest cost without
compromising on quality. The Company consolidates the least cost routing
information of each of its Local Operators to allow them to take advantage of
each others' low cost structure.

59
<PAGE>
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 will 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 would 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 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 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. These activities, in conjunction with the Company's investment in MIUs,
IRUs and switches, obtaining of multiple international operating agreements and
focus on customer service, have resulted in rapid growth of the business
although 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.

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 9,000 business
customers and approximately 18,000 residential customers.

60
<PAGE>
In addition, through 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 sales by 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 sales offices and by opening additional sales offices in
several 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 are connected to each other via leased lines on a
fixed cost, point-to-point basis. The Company also operates domestic and prepaid
card switches in New York and Los Angeles. The international gateway switches
conform to CCITT recommendations and are directly connected to each other by
leased fiber optic cable. The Company is developing a plan for installation of
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 plans to purchase IRUs for its United
States operations on the Columbus II, TPC-5, America's One, T-C and Eurafrica
systems and on the APCN, Ariane-2, Aphrodite and GEMINI undersea fiber optic
cable systems.

The Company currently is a party to 16 operating and interconnection
agreements, which provide potential direct access to Australia, Azerbaijan,
Bolivia, Chile, Denmark, the Dominican Republic, Finland, Japan, Jordan, New
Zealand, 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, Switzerland, Finland and
Norway. The Company transmits call traffic bound for all other destinations
through leased capacity. Some of the operating agreements have been inactive
because of the delays caused by the incompatibility of the New York domestic
switch with the corresponding carrier's equipment and the subsequent delay in
installing the New York international gateway switch. These agreements are
expected to become active in the near future. 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

61
<PAGE>
these operating agreements as well as any additional 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 expects that
the EDS system will be utilized 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 additions to its customer base and (v) provide real
time traffic and call detail management. The Company has implemented a customer
care and trouble management system. In addition, the Company has 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. The Company has installed a Wide Area
Network linking all of its offices in the U.S. enabling the use 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. The IXPlus System is operated and maintained by the Company in its Los
Angeles office. 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

62
<PAGE>
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
and to impose monetary forfeiture. 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 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.

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

63
<PAGE>
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 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 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 enacted. 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

64
<PAGE>
tariffed or otherwise authorized to provide intrastate, interexchange service in
32 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. Additionally, the Company provides service in states where it
requires but does not have certification or registration of any form.
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. 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
international reseller which had been operating in the Netherlands since October
1995. RSL Denmark, a start-up subsidiary of RSL Netherlands, commenced
operations in Denmark in May 1997.

In April 1997, RSL Europe entered into the PrimeCall Europe 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 March 1997, RSL Europe acquired a 30.4% interest in Maxitel, a
Portuguese international telecommunications carrier. RSL Europe and the other
two major 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 July 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 90% of RSL Austria, an Austrian
international telecommunications reseller which had just begun operations.

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

65
<PAGE>
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

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 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 full competition, the Company intends to have established Local
Operators in all major European telecommunications markets.

The EC has issued in 1997 an Interconnect Directive. The Interconnect
Directive 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.'

66
<PAGE>
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 Competitive 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 foregoing 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.'

<PAGE>
U.K. OPERATIONS

Overview

The United Kingdom originated 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 2700 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 17 full-time and 30 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 AXE-10 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 all other international destinations 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
plans to purchase IRUs on the CMC and MCC terrestrial fiber optic cables. The

Company plans to purchase MIUs on the FLAG and GEMINI systems and 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.

68
<PAGE>
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.

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 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 50 direct access and
approximately 100 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 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.

69
<PAGE>
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 will 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. The telecommunications market in France is scheduled to be liberalized
on January 1, 1998 along with the markets of most other EU member states, but
there can be no assurance in this regard. Under the currently proposed law, new
operators would be able to interconnect with France Telecom's PSTN starting on
January 1, 1998. In accordance with the Telecommunications Laws passed in July

1996, the liberalization process is regulated by a new government authority, the
French Authority for Registration of Telecommunications, which was established
in January 1997. 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. However, in other
areas of France, the Company may be subject to access charges owed to France
Telecom. If this license is granted, the French Government is 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 in its other European operations. See
'Risk Factors--Government Regulatory Restrictions.'

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 (approximately 1.3 million customers), and 300 commercial
customers. The Company's current customer base primarily consists large national
or multinational corporations and a larger number of small and medium-sized
business customers. See '--Products and Services.'

70
<PAGE>
Marketing and Sales

As of August 1997, the Company employed 29 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. The majority of traffic generated by the Company's customers in Germany
is routed to the RSL-NET.

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. Upon deregulation in 1998, 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 EC ONP-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.

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 and generated

71
<PAGE>
approximately $400,000 in revenues for the year ended December 31, 1996 and
approximately $300,000 for the six months ended June 30, 1997.

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
international service and national long distance service to its customers in
Italy upon obtaining the appropriate regulatory approvals. 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 three agents in an office in Milan and five 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.

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. As of August 1997, RSL
Italy has not filed a declaration or application for an ad hoc authorization but
intends to do so.

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 will be actually
established and operative, it will take over most of the regulatory and
supervisory functions currently carried out by the Italian Ministry for
Communications. The NRA will have to ensure the application of EU liberalization
principles in Italy.

Furthermore, 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.

72
<PAGE>
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 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 during the
fourth quarter of 1997 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.

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
(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.

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 full 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

73
<PAGE>
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 22 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 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 Tele2 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.

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 full year
of operations, and $1.2 million for the six months ended June 30, 1997.

74
<PAGE>
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 40 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.

In August 1997, the New Telecommunications Market Law was enacted. The New
Telecommunications Market Law 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.

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.

75
<PAGE>
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 1,600 commercial customers.

Marketing and Sales

The Company markets its services in the Netherlands through a variety of
channels, including indirect sales through independent agents and an external
telemarketing company. The Company relies primarily on a network of
approximately 20 independent sales agents to sell its long distance calling
services in the Netherlands. 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. The
Company sells its prepaid calling card through seven independent distributors.

Netherlands 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 completely new Telecommunications Act is expected to take effect in
January 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.

76
<PAGE>
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 sourced through a leased line terminating at RSL
Netherlands' international switch. 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, the primary operator being Telia, the
Swedish PTT operator and 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.
Through RSL Denmark, the Company holds an unrestricted license to provide
national and international telephony in the Danish market, except mobile
telephony, which requires a separate 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. Revenues for the year ended December 31, 1996 were $492,083 as
compared to 252,594 for the year ended December 31, 1995 and were $224,777 and
$58,477 for the six months ended June 30, 1997 and 1996, respectively.

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 had 154 commercial
customers and subscriptions from an additional 100 customers.

77
<PAGE>
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 is in the process of installing an Ericsson AXE-10 international
gateway switch in its offices in Lisbon and a domestic switch in Oporto. Such
switches 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.

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 1,700 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.

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

78
<PAGE>
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 provide 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 is 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, at which time full
international carrier status was granted to the Company. However, there have
been delays by the PTT in implementing deregulation.

LATIN AMERICAN OPERATIONS

Overview

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, 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

79
<PAGE>
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.

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.

OTHER OPERATIONS

Asia and Pacific Rim

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 COM Japan K.K., a
wholly-owned subsidiary of RSL Asia ('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

Delta Three Overview. 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. 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

80
<PAGE>
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.

The Internet and Internet Telephony. 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 converting analog voice signals into digital signals which are
in turn compressed and split into packets which are sent over the Internet like
any other packets and reassembled as audio output at the receiving end. The
packets are converted back into analog format and transferred to the PSTN and
over 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.

Regulation. 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. 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.

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.

81
<PAGE>
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 Delta Three
servers (the 'Servers'), located within strategic 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 Server and instructs the Server to
place a local call to the telephone the customer has dialed. Once the local call
is transmitted, the Server converts the call into a form which can be routed
over the Internet and transfers the call to a second Server. The Servers may be
connected by (i) the Internet accessed through an Internet service provider,
(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.

EMPLOYEES

At August 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 maintains executive and administrative offices with respect to
most of its operations. The lease provides for an aggregate annual lease payment
of approximately $2.1 million.

The Company maintains additional 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
$110,032.

The Company 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 $261,804.

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 $374,875.

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 $83,138 until March 1998 and

may be increased thereafter.

The Company, through its direct and indirect subsidiaries, also leases
additional office spaces for its operations.

LEGAL PROCEEDINGS

The Company 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.

<PAGE>
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
Leonard A. Lauder............................... 64 Director
Eugene Sekulow.................................. 56 Director
Nicolas G. Trollope............................. 50 Director
Fred H. Langhammer.............................. 52 Nominee for 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 and has served as its Chairman
since 1994. 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

83
<PAGE>
a director of Estee Lauder. He is 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. RSLAG is the largest shareholder of
the Company. 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 and
Treasurer of the Company since 1994 and has been Executive Vice President and
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 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
November 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 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 systems and

84
<PAGE>
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 1992 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 1992, 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, since 1989, a corporate service
company.

85
<PAGE>
Gustavo A. Cisneros has been a director of the Company since March 1997.
Mr. Cisneros, together with other members of his family, owns a controlling
interest in Venevision as well as interests in a wide variety of other business
enterprises. For more than five years, Mr. Cisneros has been a direct or
indirect beneficial owner of interests in and a director of certain of the
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 is also the Chairman of the Board of Directors of Pueblo Xtra
International, Inc. and a Director of Univision Communications Inc.

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.

Fred H. Langhammer, a nominee for director of the Company, has been
President of Estee Lauder since 1995, Chief Operating Officer of Estee Lauder
since 1985, and Executive Vice President of Estee Lauder from 1985 until 1997.
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.

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 has an Executive Committee (the 'Executive
Committee'), a Compensation Committee (the 'Compensation Committee') and, 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 and
Itzhak Fisher. The Executive Committee must unanimously approve any of the
following items before the Company's full Board of Directors may consider any
such matter: (i) all investments and borrowing commitments in excess of $100,000
and the entering into of any agreement requiring payment by the Company of an

amount in excess of $100,000 or that is otherwise material to the business and
operations of the Company; (ii) all potential acquisitions and mergers of the
Company or acquisitions or dispositions of material assets; (iii) budget
approval; (iv) nomination and election of all officers; (v) all amendments to
the Company's Memorandum of Association and Bye-laws (which also require
shareholder approval);

86
<PAGE>
(vi) all major strategic decisions (such as entering additional markets and
providing new services, etc.); and (vii) all decisions of the Company with
respect to raising additional capital from the Company's stockholders generally
and, in connection therewith, the valuation of the Company at such time.

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
contemplation 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 plans.

Audit Committee

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 recommending the engagement of independent
accountants to audit the Company's financial statements, discussing the scope
and results of the audit with the independent accountants, reviewing the
functions of the Company's management and independent accountants pertaining to
the Company's financial statements and performing such other related duties and
functions as are deemed appropriate by the Audit Committee and the Board of
Directors.

<PAGE>
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 YEAR $ $ #
- --------------------------------------------------------------- ---- -------- -------- ---------------
<S> <C> <C> <C> <C>
Itzhak Fisher
President and Chief Executive Officer........................ 1996 350,000 150,000 0
Nir Tarlovsky (1)
Vice President of Business Development....................... 1996 178,000 75,000 0
Richard E. Williams (2)
President and Chief Executive Officer of RSL Europe.......... 1996 172,000 50,000 0
Nesim N. Bildirici (3)
Vice President of Mergers and Acquisitions................... 1996 165,000 75,000 0
Charles M. Piluso (4)
Chairman of ITG.............................................. 1996 230,000 0 0
Mark Hirschhorn
Vice President--Finance...................................... 1996 140,000 50,000 42,600
Karen van de Vrande
Vice President of Marketing.................................. 1996 120,000 50,000 60,000
</TABLE>

- ------------------
(1) 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.

(2) 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.

(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 'Fiscal Year-End
Option Values--Compensation Committee Interlocks and Participation.'

(4) 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 proxy regulations of the SEC were awarded to, earned by, or paid to the
Named Executive Officers during 1996.

88
<PAGE>
BONUS PLANS

The Company intends to adopt a 1997 Targeted Accomplishment Plan. Under
such plan, a bonus pool will be established to award designated senior
executives, including the Company's Chief Executive Officer, for the
accomplishment of three goals in 1997: (i) successful completion of the
Offerings, (ii) attainment of a revenue-based goal (to be established) and (iii)
attainment of a gross margin goal (to be established).

The Company also intends to pay bonuses annually to its senior executives
based, in part, on the attainment of certain targets (typically revenue and
earnings based) established each year. The bonuses will be based on the
executive's base salary. Half of the bonus will be determined based on
subjective criteria.

STOCK OPTIONS

Amended and Restated Stock Option Plan

In April 1995, the Board of Directors of the Company authorized, and the
shareholders of the Company approved, the 1995 Amended and Restated Stock Option
Plan (the '1995 Plan'). Under the 1995 Plan, the Company's Compensation
Committee is authorized to grant options for up to 1,000,000 shares of the
Company's Class A Common Stock. As of June 30, 1997, the Company had granted
options to purchase 779,600 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 does not intend to grant
further options under the 1995 Plan.

1997 Stock Option Plan

The Company intends to replace the 1995 Plan with a 1997 Stock Option Plan
(the '1997 Plan'). Grants of options under the 1997 Plan will be made by the
Compensation Committee of the Company's Board of Directors, with the approval of
the full Board, to selected senior executives. The Company will reserve up to 3%
of the outstanding shares of Class A Common Stock (on a fully-diluted basis) for
issuance upon exercise of options granted under the 1997 Plan. These options
will have a per share exercise price initially equal to the fair market value of
a share of Class A Common Stock on the date of grant, will vest in equal
increments over a three year period and will expire seven years from the date of
grant. The exercise price of the options will increase annually based on the
yield of seven-year U.S. treasuries.

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 Company's Chief
Executive Officer.

89
<PAGE>
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 Company's
1995 Stock Option 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 $
- ---------------------------------------------- ------- ----------------- -------- ---------- ---------------
<S> <C> <C> <C> <C> <C>
Itzhak Fisher................................. 0 -- -- -- --
Nir Tarlovsky................................. 0 -- -- -- --
Richard E. Williams........................... 0 -- -- -- --
Charles M. Piluso............................. 0 -- -- -- --
Mark Hirschhorn............................... 42,600 33.6% 3.50 1/01/06 25,000
Nesim N. Bildirici............................ 0 -- -- -- --
Karen van de Vrande........................... 60,000 46.3 3.50 4/01/06 35,000
</TABLE>

<PAGE>
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
NUMBER OF UNEXERCISED OPTIONS IN-THE-MONEY AT
OPTIONS AT FISCAL YEAR-END FISCAL YEAR-END (1)
--------------------------- --------------------------
EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
NAME # $
- --------------------------------------------------------- --------------------------- --------------------------
<S> <C> <C>
Itzhak Fisher............................................ 0/0 0/0
Nir Tarlovsky (2)........................................ 40,571/359,429 1,078,742/9,556,858
Richard E. Williams...................................... 0/0 0/0
Charles M. Piluso........................................ 0/0 0/0
Mark Hirschhorn.......................................... 0/42,600 0/983,634
Nesim N. Bildirici (3)................................... 40,571/209,429 1,078,742/5,568,508
Karen van de Vrande...................................... 0/60,000 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.

With respect to the ownership of Class A Common Stock at the time the

Offerings are closed, Messrs. Cisneros and Langhammer will each have the right
to purchase up to $5.0 million of Class A Common Stock, and Mr. Sekulow will
have the right to purchase up to $500,000 of Class A Common Stock, in each case
valued at the initial public offering price of the Class A Common Stock. Future
directors will be required, prior to joining the Board, to purchase at the then
fair market value a meaningful number of shares of Class A Common Stock based on
each such director's financial means.

The Company will not pay any cash consideration to its non-employee
directors for their services as directors prior to the later of the year 2000 or
the year in which the Company attains positive earnings per share. Under a stock
option plan the Company intends to adopt, the non-employee directors will be
granted options annually to acquire shares of Class A Common Stock with a fair
market value on the date of grant of $50,000. Such options would vest over a
five year period in equal amounts and would expire 10 years from the date of
grant. The exercise price of each option, which will initially be equal to the
per share fair market value of the Class A Common Stock on the date of grant
will be increased annually based on the yield of 10-year U.S. treasuries. Such
stock option plan would also provide that (i) Ronald S. Lauder, the Company's
Chairman, in lieu of compensation for his services as Chairman, would receive
options to purchase shares of Class B Common Stock and (ii) Andrew Gaspar, the
Company's Vice Chariman, in lieu of compensation for his services as Vice
Chairman, would receive options to purchase shares of Class A Common Stock, in
each case with a fair market value based on a multiple of the aggregate dollar
value of the options granted to a non-employee director.

91
<PAGE>
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

The Company and ITG have entered into 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 expire on December 31, 1998. The term of the agreements will be
automatically extended for successive one-year periods unless they are
terminated (i) by either party by September 30, 1998 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 employment agreements provide that Mr. Fisher's
aggregate initial base salary shall be $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 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. Fisher solely outside of the United States, while the agreement with ITG
relates to services to be provided by Mr. Fisher solely within the United
States.

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 400,000 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 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 $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. Such option vests as follows: 1/3% on each of the first and
second anniversaries of the grant and 1 1/3% on the third anniversary of the
grant. 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 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.

92
<PAGE>
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 benefits services to the Company for an annual
fee of $6,000.

In September 1996, the Company borrowed $35.0 million 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
$35.0 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 principal
shareholder of the Company.

Prior to the closing of the Private 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
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 $50.0 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 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 210,000 shares of Class B Common Stock, of
the Company. The exercise price, exercise period and other terms of the warrants
issued to Mr. Lauder 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, and 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 owned and controlled by Ronald S. Lauder and Andrew
Gaspar. In the past, Mr. Bildirici's salary had been 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 current term of which
expires August 31, 1997. The Company does not expect to renew this Agreement.
The consulting agreement provides that Mr. Sekulow is to receive a $24,000
annual fee, as well as an annual grant of options to purchase 10,000 shares of
the Company's Class A Common Stock, for services rendered as a consultant to the
Company.

93
<PAGE>
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.

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.

For additional disclosure with respect to certain transactions between the
Company and certain of its directors, see 'Management Compensation--Committee
Interlocks and Insider Participation.'

PRINCIPAL SHAREHOLDERS

The following table sets forth certain information with respect to the
beneficial ownership of preferred shares of the Company (the 'Preferred Stock'),
Class A Common Stock and Class B Common Stock as of August 30, 1997 by (i) each
person known by the Company to own beneficially more than 5% of the outstanding
shares of either the Preferred Stock, Class A Common Stock or Class B Common
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 BENEFICIAL OWNERSHIP
OF CLASS A OF CLASS B
COMMON STOCK+ COMMON STOCK+
-------------------------------------------- --------------------------------------------
NAME AND ADDRESS NUMBER NUMBER
OF BENEFICIAL OWNER OF SHARES PERCENT OF SHARES PERCENT
- ----------------------------------- -------------------- -------------------- -------------------- --------------------
<S> <C> <C> <C> <C>
Ronald S. Lauder(2)(3)(4)(5)....... -- -- 2,101,547 41.9%
Andrew Gaspar (2)(3)(4)(6)......... -- -- 1,362,204 28.3
R.S. Lauder, Gaspar & Co., L.P.
(2)(4)........................... -- -- 422,130 8.8
Itzhak Fisher (2)(7)............... -- -- 2,013,179 41.9
Leonard A. Lauder (2)(3)(4)(8)..... -- -- 1,410,110 29.3

Lauder Gaspar Ventures LLC
(2)(3)........................... -- -- 940,073 19.6
Jacob Z. Schuster (2)(9)........... -- -- 419,770 8.7
Charles M. Piluso (10)............. 665,340 64.3% -- --
Nir Tarlovsky (2).................. 232,685(11) 22.5 13,179(12) *
Nesim N. Bildirici (2)(13)......... 92,494 8.9 -- --
Karen van de Vrande (14)........... 20,000 1.9 -- --
Mark J. Hirschhorn (2)(15)......... 16,667 1.6 -- --
Eugene Sekulow (16)(17)............ 10,000 * -- --
All directors and executive
officers as a group (13
persons)......................... 1,037,186 100.0% 5,017,711 100.0%

PREFERRED STOCK (1)
--------------------
NAME AND ADDRESS NUMBER
OF BENEFICIAL OWNER OF SHARES PERCENT
- ----------------------------------- --------- -------
<S> <C> <C>
Ronald S. Lauder(2)(3)(4)(5)....... 8,268,278 89.4%
Andrew Gaspar (2)(3)(4)(6)......... 7,170,442 77.6
R.S. Lauder, Gaspar & Co., L.P.
(2)(4)........................... 7,170,442 77.6
Itzhak Fisher (2)(7)............... 243,964 2.3
Leonard A. Lauder (2)(3)(4)(8)..... -- --
Lauder Gaspar Ventures LLC
(2)(3)........................... -- --
Jacob Z. Schuster (2)(9)........... 365,946 4.0
Charles M. Piluso (10)............. -- --
Nir Tarlovsky (2).................. 243,964 2.6
Nesim N. Bildirici (2)(13)......... 121,714 1.3
Karen van de Vrande (14)........... -- --
Mark J. Hirschhorn (2)(15)......... -- --
Eugene Sekulow (16)(17)............ -- --
All directors and executive
officers as a group (13
persons)......................... 9,243,866 100.0%
</TABLE>

- ------------------
+ Does not include shares of Class A Common Stock issuable upon
conversion of shares of Class B Common Stock (including 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%.

(Footnotes continued on next page)

94
<PAGE>
(Footnotes continued from previous page)
(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.
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 each may be deemed to
beneficially own all of the shares of Class B Common Stock and Preferred
Stock owned by RSLAG. In addition, Leonard A. Lauder owns limited
partnership interests in RSLAG. Ronald S. Lauder, Leonard A. Lauder and
Andrew Gaspar each disclaim beneficial ownership of some of such shares.

(5) Includes 1,362,204 shares of Class B Common Stock owned by RSLAG and LGV
(see notes 3 and 4), 529,343 shares of Class B Common Stock owned directly
by Ronald S. Lauder, 7,170,442 shares of Preferred Stock owned by RSLAG
(see note 4) and 1,097,836 shares of Preferred Stock owned directly by
Ronald S. Lauder.

(6) Includes 7,170,442 shares of Preferred Stock owned by RSLAG (see note 4)
and an aggregate of 1,362,204 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 1,362,204 shares of Class B Common Stock owned by RSLAG and LGV
(see notes 3 and 4), 47,907 shares of Class B Common Stock owned directly
by Leonard A. Lauder and 7,170,442 shares of Preferred Stock owned by RSLAG
(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) Mr. Piluso's home address is 495 Manhasset Woods Rd., Manhasset, NY 11030.

(11) Consists of 232,685 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.
(12) 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.

(13) Consists of 92,494 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.

(14) Consists of 20,000 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 16,667 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 10,000 shares of Class A Common Stock issuable upon the
exercise of an equal number of presently exercisable options granted to Mr.
Sekulow.

95
<PAGE>
Certain Directors and their Affiliates are negotiating a transaction
pursuant to which they would sell, in the aggregate, from their shareholdings,
shares of Class A Common Stock equal to up to 2% of the outstanding shares of
Class A Common Stock. The purchases of such shares would include other Directors
and their Affiliates. The terms of such transaction have not and may never be
agreed upon. If terms are eventually agreed upon, and definitive documentation
is executed there can still be no assurance that such transaction will be
consummated.

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 and other persons who have
been instrumental in the establishment and development of the Company, the
Company has reserved up to of shares to be sold in the Offerings for
sale to such persons. Senior executives will be entitled to purchase up to
$25,000 of Class A Common Stock and other employees and 'friends' of the Company
will be entitled to purchase up to $5,000 of Class A Common Stock, in each case
at the initial public offering price. In addition, 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.

<PAGE>
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 Securities
and Exchange Commission as exhibits to the Registration Statement of which this
Prospectus is a part.

The Company is authorized to issue 20,000,000 shares of Preferred Stock and
common shares, which may be issued as shares of Class A Common Stock
or Class B Common Stock. The Company has in the past used and intends in the
future to use shares of its capital stock to pay for acquisitions.

In connection with the Offering, the Company will revise its capital
structure, in part, to (i) effect a -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 and (iii) eliminate the Company's Class C Common
Stock.

PREFERRED STOCK

As of the date of this Prospectus, there were six holders of record of
Preferred Stock and 9,243,866 shares of Preferred Stock were outstanding.
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 $1,000 per share (to the
extent a share is paid up) plus an amount per share equal to the accrued and
unpaid dividends thereon. 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 is automatically convertible into one share of Class B Common
Stock on a one-for-one basis upon the closing of the Offerings.

CLASS A COMMON STOCK

As of the date of this Prospectus, 665,340 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.

97
<PAGE>
TRANSFER AGENT AND REGISTRAR

The Company's transfer agent and registrar for the Class A Common Stock is
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 4,807,711 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 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.

WARRANTS

The Company issued an aggregate of 300,000 Warrants to the purchasers of

the units in the Private Offering. The Warrants were issued pursuant to the
Warrant Agreement (the 'Warrant Agreement'), dated the Closing Date, 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 1.815 shares of Class A Common Stock from the Company at a
price (the 'Exercise Price') of $.01 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 % 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

98
<PAGE>
value per share of Class A Common Stock, subject to certain exceptions, (iii)
the issuance of shares of 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.

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 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.

<PAGE>
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 (the 'Revolving Credit Facility') to
Ronald S. Lauder, Chairman of the Board of the Company and the principal
shareholder of the Company. 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

One of the Company's primary equipment vendors has provided to certain of
the Company's subsidiaries an aggregate of approximately $50 million in Ericsson
financing commitments to fund the purchase of additional capital 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 the principal
shareholder of the Company, 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
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 Private 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 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 twelve
30-day months. At the closing of the Private Offering, the Company used $102.8
million of the net proceeds of the Private Offering to purchase a portfolio of
securities, initially consisting of U.S. government securities (including any
securities substituted in respect thereof, the 'Pledged Securities'),

100
<PAGE>
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.

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 twelve-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.

Covenants

The Indenture relating to the Notes 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 subordination 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

Upon completion of the Offerings, the Company will have
shares of Class A Common Stock outstanding (assuming no exercise of the
Underwriters' over-allotment option). This amount does not include (i)
shares of Class A Common Stock issuable upon the exercise of an equal number of
presently exercisable options granted by the Company's Compensation Committee to
certain employees and non-employee directors of the Company under its 1995 Plan,
(ii) shares of

101
<PAGE>
Class A Common Stock issuable upon conversion of shares of Class B Common Stock
(including 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, (iii) shares of Class A Common Stock issuable
upon the exercise, at the Exercise Price and 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 Private Offering and
(vi) approximately shares of Class A Common Stock issuable on the exercise
of Roll-Up Rights. Of these shares, the 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 the
Company's 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.

Upon completion of the Offerings, up to approximately shares of
Class A Common Stock, which are beneficially held by certain existing
shareholders of the Company, may be eligible for sale under Rule 144. The
Company and shareholders who own in the aggregate shares of Class B
Common Stock and shares of Preferred Stock have agreed that, 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 which are substantially similar to the Class B Common Stock or Preferred
Stock or which are convertible into or exchangeable for securities which are
substantially similar to the 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.'

In connection with certain acquisitions and joint ventures, the Company
granted to minority shareholders of ITG, RSL Netherlands, RSL Austria, RSL
Italy, Delta Three, RSL Latin America and Primecall Europe and to certain
members of senior management holding minority interests in subsidiaries of the
Company (the 'Minority Interestholders') options which allow the Minority

Interestholders to exchange their shares or interests in such entities for
shares of Class A Common

102
<PAGE>
Stock upon the occurrence of, and at certain times following, the Offerings (the
'Roll-Up Rights'). Based upon oral agreements with the Minority Interestholders,
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. The Minority Interestholders of RSL Austria,
RSL Latin America and Primecall Europe have orally agreed to waive their Roll-Up
Rights in connection with the Offerings. Each such Minority Interestholder
retains the right, subject to certain limitations, to exercise its Roll-Up
Rights following the Offerings. Certain Minority Interestholder of ITG have
notified the Company that, subject to agreement with the Company on the value of
their respective interests, they intend to exercise their Roll-Up Rights upon
the closing of the Offering.

Additionally, the Company has granted to a number of Minority
Interestholders certain registration rights with respect to the Company's 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 shall file with the Commission
a registration statement on Form S-3, which registration statement shall include
shares being sold by or for the account of shareholders of the Company, the
Company shall, 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.

103

<PAGE>
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 a U.S. shareholder 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, (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 a shareholder who
is not 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 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 ACQUISITION, 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 U.S.
federal income taxation. On the other hand, the domestic (U.S.) subsidiaries of
the Company will be subject to U.S. federal income taxation 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

104
<PAGE>
income tax principles. Distributions in excess of the earnings and profits of
the Company generally will 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 United States 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, since the Company's foreign corporate subsidiaries will derive
substantially all of their income from foreign sources that will not be
effectively connected with a United States trade or business, 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 United States 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

105
<PAGE>
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 minimize the imposition
of the PHC tax, to the extent 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 foreign personal holding company ('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 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 'passive foreign investment company ('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

106
<PAGE>
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 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 United States 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 [(which would be the case with respect
to a holder of Class A Common Stock)], 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. 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. 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.

107
<PAGE>
CONTROLLED FOREIGN CORPORATIONS

If 10% Shareholders, who are also United States 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 United
States 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 the 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, shares 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 United States. 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

108
<PAGE>
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, 1998, 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

The following is a summary of certain 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 ordinarily resident
in Bermuda. The Company is not subject to stamp or other similar duty on the
issue, transfer or redemption of its shares of Class A Common Stock.

The Company has obtained an assurance from the Minister of Finance of
Bermuda under the Exempted Underlying 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.

109

<PAGE>
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 Civil 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.'

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 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 Securities and Exchange Commission (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 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,

110
<PAGE>
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 (the 'Exchange Act') and in accordance therewith files
reports, proxy statements and other information with the Securities and Exchange
Commission (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.

111

<PAGE>
INDEX TO 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 unaudited June 30, 1997........ F-3
Consolidated Statements of Operations for the Fiscal Years Ended December 31, 1995, December 31, 1996 and
for the unaudited Six Month Periods Ended June 30, 1996 and 1997........................................ F-4
Consolidated Statements of Shareholders' Equity for the Fiscal Years Ended December 31, 1995, December 31,
1996 and for the unaudited Six Month Periods Ended June 30, 1996 and 1997............................... F-5
Consolidated Statements of Cash Flows for the Fiscal Years Ended December 31, 1995, December 31, 1996 and
for the unaudited Six Month Periods Ended June 30, 1996 and 1997........................................ F-6
Notes to Consolidated Financial Statements................................................................ F-7

INTERNATIONAL TELECOMMUNICATIONS GROUP LTD.
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 December 31, 1996 and 1995, and the related consolidated
statements of operations, shareholders' equity and cash flows for 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 December 31, 1996 and 1995, and the results of their
operations and their cash flows for 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
MARCH 7, 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
------------ ------------ -----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents......................................... $ 5,163 $104,068 $ 81,301
Accounts receivable............................................... 6,140 26,479 46,277
Marketable securities--available for sale......................... -- 67,828 50,797
Prepaid expenses and other current assets......................... 856 3,969 12,506
------------ ------------ -----------
Total current assets................................................ 12,159 202,344 190,881
------------ ------------ -----------
Marketable Securities--Held to maturity............................. -- 104,370 84,728
------------ ------------ -----------
Property and Equipment:
Telecommunications equipment...................................... 9,844 29,925 37,980
Furniture, fixtures and other..................................... 989 5,926 10,181
------------ ------------ -----------
10,833 35,851 48,161
Less accumulated depreciation..................................... (302) (3,513) (6,917)
------------ ------------ -----------
Property and equipment--net....................................... 10,531 32,338 41,244
------------ ------------ -----------
Goodwill--and other intangible assets net of accumulated
amortization...................................................... 29,398 87,605 120,880
------------ ------------ -----------
Deposits and Other Assets........................................... 984 1,312 1,026
------------ ------------ -----------
Total Assets........................................................ $ 53,072 $427,969 $ 438,759
------------ ------------ -----------
------------ ------------ -----------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable.................................................. $ 20,788 $ 49,370 $ 67,180
Accrued expenses.................................................. 2,277 12,701 11,998
Notes payable..................................................... 5,236 6,538 6,305
Deferred revenue.................................................. 745 3,570 4,886
Other liabilities................................................. 2,712 5,236 4,710
------------ ------------ -----------
Total current liabilities........................................... 31,758 77,415 95,079
------------ ------------ -----------
Other Liabilities--noncurrent....................................... 8,962 15,286 6,942
------------ ------------ -----------
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................................................... 47,367 407,126 420,109
------------ ------------ -----------
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) (84,917)
Foreign currency translation adjustment........................... -- (622) 622
Deferred financing costs.......................................... -- (1,544) (386)
------------ ------------ -----------
Total shareholders' equity.......................................... 5,705 20,843 18,650
------------ ------------ -----------
Total Liabilities and Shareholders' Equity.......................... $ 53,072 $427,969 $ 438,759
------------ ------------ -----------
------------ ------------ -----------
</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) (UNAUDITED)
<S> <C> <C> <C> <C>
Revenues.............................................. $ 18,617 $ 113,257 $ 39,764 $ 109,361

Cost of services...................................... 17,510 98,461 35,657 96,631
------------ ------------ ----------- -----------

Gross profit........................................ 1,107 14,796 4,107 12,730

Selling, general and administrative expenses.......... 9,639 38,893 13,656 35,271

Depreciation and amortization......................... 849 6,655 2,175 8,947
------------ ------------ ----------- -----------

Loss from operations.................................. (9,381) (30,752) (11,724) (31,488)

Interest income....................................... 173 3,976 80 7,224

Interest expense...................................... (194) (11,359) (635) (18,860)

Other (expense) income................................ -- (288) -- 6,883

Foreign currency transaction gain (loss).............. -- 758 -- (268)

Minority interest..................................... -- (180) -- (229)

Income taxes.......................................... -- (395) -- (439)
------------ ------------ ----------- -----------

Net loss.............................................. $ (9,402) $ (38,240) $ (12,279) $ (37,177)
------------ ------------ ----------- -----------
------------ ------------ ----------- -----------

Loss per share........................................ $ (3.65) $ (11.24) $ (4.19) $ (7.43)

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)
Unaudited:
Issuance of Class A
Common Stock...... 665 7 -- -- -- -- -- -- 32,575 -- --
Foreign Currency
Translation
Adjustment........ -- -- -- -- -- -- -- -- -- -- 1,244
Amortization of

deferred financing
costs............. -- -- -- -- -- -- -- -- -- -- --
Net loss........... -- -- -- -- -- -- -- -- -- (37,177) --
--
------ ------ ------ ------ ------ ------ ------ ---------- ----------- ----------
BALANCE
June 30, 1997
(Unaudited)....... 665 $7 4,808 $ 48 9,244 $ 93 510 $5,544 $ 97,639 $ (84,917) $ 622
--
--
------ ------ ------ ------ ------ ------ ------ ---------- ----------- ----------
------ ------ ------ ------ ------ ------ ------ ---------- ----------- ----------

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........ -- 1,244
Amortization of
deferred financing
costs............. 1,158 1,158
Net loss........... -- (37,177)

--------- --------
BALANCE
June 30, 1997
(Unaudited)....... $ (386) $ 18,650

--------- --------
--------- --------
</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)

SIX MONTHS SIX MONTHS
YEAR ENDED YEAR ENDED ENDED ENDED
DECEMBER 31, DECEMBER 31, JUNE 30, JUNE 30,
1995 1996 1996 1997
------------ ------------ ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Cash flows provided by (used in) operating activities:
Net loss..................................................... $ (9,402) $ (38,240) $ (12,279) $ (37,177)
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 8,947
Foreign currency transaction (loss) gain................. -- (788) -- 161
Loss on disposal of fixed assets......................... -- 368 -- --
Provision for losses on accounts receivable.............. 149 2,830 877 1,968
Changes in assets and liabilities:
Increase in accounts receivable.......................... (2,453) (17,034) (9,461) (20,925)
Decrease (increase) in deposits and other current
assets................................................. 366 (3,249) 91 (2,908)
Decrease (Increase) in prepaid expenses and other current
assets................................................. 297 (925) (2,094) (6,334)
Increase in accounts payable and accrued expenses........ 3,511 44,243 10,243 16,073
Increase (decrease) in deferred revenue and other current
liabilities............................................ 1,501 4,279 2,327 (3,000)
Increase (decrease) in other liabilities................. 8,737 (7,052) (56) (245)
------------ ------------ ----------- -----------
Net cash provided by (used in) operating activities............ 3,554 (10,475) (8,177) (46,463)
------------ ------------ ----------- -----------
Cash flows used in investing activities:
Acquisition of subsidiaries.................................. (15,413) (38,552) (10,616) (5,350)
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) (7,250)
Proceeds from sale of equipment.............................. -- 171 -- --
------------ ------------ ----------- -----------
Net cash (used in) provided by investing activities............ (16,537) (225,000) (15,408) 27,096
------------ ------------ ----------- -----------
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) -- (1,692)
Proceeds from issuance of 12 1/4% Senior Notes and Warrants.. -- 300,000 -- --
Payments of offering costs................................... -- (10,989) -- --
Proceeds from long-term debt--net............................ -- 44,000 -- --
Payments of long-term debt................................... -- (44,598) -- (108)
Principal payments under capital lease obligations........... (62) (382) (153) (820)
------------ ------------ ----------- -----------
Net cash provided by (used in) financing activities............ 18,143 335,031 24,308 (2,620)
------------ ------------ ----------- -----------
Increase (decrease) in cash and cash equivalents............... 5,160 99,556 723 (21,987)
Effects of foreign currency exchange rates on cash............. -- (651) -- (780)
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 $ 81,301
------------ ------------ ----------- -----------
------------ ------------ ----------- -----------
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
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1996
AND FOR THE UNAUDITED SIX MONTH PERIODS ENDED
JUNE 30, 1996 AND 1997

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 3.2 to 1 stock split and the
conversion of Class B Common Stock to Class A. Upon the closing of the offering,
the Preferred Stock will be automatically converted into Class B.

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 $26,725,000 at
December 31, 1995 and 1996, respectively and the assumption of net liabilities
resulting in recorded goodwill of $26,780,000. 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. During the period
August 1996 through March 1997, RSL COM Europe purchased the remaining 49%

F-7

<PAGE>

RSL COMMUNICATIONS, LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1996
AND FOR THE UNAUDITED SIX MONTH PERIODS ENDED
JUNE 30, 1996 AND 1997

2. ACQUISITIONS--(CONTINUED)

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 7 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 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 UNAUDITED SIX MONTH PERIODS ENDED
JUNE 30, 1996 AND 1997

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.

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.

F-9

<PAGE>

RSL COMMUNICATIONS, LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1996
AND FOR THE UNAUDITED SIX MONTH PERIODS ENDED
JUNE 30, 1996 AND 1997

3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)

Accounts Receivable--Accounts receivable are stated net of the allowance
for doubtful accounts of $1,600,000, $3,900,000 and $2,776,000 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 $1,968,000 for the years ended
December 31, 1995, 1996 for six the 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 $4,798,000, 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 $301,000, $3,462,000 and $3,404,000 for the years ended December 31,
1995 and 1996 and the six months ended June 30, 1997.

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.

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.

F-10

<PAGE>
RSL COMMUNICATIONS, LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1996
AND FOR THE UNAUDITED SIX MONTH PERIODS ENDED
JUNE 30, 1996 AND 1997

3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)

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 generated by the long-lived assets. The Company's undiscounted cash flows
exceed the carrying value of its long-lived assets.

EFFECTS OF RECENTLY ISSUED ACCOUNTING STANDARDS

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 corresponsing 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 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.

F-11

<PAGE>

RSL COMMUNICATIONS, LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1996
AND FOR THE UNAUDITED SIX MONTH PERIODS ENDED
JUNE 30, 1996 AND 1997

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
--------- ------- --------- -------
UNAUDITED
<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
----------------- -------------
UNAUDITED
<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>
JUNE 30, 1997
DECEMBER 31, 1996 ----------------------
--------------------- UNAUDITED
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>

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

F-12

<PAGE>

RSL COMMUNICATIONS, LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1996
AND FOR THE UNAUDITED SIX MONTH PERIODS ENDED
JUNE 30, 1996 AND 1997

6. INCOME TAXES--(CONTINUED)

States of approximately $47,000,000 and $83,000,000, 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
------------ -------- --------
UNAUDITED
<S> <C> <C> <C>
Deferred tax assets............................................ $ 6,900 $ 18,800 $ 33,200
Less valuation allowance....................................... (6,900) (18,800) (33,200)
------------ -------- --------
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 $33,200,000, 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.

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.

F-13

<PAGE>

RSL COMMUNICATIONS, LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1996
AND FOR THE UNAUDITED SIX MONTH PERIODS ENDED
JUNE 30, 1996 AND 1997

7. NOTES PAYABLE AND LONG-TERM DEBT--(CONTINUED)

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 $3,461,000, which bear interest at the rates from 8% to
14.5%. At December 31, 1995 and 1996, such amounts were $565,000 and $1,956,000,
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 $394,000.
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 UNAUDITED SIX MONTH PERIODS ENDED
JUNE 30, 1996 AND 1997

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 6,305
1999..................................................... 2,933 3,016
2000..................................................... -- 2,850
2001..................................................... -- --
2002..................................................... -- --
2003 and thereafter...................................... 300,000 300,000
----------------- -------------

Total.................................................... 312,570 312,171
Less current maturities.................................. (6,538) (6,305)
----------------- -------------
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 $18,542,000 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 UNAUDITED SIX MONTH PERIODS ENDED
JUNE 30, 1996 AND 1997

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, 1997
1995 1996 -------------
------- ------- UNAUDITED
<S> <C> <C> <C>
Goodwill.............................................. $29,425 $79,732 $ 116,373
Deferred financing costs.............................. -- 10,988 11,296
Organization costs and others......................... 521 626 796
------- ------- -------------
29,946 91,346 128,465
Less accumulated amortization......................... (548) (3,741) (7,585)
------- ------- -------------
Intangible assets-net................................. $29,398 $87,605 $ 120,880
------- ------- -------------
------- ------- -------------
</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. 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 $1,000 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 UNAUDITED SIX MONTH PERIODS ENDED
JUNE 30, 1996 AND 1997

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, UNAUDITED
- ------------------- ---------
<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 UNAUDITED SIX MONTH PERIODS ENDED
JUNE 30, 1996 AND 1997

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. Mr. Bildirici's salary is paid by RSLAG and
the Company reimburses RSLAG each year for the services Mr. Bildirici provides
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 currently dedicates
substantially all of his business time to the business of the Company and is
expected to continue to do so for the foreseeable future.

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 UNAUDITED SIX MONTH PERIODS ENDED
JUNE 30, 1996 AND 1997

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 (the
'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 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 B 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.

<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................................................. 57,400 0.01 0.01
Exercised............................................... -- -- --
Rescinded/Canceled...................................... 1,000 4.50 4.50
--------- -------------- -------
Outstanding at June 30, 1997.............................. 836,000 $0.001-5.50 $ 0.58
--------- -------------- -------
--------- -------------- -------
</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............................................ 375,045 163,000 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 UNAUDITED SIX MONTH PERIODS ENDED
JUNE 30, 1996 AND 1997

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 is 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 32 and 44
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)
SIX MONTHS
YEAR ENDED ENDED
DECEMBER 31, JUNE 30,
1995 1996 1997
----------- ------------ -----------

UNAUDITED
<S> <C> <C> <C>
Net loss
As reported................................... $ (9,402) $ (38,240) $ (37,177)
Pro forma..................................... $ (9,404) $ (38,315) (37,177)
Net loss per common share:
As reported................................... $ (3.65) $ (11.24) $ (7.43)
Pro forma..................................... $ (3.65) $ (11.26) (7.43)
Weighted average fair value of options granted
during the Period............................. $ 0.0004 $ 0.58 $ 29.73
</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 UNAUDITED SIX MONTH PERIODS ENDED
JUNE 30, 1996 AND 1997

14. COMMITMENTS AND CONTINGENCIES

At December 31, 1996, 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>
YEAR ENDED DECEMBER 31,
- -----------------------
<S> <C>
1997................................................................ $ 2,117
1998................................................................ 1,852
1999................................................................ 1,642
2000................................................................ 1,489
2001................................................................ 1,427
2002 and thereafter................................................. 3,303
--------------
$ 11,830
--------------
--------------
</TABLE>

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, UNAUDITED

- ---------------------------- --------------
<S> <C>
1998................................................................ $ 2,179
1999................................................................ 1,984
2000................................................................ 1,907
2001................................................................ 1,732
2002................................................................ 1,486
2003 and thereafter................................................. 1,290
--------------
$ 10,578
--------------
--------------
</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>
YEAR ENDED DECEMBER 31,
- -----------------------
<S> <C>
1997................................................................ $ 40,500
1998................................................................ 3,000
--------------
$ 43,500
--------------
--------------
</TABLE>

F-21

<PAGE>

RSL COMMUNICATIONS, LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1996
AND FOR THE UNAUDITED SIX MONTH PERIODS ENDED
JUNE 30, 1996 AND 1997

14. COMMITMENTS AND CONTINGENCIES--(CONTINUED)

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, UNAUDITED
- ---------------------------- --------------
<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.

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 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.

F-22

<PAGE>

RSL COMMUNICATIONS, LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1996
AND FOR THE UNAUDITED SIX MONTH PERIODS ENDED

JUNE 30, 1996 AND 1997

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 (unaudited)
US..................................................................... $ 69,889 $ (6,585) $ 79,798
Germany................................................................ 6,051 (4,781) 9,772
France................................................................. 3,850 (2,289) 9,191
UK..................................................................... 11,347 (8,555) 28,331
Netherlands............................................................ 8,060 1,189 12,095
Australia.............................................................. 7,186 (865) 11,496
Corporate and other.................................................... 2,978 (9,602) 288,076
-------- ------------- ------------
$109,361 $ (31,488) $438,759
-------- ------------- ------------
-------- ------------- ------------
</TABLE>

F-23

<PAGE>

RSL COMMUNICATIONS, LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1996
AND FOR THE UNAUDITED SIX MONTH PERIODS ENDED
JUNE 30, 1996 AND 1997

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 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
----------------- ----------------
UNAUDITED
<S> <C> <C>
Current Assets........................................................... $ 201,734 $183,058
Non-current Assets....................................................... 225,131 241,651
Current Liabilities...................................................... 74,949 123,513
Non-current Liabilities.................................................. 394,556 355,513
</TABLE>

<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS ENDED
DECEMBER 31, 1996 JUNE 30, 1997
----------------- ----------------
UNAUDITED
<S> <C> <C>
Net Revenue.............................................................. $ 113,257 $102,175
Gross Profit............................................................. 14,796 12,160
Net Loss................................................................. (34,309) (31,508)
</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 $5.0 million for a 51% 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-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.

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.

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 are 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 the 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 amount
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.

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

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.

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:

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 amounts equal to the vendors 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.

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:

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 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:

<TABLE>
<CAPTION>
NUMBER OF
SHARES OF
CLASS A
UNDERWRITER COMMON STOCK
- --------------------------------------------------------------------------------------- ------------
<S> <C>
Goldman, Sachs & Co....................................................................
Merrill Lynch, Pierce, Fenner & Smith Incorporated.....................................
Morgan Stanley & Co. Incorporated......................................................
SBC Warburg Inc........................................................................
------------
Total.............................................................................
------------
------------
</TABLE>

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
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 SBC Warburg, a Division of Swiss Bank Corporation.

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 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

U-1
<PAGE>
(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
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 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 additional shares of Class A Common
Stock.

The Company, , and 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.

At the request of the Company, the U.S. Underwriters have initially
reserved up to shares of Class A Common Stock for sale at the initial
public offering price set forth on the cover page of this Prospectus to eligible
employees of the Company and persons having business relationships with the
Company. The number of shares of Class A Common Stock available for sale to the
general public will be reduced to the extent such persons purchase such reserved
shares. Any reserved shares which are not so purchased will be offered by the
Underwriters to the general public on the same basis as other shares offered
hereby. Individuals purchasing reserved shares have agreed, with certain
exceptions, not to sell, offer to sell or otherwise dispose of any shares of
Class A Common Stock without the prior written consent of Goldman Sachs for a
period of 180 days after the date of this Prospectus.

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 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>
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.

The Company intends to file an application for quotation of the Class A

Common Stock on the Nasdaq National Market under the symbol 'RSLC.'

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

<TABLE>
<CAPTION>
Page
----
<S> <C>
Prospectus Summary................................... 4
Risk Factors......................................... 13
Use of Proceeds...................................... 24
Dividend Policy...................................... 24
Dilution............................................. 24
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....... 93
Principal Shareholders............................... 94
Description of Capital Stock......................... 97
Description of Certain Indebtedness.................. 100
Shares Eligible for Future Sale...................... 101
Certain United States Federal Income Tax
Considerations to Non-United States Holders........ 104
Certain Bermuda Tax Considerations................... 109
Legal Matters........................................ 110
Experts.............................................. 110
Service of Process and Enforcement of Liabilities.... 110
Additional Information............................... 110
Available Information................................ 111
Index to Consolidated Financial Statements........... F-1
Underwriting......................................... U-1
</TABLE>
===============================================================================

===============================================================================

RSL COMMUNICATIONS, LTD.

Class A Common Stock
(par value $ per share)

------------------
[LOGO]

------------------

Goldman, Sachs & Co.
Merrill Lynch & Co.
Morgan Stanley Dean Witter
SBC Warburg 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.

[ALTERNATE PAGE FOR INTERNATIONAL PROSPECTUS]
SUBJECT TO COMPLETION, DATED AUGUST 25, 1997
[LOGO]
SHARES
RSL COMMUNICATIONS, LTD.
CLASS A COMMON SHARES
(PAR VALUE $ PER SHARE)
----------------------

Of the Class A common shares, par value $ per share (the 'Class
A Common Stock'), offered by RSL Communications, Ltd. (the 'Company'),
shares are being offered hereby in an international offering outside the United
States (the 'International Offering') and shares are being offered in a
concurrent United States offering (the 'U.S. Offering' and, together with the
International Offering, the 'Offerings'). Of the shares being offered
in the Offerings, up to shares are being reserved for sale to eligible
employees of the Company and persons having business relationships with the
Company. 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.

SEE 'RISK FACTORS' COMMENCING ON PAGE 13 FOR CERTAIN CONSIDERATIONS RELEVANT
TO AN INVESTMENT IN THE CLASS A COMMON STOCK.

The Company intends to file an application for quotation of the Class A
Common Stock on the Nasdaq National Market under the symbol 'RSLC.'
----------------------

----------------------

- ------------------
(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 $ payable by the Company.

----------------------

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 A DIVISION OF SWISS BANK CORPORATION

The date of this Prospectus is September , 1997

<PAGE>
[ALTERNATE PAGE OF 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 SBC Warburg, a Division of Swiss Bank Corporation, 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:
<TABLE>
<CAPTION>
NUMBER OF
SHARES OF
CLASS A
UNDERWRITER COMMON STOCK
- --------------------------------------------------------------------------------------- ------------
<S> <C>
Goldman Sachs International............................................................
Merrill Lynch International ...........................................................
Morgan Stanley & Co. International Limited ............................................
SBC Warburg, a Division of Swiss Bank Corporation .....................................

------------
Total ............................................................................
------------
------------
</TABLE>

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 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 International 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 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 OF 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.

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 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
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
additional shares of Class A Common Stock.

Company. The number of shares of Class A Common Stock available for sale to the
general public will be reduced to the extent such persons purchase such reserved
shares. Any reserved shares which are not so purchased will be offered by the
Underwriters to the general public on the same basis as other shares offered
hereby. Individuals purchasing reserved shares have agreed, with certain
exceptions, not to sell, offer to sell or otherwise dispose of any shares of
Class A Common Stock without the prior written consent of Goldman, Sachs for a
period of 180 days after the date of this Prospectus.

The Company and , and 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.

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

U-2
<PAGE>
[ALTERNATE PAGE OF INTERNATIONAL PROSPECTUS]

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.

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 businesses 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 passes 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 1995 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.

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.

The Company intends to file an application for quotation of the Class A
Common Stock on the Nasdaq National Market under the symbol 'RSLC.'

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>
===============================================================================

------------------

TABLE OF CONTENTS

===============================================================================

RSL COMMUNICATIONS, LTD.

Class A Common Stock
(par value $ per share)

------------------
[LOGO]

------------------

Goldman Sachs International
Merrill Lynch International
Morgan Stanley Dean Witter
SBC Warburg
A Division of Swiss Bank Corporation

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.............................. $ 45,455
NASD Filing Fee.................................................................. 15,500
Printing and Engraving........................................................... 115,000*
Counsel Fees and Expenses........................................................ 250,000
Accountants' Fees and Expenses................................................... 200,000*
Blue Sky Qualification Fees and Expenses.........................................
Transfer Agent and Registrar Fees and Expenses................................... 10,000
Nasdaq Listing Fee...............................................................
Miscellaneous.................................................................... *
Total....................................................................... $750,000*
</TABLE>

- ------------------
* Estimated

ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS

Under Bermuda law and the Company's Memorandum of Association and bye-laws,
the directors, officers and liquidators of the Company and their heirs,
executors and administrators are indemnified and held harmless out of the assets
of the Company from and against all actions, costs, charges, losses and expenses
which they or any of them, their heirs, executors 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 loss, misfortune or damage which may happen in
the execution of their respective offices or trusts, or in relation thereto,
provided that they are not entitled to indemnification in respect of any fraud
or dishonesty which may attach to them.

ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES

In August 1994, 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 Company, 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 Company 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
Company, 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 Company, 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 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

II-1
<PAGE>
'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 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 Company approved, the 1995 Plan. Under the 1995 Plan, the
Company's Compensation Committee is authorized to grant options for up to
1,000,000 shares of the Company's Class A Common Stock. As of June 30, 1997, the
Company had granted options to purchase 779,600 shares of the Company'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 Company 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 Company. Subsequently, the
Company 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
Company 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 Company's capital stock was reclassified as follows:
(i) the Class A Common Stock and Class B Common Stock were authorized with the
RSL Common Stock being converted into Class A Common Stock; (ii) the Company's
authorized Class B Common Stock was reclassified as Class C Common Stock with no
changes to the rights of such shares; (iii) the authorized Class A Common Stock
was reclassified as Class B Common Stock with no changes in the rights of such
stock except that each share of Class B Common Stock shall be entitled to 10
votes per share; and (iv) the new Class A Common Stock was authorized.

II-2
<PAGE>
In September 1996, the Company issued to Ronald S. Lauder a warrant to
purchase 210,000 shares of the Company's Class B Common Stock in consideration
of a loan from Mr. Lauder to the Company in the aggregate amount of $35 million.
Additionally, the Company issued: (i) 940,073 shares of the Company's Class B
Common Stock to Lauder Gaspar Ventures LLC for aggregate consideration of $25
million; (ii) 470,037 shares of the Company's Class B Common Stock to Ronald S.
Lauder for aggregate consideration of $12.5 million and (iii) 470,037 shares of
the Company's Class B Common Stock to Leonard 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 Company issued to Mr. Charles M. Piluso 665,340 shares of
the Company's Class A Common Stock in connection with the Company's acquisition

of certain shares of International Telecommunications Group. Ltd. 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 Stock 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 16. 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.
*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 Stock Certificate.
+5.1 -- Opinion of Conyers, Dill and Pearman.
8.1 -- Form of 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.
</TABLE>

II-3
<PAGE>
<TABLE>

<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ----------- -------------------------------------------------------------------------------------------------------
<S> <C>
*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.
*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 ITC 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.
</TABLE>

II-4
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT

NUMBER DESCRIPTION
- ----------- -------------------------------------------------------------------------------------------------------
<S> <C>
*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.
*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 Gate
Investments Ltd.
10.58 -- Stockholders' Agreement, dated July 23, 1997, between and among Delta Three, Inc., RSL
Communications, Ltd., and the other shareholders of Delta Three, Inc., Jacob Davidson, Pioneer
Management Corporation, Inc., Lee V. Kaplan, Fred Sager, Noam Bardin, Micha Avni, Joseph Popolow,
Stephen Perone, Jane Moysak, Michael Selesny, David Feuerstein, Aryeh Weinberg, Omit Avidar, Mimi
Kamilar, Adam Slater, Michele Weinreb, David Aisenthal, Fara Hain, Jodie Clements, Boris Anisimov
and Dave Sagor.
+, **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 -- Special 1997 Targeted Bonus Plan.
+10.63 -- RSL Communications, Ltd. 1997 Stock Option Plan.
+10.64 -- Lease Agreement, dated June 29, 1997 for property at 430 Park Avenue, New York, New York.
+, **10.65 -- Stock Purchase Agreement of Delta Three, Inc.
+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 Exhibit 5.1 hereto).
23.4 -- Form of 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).
27.1 -- Financial Data Schedule.
99.1 -- Consent of Fred Langhammer.
</TABLE>

- ------------------
* Incorporated by reference to Registrant's Registration Statement on Form S-4
(Registration No. 333-25749).

(Footnotes continued on next page)

II-6
<PAGE>
(Footnotes continued from previous page)

** Confidential treatment has been requested with respect to certain
information contained in this exhibit.

+ To be filed by amendment.

++ 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).

ITEM 17. UNDERTAKINGS

A. The undersigned registrant hereby undertakes:

(1) that, for purposes of determining any liability under the
Securities Act of 1933, the information omitted from the form of prospectus
filed as part of this registration statement in reliance upon Rule 430A and
contained in a form of prospectus filed by the Registrant pursuant to Rule
424(b)(1) of (4) or 497(h) under the Securities Act shall be deemed to be
part of this registration statement as of the time it was declared
effective; and

(2) that, for purposes of determining any liability under the
Securities Act of 1933, each post-effective amendment that contains a form
of prospectus shall be deemed to be a new registration statement relating
to the securities offered therein, and the offering of such securities at
that time shall be deemed to be the initial bona fide offering thereof.

B. Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the Registrant pursuant to the foregoing provisions, or otherwise, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Securities Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Securities
Act and will be governed by the final adjudication of such issue.

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 22nd day of August, 1997.

RSL COMMUNICATIONS, LTD.

By: /s/ Itzhak Fisher
---------------------------------
Itzhak Fisher
President and Chief Executive
Officer

POWER OF ATTORNEY

KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below hereby constitutes and appoints Itzhak Fisher and Mark J. Hirschhorn, or
either of them, as each such person's true and lawful attorney-in-fact and
agent, with full powers of substitution and resubstitution, for him/her and in
his/her name, place and stead, in any and all capacities, to sign any or all
amendments (including post-effective amendments) to this Registration Statement,
and to file the same, with all exhibits thereto, and other documents in
connection therewith, with the Securities and Exchange Commission, granting unto
said attorneys-in-fact and agents full power and authority to do and perform
each and every act and thing requisite and necessary to be done in and about the
premises, as fully for all intents and purposes as such person might or could do
in person, hereby ratifying and confirming all that said attorneys-in-fact and
agents, or their substitute or substitutes, may lawfuly do or cause to be done
by virtue hereof.

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 Director August 22, 1997
- ------------------------------------------
(Ronald S. Lauder)

/s/ ITZHAK FISHER President, Chief Executive Officer and August 22, 1997
- ------------------------------------------ Director (Principal Executive Officer)
(Itzhak Fisher)

/s/ ANDREW GASPAR Vice Chairman and Director August 22, 1997
- ------------------------------------------

(Andrew Gaspar)

/s/ JACOB Z. SCHUSTER Chief Financial Officer, Assistant Secretary, August 22, 1997
- ------------------------------------------ Treasurer and Director (Principal Financial
(Jacob Z. Schuster) Officer)
</TABLE>

II-8
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------------------ --------------------------------------------- ----------------
<S> <C> <C>

/s/ MARK J. HIRSCHHORN Vice President-Finance, August 22, 1997
- ------------------------------------------ Global Controller and Assistant Secretary
(Mark J. Hirschhorn) (Principal Accounting Officer)

Director , 1997
- ------------------------------------------
(Gustavo Cisneros)

Director , 1997
- ------------------------------------------
(Leonard A. Lauder)

/s/ NICOLAS G. TROLLOPE Director August 22, 1997
- ------------------------------------------
(Nicolas G. Trollope)

/s/ EUGENE SEKULOW Director August 22, 1997
- ------------------------------------------
(Eugene Sekulow)
</TABLE>

II-9

<PAGE>
INDEPENDENT AUDITORS' CONSENT

We consent to the use in this Registration Statement of RSL Communications, Ltd.
on Form S-1 of our report dated March 7, 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 March 7, 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
August 22, 1997

II-10

<PAGE>
INDEPENDENT AUDITOR'S CONSENT

We consent to the use in this Registration Statement 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 Registration
Statement.

We also consent to the reference to us under the heading 'Experts' in such
Prospectus.

BROWN, LEIFER, SLATKIN + BERNS

Studio City, California
August 20, 1997

II-11

<PAGE>
SCHEDULE I

CONDENSED FINANCIAL INFORMATION OF
RSL COMMUNICATIONS PLC
BALANCE SHEET
AS OF DECEMBER 31, 1996

<TABLE>
<S> <C>
ASSETS
Current Assets........................................................................ $201,734,395
Marketable Securities--Held to maturity............................................... 104,370,011
Property and Equipment................................................................ 31,941,441
Other Assets.......................................................................... 88,819,629
------------
Total............................................................................... $426,865,476
------------
------------

LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities................................................................... $ 74,949,341
Long Term Debt........................................................................ 94,555,559
Senior Notes, 12 1/4% Due 2006........................................................ 300,000,000
Shareholders' Equity.................................................................. (42,639,424)
------------
Total............................................................................... $426,865,476
------------
------------
</TABLE>

S-1

<PAGE>
SCHEDULE I (CONTINUED)

RSL COMMUNICATIONS PLC
CONDENSED STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
1996
-------------
<S> <C>
Revenues....................................................................................... $ 113,257,340
Cost of Services............................................................................... 98,461,406
-------------
Gross Profit.............................................................................. 14,795,934
Expenses....................................................................................... 41,618,912
-------------
Loss from Operations........................................................................... (26,822,978)
Interest Expense............................................................................... (7,384,097)
Other Expense-Net.............................................................................. (285,092)
Foreign Currency Transaction Gain.............................................................. 757,696
Minority Interest.............................................................................. (180,100)
Income Taxes................................................................................... (394,556)
-------------
Net Loss.................................................................................. $ (34,309,127)
-------------
-------------
</TABLE>

S-2

<PAGE>
SCHEDULE I (CONTINUED)

RSL COMMUNICATIONS PLC
CONDENSED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
1996
-------------
<S> <C>
Net Loss....................................................................................... $ (34,309,127)
Depreciation and amortization.................................................................. 6,617,788
Working capital change and other............................................................... 16,911,146
-------------
Net cash used in operating activities..................................................... (10,780,193)
-------------
Purchases of Property and Equipment............................................................ (15,983,227)
Acquisitions of Subsidiaries................................................................... (38,552,408)
Purchase of Marketable Securities.............................................................. (82,529,263)
Proceeds from Sales of Marketable Securities................................................... 14,700,903
Purchase of Restricted Marketable Securities................................................... (102,807,652)
Other.......................................................................................... 171,367
-------------
Net cash used in investing activities..................................................... (225,000,280)
-------------
Proceeds from notes payable.................................................................... 300,000,000
Advances from Parent........................................................................... 61,006,697
Offering Cost and Other........................................................................ (11,968,884)
-------------
Net cash provided by financing activities................................................. 349,037,813
-------------
Net increase in cash...................................................................... 113,257,340
Cash, January 1, 1996..................................................................... --
-------------
Cash, December 31, 1996................................................................... $ 113,257,340
-------------
-------------
</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 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

<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, Ltds.'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> <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.
*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 Stock Certificate
+5.1 -- Opinion of Conyers, Dill and Pearman.
8.1 -- Form of 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.

*10.12 -- Employment Agreement, dated September 15, 1995, between Itzhak Fisher and RSL
Communications Inc.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION PAGE
- --------------- ----------------------------------------------------------------------------------------- ----
<S> <C> <C>
*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 ITC 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.

*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.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION PAGE
- --------------- ----------------------------------------------------------------------------------------- ----
<S> <C> <C>
*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, Jr., 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, 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 Communications, 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 Gate Investments Ltd.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION PAGE
- --------------- ----------------------------------------------------------------------------------------- ----
<S> <C> <C>
10.58 -- Stockholders' Agreement, dated July 23, 1997, between and among Delta Three, Inc., RSL
Communications, Ltd., and the other shareholders of Delta Three, Inc., Jacob Davidson,
Pioneer Management Corporation, Inc., Lee V. Kaplan, Fred Sager, Noam Bardin, Micha Avni,
Joseph Popolow, Stephen Perone, Jane Moysak, Michael Selesny, David Feuerstein, Aryeh
Weinberg, Omit Avidar, Mimi Kamilar, Adam Slater, Michele Weinreb, David Aisenthal, Fara
Hain, Jodie Clements, Boris Anisimov and Dave Sagor.
+,**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 -- Special 1997 Targeted Bonus Plan.
+10.63 -- RSL Communications, Ltd. 1997 Stock Option Plan.
+10.64 -- Lease Agreement, dated June 29, 1997, for property at 430 Park Avenue, New York, New
York.
+,**10.65 -- Stock Purchase Agreement of Delta Three, Inc.
+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 Exhibit 5.1 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).
27.1 -- Financial Data Schedule.
99.1 -- Consent of Fred Langhammer.
</TABLE>

- ------------------
* 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.

+ To be filed by amendment.

++ Incorporated by reference to Registrant's Quarterly Report on Form 10-Q for
the quarter ended March 31, 1997.

<PAGE>

FORM

RSL COMMUNICATIONS, LTD.

Class A Common Shares

---------------------------

Underwriting Agreement
(U.S. Version)
--------------------------------------------

September [ ], 1997

Goldman, Sachs & Co.,
Merrill Lynch, Pierce, Fenner &
Smith Incorporated,
Morgan Stanley & Co. Incorporated, and
SBC Warburg Inc.
As representatives of the several Underwriters
named in Schedule I hereto,
c/o Goldman, Sachs & Co.
85 Broad Street,
New York, New York 10004

Ladies and Gentlemen:

RSL Communications, Ltd., a Bermuda corporation (the "Company"), proposes,
subject to the terms and conditions stated herein, to issue and sell to the
Underwriters named in Schedule I hereto (the "Underwriters") an aggregate of
........ shares (the "Firm Shares") and, at the election of the Underwriters,
up to ......... additional shares (the "Optional Shares") of Class A Common
Shares ("Stock"), of the Company (the Firm Shares and the Optional Shares that
the Underwriters elect to purchase pursuant to Section 2 hereof being
collectively called the "Shares").

It is understood and agreed to by all parties that the Company is
concurrently entering into an agreement (the "International Underwriting
Agreement") providing for the sale by the Company of up to a total of ........
shares of Stock (the "International Shares"), including the overallotment
option thereunder, through arrangements with certain underwriters outside the
United States (the "International Underwriters"), for whom Goldman Sachs
International, Morgan Stanley & Co. International Limited, Merrill Lynch
International Limited and Swiss Bank Corporation, acting through its
subsidiary, SBC Warburg, are acting as lead managers. Anything herein or
therein to the contrary notwithstanding, the respective closings under this
Agreement and the International Agreement are hereby expressly made conditional
on one another. The Underwriters hereunder and the International Underwriters
are simultaneously entering into an Agreement between U.S. and International
Underwriting Syndicates (the "Agreement between Syndicates") which provides,
among other things, for the transfer of shares of Stock between the two

syndicates. Two forms of prospectus are to be used in connection with the
offering and sale of shares of Stock contemplated by the foregoing, one
relating to the Shares hereunder and the other relating to the International
Shares. The latter form of prospectus will be identical to the former except
for certain substitute pages as included in the registration statement and
amendments thereto as mentioned below. Except as used in Sections 2, 3, 4, 9
and 11 herein, and except as the context may otherwise require, references
hereinafter to the Shares shall include all the shares of Stock which may be
sold pursuant to either this Agreement or the International Underwriting
Agreement, and references herein

<PAGE>

to any prospectus whether in preliminary or final form, and whether as amended
or supplemented, shall include both the U.S. and the international versions
thereof.

1. The Company represents and warrants to, and agrees with, each of the
Underwriters that:

(a) A registration statement on Form S-1 (File No. 333-[ ]) in
respect of the Shares has been filed with the Securities and Exchange
Commission (the "Commission"); such registration statement and any
post-effective amendment thereto, each in the form heretofore
delivered to you, and, excluding exhibits thereto, to you for each of
the other Underwriters, have been declared effective by the Commission
in such form; no other document with respect to such registration
statement has heretofore been filed with the Commission; and no stop
order suspending the effectiveness of such registration statement has
been issued and no proceeding for that purpose has been initiated or
threatened by the Commission (any preliminary prospectus included in
such registration statement or filed with the Commission pursuant to
Rule 424(a) of the rules and regulations of the Commission under the
Securities Act of 1933, as amended (the "Act"), is hereinafter called
a "Preliminary Prospectus"; the various parts of such registration
statement, including all exhibits thereto and including the
information contained in the form of final prospectus filed with the
Commission pursuant to Rule 424(b) under the Act in accordance with
Section 5(a) hereof and deemed by virtue of Rule 430A under the Act to
be part of the registration statement at the time it was declared
effective, each as amended at the time such part of the registration
statement became effective, are hereinafter collectively called the
"Registration Statement"; and such final prospectus, in the form first
filed pursuant to Rule 424(b) under the Act, is hereinafter called the
"Prospectus";

(b) No order preventing or suspending the use of any Preliminary
Prospectus has been issued by the Commission, and each Preliminary
Prospectus, at the time of filing thereof, conformed in all material
respects to the requirements of the Act and the rules and regulations
of the Commission thereunder, and did not contain an untrue statement
of a material fact or omit to state a material fact required to be
stated therein or necessary to make the statements therein, in the
light of the circumstances under which they were made, not misleading;

provided, however, that this representation and warranty shall not
apply to any statements or omissions made in reliance upon and in
conformity with information furnished in writing to the Company by an
Underwriter through Goldman, Sachs & Co. expressly for use therein;

(c) The Registration Statement conforms, and the Prospectus and
any further amendments or supplements to the Registration Statement or
the Prospectus will conform, in all material respects to the
requirements of the Act and the rules and regulations of the
Commission thereunder and do not and will not, as of the applicable
effective date as to the Registration Statement and any amendment
thereto and as of the applicable filing date as to the Prospectus and
any amendment or supplement thereto, contain an untrue statement of a
material fact or omit to state a material fact required to be stated
therein or necessary to make the statements therein not misleading;
provided, however, that this representation and warranty shall not
apply to any statements or omissions made in reliance upon and in
conformity with information furnished in writing to the Company by an
Underwriter through Goldman, Sachs & Co. expressly for use therein;

(d) Neither the Company nor any of its subsidiaries has sustained
since the date of the latest audited financial statements included in
the Prospectus any material loss or interference with its business
from fire, explosion, flood or other calamity, whether or not covered
by insurance, or from any labor dispute or court or governmental
action, order or decree, otherwise than as set forth or contemplated
in the Prospectus; and, since the respective dates as of which
information is given in the Registration Statement and the Prospectus,
there has not been any change in the capital stock, short-term debt or
long-term debt of the Company or any of its subsidiaries or any
material adverse change, or any development involving a prospective
material adverse change, in or affecting the general affairs,
management, financial position, shareholders' equity or results of
operations of the Company and its subsidiaries, otherwise than as set
forth or contemplated in the Prospectus;

<PAGE>

(e) The Company and its subsidiaries have good and marketable
title in fee simple to all real property and good and marketable title
to all personal property owned by them, in each case free and clear of
all liens, encumbrances and defects except such as are described in
the Prospectus or such as do not materially affect the value of such
property and do not interfere with the use made and proposed to be
made of such property by the Company and its subsidiaries; and any
real property and buildings held under lease by the Company and its
subsidiaries are held by them under valid, subsisting and enforceable
leases with such exceptions as are not material and do not interfere
with the use made and proposed to be made of such property and
buildings by the Company and its subsidiaries;

(f) The Company has been duly incorporated and is validly
existing as a corporation in good standing under the laws of the
Bermuda, with corporate power and authority to own its properties and
conduct its business as described in the Prospectus, and has been duly
qualified as a foreign corporation for the transaction of business and
is in good standing under the laws of each other jurisdiction in which
it owns or leases properties or conducts any business so as to require
such qualification, or is subject to no material liability or
disability by reason of the failure to be so qualified in any such
jurisdiction; and each subsidiary of the Company has been duly
incorporated or organized and is validly existing as a corporation or
limited liability company and, where available, is in good standing
under the laws of its jurisdiction of incorporation;

(g) The Company has an authorized capitalization as set forth in
the Prospectus, and all of the issued shares of capital stock of the
Company have been duly and validly authorized and issued, and are
fully paid and non-assessable and conform to the description of the
Stock contained in the Prospectus; and all of the issued shares of
capital stock of each subsidiary of the Company have been duly and
validly authorized and issued, are fully paid and non-assessable and
(except for directors' qualifying shares and except as set forth in
the Prospectus) are owned directly or indirectly by the Company, free
and clear of all liens, encumbrances, equities or claims;

(h) The unissued Shares to be issued and sold by the Company to
the Underwriters hereunder and under the International Underwriting
Agreement have been duly and validly authorized and, when issued and
delivered against payment therefor as provided herein and in the
International Underwriting Agreement, will be duly and validly issued
and fully paid and non-assessable and will conform to the description
of the Stock contained in the Prospectus;

(i) The issue and sale of the Shares by the Company hereunder and
under the International Underwriting Agreement and the compliance by
the Company with all of the provisions of this Agreement and the
International Underwriting Agreement and the consummation of the
transactions herein and therein contemplated will not conflict with or
result in a breach or violation of any of the terms or provisions of,
or constitute a default under, any indenture, mortgage, deed of trust,
loan agreement or other agreement or instrument to which the Company
or any of its subsidiaries is a party or by which the Company or any
of its subsidiaries is bound or to which any of the property or assets
of the Company or any of its subsidiaries is subject, nor will such
action result in any violation of the provisions of the Memorandum of
Association or Bye-laws of the Company or any statute or any order,
rule or regulation of any court or governmental agency or body having
jurisdiction over the Company or any of its subsidiaries or any of
their properties; and no consent, approval, authorization, order,
registration or qualification of or with any such court or
governmental agency or body is required for the issue and sale of the
Shares or the consummation by the Company of the transactions
contemplated by this Agreement and the International Underwriting
Agreement, except the registration under the Act of the Shares and

such consents, approvals, authorizations, registrations or
qualifications as may be required under state securities or Blue Sky
laws in connection with the purchase and distribution of the Shares by
the Underwriters and the International Underwriters;

(j) Neither the Company nor any of its subsidiaries is in
violation of its Memorandum of Association or Bye-laws or in default
in the performance or observance of any material obligation,
agreement, covenant or condition contained in any indenture, mortgage,
deed of

<PAGE>

trust, loan agreement, lease or other agreement or instrument to which
it is a party or by which it or any of its properties may be bound;

(k) The statements set forth in the Prospectus under the caption,
insofar as they purport to constitute a summary of the terms of the
Stock, under the caption ["Taxation"], and under the caption
"Underwriting", insofar as they purport to describe the provisions of
the laws and documents referred to therein, are accurate, complete and
fair in all material respects;

(l) Other than as set forth or contemplated in the Prospectus,
there are no legal or governmental proceedings pending to which the
Company or any of its subsidiaries is a party or of which any property
of the Company or any of its subsidiaries is the subject which, if
determined adversely to the Company or any of its subsidiaries, would
individually or in the aggregate be reasonably likely to have a
material adverse effect on the current or future consolidated
financial position, shareholders' equity or results of operations of
the Company and its subsidiaries; and, to the best of the Company's
knowledge, no such proceedings are threatened or contemplated by
governmental authorities or threatened by others;

(m) The Company is not and, after giving effect to the offering
and sale of the Shares, will not be an "investment company" or an
entity "controlled" by an "investment company", as such terms are
defined in the Investment Company Act of 1940, as amended (the
"Investment Company Act");

(n) Neither the Company nor any of its affiliates does business
with the government of Cuba or with any person or affiliate located in
Cuba within the meaning of Section 517.075, Florida Statutes;

(o) Deloitte & Touche, LLP, who have certified certain financial
statements of the Company and its subsidiaries and certain financial
statements of International Telecommunications Group, Ltd, and Brown,
Leifer, Slatkin & Berns, who have certified certain financial
statements of Cyberlink, Inc., are each independent public accountants
as required by the Act and the rules and regulations of the Commission
thereunder;

(p) The Company and its subsidiaries (i) are in material
compliance with any and all applicable foreign, federal, state and
local laws and regulations relating to the protection of human health
and safety, the environment or hazardous or toxic substances or
wastes, pollutants or contaminants ("Environmental Laws"), (ii) have
received all permits, licenses or other approvals required of them
under applicable Environmental Laws to conduct their respective
businesses and (iii) are in compliance with all terms and conditions
of any such permit, license or approval, except where such
noncompliance with Environmental Laws, failure to receive required
permits, licenses or other approvals or failure to comply with the
terms and conditions of such permits, licenses or approvals would not,
individually or in the aggregate, reasonably be expected to have a
material adverse effect on the current or future consolidated
financial position, shareholders' equity or results of operations of
the Company and its subsidiaries;

(q) The Company and its subsidiaries own or possess the right to
use all material patents, patent rights, licenses, inventions,
copyrights, know-how (including trade secrets and other unpatented
and/or unpatentable proprietary or confidential information, systems
or procedures), trademarks, service marks and trade names currently
employed by them in connection with the business now operated by the,
and neither the Company nor any of its subsidiaries has received any
notice of infringement of or conflict with asserted rights of others
with respect to any of the foregoing which, individually or in the
aggregate, if the subject of an unfavorable decision, ruling or
finding, would reasonably be expected to result in a material adverse
effect on the current or future consolidated financial position,
shareholders' equity or results of operations of the Company and its
subsidiaries;

(r) No material labor dispute with the employees of the Company
or any of its subsidiaries exists, except as described in or
contemplated by the Prospectus, or, to the knowledge of the Company,
is imminent; and the Company is not aware of any existing, threatened
or imminent labor disturbance by the employees of any of its principal
suppliers,

<PAGE>

manufacturers or contractors that would reasonably be expected to
result in a material adverse effect on the current or future
consolidated financial position, shareholders' equity or result of
operations of the Company and its subsidiaries;

(s) The Company and its subsidiaries are insured by insurers of
recognized financial responsibility against such losses and risks and
in such amounts as are prudent and customary in the businesses in
which they are engaged; neither the Company nor any such subsidiary
has been refused any insurance coverage sought or applied for; and

neither the Company nor any such subsidiary has any reason to believe
that it will not be able to renew its existing insurance coverage as
and when such coverage expires or to obtain similar coverage from
similar insurers as may be necessary to continue its business at a
cost that would not result in a material adverse affect on the current
or future consolidated financial position, shareholders' equity or
result of operations of the Company and its subsidiaries, except as
described in or contemplated by the Prospectus;

(t) The Company and its subsidiaries (i) possess all
certificates, authorizations and permits issued by the appropriate
federal, state or foreign regulatory authorities necessary to conduct
their respective businesses (excepting any certificate, authorization
or permit, the failure to possess which would not reasonably be
expected to result in a material adverse effect in the current or
future consolidated financial condition, shareholders' equity or
results of operations of the Company and its subsidiaries) and (ii)
have not received any notice of proceedings relating to revocation or
modification of any such certificate, authorization or permit which,
individually or in the aggregate, if the subject of an unfavorable
decision, ruling or finding, would reasonably be expected to result in
a material adverse effect on the current or future consolidated
financial position, shareholders' equity or result of operations of
the Company and its subsidiaries, except as described in or
contemplated by the Prospectus; and

(u) The Company and its subsidiaries maintain a system of
internal accounting controls sufficient to provide reasonable
assurance that (i) transactions are executed in accordance with
management's general or specific authorizations; (ii) transactions are
recorded as necessary to permit preparation of financial statements in
conformity with generally accepted accounting principles and to
maintain asset accountability; (iii) access to assets is permitted
only in accordance with management's general or specific
authorization; and (iv) the recorded accountability for assets in
compared with the existing assets at reasonable intervals and
appropriate action is taken with respect to any differences.

2. Subject to the terms and conditions herein set forth, (a) the Company
agrees to issue and sell to each of the Underwriters, and each of the
Underwriters agrees, severally and not jointly, to purchase from the Company,
at a purchase price per share of $........................, the number of Firm
Shares set forth opposite the name of such Underwriter in Schedule I hereto and
(b) in the event and to the extent that the Underwriters shall exercise the
election to purchase Optional Shares as provided below, the Company agrees to
issue and sell to each of the Underwriters, and each of the Underwriters
agrees, severally and not jointly, to purchase from the Company, at the
purchase price per share set forth in clause (a) of this Section 2, that
portion of the number of Optional Shares as to which such election shall have
been exercised (to be adjusted by you so as to eliminate fractional shares)
determined by multiplying such number of Optional Shares by a fraction, the
numerator of which is the maximum number of Optional Shares which such
Underwriter is entitled to purchase as set forth opposite the name of such
Underwriter in Schedule I hereto and the denominator of which is the maximum

number of Optional Shares that all of the Underwriters are entitled to purchase
hereunder.

The Company hereby grants to the Underwriters the right to purchase at
their election up to ............ Optional Shares, at the purchase price per
share set forth in clause (a) of the paragraph above, for the sole purpose of
covering overallotments in the sale of the Firm Shares. Any such election to
purchase Optional Shares may be exercised only by written notice from you to
the Company, given within a period of 30 calendar days after the date of this
Agreement, setting forth the aggregate number of Optional Shares to be
purchased and the date on which such Optional Shares are to be delivered, as
determined by you but in no event earlier than the First Time of Delivery (as
defined in Section 4 hereof) or, unless you and the Company otherwise agree in
writing, earlier than two or later than ten business days after the date of
such notice.

<PAGE>

3. Upon the authorization by you of the release of the Firm Shares, the
several Underwriters propose to offer the Firm Shares for sale upon the terms
and conditions set forth in the Prospectus.

4. (a) The Shares to be purchased by each Underwriter hereunder, in
definitive form, and in such authorized denominations and registered in such
names as Goldman, Sachs & Co. may request upon at least forty-eight hours'
prior notice to the Company, shall be delivered by or on behalf of the Company
to Goldman, Sachs & Co., through the facilities of the Depository Trust
Company, ("DTC") for the account of such Underwriter, against payment by or on
behalf of such Underwriter of the purchase price therefor by wire transfer of
immediately available (Federal) funds to an account designated by the Company.
The Company will cause the certificates representing the Shares to be made
available for checking and packaging at least twenty-four hours prior to the
Time of Delivery (as defined below) with respect thereto at the office of
Goldman, Sachs & Co., 85 Broad Street, New York, New York 10004 (the
"Designated Office"). The time and date of such delivery and payment shall be,
with respect to the Firm Shares, 9:30 a.m., New York City time, on
............., 1997 or such other time and date as Goldman, Sachs & Co. and the
Company may agree upon in writing, and, with respect to the Optional Shares,
9:30 a.m., New York time, on the date specified by Goldman, Sachs & Co. in the
written notice given by Goldman, Sachs & Co. of the Underwriters' election to
purchase such Optional Shares, or such other time and date as Goldman, Sachs &
Co. and the Company may agree upon in writing. Such time and date for delivery
of the Firm Shares is herein called the "First Time of Delivery", such time and
date for delivery of the Optional Shares, if not the First Time of Delivery, is
herein called the "Second Time of Delivery", and each such time and date for
delivery is herein called a "Time of Delivery".

(b) The documents to be delivered at each Time of Delivery by or on behalf
of the parties hereto pursuant to Section 7 hereof, including the cross receipt
for the Shares and any additional documents requested by the Underwriters
pursuant to Section 7(m) hereof, will be delivered at the offices of Cravath,
Swaine & Moore, 825 Eighth Avenue, New York, New York, the "Closing Location",

and the Shares will be delivered at the Designated Office, all at such Time of
Delivery. A meeting will be held at the Closing Location at ....... p.m., New
York City time, on the New York Business Day next preceding such Time of
Delivery, at which meeting the final drafts of the documents to be delivered
pursuant to the preceding sentence will be available for review by the parties
hereto. For the purposes of this Section 4, "New York Business Day" shall mean
each Monday, Tuesday, Wednesday, Thursday and Friday which is not a day on
which banking institutions in New York are generally authorized or obligated by
law or executive order to close.

5. The Company agrees with each of the Underwriters:

(a) To prepare the Prospectus in a form approved by you and to
file such Prospectus pursuant to Rule 424(b) under the Act not later
than the Commission's close of business on the second business day
following the execution and delivery of this Agreement, or, if
applicable, such earlier time as may be required by Rule 430A(a)(3)
under the Act; to make no further amendment or any supplement to the
Registration Statement or Prospectus prior to the last Time of
Delivery which shall be disapproved by you promptly after reasonable
notice thereof; to advise you, promptly after it receives notice
thereof, of the time when any amendment to the Registration Statement
has been filed or becomes effective or any supplement to the
Prospectus or any amended Prospectus has been filed and to furnish you
with copies thereof; to advise you, promptly after it receives notice
thereof, of the issuance by the Commission of any stop order or of any
order preventing or suspending the use of any Preliminary Prospectus
or prospectus, of the suspension of the qualification of the Shares
for offering or sale in any jurisdiction, of the initiation or
threatening of any proceeding for any such purpose, or of any request
by the Commission for the amending or supplementing of the
Registration Statement or Prospectus or for additional information;
and, in the event of the issuance of any stop order or of any order
preventing or suspending the use of any Preliminary Prospectus or
prospectus or suspending any such qualification, promptly to use its
best efforts to obtain the withdrawal of such order;

(b) Promptly from time to time to take such action as you may
reasonably request to qualify the Shares for offering and sale under
the securities laws of such jurisdictions as you may request and to
comply with such laws so as to permit the continuance of sales and
dealings therein in such jurisdictions for as long as may be necessary
to complete the

<PAGE>

distribution of the Shares, provided that in connection therewith the
Company shall not be required to qualify as a foreign corporation or
to file a general consent to service of process in any jurisdiction;

(c) To furnish the Underwriters with copies of the Prospectus in
such quantities as you may from time to time reasonably request, and,

if the delivery of a prospectus is required at any time prior to the
expiration of nine months after the time of issue of the Prospectus in
connection with the offering or sale of the Shares and if at such time
any event shall have occurred as a result of which the Prospectus as
then amended or supplemented would include an untrue statement of a
material fact or omit to state any material fact necessary in order to
make the statements therein, in the light of the circumstances under
which they were made when such Prospectus is delivered, not
misleading, or, if for any other reason it shall be necessary during
such period to amend or supplement the Prospectus, to notify you and
upon your request to prepare and furnish without charge to each
Underwriter and to any dealer in securities as many copies as you may
from time to time reasonably request of an amended Prospectus or a
supplement to the Prospectus which will correct such statement or
omission or effect such compliance, and in case any Underwriter is
required to deliver a prospectus in connection with sales of any of
the Shares at any time nine months or more after the time of issue of
the Prospectus, upon your request but at the expense of such
Underwriter, to prepare and deliver to such Underwriter as many copies
as you may request of an amended or supplemented Prospectus complying
with Section 10(a)(3) of the Act;

(d) To make generally available to its securityholders as soon as
practicable, but in any event not later than eighteen months after the
effective date of the Registration Statement (as defined in Rule
158(c) under the Act), an earnings statement of the Company and its
subsidiaries (which need not be audited) complying with Section 11(a)
of the Act and the rules and regulations thereunder (including, at the
option of the Company, Rule 158);

(e) During the period beginning from the date hereof and
continuing to and including the date 180 days after the date of the
Prospectus, not to offer, sell, contract to sell or otherwise dispose
of, except as provided hereunder and under the International
Underwriting Agreement, any securities of the Company that are
substantially similar to the Shares, including but not limited to any
securities that are convertible into or exchangeable for, or that
represent the right to receive, Stock or any such substantially
similar securities (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
Agreement), without your prior written consent;

(f) To furnish to its shareholders as soon as practicable after
the end of each fiscal year an annual report (including a balance
sheet and statements of income, shareholders' equity and cash flows of
the Company and its consolidated subsidiaries certified by independent
public accountants);

(g) During a period of five years from the effective date of the
Registration Statement, to furnish to you copies of all reports or
other communications (financial or other) furnished to shareholders,
and to deliver to you (i) as soon as they are available, copies of any
reports and financial statements furnished to or filed with the

Commission or any national securities exchange on which any class of
securities of the Company is listed; and (ii) such additional
information concerning the business and financial condition of the
Company as you may from time to time reasonably request (such
financial statements to be on a consolidated basis to the extent the
accounts of the Company and its subsidiaries are consolidated in
reports furnished to its shareholders generally or to the Commission);

(h) To use the net proceeds received by it from the sale of the
Shares pursuant to this Agreement and the International Underwriting
Agreement in the manner specified in the Prospectus under the caption
"Use of Proceeds";

(i) To use its best efforts to list for quotation the Shares on
the National Association of Securities Dealers Automated Quotations
National Market System ("NASDAQ").

<PAGE>

6. The Company covenants and agrees with the several Underwriters that the
Company will pay or cause to be paid the following: (i) the fees, disbursements
and expenses of the Company's counsel and accountants in connection with the
registration of the Shares under the Act and all other expenses in connection
with the preparation, printing and filing of the Registration Statement, any
Preliminary Prospectus and the Prospectus and amendments and supplements
thereto and the mailing and delivering of copies thereof to the Underwriters
and dealers; (ii) all expenses in connection with the qualification of the
Shares for offering and sale under state securities laws as provided in Section
5(b) hereof, including the fees and disbursements of counsel for the
Underwriters in connection with such qualification and in connection with the
Blue Sky survey; (iii) all fees and expenses in connection with listing the
Shares on the NASDAQ; (iv.) the filing fees incident to, and the fees and
disbursements of counsel for the Underwriters in connection with, securing any
required review by the National Association of Securities Dealers, Inc. of the
terms of the sale of the Shares; (v) the cost of preparing stock certificates;
(vi) the cost and charges of any transfer agent or registrar; and (vii) all
other costs and expenses incident to the performance of its obligations
hereunder which are not otherwise specifically provided for in this Section. It
is understood, however, that, except as provided in this Section, and Section 8
and the proviso of Section 11 hereof, the Underwriters will pay all of their
own costs and expenses, including the fees of their counsel, stock transfer
taxes on resale of any of the Shares by them, and any advertising expenses
connected with any offers they may make.

7. The obligations of the Underwriters hereunder, as to the Shares to be
delivered at each Time of Delivery, shall be subject, in their discretion, to
the condition that all representations and warranties and other statements of
the Company herein are, at and as of such Time of Delivery, true and correct,
the condition that the Company shall have performed all of its obligations
hereunder theretofore to be performed, and the following additional conditions:

(a) The Prospectus shall have been filed with the Commission
pursuant to Rule 424(b) within the applicable time period prescribed
for such filing by the rules and regulations under the Act and in
accordance with Section 5(a) hereof; no stop order suspending the
effectiveness of the Registration Statement or any part thereof shall
have been issued and no proceeding for that purpose shall have been
initiated or threatened by the Commission; and all requests for
additional information on the part of the Commission shall have been
complied with to your reasonable satisfaction;

(b) Cravath, Swaine & Moore, counsel for the Underwriters, shall
have furnished to you such opinion or opinions, dated such Time of
Delivery, with respect to such matters as you may reasonably request,
and such counsel shall have received such papers and information as
they may reasonably request to enable them to pass upon such matters;

(c) Rosenman & Colin LLP, counsel for the Company, shall have
furnished to you their written opinion, dated such Time of Delivery,
in form and substance satisfactory to you, to the effect that:

(i) each U.S. subsidiary of the Company (a "U.S.
Subsidiary", and, collectively the "U.S. Subsidiaries") has
been duly incorporated and is validly existing as a
corporation in good standing under the laws of its
jurisdiction of incorporation, with corporate power and
authority to own its properties and conduct its business as
described in the Prospectus; and all of the issued shares of
capital stock of each U.S. Subsidiary have been duly and
validly authorized and issued, are fully paid and
non-assessable, and (except for directors' qualifying shares
and except as otherwise set forth in the Prospectus) are
owned directly or indirectly by the Company, free and clear
of any perfected security interest or, to such counsel's
knowledge, any other lien, encumbrance, equity or claim (such
counsel being entitled to rely in respect of the opinion in
this clause upon opinions of local counsel and in respect to
matters of fact upon certificates of officers of the Company
or its subsidiaries, provided that such counsel shall state
that they believe that both you and they are justified in
relying upon such opinions and certificates);

(ii) each U.S. Subsidiary has been duly qualified as a
foreign corporation for the transaction of business and,
where available, is in good standing under the laws

<PAGE>

of each other jurisdiction in which it owns or leases
properties or conducts any business so as to require such
qualification, or is subject to no material liability or
disability by reason of failure to be so qualified in any
such jurisdiction (such counsel being entitled to rely in

respect of the opinion in this clause upon opinions of local
counsel and in respect of matters of fact upon certificates
of officers of the Company or such U.S. Subsidiary, provided
that such counsel shall state that they believe that both you
and they are justified in relying upon such opinions and
certificates);

(iii) to the best of such counsel's knowledge and other
than as set forth in the Prospectus, there are no legal or
governmental proceedings pending to which the Company or any
of its subsidiaries is a party or of which any property of
the Company or any of its subsidiaries is the subject which,
if determined adversely to the Company or any of its
subsidiaries, would individually or in the aggregate be
reasonably likely to have a material adverse effect on the
current or future consolidated financial position,
shareholders' equity or results of operations of the Company
and its subsidiaries; and, to the best of such counsel's
knowledge, no such proceedings are threatened or contemplated
by governmental authorities or threatened by others;

(iv) the issue and sale of the Shares being delivered at
such Time of Delivery by the Company and the compliance by
the Company with all of the provisions of this Agreement and
the International Underwriting Agreement and the consummation
of the transactions herein and therein contemplated will not
materially conflict with or result in a material breach or
violation of any of the terms or provisions of, or constitute
a material default under, any indenture, mortgage, deed of
trust, loan agreement or other agreement or instrument known
to such counsel to which the Company or any of its
subsidiaries is a party or by which the Company or any of its
subsidiaries is bound or to which any of the property or
assets of the Company or any of its subsidiaries is subject,
nor will such action result in any violation of any statute
or any order, rule or regulation known to such counsel of any
court or governmental agency or body having jurisdiction over
the Company or any of its subsidiaries or any of their
properties;

(v) no consent, approval, authorization, order,
registration or qualification of or with any court or
governmental agency or body is required for the issue and
sale of the Shares or the consummation by the Company of the
transactions contemplated by this Agreement and the
International Underwriting Agreement, except the registration
under the Act of the Shares, and such consents, approvals,
authorizations, registrations or qualifications as may be
required under state securities or Blue Sky laws in
connection with the purchase and distribution of the Shares
by the Underwriters and the International Underwriters;

(vi) none of the U.S. Subsidiaries is in violation of
its Certificate of Incorporation or By-laws or in default in

the performance or observance of any material obligation,
agreement, covenant or condition contained in any indenture,
mortgage, deed of trust, loan agreement, lease or other
agreement or instrument to which it is a party or by which it
or any of its properties may be bound;

(vii) the statements set forth in the Prospectus under
the captions "Risk Factors - Foreign Personal Holding Company
and Passive Foreign Investment Company Rules," "Certain
United States Federal Income Tax Considerations for U.S.
Holders of Class A Common Stock", "Business - Legal
Proceedings" and under the caption "Underwriting", insofar as
they purport to describe the legal matters, provisions of the
laws and documents referred to therein, are accurate,
complete and fair in all material respects;

<PAGE>

(viii) the Company is not an "investment company" or an
entity "controlled" by an "investment company", as such terms
are defined in the Investment Company Act;

(ix) under the laws of the State of New York relating to
personal jurisdiction, the Company has, pursuant to Section
14 of this Agreement, validly and irrevocably submitted to
the personal jurisdiction of any state or federal court
located in the Borough of Manhattan, The City of New York,
New York (each a "New York Court") in any action arising out
of or relating to this Agreement or the transactions
contemplated hereby, has validly and irrevocably waived any
objection to the venue of a proceeding in any such court, and
has validly and irrevocably appointed the Authorized Agent
(as defined herein) as its authorized agent for the purpose
described in Section 14 hereof; and service of process
effected on such agent in the manner set forth in Section 14
hereof will be effective to confer valid personal
jurisdiction over the Company;

(x) the Registration Statement and the Prospectus and
any further amendments and supplements thereto made by the
Company prior to such Time of Delivery (other than the
financial statements and related schedules therein, as to
which such counsel need express no opinion) comply as to form
in all material respects with the requirements of the Act and
the rules and regulations thereunder, although they do not
assume any responsibility for the accuracy, completeness or
fairness of the statements contained in the Registration
Statement or the Prospectus, except for those referred to in
the opinion in subsection (vii) of this Section 7(c); they
have no reason to believe that, as of its effective date, the
Registration Statement or any further amendment thereto made
by the Company prior to such Time of Delivery (other than the

financial statements and related statements and related
schedules therein, as to which such counsel need express no
opinion) contained an untrue statement of a material fact or
omitted to state a material fact required to be stated
therein or necessary to make the statements therein not
misleading or that, as of its date, the Prospectus or any
further amendment or supplement thereto made by the Company
prior to such Time of Delivery (other than the financial
statements and related schedules therein, as to which such
counsel need express no opinion) contained an untrue
statement of a material fact or omitted to state a material
fact necessary to make the statements therein, in the light
of the circumstances under which they were made, not
misleading or that, as of such Time of Delivery, either the
Registration Statement or the Prospectus or any further
amendment or supplement thereto made by the Company prior to
such Time of Delivery (other than the financial statements
and related schedules therein, as to which such counsel need
express no opinion) contains an untrue statement of a
material fact or omits to state a material fact necessary to
make the statements therein, in the light of the
circumstances under which they were made, not misleading; and
they do not know of any amendment to the Registration
Statement required to be filed or of any contracts or other
documents of a character required to be filed as an exhibit
to the Registration Statement or required to be described in
the Registration Statement or the Prospectus which are not
filed or described as required.

In rendering such opinion, such counsel may state that
they express no opinion as to the laws of any jurisdiction
outside the United States.

(d) Conyers Dill & Pearman, Bermuda counsel to the Company, shall
have furnished to you their written opinion, dated such Time of
Delivery, in form and substance satisfactory to you, to the effect
that:

(i) the Company has been duly incorporated and is
validly existing as a corporation in good standing under the
laws of Bermuda, with corporate power and authority to own
its properties and conduct its business as described in the
Prospectus;

(ii) the Company has an authorized capitalization as
set forth in the Prospectus, and all of the issued shares of
capital stock of the Company (including

<PAGE>

the Shares being delivered at such Time of Delivery) have
been duly and validly authorized and issued and are fully

paid and nonassessable; and the Shares conform to the
description of the Stock contained in the Prospectus;

(iii) to the best of such counsel's knowledge and other
than as set forth in the Prospectus, there are no legal or
governmental proceedings pending to which the Company or any
of its subsidiaries is a party or of which any property of
the Company or any of its subsidiaries is the subject which,
if determined adversely to the Company or any of its
subsidiaries, would individually or in the aggregate have a
material adverse effect on the current or future consolidated
financial position, shareholders' equity or results of
operations of the Company and its subsidiaries; and, to the
best of such counsel's knowledge, no such proceedings are
threatened or contemplated by governmental authorities or
threatened by others;

(iv) this Agreement and the International Underwriting
Agreement have been duly authorized, executed and delivered
by the Company;

(v) the issue and sale of the Shares being delivered at
such Time of Delivery by the Company and the compliance by
the Company with all of the provisions of this Agreement and
the International Underwriting Agreement and the consummation
of the transactions herein and therein contemplated will not
result in any violation of the provisions of the Memorandum
of Association or Bye-laws of the Company or any statute or
any order, rule or regulation known to such counsel of any
Bermuda court or governmental agency or body having
jurisdiction over the Company or any of its subsidiaries or
any of their properties;

(vi) no consent, approval, authorization, order,
registration or qualification of or with any such Bermuda
court or governmental agency or body is required for the
issue and sale of the Shares or the consummation by the
Company of the transactions contemplated by this Agreement
and the International Underwriting Agreement;

(vii) the Company is not in violation of its Memorandum
of Association or Bye-laws;

(viii) the statements set forth in the Prospectus under
the caption "Description of Capital Stock", insofar as they
purport to constitute a summary of the terms of the Stock,
under the caption "Certain Bermuda Tax Considerations", in
the first paragraph under the caption "Business-Company
Overview", under the caption "Risk Factors-Bermuda Corporate
Law", and under the caption "Service of Process and
Enforcement of Liabilities", insofar as they purport to
describe the provisions of the laws and documents referred to
therein, are accurate, complete and fair;

(ix) no stamp or other issuance or transfer taxes or
duties and no capital gains, income, withholding or other
taxes are payable by or on behalf of the Underwriters or the
International Underwriters to Bermuda or to any political
subdivision or taxing authority thereof or therein in
connection with (A) issuance of the Shares, (B) the sale and
delivery by the Company of the Shares to or for the
respective accounts of the Underwriters or the International
Underwriters or (C) the sale and delivery outside Bermuda by
the Underwriters or the International Underwriters of the
Shares to the initial purchasers thereof in the manner
contemplated herein and in the International Underwriting
Agreement;

(x) insofar as matters of Bermuda law are concerned,
the Registration Statement and the filing of the Registration
Statement with the Commission have been duly authorized by
and on behalf of the Company; and the Registration Statement
has been duly executed pursuant to such authorization by and
on behalf of the Company;

<PAGE>

(xi) the Company's agreement to the choice of law
provisions set forth in Section 14 hereof will be recognized
by the courts of Bermuda; the Company can sue and be sued in
its own name under the laws of Bermuda; the irrevocable
submission of the Company to the exclusive jurisdiction of a
New York Court, the waiver by the Company of any objection to
the venue of a proceeding of a New York Court and the
agreement of the Company that this Agreement shall be
governed by and construed in accordance with the laws of the
State of New York are legal, valid and binding; service of
process effected in the manner set forth in Section 14 hereof
will be effective, insofar as the law of Bermuda is
concerned, to confer valid personal jurisdiction over the
Company; and judgment obtained in a New York Court arising
out of or in relation to the obligations of the Company under
this Agreement and the International Underwriting Agreement
would be enforceable against the Company in the courts of
Bermuda; and

(xii) the indemnification and contribution provisions
set forth in Section 8 hereof do not contravene the public
policy or laws of Bermuda; and

(xiii) all dividends and other distributions declared and
payable on the shares of capital stock of the Company may
under the current laws and regulations of Bermuda to be paid
in Bermuda dollars may be converted into foreign currency
that may be freely transferred out of Bermuda, and all such
dividends and other distributions will not be subject to

withholding or other taxes under the laws and regulations of
Bermuda and are otherwise free and clear of any other tax,
withholding or deduction in Bermuda and without the necessity
of obtaining any governmental authorization in Bermuda.

In rendering such opinion, such counsel may state that they
express no opinion as to the laws of any jurisdiction outside Bermuda.

(e) Local counsel to the Company in Australia, Austria, Belgium,
Denmark, Finland, France, Germany, Italy, Netherlands, Portugal,
Sweden, United Kingdom and Venezuela, shall have furnished to you
their written opinion, dated such Time of Delivery, in form and
substance satisfactory to you, to the effect that:

(i) each subsidiary of the Company incorporated or
formed in such counsel's country (a "Relevant Subsidiary")
has been duly incorporated and is validly existing as a
corporation in good standing under the laws of its
jurisdiction of incorporation, with corporate power and
authority to own its properties and conduct its business as
described in the Prospectus; and all of the issued shares of
capital stock of each such subsidiary have been duly and
validly authorized and issued, are fully paid and
non-assessable, and (except for directors' qualifying shares
and except as otherwise set forth in the Prospectus) are
owned directly or indirectly by the Company, free and clear
of any perfected security interest or any other lien,
encumbrance, equity or claim (such counsel being entitled to
rely in respect of the opinion in this clause upon opinions
of local counsel and in respect to matters of fact upon
certificates of officers of the Company or such Relevant
Subsidiary, provided that such counsel shall state that they
believe that both you and they are justified in relying upon
such opinions and certificates);

(ii) each Relevant Subsidiary has been duly qualified
as a foreign corporation for the transaction of business and
is in good standing under the laws of each other jurisdiction
within such counsel's country in which it owns or leases
properties or conducts any business so as to require such
qualification, or is subject to no material liability or
disability by reason of failure to be so qualified in any
such jurisdiction (such counsel being entitled to rely in
respect of the opinion in this clause upon opinions of local
counsel and in respect of matters of fact upon certificates
of officers of the Company or such Relevant Subsidiary,
provided that such counsel shall state that they believe that
both you and they are justified in relying upon such opinions
and certificates);

<PAGE>

(iii) the statements set forth in the Prospectus under
the caption "Risk Factors-Government Regulatory
Restrictions", and under the caption "Business", insofar as
they purport to describe the provisions of the laws of such
counsel's country or any political subdivision thereof (or
the European Union, as applicable) and documents governed by
the laws of such counsel's country or any political
subdivision thereof (or the European Union, as applicable),
are accurate, complete and fair;

(iv) each Relevant Subsidiary has all necessary
certificates, orders, permits, licenses, authorizations,
consents and approvals of and from, and has made all
declarations and filings with all applicable state, federal
or supranational governmental authorities to own, lease,
license and use its properties and assets and to conduct its
business in the manner described in the Prospectus; such
Relevant Subsidiary has not received any notice of
proceedings relating to revocation or modification of any
such certificates, orders, permits, licenses, authorizations,
consents or approvals, nor is such Relevant Subsidiary in
violation of, or in default under, any federal, state, local,
foreign supranational, national or regional law, regulation,
rule, decree, order or judgment applicable to such Relevant
Subsidiary the effect of which, individually or in the
aggregate, would have a material adverse effect on the
current or future consolidated financial condition,
shareholders' equity or results of operations of such
Relevant Subsidiary, except as described in the Prospectus;
and

(v) there are no restrictions (legal, contractual or
otherwise) on the ability of each Relevant Subsidiary to
declare and pay any dividends or make any payment or transfer
of property or assets to its shareholder other than those
described in the Prospectus.

In rendering such opinion, each such local counsel may state that
they express no opinion as to the laws of any jurisdiction outside of
such counsel's country or the European Union, as applicable.

(f) Fletcher, Heald & Hildreth, P.L.C., regulatory counsel for
the Company, shall have furnished to you their written opinion, dated
such Time of Delivery, in form and substance satisfactory to you, to
the effect that:

(i) (A) the execution and delivery of this Agreement
and the International Underwriting Agreement by the Company,
and the consummation of the transactions contemplated hereby
and thereby do not violate (1) the Federal Communications Act
of 1934, as amended (the "Communications Act"), (2) any rules
or regulations of the Federal Communications Commission
applicable to the Company and its subsidiaries, (3) the
telecommunications laws of any state applicable to the

Company and its subsidiaries, and (4) to the best of such
counsel's knowledge, any decree from any court, and (B) no
authorization of or filing with the FCC or any state
authority overseeing telecommunications matters ("State
Authority") is necessary for the execution and delivery of
this Agreement and the International Underwriting Agreement
by the Company and the consummation of the transactions
contemplated hereby and thereby in accordance with the terms
hereof and thereof;

(ii) (A) except as set forth in the Prospectus, each
of the Company and the U.S. Subsidiaries has all
certificates, orders, permits, licenses, authorizations,
consents and approvals of and from the FCC and the State
Authorities necessary to own, lease, license and use its
properties and assets and to conduct its business in the
manner described in the Prospectus; and (B) to the best of
such counsel's knowledge, neither the Company nor any of the
U.S. Subsidiaries has received any notice of proceedings
relating to the revocation or modification of any such
certificates, orders, permits, licenses, authorizations,
consents or approvals, or the qualification or rejection of
any such filing or registration, the effect of which,
individually or in the aggregate, would have a material
adverse effect on the current

<PAGE>

or future consolidated financial position, shareholders'
equity or results of operations of the Company and its
subsidiaries;

(iii) to the best of such counsel's knowledge, neither
the Company nor any of the U.S. Subsidiaries is in violation
of, or in default under the Communications Act, the
telecommunications rules or regulations of the FCC or the
telecommunications laws of any state, the effect of which,
individually or in the aggregate, would have a material
adverse effect on the current or future consolidated
financial position, shareholders' equity or results of
operations of the Company and its subsidiaries;

(iv) to the best of such counsels knowledge (A) no
decree or order of the FCC or any State Authority has been
issued against the Company or any of the U.S. Subsidiaries
and (B) no litigation, proceedings, inquiry or investigation
has been commenced or threatened, and no notice of violation
or order to show cause has been issued, against the Company
or any of the U.S. Subsidiaries before or by the FCC or any
State Authority. To the best of such counsel's knowledge,
there are no rulemakings or other administrative proceedings
pending before the FCC or any State Authority which (A) are

generally applicable to telecommunications services or the
resale thereof and (B) which, if decided adversely to the
interest of the Company or its subsidiaries, would have a
material adverse effect on the current or future consolidated
financial position, shareholders' equity or results of
operations of the Company and its subsidiaries; and

(v) the statements in the Prospectus under the captions
"Risk Factors Government Regulatory Restrictions", "Business
- Regulatory Environment - Federal" and "- State", insofar as
they purport to describe the provisions of the laws and
documents referred to therein, are accurate, complete and
fair.

In rendering such opinion, such counsel may state that they
express no opinion as to the laws of any jurisdiction outside of
United States federal and state telecommunications laws.

(g) On the date of the Prospectus at a time prior to the
execution of this Agreement, at 9:30 a.m., New York City time, on the
effective date of any post-effective amendment to the Registration
Statement filed subsequent to the date of this Agreement and also at
each Time of Delivery, Deloitte & Touche LLP shall have furnished to
you a letter or letters, dated the respective dates of delivery
thereof, in form and substance satisfactory to you, to the effect set
forth in Annex I hereto;

(h) (i) Neither the Company nor any of its subsidiaries shall
have sustained since the date of the latest audited financial
statements included in the Prospectus any loss or interference with
its business from fire, explosion, flood or other calamity, whether or
not covered by insurance, or from any labor dispute or court or
governmental action, order or decree, otherwise than as set forth or
contemplated in the Prospectus, and (ii) since the respective dates as
of which information is given in the Prospectus there shall not have
been any change in the capital stock, short-term debt or long-term
debt of the Company or any of its subsidiaries or any change, or any
development involving a prospective change, in or affecting the
general affairs, management, financial position, shareholders' equity
or results of operations of the Company and its subsidiaries,
otherwise than as set forth or contemplated in the Prospectus, the
effect of which, in any such case described in Clause (i) or (ii), is
in the judgment of Goldman, Sachs & Co. so material and adverse as to
make it impracticable or inadvisable to proceed with the public
offering or the delivery of the Shares being delivered at such Time of
Delivery on the terms and in the manner contemplated in the
Prospectus;

(i) On or after the date hereof (i) no downgrading shall have
occurred in any rating accorded the Company's debt securities by any
"nationally recognized statistical rating organization", as that term
is defined by the Commission for purposes of Rule 436(g)(2) under the
Act, and (ii) no such organization shall have publicly announced that
it has under surveillance or review, with possible negative

implications, its rating of any of the Company's debt securities;

<PAGE>

(j) On or after the date hereof there shall not have occurred any
of the following: (i) a suspension or material limitation in trading
in securities generally on the New York Stock Exchange or on NASDAQ;
(ii) a suspension or material limitation in trading in the Company's
securities on NASDAQ; (iii) a general moratorium on commercial banking
activities declared by either Federal or New York State authorities;
or (iv) the outbreak or escalation of hostilities involving the United
States or the declaration by the United States of a national emergency
or war, if the effect of any such event specified in this Clause (iv)
is in the judgment of the Representatives so material and adverse as
to make it impracticable or inadvisable to proceed with the public
offering or the delivery of the Shares being delivered at such Time of
Delivery on the terms and in the manner contemplated in the
Prospectus;

(k) The Shares to be sold at such Time of Delivery shall have
been duly listed for quotation on NASDAQ;

(l) The Company has obtained and delivered to the Underwriters
executed copies of an agreement from each director and executive
officer of the Company and [ ] substantially to the effect set forth
in Subsection 5(e) hereof in form and substance satisfactory to you;
and

(m) The Company shall have furnished or caused to be furnished to
you at such Time of Delivery certificates of officers of the Company
satisfactory to you as to the accuracy of the representations and
warranties of the Company herein at and as of such Time of Delivery,
as to the performance by the Company of all of its obligations
hereunder to be performed at or prior to such Time of Delivery, as to
the matters set forth in subsections (a) and (h) of this Section and
as to such other matters as you may reasonably request.

8. (a) The Company will indemnify and hold harmless each
Underwriter against any losses, claims, damages or liabilities, joint
or several, to which such Underwriter may become subject, under the
Act or otherwise, insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or are based
upon an untrue statement or alleged untrue statement of a material
fact contained in any Preliminary Prospectus, the Registration
Statement or the Prospectus, or any amendment or supplement thereto,
or arise out of or are based upon the omission or alleged omission to
state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, and will
reimburse each Underwriter for any legal or other expenses reasonably
incurred by such Underwriter in connection with investigating or
defending any such action or claim as such expenses are incurred;
provided, however, that the Company shall not be liable in any such

case to the extent that any such loss, claim, damage or liability
arises out of or is based upon an untrue statement or alleged untrue
statement or omission or alleged omission made in any Preliminary
Prospectus, the Registration Statement or the Prospectus or any such
amendment or supplement in reliance upon and in conformity with
written information furnished to the Company by any Underwriter
through Goldman, Sachs & Co. expressly for use therein; and provided,
further, that the Company shall not be liable to any Underwriter under
the indemnity agreement in this subsection (a) with respect to any
Preliminary Prospectus to the extent that any such loss, claim, damage
or liability of such Underwriter results from the fact that such
Underwriter sold Shares to a person as to whom it shall be established
that there was not sent or given, at or prior to the written
confirmation of such sale, a copy of the Prospectus or of the
Prospectus as then amended or supplemented in any case where such
delivery is required by the Act if the Company had previously
furnished copies thereof in sufficient quantity to such Underwriter
and the loss, claim, damage or liability of such Underwriter results
from an untrue statement or omission of a material fact contained in
the Preliminary Prospectus which was identified in writing at such
time to such Underwriter and corrected in the Prospectus or in the
Prospectus as then amended or supplemented.

(b) Each Underwriter will indemnify and hold harmless the Company
against any losses, claims, damages or liabilities to which the
Company may become subject, under the Act or otherwise, insofar as
such losses, claims, damages or liabilities (or actions in respect
thereof) arise out of or are based upon an untrue statement or alleged
untrue statement of a material fact contained in any Preliminary
Prospectus, the Registration Statement or the

<PAGE>

Prospectus, or any amendment or supplement thereto, or arise out of or
are based upon the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the
statements therein not misleading, in each case to the extent, but
only to the extent, that such untrue statement or alleged untrue
statement or omission or alleged omission was made in any Preliminary
Prospectus, the Registration Statement or the Prospectus or any such
amendment or supplement in reliance upon and in conformity with
written information furnished to the Company by such Underwriter
through Goldman, Sachs & Co. expressly for use therein; and will
reimburse the Company for any legal or other expenses reasonably
incurred by the Company in connection with investigating or defending
any such action or claim as such expenses are incurred.

(c) Promptly after receipt by an indemnified party under
subsection (a) or (b) above of notice of the commencement of any
action, such indemnified party shall, if a claim in respect thereof is
to be made against the indemnifying party under such subsection,
notify the indemnifying party in writing of the commencement thereof;

but the omission so to notify the indemnifying party shall not relieve
it from any liability which it may have to any indemnified party
otherwise than under such subsection. In case any such action shall be
brought against any indemnified party and it shall notify the
indemnifying party of the commencement thereof, the indemnifying party
shall be entitled to participate therein and, to the extent that it
shall wish, jointly with any other indemnifying party similarly
notified, to assume the defense thereof, with counsel satisfactory to
such indemnified party (who shall not, except with the consent of the
indemnified party, be counsel to the indemnifying party), and, after
notice from the indemnifying party to such indemnified party of its
election so to assume the defense thereof, the indemnifying party
shall not be liable to such indemnified party under such subsection
for any legal expenses of other counsel or any other expenses, in each
case subsequently incurred by such indemnified party, in connection
with the defense thereof other than reasonable costs of investigation.
No indemnifying party shall, without the written consent of the
indemnified party, effect the settlement or compromise of, or consent
to the entry of any judgment with respect to, any pending or
threatened action or claim in respect of which indemnification or
contribution may be sought hereunder (whether or not the indemnified
party is an actual or potential party to such action or claim) unless
such settlement, compromise or judgment (i) includes an unconditional
release of the indemnified party from all liability arising out of
such action or claim and (ii) does not include a statement as to or an
admission of fault, culpability or a failure to act, by or on behalf
of any indemnified party.

(d) If the indemnification provided for in this Section 8 is
unavailable to or insufficient to hold harmless an indemnified party
under subsection (a) or (b) above in respect of any losses, claims,
damages or liabilities (or actions in respect thereof) referred to
therein, then each indemnifying party shall contribute to the amount
paid or payable by such indemnified party as a result of such losses,
claims, damages or liabilities (or actions in respect thereof) in such
proportion as is appropriate to reflect the relative benefits received
by the Company on the one hand and the Underwriters on the other from
the offering of the Shares. If, however, the allocation provided by
the immediately preceding sentence is not permitted by applicable law
or if the indemnified party failed to give the notice required under
subsection (c) above, then each indemnifying party shall contribute to
such amount paid or payable by such indemnified party in such
proportion as is appropriate to reflect not only such relative
benefits but also the relative fault of the Company on the one hand
and the Underwriters on the other in connection with the statements or
omissions which resulted in such losses, claims, damages or
liabilities (or actions in respect thereof), as well as any other
relevant equitable considerations. The relative benefits received by
the Company on the one hand and the Underwriters on the other shall be
deemed to be in the same proportion as the total net proceeds from the
offering of the Shares purchased under this Agreement (before
deducting expenses) received by the Company bear to the total
underwriting discounts and commissions received by the Underwriters
with respect to the Shares purchased under this Agreement, in each

case as set forth in the table on the cover page of the Prospectus.
The relative fault shall be determined by reference to, among other
things, whether the untrue or alleged untrue statement of a material
fact or the omission or alleged omission to state a material fact
relates to information supplied by the Company on

<PAGE>

the one hand or the Underwriters on the other and the parties'
relative intent, knowledge, access to information and opportunity to
correct or prevent such statement or omission. The Company and the
Underwriters agree that it would not be just and equitable if
contributions pursuant to this subsection (d) were determined by pro
rata allocation (even if the Underwriters were treated as one entity
for such purpose) or by any other method of allocation which does not
take account of the equitable considerations referred to above in this
subsection (d). The amount paid or payable by an indemnified party as
a result of the losses, claims, damages or liabilities (or actions in
respect thereof) referred to above in this subsection (d) shall be
deemed to include any legal or other expenses reasonably incurred by
such indemnified party in connection with investigating or defending
any such action or claim. Notwithstanding the provisions of this
subsection (d), no Underwriter shall be required to contribute any
amount in excess of the amount by which the total price at which the
Shares underwritten by it and distributed to the public were offered
to the public exceeds the amount of any damages which such Underwriter
has otherwise been required to pay by reason of such untrue or alleged
untrue statement or omission or alleged omission. No person guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of
the Act) shall be entitled to contribution from any person who was not
guilty of such fraudulent misrepresentation. The Underwriters'
obligations in this subsection (d) to contribute are several in
proportion to their respective underwriting obligations and not joint.

(e) The obligations of the Company under this Section 8 shall be
in addition to any liability which the Company may otherwise have and
shall extend, upon the same terms and conditions, to each person, if
any, who controls any Underwriter within the meaning of the Act; and
the obligations of the Underwriters under this Section 8 shall be in
addition to any liability which the respective Underwriters may
otherwise have and shall extend, upon the same terms and conditions,
to each officer and director of the Company (including any person who,
with his or her consent, is named in the Registration Statement as
about to become a director of the Company) and to each person, if any,
who controls the Company within the meaning of the Act.

9. (a) If any Underwriter shall default in its obligation to
purchase the Shares which it has agreed to purchase hereunder at a
Time of Delivery, you may in your discretion arrange for you or
another party or other parties to purchase such Shares on the terms
contained herein. If within thirty-six hours after such default by any
Underwriter you do not arrange for the purchase of such Shares, then

the Company shall be entitled to a further period of thirty-six hours
within which to procure another party or other parties satisfactory to
you to purchase such Shares on such terms. In the event that, within
the respective prescribed periods, you notify the Company that you
have so arranged for the purchase of such Shares, or the Company
notifies you that it has so arranged for the purchase of such Shares,
you or the Company shall have the right to postpone such Time of
Delivery for a period of not more than seven days, in order to effect
whatever changes may thereby be made necessary in the Registration
Statement or the Prospectus, or in any other documents or
arrangements, and the Company agrees to file promptly any amendments
to the Registration Statement or the Prospectus which in your opinion
may thereby be made necessary. The term "Underwriter" as used in this
Agreement shall include any person substituted under this Section with
like effect as if such person had originally been a party to this
Agreement with respect to such Shares.

(b) If, after giving effect to any arrangements for the purchase
of the Shares of a defaulting Underwriter or Underwriters by you and
the Company as provided in subsection (a) above, the aggregate number
of such Shares which remains unpurchased does not exceed one-eleventh
of the aggregate number of all the Shares to be purchased at such Time
of Delivery, then the Company shall have the right to require each
non-defaulting Underwriter to purchase the number of Shares which such
Underwriter agreed to purchase hereunder at such Time of Delivery and,
in addition, to require each non-defaulting Underwriter to purchase
its pro rata share (based on the number of Shares which such
Underwriter agreed to purchase hereunder) of the Shares of such
defaulting Underwriter or Underwriters for which such arrangements
have not been made; but nothing herein shall relieve a defaulting
Underwriter from liability for its default.

<PAGE>

(c) If, after giving effect to any arrangements for the purchase
of the Shares of a defaulting Underwriter or Underwriters by you and
the Company as provided in subsection (a) above, the aggregate number
of such Shares which remains unpurchased exceeds one-eleventh of the
aggregate number of all the Shares to be purchased at such Time of
Delivery, or if the Company shall not exercise the right described in
subsection (b) above to require non-defaulting Underwriters to
purchase Shares of a defaulting Underwriter or Underwriters, then this
Agreement (or, with respect to the Second Time of Delivery, the
obligations of the Underwriters to purchase and of the Company to sell
the Optional Shares) shall thereupon terminate, without liability on
the part of any non-defaulting Underwriter or the Company, except for
the expenses to be borne by the Company and the Underwriters as
provided in Section 6 hereof and the indemnity and contribution
agreements in Section 8 hereof; but nothing herein shall relieve a
defaulting Underwriter from liability for its default.

10. The respective indemnities, agreements, representations, warranties
and other statements of the Company and the several Underwriters, as set forth
in this Agreement or made by or on behalf of them, respectively, pursuant to
this Agreement, shall remain in full force and effect, regardless of any
investigation (or any statement as to the results thereof) made by or on behalf
of any Underwriter or any controlling person of any Underwriter, or the
Company, or any officer or director or controlling person of the Company, and
shall survive delivery of and payment for the Shares.

11. If this Agreement shall be terminated pursuant to Section 9 hereof,
the Company shall not then be under any liability to any Underwriter except as
provided in Sections 6 and 8 hereof; provided, that, if for any other reason,
any Shares are not delivered by or on behalf of the Company as provided herein,
the Company will reimburse the Underwriters through you for all out-of-pocket
expenses approved in writing by you, including fees and disbursements of
counsel, reasonably incurred by the Underwriters in making preparations for the
purchase, sale and delivery of the Shares not so delivered, but the Company
shall then be under no further liability to any Underwriter in respect of the
Shares not so delivered except as provided in Sections 6 and 8 hereof.

12. In all dealings hereunder, you shall act on behalf of each of the
Underwriters, and the parties hereto shall be entitled to act and rely upon any
statement, request, notice or agreement on behalf of any Underwriter made or
given by you jointly or by Goldman, Sachs & Co. on behalf of you as the
representatives.

All statements, requests, notices and agreements hereunder shall be in
writing, and if to the Underwriters shall be delivered or sent by mail, telex
or facsimile transmission to you as the representatives in care of Goldman,
Sachs & Co., 85 Broad Street, New York, New York 10004, Attention: Registration
Department; and if to the Company shall be delivered or sent by mail, telex or
facsimile transmission to the address of the Company set forth in the
Registration Statement, Attention: Secretary; provided, however, that any
notice to an Underwriter pursuant to Section 8(c) hereof shall be delivered or
sent by mail, telex or facsimile transmission to such Underwriter at its
address set forth in its Underwriters' Questionnaire, or telex constituting
such Questionnaire, which address will be supplied to the Company by you upon
request. Any such statements, requests, notices or agreements shall take effect
at the time of receipt thereof.

13. This Agreement shall be binding upon, and inure solely to the benefit
of, the Underwriters, the Company and, to the extent provided in Sections 8 and
10 hereof, the officers and directors of the Company and each person who
controls the Company or any Underwriter, and their respective heirs, executors,
administrators, successors and assigns, and no other person shall acquire or
have any right under or by virtue of this Agreement. No purchaser of any of the
Shares from any Underwriter shall be deemed a successor or assign by reason
merely of such purchase.

14. Each of the parties hereto irrevocably (i) agrees that any legal suit,
action or proceeding arising out of or based upon this Agreement or the
transactions contemplated hereby may be instituted in any New York court, (ii)
waives, to the fullest extent it may effectively do so, any objection which it
may now or hereafter have to the laying of venue of any such proceeding and

(iii) submits to the exclusive jurisdiction of such courts in any such suit,
action or proceeding. The Company hereby appoints RSL Communications N.
America, Inc. ("RSL USA"), 767 Fifth Avenue, Suite 4300, New York, New York
10153, as its authorized agent (the "Authorized Agent") upon whom process may
be served in any such action arising out of or based on this Agreement or the
transactions contemplated hereby which may be instituted in any New York Court
by any Underwriter

18
<PAGE>

or by any person who controls any Underwriter, expressly consents to the
jurisdiction of any such court in respect of any such action, and waives any
other requirements of or objections to personal jurisdiction with respect
thereto. Such appointment shall be irrevocable. The Company represents and
warrants that the Authorized Agent has agreed to act as such agent for service
at process and agrees to take any and all action, including the filing of any
and all documents and instruments, that may be necessary to continue such
appointment in full force and effect as aforesaid. The Company hereby agrees
that prior to any dissolution, liquidation, winding-up or sale of RSL USA or
incorporation of RSL USA in a jurisdiction outside the United States, RSL USA
shall cause (i) CT Corporation System ("CT Corporation"), 1633 Broadway, New
York, New York 10019 or (ii) any other direct or indirect subsidiary of the
Company organized under the laws of the United States as Authorized Agent in
accordance with the terms of this Section 14. Service of process upon the
Authorized Agent and written notice of such service to the Company shall be
deemed, in every respect, effective service of process upon the Company.

15. In respect of any judgment or order given or made for any amount due
hereunder that is expressed and paid in a currency (the "judgment currency")
other than United States dollars, the Company, as the case may be, will
indemnify each Underwriter against any loss incurred by such Underwriter as a
result of any variation as between (i) the rate of exchange at which the United
States dollar amount is converted into the judgment currency for the purpose of
such judgment or order and (ii) the rate of exchange at which an Underwriter is
able to purchase United States dollars with the amount of the judgment currency
actually received by such Underwriter. The foregoing indemnity shall constitute
a separate and independent obligation of the Company and shall continue in full
force and effect notwithstanding any such judgment or order as aforesaid. The
term "rate of exchange" shall include any premiums and costs of exchange
payable in connection with the purchase of or conversion into United States
dollars.

16. Time shall be of the essence of this Agreement. As used herein, the
term "business day" shall mean any day when the Commission's office in
Washington, D.C. is open for business.

17. This Agreement shall be governed by and construed in accordance with
the laws of the State of New York.

18. This Agreement may be executed by any one or more of the parties
hereto in any number of counterparts, each of which shall be deemed to be an
original, but all such counterparts shall together constitute one and the same
instrument.

<PAGE>

If the foregoing is in accordance with your understanding, please sign and
return to us 10 counterparts hereof, and upon the acceptance hereof by you, on
behalf of each of the Underwriters, this letter and such acceptance hereof
shall constitute a binding agreement between each of the Underwriters and the
Company. It is understood that your acceptance of this letter on behalf of each
of the Underwriters is pursuant to the authority set forth in a form of
Agreement among Underwriters (U.S. Version), the form of which shall be
submitted to the Company for examination upon request, but without warranty on
your part as to the authority of the signers thereof.

Very truly yours,
RSL Communications,
Ltd.

By: .......................................
Name:
Title:

Accepted as of the date hereof:

By: .....................................
(Goldman, Sachs & Co.)

On behalf of each of the Underwriters

<PAGE>

SCHEDULE I

<TABLE>
<CAPTION>
Number of Optional
Shares to be
Total Number of Purchased if
Firm Shares Maximum Option
Underwriter to be Purchased Exercised
<S> <C> <C>
Goldman, Sachs & Co................................................
Merrill Lynch, Pierce, Fenner &
Smith Incorporated,
Morgan Stanley & Co. Incorporated, and
SBC Warburg Inc. ..................................................
[Names of other Underwriters]......................................
---------- ----------
Total................................................
========== ==========
</TABLE>

<PAGE>

ANNEX I

Pursuant to Section 7(d) of the Underwriting Agreement, the accountants
shall furnish letters to the Underwriters to the effect that:

(i) They are independent certified public accountants with
respect to the Company and its subsidiaries within the meaning of the
Act and the applicable published rules and regulations thereunder;

(ii) In their opinion, the financial statements and any
supplementary financial information and schedules (and, if applicable,
financial forecasts and/or pro forma financial information) examined
by them and included in the Prospectus or the Registration Statement
comply as to form in all material respects with the applicable
accounting requirements of the Act and the related published rules and
regulations thereunder; and, if applicable, they have made a review in
accordance with standards established by the American Institute of
Certified Public Accountants of the unaudited consolidated interim
financial statements, selected financial data, pro forma financial
information, financial forecasts and/or condensed financial statements
derived from audited financial statements of the Company for the
periods specified in such letter, as indicated in their reports
thereon, copies of which have been furnished to the representatives of
the Underwriters (the "Representatives") and are attached hereto;

(iii) They have made a review in accordance with standards
established by the American Institute of Certified Public Accountants
of the unaudited condensed consolidated statements of income,
consolidated balance sheets and consolidated statements of cash flows
included in the Prospectus as indicated in their reports thereon
copies of which are attached hereto and on the basis of specified
procedures including inquiries of officials of the Company who have
responsibility for financial and accounting matters regarding whether
the unaudited condensed consolidated financial statements referred to
in paragraph (vi)(A)(i) below comply as to form in all material
respects with the applicable accounting requirements of the Act and
the related published rules and regulations, nothing came to their
attention that caused them to believe that the unaudited condensed
consolidated financial statements do not comply as to form in all
material respects with the applicable accounting requirements of the
Act and the related published rules and regulations;

(iv) The unaudited selected financial information with respect to
the consolidated results of operations and financial position of the
Company for the three most recent fiscal years included in the
Prospectus agrees with the corresponding amounts (after restatements
where applicable) in the audited consolidated financial statements for
such three fiscal years;

(v) They have compared the information in the Prospectus under
selected captions with the disclosure requirements of Regulation S-K
and on the basis of limited procedures specified in such letter

nothing came to their attention as a result of the foregoing
procedures that caused them to believe that this information does not
conform in all material respects with the disclosure requirements of
Items 301, 302, 402 and 503(d), respectively, of Regulation S-K;

(vi) On the basis of limited procedures, not constituting an
examination in accordance with generally accepted auditing standards,
consisting of a reading of the unaudited financial statements and
other information referred to below, a reading of the latest available
interim financial statements of the Company and its subsidiaries,
inspection of the minute books of the Company and its subsidiaries
since the date of the latest audited financial statements included in
the Prospectus, inquiries of officials of the Company and its
subsidiaries responsible for financial and accounting matters and such
other inquiries and procedures as may be specified in such letter,
nothing came to their attention that caused them to believe that:

(A) (i) the unaudited consolidated statements of income,
consolidated balance sheets and consolidated statements of
cash flows included in the Prospectus do not comply as to
form in all material respects with the applicable accounting
requirements of the Act and the related published rules and
regulations, or (ii) any material modifications should be
made to the unaudited condensed consolidated statements of
income, consolidated balance sheets and consolidated
statements of cash flows included in the Prospectus for them
to be in conformity with generally accepted accounting
principles;

(B) any other unaudited income statement data and
balance sheet items included in the Prospectus do not agree
with the corresponding items in the unaudited consolidated
financial statements from which such data and items were
derived, and any such unaudited data and items were not
determined on a basis substantially consistent with the basis
for the corresponding amounts in the audited consolidated
financial statements included in the Prospectus;

(C) the unaudited financial statements which were not
included in the Prospectus but from which were derived any
unaudited condensed financial statements referred to in
Clause (A) and any unaudited income statement data and
balance sheet items included in the Prospectus and referred
to in Clause (B) were not determined on a basis substantially
consistent with the basis for the audited consolidated
financial statements included in the Prospectus;

(D) any unaudited pro forma consolidated condensed
financial statements included in the Prospectus do not comply
as to form in all material respects with the applicable
accounting requirements of the Act and the published rules
and regulations thereunder or the pro forma

<PAGE>

adjustments have not been properly applied to the historical
amounts in the compilation of those statements;

(E) as of a specified date not more than five days prior
to the date of such letter, there have been any changes in
the consolidated capital stock (other than issuances of
capital stock upon exercise of options and stock appreciation
rights, upon earn-outs of performance shares and upon
conversions of convertible securities, in each case which
were outstanding on the date of the latest financial
statements included in the Prospectus) or any increase in the
consolidated long-term debt of the Company and its
subsidiaries, or any decreases in consolidated net current
assets or stockholders' equity or other items specified by
the Representatives, or any increases in any items specified
by the Representatives, in each case as compared with amounts
shown in the latest balance sheet included in the Prospectus,
except in each case for changes, increases or decreases which
the Prospectus discloses have occurred or may occur or which
are described in such letter; and

(F) for the period from the date of the latest financial
statements included in the Prospectus to the specified date
referred to in Clause (E) there were any decreases in
consolidated net revenues or operating profit or the total or
per share amounts of consolidated net income or other items
specified by the Representatives, or any increases in any
items specified by the Representatives, in each case as
compared with the comparable period of the preceding year and
with any other period of corresponding length specified by
the Representatives, except in each case for decreases or
increases which the Prospectus discloses have occurred or may
occur or which are described in such letter; and

(vii) In addition to the examination referred to in their
report(s) included in the Prospectus and the limited procedures,
inspection of minute books, inquiries and other procedures referred to
in paragraphs (iii) and (vi) above, they have carried out certain
specified procedures, not constituting an examination in accordance
with generally accepted auditing standards, with respect to certain
amounts, percentages and financial information specified by the
Representatives, which are derived from the general accounting records
of the Company and its subsidiaries, which appear in the Prospectus,
or in Part II of, or in exhibits and schedules to, the Registration
Statement specified by the Representatives, and have compared certain
of such amounts, percentages and financial information with the
accounting records of the Company and its subsidiaries and have found
them to be in agreement.

<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>
ARTICLE I

DEFINITIONS
Page
----

Section 1.1. Definitions ......................................... 1

ARTICLE II

FORMATION OF THE COMPANY

Section 2.1. Formation ........................................... 8
Section 2.2. Constituent Documents ............................... 8
Section 2.3. Purpose ............................................. 9
Section 2.4. Formation of Holding Company and Local
Operating Companies ................................. 9
Section 2.5. Places of Business .................................. 9
Section 2.6. Term ................................................ 10
Section 2.7. By-Laws ............................................ 10
Section 2.8. Independent Accountants ............................. 10

ARTICLE III

CAPITALIZATION

Section 3.1. Capitalization of the Company ....................... 10
Section 3.2. Initial Shareholdings ............................... 10
Section 3.3. Capital Contributions Generally ..................... 11
Section 3.4. Additional Funding .................................. 12
Section 3.5. Loans ............................................... 13
Section 3.6. Preemptive Rights ................................... 14

ARTICLE IV

MANAGEMENT OF THE COMPANY

Section 4.1. General ............................................. 14
Section 4.2. Procedures relating to the Board of
Directors............................................ 15
Section 4.3. Executive Officers .................................. 16

ARTICLE V

CERTAIN TRANSACTIONS

Section 5.1. Vote Required to Effect Certain Transactions ........ 16
Section 5.2. Annual Budget ....................................... 19

-i-

<PAGE>

ARTICLE VI

TRANSFER OF SHARES

Section 6.1. General Restrictions on Transfer; Legend on
Certificates ........................................ 19
Section 6.2. Transfers of Common Shares .......................... 19
Section 6.3. Permitted Transfers; Pledges ........................ 20
Section 6.4. First Offer Rights .................................. 20

ARTICLE VII

REPRESENTATIONS AND WARRANTIES

Section 7.1. General Representations and Warranties .............. 21
Section 7.2. Representations and Warranties as to
Sprintel ............................................ 22

ARTICLE VIII

CERTAIN COVENANTS

Section 8.1. Financial Information ............................... 22
Section 8.2. Dividends ........................................... 23
Section 8.3. Confidentiality ..................................... 23
Section 8.4. Covenant Not To Compete ............................. 23
Section 8.5. Parent Holding Company Transfer Restrictions ........ 25
Section 8.6. No U.S. Trade or Business ........................... 25
Section 8.7. Exchange and Sale Option ............................ 25
Section 8.8. Services Arrangements and Other Transactions
with Affiliates ..................................... 26
Section 8.9. Other Restrictive Covenants ......................... 28
Section 8.10. Funding ............................................. 28

ARTICLE IX

TERMINATION, DISSOLUTION AND BUY OUT

Section 9.1. Term and Termination ................................ 28
Section 9.2. Buyout .............................................. 28

ARTICLE X

MISCELLANEOUS

Section 10.1. Notices ............................................. 30
Section 10.2. Binding Nature of Agreement ......................... 30
Section 10.3. Descriptive Headings ................................ 30
Section 10.4. Specific Performance ................................ 31
Section 10.5. Governing Law ....................................... 31
Section 10.6. Counterparts ........................................ 31
Section 10.7. Severability ........................................ 31

Section 10.8. Entire Agreement .................................... 31
Section 10.9. Amendment and Waiver ................................ 31

-ii-

<PAGE>

Section 10.10. No Third Party Beneficiaries ........................ 31
Section 10.11. Arbitration ......................................... 31
Section 10.12. Survival ............................................ 32

ANNEXES

Annex A - Registration Rights Agreement
Annex B - Certificate of Incorporation and Memorandum of
Association of the Company
Annex C - Governing Instruments of the Holding Company
Annex D - By-Laws of the Company
Annex E - Qualifying Sale Procedures
Annex F - Buyout Procedures

SCHEDULES

Schedule 1 - Affiliate Transactions
Schedule 2 - Ownership of Capital Stock
Schedule 3 - Exceptions to Divtel Representations
Schedule 4 - Sprintel Balance Sheet

-iii-

<PAGE>

THIS SHAREHOLDERS AGREEMENT OF RSL COMMUNICATIONS, LATIN AMERICA, LTD., a
Bermuda corporation (the "Company"), dated as of August 4, 1997, is by and among
the Company, RSL Communications, Ltd., a Bermuda corporation ("RSL"), and Coral
Gate Investments Ltd., a British Virgin Islands corporation ("CGC Shareholder"),
an Affiliate of Inversiones Divtel, D.T., C.A., a Venezuelan corporation
("Divtel") and a member of the Cisneros Group of Companies ("CGC"), and such
other shareholders of the Company as may, from time to time, become parties to
this Agreement in accordance with the provisions hereof (individually, a
"Shareholder", and, collectively, the "Shareholders", in each case including RSL
and CGC Shareholder).

W I T N E S S E T H:

WHEREAS, RSL, Divtel and CGC Shareholder desire to develop a network of
facilities-based voice and data telecommunications companies in Venezuela and
throughout Latin America and to that end have caused the organization of the
Company and have entered into this Agreement in order to establish the terms and
conditions on which the venture is to be structured, funded and managed;

NOW, THEREFORE, in consideration of the foregoing and of the mutual
agreements and covenants contained herein, the sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:

ARTICLE I

DEFINITIONS

Section 1.1. Definitions. Unless otherwise defined herein, the following
terms used in this Agreement and the Annexes and Schedules hereto shall have the
meanings specified below:

"AAA" shall have the meaning specified in Section 10.11.

"Acceptance" shall have the meaning specified in Section 6.4.

"Additional Funds" shall have the meaning specified in Section 3.4.A.

"Affiliate" and its correlative terms shall mean, with respect to any
Person, any other Person that, directly or indirectly, controls or is controlled
by or is under common control with such Person. For the purpose of this
definition, "control" (including the terms "controlling", "controlled by" and
"under common control with"), as used with respect to any Person,

<PAGE>

shall mean the possession, directly or indirectly, of the power to direct or
cause the direction of the management or policies of such Person, whether
through the ownership of voting securities or by contract or agency or otherwise
and shall, in the case of a Person who is an individual and for purposes only of
Sections 6.3 and 8.5, also include (i) such specified Person's or Affiliate's

Family Members and (ii) trusts (and the related trustees), the trustees or
grantors and the principal beneficiaries of which are such specified Person or
Affiliate or such specified Person's or Affiliate's Family Members or charities
and, following the death of such individual, the trustees and all beneficiaries
under such trust.

"Agreement" shall mean this Agreement, including the Annexes and Schedules
hereto, as the same may be amended or supplemented from time to time.

"Annual Budget" shall mean the annual budget of the Company and its
Subsidiaries for the period beginning on January 1, 1997 and ending on December
31, 1997 as such annual budget may be amended in accordance with Section 5.1,
and any annual budget(s) for years thereafter which may be adopted in accordance
with Section 5.1, which budget shall include any capital expenditures, calls for
Additional Funds or other transactions approved by Super Majority Vote pursuant
to Section 5.1; provided that if no annual budget for the ensuing year is
adopted on or prior to the expiration of any annual budget, the existing annual
budget (with increases of 5% per year in each budgeted item over the amount
budgeted for the prior year) shall continue to be the Company's Annual Budget
until amended or replaced in accordance with Section 5.1.

"Articles of Association" shall mean the Articles of Association of the
Company, as amended from time to time.

"Business" shall have the meaning specified in Section 2.3.

"Business Day" shall mean a day (other than a Saturday or Sunday) on which
banks are permitted to be open and transact business in the City of New York and
in Hamilton, Bermuda.

"CGC Interest" shall mean at any time the Percentage Interest then held by
CGC Shareholder and its Affiliates.

"CGC Shareholder Designees" shall have the meaning specified in Section
4.2.

"Class A Common Stock of RSL" shall mean the Class A Common Shares, par
value $.01 per share, of RSL and shall include such other shares of capital
stock as may from time to time be issued in respect thereof or for which or into
which such shares may be exchanged or converted.

- 2 -

<PAGE>

"Class B Common Stock of RSL" shall mean the Class B Common Shares, par
value $.01 per share, of RSL and shall include such other shares of capital
stock as may from time to time be issued in respect thereof or for which or into
which such shares may be exchanged or converted.

"Commission" shall mean the Securities and Exchange Commission or any other
Federal agency at the time administering the Securities Act.

"Common Shares" or "Common Stock" shall mean shares of common stock, par

value $1 per share, of the Company and shall include such other shares of
capital stock as may from time be issued in respect thereof or for which or into
which such shares may be exchanged or converted.

"Common Stock of RSL" means, collectively, shares of Class A Common Stock
of RSL and shares of Class B Common Stock of RSL.

"Company" means RSL COM Latin America, Ltd. and its successors and assigns.

"Competing Business" means the business of (i) the ownership or operation
of international voice and data carrier services and related value added
services, e.g:, video conferencing, voice mail, internet traffic transmission
services, e-mail and facsimile, in each case only to the extent conducted or
provided in the Territory; or (ii) the provision of switching and other related
services in respect of the Territory to a Person engaged in a Competing
Business; provided, however, that "Competing Business" shall not include any of
the following: (i) the ownership, operation, transmission, sale or resale of (a)
video, audio or data signals of primarily entertainment programming; (b) local
public telephony services except where local service is required by law to be
furnished as a complement to international telephony services; (c) wireless
local loop service; (d) satellite, cable, MMDS and other transmission capacity,
other than switching in connection therewith; (e) mobile telecommunications
services, including but not limited to cellular, satellite, "personal
communications systems", "IDEN" and trunking and mobile transmission of data;
and (f) telemetry and control telecommunications services; (ii) the provision
outside the Territory by a Shareholder or any of its Affiliates of transmission
services to or from a public telephone company located in the Territory pursuant
to an operating agreement that provides for return traffic or service credits
("Operating Agreement"); and (iii) the creation of value added information
content.

"Direct Cost" shall have the meaning specified in Section 8.8.A.

- 3 -

<PAGE>

"Event of Termination" shall have the meaning specified in Section 9.1.

"Excess Cash" shall have the meaning specified in Section 8.2.

"Family Members" means, with respect to an individual, such individual's
spouse and immediate family members, personal representatives and heirs and
shall include in the case of CGC Shareholder and its Affiliates, lineal
descendants of Gustavo A. Cisneros and Ricardo J. Cisneros.

"First Offer" shall have the meaning specified in Section 6.4.

"Four Year Plan" shall have the meaning specified in Section 3.4.B(i).

"GAAP" means generally accepted accounting principles as in effect from
time to time in the United States.

"Holding Company" means Sudanco S.A., a corporation organized and existing

as a Sociedad Anonima Frecuencia Inversiones under the laws of Uruguay and its
successors and assigns, which company is a wholly-owned subsidiary of the
Company.

"Impasse" means the failure of the Board of Directors to approve in
accordance with Section 5.1 an Annual Budget for any year by June 30 of such
year (without regard to the extension of the existing Annual Budget contemplated
by the definition thereof).

"Indebtedness" shall mean, without duplication, all (i) obligations for
borrowed money or other extensions of credit whether secured or unsecured,
absolute or contingent, including, without limitation, unmatured reimbursement
obligations with respect to letters of credit or guarantees issued on behalf of
the Company or its Subsidiaries and all obligations for the deferred purchase
price of property, (ii) obligations evidenced by bonds, notes, debentures or
other similar instruments, (iii) obligations secured by any mortgage, pledge,
security interest or other lien on property owned or acquired by the Company or
its Subsidiaries, (iv) capital lease obligations, sale-leaseback or similar
obligations and (v) all guarantees, endorsements or other contingent or surety
obligations (other than endorsement of instruments for collection in the
ordinary course of business) with respect to obligations of others, including,
without limitation, any obligation to furnish funds, directly or indirectly
(whether by virtue of partnership arrangements, by agreement to keep-well or
otherwise), through the purchase of goods, supplies or services or by way of
stock purchase, capital contribution, advance or loan.

- 4 -

<PAGE>

"Local Operating Companies" shall have the meaning specified in Section
2.4.

"Megatel" shall have the meaning specified in Section 3.2.B.

"Memorandum of Association" shall mean the Memorandum of Association of the
Company, as amended from time to time.

"Notice Date" shall have the meaning specified in Annex E.

"Operating Agreement" shall have the meaning specified in the definition of
"Competing Business" in Section 1.1.

"Parent Holding Company" shall mean a Person not less than 70% of the
assets (other than temporary investments) of which consist directly or
indirectly of shares of capital stock of the Company.

"Percentage Interest" shall mean, with respect to any Shareholder, the
percentage interest of such Shareholder in the outstanding Common Shares,
represented by a fraction the numerator of which is the number of Common Shares
held by such Shareholder and the denominator of which is the aggregate number of
Common Shares issued and outstanding.

"Permitted Transfer" shall have the meaning specified in Section 6.3.

"Person" shall mean any natural person, corporation, association,
partnership, organization, business, firm, joint venture, trust, unincorporated
organization or any other entity or organization, including a government or any
political subdivision, department or agency of any government.

"Proportionate Share" means the percentage of the Common Stock of RSL or
the percentage undivided interest in the assets of RSL or its Subsidiaries as
may be from time to time exchangeable for Common Shares held by CGC Shareholder
and its Affiliates in connection with a Qualifying Sale as contemplated by
Section 8.7, which percentage shall be the product (expressed as a percentage)
of the CGC Interest (expressed as a fraction) multiplied by the ratio (expressed
as a fraction) of the Value of the Company to the Value of RSL.

"Public Offering" shall mean any bona fide public offering of equity
securities (or securities exchangeable for or convertible into equity
securities) of a Person pursuant to an effective registration statement under
the Securities Act, or any other applicable law, or any other offering which
results in such securities being listed for trading on any national securities
exchange in the United States or included for trading in any national market
system or otherwise available for trading on the

- 5 -

<PAGE>

London Stock Exchange, the Luxembourg Stock Exchange or other major
international securities exchange; provided, however, that the Warrants to
purchase shares of Class A Common Stock of RSL, offered to certain investors
pursuant to an Offering Memorandum of RSL dated September 30, 1996, and the
shares issuable upon the exercise of such Warrants, shall not be considered
equity securities for purposes of this definition.

"Purchase Offer" shall have the meaning specified in Annex G.

"Qualifying Sale" shall mean (i) a Public Offering of any class of Common
Stock of RSL or (ii) a sale or other disposition in one or a series of related
transactions (including a disposition effected by way of a merger or similar
transaction and whether or not pursuant to a Public Offering) of (x) shares of
Common Stock of RSL or securities which are convertible into or exercisable for
shares of Common Stock of RSL, of any class, possessing a majority of the voting
power under ordinary circumstances to elect directors, measured after giving
effect to any issuance of such shares or other securities involved in such sale
or disposition and the deemed conversion or exercise of any such securities, or
(y) more than 50% in value of the assets (including shares of capital stock) of
RSL and its Subsidiaries taken as a whole, but in any case other than to an
Affiliate of RSL which has agreed to be bound by the provisions of this
Agreement.

"Qualified Transferee" shall mean a Person to whom a Transfer of Common
Shares satisfies each of the following conditions:

(i) the Transfer does not require a registration with securities
regulatory authorities in any jurisdiction or cause the Company to

become subject to periodic reporting requirements under the securities
laws of any jurisdiction;

(ii) the Transfer does not cause securities of the Company to become traded
on any national securities exchange in the United States or included
for trading in any national market system or otherwise available for
trading on the London Stock Exchange, the Luxembourg Stock Exchange or
other major international securities exchange;

(iii) the Transfer does not violate applicable law;

(iv) the restrictions contained in this Agreement are complied with;

(v) the Shareholders receive the proposed transferee's written consent to
be bound by all the provisions of this Agreement and by all material
agreements

- 6 -

<PAGE>

to which the transferring Shareholder is bound, as a party hereto and
thereto and in the capacity of a Shareholder, and by the Memorandum of
Association and Articles of Association; and

(vi) as reasonably determined by the Board of Directors by Super Majority
Vote, the transferee and its Affiliates are not engaged in a Competing
Business.

"RSL" shall mean RSL and its successors and assigns.

"RSL Designees" shall have the meaning specified in Section 4.2.

"Registration Rights Agreement" shall mean the Registration Rights
Agreement dated as of the date hereof among the Company, RSL and CGC
Shareholder, a copy of which is attached hereto as Annex A.

"Sale Offer" shall have the meaning specified in Annex F.

"Securities Act" shall mean the Securities Act of 1933, or any similar
Federal statute, and the rules and regulations of the Commission thereunder, all
as the same shall be in effect at the time.

"Spaceway Joint Venture" shall mean any joint venture having among its
members Hughes Communications, Inc. ("Hughes") or any of its Affiliates and CGC
Shareholder or any of its Affiliates, the business of which is based on the
Spaceway(Trademark) technology of Hughes and utilizes geostationary satellites
in conjunction with a ground-based infrastructure to provide its customers with
a variety of narrowband and broadband telecommunications services, including but
not limited to providing the means for interconnectivity with public switched
telephone networks and other networks in the Territory.

"Sprintel Capital Contribution" shall have the meaning specified in Section
3.2.A.

"Sprintel" shall have the meaning specified in Section 3.2.A.

"Sprintel Balance Sheet" shall have the meaning specified in Section 7.2.

"Subsidiary" of any Person shall mean any Person of which at least a
majority of the outstanding share capital or other indicia of ownership having
voting power under ordinary circumstances to elect directors (or the equivalent)
of such Person shall at the time be held, directly or indirectly, by such
Person, by such Person and one or more Subsidiaries of such

- 7 -

<PAGE>

Person, or by one or more Subsidiaries of such Person, and shall include
partnerships of which such specified Person or one or more of its Subsidiaries
is the general partner.

"Super Majority Vote" shall have the meaning specified in Section 5.1.

"Territory" shall mean Mexico and each other country or region in the
Caribbean, Central America or South America.

"Transfer" shall mean any transfer, directly or indirectly, voluntarily or
involuntarily, whether or not for value, including any sale, pledge, assignment,
gift, merger, combination or other transaction or otherwise.

"Value of the Company" shall mean the fair market value of the then
outstanding Common Shares, with reference as appropriate to the value to the
Company of the services arrangements provided for in Section 8.8 and the other
commercial relationships between the Company and RSL and its Affiliates,
determined as set forth in Annex E.

"Value of RSL" shall mean the fair market value of the then outstanding
shares of Common Stock of RSL, determined as set forth in Annex E.

ARTICLE II

FORMATION OF THE COMPANY

Section 2.1. Formation. The Company was incorporated under the laws of
Bermuda on May 7, 1997. The Shareholders agree that the rights and obligations
of the Shareholders of the Company shall be governed by the terms and conditions
set forth in this Agreement, subject to the provisions of applicable law. In the
event of a conflict between any provision of this Agreement and any
non-mandatory provision of applicable law, the provisions of this Agreement
shall control and take precedence. Reasonable out-of-pocket expenses, including
without limitation travel expenses and expenses for legal and accounting
services, incurred by each of RSL and CGC Shareholder in connection with the
preparation of this Agreement and the transactions contemplated hereby shall be
borne by the Company and shall be paid promptly by the Company upon the
submission of reasonably detailed invoices therefor.

Section 2.2. Constituent Documents. The Certificate of Incorporation and
Memorandum of Association of the Company are attached as Annex B. The Memorandum
of Association may be amended from time to time in accordance with its terms and
this Agreement.

- 8 -

<PAGE>

Section 2.3. Purpose. The purpose of the Company is to create an
international telecommunications service business through Local Operating
Companies in the Territory based upon the development and operation of a voice
and data telecommunications network (the "Business", as further defined in this
Section 2.3). The services sold by the Local Operating Companies will be
primarily narrowband voice and data services, including related value added
services for facsimile, voice mail, internet traffic transmission services,
e-mail and video conferencing as demand indicates and as the network is capable
of delivering at competitive prices. The market focus will be on businesses that
do international calling to and from the Territory, primarily small to mid-sized
companies that will be likely to find attractive the Company's lower
international rates and more personal service. The Business shall exclude: (i)
the ownership, operation, transmission, sale or resale of (a) video, audio or
data signals of primarily entertainment programming; (b) local public telephony
services except where local service is required by law to be furnished as a
complement to international telephony services; (c) wireless local loop service;
(d) satellite, cable, MMDS and other transmission capacity, other than switching
in connection therewith; (e) mobile telecommunications services, including but
not limited to cellular, satellite, "personal communications systems", "IDEN"
and trunking and mobile transmission of data; and (f) telemetry and control
telecommunications services; and (ii) the creation of value added information
content. The network to be developed and operated by the Company shall be a
switched, value added, integrated transmission network based upon facilities
leased, owned or otherwise acquired from or operated in joint venture with third
parties. The Company network shall be integrated with the network of RSL and its
Affiliates.

Section 2.4. Formation of Holding Company and Local Operating Companies.
The Holding Company was established as a wholly-owned subsidiary of the Company
on May 16, 1997. The governing instruments of the Holding Company are attached
hereto as Annex C. From time to time the Board of Directors in accordance with
Section 5.1 may cause to be established local operating companies ("Local
Operating Companies") to conduct the Business within particular countries within
the Territory. Except as otherwise agreed by the Board of Directors in
accordance with Section 5.1, the Company's interest in any Local Operating
Company, including Sprintel, shall be held by the Holding Company.

Section 2.5. Places of Business. The Company's principal office shall be in
Hamilton, Bermuda. The Holding Company's principal office shall be in Plaza
Independencia 808, Apto. 1101, Montevideo, Uruguay. The Company and its
Subsidiaries may have additional offices or places of business in the Territory
and in such other places as the Board of Directors may designate from time to
time, in each case taking into account the tax and regulatory concerns of each
of the Shareholders.

- 9 -

<PAGE>

Section 2.6. Term. The existence of the Company shall continue until the
Company is dissolved and terminated as contemplated by Article IX hereof.

Section 2.7. By-Laws. The Company has concurrently herewith adopted
By-Laws which were approved by the Board of Directors and are attached hereto
as Annex D. The Board of Directors may amend the Bylaws from time to time as set
forth in Section 5.1.

Section 2.8. Independent Accountants. Deloitte & Touche shall be the
Company's independent accountants until changed in accordance with Section 5.1.

ARTICLE III

CAPITALIZATION

Section 3.1. Capitalization of the Company. The Articles of Association of
the Company provide that the authorized capital stock of the Company consists of
12,000 Common Shares. All of such Common Shares are issued, are fully paid and
non-assessable and are and shall be entitled to one vote per share.

Section 3.2. Initial Shareholdings.

A. General. Heretofore, CGC Shareholder subscribed for and purchased 12,000
Common Shares from the Company for a cash purchase price of $12,000. Such Common
Shares constitute all of the issued and outstanding capital stock of the
Company. Concurrently with the execution of this Agreement, CGC Shareholder has
sold 6,120 Common Shares, or 51% of the issued and outstanding Common Shares, to
RSL for a cash purchase price of $505,920, representing the purchase price of
$6,120 paid by CGC Shareholder for such Common Shares plus an additional
$499,800 as partial consideration for the arranging by CGC Shareholder of the
transactions concerning Inversiones Sprintel de Venezuela C.A. ("Sprintel")
described in Section 3.2.B. CGC Shareholder has, out of such consideration,
transferred $187,224.78 to the Company, which has transferred it to the Holding
Company, as funding for the transactions described in Section 3.2.B (together
with the future transfers of cash from CGC Shareholder and from RSL to the
Company, and from the Company to the Holding Company, provided for in Section
3.2.B., the "Sprintel Capital Contribution").

B. Sprintel Contribution. CGC Shareholder has made arrangements with Divtel
and Megatel Telecomunicaciones, C.A. ("Megatel") for the following
transactions. Concurrently with the execution of this Agreement, (i) Megatel has
transferred its 25% ownership interest in Sprintel to the Holding Company for a
cash purchase price of $95,503.36, and (ii) Divtel has

- 10 -

<PAGE>

transferred a 24% ownership interest in Sprintel to the Holding Company (out of
its 75% ownership interest) for a cash purchase price of $91,721.42. Divtel will

promptly apply for all required approvals of regulatory authorities for the
transfer of control of Sprintel to the Holding Company. Promptly after the
receipt of such approvals, (x) CGC Shareholder will transfer $95,484.63 to the
Company, which will transfer it to the Holding Company, (y) RSL will transfer
$99,381.96 to the Company, which will transfer it to the Holding Company, and
(z) Divtel will transfer its remaining 51% ownership interest in Sprintel to the
Holding Company for a cash purchase price of $194,866.59. Upon such transfer of
Divtel's remaining 51% ownership interest in Sprintel, RSL shall pay CGC
Shareholder $420,818.04 in cash as further consideration for the arranging by
CGC Shareholder of the transactions concerning Sprintel described in this
Section 3.2.B. The Holding Company will utilize the Sprintel Capital
Contribution solely to pay the purchase prices of the ownership interests in
Sprintel purchased from Megatel and Divtel.

C. Interim Sprintel Operations. From the date hereof until the date of the
transfer by Divtel to the Holding Company of Divtel's remaining 51% ownership
interest in Sprintel, (i) all required funding of Sprintel directly or
indirectly by RSL and CGC Shareholder shall be effected by means of loans to
Sprintel made by the Holding Company, and (ii) Divtel and the Holding Company
will cause all of the resources of Sprintel to be fully and exclusively
dedicated to the Business and will ensure that no dividends or distributions are
paid by Sprintel. In the event that the transfer by Divtel to the Holding
Company of Divtel's remaining 51% ownership interest in Sprintel has not
occurred on or before the earlier of 60 days after any regulatory authority
finally rejects any application for any approval required for the transfer of
control of Sprintel to the Holding Company or 18 months after the date of this
Agreement (x) such loans from the Holding Company to Sprintel shall be repaid,
funded by capital contributions from the Holding Company and Divtel, as
shareholders of Sprintel, to the extent necessary, (y) Divtel and the Holding
Company will cause all of the resources of Sprintel to continue to be fully and
exclusively dedicated to the Business and will cause Sprintel to pay dividends
and distributions consistent with the requirements of this Agreement and
policies applicable to other companies in which the Company has ownership
interests, and (z) if and when all required approvals of regulatory authorities
for the transfer of control of Sprintel to the Holding Company is received, the
transactions provided in Section 3.2.B to be consummated upon such occurrence
will be consummated.

Section 3.3. Capital Contributions Generally. Except as required by law or
as otherwise provided in Section 3.2 or Section 3.4, no Shareholder shall be
required to subscribe for and purchase Common Shares or otherwise provide
funding to the Company.

- 11 -

<PAGE>

Section 3.4. Additional Funding.

A. General. The Board of Directors may, at any time and from time to time,
determine that the Company or its Subsidiaries require additional funds for
purposes of the Business ("Additional Funds"). Additional Funds may be raised by
the Company or its Subsidiaries in the manner determined by the Board of
Directors, subject to the restrictions contained in this Article III and Section

5.1.

B. Capital Calls.

(i) Four Year Plan. The Board of Directors promptly shall adopt a
definitive business plan for the first four years of the Company (the "Four Year
Plan") as contemplated by Section 5.1. The Four Year Plan shall set forth the
projected annual capital requirements of the Company and the Subsidiaries, and
the projected dates on which such amounts, if needed, will be funded. The Four
Year Plan shall be revised and updated annually.

(ii) Procedure. In the event that the Board of Directors, acting in
accordance with the then effective Annual Budget and, to the extent applicable,
Section 5.1, decides to raise all or any portion of Additional Funds in the
form of subscriptions from the Shareholders, the Board of Directors shall send
written notice (the "Funding Notice") to the Shareholders of the need for such
Additional Funds. The Shareholders shall be obligated to make such Additional
Funds available to the Company not later than the date specified in the Funding
Notice (the "Funding Date"), which shall be at least 10 Business Days after the
date that the Funding Notice is delivered to the Shareholders. Such Additional
Funds shall be in the form of cash (unless otherwise agreed by the Board of
Directors by Super Majority Vote) from the Shareholders pro rata as to each
Shareholder's then existing Percentage Interest. Consistent with the then
effective Annual Budget, the Board of Directors shall determine the timing and
amount of such funding, including but not limited to the adoption of resolutions
to issue additional Common Shares.

(iii) Failure to Make Contributions. If any Shareholder fails to make a
full payment of its pro rata share of Additional Funds on or before the Funding
Date, the Board of Directors may accept additional capital contributions in the
amount of the deficiency from the other Shareholders on the same terms pro rata
to each contributing Shareholder's Percentage Interest, excluding the defaulting
Shareholder, and may provide for the issuance of shares of Common Stock or other
securities of the Company in exchange therefor on arm's-length terms at a fair
valuation thereof. Subject to Section 3.6, the Board of Directors also may seek
equity contributions from third parties to fund such deficiency. In either case,
the representatives of such defaulting Shareholder on the Board of Directors
shall not

- 12 -

<PAGE>

vote or count in determining a quorum in connection with approving the terms
pursuant to which such capital contributions from the non-defaulting
Shareholders or such equity contributions from third parties are obtained. In
addition, to the extent such capital contributions or equity contributions are
not sought or received, the non-defaulting Shareholders shall have the right
(which right shall be exercisable on a pro rata basis and shall be in addition
to, and not in limitation of, any legal or equitable remedies available to the
Company or the non-defaulting Shareholders against such defaulting Shareholder,
including the right to seek damages from such defaulting Shareholder), but shall
not be required, to make the Additional Funds available on behalf of such
defaulting Shareholder, in which event such amount shall constitute a debt (a

"Default Loan(s)") owed by such defaulting Shareholder to the Shareholder(s)
making such Additional Funds available on behalf of such defaulting Shareholder.
Such Default Loan shall bear interest at the overnight London Interbank Offered
Rate, plus 5% per annum (but not to exceed the maximum rate permitted by law)
until paid and shall be payable (with interest as aforesaid), without limiting
the recourse to such defaulting Shareholder, out of dividends or other
distributions as hereinafter provided. If a Default Loan is outstanding to a
defaulting Shareholder, then any dividends or other distributions to be made by
the Company to such defaulting Shareholder shall be deemed received by the
defaulting Shareholder and shall instead be paid to the contributing
Shareholder(s), to be applied against such Default Loan, first to interest and
then to principal, until the full amount of such Default Loan, including accrued
interest, is paid. If more than one Default Loan is outstanding at the time of
any dividend or other distribution made by the Company, then such dividend or
other distribution shall be made in payment first to accrued unpaid interest and
then principal to the contributing Shareholder(s) with amounts in respect of the
earliest dated outstanding loan being paid first.

In addition, each defaulting Shareholder agrees that the defaulting Shareholder
shall be liable to the Company and the non-defaulting Shareholders for any
direct damages incurred by the Company or the non-defaulting Shareholders as a
result of the failure of the defaulting Shareholder to fund its pro rata share
of Additional Funds.

Section 3.5. Loans. The Company and its Subsidiaries may borrow funds or
enter into similar credit, guarantee, financing or refinancing arrangements for
any purpose from any Person, including a Shareholder or an Affiliate of a
Shareholder, upon such terms as the Board of Directors, acting in accordance
with Section 5.1, determines are appropriate, provided that each Shareholder
shall be given the opportunity to participate on a pro rata basis in any thereof
made by or on behalf of a Shareholder or its Affiliates to the Company or its
Subsidiaries.

- 13 -

<PAGE>

Section 3.6. Preemptive Rights. The Company shall not issue any capital
stock or any warrant, option or other security convertible into or exercisable
for capital stock of the Company (including without limitation any issuance
contemplated by Section 3.4.B(iii), or enter into any agreement in respect of
such issuance, unless the issuance has been approved as required by this
Agreement (including as to any issuance contemplated by Section 3.4.B(iii) in
the manner provided for in said Section) and is in connection with a transaction
in accordance with the Company's business purpose and pursuant to which the
Company offers to each of the Shareholders (except the defaulting Shareholders
in the case of an issuance contemplated by Section 3.4.B(iii)) the right to
participate proportionately according to the Percentage Interest of such
Shareholder as of the date of such proposed issuance, on the same terms and
conditions. Any right granted pursuant to the preceding sentence shall be
exercised by written notice to the Company given within 30 days after delivery
to each Shareholder of written notice of such proposed issuance. If any
Shareholder fails to respond to the Company within the 30 day notice period,
such failure shall be deemed to be the rejection of the right of such

Shareholder to participate in the purchase of the capital stock of the Company
to be issued. At any time within 120 days following the date the Company has
received notice (or deemed rejection) from each Shareholder accepting or
rejecting its right to participate, the Company may carry out the proposed
issuance.

ARTICLE IV

MANAGEMENT OF THE COMPANY

Section 4.1. General.

A. Control by the Board. The business and affairs of the Company shall be
managed and controlled by the Board of Directors in a manner consistent with
this Agreement and the Memorandum of Association and Articles of Association.

B. Voting by Shareholders. Initially, RSL and its Affiliates shall have the
right to designate four members of the Board of Directors of the Company (and
have such Directors act at their direction) and CGC Shareholder and its
Affiliates shall have the right to designate three members of the Board of
Directors of the Company (and have such Directors act at their direction). At
such time as CGC Shareholder and its Affiliates cease to hold more than 20% of
the outstanding Common Shares due to the exercise of their rights under Section
8.7 or the issuance of additional Common Shares pursuant to Section 3.4.B(iii),
RSL and its Affiliates shall have the right to designate six members of the
Board of Directors of the Company (and have such Directors act at their
direction) and CGC Shareholder and its Affiliates shall have the right to
designate one member of the Board of

- 14 -

<PAGE>

Directors of the Company (and have such Director act at their direction).

C. Removal. Any Shareholder may at any time, and from time to time, remove
or replace any or all of the Directors designated by such Shareholder. In
addition, any Director may resign at any time by giving written notice to the
Shareholder that appointed such member and to the Secretary of the Company. Such
resignation shall take effect on the date shown on or specified in such notice
or, if such notice is not dated, at the date of the receipt of such notice by
the Secretary of the Company. No acceptance of such resignation shall be
necessary to make it effective.

Section 4.2. Procedures relating to the Board of Directors. Subject to the
provisions of Section 4.1, each of the Shareholders shall vote all of its Common
Shares, and shall take all other necessary or desirable actions within its
control (whether in its capacity as Shareholder or otherwise), and shall cause
its respective designees elected to the Company's Board of Directors to take all
such action necessary, in order to cause:

(i) the number of directors on the Board to be seven;

(ii) the election to the Board (whether at a meeting of shareholders or by

an action by written consent of shareholders in lieu of a meeting) of
(A) such number of representatives designated by RSL ("RSL Designees")
and (B) such number of representatives designated by CGC Shareholder
("CGC Shareholder Designees") as are required by Section 4.1.B;

(iii) at the written request of RSL given at any time, the immediate
removal from the Board (with or without cause) of any RSL Designee
(including during any meeting of the Board, in which case such meeting
may, at the option of any remaining director designated by RSL, be
adjourned pending filling the vacancy caused by such removal);

(iv) at the written request of CGC Shareholder given at any time, the
immediate removal from the Board (with or without cause) of any CGC
Shareholder Designee (including during any meeting of the Board, in
which case such meeting may, at the option of any remaining director
designated by CGC Shareholder, be adjourned pending filling the
vacancy caused by such removal); and

(v) in the event that any RSL Designee or CGC Shareholder Designee shall
for any reason cease to serve as a member of the Board during his term
of office, the resulting vacancy on the Board to be filled by a
representative designated by RSL or CGC Shareholder, respectively,
immediately upon request of RSL or CGC

- 15 -

<PAGE>

Shareholder, as the case may be, whether at a meeting of Shareholders
or by an action by written consent of Shareholders in lieu of a
meeting.

Section 4.3. Executive Officers. For so long as RSL and CGC Shareholder or
their respective Affiliates are represented on the Board of Directors, the
chief executive officer, the chief financial officer and the chief operating
office of the Company shall be jointly appointed by the RSL Designees and CGC
Shareholder Designees; provided, however, that such officers shall be appointed
by the Board of Directors, acting by majority vote, from and after such time as
CGC Shareholder and its Affiliates cease to hold more than 35% of the
outstanding Common Shares due to the exercise of their rights under Section 8.7
or the issuance of additional Common Shares pursuant to Section 3.4.B (iii).

ARTICLE V

CERTAIN TRANSACTIONS

Section 5.1. Vote Required to Effect Certain Transactions.

A. General Provisions. The Shareholders shall not permit the Company to
take any action and shall not permit any Subsidiary to take any action in
connection with any of the following transactions unless such transaction shall
have been approved by the Board of Directors by the affirmative vote or written
consent of at least five directors (or their authorized alternate directors) (a
"Super Majority Vote"):

(i) any amendment to the Memorandum of Association or the Articles of
Association (or other organizational documents) or Bylaws of the Company or
any Subsidiary;

(ii) the making of a call for Additional Funds from Shareholders as
contemplated by Section 3.4 not contemplated by the Annual Budget approved
for such year in accordance with clause (xii) below;

(iii) any recapitalization, reorganization or similar transaction,
liquidation, dissolution or winding up of the Company or any Subsidiary,
except as contemplated by Article IX;

(iv) any merger, combination, consolidation or similar transaction
involving the Company or any Subsidiary with or into any other Person,
except the merger of any Subsidiary, the Holding Company or the Company
with or into any other of said Persons;

- 16 -

<PAGE>

(v) (a) any sale by the Company or any of its Subsidiaries (in one or
a series of related transactions) during any calendar year of assets or
properties of the Company or any Subsidiary for a sale price in excess of
$250,000, or (b) the entry by the Company or any Subsidiary into any
contract involving (x) the imposition of financial covenants on the Company
or its Subsidiaries or (y) the payment or receipt by the Company or such
Subsidiary of in excess of $250,000;

(vi) (a) any acquisition by the Company or any Subsidiary (in one or a
series of related transactions) of, or any investment by the Company or any
Subsidiary (in one or a series of related transactions) in, assets or
properties of any Person not contemplated by the Annual Budget approved for
such year as contemplated by clause (xii) below, including without
limitation, the Local Operating Companies (whether by acquiring shares or
other equity interests, partnership interests or evidences of indebtedness
of any Person, by contributing to the capital of any Person, by making a
loan, advance or other extension of credit to any other Person or
otherwise), in any case, if the purchase price or amount to be invested is
in excess of $250,000, or (b) the investment of cash included in the
working capital of the Company in other than cash equivalents;

(vii) any pledge, issuance, transfer or sale of securities, including
without limitation, capital stock, options, warrants or other similar
instruments, by the Company or any Subsidiary, other than as provided in
this Agreement or as specifically authorized by the Annual Budget approved
for such year in accordance with clause (xii) below;

(viii) any purchase of any securities of the Company or any
Subsidiary, other than as specifically authorized by the Annual Budget
approved for such year in accordance with clause (xii) below;

(ix) except as may be permitted by Clause (vi), any incurrence of

Indebtedness or the making of any capital expenditure by the Company or any
Subsidiary in any case or in the aggregate in any calendar year in excess
of $100,000 by the Company or any Subsidiary not contemplated by the Annual
Budget approved for such year as contemplated by clause (xii) below;

(x) entering into or conducting any business other than owning
interests in the Holding Company and the Local Operating Companies and
conducting activities incidental to the Business to the extent contemplated
by Section 2.3;

- 17 -

<PAGE>

(xi) entering into any transaction, directly or indirectly (including,
without limitation, any purchase, sale, lease, investment, loan, service or
management agreement or other transaction), with either RSL or CGC
Shareholder or any of their respective Affiliates involving the expenditure
or receipt by the Company or any Subsidiary of more than $25,000 in any one
instance or $50,000 in the aggregate in any year, except as contemplated by
Section 8.8, as contemplated by Schedule 1 or as specified as a
transaction with RSL, CGC Shareholder or any of their respective Affiliates
in any Annual Budget approved for such year in accordance with clause (xii)
below;

(xii) adoption of the Annual Budget and the definitive Four Year Plan
or any amendment, modification or replacement of any Annual Budget or the
Four Year Plan other than a modification permitted by clauses (vi) and (ix)
above;

(xiii) any change in the Company's independent accountants, fiscal
year, method of accounting, accounting practices or independent
accountants;

(xiv) entering into any agreements or amendments thereto relating to
the rights and obligations of the Company with respect to its interests in
the Holding Company or any Local Operating Company other than those actions
permitted by other subsections of this Section 5.1 to be taken without
Super Majority Vote;

(xv) the voting (directly or indirectly and whether at a meeting of
shareholders or by action by written consent) of any securities owned by
the Company or any Subsidiary, including without limitation, any securities
of the Holding Company or Local Operating Companies, on a matter which
would call for a Super Majority Vote if done by the Company; and

(xvi) the consent to a pledge of shares of Common Stock or to a
Transfer of shares of Common Stock other than as permitted by Article VI.

The parties hereby agree to enter into good faith negotiations as to the
desirability of increasing the $250,000 amounts set forth in clauses (v) and
(vi) above at such time as the book value of the total assets of the Company
exceeds $10,000,000. References in this Section 5.1 to "$" or dollars are to
U.S. dollars and include the equivalent amount of any other currency at the time

of determination.

B. Termination of Provisions. The provisions of Section 5.1.A and all other
provisions of this Agreement requiring action or approval by Super Majority Vote
shall terminate at such time as CGC Shareholder and its Affiliates

- 18 -
<PAGE>

cease to hold more than 35% of the outstanding Common Shares due to the exercise
of their rights under Section 8.7 or the issuance of additional Common Shares
pursuant to Section 3.4.B(iii). After such termination, the transactions
identified in Section 5.1.A shall be approved as provided in the Memorandum of
Association, Articles of Association or Bylaws of the Company or by applicable
law.

Section 5.2. Annual Budget. The parties shall use their best efforts to
cause, on or before August 15, 1997, the preparation and approval, by Super
Majority Vote pursuant to Section 5.1, of the first Annual Budget for the year
ending December 31, 1997. The parties shall use their best efforts to cause, on
or before December 1 of the preceding year, the preparation and approval, by
Super Majority Vote pursuant to Section 5.1, of the Annual Budget for each
ensuing year.

ARTICLE VI

TRANSFER OF SHARES

Section 6.1. General Restrictions on Transfer; Legend on Certificates.
(i) Except as otherwise provided in this Agreement and in the Articles of
Association, the shares of Common Stock shall be freely transferable; provided,
however, that any purported transfer of shares of Common Stock without
compliance with the applicable provisions of this Agreement and the Articles of
Association shall be void and of no effect.

(ii) Each certificate representing Common Shares shall be stamped or
otherwise imprinted with a legend in substantially the following form:

"The shares represented by this certificate have not been registered
under the Securities Act of 1933, as amended. In addition, the
transfer of such shares is subject to the conditions specified in the
Articles of Association and the restrictions set forth in the
Shareholders Agreement, dated as of May 1, 1997, among the
shareholders of RSL COM Latin America, Ltd. (the "Company") listed
therein, a counterpart of which has been placed on file by the Company
at its principal place of business and its registered office. The
Company reserves the right to refuse the transfer of such shares until
such conditions have been fulfilled with respect to such transfer."

Section 6.2. Transfers of Common Shares. Except for Transfers permitted by
Section 6.3, each Shareholder may only Transfer all or any portion of its Common
Shares following compliance with Section 6.4 or following approval by Super
Majority Vote in accordance with Section 5.1.

- 19 -
<PAGE>

Section 6.3. Permitted Transfers; Pledges. The restrictions on Transfer
provided in Sections 6.2 and 6.4 shall not be applicable to any Transfer (a
"Permitted Transfer") (i) by RSL to one of its Affiliates, from any such
Affiliate to RSL or to another Affiliate of RSL, (ii) by CGC Shareholder to one
of its Affiliates, from any such Affiliate to CGC Shareholder or to another
Affiliate of CGC Shareholder or (iii) contemplated by Section 8.7 or in
connection with the Registration Rights Agreement; provided, however, that no
such transfer, other than Transfers contemplated by clause (iii) above, may be
made to any Person unless such Person is a Qualified Transferee (except that
compliance with clause (vi) of the definition thereof shall not be required) and
shall have agreed in writing, as a Shareholder, to be bound by the provisions of
this Agreement and shall agree to transfer any such securities to RSL or CGC
Shareholder, as the case may be, immediately prior to the time such Person
ceases to be an Affiliate thereof. In addition, the restrictions on Transfer
provided in Sections 6.2 and 6.4 shall not be applicable to any Transfer by way
of pledge (x) by RSL or any of its Affiliates, provided that such Transfer has
been approved by CGC Shareholder, which approval shall not be unreasonably
withheld, or (y) by CGC Shareholder or any of its Affiliates, provided that such
Transfer has been approved by RSL, which approval shall not be unreasonably
withheld.

Section 6.4. First Offer Rights. If either RSL or CGC Shareholder
(including for purposes of this Section 6.4 their respective Affiliates which
are Shareholders) desires to Transfer all or any portion of its Common Shares
other than Transfers pursuant to Section 6.3 or constituting a pledge, it
shall, by written notice, first offer to the other such Shareholder (a "First
Offer") the opportunity to purchase such Common Shares, which First Offer shall
(i) specify the number of Common Shares proposed to be transferred, (ii) specify
the proposed purchase price, which shall be on an all cash basis, and (iii)
contain an irrevocable offer to sell such Common Shares at such price to RSL or
CGC Shareholder, as the case may be. RSL or CGC Shareholder, as the case may be,
may accept, in whole but not in part, the offer contained in the First Offer by
written notice (an "Acceptance") to the other such Shareholder not later than 20
Business Days after receipt of the First Offer. If RSL or CGC Shareholder, as
the case may be, accepts the offer contained in the First Offer within such 20
Business Day period, it shall purchase the Common Shares referred to in the
First Offer as provided in the First Offer no later than 30 days from acceptance
of the First Offer. The offering Shareholder shall deliver such Common Shares,
free and clear of any liens and encumbrances, to the acquiring Shareholder
against delivery of the purchase price therefor. If RSL or CGC Shareholder, as
the case may be, does not accept the offer contained in the First Offer within
such 20 Business Day period, then the offering Shareholder shall have the right
to sell the shares of Common Stock referred to in the First Offer on the terms
set forth in the First Offer, provided that the proposed transferee is a
Qualified Transferee and that

- 20 -

<PAGE>

simultaneously with any sale, the proposed transferee shall become a party to
this Agreement as a Shareholder and shall agree to be bound by all the
provisions of this Agreement. If the Shareholder which delivered the First Offer
fails to consummate the sale within 60 days following the date of the First
Offer, then the transfer of the shares referred to in the First Offer shall
again be subject to compliance with this Section 6.4.

ARTICLE VII

REPRESENTATIONS AND WARRANTIES

Section 7.1. General Representations and Warranties. Each Shareholder, and
each additional Shareholder becoming party hereto, represents, warrants and
covenants to the other Shareholder(s) that as of the date hereof, except as
otherwise disclosed in this Agreement:

(i) It is an entity that is duly organized, validly existing and in
good standing under the laws of its jurisdiction of organization, with all
of its capital stock owned as set forth in Schedule 2 hereto and has all
requisite power and authority to enter into this Agreement and to carry
out the transactions contemplated by this Agreement.

(ii) All proceedings required to be taken by it to authorize the
execution, delivery and performance of this Agreement by it have been
properly taken, and this Agreement constitutes its valid and binding
obligation, enforceable against it in accordance with its terms, except as
limited by bankruptcy and other similar laws affecting creditors' rights
generally and limitations on the availability of equitable remedies.

(iii) Neither the execution and delivery nor the performance of this
Agreement by it will conflict with, result in a breach of or default under,
or result in the acceleration of maturity of any indebtedness or the
creation of any lien, charge or encumbrance pursuant to, any provision of
its certificate of incorporation or by-laws, or any other similar governing
instruments, or any material franchise, mortgage, deed of trust, lease,
permit, license agreement, contract, instrument or restriction to which it
is a party or by which it or its properties may be bound or affected.

(iv) Neither the execution and delivery nor the performance of this
Agreement by it will violate any applicable law, rule, regulation, order,
injunction or decree of any foreign or domestic government or department,
commission, board, bureau, agency or instrumentality.

- 21 -

<PAGE>

(v) No broker or finder has acted for it in connection with the
transactions contemplated by this Agreement.

(vi) Such Shareholder has good, valid and legal title to any assets
(including any cash) that such Shareholder is contributing to the Company
or its Subsidiaries free and clear of any liens, pledges, mortgages, claims

or other encumbrances.

Section 7.2. Representations and Warranties as to Sprintel. Divtel hereby
represents and warrants to RSL that as of the date hereof, except as disclosed
in Schedule 3 attached hereto:

(i) Divtel has good, valid and legal title to the ownership interests
in Sprintel to be transferred to the Company pursuant to Section 3.2.B,
free and clear of any liens, pledges, mortgages, claims or other
encumbrances;

(ii) the Balance Sheet of Sprintel as at December 31, 1996 attached
hereto as Schedule 4 (the "Sprintel Balance Sheet") has been prepared in
accordance with Venezuelan generally accepted accounting principles and
fairly presents the financial condition of Sprintel as at December 31,
1996;

(iii) except as reflected in the Balance Sheet and except as incurred
in the ordinary course of business since December 31, 1996, Sprintel has no
liabilities or obligations with respect to taxes of any nature;

(iv) Sprintel is neither a plaintiff nor a defendant in any litigation
pending in any court, in any arbitration proceeding or in any governmental
administrative proceeding; and

(v) Sprintel does not have any unsatisfied receivables owing from, or
payables owing to, Divtel or any Affiliate of Divtel that are aged over 90
days.

ARTICLE VIII

CERTAIN COVENANTS

Section 8.1. Financial Information. The Shareholders shall, and shall
cause their representatives on the Board of Directors to, cause the Company to
prepare in accordance with GAAP (i) not later than 90 days after the end of each
fiscal year, which shall end on December 31, audited financial statements of the
Company and its Subsidiaries, and (ii) not later than 45 days after the end of
each fiscal quarter (other than the final quarter of the fiscal year), unaudited
financial

- 22 -
<PAGE>

statements of the Company and its Subsidiaries and shall also cause the Company
to provide on a timely basis all statements necessary for each Shareholder to
prepare its tax returns as they relate to such Shareholder's interest in the
Company.

Section 8.2. Dividends. Not later than June 30 of each year commencing June
30, 2000, the Shareholders shall, and shall cause their representatives on the
Board of Directors to, take all such action so that Excess Cash (as defined
below) held by the Company shall be distributed as cash dividends with respect

to the Common Shares in respect of the preceding fiscal year, subject to the
provisions of applicable law. "Excess Cash" shall mean 70% of the net increase
in cash and cash equivalents (less the Company's debt proceeds and contributions
to capital and less amounts specified in the Annual Budget to serve as a source
of funds for capital expenditures) as shown in the Company's audited
consolidated Statement of Cash Flows as of December 31 of the second fiscal year
preceding the year in which the Board of Directors declares such cash dividend
as compared with the cash and cash equivalents as shown in the Company's audited
consolidated Statement of Cash Flows as of December 31 of the fiscal year
preceding the year in which the Board of Directors declares such cash dividend.
The Board of Directors of the Company may determine, in its discretion, to
increase the amount of such cash dividends. The Company shall cause its
Subsidiaries to distribute dividends to the Company to the extent necessary to
facilitate the payment of dividends by the Company as contemplated by this
Section 8.2, subject to the provisions of applicable law.

Section 8.3. Confidentiality. Each Shareholder shall use, and shall cause
its Affiliates, employees and agents to use, their respective reasonable best
efforts to ensure that confidential proprietary information concerning the
business and affairs of the Company and its Subsidiaries are not disclosed to
third parties unless the Company shall have consented to such disclosure;
provided, however that such information may be disclosed to third parties to the
extent reasonably required to accomplish any transfer permitted by Article VI,
Section 8.7 or the Registration Rights Agreement, as necessary in connection
with any private offering of securities of a Shareholder or any of its
Affiliates if the offerees agree in writing to keep such information
confidential, as necessary in connection with any Public Offering of securities
of a Shareholder or any of its Affiliates (and related reporting obligations
occasioned thereby), and as required by law.

Section 8.4. Covenant Not To Compete. Until the earlier of (x) an Event of
Termination or (y) the expiration of two years from the date a Shareholder and
its Affiliates ceases to be a Shareholder, a Shareholder and its Affiliates
shall not operate, manage or acquire any equity interest in or assets of any
Competing Business; provided, however, that (A) subject to the provisions of the
second paragraph of this Section 8.4, RSL

- 23 -

<PAGE>

and its Affiliates may operate, manage or acquire any equity interest in or
assets of TresCom International, Inc. ("TresCom") but in any such case shall
ensure that TresCom does not conduct any business in the Territory except in
Puerto Rico and the U.S. Virgin Islands, (B) subject to the provisions of the
second paragraph of this Section 8.4, CGC Shareholder or any of its Affiliates
may operate, manage or acquire any equity interest in or assets of any company
included in a Spaceway Joint Venture, and (C) without regard to the provisions
of the second paragraph of this Section 8.4, a Shareholder and its Affiliates
(i) may acquire not more than 10% of the outstanding shares or other units of
each class of equity securities of a Competing Business and (ii) may operate,
manage or acquire any equity interest in any Person that derives not more than
15% of its gross revenues from one or more Competing Businesses. If a
Shareholder or one or more of its Affiliates operates, manages or holds in

excess of 10% of the outstanding shares or other units of any class of equity
securities of a Competing Business or of a Person that derived not more than 15%
of its gross revenues from one or more Competing Businesses at the time of
commencement of such operation, management or acquisition of an equity interest,
but thereafter derives more than 15% of its gross revenues from one or more
Competing Businesses, then such Shareholder and its Affiliates shall take prompt
action to restore their compliance with this Section 8.4. Such action might,
but would not necessarily, consist of an offer to and acceptance by the Company
of the acquisition of such Person or of the equity interests in such Person held
by such Shareholder or one or more of its Affiliates. The covenants contained in
this Section 8.4 shall not apply to a Shareholder, or to a group of
Shareholders that are Affiliates, or to its or their Affiliates, from and after
the time that such Shareholder or group of Shareholders becomes the only
Shareholder or Shareholders that hold Common Shares, but such covenant shall
continue to apply, as and to the extent set forth in this Section 8.4, to
Shareholders that have ceased to hold Common Shares and their Affiliates.

If RSL or any of its Affiliates proposes to operate, manage or acquire any
equity interest in or assets of TresCom, it shall offer to CGC Shareholder and
its Affiliates a direct or indirect participation in such operations or
management arrangements or such equity or assets on the same terms and
conditions as are applicable to RSL or any of its Affiliates. The amount of such
participation shall be determined by RSL at its sole discretion. Such offer
shall be made within a reasonable period after the definitive terms and
conditions of such arrangements or acquisition have been established. If CGC
Shareholder or any of its Affiliates proposes to operate, manage or acquire any
equity interest in or assets of any company included in a Spaceway Joint
Venture, it shall offer to RSL and its Affiliates a participation in such
operations or management arrangements or such equity or assets on the same terms
and conditions as are applicable to CGC Shareholder or any of its Affiliates
except as to pricing terms, which shall be at fair

- 24 -

<PAGE>

market value at the time of the offer. The amount of such participation shall be
determined by CGC Shareholder at its sole discretion. Such offer shall be made
not later than six months prior to the planned date of commencement of the first
lease or ownership of satellite facilities by the Spacaway Joint Venture. If RSL
or an Affiliate of RSL does not accept such offer, and if RSL reasonably
determines that the participation of CGC Shareholder or any of its Affiliates in
the Spaceway Joint Venture constitutes participation in a Competing Business,
then CGC Shareholder and its Affiliates shall have the right to, and shall be
required to, exchange all of the shares of Common Stock held by them for their
Proportionate Share of the Common Stock of RSL pursuant to Section 8.7 as if
such determination were a Qualifying Sale and a Public Offering of shares of
Common Stock of RSL.

Section 8.5. Parent Holdinq Company Transfer Restrictions. Each of the
Shareholders covenants on behalf of its Affiliates that the Transfer of shares
of capital stock of any Parent Holding Company of it shall be subject to the
restrictions on transfer contained in Sections 6.2, 6.3 and 6.4, mutatis
mutandis.

Section 8.6. No U.S. Trade or Business. The Shareholders shall use their
reasonable best efforts in order to cause the Company and its Subsidiaries to
conduct their respective businesses so that it or they will not be considered to
be engaged in a trade or business in the United States for U.S. Federal income
tax purposes; provided, however, that each member of the Board of Directors or
of any committee thereof may participate in a meeting of the Board or of such
committee by means of conference telephone or similar communications equipment
from the United States.

Section 8.7. Exchange and Sale Option. In the event of the first Qualifying
Sale and of each Qualifying Sale occurring during the period of 10 years from
and after the date of consummation of the first Qualifying Sale, CGC Shareholder
and its Affiliates shall have the right (i) (x) to the extent such Qualifying
Sale involves a Public Offering of shares of Common Stock of RSL, to exchange
all or a portion of the Common Shares held by them for up to their Proportionate
Share of the then outstanding shares of Common Stock of RSL, giving effect to
such exchange, (y) to the extent such Qualifying Sale involves shares of Common
Stock of RSL but not a Public Offering, to exchange all or a portion of Common
Shares for up to their Proportionate Share of the shares of Common Stock of RSL
subject of such Qualifying Sale or (z) in the event of a Qualifying Sale
involving a sale of assets, to exchange such Common Shares for up to a
Proportionate Share of an undivided interest in the assets subject of such
Qualifying Sale and (ii) to sell such shares of Common Stock, or undivided
interest in such assets, as the case may be, in the manner and pursuant to the
procedures set forth in Annex E hereto.

- 25 -

<PAGE>

RSL agrees (i) that if RSL and/or its Subsidiaries, or the Company and/or
its Subsidiaries, or their respective businesses are reorganized, restructured
or recapitalized or RSL or the Company issues additional classes of capital
stock or enters into any other transaction, or the shareholders of RSL Transfer
shares of Common Stock of RSL other than in a Qualifying Sale, which in any case
would adversely impact the rights of CGC Shareholder and its Affiliates under
this Section 8.7, RSL will negotiate in good faith to supplement the provisions
of this Section 8.7 and Annex E so as to provide to CGC Shareholder and its
Affiliates the benefits intended to be conferred by this Section 8.7, (ii)
that to the extent the same is reasonably determinable RSL will reserve and keep
available for issuance any shares issuable as contemplated by this Section 8.7,
and (iii) that RSL will include in any agreement relating to a Qualifying Sale
(to the extent relevant) provisions which will give effect to this Section 8.7.
All other Shareholders agree to cooperate in the performance by RSL of its
obligations under this Section 8.7.

Section 8.8. Services Arrangements and Other Transactions with Affiliates.

A. RSL Services. RSL shall make available, and shall cause its Affiliates
to make available, to the Company, the Holding Company and the Local Operating
Companies all of the switching, transmission and termination services, whether
owned or leased or otherwise acquired from, or operated in joint venture with,
third parties, of the integrated telecommunications network of RSL and its

Affiliates as the same shall exist from time to time, including without
limitation such services for telecommunications originated by and terminating at
the Company, the Holding Company, the Local Operating Companies or their
customers. Such capacity and services shall be made available to the Company,
the Holding Company and the Local Operating Companies, for so long as RSL or its
Affiliates hold any Common Shares and for a period of two years thereafter, at
the direct cost of providing such services, without inclusion of overhead costs
and after taking into account discounted rates or service credits provided under
Operating Agreements, plus $0.01 per minute of transmission time (as
supplemented from time to time pursuant to the next sentence of this Section
8.8(A)), "Direct Cost"). Periodically, but not less than once a year, the
parties shall meet to negotiate and determine fair and equitable supplements to
the definition of Direct Cost to cover such items as changed terms of resale
agreements, rounding intervals, charges for switching, the provision of billing
and call details on disc or magnetic tape, and parameters of transmission time
(including the treatment of connect time, busy signals, no answer calls and
disconnect time). These determinations as to each party providing services shall
be not less favorable to the party receiving services than the treatment
accorded to the most favored non-Affiliate customer of the party providing
services.

- 26 -

<PAGE>

B. Company Services. The Company shall make available, and shall cause the
Holding Company and the Local Operating Companies to make available, to RSL and
its Affiliates all of the switching, transmission and termination services,
whether owned or leased or otherwise acquired from, or operated in joint venture
with, third parties, of the integrated telecommunications network of the
Company, the Holding Company and the Local Operating Companies as the same shall
exist from time to time, including without limitation such services for
telecommunications originated by and terminating at RSL, its Affiliates or their
customers. Such capacity and services shall be made available to RSL and its
Affiliates, for so long as RSL and its Affiliates hold any Common Shares and for
a period of two years thereafter, at the Direct Cost thereof.

C. Pricing Adjustments; Non-Exclusivity of Services. It is the intention of
RSL and the Company that the Direct Cost pricing of the provision of services
under Sections 8.8.A and 8.8.B be adjusted (or other arrangements be made) to
the extent appropriate to provide for a fair and equitable sharing of profits
made on transactions involving both parties. While it is deemed that the party
initiating telecommunications transmissions in routine calling transactions is
entitled to such profits as may be made on such transactions (therefore
resulting in the Direct Cost provisions of Sections 8.8.A and 8.8.B), routine
calling transactions between the same places in which there is a great disparity
in prices that can be charged or profit margins that can be realized by the
initiating party due to regulatory structures or other causes, and certain other
transactions, will require the negotiation of other terms. Such transactions
include, without limitation, the issuances and sales of calling cards by the
Company and by RSL Affiliates for use in making calls to and from the Territory
and the calls made pursuant thereto. The parties agree to negotiate fair and
equitable adjustments to the pricing of transactions between them in these and
other situations in which it would be appropriate to do so. RSL and the Company

also agree that each party's use of the services of the other under Section
8.8.A or 8.8.B is at the discretion of such party if another service provider
offers comparable or better services at lower cost (but no party shall use the
services of another provider for the primary purpose of avoiding any pricing
adjustments called for by this Section 8.8.C).

D. Other Transactions with Affiliates. Except as otherwise specifically
provided in Section 8.8.A, 8.8.B or 8.8.C or any other provision of this
Agreement, (i) for so long as RSL or any of its Affiliates holds Common Shares
all transactions between RSL or any of its Affiliates, on the one hand, and the
Company, the Holding Company or any of the Local Operating Companies, on the
other hand, and (ii) for so long as CGC Shareholder or any of its Affiliates
holds Common Shares all transactions between CGC Shareholder or any of its
Affiliates, on the one hand, and the Company, the Holding Company or any of the

- 27 -

<PAGE>

Local Operating Companies, on the other hand, shall be on terms that are at
least as favorable to the Company, the Holding Company and the Local Operating
Companies as those that could be obtained as a result of arm's-length
negotiations with nonaffiliated third parties with respect to comparable
transactions.

Section 8.9. Other Restrictive Covenants. The Shareholders will and will
cause their respective designees on the Board of Directors and their Affiliates
to use commercially reasonable efforts to maintain the ability to fund the
Ccmpany, and for the Company to operate, in accordance with the Annual Budget
and Four Year Plan.

Section 8.10. Funding. Unless otherwise agreed by Super Majority Vote, the
Shareholders will cause their respective designees on the Board of Directors to
take such actions as are appropriate to approve and call for funding of the
Company in accordance with the then effective Annual Budget.

ARTICLE IX

TERMINATION, DISSOLUTION AND BUY OUT

Section 9.1. Term and Termination. This Agreement shall terminate on the
dissolution and liquidation of the Company. The By-Laws of the Company provide
that the Company shall be dissolved and liquidated in the event of an Impasse
that does not result in a buyout as contemplated by Section 9.2 (an "Event of
Termination") and each Shareholder agrees to vote its shares of Common Stock in
favor of such dissolution and liquidation as required by the By-Laws of the
Company.

Section 9.2. Buyout. Each of CGC Shareholder and RSL (including for
purposes of this Section 9.2 their respective Affiliates which are Shareholders)
shall have the right to implement the Buyout Procedures set forth in Annex F
hereto in the event of an Impasse.

If, within 12 months after consummation of the sale by CGC Shareholder of

its Common Shares pursuant to this Section 9.2 and Annex F hereto, there is a
Qualifying Sale in which CGC Shareholder would have been entitled to elect to
participate in accordance with the provisions of Section 8.7 and Annex E had it
not so sold its Common Shares, RSL shall within 10 days after consummation of
such Qualifying Sale pay to CGC Shareholder an amount equal to the amount by
which (i) the aggregate proceeds per Common Share that would have been received
by CGC Shareholder from such Qualifying Sale if it had not sold its Common
Shares pursuant to this Section 9.2 and Annex F hereto but instead had
participated to the maximum extent permissible in such Qualifying Sale exceeds
(ii) the aggregate price per Common Share for the same number of Common Shares
received by CGC Shareholder for its Common Shares pursuant to this Section 9.2
and Annex F hereto

- 28 -

<PAGE>

plus an amount equal to the pro rata portion attributable to such same number of
Common Shares of any net equity investments made by RSL in the Company during
such 12 month period and plus an amount representing a return at the rate of 20%
per annum deemed earned on such pro rata portion of any equity investments and
plus an amount representing a return at the rate of 20% per annum deemed earned
on the pro rata portion attributable to such same number of Common Shares of any
net debt investments made by RSL in the Company during such 12 month period. For
purposes of calculation, the pro rata portion attributable to such same number
of Common Shares of any such net equity investments or debt investments shall be
determined by multiplying such net equity investments or debt investments by a
fraction, the numerator of which shall be such same number of Common Shares and
the denominator of which shall be the number of Common Shares outstanding at the
time of the consummation of the sale by CGC Shareholder of its Common Shares
pursuant to this Section 9.2 and Annex F hereto. The payment of such amount
shall be made in the same kind (and proportion, if more than one kind) of
consideration as that involved in the Qualifying Sale, including without
limitation the same currency.

If, within 12 months after consummation of the sale by RSL of its Common
Shares pursuant to this Section 9.2 and Annex F hereto, there is (A) a Public
Offering of Common Shares, (B) a sale or other disposition in one or a series of
related transactions (including a disposition effected by way of a merger or
similar transaction and whether or not pursuant to a Public Offering) of Common
Shares or securities which are convertible into or exercisable for Common
Shares, possessing a majority of the voting power under ordinary circumstances
to elect directors, measured after giving effect to any issuance of Common
Shares or other securities involved in such sale or disposition and the deemed
conversion or exercise of any such securities, or (C) a sale of 50% or more in
value of the assets of the Company, CGC Shareholder shall within 10 days after
consummation of such transaction pay to RSL an amount equal to the amount by
which (i) the aggregate proceeds per Common Share that would have been received
by RSL (x) directly by its participation in such Public Offering or such
disposition of Common Shares or securities on a pro rata basis with CGC
Shareholder, if CGC Shareholder sold any Common Shares in such Public Offering
or such disposition of Common Shares or securities, or (y) indirectly through
the receipt of proceeds of such transaction by the Company, if RSL had not sold
its Common Shares pursuant to this Section 9.2 and Annex F hereto, exceeds (ii)

the aggregate price per Common Share received by RSL for the same number of
Common Shares, in the case of a Public Offering or disposition of Common Shares
or securities referred to in clause (x) above, or exceeds the aggregate price
received by RSL for all of its Common Shares, in the case of a transaction
referred to in clause (y) above plus an amount equal to the pro rata portion
attributable to such same number of Common Shares of any net equity investments
made by CGC Shareholder in the Company during such 12 month period and plus

- 29 -

<PAGE>

an amount representing a return at the rate of 20% per annum deemed earned on
such pro rata portion of any equity investments and plus an amount representing
a return at the rate of 20% per annum deemed earned on the pro rata portion
attributable to such same number of Common Shares of any net debt investments
made by CGC Shareholder in the Company during such 12 month period. For purposes
of calculation, the pro rata portion attributable to such same number of Common
Shares of any such net equity investments or debt investments shall be
determined by multiplying such net equity investments or debt investments by a
fraction, the numerator of which shall be such same number of Common Shares and
the denominator of which shall be the number of Common Shares outstanding at the
time of the consummation of the sale by RSL of its Common Shares pursuant to
this Section 9.2 and Annex F hereto. The payment of such amount shall be made in
the same kind (and proportion, if more than one kind) of consideration as that
involved in the Qualifying Sale, including without limitation the same currency.

The determination of the amount to be paid pursuant to either of the two
preceding paragraphs of this Section 9.2 shall be made, and certified to CGC
Shareholder and RSL, by the independent accountants for the Company and shall be
binding on the parties absent manifest error.

ARTICLE X

MISCELLANEOUS

Section 10.1. Notices. All notices and other communications provided for
hereunder shall be dated and in writing and shall be deemed to have been given
(i) when delivered, if delivered personally, sent by confirmed telecopy or sent
by registered or certified mail, return receipt requested, postage prepaid, (ii)
on the third business day if sent by overnight courier and (iii) when received
if delivered otherwise. Such notices shall be addressed to the appropriate party
to the attention of the person who executed this Agreement at the address set
forth under such party's signature below (or to the attention of such other
person or to such other address as such party shall have furnished to each other
party in accordance with this Section 10.1).

Section 10.2. Binding Nature of Agreement. This Agreement shall be binding
upon and inure to the benefit of and be enforceable by the parties hereto, their
successors in interest and their permitted assigns.

Section 10.3. Descriptive Headings. The descriptive headings of the several
sections and paragraphs of this Agreement are inserted for reference only and
shall not limit or otherwise affect the meaning hereof.

- 30 -

<PAGE>

Section 10.4. Specific Performance. Without limiting the rights of each
party hereto to pursue all other legal and equitable rights available to such
party for any other party's failure to perform its obligations under this
Agreement, the parties hereto acknowledge and agree that the remedy at law for
any failure to perform their obligations hereunder would be inadequate and that
each of them, respectively, shall be entitled to specific performance,
injunctive relief or other equitable remedies in the event of any such failure.

Section 10.5. Governing Law. THIS AGREEMENT SHALL BE CONSTRUED AND ENFORCED
IN ACCORDANCE WITH, AND THE RIGHTS OF THE PARTIES SHALL BE GOVERNED BY, THE LAWS
OF THE STATE OF NEW YORK, WITHOUT REGARD TO THE PRINCIPLES OF CONFLICTS OF LAW
THEREOF.

Section 10.6. Counterparts. This Agreement may be executed simultaneously
in any number of counterparts, each of which shall be deemed an original, but
all such counterparts shall together constitute one and the same instrument.

Section 10.7. Severability. 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 in any respect for any reason, the
validity, legality and enforceability of any such provision in every other
respect and of the remaining provisions contained herein shall not be in any way
impaired thereby, it being intended that all of the rights and privileges of the
parties hereto shall be enforceable to the fullest extent permitted by law.

Section 10.8. Entire Agreement. This Agreement is intended by the parties
hereto as a final and complete expression of their agreement and understanding
with respect to the subject matter contained herein and supersedes all prior
agreements, negotiations and understandings, written or oral, among the parties
with respect to the subject matter hereof and thereof.

Section 10.9. Amendment and Waiver. Any provision of this Agreement may be
amended if, but only if, such amendment is in writing and is signed by the
Shareholders (and other parties hereto to the extent affected thereby). Any
provision may be waived if, but only if, such waiver is in writing and is signed
by or on behalf of the party waiving such provision.

Section 10.10. No Third Party Beneficiaries. Nothing in this Agreement
shall confer any rights upon any person or entity which is not a party to this
Agreement, except as expressly set forth herein.

Section 10.11. Arbitration. Except as otherwise provided in Section 10.4,
the parties agree to submit any disputes arising out of, relating to, or in
connection with, the interpretation, execution or performance of this Agreement
to final and binding arbitration in New York, New York. The rules

- 31 -

<PAGE>

of the American Arbitration Association ("AAA") shall apply except to the
extent modified by this Section 10.11. Each party shall bear its own costs and
expenses in connection with any such arbitration, but shall share equally in the
expenses and fees assessed by AAA. The arbitration shall be conducted in English
before three arbitrators. Each party (including all of its Affiliates which are
also parties) involved in the arbitration shall appoint one arbitrator, and the
arbitrators so appointed shall choose another arbitrator. If the arbitrators
chosen by the Shareholders cannot agree on the choice of the other arbitrator
within a period of 30 days after their appointment, then the other arbitrator
shall be appointed by AAA. The arbitrators shall state the reasons upon which
the award is based. The award of the arbitrators shall be final and binding upon
the parties and shall not be subject to appeal to any court or other authority,
except to the extent required by applicable law. Judgment upon the award may be
entered in any court having jurisdiction, and application may be made to any
such court for a judicial acceptance of the award and an order for enforcement.

Section 10.12. Survival. The representations and warranties contained in
Sections 7.1 and 7.2 shall survive the execution and delivery hereof and for a
period of three years after the date hereof.

- 32 -

<PAGE>

IN WITNESS WHEREOF, the parties have caused this Agreement to be executed
and delivered as of the day and year first set forth above.

RSL COMMUNICATIONS, LATIN
AMERICA, LTD.

By
-----------------------------
Name:
Title:

Clarendon House
2 Church Street
Hamilton HM II
Bermuda

RSL COMMUNICATIONS, LTD.

By
-----------------------------
Name:
Title:

767 Fifth Avenue
Suite 4300
New York, New York 10153

CORAL GATE INVESTMENTS LTD.

By
----------------------------
Name:
Title:

Omar Hodge Building
2nd Floor
Wickham's Cay
Road Town
Tortola
British Virgin Islands

INVERSIONES DIVTEL, D.T., C.A.
as to Section 3.2(B) and
Articles VII and X

By
-----------------------------
Name:
Title:

Av. Orinoco entre Perija y
Mucuchies

Edificio Multimarket, Piso P.H.
Las Mercedes
Caracas, Venezuela

- 33 -

<PAGE>

ANNEX E

Qualifying Sale Procedures

Set forth below are the procedures to be followed in respect of
transactions pursuant to Section 8.7:

1. RSL shall inform CGC Shareholder in writing of every Qualifying Sale
no later than 45 days prior to the earlier to occur of filing of a
registration statement or similar document with the Commission or any
other regulatory authority or securities exchange or national market
system or the determination of a projected closing date of the
consummation of the Qualifying Sale (the "Notice Date"), which notice
shall be accompanied by RSL's determination of the Proportionate
Share.

2. If requested by CGC Shareholder, RSL and CGC Shareholder shall meet
within five Business Days after the Notice Date to mutually agree on
the Proportionate Share. If RSL and CGC Shareholder are unable to
agree on the Proportionate Share within such five Business Days, then
within three Business Days after such five Business Days, RSL and CGC
Shareholder shall appoint Morgan Stanley & Co. Incorporated (whether
or not it has a conflict of interest, or such other investment banking
firm specified by Morgan Stanley & Co. Incorporated if the latter
firm declines the proposed appointment) to determine the Proportionate
Share and communicate the same to RSL and CGC Shareholder within 15
Business Days thereafter. The determination of the Proportionate Share
by such investment banking firm shall be binding on the Shareholders.
The fee and reimbursable expenses of such investment banking firm for
such determination shall be borne equally by the parties as to any
determinations of the Proportionate Share initiated during the period
of seven years from and after the date of consummation of the first
Qualifying Sale, and thereafter such fee and expenses shall be borne
by CGC Shareholder.

3. Not later than ten Business Days after the determination of the
Proportionate Share, CGC Shareholder may elect to exchange some or all
of its Common Shares pursuant to Section 8.7. At any time after the
consummation of a Qualifying Sale that involves a Public Offering of
shares of Common Stock of RSL and until the Notice Date applicable to
the next Qualifying Sale, provided that two years since the date of
consummation of the last prior Qualifying Sale have passed, CGC
Shareholder may request by written notice to RSL that the then
applicable Proportionate Share be

- 34 -

<PAGE>

determined, in which case the Proportionate Share shall be determined
as provided in paragraph 2 of this Annex F as if the Notice Date were
the date of such written notice to RSL. Not later than ten Business

Days after such determination of the then applicable Proportionate
Share, CGC Shareholder may elect to exchange some or all of its Common
Shares pursuant to Section 8.7.

4. It CGC Shareholder elects to exchange some or all of its Common Shares
pursuant to Section 8.7 and any ensuing Qualifying Sale involves the
sale or other disposition of shares of Common Stock of RSL, CGC
Shareholder may participate in such sale or other disposition of
shares (x) in accordance with and subject to the limitations of the
Registration Rights Agreement, in the case of a Public Offering, and
(y) on the same terms and conditions as are applicable to the sale or
other disposition by RSL and any of its Affiliates, directly or
indirectly, of such shares, up to such percentage of the number of
shares held by it as shall be equal to the percentage of the number of
shares held by RSL and any such Affiliates, directly or indirectly,
that is being sold or otherwise disposed of by RSL and any such
Affiliates, directly or indirectly. If CGC Shareholder elects pursuant
to Section 8.7 to exchange some or all of its Common Shares for an
undivided interest in the assets subject of a Qualifying Sale, CGC
Shareholder shall sell or otherwise dispose of such undivided interest
in assets on the same terms and conditions as are applicable to the
sale or other disposition by RSL of its direct or indirect interest in
such assets.

- 35 -

<PAGE>

STOCKHOLDERS' AGREEMENT

THIS STOCKHOLDERS' AGREEMENT (this "Agreement"), dated as of July 23, 1997,
by and among Delta Three, Inc., a Delaware croporation (the "Company"), and each
of the persons who have executed this Agreement and all other persons who may
hereafter acquire shares of the capital stock of the Company (together with any
rights to acquire such capital stock, herein referred to as (the "Capital
Stock") and become a party to this Agreement as hereinafter provided (the
persons, other than the Company, who have executed this Agreement and such other
persons who hereafter acquire shares of Capital Stock and become a party hereto
being collectively referred to herein as the "Stockholders").

W I T N E S S E T H:

WHEREAS, the Stockholders are the owners and registered holders of all of
the outstanding shares of the Capital Stock;

WHEREAS, the Company and the Stockholders desire to set forth certain
agreements between and among them with respect to the shares of Capital Stock
now and hereafter outstanding and certain rights represented thereby; and

WHEREAS, the Company and the Stockholders desire to make certain
representations and agreements with respect to the acquisition of shares of
Capital Stock of the Company by the Stockholders and the transferability of
such shares.

NOW, THEREFORE, in consideration of the mutual agreements hereinafter set
forth, the parties hereto hereby agree as follows:

ARTICLE I

Representations and Warranties

Section 1.1. Representations and Warranties to RSL. Each Stockholder other
than RSL Communications, Ltd. (each, a "Non-RSL Stockholder"), severally and not
jointly, represents and warrants to RSL Communications, Ltd. ("RSL") that the
shares of Capital Stock and other securities exercisable for or convertible into
Capital Stock listed on Schedule 1 hereto as being owned by him constitute all
of the equity ownership or rights to equity ownership of the Company owned by
him; that he has no other rights, options, or warrants to purchase equity
interests in the Company, whether granted by a Non-RSL Stockholder or the
Company; that such securities are not subject to any lien, charge or encumbrance
and are beneficially owned solely by such Stockholder; and that he owns no other
securities which are convertible into equity interests in the Company.

<PAGE>

Section 1.2. Indemnification by the Non-RSL Stockholders. Each Non-RSL
Stockholder, severally and not jointly, shall indemnify RSL for breach of his
representation and warranty set forth in Section 1.1 hereof, it being understood
that the intent of the parties hereto is that RSL shall own no less than 51% of
all equity interests in the Company on a fully-diluted basis as of the date
hereof.

ARTICLE II

Corporate Governance

Section 2.1. Election of Board of Directors. Subject to Section 3.3.2, all
of the Stockholders agree to vote their shares of Capital Stock, either by
execution of a written consent or at annual or special meetings called for the
purpose, for the election and maintenance of a Board of Directors of the Company
consisting of five persons of whom three persons shall be nominated by RSL, one
person shall be nominated by Jacob A. Davidson ("Davidson") and one person shall
be nominated by Pioneer Management Corporation, LLC, a Nevada limited liability
company ("Pioneer").

Section 2.2. Migration. If, at any time after the date hereof, RSL requests
that the Company be either reincorporated in Bermuda or any other jurisdiction
within or outside the United States or merged into a corporation organized under
the laws of Bermuda or any other jurisdiction within or outside the United
States, the Company and the Non-RSL Stockholders agree to take such actions
(including, but not limited to, voting their shares of Capital Stock, either by
execution of a written consent or at a special meeting called for that purpose),
and the Non-RSL Stockholders agree to cause the directors of the Company
nominated by them to take such actions, to cause the Company to be so
reincorporated or merged on the most advantageous basis to the Company and the
Stockholders provided that such reincorporation or merger can be accomplished
tax-free and without any direct charges to the Stockholders.

ARTICLE III

Transfers of Capital Stock to Third Parties

Section 3.1. Restrictions on Transfer by Non-RSL Stockholders.

3.1.1 Non-Transferability Period. Each of the Non-RSL Stockholders agrees
that it will not sell, transfer, assign or otherwise dispose of or pledge,
hypothecate or otherwise create or permit to be created any lien, claim, charge
or other encumbrance (each, a "Transfer") upon any shares of the Capital

<PAGE>

Stock or any other securities of the Company that may now or hereafter be held
or owned by it, except for Transfers to RSL or its designated affiliates, for a
period commencing on the date hereof and ending on the third anniversary of the
date hereof (the "Non-Transferability Period"); provided, however, that,
notwithstanding anything to the contrary contained herein, each Non-RSL
Stockholder shall have the right, in its sole and absolute discretion, to sell
or transfer any or all shares of the Capital Stock or any other securities of
the Company that may now or hereafter be held or owned by it to an affiliate of
such Non-RSL Stockholder (which term, as it relates to a natural person shall be
deemed to mean a spouse, sibling, child and trusts for the benefit of such
person and the foregoing) without any of the restrictions or limitations
contained herein; provided that such affiliate shall be required to agree in
writing, in form satisfactory to RSL, to become a party to this Agreement and to
hold the transferred shares of Capital Stock or other securities subject to the
same obligations as if held by such Non-RSL Stockholder.

3.1.2 RSL's Right of First Refusal.

(a) From and after the expiration of the Non-Transferability Period, each
of the Non-RSL Stockholders agrees that it will not Transfer any shares of the
Capital Stock or any other securities of the Company that may now or hereafter
be held or owned by it unless such Non-RSL Stockholder shall have first offered
such shares or other securities to RSL pursuant to this Section 3.1.2 and
unless, in the opinion of legal counsel reasonably satisfactory to the Company,
such Transfer is exempt from the provisions of the Securities Act of 1933, as
amended, or the rules and regulations promulgated thereunder, and any other
applicable federal or state law; and, in any event, not to sell, transfer,
assign or otherwise dispose of any of such shares or other securities (or the
certificates representing the same) unless the purchaser(s), assignee(s),
transferee(s) or other parties (other than RSL) agree in writing, in form
satisfactory to legal counsel reasonably satisfactory to the Company, to abide
by and conform to the terms and conditions of this Agreement.

(b) In the event that any Non-RSL Stockholder proposes to sell, transfer,
assign or otherwise dispose any or all of the Capital Stock or other securities
of the Company which it then owns (the "Offered Securities") to a third party
(the "Proposed Purchaser"), such selling Non-RSL Stockholder shall give written
notice (the "Offer Notice") of such intention to RSL by registered or certified
mail. The Offer Notice shall (i) state the name and address of the Proposed
Purchaser, (ii) the designation of the Offered Securities and (iii) the purchase
price and the other terms and conditions on which the selling Non-RSL
Stockholder proposes to sell the Offered Securities to the Proposed Purchaser
(the "Third Party Terms"). The Offer Notice shall also be accompanied by a true
copy of any bona fide

<PAGE>

written offer received by the selling Non-RSL Stockholder from the Proposed
Purchaser. The Offer Notice shall constitute an offer to sell to RSL all of the

Offered Securities, at the election of RSL, upon the Third Party Terms.

(c) RSL shall have a period of ten (10) days (the "Offer Period") after its
receipt of the Offer Notice within which to accept such offer by giving notice
to such effect to the selling Non-RSL Stockholder within such period (the
"Acceptance Notice"). The offer referred to in the preceding sentence will
terminate if RSL fails to deliver the Acceptance Notice prior to the expiration
of the Offer Period.

(d) If RSL shall accept the offer made by the Offer Notice, then the
selling Non-RSL Stockholder shall sell to RSL, and RSL shall purchase from the
selling Non-RSL Stockholder, the Offered Securities upon the Third Party Terms
in accordance with the procedures set forth in Section 3.3.

(e) If RSL shall not accept the offer made by the Offer Notice, then within
the thirty (30) day period following the expiration of the Offer Period, the
selling Non-RSL Stockholder shall have the right to sell all, but not less than
all, of the Offered Securities to the Proposed Purchaser; provided, however,
that any such sale shall be on the Third Party Terms and in the manner set forth
in the Offer Notice. In the event that the selling Non-RSL Stockholder does not
dispose of the Offered Securities within such period, the selling Non-RSL
Stockholder may not sell any of such shares without again first offering them to
RSL in accordance with the foregoing right of first refusal.

Section 3.2. Transfers by RSL.

3.2.1 General. From and after the date hereof, RSL agrees that it will not
sell or transfer any shares of the Capital Stock that may now or hereafter be
held or owned by it except as otherwise provided in this Section 3.2; provided,
however, that, notwithstanding anything to the contrary contained herein, RSL
shall have the right, in its sole and absolute discretion, to sell or transfer
any or all shares of the Capital Stock or any other securities of the Company
that may now or hereafter be held or owned by it to an affiliate of RSL without
any of the restrictions or limitations contained herein; provided that such
affiliate shall be required to agree in writing, in form satisfactory to the
majority in interest of the Non-RSL Stockholders, to become a party to this
Agreement and to hold the transferred shares of Capital Stock or other
securities subject to the same obligations as if held by RSL.

<PAGE>

3.2.2 Right of First Refusal; Tag-Along Rights.

(a) In the event that RSL proposes to sell or transfer any or all of the
Capital Stock which it then owns (the "RSL Offered Securities") to a third party
(the "RSL Proposed Purchaser"), RSL shall give written notice (the "RSL Offer
Notice") of such intention to the Non-RSL Stockholders by registered or
certified mail. The RSL Offer Notice shall (i) state the name and address of the

RSL Proposed Purchaser, (ii) the designation of the RSL Offered Securities and
(iii) the purchase price and the other terms and conditions on which RSL
proposes to sell the RSL Offered Securities to the RSL Proposed Purchaser (the
"RSL Third Party Terms"). The RSL Offer Notice shall also be accompanied by a
true copy of any bona fide written offer received by RSL from the RSL Proposed
Purchaser.

(b) The RSL Offer Notice shall constitute an offer to sell to the Non-RSL
Stockholders, either individually or as a group, all (but not less than all) of
the RSL Offered Securities, at the election of the Non-RSL Stockholders, upon
the RSL Third Party Terms. The Non-RSL Stockholders, either individually or as a
group, shall have a period of ten (10) days (the "RSL Offer Period") after their
receipt of the RSL Offer Notice within which to accept such offer by giving
notice to such effect to RSL within such period (the "RSL Acceptance Notice").
In the event RSL receives RSL Acceptance Notices from more than one Non-RSL
Stockholder or group of Non-RSL Stockholders, each such Non-RSL Stockholder or
group of Non-RSL Stockholders, as the case may be, shall be entitled to purchase
a pro rata share of the RSL Offered Securities (i.e., the amount of Capital
Stock owned by such Non-RSL Stockholder or group of Non-RSL Stockholders, as the
case may be, divided by the total amount of Capital Stock owned by all Non-RSL
Stockholders who are parties to an RSL Acceptance Notice). The offer referred to
in this paragraph (b) will terminate with respect to each Non-RSL Stockholder
who fails to deliver an RSL Acceptance Notice prior to the expiration of the RSL
Offer Period.

(c) If the Non-RSL Stockholders shall accept the offer made by the RSL
Offer Notice, then RSL shall sell to the Non-RSL Stockholders, and the Non-RSL
Stockholders shall purchase from RSL, the RSL Offered Securities upon the RSL
Third Party Terms in accordance with the procedures set forth in Section 3.3.

(d) If any Non-RSL Stockholder shall not accept the offer made by the RSL
Offer Notice, then such Non-RSL Stockholder shall have the right within fifteen
(15) days of its receipt of the RSL Offer Notice to elect, by written notice to
RSL (the "Tag-Along Notice"), to require the RSL Proposed Purchaser to purchase
from such Non-RSL Stockholder, at the RSL Third Party Terms, up to the same
proportion of the Capital Stock held by such person as the proportion of Capital
Stock owned by RSL which is proposed to be sold to the third party; provided,

<PAGE>

however, that if any other Non-RSL Stockholder or group of Non-Stockholders
elects to accept the offer made by the RSL Offer Notice, then the Non-RSL
Stockholders not a party to such election shall not have the right to require
either the other Non-RSL Stockholders or the RSL Proposed Purchaser to purchase
their Capital Stock. Each Non-RSL Stockholder who fails to deliver a Tag-Along
Notice to RSL prior to the expiration of the fifteen (15) day period referred to
in the preceding sentence shall forfeit all of such Non-RSL Stockholder's rights
pursuant to this paragraph (d).

(e) If the Non-RSL Stockholders shall not accept the offer made by the RSL
Offer Notice, then RSL shall have the right, within the thirty (30) day period
following the expiration of the RSL Offer Period, to sell all, but not less than
all, of the RSL Offered Securities, together with the Capital Stock of the
Non-RSL Stockholders who elect to exercise their rights pursuant to clause (d)
of this Section 3.2.2, to the RSL Proposed Purchaser; provided, however, that
any such sale shall be on the Third Party Terms and in the manner set forth in
the RSL Offer Notice. In the event that RSL does not dispose of the RSL Offered
Securities within such period, RSL may not sell any of such shares without again
first offering them to the Non-RSL Stockholders in accordance with the foregoing
right of first refusal.

3.2.3 Drag-Along Rights. The Non-RSL Stockholders severally agree that, in
the event RSL has complied with the procedures set forth in Section 3.2.2 after
receiving an offer to purchase its shares of Capital Stock from an RSL Proposed
Purchaser, they will each, if they have not elected to exercise their rights
pursuant to clause (d) of Section 3.2.2, sell to such RSL Proposed Purchaser,
upon the written request of such RSL Proposed Purchaser, a pro rata portion of
the shares of Capital Stock and derivative securities (i.e., convertible
securities, warrants and options) owned by them (in the same proportion as the
amount of RSL Offered Securities bears to all shares of Capital Stock owned by
RSL as of the date of the RSL Offer Notice) upon the RSL Third Party Terms.

Section 3.3. Closing.

3.3.1 Transfer. In the event of the exercise of a right of first refusal by
RSL in accordance with Section 3.1.2 or by the Non-RSL Stockholders in
accordance with Section 3.2.2 (the Stockholders exercising such rights being
hereinafter referred to as the "Exercising Stockholders"), the Stockholder
selling its Capital Stock (the "Selling Stockholder") shall deliver to the
Exercising Stockholders certificates representing the Offered Securities or the
RSL Offered Securities, as the case may be, and the Exercising Stockholders
shall pay the Selling Stockholder therefor no later than 12:00 noon of the tenth
business day following the expiration of the Offer Period or the

<PAGE>

RSL Offer Period, as the case may be, or such other time and date as shall be
agreed upon by the Exercising Stockholders and the Selling Stockholder. The
certificates representing the Offered Securities or the RSL Offered Securities,
as the case may be, shall be duly endorsed in blank or accompanied by
appropriate stock powers and appropriate stock transfer stamps shall be affixed
thereto.

3.3.2 Resignation of Selling Stockholder. If, upon consummation of any of
the transactions contemplated by Section 3.1.2, 3.2.2 or 3.2.3, the Selling
Stockholder shall no longer own any shares of Capital Stock or other securities
of the Company, the Selling Stockholder, if he is then a director or officer of
the Company, shall deliver to the Company his written resignation from all
positions he then holds with the Company or any subsidiary of the Company. If

there is any person acting as a director for or on behalf of such a Selling
Stockholder, such Selling Stockholder shall procure the written resignation of
each such person as a director of the Company.

ARTICLE IV

Options to Purchase or Sell Capital Stock

Section 4.1. General.

4.1.1 Purchase Price per Share. For the purposes of this Article IV, the
"Purchase Price per Share" of Capital Stock shall be based on a total Company
valuation determined by a nationally recognized investment banking firm
qualified to value the Company (the "Appraiser") selected by RSL in its sole and
absolute discretion, which shall be RSL's managing underwriter in the event of
an exercise of the First Exercise Right (as defined below); provided, however,
that in no event shall the total valuation amount imputed to the shares of
Capital Stock owned by all current stockholders of the Company other than RSL
(including all persons or entities who become stockholders upon conversion or
exercise of all securities listed on Schedule 3.02 to the Stock Purchase
Agreement, dated as of July __, 1997, by and among the Company, RSL, Davidson,
Pioneer and Elie Wurtman) be less than $5,000,000. All decisions and valuations
made by the Appraiser in accordance with the terms of this Article IV shall be
final and binding upon the parties. Such valuation amount shall be divided by
the total number of shares of Capital Stock of the Company outstanding on a
fully diluted basis to determine the Purchase Price per Share. For the purposes
of this Article IV, holders of derivative securities (i.e., convertible
securities, warrants and options) shall be required and will be deemed to have
converted or exercised such derivative securities immediately prior to a
purchase by RSL of the Non-RSL Stockholders' Capital Stock and, accordingly,
will be deemed to hold the number of shares of the Company's common stock
resulting

<PAGE>

from such conversion or exercise, which shares will be treated as Capital Stock
for all purposes of this Article IV.

4.1.2 Payment of the Purchase Price Per Share. In the event RSL elects to
purchase the shares of Capital Stock owned by the Non-RSL Stockholders pursuant
to Section 4.2 or is obligated to purchase shares of Capital Stock from the
Non-RSL Stockholders pursuant to Section 4.3, RSL shall have the option, in its
sole and absolute discretion, to (i) purchase the Capital Stock of the Non-RSL
Stockholders by cash payment (the "Cash Payment") of the Purchase Price per
Share, to be delivered in accordance with Section 4.4.1, or (ii) exchange shares
(the "Exchange Option") of RSL's Class A common stock, par value $.01 per share
("RSL Stock"), for shares of the Capital Stock held by the Non-RSL Stockholders,
in accordance with Section 4.4.2.

Section 4.2. RSL Call Option.

4.2.1 General. The Non-RSL Stockholders hereby grant to RSL the right (the
"Call Option"), exercisable, at the sole option of RSL, at any time after the
second anniversary of the date hereof, to purchase from them all of the shares
of Capital Stock that may then be owned by them.

4.2.2 Procedure. If RSL desires to exercise the Call Option, it must
purchase all, but not less than all, of the Non-RSL Stockholders' Capital Stock
and it shall give written notice (the "Option Notice") of such intention to each
such Non-RSL Stockholder by registered or certified mail. For the purposes of
determining the Purchase Price per Share for the purchase of Capital Stock
pursuant to the Call Option, the valuation of the Company by the Appraiser shall
occur as of the date of the Option Notice. Upon determination of the Purchase
Price per Share by the Appraiser in accordance with Section 4.1., RSL shall
provide written notice (the "Second Notice") to the Non-RSL Stockholders of the
Purchase Price per Share together with the Appraiser's report of its calculation
of the Purchase Price per Share. Within 10 days after receipt of the Second
Notice, each Non-RSL Stockholder shall tender to RSL its certificates for the
Capital Stock duly endorsed in blank or accompanied by appropriate stock powers
and with appropriate stock transfer stamps affixed thereto (a "Receipt Date").

Section 4.3. Non-RSL Stockholder Put Options.

4.3.1 IPO Put Option.

(a) In the event that RSL consummates an initial public offering of any
class of its equity securities (the "RSL IPO") on or prior to the third
anniversary of the date hereof, each Non-RSL Stockholder shall have the right
(the "IPO Put Option"), in accordance with the procedures set forth herein, to
sell to RSL (a) at the closing of the RSL IPO (the "First

<PAGE>

Exercise Right"), 25% of the shares of Capital Stock owned by such Non-RSL
Stockholder and (b) following the second anniversary of the date hereof (the
"Second Exercise Right"), the remaining 75% of the shares of Capital Stock owned
by such Non-RSL Stockholder; provided, however, that both the First Exercise
Right and the Second Exercise Right shall expire on the fifth anniversary of the
date hereof.

(b) RSL shall give written notice (the "IPO Notice") to the Non-RSL
Stockholders of its intention to commence an RSL IPO at least thirty (30) days
prior to the anticipated effective date of such RSL IPO. The Non-RSL
Stockholders holding a majority of the shares of Capital Stock held at such time
by a11 of the Non-RSL Stockholders (the "Majority Non-RSL Stockholders") shall
have the one-time right to elect to exercise the First Exercise Right by giving
written notice (the "First Exercise Put Notice") of such intention to RSL and
the other Non-RSL Stockholders by registered or certified mail within ten (10)

days after receipt of the IPO Notice. The First Exercise Right shall expire
after the expiration of the ten (10) day period referred to in the preceding
sentence if the First Exercise Put Notice is not delivered to RSL within such
period by the Majority Non-RSL Stockholders. Each Non-RSL Stockholder who was
not a party to the First Exercise Put Notice but who, after receipt of the First
Exercise Put Notice, has elected to exercise its First Exercise Right, shall
give written notice of such intention to RSL by registered or certified mail
within ten (10) days after receipt of the First Exercise Put Notice. For the
purposes of determining the Purchase Price per Share for the sale of Capital
Stock pursuant to the First Exercise Right, the valuation of the Company by the
Appraiser shall occur on the date of the pricing of the RSL IPO. Upon
determination of the Purchase Price per Share by the Appraiser in accordance
with Section 4.1.1, RSL shall provide written notice (the "First Exercise
Pricing Notice") to the Non-RSL Stockholders of the Purchase Price per Share
together with the Appraiser's report of its calculation of the Purchase Price
per Share. Prior to the closing of the RSL IPO, each selling Non-RSL Stockholder
shall tender to RSL its certificates for the Capital Stock duly endorsed in
blank or accompanied by appropriate stock powers and with appropriate stock
transfer stamps affixed thereto (a "Receipt Date") against payment of the
Purchase Price per Share pursuant to Section 4.4.1. In no event shall RSL be
obligated, pursuant to the exercise of the First Exercise Right, to purchase the
shares of Capital Stock held by any Non-RSL Stockholder unless the First
Exercise Right is exercised by the Majority Non-RSL Stockholders.

(c) After the second anniversary of the date hereof (and assuming, as
provided in Section 4.3.l(a) above, that there has been an RSL IPO), the
Majority Non-RSL Stockholders shall have the one-time right to elect to exercise
the Second Exercise Right by giving written notice (the "Second Exercise Put
Notice") of such intention to RSL and the other Non-RSL

<PAGE>

Stockholders by registered or certified mail. Each Non-RSL Stockholder who was
not a party to the Second Exercise Put Notice but who, after receipt of the
Second Exercise Put Notice, has elected to exercise its Second Exercise Right,
shall give written notice of such intention to RSL by registered or certified
mail within ten (10) days after receipt of the Second Exercise Put Notice. For
the purposes of determining the Purchase Price per Share for the sale of Capital
Stock pursuant to the Second Exercise Right, the valuation of the Company by the
Appraiser shall occur on either (i) the effective date of the first equity
offering by RSL which occurs after the exercise of the Second Exercise Right or
(ii) if there has been no such equity offering, on any date, to be determined in
the sole discretion of RSL, between the exercise of the Second Exercise Right
and March 31 of the calendar year following the exercise of the Second Exercise
Right. Upon determination of the Purchase Price per Share by RSL's Appraiser in
accordance with Section 4.1.1, RSL shall provide written notice (the "Second
Exercise Pricing Notice") to the Non-RSL Stockholders of the Purchase Price per
Share together with the Appraiser's report of its calculation of the Purchase
Price per Share. Within 10 days after receipt of the Second Exercise Pricing

Notice, each selling Non-RSL Stockholder shall tender to RSL its certificates
for the Capital Stock duly endorsed in blank or accompanied by appropriate
stock powers and with appropriate stock transfer stamps affixed thereto (a
"Receipt Date") against payment of the Purchase Price per Share pursuant to
Section 4.4.1. In no event shall RSL be obligated, pursuant to the exercise of
the Second Exercise Right, to purchase the shares of Capital Stock held by any
Non-RSL Stockholder unless the Second Exercise Right is exercised by the
Majority Non-RSL Stockholders.

4.3.2 Non-IPO Put Option.

(a) In the event that RSL has not consummated an RSL IPO on or prior to the
third anniversary of the date hereof, the Non-RSL Stockholders shall have the
right (the "Non-IPO Put Option"), in accordance with the procedures set forth
herein, to sell to RSL all of the shares of Capital Stock owned by such Non-RSL
Stockholder (the "Final Exercise Right"); provided, however, that the Final
Exercise Right shall expire on the fifth anniversary of the date hereof.

(b) The Majority Non-RSL Stockholders shall have the one-time right to
elect to exercise the Final Exercise Right by giving written notice (the "Final
Exercise Put Notice") of such intention to RSL and the other Non-RSL
Stockholders by registered or certified mail. Each Non-RSL Stockholder who was
not a party to the Final Exercise Put Notice but who, after receipt of the Final
Exercise Put Notice, has elected to exercise its Final Exercise Right, shall
give written notice of such intention to RSL by registered or certified mail
within ten (10) days after receipt of the Final Exercise Put Notice. For the

<PAGE>

purposes of determining the Purchase Price per Share for the sale of Capital
Stock pursuant to the Final Exercise Right, the valuation of the Company by the
Appraiser shall occur on either (i) the effective date of the first equity
offering by RSL after the exercise of the Final Exercise Right or (ii) if there
has been no such equity offering, any date, to be determined in the sole
discretion of RSL, between the exercise of the Final Exercise Right and March 31
of the calendar year following the exercise of the Final Exercise Right. Upon
determination of the Purchase Price per Share by RSL's Appraiser in accordance
with Section 4.1.1, RSL shall provide written notice (the "Final Exercise
Pricing Notice") to the Non-RSL Stockholders of the Purchase Price per Share
together with the Appraiser's report of its calculation of the Purchase Price
per Share. Within 10 days after receipt of the Final Exercise Pricing Notice,
each selling Non-RSL Stockholder shall tender to RSL its certificates for the
Capital Stock duly endorsed in blank or accompanied by appropriate stock powers
and with appropriate stock transfer stamps affixed thereto (a "Receipt Date")
against payment of the Purchase Price per Share pursuant to Section 4.4.1. In no
event shall RSL be obligated, pursuant to the exercise of the Final Exercise
Right, to purchase the shares of Capital Stock held by any Non-RSL Stockholder
unless the Final Exercise Right is exercised by the Majority Non-RSL
Stockholders.

Section 4.4. Delivery of the Purchase Price.

4.4.1 Cash Payment. If RSL elects to make a Cash Payment of the Purchase
Price per Share, RSL may, in its sole and absolute discretion, elect (i) in the
case of an exercise of either the Call Option or the IPO Put Option, to pay
one-third of the Cash Payment on the Receipt Date, one-third of the Cash Payment
on the first anniversary of the Receipt Date and one-third of the Cash Payment
on the second anniversary of the Receipt Date and (ii) in the case of an
exercise of Non-IPO Put Option, to pay one-fifth of the Cash Payment on the
Receipt Date, one-fifth of the Cash Payment on the first anniversary of the
Receipt Date, one-fifth of the Cash Payment on the second anniversary of the
Receipt Date, one-fifth of the Cash Payment on the third anniversary of the
Receipt Date and one-fifth of the Cash Payment on the fourth anniversary of the
Receipt Date. Any payments of the Purchase Price per Share to be made after the
Receipt Date shall be evidenced by a promissory note delivered to each Non-RSL
Stockholder in the principal amount of such unpaid payments, which shall accrue
interest at a rate per annum equal to the lowest applicable federal rate
available on the Receipt Date.

4.4.2 Exchange of RSL Stock. If RSL elects the Exchange Option, each
Non-RSL Stockholder shall receive the number of shares of RSL Stock equal to the
product of (a) the number of shares of Capital Stock owned by such Non-RSL
Stockholder and (b) a fraction, the numerator of which is the

<PAGE>

Purchase Price per Share and the denominator of which is the per share price of
the RSL Stock (x) as quoted as the closing price on a nationally recognized
stock exchange on the day prior to the Receipt Date if the RSL IPO has
previously occurred or (y) as determined by the Appraiser, (with such
adjustments as may be necessary to avoid the issuance of fractional shares). RSL
shall, as promptly as reasonably practicable after the Receipt Date, issue and
deliver, in accordance with each Non-RSL Stockholder's instructions, a
certificate evidencing the RSL Stock to be issued to such Non-RSL Stockholder.

ARTICLE V

Issuances of Capital Stock; Capital Calls

Section 5.1. Issuances of Capital Stock. The Company and the Stockholders
hereby agree that, except for the issuance of options or stock upon the exercise
of options pursuant to a Company stock option plan (the "Stock Option Plan"),
each future issuance of the Company's common stock (including the issuance of
stock options (other than in accordance with the Stock Option Plan), warrants or
convertible securities) (collectively, "Equity Securities") must be approved by
the majority vote of the Company's Board of Directors. In the event that the
Board of Directors elects to issue additional Equity Securities to a party other
than RSL (each, a "Purchaser"), RSL shall have the right to purchase its pro
rata share of such Equity Securities (i.e., the amount of Equity Securities
owned by RSL prior to such issuance divided by the total amount of Equity

Securities outstanding prior to such issuance, in each case determined without
regard to any non-voting shares issued pursuant to the Company's Stock Option
Plan). In the event RSL elects to exercise its right to purchase its pro rata
share of the additional Equity Securities, then the Company shall sell such
Equity Securities to RSL upon the same terms as the Equity Securities are
proposed to be sold to the Purchaser except that the price per share of the
Equity Securities to be sold to RSL shall be at a discount of 15% of the price
per share of the Equity Securities to be sold to the Purchaser.

Section 5.2. Capital Calls.

5.2.1 Determination of Required Capital. In the event that the Company's
Board of Directors determines that the Company requires additional capital for
its operations and that such capital should be provided by the Stockholders, the
Company shall provide each Stockholder with a written notice (the "Required
Capital Notice") specifying the total amount of capital required by the Company
(the "Required Capital") and the number of shares of Capital Stock outstanding
as of the date thereof. The Required Capital Notice shall request each
Stockholder, in its

<PAGE>

so1e and absolute discretion, to make an additional capital contribution to the
Company in accordance with this Section 5.2.

5.2.2 Election by Stockholders. Each Stockholder who wishes to provide the
Company with all or a portion of the Required Capital must provide the Company
with written notice (the "Capital Contribution Notice") within 10 days of the
date of the Capital Call Notice. The Capital Contribution Notice shall specify
(i) the amount of the Required Capital, up to such stockholder's pro rata share
of the Required Capital (based on the proportion of shares of Capital Stock
owned by such stockholder to the total number of shares of Capital Stock
outstanding at such time), that such Stockholder is agreeing to provide to the
Company and (ii) the amount of the Required Capital such Stockholder is willing
to provide in excess of its pro rata share (the "Overfunding Amount"). If one or
more stockholders elects not to provide the Company with any of the Required
Capital or elects to provide the Company with less than its pro rata share of
the Required Capital, then the amount of the Required Capital not theretofore
provided to the Company shall be provided by the Stockholders who elected to
contribute an Overfunding Amount, in proportion to their respective ownership of
Capital Stock: provided, however, that no Stockholder shall be required to
provide capital in excess of its Overfunding Amount. If any portion of the
Required Capital has not been satisfied after implementing the procedure in the
prior sentence, such amount shall be provided by the Stockholders whose
specified Overfunding Amounts have not been satisfied, in proportion to their
respective ownership of Capital Stock, and the procedure employed in this
sentence shall be used until the entire Overfunding Amount of each Stockholder
shall be satisfied or the entire amount of the Required Capital has been funded.
Upon determination of the amount of the Required Capital to be provided by each
Stockholder (each, an "Additional Capital Contribution") in accordance with the

procedures set forth in this Section 5.2.2, the Company shall provide each
Stockholder with a written notice (the "Capital Call Notice") of such amount.
All Additional Capital Contributions shall be made in cash within ten (10) days
of the date of the Capital Call Notice.

5.2.3 Issuance of Additional Shares of Capital Stock. In the event one or
more Stockholders elects not to contribute any or a pro rata portion of the
Required Capital, the Company shall issue shares of its Capital Stock to each
contributing Stockholder in an amount equal to (a) the Additional Capital
Contribution made by such Stockholder divided by (b) the Market Value per Share
of the Capital Stock (as hereinafter defined). The "Market Value per Share" of
the Capital Stock shall be based on a total Company valuation calculated as
follows: (a) seven (7) times Earnings Before Interest, Taxes, Depreciation and
Amortization expense, as determined under U.S. generally accepted accounting
principles ("GAAP"), for the calendar quarter prior to the date of the Required
Capital Notice, multiplied by four (4)

<PAGE>

plus (b) the difference between (i) Current Assets (as determined under GAAP) as
of the date of the Required Capital Notice and (ii) the sum of Current
Liabilities and Long Term Liabilities (as determined under GAAP) for money
borrowed by the Company as of the date of the Required Capital Notice. Such
valuation amount shall be divided by the total number of shares of Capital Stock
of the Company then outstanding on a fully diluted basis to determine the Market
Value per Share.

ARTICLE VI

Miscellaneous

Section 6.1. Legend. All certificates representing shares of Capital Stock
shall bear a legend substantially in the form as follows:

"TRANSFER RESTRICTED

This Certificate and the shares of stock represented hereby are
subject to the provisions of a certain stockholders' agreement (as the
same may from time to time be amended, supplemented and/or restated)
among the Company and its stockholders, to which reference is hereby
made, which stockholders' agreement, among other things, restricts the
transfer of the shares of stock represented hereby. A copy of such
stockholders' agreement is on file at the principal office of the
Company.

These securities have not been registered under the Securities

Act of 1933, as amended, or under the securities laws of any State.
They may not be sold, offered for sale, pledged or hypothecated,
except in compliance with, or pursuant to an exemption from, the
requirements of such act or such laws or, in the absence of an
effective registration statement under such act with respect to these
securities, an opinion of counsel reasonably satisfactory to Delta
Three, Inc. that such registration is not required or unless these
securities are sold pursuant to Rule 144 of said act."

Section 6.2. Covenant of the Company. In the event the Company issues
additional shares of Capital Stock, or securities exercisable or convertible
into shares of Capital Stock, the Company shall include terms and provisions in
the agreements, certificates and other documents evidencing the issuance of such
securities requiring the proposed holder of such securities to agree in writing
to be bound by the terms of this Agreement, and the securities so issued shall
be held subject to all of the terms of this Agreement.

<PAGE>

Section 6.3. Arbitration. Any controversy or claim arising out of or
relating to this Agreement or any modification or extension thereof, shall be
settled by arbitration before a panel of three arbitrators in New York City in
accordance with the rules, as then in effect, of the American Arbitration
Association or any successor organization thereto. Such decision shall be final
and binding upon the parties hereto. The parties consent to the jurisdiction of
the Supreme Court of the State of New York, and of the United States District
Court for the Southern District of New York, for all purposes in connection
with arbitration, including the entry of judgment on any award; and consent that
any process, notice of motion or other application to either of said courts, and
any papers in connection with arbitration, may be served by registered or
certified mail, return receipt requested, by personal service, or in such other
manner as may be permissible under the rules of the applicable court or
arbitration tribunal, provided a reasonable time for appearance is allowed. The
arbitrators shall have no power to alter or modify any express provision of this
Agreement or to render an award which has the effect of altering or modifying
any express provision hereof. The costs of any arbitration shall be borne
equally by the parties thereto except as the arbitrator(s) may otherwise
determine.

Section 6.4. Termination. This Agreement shall terminate at such time as
(i) only one Stockholder remains party hereto or (ii) RSL is no longer a
Stockholder.

Section 6.5. Amendments and Waivers. The provisions of this Agreement,
including the provisions of this sentence, may not be amended, modified or
supplemented, unless such amendment, modification or supplement is in writing
and signed by the Stockholders holding at least 80% of the shares of Capital
Stock held at such time by all of the Stockholders.

Section 6.6. Notices. All notices or other communications required or
permitted hereunder shall be in writing and shall be deemed given or delivered
(i) when delivered personally or by private courier, (ii) when actually
delivered by registered United States mail, return receipt requested or (iii)
when sent by telecopy (provided, that, it is confirmed by a means specified in
clause (i) or (ii)), addressed as follows:

If to the Company:

c/o Wolf Haldenstein Adler Freeman & Herz LLP
270 Madison Avenue
New York, New York 10016
Fax No.: (212) 686-0114
Attention: Mark C. Silverstein, Esq.

<PAGE>

with a copy to:

Wolf Haldenstein Adler Freeman & Herz LLP
270 Madison Avenue
New York, New York 10016
Fax No.: (212) 686-0114
Attention: Mark C. Silverstein, Esq.

with a copy to:

Rosenman & Colin LLP
575 Madison Avenue
New York, New York 10022-2585
Fax No.: (212) 940-8776
Attention: Robert L. Kohl, Esq.

If to the Non-RSL Stockholders:

To the address that shall appear on the books of the Company.

If to RSL:

c/o RSL Communications, N. America, Inc.
767 Fifth Avenue
Suite 4300
New York, NY 10153
Fax No.: (212) 317-0600
Attention: Avery S. Fischer, Esq.

with a copy to:

Rosenman & Colin LLP
575 Madison Avenue
New York, New York 10022-2585
Fax No.: (212) 940-8776
Attention: Robert L. Kohl, Esq.

or to such other address as such party may indicate by a notice delivered to the
other party hereto.

Section 6.7. Successors and Assigns. This Agreement shall inure to the
benefit of and be binding upon the heirs, successors and permitted assigns of
each of the parties, including without limitation and without the need for an
express assignment, subsequent holders of the Shares subject to the terms
hereof. If any person, firm or corporation shall acquire any shares of Capital
Stock or other securities of the Company in any manner, whether by operation of
law or otherwise, such securities shall be held subject to all of the terms of
this Agreement, and by taking and holding such shares, such person, firm or
corporation shall be conclusively deemed to have agreed to be bound by and to
perform all of the terms of this Agreement.

<PAGE>

Section 6.8. Headings. The headings in this Agreement are for convenience
of references only and shall not limit or otherwise affect the meaning hereof.

Section 6.9. Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the state of New York without reference
to its conflicts of law provisions.

Section 6.10. Severability. In the event that any one or more of the
provisions contained herein, or the application hereof in any circumstance is
held invalid, illegal or unenforceable, the validity, legality and
enforceability of any such provisions in every other respect and of the
remaining provisions contained herein shall not be affected or impaired thereby.

Section 6.11. Entire Agreement. This Agreement is intended by the parties
as a final expression of their agreement and intended to be a complete and
exclusive statement of this agreement and understanding of the parties hereto in
respect of the subject matter contained herein. There are no restrictions,
promises, warranties or undertakings, other than those set forth or referred to
herein, concerning the registration rights granted by the Company pursuant to
this Agreement.

Section 6.12. Gender. Words used herein regardless of the gender
specifically used shall be deemed and construed to include any other gender,
masculine, feminine or neuter, as the context shall require.

Section 6.13. Counterparts. This Agreement may be executed in any number of
counterparts and by the parties hereto in separate counterparts, each of which
when so executed shall be deemed to be an original and all of which taken
together shall constitute one and the same agreement.

IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first above written.

DELTA THREE, INC.

By /s/ Jacob Davidson
-------------------------------
Name:
Title:

<PAGE>

RSL COMMUNICATIONS, LTD.

By /s/ Itzhak Fisher
---------------------------------
Name:
Title:

/s/ Jacob Davidson
-----------------------------------
JACOB DAVIDSON

PIONEER MANAGEMENT CORPORATION, INC.

By /s/ Elie Wurtman
---------------------------------
Name: Elie Wurtman
Title:

/s/ Lee V. Kaplan
-----------------------------------
LEE V. KAPLAN

-----------------------------------
FRED SAGER

/s/ Noam Bardin
-----------------------------------
NOAM BARDIN

-----------------------------------
MICHA AVNI

-----------------------------------
JOSEPH POPOLOW

<PAGE>

-----------------------------------
STEPHEN PERONE

-----------------------------------
JANE MOYSAK

-----------------------------------
MICHAEL SELESNY

-----------------------------------
NOAM BARDIN

-----------------------------------
DAVID FEUERSTEIN

-----------------------------------
ARYEH WEINBERG

-----------------------------------
OMIT AVIDAR

-----------------------------------
MIMI KAMILAR

-----------------------------------
ADAM SLATER

-----------------------------------
MICHELE WEINREB

-----------------------------------
DAVID AISENTHAL

<PAGE>

/s/ Fara Hain
-----------------------------------
FARA HAIN

-----------------------------------
JODIE CLEMENTS

-----------------------------------
BORIS ANISIMOV

-----------------------------------

DAVE SAGOR

<PAGE>

SCHEDULE 1

DELTA THREE, INC.

EXPECTED NON-RSL EQUITY HOLDERS (POST-CLOSING)

SHAREHOLDERS:

<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------
Shareholder Certificate Shares
========================================================================================
<S> <C> <C>
Jacob Davidson 1 875,000
c/o Delta Three, Inc.
- ----------------------------------------------------------------------------------------
Pioneer Management Corporation, Inc. (sic) 2 875,000
c/o Elie Wurtman, Delta Three, Inc.
- ----------------------------------------------------------------------------------------
Fred Sager 3 (old certificate 3 still 125,000
26 Woodside Drive to be replaced)
Dix Hills, NY 11746
TEL: 1-800-446-7300
FAX: 1-516-423-7486
- ----------------------------------------------------------------------------------------
Noam Bardin 5 100,000
c/o Delta Three, Inc.
- ----------------------------------------------------------------------------------------
Lee Kaplan 6 437,500
c/o Delta Three, Inc.
- ----------------------------------------------------------------------------------------
Micha Avni 7 100,000
c/o Delta Three, Inc.
- ----------------------------------------------------------------------------------------
Kerry Kassover 20 (old ceriificate 11 10,000
125 Northwood Lane still to be replaced)
Woodmere, NY 11598
- ----------------------------------------------------------------------------------------
Joseph H. Popolow 21 (old certificate 12 233,000
c/o Northeast Securities, Inc. still to be replaced)
- ----------------------------------------------------------------------------------------
Stephen J. Perone 22 (old certificate 13 105,000
c/o Northeast Securities, Inc. still to be replaced)
- ----------------------------------------------------------------------------------------
Jane F. Moysak 24 (old cerdficate 15 45,000
c/o Stephen J. Perone still to be replaced)
Northeast Securities, Inc.
- ----------------------------------------------------------------------------------------
Michael Selesny 28 50,000
c/o Israel Securities Center Corp.

- ----------------------------------------------------------------------------------------
Michele Weinreb (Not yet issued) 6,500
- ----------------------------------------------------------------------------------------
TOTAL: 2,962,000
- ----------------------------------------------------------------------------------------
</TABLE>

<PAGE>

EMPLOYEE RESTRICTED SHARES:

================================================================================
Employee Shares(1)
================================================================================
Noam Bardin 100,000
- --------------------------------------------------------------------------------
David Feuerstein 30,000
- --------------------------------------------------------------------------------
Aryeh Weinberg 15,000
- --------------------------------------------------------------------------------
Omit Avidar 12,000
- --------------------------------------------------------------------------------
Mimi Kamilar 10,000
- --------------------------------------------------------------------------------
Adam Slater 10,000
- --------------------------------------------------------------------------------
David Aisenthal 5,000
- --------------------------------------------------------------------------------
Fara Hain 5,000
- --------------------------------------------------------------------------------
Jodie Clements 2,500
- --------------------------------------------------------------------------------
Boris Anisimov 1,000
- --------------------------------------------------------------------------------
Dave Sagor 1,000
- --------------------------------------------------------------------------------
TOTAL: 191,500
================================================================================

1. No stock certificates have yet been issued to evidence these stock grants.

-2-
<PAGE>

DECEMBER 1996 UNITS:

================================================================================
Unit Holder Units(2)
================================================================================
Eva D. Glass 1
201 East 66th St., Apt. 9A
New York, NY 10021

SSN: ###-##-####
- --------------------------------------------------------------------------------
Bert Amador 1
28 East 73rd Street
New York, NY 10021
TEL: 1-212-535-0161
SSN: ###-##-####
- --------------------------------------------------------------------------------
Albert Resnick 1
2995 Chapel Avenue
Apt. 9D-K
Cherry Hill, NJ 08002
TEL. 1-215-682-2060
FAX: 1-215-682-2060
SSN: ###-##-####
- --------------------------------------------------------------------------------
John M. Walsh 1
131 Campbell Road
Bernardsville, NJ 07924
TEL. 1-908-221-0300
FAX: 1-908-221-1624
SSN: ###-##-####
- --------------------------------------------------------------------------------
Andrew S. and Marilyn Edson 1
89 Bounty Lane
Jericho, NY 11753
TEL. 1-516-931-0873
FAX: 1-516-931-4961
SSN: ###-##-####
- --------------------------------------------------------------------------------
Harvey R. Manes, M.D. 1
256 N. Wellwood Avenue
Lindenhurst, NY 11757
TEL. 1-516-226-3380
FAX: 1-516-226-3320
SSN: ###-##-####
- --------------------------------------------------------------------------------
Debabrata Chakrabarty IRA 1
74 Fairview Avenue
Great Neck, NY 11023
TEL. 1-516-466-6065
SSN: ###-##-####
- --------------------------------------------------------------------------------

-3-
<PAGE>

================================================================================
Unit Holder Units(2)
================================================================================
Smithfield Corp. 1
Kiryat Hamada Street
Jerusalem, ISRAEL
FAX: 011-972-2-587-0773

- --------------------------------------------------------------------------------

2. Each Unit consist of a $25,000 convertible promissory note (subject to
anti-dilution provisions, principal and interest can be converted into common
shares at $2.00 per share) and a common stock purchase warrant which (subject to
anti-dilution provisions) permits the holder to acquire 12,500 common shares at
$2.00 per share. Unit holders have pre-emptive rights, and were sent a notice of
these rights more than ten business days in advance of the Closing.

-4-

<PAGE>

APR1L 1997 UNITS:

================================================================================
Unit Holder Note and Warrant Nos. Units(3)
================================================================================
Kantibhai S. Patel IRA CN-201 3
2607 Caldera Drive W-201
Midland, TX 79705
TEL. 1-915-687-1348
FAX: 1-915-686-0439
SSN: ###-##-####
- --------------------------------------------------------------------------------
Surety Bank & Trust Co. Ltd. Acct. 0100 CN-202 3
Suite 6 W-202
Hurricane Hole Plaza
P.O. Box SS-5857
Nassau, Bahamas
Attn: Lucia Broughton
Maureen Taylor
TEL. 1-242-363-4276
FAX: 1-242-363-4344
- --------------------------------------------------------------------------------
Surety Bank & Trust Co. Ltd. Acct. 1000 CN-203 2
Suite 6 W-203
Hurricane Hole Plaza
P.O. Box SS-5857
Nassau, Bahamas
Attn: Lucia Broughton
Maureen Taylor
TEL. 1-242-363-4276
FAX: 1-242-363-4344
- --------------------------------------------------------------------------------
Surety Bank & Trust Co. Ltd. Acct. 1002 CN-204 1
Suite 6 W-204
Hurricane Hole Plaza
P.O. Box SS-5857
Nassau, Bahamas
Attn: Lucia Broughton
Maureen Taylor

TEL. 1-242-363-4276
FAX: 1-242-363-4344
- --------------------------------------------------------------------------------
Harvey R. Manes, M.D. CN-206 1
256 N. Wellwood Avenue W-206
Lindenhurst, NY 11757
TEL. 1-516-226-3380
FAX: 1-516-226-3320
SSN: ###-##-####
- --------------------------------------------------------------------------------

-5-

<PAGE>

Jayasri Chakrabarty IRA CN-208 1
74 Fairview Avenue W-208
Garet Neck, NY 11023
TEL. 1-516-466-6065
SSN: ###-##-####
- --------------------------------------------------------------------------------
The Gross Investment Company L.P. CN 209 1
610 Old York Road - Suite 230 W-209
Jenkintown, PA 19046
TEL. 1-215-576 6666
FAX: 1-215-682-2069
TIN: 52-6748538
- --------------------------------------------------------------------------------
M.A.S. Hallaba IRA CN-210 1
2510 Stillwell Circle W-210
Pavillion No. 3
Pittsburgh, KS 66762
TEL. 1-316-231-3240
SSN: ###-##-####
- --------------------------------------------------------------------------------

3. Each Unit consist of a $32,500 convertible promissory note (subject to
anti-dilution provisions, principal and interest can be converted into common
shares at $3.25 per share) and a common stock purchase warrant which (subject to
anti-dilution provisions) permits the holder to acquire 10,000 common shares at
$3.25 per share. Unit holders have pre-emptive rights, and were sent a notice of
these rights more than ten business days in advance of the Closing.

-6-

<PAGE>

ADDITIONAL EQUITY INTERESTS:

<TABLE>
<CAPTION>
===========================================================================================
Equity Holder Equity Interest
===========================================================================================
<S> <C>
Northeast Securities, Inc. $42,900 convertible note and warrant for the
33 Earle Ovington Blvd. purchase of 21,450 common shares substantially
Suite 706 in the form of the notes and warrants described in
Mitchell Field, NY 11553 footnote 1.
Attn: Mr. Joe Popolow
TEL. 1-516-396-1606
FAX: 1-5l6-396-1623
TIN: 11-2997095
- -------------------------------------------------------------------------------------------
Thomas Mann Warrant for the purchase of 5,000 common shares
41 Parkway Drive substantially in the form of the warrants
Baldwin Harbor, NY 11510 described in footnote 1.
- -------------------------------------------------------------------------------------------
Kantibhai S. Patel IRA Warrant (W-201A) for the purchase of 10,500
2607 Caldera Drive common shares substantially in the form of the
Midland, TX 79705 warrants described in footnote 2.
TEL. 1-915-687-1348
FAX: 1-915-686-0439
SSN: ###-##-####
- -------------------------------------------------------------------------------------------
Surety Bank & Trust Co. Ltd. Acct. 1001 Warrant (W-202A) for the purchase of 10,500
Suite 6 common shares substantially in the form of the
Hurricane Hole Plaza warrants described in footnote 2.
P.O. Box SS-5857
Nassau, Bahamas
Attn: Lucia Broughton
Maureen Taylor
TEL. 1-242-363-4276
FAX: 1-242-363-4344
- -------------------------------------------------------------------------------------------
Bert Amador Warrant (W-205A) for the purchase of 3,500
28 East 73rd Street common shares substantially in the form of the
New York, NY l0021 warrants described in footnote 2.
TEL. 1-212-535-0161
SSN: ###-##-####
- -------------------------------------------------------------------------------------------
Harvey R. Manes, M.D. Warrant (W-206A) for the purchase of 3,500
256 N. Wellwood Avenue common shares substantially in the form of the
Lindenhurst, NY 11757 warrants described in footnote 2.
TEL. 1-516-226-3380
FAX: 1-516-226-3320
SSN: ###-##-####
- -------------------------------------------------------------------------------------------
</TABLE>

-7-

<PAGE>

-8-

<ARTICLE> 5
<MULTIPLIER> 1,000

<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 81,301
<SECURITIES> 135,525
<RECEIVABLES> 49,053
<ALLOWANCES> 2,776
<INVENTORY> 0
<CURRENT-ASSETS> 190,881
<PP&E> 48,161
<DEPRECIATION> 6,917
<TOTAL-ASSETS> 438,759
<CURRENT-LIABILITIES> 95,079
<BONDS> 300,000
0
93
<COMMON> 55
<OTHER-SE> 18,502
<TOTAL-LIABILITY-AND-EQUITY> 438,759
<SALES> 0
<TOTAL-REVENUES> 109,361
<CGS> 0
<TOTAL-COSTS> 96,631
<OTHER-EXPENSES> 37,532
<LOSS-PROVISION> 1,968
<INTEREST-EXPENSE> 19,160
<INCOME-PRETAX> (36,738)
<INCOME-TAX> 439
<INCOME-CONTINUING> (37,177)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (37,177)
<EPS-PRIMARY> (7.43)
<EPS-DILUTED> (7.43)

</TABLE>

<PAGE>
Board of Directors
RSL Communications, Ltd.
Clarendon House
Church Street
Hamilton HM CX Bermuda

Gentlemen:

I hereby consent to my being named as a nominee for director of RSL
Communications, Ltd. (the "Company") in the Company's Registration Statement on
Form S-1 and to serve in such capacity if so elected.

Very truly yours,

/s/ Fred H. Langhammer

Fred H. Langhammer